The Foreign Corrupt Practices Act and the benefits of voluntary disclosure
| Date | 03 October 2016 |
| DOI | https://doi.org/10.1108/JFC-07-2015-0033 |
| Pages | 916-931 |
| Published date | 03 October 2016 |
| Author | Peter Leasure |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
The Foreign Corrupt Practices
Act and the benets of
voluntary disclosure
Peter Leasure
Department of Criminology and Criminal Justice,
University of South Carolina, Columbia, South Carolina
Abstract
Purpose – Various federal agencies have acknowledged that they would take voluntary disclosure of
Foreign Corrupt Practices Act (FCPA) misconduct into account in assessing a transgressing company’s
nes. However, several scholars questioned whether companies would actually receive that benet.
Previous research yielded the answer that companies do not get any benet from voluntarily disclosing.
The current study aims to revisit this area.
Design/methodology/approach – The present study uses a census approach where all FCPA cases
will be analyzed. The present study also uses added control variables and different statistical
approaches in an effort to answer the question of whether there is a benet to voluntary disclosure.
Findings – The results here contradict previous ndings and show that companies do actually receive
a benet to voluntary disclosure when the bribe promised or paid is under a certain amount. Once the
bribe paid or promised surpasses this amount, the benet to voluntary disclosure ceases.
Practical implications – Findings provide insight to companies facing possible FCPA violations.
Originality/value – Only one author attempted to answer the question of whether there was a benet
to voluntary disclosure. However, a subsequent study illuminated several aws within that previous
research. The current study is the rst to provide a substantial answer to the question.
Keywords FCPA, Voluntary disclosure
Paper type Research paper
Introduction
The Foreign Corrupt Practices Act (FCPA) was one of the rst of its kind in the area of
foreign ofcial anti-bribery legislation when it was enacted in 1977 by the USA. The
FCPA was enacted “to restore public condence in the integrity of the American
business system” (Foreign Corrupt Practices Act Anti-Bribery Provisions Lay-Person’s
Guide, 2010). The FCPA seeks to curtail the bribery of foreign ofcials by US
companies[1] or “issuers[2]” through two separate provisions.
The two statutory components of the FCPA are the Anti-Bribery and Books and
Records Provisions. In the Anti-Bribery Provisions, the FCPA prohibits companies and
issuers from making payments to a foreign ofcial with the purpose of “inuencing any
act or decision of such foreign ofcial in his ofcial capacity [15 U.S. Code
§78dd(a)(1)(A)(i)]”. Further, the statute makes it unlawful for any company, “employee,
or agent of such issuer […] to make use […] of interstate commerce corruptly in
furtherance of an offer, payment, promise to pay, or […] the giving of anything of value”
to a foreign ofcial to gain a business advantage [15 U.S. Code §78dd(a)(1)(A)(i)]. To be
liable under the FCPA’s Anti-Bribery Provisions, the government must show that the
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JFC
23,4
916
Journalof Financial Crime
Vol.23 No. 4, 2016
pp.916-931
©Emerald Group Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2015-0033
individual or entity had corrupt intent (Foreign Corrupt Practices Act Anti-Bribery
Provisions Lay-Person’s Guide, 2010).
In the Books and Records Provisions, companies and issuers are mandated to “make
and keep books, records, and accounts, which, in reasonable detail, accurately and fairly
reect the transactions and dispositions of the assets of the issuer” and to “devise and
maintain a system of internal accounting controls sufcient to provide reasonable
assurances [15 U.S. Code §78m(b)(2)(A);15 U.S. Code §78m(b)(2)(B)]”. In essence, the
Books and Records Provisions seeks to prohibit individuals or entities from concealing
illegal bribery through falsifying or misrepresenting their internal books and records.
The FCPA has both civil and criminal penalties. For violations of the anti-bribery
provisions, entities can receive a ne of up to $2m [15 U.S.C. §§78dd-2(g)(1)(A),
78dd-3(e)(1)(A), 78ff(c)(1)(A)]. Individuals can receive a maximum ne of $100,000
and up to ve years of imprisonment [15 U.S.C. §§78dd-2(g)(2)(A), 78dd-3(e)(2)(A),
78ff(c)(2)(A)]. For violations of the accounting provisions, entities can receive a
maximum ne of $25m [15 U.S.C. §78ff(a)]. Individuals can receive a maximum ne
of $5m and imprisonment for up to 20 years [15 U.S.C. §78ff(a)]. Also, the Alternative
Fines Act, 18 U.S.C. §3,571(d), allows courts to impose signicantly higher nes
than those provided by the FCPA when there are aggravating circumstances.
In addition to the penalties listed above, a nding of FCPA liability can also result in
a company being placed on probation, being appointed a compliance monitor, being
ordered to implement enhanced compliance programs, pay disgorgement and or being
subject to forfeiture.
Critical to this paper is a discussion of the history of government agencies promising
benets to companies who voluntarily disclose FCPA misconduct. There were promised
benets to voluntary disclosure from the FCPA’s inception[3]. These promises of a
benet to voluntary disclosure later arose in other forms such as the creation of the
Organizational Sentencing Guidelines created by the Sentencing Reform Act in 1984
(Organizational Sentencing Guidelines, 1984). The promise of mitigation for voluntary
disclosure also comes from several recent sources besides the Sentencing Guidelines and
legislative history of the FCPA such as the Department of Justice (DOJ) (Thompson,
2003), the Deputy Attorney General(Grindler, 2010) and the Assistant Attorney General
of the Criminal Division (Breuer, 2009).
Also important in our discussion here is the Sarbanes–Oxley Act (SOX) of 2002
which increased the maximum nes for false and misleading statements for
corporations; required companies to establish and or maintain internal controls for
nancial reporting and to evaluate those controls periodically; and required that
corporate executives be much more cognizant of potential fraud by establishing or
maintaining ethics programs (15 U.S. Code §78ff(a);Final Rule, 2003). It has been argued
that SOX, DOJ and Securities and Exchange Commission (SEC) trends have resulted in
more voluntary disclosures of FCPA violations (Kress, 2009;Cascini and DelFavero,
2008). Despite this increase in voluntary disclosure and the repeated promises of
mitigating benets to voluntary disclosure, many authors question whether companies
actually see a mitigating benet when voluntarily disclosing (Tillipman, 2008;Low
et al., 2006;Vernazza and Mueller, 2008).
In summary, this section rst outlined the provisions and penalties of the FCPA.
Most important to the current study, this section then identied the various US sources
that promised mitigation for voluntary disclosure and also identied authors who felt
917
Foreign
Corrupt
Practices Act
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