Knowing the Foreign Corrupt Practices Act
The rapid growth in international transactions and the expansion of foreign businesses in other countries has made the present regulatory environment more complex. It is now a common occurrence to find subsidiaries of
Obviously, individual countries are sovereign in themselves, meaning only their respective governments have full control over the laws and policies by which their citizens are to be governed. However, in the private realm, because of contractual obligations, officers and employees of US companies based in the
The Sarbanes-Oxley Act is a case in point which governs US companies, including their affiliates in other countries. Our friends in the accounting profession can readily attest to significant policy changes that this
This now brings us to the Foreign Corrupt Practices Act (FCPA) of the
Important to consider here are the anti-bribery prohibitions, particularly the issue of what constitute a “foreign official” and an “improper payment.” The term “foreign official” is quite broad and may include, among others: an officer, employee, or person acting in an official capacity for a foreign government department, agency, or public international organization (including employees of state-owned enterprises); or an external consultant acting in an official capacity on behalf of a foreign government (this may include unofficial advisors to the foreign government).
An improper payment, on the other hand, is one that is made to a foreign official for the purpose of “obtaining or retaining business for or with, or directing business to, any person.” A company however, may justify a payment if the same is legal under the written law of the host country and/or it is made in connection with the promotion, marketing, or sale of a product or is in connection with the performance of a contract with the foreign government. Also, the FCPA provides an exception for facilitating payments. This refers to small dollar amounts meant to expedite “routine government action” (such as securing basic utilities and speeding paperwork). Such facilitating payments however should be non-discretionary, which means the official has no legal basis to refuse providing the service and must be accurately recorded as facilitating payments. Failure to document them as such may lead to a presumption of the same being improper. Also, since facilitating payments can be vague and be interpreted loosely, the risk of an FCPA violation cannot be immediately ruled out using this defense.
Should a foreign subsidiary of a
Thus, officials of
An important area often flagged for these issues is the company’s compliance with customs regulations and the manner by which it manages its customs function. Affiliates of US based companies therefore should ensure that, on top of the requirements of Philippine law, it would also have effective internal mechanisms that can quickly spot red flags that may hint at the slightest suspicion of an FCPA violation.
(Raphael B. Madarang is a Manager for International Trade and Customs Services of Manabat Sanagustin & Co., CPAs, a member firm of KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. This article is for general information only and is not intended to be, nor is it a substitute for, informed professional advice. While due care was exercised to ensure the quality of the information contained in this article, readers should carefully evaluate its accuracy, completeness and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances. For comments or inquiries, please email [email protected] or [email protected]).
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