FCPA Guide for SEC Whistleblowers

The Foreign Corrupt Practices Act (FCPA) is the primary anti-bribery tool of the United States Government.  As it is jointly enforced by the Securities & Exchange Commission and the Department of Justice, tips from domestic and international whistleblowers regarding corruption by FCPA covered individuals and corporations will usually be eligible for an award under the Dodd-Frank whistleblower program when the requirements of the SEC rules are met.

Generally, the FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business.  It also requires corporations to keep accurate books and records as well as put in place internal controls sufficient to prevent accounting irregularities from arising.  When a company violates either the anti-bribery provisions or the “books and records” provisions, sanctions can reach the tens or even hundreds of millions of dollars.  If you suspect you have evidence of a potential violation of the law, contact one of our FCPA whistleblower attorneys for a free, confidential consultation regarding the law.

An FCPA whistleblower stands to potentially gain a substantial reward from the U.S. Government under the SEC whistleblower law.  Dodd-Frank requires the SEC to pay rewards of between 10 to 30 percent of the sanctions imposed on the corporation when the requirements of the law are met.

THE ANTI-BRIBERY PROVISIONS

Who must comply with the law?

The FCPA applys to issuers, domestic concerns, and a number of related persons and entities. It also covers persons and entities acting while in the United States. The effect of this is to cover all U.S. citizens and businesses, as well as all everyone in the United States, and certain non-U.S. companies and individuals connected to covered U.S. entities.

Issuers

A company is an issuer if it is listed (including American Depository Receipts) on a national securities exchange in the United States or it trades over-the-counter and is required to file SEC reports. Officers, directors, employees, agents or stockholders acting on behalf of a domestic concern are also covered by the law.

Domestic concerns

A business is a domestic concern if it is organized under the laws of the United States (or its states, etc.) or has its principle place of business in the United States. Officers, directors, employees, agents or stockholders acting on behalf of a domestic concern are also covered by the law. Citizens, nationals and residents of the United States are also domestic concerns.

Territorial Jurisdiction

The law prohibits any person, including foreign persons and foreign entities, from violating the FCPA while on U.S. soil.

Frequently Asked Questions

I'm not located in the United States. Can I be paid?

There is no citizenship or location requirement for an award.  The SEC has made four payments to international whistleblowers through the program so far and around 12% of the tips are coming in from outside the United States.  In the award determination for the $30 million reward issued in September 2014, the agency specifically said that it was legally permitted to issue awards to individuals located overseas.

I'm aware of corruption happening overseas at a non-US company. Can I be a whistleblower?

Without an investigation into the specific company at issue, it is hard to say.  Is the company a subsidiary or parent of a U.S. corporation?  Was it acting as an agent or intermediary of a U.S. corporation?  Does it have shares trading on the U.S. stock market?  Does it have a contract with the U.S. Government?  Are any of the individuals involved connected to a U.S. corporation?  Will financial information at a U.S. company be affected by the bribe?  These are a few of the questions that we would need to answer in order to determine whether your tip would be of interest to the SEC or DOJ.  Contact us to discuss the company confidentially.

What does it mean to be on United States territory?

Obviously, it includes people who are standing in one of the fifty states or one of the This provision has historically been read broadly by the government though.  In the 2008 case against Siemens, the U.S. Government asserted it had jurisdiction for a portion of the case based on the involvement of U.S. dollar denominated wire transfers cleared through correspondent accounts in the United States.

Will the government care if the U.S. entity is a relatively small player?

The FCPA provides for prosecution of co-conspirators as well. If a large corporation, otherwise uncovered by the law (somehow), is acting in conjunction with a U.S. entity, the government may nevertheless decide to send the world a message about its intolerance for corruption.

ACCOUNTING PROVISIONS OF THE FCPA

The FCPA also requires all public companies (issuers) to have strong accounting controls and accurate financial records.  This extends to majority-owned foreign subsidiaries of issers as well.

Congress enacted these measures to take aim at the underlying conditions which permit bribery to happen.  Although they were enacted as part of the FCPA, they can also be used to prosecute a company when bribery is not present.  A company committing accounting fraud or making an improper disclosure to shareholders can also be charged with an FCPA violation.

The “books and records” provision, as it is commonly referred, requires issuers to keep accurate books and records that fairly reflect their transactions and assets.  The “internal controls” provision requires a system of accounting to assure management’s control over the company’s assets.

If I have evidence of corruption, what are the odds the SEC or DOJ will prosecute?

A variety of factors go into the government’s decision to prosecute violations of the FCPA.  The government has decided to decline prosecute or entered into a deferred prosecution agreement with companies in the past, so prosecution is not assured.  The more egregious the conduct by the issuer or domestic concern, the less likely the government will be able to choose a path without penalties.

At-Risk Countries

China

There are four times as many corporate investigations into bribery allegations regarding operations in China as there are in any other country. The potential growth of the economy makes it a location where U.S. and multi-national corporations are eager to enter. The high number of state-owned enterprises means that there is more likelihood that a kickback would reach a foreign official than in other nations.

Brazil

Brazil has had at least three major corruption scandals in the past year and, by all accounts, bribery of public officials is rampant in the nation. Brazil has put a tremendous amount of money into construction projects in order to host the World Cup and the Olympics, creating the opportunity for significant FCPA violations.

India

India’s large population (more than 1.2 billion people) and growing economy are seeing increasing investments from U.S. companies and multinational corporations who are U.S. issuers. Corporations are already investigating allegations of a number of violations of the FCPA in the country and there is no reason to suspect that the number will not increase in the future.

Mexico

There are risks of FCPA violations by companies engaged in oil & gas development in Mexico, supplying goods & services (such as technology) to government agencies, and developing real estate for retail operations or factories in the country.

Iran

A historic nuclear deal between the United States and Iran is projected to lead to a flood of economic activity into the country when economic sanctions are lifted.  While companies are rushing into the country, their intermediaries and subsidiaries may take shortcuts to grab contracts in violation of the FCPA.

Poland

Government contracts for technology and the sale of pharmaceuticals and medical equipment to hospitals, which are generally state-owned enterprises, put certain companies at risk of FCPA violations in this Eastern European country.

Russia

At-Risk Industries

Medical & Pharmaceutical

Drug manufacturers and medical equipment companies need government approval in order to sell their products in the country.  Many of the employees of hospitals where they sell their goods, including the doctors, will also be considered foreign officials since the nations typically own and operate the hospitals themselves.

Energy, Oil & Gas

The largest fines for FCPA violations have come in the energy sector.  The bribes have related to the procurement of government contracts for performing extraction services.  They have also related to the supply of goods to state-owned corporations extracting resources in mining and drilling operations.

Retail

The development of land typically requires government approval and retailers need to build stores in many different locations in order to enter a country.  This interaction with government officials raises the potential for compliance issues.

Investment Banks

Interactions with sovereign wealth funds raise the potential for issues under the U.S. anti-corruption law.  Employees of sovereign wealth funds can be considered foreign officials under the anti-corruption law.

Technology

Information technology providers and tech equipment manufacturers frequently provide services to government agencies.  The acquisition of these contracts is often bid against their competitors and there is the risk of illegal bribery in this process.

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