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The Foreign Corrupt Practices Act
Robert Kerwin, Esq.
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To paraphrase Mark Twain, reports of the demise of the Foreign Corrupt Practice Act ("FCPA") have been
greatly exaggerated. The FCPA, 15 U.S.C. §§ 78dd-1 et seq., generally prohibits bribery in international
commerce, and enforcement actions under the FCPA are on the rise. In fact, in September alone there were
three notable FCPA convictions. First was the conviction of Leo Winston Smith of Pacific Consolidated
Industries for bribing a U.K. Ministry of Defense official. Mr. Smith, now 73 years old, faces as much as five
years of prison time, along with a possible fine in the hundreds of thousands of dollars. Next were Gerald and
Patricia Green, two film executives whose story does not have a Hollywood ending; they were convicted of FCPA
and money laundering violations for bribing Thai officials. They face a maximum of five years for the FCPA
charges and a maximum of twenty years for money laundering. Finally, AGCO Corporation was found liable for
charges it paid kickbacks to the pre-war Iraq government. AGCO Corp. faces a $1.6 million criminal fine, a $2.4
million civil penalty, and was forced to disgorge more than $13 million in profits.
Yet those examples aren’t the examples that should scare you. The most important change to FCPA law came in
July, when the Securities and Exchange Commission ("SEC") agreed to an Enforcement Action against Nature's
Sunshine Products ("NSP"). Pursuant to the Enforcement Action, NSP paid a fine of over $600,000. More
importantly, two senior NSP executives were each forced to pay $25,000 fines for violating the FCPA. Although
$25,000 pales in comparison to the amounts discussed above, those executives did not play any part in the
bribery. Instead, the SEC held them responsible as "control persons," and the fine was based on their failure to
adequately supervise employees and keep accurate books. It did not matter that neither executive had any
actual knowledge of or involvement in the bribery.
Violating the FCPA has always been costly, and now punishment can be handed out without actually
participating in the offending conduct. Taking time to review your procedures and educate your employees can
potentially save time and anguish. To paraphrase Ben Franklin, an ounce of prevention is worth a pound of
fighting a potential enforcement action.
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