The Foreign Corrupt Practices Act: Aggressive Enforcement and Lack of Judicial Review Create Uncertain Terrain for Businesses

The American multinational retailer Wal-Mart is one of an increasing number of businesses that are alleged to have violated the federal Foreign Corrupt Practices Act (FCPA),[2] which creates civil and criminal penalties for businesses and individuals who pay bribes to foreign officials.[3] Enacted in 1977, the FCPA seeks to ensure that Americans do not engage in bribery and other corrupt practices while conducting international business. At its most basic level, the FCPA is intended to reinforce America’s historical association with the virtues of democracy and idealism, and there is good reason to believe that encouraging such virtues is good for American business and the countries where Americans do business.

Notwithstanding these noble goals, modern FCPA enforcement is increasingly being called into question.[4] The FCPA explicitly exempts "facilitating payments" made "to expedite or secure the performance of a routine governmental action by a foreign official"[5]—signaling Congress’s recognition that, in certain countries, small cash payments to officials are routinely made to facilitate basic entry, customs, and licensing. Thus, the FCPA appears intended to focus on large bribes whose purpose is to skew decision making and secure government contracts—a prudent limit, given scarce government resources and Congress’s desire to promote the competitiveness of American businesses. Moreover, on its face, the FCPA evinces no evidence that Congress intended for the statute to be used by U.S. regulators, including the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), to curtail foreign bribes by foreign companies solely on the basis of attenuated connections such as a transaction denominated in dollars or e-mails sent through U.S. companies’ Internet servers.

In the past decade, however, FCPA enforcement has exploded, based on just such expansive interpretations by DOJ and the SEC. The number of FCPA investigations and enforcement actions has ballooned and criminal penalties have skyrocketed, with several companies paying hundreds of millions of dollars in fines and penalties. Although the ever-widening interpretations of the FCPA seem to go beyond a commonsense understanding of the statute and its purpose, these interpretations are not being subjected to adequate judicial review because the high costs associated with potential criminal conviction have generally led targeted corporations to resolve cases without trial through "deferred-prosecution agreements" (DPAs) or "non-prosecution agreements" (NPAs).[6]

Recent court decisions in the few FCPA cases that have gone to trial have rejected some of DOJ's more aggressive positions. But such rulings, as well as November 2012 guidance issued by DOJ and the SEC that was intended to provide “helpful information to enterprises of all sizes from small businesses doing their first transactions abroad to multi-national corporations with subsidiaries around the world,”[7] are insufficient to improve the uncertain landscape for businesses consistent with the statute’s salutary purposes. This paper briefly explores the FCPA, the aggressive DOJ interpretations leading to its expansion, and the problems inherent in the DPA/NPA enforcement mechanism, and it argues for legislative reforms to clarify the law.

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