9.3 Foreign Corrupt Practices Act
Key Takeaways
- The Foreign Corrupt Practices Act of 1977 has two halves: anti-bribery provisions that prohibit corrupt payments to foreign officials to obtain or retain business, and issuer accounting (books-and-records and internal-control) provisions.
- Anti-bribery coverage reaches issuers, domestic concerns (U.S. persons and U.S.-organized entities), and any person who acts in U.S. territory; the accounting provisions are issuer provisions.
- Anything of value offered, paid, promised, or authorized, directly or through a third-party agent, with knowledge that it will go to a foreign official to obtain or retain business is the core anti-bribery offense.
- Facilitating or grease payments for routine governmental action — processing papers, scheduling inspections, police protection, mail, phone, power — are a narrow statutory exception; awarding or retaining a contract is not routine action.
- Civil and criminal penalties apply to entities and individuals; DOJ and SEC share enforcement. REG tests the bribe-versus-facilitation distinction, not a current DOJ fine table.
9.3 Foreign Corrupt Practices Act
The AICPA REG blueprint (Area II, Group D) asks candidates to summarize the federal laws and regulations prohibiting bribery of foreign government officials, including payments made to generate preferential treatment from a foreign government, and to identify compliance issues in a scenario. The named Blueprint reference is the Foreign Corrupt Practices Act of 1977 (FCPA), as amended, 15 U.S.C. §§78dd-1, 78dd-2, 78dd-3, and the related Exchange Act accounting provisions. REG is not a DOJ enforcement-manual exam. It is a classification exam: who is covered, what is a bribe, what is a facilitating payment, and why an issuer's books matter.
Two halves of the statute
Anti-bribery provisions. It is unlawful to corruptly offer, pay, promise to pay, or authorize the payment of money or anything of value to a foreign official, a foreign political party or party official, or a candidate for foreign political office — or to any person while knowing that all or a portion will be offered, given, or promised to such a person — in order to influence an official act, induce the official to do or omit an act in violation of a lawful duty, or secure an improper advantage, for the purpose of obtaining or retaining business for or with, or directing business to, any person.
"Anything of value" is not limited to cash. Travel, scholarships for a minister's child, sham consulting fees, stock, and excessive gifts all count. "Foreign official" includes officers and employees of a foreign government, a department or agency, and a public international organization, and, importantly for REG, officers and employees of state-owned or state-controlled enterprises. A purchasing manager at a national oil company can be a foreign official. A purely private counterparty is not a foreign official, though commercial bribery may violate other laws.
Accounting provisions (issuers). Every issuer that has a class of securities registered under the Exchange Act, or that is required to file reports under it, must:
- make and keep books, records, and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the issuer's assets; and
- devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are executed as authorized, recorded as necessary to permit financial statements in accordance with GAAP (or other applicable criteria), and that access to assets is permitted only as authorized.
Off-book slush funds, mislabeled "consulting" accounts, and false invoices are independently actionable even when a prosecutor also charges a bribe. A bribe that is booked as a legitimate service fee is both an anti-bribery problem and a books-and-records problem. These accounting duties are issuer duties; they are not copied wholesale onto every privately held domestic concern, though a private company that bribes can still violate the anti-bribery provisions.
Who is covered
| Prong | Statutory home | Who |
|---|---|---|
| Issuers | §78dd-1 | Companies with Exchange Act registered securities or reporting obligations, including many foreign issuers listed in the United States, plus their officers, directors, employees, agents, and stockholders acting on their behalf |
| Domestic concerns | §78dd-2 | Any individual who is a United States citizen, national, or resident, and any corporation, partnership, association, business trust, unincorporated organization, or sole proprietorship that has its principal place of business in the United States or is organized under U.S. law |
| Territorial | §78dd-3 | Any person, including a foreign national or foreign entity that is neither an issuer nor a domestic concern, who commits an act in the territory of the United States in furtherance of a corrupt payment |
A privately held Delaware manufacturer is a domestic concern. A U.S. citizen working for a foreign private company is a domestic concern as an individual. A foreign sales agent who wires a bribe from a New York bank account, or who attends a meeting in Miami to approve the payment, can be reached territorially. Coverage is overlapping; REG will give you facts that fit at least one prong.
Facilitating payments — the narrow exception
The anti-bribery provisions do not apply to a facilitating or expediting payment to a foreign official, political party, or party official the purpose of which is to expedite or secure the performance of a routine governmental action. This is the statute's grease-payment exception. REG loves the distinction because the Blueprint language — "payments made to generate preferential treatment" — sounds like grease until you read the definition.
Routine governmental action means only an action that is ordinarily and commonly performed by the official, such as:
- obtaining permits, licenses, or other official documents to qualify a person to do business;
- processing governmental papers, such as visas and work orders;
- providing police protection, mail pickup and delivery, or scheduling inspections associated with contract performance or transit of goods;
- providing phone service, power and water supply, loading and unloading cargo, or protecting perishable products or commodities from deterioration; or
- actions of a similar nature.
The statute then says what routine action is not. It does not include a decision by a foreign official whether, or on what terms, to award new business to or to continue business with a particular party, and it does not include an act that is within an official's discretion to encourage a decision to award or continue business. Paying a customs clerk to process papers already in the queue faster, or to schedule a cargo inspection the exporter is already entitled to, can fit the exception. Paying a minister to award a supply contract, to overlook a missing license, or to choose this bidder is a bribe. Labeling the invoice a "processing fee" does not recast a contract-award payment as grease.
