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FCPA enforcement-giving confidence to financial markets

Tom Fox | July 3, 2017

Most compliance practitioners are aware the Foreign Corrupt Practices Act has both an anti-bribery component, enforced by the Justice Department, and accounting provisions component, enforced by the Securities and Exchange Commissioner.  The accounting provisions include both books and records and internal controls. The books and records component requires a company (issuer in the language of the statute) to “make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer.”

Although this language is found in the text of the FCPA, it was enacted as an amendment to the Securities and Exchange Act of 1934, which is designed to protect the public interest by requiring public companies to have records that give confidence to financial markets. This second part of FCPA enforcement is not often remarked upon and is generally overshadowed by both the anti-bribery provisions and anti-bribery enforcement.

Yet, as legislation that became the FCPA was originally articulated, the books and records and internal controls provisions were seen by The Father of the FCPA, Judge Stanley Sporkin, as the best tools to combat the improper use of corporate funds, including for bribery and corruption. Indeed when Sporkin sought enactment of the FCPA, he did not request that Congress enact an anti-bribery prohibition, which was eventually added to the FCPA by Senator William Proxmire.

While incorporating the accounting provisions to the FCPA, yet appending them into the Securities and Exchange Act of 1934, the result was a theory that the FCPA helped to bring confidence to the financial markets. What makes the FCPA so difficult under the accounting provisions is there is no materiality standard so often, even audited financial statements fail to detect bribes paid. This is compounded when companies then roll up incorrect financial statements of international subsidiaries or foreign joint ventures into their final financial statement released in 10K and Qs.

FCPA enforcement is one of the reasons there is such confidence in public U.S. companies. A big part of that thanks goes to Judge Sporkin for foresight in enacting the FCPA in the manner he did.