Foreign Corrupt Practices Act

Based on Wikipedia: Foreign Corrupt Practices Act

In 1976, a European dignitary stepped in front of a streetcar. Around the same time, an American corporate executive jumped out of a window. Both deaths were connected to the same cause: the public exposure of massive bribery schemes that had corrupted governments across multiple continents.

These weren't isolated incidents. They were symptoms of a disease that had infected American business for decades—the routine practice of paying off foreign officials to win contracts, secure favorable policies, and grease the wheels of international commerce.

The Scandals That Shook Washington

The mid-1970s brought a cascade of revelations that made Watergate look almost quaint by comparison. The Securities and Exchange Commission, the federal agency responsible for regulating financial markets, discovered that more than four hundred American companies had admitted to making questionable or outright illegal payments totaling over three hundred million dollars to foreign government officials, politicians, and political parties.

The names involved read like a who's who of American industry.

Lockheed, the aerospace giant, had been systematically bribing officials in Japan, Italy, the Netherlands, and other countries to favor their aircraft over competitors. The Lockheed bribery scandals would eventually implicate a Japanese prime minister, a Dutch prince, and an Italian prime minister—figures whose careers and reputations were destroyed by the revelations.

Northrop, another defense contractor, had its own network of corrupt payments. Gulf Oil and Mobil were caught greasing palms in the Middle East and Korea. United Brands, the company behind Chiquita bananas, bribed the President of Honduras to secure more favorable treatment for their fruit exports—a scandal that became known, inevitably, as Bananagate.

Perhaps most troubling was the connection to Watergate itself. Investigators discovered that the same slush funds used for political espionage against the Democratic Party were also being used for international bribery. The corruption wasn't just extensive—it was systemic, woven into the fabric of how American business operated overseas.

Congress Responds

By 1977, the pressure for action had become irresistible. Congress passed the Foreign Corrupt Practices Act, and President Jimmy Carter signed it into law on December 19th of that year.

The law did something unprecedented. For the first time, the United States made it a crime for American citizens and companies to bribe foreign government officials for business purposes. This might seem obvious today, but at the time it was revolutionary. Many American executives had viewed foreign bribery as simply a cost of doing business—regrettable perhaps, but necessary in cultures where payments were expected.

The Act attacked the problem from two angles.

First, it created explicit anti-bribery provisions. These made it illegal to offer, promise, or give anything of value to a foreign official to influence their official actions or secure an improper advantage. The law applied not just to direct payments but also to payments made through intermediaries—you couldn't simply hire a local "consultant" to do your dirty work and claim innocence.

Second, the Act required companies with securities listed on American exchanges to maintain accurate financial records and implement internal accounting controls. The logic was elegant: if you're cooking your books to hide bribes, we'll catch you through your accounting before we catch you through your bribery.

What Counts as a Bribe?

The law defines bribes not as cash payments but as "anything of value." This phrase has proven remarkably expansive.

Consider the case of Eli Lilly, the pharmaceutical company, which settled charges in 2012 related to payments its subsidiaries had made to officials in Russia, Brazil, China, and Poland. The bribes weren't suitcases of cash. They were spa treatments. Jewelry. A trip to the 2006 World Cup in Germany.

The total penalty exceeded twenty-nine million dollars.

Gifts, travel expenses, entertainment, job offers, internships for officials' children, scholarships, even charitable donations made at an official's request—all of these can constitute bribes under the Act. The question isn't the form of the payment but its purpose: is it designed to influence an official's actions?

Who Can Be Prosecuted?

The reach of the Foreign Corrupt Practices Act extends far beyond American citizens standing on American soil.

The law applies to any United States person—citizens, residents, and companies—regardless of where they are when they engage in corrupt conduct. If you're an American executive sitting in a hotel room in Lagos negotiating a bribe, you're subject to prosecution. This is what lawyers call the nationality principle: American law follows Americans wherever they go.

But the law goes further. Since 1998, it also applies to foreign companies and individuals who engage in corrupt practices while physically present in the United States or who use American financial infrastructure to facilitate their schemes. This is the territorial principle: if you do it here, or through here, you're subject to our laws.

The case of Total, the French oil and gas company, illustrates this reach. In 2013, Total agreed to pay a penalty exceeding two hundred forty-five million dollars to settle charges related to bribes paid to an Iranian official. The bribery scheme occurred entirely outside the United States. But Total had securities registered with the Securities and Exchange Commission and had routed corrupt payments through American banks. That was enough.

The Early Years of Enforcement

The first person convicted under the new law was a businessman named Finbar Kenny. His crime? He had advanced three hundred thirty-seven thousand dollars to Sir Albert Henry, the Prime Minister of the Cook Islands, to fund Henry's reelection campaign. The money came from postage stamp revenue—the Cook Islands, like many small nations, earned significant income from selling commemorative stamps to collectors.

