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California Scheming

Foreign Corrupt Practices Act

The UK Bribery Act

I previously blogged about the U.S. Foreign Corrupt Practices Act (FCPA) and the Justice Department and SEC's expanded investigations of possible bribe payments in connection with contracts Hewlett Packard obtained in Russia. The payments may have violated the Act that prohibits persons, entities, and certain foreign entities (mainly issuers of securities on a US exchange) from making bribes or offering any inducement for the purpose of obtaining or retaining business with a US firm. The Act extends to anyone transacting business while in the US. Basically, if the payments are designed to induce a foreign party to make a decision that might not normally be made, for example, awarding a contract to the payer of the bribe, then it violates the FCPA. Payments that are made to induce foreign parties to do what they should be doing anyway (i.e., payments to custom officials to let exported goods into the foreign country), do not violate the FCPA and are considered a facilitating or "grease" payment.

Now, the UK has passed its version of the FCPA known as the Bribery Act. Uk flag It is more sweeping than the FCPA because, in addition to prohibiting illicit payments to foreign officials, the Act bans bribes between private business people. It applies even if the person making the payment doesn't realize the transaction is a bribe. In other words, ignoarnce of the law is no defense. The Bribery Law prohibits grease payments, small bribes common in some countries to get mail serviced, phone hook-ups or other services that otherwise would be delayed.

US companies are concerned because they fear treating business contacts to an expensive dinner or sporting event could be considered bribery under the UK Bribery Act that covers any company doing business in Britain, regardless of where the company is based. US companies see this as a double whammy since it comes on top of the recently passed Dodd-Frank financial-reform bill. A provision of that Law entitles whistleblowers to share in money collected by the SEC in fraud and corruption cases. Some companies fear employees will have little incentive to report suspected bribery internally when they could ultimately gain a windfall by taking their companies directly to the SEC.

In reflecting on concerns about the FCPA, UK Bribery Act and Dodd-Frank law I was struck by how much time US companies give to worrying about the provisions of these laws that may subject them to fines, penalties and, in some cases for some people, jail time. Wouldn't it be a lot easier and ultimately much more beneficial to our economy and society if top company officials simply created an ethical environment that promotes following all laws and acting ethically at all times? I recall a statement by Benjamin Disraeli, the noted English novelist, debater, and former prime minister: "When men are pure, laws are useless; when men are corrupt, laws are broken."