The FCPA: The New SEC and DOJ Enforcement Priority – Part II: Origin and Basic Structure

The FCPA evolved out of the Watergate scandal, a series of SEC fraud enforcement actions and the volunteer program crafted by then SEC Enforcement Director Stanley Sporkin. Under that program, over 400 companies admitted making questionable foreign payments to obtain or retain business. As an SEC report later concluded:

Subsequent Commission investigations revealed that instances of undisclosed questionable or illegal corporate payments – both domestic and foreign – were indeed widespread and represented a serious breach in both the operation of the Commission’s system of corporate disclosure and, correspondingly, in public confidence in the integrity of the system of capital formation.

Promotion of Reliability of Financial Information, Exchange Act Release No. 34-15,570 (Feb. 15, 1979).

The Act, passed in 1977 and amended in 1988, has two primary components: the books and records and internal controls provisions and the anti-bribery provisions. The former are much broader than the anti-bribery provisions, extend to all SEC reporting companies and are not limited to corrupt payments. The latter generally prohibit bribery of foreign government or political officials to obtain or retain business.

The FCPA is enforced by the SEC and DOJ. The SEC has the authority to bring civil injunctive and administrative proceedings to enforce all FCPA provisions against issuers. DOJ has the authority to bring criminal actions against any person or company for violations of the bribery and books and records and internal control provisions. The department also has the authority to bring civil injunctive actions against any domestic concern (as defined in the statute) for violations of the anti-bribery provisions.

Until 1997, only the U.S. had provisions such as those contained in the FCPA. Critics contended that the Act impeded the competitiveness of U.S. business – similar claims to those now being levied against the Sarbanes-Oxley Act. In 1997, however, the OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions was adopted. Today many countries around the globe have adopted provisions similar to the FCPA.

Next: An overview of the books and records and internal controls provisions