Congress enacted the Foreign Corrupt Practices Act of 1977 to prevent corporate bribery by American businesses of foreign officials. During the mid-1970s, lawsuits revealed that a number of American corporations made questionable or illegal payments to foreign government officials. Federal officials decided that more direct prohibitions on foreign bribery, coupled with more detailed requirements concerning corporate record keeping and accountability, formed a method to deal effectively with the problem. Corporate bribery was seen as adversely affecting American foreign policy, damaging the image of American democracy overseas, and impairing public confidence in the financial integrity of American corporations. Congress responded with the Foreign Corrupt Practices Act of 1977, composed of three major restrictions. First, it required corporations to keep accurate books, records, and accounts. Second, it required public companies registered with the Securities and Exchange Commission to maintain a responsible internal accounting control system. Finally, it prohibited bribery by American corporations of foreign officials.
The act attracted a great deal of criticism. Opponents argued the act held too many gray areas, and that many American companies would cease foreign operations rather than face the uncertainties in the Foreign Corrupt Practices Act. Furthermore, critics called for precise and specific guidelines to be enacted to ensure that American corporations acted within clearly defined guidelines set by the legislation. In addition, opponents of the act also sought the removal of the “reason to know” standard concerning liability for actions of a firm’s agent in a foreign country. This would eliminate the legal responsibility of the management of a domestic firm over the unauthorized and undirected actions of an agent. Moreover, critics contended that the internal accounting controls required by the act were too costly and burdensome upon domestic firms. They instead wanted a standard for public record keeping, requiring a firm to report expenditures and outlays deemed relevant to the profits and revenues of the firm.
Congress responded to these criticisms by amending the act in 1988 and signing it into law as Title V of the Omnibus Trade and Competitiveness Act of 1988 on August 23, 1988. The amendments maintained the three major parts of the 1977 act, but removed criminal liability unless a person knowingly circumvented or knowingly violated the law. Another amendment stated that an issuer that holds 50 percent or less of the voting power of a domestic or foreign firm is required to use its influence only in good faith to cause the domestic or foreign firm to devise and maintain a system of acceptable accounting controls. As amended, the act defined “knowing” circumvention as “conscious disregard” and “willful blindness”—meaning a conscious effort to avoid learning the truth. Congress added amendments, so that antibribery provisions did not apply to any facilitating or expediting payment to a foreign official, political party, or party official if the purpose is to expedite or to secure the performance of a routine governmental action. The amended act also allowed an American business or individual to use one of the “affirmative defenses” in urging that no violation of the act occurred. The amendments also increased penalties for violations of the Foreign Corrupt Practices Act from a maximum of $1 million to $2 million for businesses and for individuals from $10,000 to $100,000.
—Leah Blakey
World History
