Foreign Corrupt Practices Act and its Violations
You have been hired to assist ABC Multinational Company to help educate employees on ethical practices and corporate culture. More specifically, related to the Foreign Corrupt Practices Act , your role is to prevent situations described in the above scenario.
Create either a job-aid to educate employees on the Foreign Corrupt Practice Act. Complete the following for your educational tool:
- Explain what the employees should know regarding the Foreign Corrupt Practices Act.
- Provide examples of Foreign Corrupt Practices Act violations.
- Identify company actions or red flags that might indicate violations of the Act.
- List any consequences of the violations.
- Recommend actions to report possible violations.
- Describe protections for whistleblowers. Why are they important? How do the protections impact the ABC Multinational Company.
The Foreign Corrupt Practices Act (FCPA)
Integrity and strict adherence to set federal regulations are some of the most common features associated with the business environment in the United States. This current feat is as a direct result of cumulative gains stemming from the inaugural enactment of the Foreign Corruption Practices Act (FCPA)into law. Stipulations contained within this new law now allowed the federal government to directly participate in efforts geared towards promoting fair business practices, business ethics, and integrity among various major players operating within the business environment. Mark (2020) even argues that the key tenets contained in the act further outlined the federal government’s commitment to preventing any form of corruption in the business environment.
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Such acts include the payment of bribes to foreign business executives to secure certain lucrative contracts and the soliciting of bribes. These actions are typically employed by rogue companies and business executives seeking to gain an unfair advantage over some of their closest rivals in any given sector. The Foreign Corrupt Practices Act, therefore, serves a fundamental role in preventing the proliferation of illegal business practices such as promising or paying company executives for a given business entity to maintain its hegemony within a particular sector. Comprehensive knowledge of this legislation will ultimately ensure company executives and their staff follow best practices in the business environment while ensuring their actions fall squarely within the legal parameters outlined in the FCPA.
Major Provisions of The FCPA
The Enforcement of FCPA’s Anti-Bribery Provisions
The Department of Justice (DoJ) plays the critical role of enforcing anti-bribery provisions outlined within the FCPA prohibiting US nationals from engaging in corrupt business practices within the business environment, directly, indirectly, or through intermediaries. FCPA’s anti-bribery provision are specific in their attempt to completely halt the pervasive use of bribes and kickbacks, especially among multi-national companies. This vice is responsible for the illegal allotment of contracts and other such favors exclusively meant to facilitate operational easy for companies operating abroad. Presently, the enforcement of the anti-bribery provision by the DoJ follows a framework where liability is imposed on business entities that engage in activities that can only be termed as illegal or unethical. The idea behind this particular action is to even the playing field for all parties involved and to guarantee that trade competitors do not gain an unfair advantage.
Based on the additional provisions of the 1988 Trade Act, the DoJ can exercise its discretion and apply FCPA’s anti-bribery clause on small businesses and any potential exporters. The rationale behind integrating the FCPA’s anti-bribery clause was to essentially attempt to restore public confidence in the government’s ability to create and foster ethical business practices (Sherry-Huang, 2022). Moreover, it is also important to note that the current anti-bribery provisions also applies to issuers of registered securities and any other party raising serious “domestic concerns”. This may include unethical business practices take place between American nationals and joint stock companies, a sole-proprietorship business entity and any of their intermediaries. However, the DoJ must prove beyond any reasonable doubt that the individuals in questions exercised a conscious and deliberate disregard for Foreign Corrupt Practices Act codes when attempting to obtain or retain a business. The DoJ is, therefore, solely responsible for imposing both civil and criminal anti-bribery provisions outlined by the FCPA after identifying individuals guilty of engaging in unethical
Accounting Provisions Enforced by the SEC in the Enforcement of Foreign Corrupt Practices Act
Currently, the Securities and Exchange Commission (SEC) functions as one of the only agencies responsible for enforcing accounting provisions as per FCPA standards. Its main focus is on the preparation of accurate and consistent books of account while also relying on an invaluable team of experts in tracking and maintaining financial records. Besides, this process also relies upon a robust system comprised of series of elaborate internal controls meant to guarantee the overall accuracy of the financial statement in question while taking into account the true value of an organization’s assets. SEC’s accounting provisions are commonly referred to as the internal controls provision of the FCPA; providing a much-needed system of checks and balances in book keeping. This role also encompasses regular review of accounts and the monitoring of potentially risky bookkeeping strategies likely to interfere with the overall accuracy and reliability of financial records.
SEC’s accounting provisions also function as an incentive for integrity and transparency among multi-national corporations. The commission expects companies to stick to conventional bookkeeping strategies while also ensuring that the parties responsible are meticulous in recording all transactions and solely guided by proper managerial authorization (Mark, 2020). Complete records offer a unique platform from which the actual evaluation of the internal controls can be conducted pending the actual enforcement of standards of accountability. Additionally, this process should be simple and clear to ensure accountants are able to seamlessly prepare an accurate financial statement containing all transactions conducted by the company. The accounts should be accessible and protected by proper managerial authorization to prevent the malicious manipulation of financial data to mislead the commission. Recorded assets listed in the financial statement should then be compared with the current existing data on periodic basis with the ultimate aim of noting and addressing any discrepancies.
