Every day, U.S. businesses do billions of dollars in business with foreign countries, importing nearly $7.5 billion and exporting $6.4 billion in goods and services. Although the majority of this nearly $14 billion in trade is controlled by big business, small companies are starting to carve out a much bigger piece of the pie. The latest Census data shows that one-third of all export transactions is now conducted by small businesses.
Over the next decade, as technology makes it easier, foreign markets become more attractive, and difficulties at home make it a necessity to achieve growth elsewhere, more small businesses will likely engage in international trade. While this is a good development for business growth, business owners need to be careful not to fall into the same traps that many large companies have been caught in: bribing foreign officials to win business.
The United States is the only country in the world that makes it a crime to bribe a foreign official while in a foreign country in hopes of winning a contract or currying some other favor. The Foreign Corrupt Practices Act (FCPA) became law in 1977, and it holds both companies and individuals liable for its violations. But for decades, prosecutions under the Act were virtually nonexistent: From 1980 to 2000, there were only six enforcement actions.
But everything changed in 2010 when President Obama made FCPA prosecutions a high priority. A special investigation and prosecution team was formed, and since then, enforcement actions have skyrocketed. Since January 2010, there have been more enforcement actions brought against companies and individuals than in the entire period from 1977 until 2009. Experts predict this trend will likely continue.
Applying The Law
The FCPA has several components, but the one applicable to small business has to do with the bribery of foreign officials. You can't directly pay, indirectly pay or even promise to pay a foreign official anything of value “to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.”
With such a broad description, it can be difficult to determine exactly which of your actions could be illegal. Many examples of bribery are obvious. For instance, if you give a briefcase containing $50,000 in cash to the mayor of a city who then announces the next day that you've won a $500,000 contract to supply that city with consulting services, you've violated the FCPA. But not every action is so clear cut.
For example, one company is currently under investigation for having hired the child of an important government minister in China. The child is an adult who is qualified and well-connected and has the type of skills that a U.S. company needs to get business done. But because the company is also trying to win contracts with the government, hiring the minister's offspring is being viewed as a potential bribe benefiting the child’s father.
Another company, this one in the medical device industry, has been forced to settle and pay a multimillion-dollar fine to the Justice Department as well as disgorge all profits made in connection with contracts that were awarded after it paid for foreign doctors and health ministers to attend a conference.
So how can you win business abroad without falling prey to the FCPA? The Department of Justice and the Securities and Exchange Commission have prepared a guide to help companies navigate the law. But unfortunately, it's still vague on some of the most important areas, namely who exactly is considered a foreign official and where exactly you draw the line between bribery and not bribery. And the actions of your employees can get you into trouble, too. For instance, if you hire employees and they violate the FCPA without your knowledge and of their own volition, you and your company can still be found liable.
Making matters more complex is the fact that the FCPA does allow what are known as “facilitation payments.” These are payments made to someone in order for them to do their job. If you need a low-level court clerk or someone in a municipal office to stamp a document or a file a request, you can pay them a little something to help make sure they get the job done. What you can’t do is pay them to make a decision in your favor.
Despite the minefield you have to walk through, don’t let the FCPA discourage you from conducting business in foreign countries. In cases where you're unsure whether a certain gift or trip may be considered undue influence, it's best to err on the side of caution and not take any action. You should also make sure that any local market consultants you hire understand your concerns and your position with regards to bribery. No business is worth a hefty fine or, worse, time spent behind bars.
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