INTRODUCTION

Corruption is a global problem. In the three decades since Congress enacted the FCPA, the extent
of corporate bribery has become clearer and its ramifications in a transnational economy starker.
Corruption impedes economic growth by diverting public resources from important priorities
such as health, education, and infrastructure. It undermines democratic values and public
accountability and weakens the rule of law. And it threatens stability and security by facilitating
criminal activity within and across borders, such as the illegal trafficking of people, weapons,
and drugs. International corruption also undercuts good governance and impedes U.S. efforts to
promote freedom and democracy, end poverty, and combat crime and terrorism across the globe.
Corruption is also bad for business. Corruption is anti-competitive, leading to distorted prices
and disadvantaging honest businesses that do not pay bribes. It increases the cost of doing
business globally and inflates the cost of government contracts in developing countries.6
Corruption also introduces significant uncertainty into business transactions: Contracts secured
through bribery may be legally unenforceable, and paying bribes on one contract often results in
corrupt officials making ever-increasing demands. Bribery has destructive effects within a
business as well, undermining employee confidence in a companys management and fostering a
permissive atmosphere for other kinds of corporate misconduct, such as employee self-dealing,
embezzlement, financial fraud, and anti-competitive behavior. Bribery thus raises the risks of
doing business, putting a companys bottom line and reputation in jeopardy. Companies that pay
bribes to win business ultimately undermine their own long-term interests and the best interests
of their investors.
Historical background
Congress enacted the FCPA in 1977 after revelations of widespread global corruption in the
wake of the Watergate political scandal. SEC discovered that more than 400 U.S. companies had
paid hundreds of millions of dollars in bribes to foreign government officials to secure business
overseas. SEC reported that companies were using secret slush funds to make illegal campaign
contributions in the United States and corrupt payments to foreign officials abroad and were
falsifying their corporate financial records to conceal the payments. Congress viewed passage of
the FCPA as critical to stopping corporate bribery, which had tarnished the image of U.S.
businesses, impaired public confidence in the financial integrity of U.S. companies, and
hampered the efficient functioning of the markets.
As Congress recognized when it passed the FCPA, corruption imposes enormous costs both at
home and abroad, leading to market inefficiencies and instability, sub-standard products, and an
unfair playing field for honest businesses. By enacting a strong foreign bribery statute, Congress
sought to minimize these destructive effects and help companies resist corrupt demands, while
addressing the destructive foreign policy ramifications of transnational bribery. The Act also
prohibited off-the-books accounting through provisions designed to strengthen the accuracy of
the corporate books and records and the reliability of the audit process which constitute the
foundations of our system of corporate disclosure.
1998 Amendments
In 1998, the FCPA was amended to conform to the requirements of the Anti-Bribery Convention.
These amendments expanded the FCPAs scope to: (1) include payments made to secure any
improper advantage; (2) reach certain foreign persons who commit an act in furtherance of a
foreign bribe while in the United States; (3) cover public international organizations in the

definition of foreign official; (4) add an alternative basis for jurisdiction based on nationality;
and (5) apply criminal penalties to foreign nationals employed by or acting as agents of U.S.
companies.20 The Anti-Bribery Convention came into force on February 15, 1999, with the
United States as a founding party.
FCPA
The FCPA was originally enacted in 1977 to restore public confidence at a time when corruption
was rampant in the American business system. The Act was later amended in 1998.
The Act was intended to halt those corrupt practices, create a level playing field for honest
businesses, and restore public confidence in the integrity of the marketplace.
The FCPA makes it unlawful for persons and businesses, foreign issuers of securities, to make a
payment to a foreign official for the purpose of obtaining or retaining business for or with, or
directing business to, any person. The Department of Justice (DOJ) is the enforcement agency,
while the coordinating role is played by the Securities and Exchange Commission (SEC).
The DOJ is responsible for criminal and civil enforcement of the provisions of the FCPA in
relation to both domestic and foreign companies and nationals, while the SEC is responsible for
the civil enforcement of the provisions of the FCPA in relation to the issuers.
PROHIBITIONS
The FCPA prohibits any payment, offer and promise to payment or authorisation to pay or offer
money or anything of value to a foreign official. The definition of the term "foreign official" is
exceedingly broad and covers any officer, employee of a foreign government, a public
international organisation, department or agency or any person acting in official capacity
irrespective of the rank or position.
The payment that constitutes bribe can be anything beyond monetary payments, like gifts, loans,
employment, payment made to third parties or such other improper payments. The ambit of
bribe, therefore, is very broad, considering it also includes any kind of improper cash or cash
equivalent payments. In fact, mere offer of a bribe alone can constitute a violation of the FCPA.
Here it is pertinent to note that if the intent of the payment is to induce the foreign official to
misuse his official position to provide an improper advantage, the payment becomes prohibited
payment under the FCPA. Also, the intent can be inferred from the evidence and may not be
directly proven.
The FCPA prohibits third party payments to or through its distributors, contractors, joint venture
partner, foreign subsidiary, etc.
APPLICABILITY
The FCPA covers under its ambit (i) the issuer and (ii) domestic concerns. The issuer means
issuer of securities registered in the US and entities which are required to file periodic reports

