Corruption and bribery are undeniable yet dark aspects of commercial life. Bribery refers to advantages provided to secure the unlawful acceleration or facilitation of a transaction. Both national and international regulations contain anti-bribery and anti-corruption provisions that natural persons and legal entities alike must observe and comply with.
In 1972, Richard M. Nixon, then-President of the United States, was campaigning for re-election. During this period, five individuals were arrested for a seemingly simple burglary at the Watergate Hotel and Office Complex, where the Democratic Party, Nixon’s rival, was operating. Although the incident initially appeared unrelated to Nixon or the elections, it soon took on a different dimension when it was discovered that one of the arrestees held funds in his bank account originating from Nixon’s campaign donations. It further emerged that these funds were used to purchase burglary and wiretapping equipment, with the purpose of intercepting the communications of Democratic Party officials. One of the arrestees was revealed to own multiple businesses in the United States and abroad, and to have attempted to conceal the origin of the campaign funds by using various bank accounts.
The aftermath of the Watergate scandal extended far beyond Nixon’s resignation. The investigations uncovered accounting irregularities among American corporations, particularly the existence of off-the-books accounts and slush funds used to secure business opportunities abroad. Additional scandals of the era, such as the Lockheed case, heightened concerns regarding the corrupt practices of U.S. corporations operating internationally.
In response, the Foreign Corrupt Practices Act (“FCPA”) was enacted in 1977 to criminalize bribery and corrupt practices involving foreign officials.[1] The FCPA initially triggered significant backlash from U.S. corporations. Some objections were directed at the statute’s broad and ambiguous language, which later prompted amendments. Other objections focused on the perceived competitive disadvantage created by prohibiting American corporations from paying bribes abroad while foreign competitors could continue such practices. Over time, the U.S. actively pursued international cooperation against corruption, efforts which bore fruit in instruments such as the OECD Convention on Combating Bribery of Foreign Public Officials, significantly shaping the global legal framework in this area.
The widespread enforcement of the FCPA gained momentum in the early 2000s with the Enron scandal, which exposed other forms of accounting fraud by American corporations. Today, FCPA investigations conducted by the U.S. Department of Justice (“DOJ”) in the field of criminal law and by the Securities and Exchange Commission (“SEC”) under securities regulations are highly prevalent. The public pressure and reputational risks arising from such investigations often compel corporations to resolve matters through settlements. As a result, many FCPA cases conclude through Deferred Prosecution Agreements (“DPAs”) or Non-Prosecution Agreements (“NPAs”), preventing the development of extensive case law on the statute’s application.[2]
Fundamentally, the FCPA prohibits the payment, offer, or promise of money or anything of value to a foreign (non-U.S.) public official with the intent to obtain or retain business or to secure an improper advantage in connection with government contracts, sales of goods or services, or other commercial dealings.
In addition to its accounting provisions, which require accurate books and records and the disclosure of unlawful payments, FCPA prohibits bribery of foreign public officials. However, it does not prohibit all payments. The prohibition applies specifically to corrupt payments made to foreign officials, political parties, or party officials for the purpose of influencing decisions or securing improper business advantages.
The FCPA is divided into four main components as follows: “accounting provisions relating to books and records”; “prohibited foreign commercial conduct by securities issuers”; “prohibited foreign commercial conduct by U.S. persons; and prohibited foreign commercial conduct by non-issuers and non-U.S. persons.”
Accordingly, the following are subject to FCPA jurisdiction: issuers of securities in the U.S. and their officers or employees; U.S. persons and corporations utilizing interstate commerce in connection with corrupt acts; and non-U.S. persons engaged in corrupt conduct that takes place within or through the territory of the United States. Nevertheless, FCPA investigations have also been initiated against individuals and entities lacking U.S. nationality, incorporation, or business operations within the U.S.
In one case, nearly all the alleged bribery conduct occurred outside the United States. Nonetheless, federal prosecutors pursued charges against individuals with only minimal connections to the U.S., including three defendants residing in the United Kingdom. Although the U.S. nexus was tenuous, prosecutors reasoned that the corrupt scheme had been “furthered” through the U.S., thereby providing a sufficient basis for jurisdiction.
In another case, a Czech national residing in the Bahamas was found to have paid bribes to Azerbaijani government officials and their relatives in connection with the privatization of a state-owned energy company. The defendant was charged with authorizing or approving bribes on behalf of two companies incorporated under the laws of the British Virgin Islands. Despite lacking U.S. citizenship or residence, the defendant was deemed liable under the FCPA due to his control over the companies, most of whose shareholders and investors were U.S. persons.[3]
In yet another case, although the defendant was a Canadian citizen, the DOJ asserted FCPA jurisdiction based on the fact that the alleged conduct involved emails routed through U.S. based servers and payments made via U.S. bank accounts.
The scope and extraterritorial application of the FCPA have been subject to extensive criticism for their breadth and lack of clarity. Consequently, even companies with no substantial U.S. nexus may face FCPA scrutiny and penalties.
FCPA exposure extends to U.S. companies and individuals, their foreign subsidiaries, agents acting on their behalf, and even non-U.S. persons who utilize U.S.-based instrumentalities, such as bank accounts or email servers, to further corrupt schemes. The FCPA also applies where a foreign subsidiary engages in corrupt practices in complicity with a U.S. parent company. Furthermore, foreign corporations with U.S. subsidiaries must remain mindful of the often-aggressive stance of U.S. enforcement authorities in attributing liability to U.S. parents for the acts of their foreign affiliates.
Kind regards,
Bozoğlu İzgi Attorney Partnership
[1]https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2012/11/14/fcpa-turkish.pdf
[2] Bozoğlu, E.-S. (2014). The new dimension of the fight against bribery in the light of international treaties and the criminal responsibility of legal persons (p. 119). Ankara.
[3] Bozoğlu, E.-S. (2014). The new dimension of the fight against bribery in the light of international treaties and the criminal responsibility of legal persons (p. 116). Ankara.
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