Foreign Corrupt Practices Act fines and penalties and violations can be premised upon your efforts in due diligence or otherwise seek to determine whether there was a legitimate business purpose for the use of a “middleman” or consultant.
This is especially true when conducting business operations and building foreign relationships overseas.
The following is a brief summary of Foreign Corrupt Practices Act Violations fines and penalties:
Penalties for businesses: Anti-bribery provisions
- Civil penalty up to $10,000
- Criminal fine up to $2 million; under the Alternative Fines Act, may be increased to twice the gain or loss resulting from the corrupt payment.
Foreign Corrupt Practices Act violations and penalties for individuals: Anti-bribery provisions
- Civil penalty up to $10,000
- Criminal fine up to $250,000.
- If imposed on an individual, fines cannot be paid directly or indirectly by the company on whose behalf the person acted.
- The fine may be increased to twice the gross financial loss or gain resulting from the corrupt payment under the Alternative Fines Act.
- Imprisonment for up to 5 years
Fines and penalties for individuals: Accounting provisions
- Civil penalty up to $100,000
- Criminal fine up to $5 million or twice the gain or loss caused by the accounting violation
- Imprisonment up to 20 years
- Fines cannot be paid directly or indirectly by the company on whose behalf the person acted.
Fines and penalties for businesses: Accounting provisions
- Criminal fine up to $25 million or twice the gain or loss caused by the violation
- Civil penalty up to $500,000
Recent Case Shows Costly Financial Impact For Foreign Corrupt Practices Act Fines and Penalties
According to the SEC’s recent release in the case of Alcoa Inc, the Securities and Exchange Commission recently charged global aluminum producer Alcoa Inc. with Foreign Corrupt Practices Act violations (FCPA) when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business. . Recipients of the corrupt payments included senior Bahraini government officials, members of Alba’s board of directors, and Alba senior management.
In that case, after Alcoa’s subsidiary retained the consultant to lobby a Bahraini government official, the consultant’s shell companies made two payments totaling $7 million in August 2003 for the benefit of the official. Two weeks later, Alcoa and Alba signed an agreement in principle to have Alcoa participate in Alba’s plant expansion. This led to the SEC investigation for Foreign Corrupt Practices Act violations and penalties.
What SEC Investigation Lawyers Determined
SEC investigation lawyers found that more than $110 million in corrupt payments were made to Bahraini officials with influence over contract negotiations between Alcoa and a major government-operated aluminum plant. Alcoa’s subsidiaries used a London-based consultant with connections to Bahrain’s royal family as an intermediary to negotiate with government officials and funnel the illicit payments to retain Alcoa’s business as a supplier to the plant. Alcoa lacked sufficient internal controls to prevent and detect the bribes, which were improperly recorded in Alcoa’s books and records as legitimate commissions or sales to a distributor.
In October 2004, the consultant’s shell company paid $1 million to an account for the benefit of that same government official, and Alba went on to reach another supply agreement in principle with Alcoa. Around the time that agreement was executed, the consultant’s companies made three payments totaling $41 million to benefit another Bahraini government official as well. This set the outcome for severe Foreign Corrupt Practices Act fines and penalties.
The SEC’s cease-and-desist order found that Alcoa violated Sections 30A, 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934. Alcoa will pay $175 million in disgorgement of ill-gotten gains, of which $14 million will be satisfied by the company’s payment of forfeiture of Foreign Corrupt Practices Act fines and penalties in the parallel criminal matter. Alcoa also will pay a criminal fine of $209 million.
Alcoa World Alumina LLC, a majority-owned and controlled global alumina sales company of Alcoa Inc., also was cited in a parallel case with the Department of Justice. Alcoa has agreed to plead guilty later today and pay $223 million in criminal fines and forfeiture to resolve charges that it paid millions of dollars in bribes through an international middleman in London to officials of the Kingdom of Bahrain, in violation of the Foreign Corrupt Practices Act (FCPA).
As directly quoted by the Justice Department”
“Alcoa World Alumina today admits to its involvement in a corrupt international underworld in which a middleman, secretly held offshore bank accounts, and shell companies were used to funnel bribes to government officials in order to secure business,” said Acting Assistant Attorney General Raman.
“The law does not permit companies to avoid Foreign Corrupt Practices Act violations ,fines and penalties by outsourcing bribery to their agents, and, as today’s prosecution demonstrates, neither will the Department of Justice.”
Take Away for Foreign Corrupt Act Violations, Fines and Penalties
Looking at the above case, federal contractors must also realize that the government has increased oversight and monitoring of Foreign Corrupt Practices statute violations. This could lead to suspension and debarment and potentially violations of the Anti-Kickback Statute. Penalties are severe in high-profile cases.
If you are engaging in relationships with foreign businesses, you must develop internal controls, training and policies that minimize your risk. Getting the help of an attorney can sometimes be beneficial and save your company millions.
For assistance in reducing exposure to Foreign Corrupt Practices Act fines and penalties, call our Washington DC, Government Contract and FCPA lawyers at 1-866-601-5518.