Two further limits REG expects. First, the exception is narrow and fact-specific; many issuers ban facilitation payments by policy even when the statute would allow them, and the payment may still violate local law. Second, the statute also provides affirmative defenses: the payment was lawful under the written laws of the foreign country, or it was a reasonable and bona fide expenditure (travel and lodging) directly related to the promotion, demonstration, or explanation of products or services, or to the execution or performance of a contract. A sightseeing trip for a minister's family is not a bona fide contract-execution expense. A plant tour for a procurement team, reasonably documented, can be.
Third-party agents
The statute reaches payments made through a third person when the payer knows that all or a portion will be offered to a foreign official. Knowledge includes being aware of a high probability of the circumstance, unless the person actually believes it does not exist. Conscious disregard and willful blindness count. Classic red flags: a consultant who is related to the minister, a success fee far above market, a request to pay an offshore shell, invoices for unspecified "government relations," and a local agent who promises to "handle the ministry."
The issuer or domestic concern that authorizes the retainer can violate the FCPA even if no U.S. employee personally hands cash to the official. The agent can be liable as well. Recording the retainer as a legitimate professional fee when it is a bribe conduit also breaks the books-and-records rule for an issuer. Agency law from /study-guides/cpa-reg/agency/agent-authority tells you when the agent can bind the principal on a commercial contract; the FCPA does not require that kind of authority. Authorization of the payment is enough.
Penalties, conceptually
Anti-bribery violations can be criminal (Department of Justice) and civil (SEC as to issuers and associated persons; DOJ as to others). Accounting-provision cases against issuers are a core SEC civil docket and can also be criminal when books are knowingly falsified. Individuals — officers, employees, agents — face fines and imprisonment; entities face fines and disgorgement-style remedies in SEC cases. Do not memorize a current DOJ fine table. The figures in the statute have been overtaken by the alternative-fines statute and by settlement practice, and they are not what REG is testing. Know that both the organization and the responsible individuals can be charged, that civil and criminal tracks exist, and that an issuer can be charged for the bribe, the false books, the control failure, or all three.
Successor liability in a merger, voluntary disclosure, and monitorships are enforcement themes, not Blueprint elements. If a scenario is an acquisition of a foreign target with a slush fund, the exam point is that the buyer who continues the payments, or whose books absorb the false accounts, has an FCPA problem — not that a particular dollar multiplier applies.
Worked scenario: "processing fee" to skip a line versus to award a contract
Facts. Harbor Devices, a U.S. reporting issuer, ships components through the Port of Riva. Its local agent, Mira, emails two requests, each for the same dollar "processing fee" payable in cash to a named official.
- Scenario A. A customs clerk will move Harbor's already-cleared perishable cargo to the front of the routine inspection line so the shipment does not spoil over the weekend. The clerk's job is to inspect cargo in the ordinary course; the fee only changes when in the queue the inspection occurs.
- Scenario B. A ministry procurement official will award Harbor a multi-year supply contract that is currently in competitive tender. Mira says the fee is "how awards are processed" in Riva.
Harbor's country manager also receives a third email from Mira: a large unspecified "government relations" retainer, with a note that Mira will "handle the ministry" on the tender. The manager suspects the retainer will be split with officials and does not ask.
Analysis.
- Scenario A can fit the facilitating-payment exception. Scheduling inspections and loading or protecting perishable cargo are listed routine governmental actions. The clerk is not deciding whether Harbor may import, and is not awarding business. The purpose is to expedite an act the official already performs. (Local law and Harbor's compliance policy may still forbid the cash; the FCPA question is the exception.)
- Scenario B is a bribe. Awarding a contract is the statute's example of what routine governmental action is not. Preferential treatment in obtaining or retaining business is the core anti-bribery offense. Calling the invoice a processing fee does not change the purpose.
- The retainer. Paying Mira with knowledge — including conscious disregard of a high probability — that money will be passed to a foreign official to win the tender violates the anti-bribery provisions. Willful blindness is not a defense. Because Harbor is an issuer, booking the retainer as a legitimate service when it is a bribe conduit also violates the books-and-records and internal-control provisions.
- Coverage. Harbor is an issuer. Mira, if she acts in the United States (a U.S. bank, a meeting on U.S. soil) can be reached territorially even if she is not a domestic concern. Harbor's U.S.-citizen country manager is a domestic concern as an individual.
- Preferential treatment. The Blueprint's phrase does not make every queue-jump a bribe. Ask whether the official is performing a nondiscretionary routine act or is choosing a winner.
A U.S. exporter's local agent asks for a cash "processing fee" payable to a named official. In Scenario A the fee is paid to a customs clerk to move already-cleared perishable cargo to the front of a routine inspection line. In Scenario B the same amount is paid to a ministry official to award the exporter a supply contract in a competitive tender. Which FCPA result follows?
Which statement about FCPA coverage and the accounting provisions is correct?
Harbor Devices, a U.S. issuer, retains a local consultant who invoices a large unspecified "government relations" retainer and says she will "handle the ministry" on a pending tender. Harbor's country manager suspects the money will be split with officials to win the contract but does not ask. Which statement is correct?