Kenny pleaded guilty in 1979 and was fined fifty thousand dollars.

For the next several decades, enforcement remained relatively modest. The Department of Justice and the Securities and Exchange Commission, which share responsibility for enforcing the Act, brought cases sporadically. Many in the business community viewed the law as an irritation—a handicap that put American companies at a disadvantage against foreign competitors who faced no such restrictions.

The 1988 Amendments

Responding to criticism from the business community, Congress amended the Act in 1988. The changes introduced several important concepts.

First, prosecutors would now have to prove that a defendant "knowingly" engaged in corrupt practices. This standard includes "conscious disregard" and "willful blindness"—you can't escape liability by deliberately avoiding information about what your agents are doing on your behalf. But it does mean that genuinely innocent mistakes might not result in criminal liability.

Second, the amendments created safe harbors for certain types of payments. If a gift is "bona fide, reasonable, and lawful" under the laws of the foreign country, it doesn't violate the Act. This acknowledged a practical reality: in many cultures, modest gifts are an expected part of business etiquette, and criminalizing every cup of tea offered to a foreign official would be both impractical and absurd.

Going Global: The 1998 Amendments

The most significant expansion of the law came in 1998, when Congress passed the International Anti-Bribery Act.

This amendment implemented the United States' commitments under the Organization for Economic Cooperation and Development Anti-Bribery Convention, an international agreement signed by major industrialized nations to create uniform standards against foreign bribery. The convention was designed to level the playing field—if all the major economic powers prohibited foreign bribery, no country's businesses would be at a competitive disadvantage for following the rules.

The 1998 amendments extended the law's reach to cover foreign persons and companies who participate in corrupt payments while in American territory. They also increased penalties and strengthened enforcement mechanisms.

The Enforcement Revolution

Something changed around 2005.

Enforcement of the Foreign Corrupt Practices Act, which had been sporadic and relatively mild for nearly three decades, suddenly exploded. The number of cases increased. The penalties grew astronomical. Companies that had previously treated compliance as an afterthought began hiring armies of lawyers and compliance officers.

In 2010, the Securities and Exchange Commission created a specialized unit dedicated solely to enforcing the Act—a signal of institutional commitment that would have been unimaginable a decade earlier.

What drove this transformation? Several factors converged. The globalization of American business meant more opportunities for corruption. The fall of the Soviet Union had opened vast new markets in Eastern Europe and Central Asia, regions where bribery was endemic. The rise of China and the scramble for access to its market created enormous pressure to pay for favorable treatment.

At the same time, enforcement agencies developed new tools and expertise. They learned to follow money through complex international transactions. They built relationships with foreign prosecutors willing to share information and coordinate investigations. They discovered that companies facing enforcement actions were often willing to cooperate extensively—turning over internal investigations, implicating individuals, even paying for monitors—in exchange for reduced penalties.

The Human Cost of Violations

While corporations pay fines, individuals can go to prison.

In the 1992 case of United States versus Liebo, the vice president of Napco International's Aerospace division was sentenced to eighteen months in prison for violating the Act's anti-bribery provisions. More recently, in 2019, a former executive at a subsidiary of Alstom, the French industrial conglomerate, received fifteen months in prison for his role in a scheme to bribe Indonesian officials to secure a power plant contract worth one hundred eighteen million dollars.

Prison sentences remain relatively uncommon—most enforcement actions result in fines and other civil penalties—but when they occur, they average around thirty months. The investigations themselves are lengthy and grueling, averaging approximately thirty-nine months from initiation to conclusion according to research by Stanford University.

In 2015, the Department of Justice issued what became known as the Yates Memo, named after Deputy Attorney General Sally Yates. The memo prioritized prosecution of individuals involved in corporate misconduct. Companies seeking cooperation credit would need to identify all individuals involved in wrongdoing and provide all relevant facts about their conduct. The message was clear: hiding behind the corporate shield would no longer be sufficient.

The Global Anti-Corruption Movement

For more than three decades, the Foreign Corrupt Practices Act stood largely alone. Other countries talked about fighting corruption but rarely acted with comparable vigor.

That began to change around 2010. The United Kingdom passed its Bribery Act that year, legislation that in some ways went further than American law. It criminalized not just bribing foreign officials but also commercial bribery between private parties, and it created a strict liability offense for corporations that fail to prevent bribery by persons associated with them.

Other countries followed. Brazil enacted its Clean Company Act in 2014. France passed its Sapin II law in 2016. The International Organization for Standardization introduced an anti-bribery management system standard the same year, providing companies with a framework for building compliance programs.

More importantly, countries began cooperating on enforcement. Investigations that once would have stopped at national borders now routinely involve coordination between prosecutors in multiple jurisdictions. A single bribery scheme might result in penalties paid to American, British, French, and Brazilian authorities simultaneously.

