What it means
The law was passed in 1977 after investigations found that large companies had been making secret payments to officials abroad and hiding them in their accounts. It has two main parts: the anti-bribery provisions and the accounting provisions.
Together they target both the payment and the cover-up. The anti-bribery provisions ban offering or paying anything of value to a foreign official to influence a decision or gain an improper advantage.
"Anything of value" is wide, and it covers cash, gifts, travel, entertainment, jobs for relatives and donations to a favoured charity. The accounting provisions apply to companies whose securities are listed in the US.
They must keep books and records that reflect transactions accurately and maintain internal controls strong enough to prevent hidden payments, which is why finance teams are so closely involved. The law reaches US companies and citizens, companies listed in the US, and foreign persons who act while in the US.
It also reaches payments made through agents, consultants, distributors and joint venture partners, so a company can be liable for what a third party does on its behalf if it knew, or chose not to know. Enforcement is shared by the US Department of Justice and the securities regulator, and penalties can include very large fines, repayment of profits and prison for individuals.
Companies often agree settlements that include an outside monitor who reviews their compliance for several years. A nuance is the narrow exception for small facilitating payments made to speed up routine government actions, and the defence for reasonable promotional expenses.
Neither is a safe harbour for disguised bribes, and many companies simply ban all such payments to keep matters simple.
In practice
Real-world examples.
Example
A US-listed engineering firm hires a local consultant in a foreign country to help win a port contract. The consultant is paid a "success fee" that is far above market rates, and finance asks for proof of services before it releases the money. When no report, emails or deliverables can be produced, the payment is blocked and the relationship is reviewed by the legal team.
Example
A medical device distributor takes a hospital official's family on a luxury holiday paid for by the company while a tender is open. The expense is recorded as "training," which creates both an anti-bribery problem and a books-and-records problem. Even if the trip had been genuine training, the company would still need receipts and an agenda to show what was actually paid for.
Example
A food exporter pays a small cash amount to a customs officer to speed up the clearance of a routine shipment. The payment is not recorded accurately, and an internal audit later flags it as a control failure. The company now uses a registered customs broker with fixed published fees instead of cash handled by staff.
Case study
Seen in the real world.
Redstone Energy Services is an illustrative, fictional oil services business listed in New York with operations in several developing markets. During a routine audit, its internal auditors noticed a series of payments to a local agent that were all just below the approval limit for senior sign-off.
The finance team reviewed the contracts and found that the agent had no real deliverables and a close relationship with a ministry official. The company stopped payment, reported the matter to its audit committee and brought in outside counsel to investigate.
In this illustrative case, the prompt action and cooperation with regulators were treated as mitigating factors. The lesson is that strong internal controls and quick escalation matter as much as the original mistake. Redstone also introduced a rule that every new agent must pass a due diligence check, with the finance team holding the right to refuse payment until it is complete.
Watch out
Common mistakes.
- Believing the law only applies to US companies, when foreign companies listed in the US or acting in the US can also be caught.
- Treating payments made through an agent or consultant as someone else's problem, when the company can be liable for a third party's bribes.
- Assuming small gifts and hospitality are always safe, when the test is the intent behind them and how they are recorded.
Questions
People also ask.
Does the law apply if no money changes hands?
It can, because the ban covers offering or promising anything of value, not just completed cash payments. An offer that is refused may still be a problem if it was made with corrupt intent.
What is a foreign official?
It includes employees of government departments, state-owned businesses and public international organisations, and sometimes people who hold roles in political parties.
How can finance teams reduce the risk?
They can set approval limits, require evidence of services before paying third parties, screen agents before hiring them, and train staff in high-risk markets. A confidential reporting line for staff who see something suspicious is also widely regarded as good practice.
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