Examples of Foreign Corrupt Practices Act Violations
Today, FCPA violations have been known to take numerous shapes and forms given the actual extent and willingness of certain individuals to engage in prohibited practices with the eventual aim of making headway in a highly-competitive business environment. However, several key violations are among the most common currently witnessed in the United States. The following is a comprehensive list of some of the most common FCPA violations:
- Soliciting, promising, or offering financial inducement to foreign executives with the express aim of getting specific endorsements.
- Approving the actual payment of bribes meant to finalize the aforementioned illegal acts and with the ultimate aim of securing specific contracts.
- Offering financial inducements to state and federal agencies with the ultimate aim of improving an organization’s overall profile.
- The involvement of a business, organization, or company in money laundering schemes contrary to federal regulations against racketeering.
- The presence of incontrovertible evidence linking company officials to the gross abuse of office as is often evident in scenarios where suspicious bookkeeping practices such as failing to update the overall expenditure can be detected.
Evidence Indicating Foreign Corrupt Practices Act Violations
Typically, foreign corrupt practices act violations are investigated by a team of elite specialists well-versed in each and every code contained in the act with the express aim of identifying potential rule-breakers and bringing them to book. It requires painstaking focus on all relevant facts related to the case with the sole aim of ensuring that the relevant evidence is collected, and prosecutions based on empirical data. Inspectors often look out for several red flags that normally indicate active involvement in infractions constituting FCPA violations. Perhaps the most common of these are blatant inconsistencies in company books and clear evidence of inaccuracies in the actual recording of such data (Mark, 2020). This conclusion is, of course, arrived at after a series of thorough investigations revealing the inner workings of the organizations and clear signs of violations on the part of managers or top executives within a company.
Additionally, evidence of FCPA violations may also manifest in the arbitrary awarding of contracts to suppliers who are normally known for producing low quality and substandard raw materials or goods. This may be accompanied by the exceptional and uncharacteristic treatment of executives from foreign companies with the ultimate aim of gaining favor in their eyes and often leading to preferential treatment. The continual clamor for an unfair advantage against supposed and potential rivals operating within a similar business environment also serves as further proof of FCPA violations. Such behavior may also include offering financial incentives to foreign agents with the ultimate aim of facilitating an apparent exchange of illegal goods or services. It is also common for individuals engaging in such behavior to also falsify company documentation with the sole intention of concealing irregular payments made in the form of bribes. Recently, new evidence has surfaced revealing new FCPA violations manifesting almost exclusively in the form of inappropriate hiring practices.
Consequences for Foreign Corrupt Practice Act Violations
Since its inception, the FCPA has largely proved to be effective due to its ability to sanction any individual, company, or organization found to be in direct violation of set codes. Consequences for those found guilty of FCPA violations are, therefore, meant to serve as a future deterrent while also reminding individuals of their actual role and obligation to uphold the law at all costs. Those convicted of violating FCPA rules and regulations can expect t o serve up to 5 years in prison or a fine of $100,000. On the other hand, business entities found to be in gross violation of the act are normally expected to pay $2,000,000 in criminal penalties and a further $10,000 in civil penalties. Furthermore, the prosecuting agency may also choose to levy an additional fine amounting to $2,000,000 due to the domestic concerns raised over their activities (US SEC, 2021).
Recommended Action when Reporting Foreign Corrupt Practice Act Violations
Business owners and their respective employees represent an integral demographic when attempting prevent FCPA violations from mushrooming within the business environment in the United States. Recommended actions, thus, serve as an invaluable guide towards achieving this goal and in inhibiting unfair business practices. Employers should often begin by reminding their staff of their obligation to the agency by always ensuring they identify and report Foreign Corrupt Practices Act violations. When reporting such incidences, the whistleblower should confirm the veracity of the claims they intend to present and whether they are outlined under the SEC Whistleblower Program. They should then proceed to seeking the actual guidance of an attorney to weigh the breadth, scope, and validity of their case. The tip should then be reported and presented to the relevant bodies through the SEC Tip Complaint /Referral Portal or SEC Whistle-blower Program offices and finally accompanied by filing a “Qui Tam” complaint.
Protection for Whistle-blowers
Foreign Corrupt Practices Act whistleblowers play serve a vital role in ensuring civility and ethical behavior takes precedence in the business environment. It is for this very reason they are viewed as a valuable resource worthy of protection from rogue forces ready to intimidate coerce them into withdrawing initial accusations. Protection for whistleblowers is particularly necessary given that they expose themselves to a great deal of personal risk due to their activities (SEC Whistleblower Protection, 2018). The presence of guidelines for the protection of such individuals eventually ensures strict measures exist to protect them from retaliation and a hostile working environment given that their role is a continuation of provisions found in The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the Sarbanes-Oxley Act of 2002.
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