Foreign Corrupt Practices Act (FCPA) history

Passed by Congress in 1977, the FCPA makes it illegal for Americans to bribe foreign business contacts in order to do business with them. Enforcement of the act is shared by the Department of Justice and the Securities and Exchange Commission (SEC).

In the 1970s, the SEC discovered that hundreds of American companies doing business abroad regularly bribed foreign officials in return for contracts or other favors. The payments often were made to government officials in order to facilitate business. After the act was passed, several companies accused of bribery were found guilty, fined, and subsequently barred from bidding on federal contracts in the United States.

The law was not totally effective, however. It put many firms at a disadvantage since bribing foreign officials is not illegal in many other countries. Some firms even allowed the deduction of the bribes as business expenses. As a result, the law made the playing field overseas more uneven for American companies attempting to compete. In 1988, the United States began a concerted effort to convince other countries that such a law should be passed among all developed countries in order to create a level playing field for all. As a result, the United States and 33 other countries signed the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

The FCPA has required companies to establish compliance departments to monitor their overseas activities in much the same way that securities firms maintain compliance departments to ensure they remain within securities guidelines. The act also requires companies with securities listed in one of the U.S. stock markets to meet American accounting standards. Detractors have claimed that the law ties their hands when dealing with foreign companies and governments, many of which expect off-the-record payments as part of the expense of doing business.

See also GENERALLY ACCEPTED ACCOUNTING PRINCIPLES; SECURITIES EXCHANGE ACT OF 1934.

Further reading

• Prasad, Jyoti N. The Impact of the Foreign Corrupt Practices Act of 1977 on U.S. Exports. New York: Garland, 1993.