Bridging gaps: FEPA boosts US anti-bribery options

November 2024  |  FEATURE | FRAUD & CORRUPTION

Financier Worldwide Magazine

November 2024 Issue

Originally introduced to restore public confidence in the integrity of US companies following revelations of illegal payments to foreign entities in exchange for favourable treatment, the Foreign Corrupt Practices Act (FCPA) has been the primary federal anti-bribery law for the best part of 50 years.

Under the FCPA, it is unlawful for a US person or any company listed on a US stock exchange (which may also be any officer, director, employee or agent of a company or any stockholder acting on behalf of the company) – to corruptly offer, pay or promise to pay money or anything of value to any foreign official (which may be a foreign political party or candidate for foreign political office) for the purpose of obtaining or retaining business.

Also covered by the FCPA is the authorisation of any money, offer, gift or promise corruptly authorising the giving of anything of value to any person while knowing that all or a portion of it will be offered, given or promised – directly or indirectly – to any foreign official for the purposes of assisting the US person or company in obtaining or retaining business.

Enforced jointly by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), the FCPA has steadily grown in stature over the decades to become one of the most significant pieces of anti-bribery legislation in the world, influencing similar anti-corruption legislation such as the UK’s 2010 Bribery Act.

However, for all its wide-ranging influence, the FCPA is limited to the extent that its primary focus is on the ‘supply side’ of foreign bribery and corruption, with little oversight of the ‘demand side’. This longstanding gap has resulted in crimes committed in this sphere going largely unpunished.

Indeed, a recent survey by the Organisation for Economic Co-operation and Development (OECD) found that foreign officials who demand or receive bribes are only criminally punished by their home governments some 20 percent of the time. And of nearly 50 leading export countries surveyed in a recent Transparency International report, only two were found to actively enforce their foreign anti-bribery laws.

“The parade of horribles enabled by such inaction includes everything from human trafficking to environmental crimes, endangering public health to supporting militaristic regimes,” says Scott Greytak, director of advocacy at Transparency International U.S. “For example, in Uganda, social welfare officers and court officials used their positions to accept bribes from a US-based adoption agency in exchange for steering adoption cases to ‘adoption-friendly’ judges, among other things, facilitating the trafficking of Ugandan children.

“Similarly, in Indonesia, a government official used his position to accept bribes from a US-based agricultural company,” he continues. “The company, a leading producer of genetically modified crops, illegally paid the government to undermine a requirement that an environmental impact study take place before the sale of the crops could be approved.”

As Transparency International U.S.’s 2023 FEPA analysis makes clear, when foreign officials demand such bribes, they steal precious resources from their citizens, reward and encourage illegal business practices, punish law-abiding US businesses, provide impunity to environmental criminals, sow the seeds of economic and social unrest, and fortify and finance authoritarian regimes.

As noted, protection for US companies from such solicitations has been largely absent under the FCPA. That is until recently, with the enactment of the Foreign Extortion Prevention Act (FEPA) – legislation that bridges a longstanding gap in US anti-bribery and anticorruption law.

“US companies have always faced bribery demands from foreign officials,” attests Ghazanfar Shah, a senior managing director at K2 Integrity. “While anti-bribery laws enacted by foreign governments prohibit the ‘demand’ side of bribery and corruption, the DOJ has historically had to rely on other criminal laws and indirect acts of enforcement, such as the 1961 International Travel Act.”

Under the FEPA, however, those found responsible for demanding bribes can be prosecuted in the US.

Unpacking the FEPA

Signed into law by President Biden in December 2023 as part of the 2024 National Defense Authorization Act, the FEPA – which complements the intentions of the FCPA – puts US anti-bribery laws in line with other international anti-bribery laws and has significant implications for US companies operating around the globe.

The text of the FEPA states that: “It shall be unlawful for any foreign official or person selected to be a foreign official to corruptly demand, seek, receive, accept, or agree to receive or accept, directly or indirectly, anything of value personally or for any other person or nongovernmental entity, by making use of the mails or any means or instrumentality of interstate commerce, from any person” – while in the territory of the United States, from an “issuer [essentially, a company that is listed on any US stock exchange]” or from “a domestic concern [essentially, an American or American company],” in return for: “(i) being influenced in the performance of any act or decision of the foreign official in the official capacity of the foreign official or person selected to be a foreign official; (ii) being induced to do or omit to do any act in violation of the lawful duty of the foreign official or person selected to be a foreign official; (iii) conferring any improper advantage; or (iv) using the influence of the foreign official or person selected to be a foreign official with a foreign government or instrumentality thereof to affect or influence any act or decision of that government of instrumentality, in connection with obtaining or retaining business for or with, or directing business to, any person.”

“The US adopted the FEPA in order to make it a crime for any foreign official – including any current or former senior official or immediate family member thereof – to ask for, or to accept, a bribe from any company that is listed on a US stock exchange, from any American or any American company, or while that official is in the territory of the US,” reiterates Mr Greytak. “Previously, US law, under the FCPA, only made it a crime for any US citizen or company to offer or give a bribe to a foreign official, but did nothing to disincentivise, let alone punish, a foreign official from asking for or accepting a bribe.”

