What Do Investors Need to Know about the Anti-Bribery Provisions of the FCPA?
The Foreign Corrupt Practices Act (FCPA) is a federal law that is designed to prevent companies and their personnel from engaging in corrupt practices when doing business with foreign companies and government entities. Key among the FCPA’s prohibitions is a prohibition on offering bribes to foreign officials. This prohibition applies even if the bribe is not illegal under the laws of the country where the bribe is made. The FCPA also prohibits foreign entities from engaging in corrupt practices on U.S. soil.
As an investor, what does this mean for you? Companies that violate the FCPA can face severe penalties under federal law, and the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) are among several agencies that investigate and prosecute companies for FCPA violations. The FCPA also gives citizens a private cause of action against companies that engage in corrupt practices in some cases.
Federal enforcement actions and lawsuits can cause significant financial and reputational harm for all types of companies. This harm can, in turn, lead to losses for investors who own a company’s stock. If a company covers up an FCPA violation, publishes false financial guidance or misstates material business trends based on FCPA violations, these fraudulent acts can lead to investor losses as well.
To Whom Do the FCPA’s Bribery Prohibitions Apply?
The FCPA’s scope is extremely broad. The statute’s bribery prohibitions apply to U.S. publicly-traded companies and other U.S. companies doing business abroad. They also apply to foreign companies doing business in the United States.
In addition to applying at the company level, the FCPA’s bribery prohibitions also apply to individuals. Company officers, directors, employees and agents can all face litigation for offering or paying bribes on a company’s behalf. Of course, when an officer, director, employee or agent makes a bribe on a company’s behalf, the company can face liability as well.
Are There Any Exceptions to the FCPA’s Prohibitions?
There are two main exceptions to the FCPA’s bribery prohibitions. These exceptions do not permit bribes, but rather clarify that certain types of payments do not meet the FCPA’s definition of a “bribe.” These exceptions are:
- The “Facilitating Payments” Exception – A company may make a payment to a foreign official if the payment is intended to expedite a non-discretionary “routine government action.”
- The “Reasonable Bona Fide Expenditures” Exemption – Payments directly related to promotion, demonstration, negotiation, execution or performance of a contract are considered “reasonable bona fide expenditures” and are permitted under the FCPA.
What is Not Considered a Bribe?
Based on the FCPA’s “facilitating payments” exception, payments made to secure non-discretionary “routine government action” are not considered bribes under the FCPA. “Reasonable and bona fide expenditures” also are not considered bribes, and any other payments not specifically prohibited by the statute generally will not have implications with regard to FCPA compliance. However, other laws may apply—and in fact there are several federal laws that prohibit the payment of bribes and other forms of “remuneration” between domestic companies and domestic officials.
Which Areas Do the FCPA’s Anti-Bribery Provisions Cover?
The FCPA’s coverage is extremely broad. It covers U.S. companies’ activities in all foreign countries, and it covers all foreign companies’ activities in the United States. It covers all types of commercial and business activities, all types of transactions and all types of governmental action. As a result, companies that are subject to the FCPA must adopt comprehensive policies and procedures to ensure compliance—and those that fail to do so may be liable for breaching their duties to their shareholders.
When Can Investors File Claims for FCPA Violations?
Generally speaking, investors can pursue claims for FCPA violations when a violation of the statute results in a reduction in the value of the company’s stock (i.e. when a violation triggers publicized DOJ or SEC enforcement action). As noted above, investors may also be able to pursue claims based on companies’ efforts to conceal or obscure information about FCPA violations.
Importantly, in addition to pursuing claims against companies that violate the FCPA, investors may also be able to pursue claims against their brokers or investment advisors. For example, if a broker is aware (or has reason to be aware) of a company’s illegal acts, or if an investment advisor should have raised concerns about possible concealment before making an investment recommendation, the broker or advisor may be liable for his or her clients’ losses under federal law.
Speak with an Attorney about Filing an FCPA Investment Fraud Claim
If you have more questions about filing an investment fraud claim related to the FCPA, we encourage you to get in touch. To speak with an attorney experienced in investor claims pertaining to bribery, call 212-742-1414 or request a free, confidential consultation online now.