Friday, August 1, 2014
Client inquired about the Foreign Corrupt Practices Act (FCPA) and how the provisions of the law could apply to a Philippine company like their company.
FCPA prohibits U.S persons and, in some cases, foreign persons from corruptly offering, authorizing, or making payments, or giving anything of value, to any foreign official or political parties for the purpose of obtaining or retaining business.
FCPA has two main provisions - the anti-bribery provisions which are enforced by the US Department of Justice and Accounting and Internal Controls Provisions enforced by the U.S. Securities and Exchange Commission.
For the Anti-Bribery Offense, the covered persons are: (i) U.S. persons and companies, (ii) "Issuer" (i.e. any company with shares listed on U.S. Stock exchanges and (iii) any person - foreign companies, their officers, directors, employees, foreign national not resident in US that take an "act in furtherance" while in the U.S.
A domestic corporation with a foreign mother affiliated corporation is covered under the third group being a foreign company affiliate of US company and has expatriates or persons doing an act in furtherance of the U.S. company. With this in mind, we put the FCPA provisions on those contracts that will have involvement of U.S. persons or company in terms of actually releasing the money for the project.
For the FCPA Accounting provisions, the company is required to keep detailed books, records, and accounts that fairly and accurately reflect transactions and dispositions of assets and must maintain internal accounting controls to ensure financial records are accurate for external reporting,that access to assets is controlled, and that books are reasonably audited.
Some specific problem areas that may implicate the company with the FCPA and thus contracts that would be executed must contain the FCPA provision. It includes ANY contract calling for:
- use of a third party (consultant, agent, broker, contractor, service provider, vendors ) who will coordinate with government officials or government entity in providing the service
RED FLAGs: Use of an intermediary who has a questionable reputation, is known to have connections with the government officials, holds government (even honorary) position or is related to someone who does, was recommended by government, charges fees in excess of fair market value for services provided, request payment in cash, in a third country or other unusual arrangements, or refuses to make representations required by the company.
- charitable contributions
RED FLAGS: Charities, projects or contractors recommended by government officials, donations under direction or suggestion of a government official, or charities headed or managed by government officials
- Hospitality (provision of meals, expensive entertainment and entertainment disquised as training/ seminars,overseas trips of government officials with lavish accommodations,sightseeing and per diems)
RED FLAGS: meals, lodging, transportation and entertainment, which are excessive or "lavish" under local standards, repeated instances of meals and entertainment of lesser value, requests to cover expenses for family members, or hospitality with no legitimate connection to promotion or demonstration of products or services, or the execution or performance of a contract.