What Is the Foreign Corrupt Practices Act? - Summary & Cases

Instructor: Renee Switalski
This lesson covers the Foreign Corrupt Practices Act. In this lesson, we'll take a look at the definition of the Act and what happens when a company violates it. We'll also review some real life examples of violations.

What Is the Foreign Corrupt Practices Act?

Have you ever known anyone who bribed others to get something they wanted and then hid the truth to cover up the bribe? Were there consequences? The Foreign Corrupt Practices Act was enacted to prevent, monitor, and issue consequences for such practices in international business.

The Foreign Corrupt Practices Act (FCPA) applies to publicly traded companies and generally prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. The FCPA can apply to prohibited conduct anywhere in the world. The FCPA also requires that companies maintain accurate books and have processes and procedures in place to make sure all business transactions are compliant. In other words, their accounting practices must be transparent.

Anyone with decision making authority on behalf of the company can violate the FCPA and the company can be held liable. This includes third party agents, consultants, partners, and subsidiaries, among others.

Violations of the FCPA can lead to civil charges (governed by the Security and Exchange Commission (SEC)), criminal charges (the Department of Justice (DOJ)), or both and can result in hefty fines.

Take a look at the cases below to see what the FCPA looks like in action.

Recent FCPA Cases

  • Goodyear Tire Company

In 2015 the SEC discovered Goodyear's African subsidiary had paid cash bribes of over 3 million dollars to local governments, businesses, and employees of companies to secure tire sales in Kenya and Angola. These bribes were recorded in business records as legitimate expenses and then consolidated with the books and records from Goodyear.

In this case, Goodyear and its subsidiary either did not have a process in place to detect and/or failed to detect the cash bribes and did not report them. Remember, transparency in the company's accounting practices is a really important part of complying with the FCPA. If Goodyear had reported the bribes to the SEC when/if the bribes were discovered, their penalties would likely have been less. Instead, in order to settle the charges with the SEC, Goodyear agreed to pay $16 million. That dollar amount included the actual cost of the bribes, plus penalties and interest.

  • Ralph Lauren

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