The Debate Over Effects

Does the Foreign Corrupt Practices Act actually reduce corruption? Or does it simply handicap American businesses while foreign competitors continue to bribe with impunity?

This debate has raged since the law's passage. Critics argue that enforcement discourages American companies from investing in developing markets, ceding opportunities to less scrupulous competitors. Scholars have found evidence that vigorous enforcement does reduce American investment in corrupt countries—though whether this is a bug or a feature depends on your perspective.

The business community has also complained about uncertainty. The law prohibits bribes to "foreign officials," but the definition of who qualifies as an official can be unclear. In countries where state-owned enterprises dominate major industries, is every employee of a government-owned company a "foreign official"? The answer has significant implications for how companies can interact with customers, suppliers, and partners.

Defenders of the Act argue that it has fundamentally changed corporate culture for the better. Companies now routinely conduct anti-corruption due diligence before acquisitions. They train employees on recognizing and avoiding corruption risks. They implement accounting controls that make bribery harder to conceal.

A 2025 survey of economists found overwhelming agreement that ending enforcement of the Act would increase global levels of bribery and corruption. Notably, none of the surveyed economists believed that abandoning enforcement would increase the long-term profits and competitiveness of American businesses.

The Investor Confidence Argument

There's another perspective rarely discussed in the traditional debate: what investors want.

Corruption is expensive. Not just the bribes themselves, but the uncertainty they create. A company that wins contracts through bribery depends on maintaining those corrupt relationships. Political changes can eliminate carefully cultivated connections overnight. Competitors with deeper pockets or fewer scruples can outbid you for officials' loyalty. The very officials you've bribed may demand ever-larger payments, knowing you're trapped.

Investors increasingly recognize these risks. Companies with strong anti-corruption compliance programs may actually be more valuable than companies willing to pay bribes—because their earnings are more sustainable and their legal exposure is lower.

This has driven demand for expertise. Universities now offer specialized courses in business ethics and compliance. Professional certifications exist for anti-corruption practitioners. What was once an obscure corner of corporate law has become a significant industry in its own right.

Complications and Controversies

Enforcing laws against international corruption raises thorny questions that have no easy answers.

Jurisdiction is perpetually complicated. When an Italian company bribes a Nigerian official through a bank in London using funds from an account in Singapore, which country has authority to prosecute? The answer may be "all of them," which creates its own problems of coordination and potential overreach.

Politics inevitably intrudes. The decision to prosecute a foreign bribery case can have diplomatic implications. Targeting a company with close ties to a foreign government may strain relationships. Failing to target it may look like favoritism or corruption in its own right.

The distinction between bribes and legitimate business expenses remains contested. Is flying a government official to your headquarters for a plant tour a bribe or normal business development? What about paying for the official's spouse to accompany them? What about upgrading them to first class? The line between hospitality and corruption can be genuinely difficult to locate.

The Government Accountability Office has documented ongoing complaints from companies about the lack of clarity in reporting requirements, particularly regarding financial disclosures. How detailed must accounting records be? What counts as "accurate" record-keeping when the underlying transaction itself may be ambiguous?

The Future Uncertain

In February 2025, President Donald Trump signed an executive order directing the Attorney General to review enforcement of the Foreign Corrupt Practices Act. The order suggested that enforcement should be curtailed, reflecting Trump's longstanding skepticism about the law.

This represents a potential inflection point in the Act's nearly fifty-year history. Enforcement has fluctuated before—the quiet decades after passage, the explosion of activity after 2005—but it has never faced direct political opposition from the White House.

The implications extend far beyond American borders. The United States has been the driving force behind the global anti-corruption movement. American enforcement created pressure for other countries to act. American prosecutions generated precedents and expertise that spread worldwide. If American commitment wavers, will other countries maintain their own enforcement? Or will the international consensus against foreign bribery, painstakingly constructed over decades, begin to unravel?

What the Law Means Today

Nearly half a century after its passage, the Foreign Corrupt Practices Act remains the most significant anti-corruption law ever enacted.

It transformed how American companies operate overseas, creating compliance programs and internal controls that would have been unimaginable to the executives of the 1970s—the ones paying off prime ministers and stuffing briefcases with cash. It provided a model that other countries eventually adopted, helping create an international framework for fighting corruption that, however imperfect, represents a genuine improvement over the anything-goes environment that preceded it.

The law emerged from scandal and tragedy—from suicides and disgrace, from the recognition that American business practices were corrupting governments and undermining democracy around the world. Whether it will continue to serve that purpose depends on choices yet to be made.

The dignitary who stepped in front of a streetcar, the executive who jumped from his window—they were destroyed by the exposure of corruption, not by its prohibition. The Foreign Corrupt Practices Act was designed to prevent such tragedies by preventing the corruption that caused them. Its ultimate fate will determine whether we return to an era when bribery was simply how business was done, or whether we continue building toward something better.