While foreign companies headquartered and operating outside the US generally know that the Foreign Corrupt Practices Act (FCPA) applies to US companies anywhere in the world, many are surprised to learn of the extent to which this law may directly affect them. The extraterritorial ripple effects of the FCPA, which prohibits the payment of bribes to foreign officials, are both legal and practical. Listed below are ways that unsuspecting non-US companies may, directly or indirectly, feel the impact.

Crossborder impact

Acting in US territory: Following amendments in 1998, the FCPA extends its reach to any corporation or individual, regardless of nationality, who takes any action related to a bribe of a foreign official while inside the territory of the US. The territorial ‘nexus’ need be nothing more than an e-mail or a funds transfer from the US. Any act “in furtherance of” payment of a prohibited bribe that takes place in the US can subject the foreign corporation to prosecution under the FCPA.

Foreign issuers: Companies listed on US stock exchanges or that raise capital in the US are ‘issuers’ under the FCPA and fully subject to its terms, regardless of nationality. If a foreign issuer fails in its Securities and Exchange Commission filings to disclose bribes it paid in its home country, it can be found to have violated the accounting provisions of the FCPA.

Agents of US companies: The FCPA also extends its prohibitions to agents, officers, directors and employees of any company subject to FCPA jurisdiction, regardless of the individual’s nationality. This statutory language therefore reaches a foreign national living abroad who is an agent of a US firm. It even reaches a foreign affiliate of a US company that acts as an agent of its US parent.

Voluntarily submitting to US jurisdiction: Non-US individuals or corporations not otherwise subject to US jurisdiction may voluntarily agree to submit themselves. Such decisions are presumably made only when a foreign entity concludes that ‘voluntarily’ submitting to US jurisdiction is preferable to waging a long jurisdictional fight, even one that they are likely to win in the end.

US affiliates

The FCPA can also affect foreign companies by virtue of their affiliation with US corporations.

Foreign subsidiaries of issuers: Issuers are required to assure that foreign affiliates that they own or control meet the accounting standards of the FCPA. Those foreign subsidiaries are therefore indirectly obliged to maintain accurate books and records and effective internal controls. Because a failure to do so may result in penalties being imposed against the issuer parent, the parent companies become the enforcers, mandating that their foreign affiliates comply with the FCPA’s accounting standards.

US corporate compliance programmes: A foreign subsidiary of a US company may also face FCPA-based rules by virtue of its parent company’s compliance programme. US companies with controlled foreign subsidiaries frequently opt for uniform, worldwide compliance programmes, which typically incorporate FCPA principles that bind foreign affiliates. The shadow of the FCPA is cast through corporate FCPA compliance programmes and the best practices that many reflect.

Foreign company with a US subsidiary: Having a US subsidiary does not subject a foreign company to the FCPA; yet as a ‘domestic concern’ the subsidiary is fully subject to it. Having a US affiliate increases the likelihood that the non-US parent or its managers may come within FCPA jurisdiction by becoming entwined in activities of the subsidiary in the US. The subsidiary’s FCPA compliance programme may create anomalies within the larger company or result in elements of the subsidiary’s compliance programme migrating upstream to the foreign parent.

Commercial channels

FCPA principles also find their way abroad through commercial channels. This variety of extraterritoriality is driven by the concern of US companies that they not be held vicariously under aggressive provisions of the FCPA for the acts of third parties with whom they do business. To reduce that risk, US companies often insist that their business partners conform to US FCPA standards.

Foreign agents and representatives: As US companies may be held vicariously liable under the FCPA for bribes paid by third parties who they retain, local agents, consultants or sales representatives may find themselves being required to comply with the US FCPA, even though they are not legally subject to them. Such demands may appear in a contract as a prohibition, certification requirement, representations and warranties, training commitments or an obligation to open their books and records to audits by the US company.

Joint venture partners: A US party that holds a majority interest in a foreign joint venture will be expected not only to enforce FCPA accounting standards, but also to control and take full responsibility for all actions of the minority joint venture partner. US companies with a controlling interest in a crossborder joint venture may apply the obligations imposed by the US FCPA on their foreign partners, including the right to terminate the venture in the event of a violation.

Foreign takeover targets: A non-US company that is the target of an acquisition or merger with a US company may come face to face with FCPA rules through a probing due diligence process. Because the legal principle of successor liability holds that the acquiring company will inherit the target company’s legal liabilities, due diligence may probe for business practices that are, or could become, FCPA violations, even though the target company may not be subject to the FCPA.

A US monitor of a foreign company: A foreign company subject to the FCPA that resolves a violation with US enforcement agencies may be obliged, as a part of any settlement, to retain an independent compliance monitor or consultant. Such monitors are given broad powers to evaluate the company’s FCPA compliance programme, to make mandatory recommendations for enhancing it and monitoring compliance. A monitor in such a situation can be expected to impose FCPA best practice standards on the company.

Continuing differences

An analysis of how the FCPA is extraterritorial fails to capture the many crossborder dynamics of this law. There remain continuing differences in national legal systems, disparate levels of enforcement and varying degrees of commitment to anti-bribery principles. The extraterritorial ripple effects continue to surprise, and sometimes offend, unsuspecting firms that assume they are beyond the reach of this US law.

Homer E Moyer Jr is a founder of the International Department at law firm Miller & Chevalier Chartered in Washington, DC.

In Summary

Parties subject to the FCPA

• Acting in US territory: The Foreign Corrupt Practices Act (FCPA) affects any corporation or individual who takes action related to a bribe of a foreign official while in the US.
• Foreign issuers: Companies listed on US stock exchanges or that raise capital in the US are ‘issuers’ under the FCPA and fully subject to its terms.
• Agents of US companies: The FCPA extends prohibitions to agents, officers, directors and employees of any company subject to FCPA jurisdiction.
• Voluntarily submitting to US jurisdiction: Non-US individuals or corporations not otherwise subject to US jurisdiction may voluntarily agree to submit to it.
• Foreign subsidiaries of issuers: Issuers must assure that foreign affiliates they own or control meet the accounting standards of the FCPA.
• US corporate compliance programmes: A foreign subsidiary of a US company may face rules by virtue of its parent firm’s compliance programme.
• Foreign company with a US subsidiary: Having a US subsidiary does not subject a foreign company to the FCPA, yet as a ‘domestic concern’ the subsidiary is fully subject to it.
• Foreign agents and representatives: Local agents, consultants or sales representatives may find themselves being required to comply with the US FCPA.
• Joint venture partners: A US party with a majority interest in a foreign joint venture must enforce FCPA accounting standards and control and take full responsibility for all actions of the minority partner.
• Foreign takeover targets: A non-US firm that is the target of an acquisition or merger with a US company may come face to face with FCPA rules through a probing due diligence process.
• A US monitor of a foreign company: A foreign company subject to the FCPA that resolves a violation with US enforcement agencies may be obliged to retain an independent compliance monitor/consultant.