Foreign Corrupt Practices Act: Government Deterrence or a Cash Grab?
Updated: Oct 18
On October 24, 2016, Brazilian aircraft maker Embraer SA settled with U.S. authorities to deferred prosecution based on an investigation into bribes paid to foreign officials. Embraer has agreed to pay $107 million to the Justice Department and another $98 million to the SEC. Based on the bribes paid, Embraer earned nearly $84 million in profits. Embraer did not voluntary report its violation of the Foreign Corrupt Practices Act ("FCPA"), but did comply with authorities allowing Embraer to receive a discounted fine. This exemplifies yet another settlement by both the DOJ and SEC when bringing FCPA cases.
The FCPA was passed in 1977; it allows the DOJ and SEC to bring both civil and criminal cases against companies and individuals who bribe foreign officials or business people. Since the passing of the legislation the total penalties imposed under FCPA is $8.8 billion, while the total bribes paid is $3.3 billion. The majority of the enforcement cases under FCPA have been settled before reaching trial, DOJ 75% and SEC 91%. From April 2012 to November 2014, only two individuals were subjected to FCPA enforcement actions, while the DOJ and SEC combined for 56 total enforcement actions.
By making an action criminal, the government is inherently attempting to deter that specific conduct. The question here is, whether the punishment fits the crime sufficiently to actually deter the conduct. Comparing the bribes paid and the punishments paid (3.3 billion to 8.8 billion), companies on average are penalized $2.66 per $1 of bribery. Meaning, the average cost of bribing is $3.66 per actual dollar spent. In essence, the prescribed penalty only increases the total cost of the job, but there is a high enough profit margin for the conduct to persist. Individuals can be charged with a crime for violating the FCPA and are subject to a $100,000 penalty and or 5 years’ imprisonment. The issue with the prosecution of individuals arises out of globalization and corporate structures. It is possible that a person, in a foreign country, working for a local foreign company, can violate the FCPA solely because they are employed by an American company abroad. U.S. officials cannot reach that person to be prosecuted criminally.
Since 1977, U.S. officials has imposed $8.8 billion in fines under the FCPA. From 1977 to 2006, the one-year high was 15 enforcement actions, while in 2009 there were 47 enforcement actions and 56 in 2010. There has been a drop to about 25-30 enforcement actions per year since 2010. It appears that the government was going to the well of cash more so than attempting to deter the criminal action. It is time to amend the FCPA to go after corporate officials or board members within the United States when they do not adequately combat bribery.
To put this in context with domestic commercial bribery, a violation of 18 USCS Appx § 2B4.1, the Federal Commercial Bribery Statute starts with 0-6 months in prison. That is the lowest prison time under the Federal Sentencing Guideline. Depending on the severity of the bribery, amount paid or proceeds from the transactions, a violator could face up to 51-63 months. While both violations result in nearly the same sentencing, the target of the statutes could not be more different. The FCPA hardly goes after the perpetrator of the crime but instead goes after the organization, whereas in domestic bribery the actor is the target of the criminal investigation.
It is time for the problems of the FCPA to be addressed. There needs to be a push to hold individuals criminally responsible for foreign bribes. The best way to achieve this is to hold managers and executives responsible for lack of control. When a bribe has taken place, U.S. officials should take a look at the company’s policies and practices to make sure this was a rogue act and not an institutional criminal issue. By creating a threat of criminal responsibility on the management of the country, the rest of the company will fall in line very quickly.
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