The question comes from Pune, India: Can a payment that is not a bribe – such as a facilitating payment – be the basis for a criminal violation of the U.S. Foreign Corrupt Practices Act if the accounting for the payment is intentionally misleading?
The answer is yes, and here’s how. The FCPA has two parts – the anti-bribery provisions and the accounting standards. They’re supposed to work together and often do, but they can also work separately. The anti-bribery provisions are a stand-alone federal criminal statute enforced by the Department of Justice. They reach all U.S. companies and their personnel. In contrast, the accounting standards do not stand alone. They’re part of the Securities Exchange Act of 1934. The accounting standards do not apply to everyone, just SEC-reporting companies, called “issuers,” and their employees.
While the anti-bribery provisions are a pure criminal statute, the accounting standards – as part of the SEC’s regulatory scheme for public companies – are both administrative rules and a criminal statute. As administrative rules, the accounting standards can be violated by accident. When a “technical violation” happens, the SEC can sanction the violator, but only with civil or administrative penalties and not with criminal fines or jail time. The accounting standards become a criminal matter, however, when a violation happens “knowingly.” In that case, the offense is punishable by up to 20 years in prison and fines. By the way, the possible jail time for violating the anti-bribery provisions is “only” five years, not 20, and proving an accounting offense is simpler than an anti-bribery charge. That’s why the Department of Justice favors FCPA accounting prosecutions when there’s a choice.
But we’re getting ahead of ourselves. Because the anti-bribery provisions and the accounting standards can work separately, an intentional violation of the accounting standards can be a criminal offense “whether or not such falsification is related to a foreign corrupt practice proscribed by the FCPA.” See the United States Attorneys’ Criminal Resource Manual (Title 9, Section 1017, FCPA Corporate Recordkeeping). To paraphrase Uncle Sam, then, you can take the fcp out of the FCPA and still commit a criminal offense under the accounting standards. All that’s required is for an issuer to cook the books. Therefore, a lawful facilitating payment that is knowingly accounted for in a misleading way can be the basis for a criminal violation of the FCPA.
View the United States Attorneys’ Criminal Resource Manual, Title 9, Section 1017 Here.