US Foreign Corrupt Practices Act FCPA 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. Under the FCPA anti bribery provisions, 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.
What is FCPA?
What does FCPA stand for? The Foreign Corrupt Practices Act of 1977, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”), was put in place to make it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.
Also, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.
The FCPA also requires businesses with securities listed in the United States to meet its accounting provisions. See 15 U.S.C. § 78m. These FCPA accounting provisions, which were designed to operate with the anti-bribery provisions of the FCPA, require companies covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls
What are FCPA Investigations?
SEC and DOJ FCPA investigations are conducted by the Department of Justice (DOJ) and Securities and Exchange Commission (SEC), and may involve alleged violations of the anti-bribery provisions or accounting standard provisions. The DOJ FCPA office will typically review evidence of criminal activity, while the SEC focuses on potential civil violations under their authority.
Foreign Corrupt Practices Act Penalties
Fines penalties for FCPA violations can be severe. Fines imposed by the DOJ and SEC may include disgorgement of profits, civil money penalties, compliance improvements, restitution for victims, and forfeiture of assets associated with bribery payments. Criminal charges may also result in jail time or fines for individuals involved in violation of the FCPA. The financial burden on businesses found guilty of FCPA violations can be significant, and such cases often attract high-profile media attention. It is important for businesses to take proactive steps in order to prevent possible FCPA violations.
These may include compliance programs, employee training, and internal controls for monitoring suspicious payments or activities. Additionally, it is important to respond quickly and thoroughly when potential FCPA violations are discovered. Responding to an FCPA violation requires swift investigation and appropriate measures to correct the problem, repair any damage it has caused, and prevent future violations from occurring. This includes taking necessary steps to strengthen internal controls or compliance programs. It may also involve reporting the issue to authorities and negotiating resolutions with them.
What are the Potential Penalties for Violating the SEC and DOJ FCPA Anti-bribery Provisions and Government Corruption Provisions
- Civil penalty up to $10,000
- Criminal fines up to $2 million; under the Alternative Fines Statute, may be increased to twice the gain or loss resulting from the corrupt payment.
Foreign Corrupt Practices Statute violations and SEC AND DOJ FCPA 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 anti bribery and corruption fine may be increased to twice the gross financial loss or gain resulting from the corrupt payment under the Alternative Fines Statute.
- Imprisonment for up to 5 years
Fines and FCPA criminal 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 FCPA violations 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 FCPA Violations 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 violations (FCPA violations) when its subsidiaries repeatedly paid bribes to government officials in Bahrain to maintain a key source of business. Recipients of anti bribery and corruption 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 statutory violations and anti bribery and corruption penalties.
What are the potential penalties for Violating the FCPA? 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 FCPA criminal penalties, fines and anti bribery and other FCPA 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 FCPA penalties and fines 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., was also 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 FCPA 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 FCPA Violation Penalties, Anti Bribery and Government Corruption and FCPA Penalties
Looking at the above case, federal contractors must also realize that the government has increased oversight and monitoring of FCPA violation penalties and violations. This could lead to suspension and debarment for government corruption and potential 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 FCPA fines, violations and anti bribery and corruption FCPA violation penalties, call our Washington DC, Government Contract SEC FOJ FCPA lawyers at 1-866-601-5518.