with the SEC. The term domestic concern has a very wide connotation and also means any
individual who is a citizen, national or resident of US besides including any corporation
(incorporated or otherwise), joint venture, etc. with the place of business in US.
In fact, the parent company in US can be held liable for the acts of foreign subsidiaries
irrespective of whether the action has taken place in US or not.
Who is covered by the FCPA? The FCPa applies to two broad categories of persons: those with
formal ties to the United States and those who take action in furtherance of a violation while in
the United States.
PENALTY
The FCPA provides for both civil and criminal penalties. Further, the quantum of punishment
also becomes stringent if it is for wilful violation.
An individual may be imprisoned for 5 years for each violation while for wilful violation the
punishment is upto 25 years. For business entities, the fine can be anywhere from USD 2 million
to a maximum of USD 25 million. In case of individuals the fine can range from USD 1 million
to USD 5 million in certain cases of wilful violation.
Conducting business in India is often complicated by burdensome regulatory requirements and
procedures. Factors such as a bottom-heavy bureaucracy, widespread red tape, a higher tolerance
to corruption and lax anti bribery enforcement can increase the risk of operating in India. For
example, organizations need to obtain and/or renew a large number of licenses and permits on an
ongoing basis from multiple government agencies that often require bribes, along with official
fees.

Red Flags
FCPA internal investigations are fact-specific in nature; at times, they could become exercises in
finding needle(s) in the haystack. In order to unearth activities or transactions that present risks
from a FCPA perspective, focus should be placed on relevant risk indicators.
In addition, risk assessments should be conducted and forensic accounting and investigation
techniques should be designed to largely focus on these indicators. The DOJ also provides
examples of such indicators, which it terms as red flags.15 Examples include:
Whether due diligence/background checks were performed in selecting agents;16
Apparent lack of qualifications or resources on part of the agent to perform the services
offered;
Whether the agent has been recommended by an official of the potential governmental
customer;
History of corruption in countries the company does business that Transparency
International17 has determined to be highly susceptible to corruption;
Decentralized operations;
Finally, the managers who run the organization must be able to recognize red flags
circumstances under which the risk of corrupt practices is high and enforcement authorities
expect corporations to be particularly vigilant. With this knowledge and commitment to ethical
business practices, an organization can implement an effective compliance program to avoid the
pitfalls of international corruption.
Corporations and individuals may be subject to prosecution for corrupt payments even if they
have no actual knowledge that bribes are being paid. as noted above, the FCPA purports to
impose criminal sanctions on persons who pay money to third parties with a reckless disregard
for circumstances that suggests the money is being used for corrupt purposes. Thus, if an
executive agrees to pay a consultant who in turn gives some of that money to a government
official in exchange for official actions that benefit the corporation, the executive and the
corporation may be targeted by the DOJ for violating the FCPA even absent actual knowledge of
the corrupt payment. Whether the government believes that the company and its employees
should be held liable for such indirect bribes largely depends on the existence of circumstances
that should have put the company on notice that corrupt payments were likely to occur.
Unusual payment patterns or Financial arrangements
Generally speaking, bribes have come a long way from the proverbial bag of cash exchanged
under the table. Nevertheless, improper payments made to foreign officials almost always are
accompanied by unusual payment arrangements. Companies should use increased vigilance
when asked to make payments for services in a bank account not located in either the country
where the services were rendered or the country where the recipient of the funds is located.
Similarly, the use of shell entities or aliases should trigger heightened scrutiny of the transaction
to ensure that it is not a vehicle for corrupt payments.
A history of Corruption in the Country
Although bribes may be paid or demanded in all countries, no one seriously disputes that certain
nationsmany in the developing worldsee more than their fair share of corruption. When

doing business in a country with a reputation for public corruption, corporations must be
particularly suspicious of any activity that might suggest that bribes are being paid by their
employees or agents. Enhanced compliance and training efforts often are in order. Thus, at a
minimum, corporations doing business abroad should be familiar with the annual Corruption
Perceptions Index published by Transparency International (www.transparency.org). Additional
resources regarding the prevalence of corruption in a particular country are available from the
State Department. International legal counsel can provide further details regarding the likelihood
that bribes will be solicited or demanded in particular circumstances.
Rejection of anticorruption provisions
A corporation subject to the FCPA often asks a foreign business partner to warrant that it will not
(a) take any action in furtherance of an unlawful offer, promise, or payment to a foreign public
official or (b) take any action that would cause the firm to be in violation of the FCPA. To the
extent that a prospective business partner refuses to agree to such a contract provision or other
written certification, the corporation should be on alert that the partner may not intend to live up
to those standards.
Unusually high Commissions
Commissions have historically been a vehicle through which bribes can be funneled to
government officials. Accordingly, a request to pay unusually high commissions is a warning
sign of possible corruption. A request to deposit commissions in multiple bank accounts, perhaps
in offshore banks, also justifies additional scrutiny.
Lack of Transparency in expenses and accounting records
as demonstrated by the books-and-records provisions of the FCPA, Congress and enforcement
authorities view accurate books and records as a critical bulwark against corrupt payments. Lack
of transparency in the books and records of a foreign business partner is a possible indicator of
corrupt activity. If such a business partner seeks to shield expenses, accounting records, and
other financial information from view, a possible motivation could be the desire to hide improper
payments to government officials.
Apparent Lack of Qualifications or resources
Corporations doing business abroad should be suspicious if a joint-venture partner or
representative does not appear capable of performing the services offered. Numerous
enforcement actions have arisen from sham service contracts, under which corrupt payments are
disguised using a consulting agreement or other arrangement. Similarly, organizations and
individuals doing business in a foreign country should be particularly wary of any one who
claims to have the ability to obtain licenses or other government approval without providing a
description of the legitimate manner in which those goals will be accomplished.
Recommendation by a government official
Government officials need not demand a bribe directly in order to create potential FCPA liability
for an organization or individual. Instead of demanding a bribe outright, a government official
who is not a potential customer but exercises authority over a transaction may suggest that a
particular third party be hired as a consultant or in some other capacity. Numerous enforce
ment actions have arisen from payments to third parties at the request of foreign government

