The Act Itself & Determining Liability - FCPA

The Act Itself & Determining Liability - FCPA


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Full video transcript available below:

Okay. So as we talked about the act itself, who's potentially liable under the act? That is a key component. There's an employee influence and improper payment that is one the major components. Who is the recipient of the payments, and clearly one of the biggest piece is did we have corrupt intent. So in other words, are we making these payments on a condition to influence someone to provide something of value that we want, right? So if you think about the mindset of someone that would actually try to bribe a foreign official, it's usually for some benefit to the company itself, either the foreign official now will be playing a significant role in terms of funds that will be coming into someone's portfolio, or they will be able to handle more money on behalf of the sovereign wealth funds, things like that. So those are really the reasons why one would obviously be involved in this type of bribery and corruptions, right?

Just to also set some definition here. Who is or what is a foreign official under the act, right? So it's defined fairly broadly, so individuals such as administrators at a foreign state university, for example, would be deemed a foreign official, advisors, the ministries, government agencies, obviously government officials, they would be defined on an act as foreign officials. Members of government committees and panels would be defined as such, members of the royal family, members of international organizations such as the World Bank, even healthcare professionals at government owned or controlled hospitals for example would be defined as government officials. So you can see, under the act, that it's defined fairly broadly, right? I know we're talking specifically about financial services firms in this webinar today, but just in terms of the whole context, make sure that we recognize that it could be broadly defined.

Another aspect of the act itself is that there must be, there's what's called the business purpose test, and FCPA applies payments intended to influence foreign officials to use their position to obtain or retain business. This falls under the definition of the business purpose test, and once again I want to impart upon individuals on this call that some of these things are defined broadly and really, when it gets to court or gets to the DOJ or SEC, more definition comes out, but be mindful that this is a broadly defined act in many of the aspects. 

But a violation also it has an element of corrupt intent that you see on this slide, so it must be something that is a corrupt intent. So let's talk about something that's not necessarily corrupt intent. So, for example, if you're working in a foreign jurisdiction and you're dealing with foreign officials at a business licensing office, and if part of what you're trying to do is license a new business in that jurisdiction, and if there's a additional fee that you must pay to someone in the office to maybe speed up the process, under this act that would not be deemed to be corrupt intent. That would be something more akin to an administrative fee for speeding up the process. So as I said, from the legal perspective, some of these things are defined broadly.

Steve, if you could move to the next slide, please.

The accounting provisions under the act. Part of [inaudible 00:08:06] and see how it applies is that there is a books and records provision that, as I stated before, was part of the new amendment, and the books and records provision requires issuers to make and keep and maintain records that accurately and fairly reflect an issuers transaction and disposition of assets. The books and records provision is intended to prevent the mischaracterization or concealment of bribes, and that's a very important aspect because typically what you will have in these cases are significant third party players and even vendor relationships that will help to try and conceal some of the activity that's going on, so this was amended in the act to make sure that it says that the individuals that are paying bribes must also reflect it on their books and records, right? Now obviously if you are intended to pay a bribe, you're not really going to try and reflect it on your books and records, right? But this is something that comes in as a part of the sanction and as part of the potential $2,000,000 fine that can be imposed that I talked about earlier.

Another aspect under the accounting provision is that you must make sure that you have good internal control systems, and it requires the issuer to devise and maintain a system of internal accounting controls sufficient to ensure that management's control authority and responsibility are in fact held over the firm assets. So we have two components under the accounting provisions that's important just to reiterate the fact that you must have books and records, and the fact that you must have internal controls around those books and records, and there are civil liabilities that get imposed if you run afoul of the accounting provisions.

We talked a little bit about the penalties and sanctions, as I said corporations and business entities are subject to fines of up to $2,000,000 for each known violations, and individuals are up to 100,000, and there's also imprisonment up to five years. We will see as we go through some of these cases that we get to some significant numbers under these rules.

Things we need to do to protect ourselves and our organizations and employees around these rules, right?


This webinar was co-hosted with MCG Consulting


Read our blog post: FCPA Fines in 2016 - Summary


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