The Foreign Corrupt Practices Act (“FCPA” or “the Act”) (15 U.S.C. §§ 78dd-1, et seq.) is a 1977 federal statute passed to enhance financial transparency among American companies.
The FCPA was passed in response to investigations conducted by the Security and Exchange Commission (“SEC”) in the early 1970’s that found bribery directed towards foreign nations was rampant among large American companies.
The FCPA has two main components: a bribery component and an accounting component. Under the bribery component, the FCPA prohibits making any payments to foreign officials “for the purpose of obtaining or retaining business for or with, or directing business to, any person.” The bribery provisions criminalize paying money to foreign officials to secure their patronage or any other form of business relationship.
The accounting provisions require any company with securities listed in the United States to establish a reliable and transparent internal accounting system capable of accurately describing all the company’s transactions.
The SEC and the Department of Justice (“DOJ”) are jointly responsible for enforcing the FCPA. The SEC enforces FCPA actions against any company subject to its regulation while the DOJ prosecutes actions against all other domestic companies.
How Do the Foreign Corrupt Practices Act and the False Claims Act Interact?
The Federal False Claims Act (“FCA”) (31 U. S. C. §3729 et seq.) is the primary mechanism by which the government responds to fraud committed on the government. The FCA is not limited to situations involving bribery or matters with foreign states, but rather applies to any scheme to defraud the federal government. It is possible, however, for the same conduct to violate both the FCPA and the FCA. This is because many instances of FCA liability arise from a mechanism referred to as the “implied certification” theory of liability. Implied certification refers to situations when a company has not explicitly broken the terms of its contract with the government, but rather certified that it had complied with federal regulations and laws, when it in fact had not.
For example, the DOJ reached a $623.2 million settlement with the American medical company Olympus Corp. of the Americas in 2016 for conduct that violated both the FCPA and FCA. Olympus spent years paying illegal kickbacks to medical officials in South and Central America countries to encourage them to purchase Olympus’s medical devices, many of which were reimbursed by federal programs such as Medicare. This conduct violated the FCPA because it involved paying foreign officials rewards for their business. It also violated the FCA because Olympus certified that it was compliant with all federal regulations, but because of its kickback scheme, it actually was not.
One of the main difference between the FCPA and the FCA is the latter’s materiality requirement. Under the FCPA, any bribe to foreign officials, no matter how insubstantial, can violate the FCPA if it was done intentionally for the purpose of influencing their behavior. A false claim, by contrast, can only create liability under the FCA if the noncompliance would be material to the government’s decision to pay a given claim. That is the reason not all FCPA violations are automatically FCA violations; the FCA is only for “material” breaches whereas there is no such requirement for FCPA violations.
Additionally, FCA claims must involve a claim submitted to the federal government (to cite a common example, a fraudulent claim submitted for a patient insured by Medicare or Medicaid). A company can violate the FCPA whenever it bribes foreign officials, no matter whether in the private or public context.
In recent years, especially since 2010, the DOJ has taken an all-around more aggressive stance towards prosecuting fraud actions, with the number of both FCPA and FCA actions growing considerably.
What Incentives are There for Whistleblowers to Bring FCPA Claims?
As part of its role in enforcing FCPA violations, the SEC also utilizes a whistleblower reward program for any recoveries exceeding $1 million. Persons – typically current or former employees – with knowledge of companies engaging in practices that violate the FCPA can report those violations for rewards. Whistleblowers can expect a range of 10-30% of the ultimate recovery, depending on how helpful the information they provide is in prosecuting the action.
Because FCPA actions often settle for hundreds of millions of dollars, whistleblowers’ rewards can be substantial. Since 2011, the SEC has paid out nearly $400 million to whistleblowers, including individual rewards up to $50 million.
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