officials. Accordingly, any organization or individual doing business in a foreign country must be
cautious when a government official suggests in any way that a particular third party be paid or
hired.
3rd parties
In FCPA jargon, an "intermediary" is a third party who assists the company in some aspect of its
foreign business. The government assumes you have conducted reasonable due diligence
background investigations on your intermediaries and have determined they are not involved in
corruption. It is important to understand who your intermediaries are, how many you have, why
you are using them, and who in your company has authority to enter into a contract with them.
Understand that intermediaries do not shield your company from liability they create liability.
90% of FCPA cases brought by the US government involve conduct by 3rd parties. In most cases
employees of the US Company knew their foreign intermediaries were involved in illegal
payments, and frequently company employees worked with and directed the intermediaries to
circumvent company policy and violate the law.
Some intermediaries represent vastly more risk than others. Sales agents, lobbyists and joint
ventures are at the top of the risk list.
Distributors or resellers who receive variable pricing or variable discounts also represent very
high risk. Obviously an intermediary who is also a government employee (or is a close relative
of a government official) or an intermediary company that is owned or managed by a foreign
government official represents high risk.

Facilitating payments
Amazingly the FCPA contains an exception for "facilitating payments, small bribes to secure
the performance of routine government action. Many companies, on their own, have established
a policy against paying facilitating payments. The reasons:
A) Facilitating payments are actually bribes and are always illegal in the country where your
employees pay them.
B) The definition of a facilitating payment under the FCPA is technical. It would be folly to
delegate the decision on whether a
specific payment is a facilitating payment or a bribe to your sales people on the ground.
C) Facilitating payments are transactions and have to be recorded accurately on the company's
books and records, i.e., as A
facilitating payment of $X to government official Y of country Z to provide (a specific service).
So your company is required to create an accurate financial record, and that record is written
proof your company intentionally violated the law of the country where
you made the payment - Catch 22?
The facilitating payment exception has never been used in a reported case.
Facilitating Payments for routine Government actions

The FCPA does not prohibit facilitating or expediting payment[s] made to foreign officials for
the purpose of causing them to perform routine governmental actions.19 This provision is
commonly referred to as the grease payment exception. In order to qualify for this exception,
payments must relate to the performance of routine, nondiscretionary government functions such
as the issuance of routine licenses or the provision of phone, power, and water service; providing
police protection or mail delivery; or scheduling inspections associated with contract
performance or the shipment of goods. The FCPA provides that a routine governmental function
does not include any decision by a foreign official to award new business or to continue business
with a party. It is important to note that this exception is not carte blanche to make small bribes.
relying on this exception is very risky, as the government has provided little guidance to help
companies or individuals determine what conduct qualifies as a facilitating payment. Moreover, a
facilitating payment that is permitted under the FCPA may still be unlawful under other laws,
including those of the country in which the payment was made.

reasonable and Bona Fide Expenditures. The FCPA provides that it shall not constitute a
violation of the statute if the person charged can prove that the payment in question constituted
a reasonable and bona fide expenditure, such as travel and lodging expenses, and that it was
directly related to (a) the promotion, demonstration, or explanation of products or services; or
(B) the execution or performance of a contract with a foreign government or agency thereof.
Notwithstanding this affirmative defense, travel and lodging expenses intended to influence a
foreign officials actions can violate the FCPA. For example, the DOJ has taken the position that
luxury or recreational travel provided for government officials can form the basis for FCPA
prosecution.
ISSUER
How Can I Tell If My Company Is an Issuer?

It is listed on a national securities exchange in the United States (either stock or American
Depository Receipts); or

The companys stock trades in the over-the counter market in the United States and the
company is required to file SEC reports

To see if your company files SEC reports, go to SECs website at

https://www.sec.gov/edgar/searchedgar/webusers.htm
SETTLEMENT VIS--VIS PCA
The PCA does not include a provision for resolving an enforcement action or prosecution with
law enforcement authorities through a settlement