Thus, broadly speaking, the key objectives of the FEPA are to enhance US anti-corruption measures, protect US companies and promote global transparency.

Critical provisions

More explicitly, the FEPA introduces several critical provisions designed to extend the scope of US jurisdiction over foreign corrupt practices – provisions that go some way toward bridging longstanding gaps in the primary federal anti-bribery law, the FCPA.

“The FCPA and the FEPA both aim to combat corruption but address different aspects of it,” states Mr Shah. “The FCPA primarily focuses on prohibiting the bribery of foreign officials by US companies and individuals, while the FEPA targets the extortion of funds or valuables by foreign officials from US individuals or entities. In simpler terms, the FCPA does not itself prohibit foreign officials from demanding bribes from US companies and individuals in the same circumstances.

“The FEPA also expands the FCPA’s definition of the term ‘foreign official’ and makes it much broader and far reaching,” he continues. “Additionally, unlike the FCPA, the FEPA does not contain an exception for facilitation payments, and thus, even payments made to expedite a routine governmental action could implicate the recipient of the payment under the FEPA. Similarly, the FEPA has no provision for ‘affirmative defenses’.”

In its analysis of the FEPA’s provisions, Eisner Gorin LLP explains the legislation’s most significant components, as outlined below.

First, criminalisation of bribe solicitation. The FEPA defines the solicitation of bribes by foreign officials from US nationals as a criminal offence. It specifies that any foreign official who demands or seeks a bribe in return for favourable action in their official capacity commits a crime under US law.

Second, extraterritorial jurisdiction. The FEPA asserts extraterritorial jurisdiction, meaning that the US can prosecute foreign officials even if the corrupt conduct occurs outside the US. This provision builds on precedents set by other US laws, such as the FCPA, which apply to acts committed abroad that have consequences or connections to the US.

Third, enforcement and cooperation. The FEPA promotes cooperation between US government agencies, including the DOJ and the SEC, to enhance enforcement capabilities. FEPA also encourages the US to work with other nations and international organisations to pursue cases against corrupt foreign officials, facilitating broader enforcement and compliance.

In terms of the penalties for non-compliance with the FEPA, the legislation stipulates imprisonment of up to 15 years and/or a fine of up to $250,000 (or three times the monetary value of the bribe) for any violators. Foreign officials that are able to evade arrest may face asset freezes and seizures or even extradition when travelling to or within a country maintaining an extradition treaty with the US.

“The FEPA also requires the DOJ to publish an annual report that discusses the scale and nature of foreign bribe demands against American companies, the effectiveness of US diplomatic efforts to protect American companies from foreign bribe demands and the efforts of foreign governments to prosecute those crimes,” adds Mr Greytak.

Thus, for companies within the reach of US laws, the FEPA is a timely reminder to revisit their compliance programmes and ensure that programme components, including risk assessments, policies, training, third-party management and internal reporting, address the ‘demand side’ risks of international bribery and corruption.

Moreover, companies should develop a uniform and cohesive approach to dealing with corrupt conduct by foreign officials, with those companies operating in multiple jurisdictions facing a particular requirement to understand the differences and overlaps among jurisdictions when carrying out the same anti-corruption exercises.

Setting the stage

Throughout its journey to enactment, the FEPA legislation garnered strong support from Republicans and Democrats alike. However, to realise the full potential of the statute will require sustained political support, including across future administrations and oversight from Congress, if it is to be successful in prosecuting foreign officials.

“FEPA’s enactment will increase the US government’s pursuit of foreign officials who seek bribes, thereby closing out the remaining gaps in the enforcement actions under the FCPA,” attests Mr Shah. “All the signs indicate that the DOJ is setting the stage to utilise the FEPA, and we should expect to see this new statute being incorporated into investigations and enforcement actions soon.

“There is also an expectation that the FEPA will measure up where the FCPA has fallen short. Since the FCPA has been an effective, and lucrative, enforcement tool for the US over the last 46 years, there is a high probability that the US government will use the FEPA to close the gaps the FCPA had left in the US’s ability to enforce fines, penalties and disgorgements globally,” he adds.

Also confident about the prospects of the statute’s success is Mr Greytak. “The FEPA is a model law that any foreign government genuinely committed to combatting corruption could adopt,” he contends. “It offers the potential to provide significant strides toward justice for many victims of corruption around the world.

“The coming months will be critical for ensuring that FEPA is more than just words on paper,” he continues. “Given its ability to be applied anywhere in the world – assuming the law’s jurisdictional elements are met – its strong bipartisan and bicameral support, and the ongoing, enthusiastic buttress of the DOJ, we expect the FEPA to be a powerful tool in tackling foreign bribery and corruption.”

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Fraser Tennant