Foreign corrupt practices: Overview, definition, and example
What are foreign corrupt practices?
Foreign corrupt practices refer to unethical or illegal actions in which individuals or businesses bribe or offer other improper inducements to foreign government officials, political figures, or representatives in order to gain business advantages, secure contracts, or influence decision-making. These actions are generally prohibited by anti-corruption laws in many countries, including the U.S. Foreign Corrupt Practices Act (FCPA), which criminalizes bribery of foreign officials to secure or retain business. Foreign corrupt practices can also include falsifying financial records or failing to maintain proper internal controls to facilitate bribery.
For example, a company might offer a bribe to a foreign government official to secure a government contract, bypassing the normal bidding process.
Why are foreign corrupt practices important?
Foreign corrupt practices are important because they can lead to serious legal, financial, and reputational consequences for businesses and individuals involved. Violating anti-corruption laws can result in hefty fines, sanctions, and damage to a company’s reputation, which can ultimately harm its operations and ability to do business. Preventing and addressing foreign corrupt practices is crucial for maintaining ethical standards, ensuring fair competition, and complying with international laws and regulations.
For businesses, complying with anti-corruption laws helps promote transparency, protects against legal liabilities, and ensures a fair and level playing field in global markets.
Understanding foreign corrupt practices through an example
Imagine a company bidding for a government contract in a foreign country. In order to secure the contract, a senior executive offers a bribe to a government official, promising a financial kickback in exchange for awarding the contract to their company. This act of bribery constitutes a foreign corrupt practice, which is illegal under anti-corruption laws such as the U.S. Foreign Corrupt Practices Act.
In another example, a company operating overseas may falsify its financial records to conceal payments made to a foreign official to influence local legislation, thus engaging in a corrupt practice.
An example of a foreign corrupt practices clause
Here’s how a foreign corrupt practices clause might look in a contract:
“The Parties agree to comply with all applicable anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, and shall not directly or indirectly offer, promise, or give any bribe, kickback, or other unlawful payment to any foreign government official, political figure, or representative to obtain or retain business. Any violation of this provision shall constitute a material breach of this Agreement.”
Conclusion
Foreign corrupt practices are serious offenses that can have significant legal, financial, and ethical implications. Businesses must take steps to ensure they operate in compliance with anti-corruption laws to avoid legal risks and maintain their integrity in global markets.
By including provisions related to foreign corrupt practices in contracts, businesses can ensure they adhere to international standards, prevent illegal activities, and promote fair and transparent business practices.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.