By Dave Tate, CPA, Esq. - The Foreign Corrupt Practices Act (15 U.S.C. §§ 78dd-1, et seq.) is a U.S. federal law that is comprised of two primary provisions: (1) the accounting record keeping and internal control provision, and (2) the antibribery provision.
The accounting record keeping and internal control provision ( 15 U.S.C. § 78m) was intended to compliment or work in tandem with the antibribery provision, but in fact is perhaps more broad in application because it applies to all companies whose securities are listed on a U.S. stock exchange, and is enforced by the Securities and Exchange Commission. Generally, the accounting provision was intended to require covered companies to keep accounting records that accurately reflect the transactions of the company, and to devise and maintain an adequate system of internal accounting control. The accounting provision is intended to address three areas of concern: (1) situations where transactions are not recorded; (2) situations where transactions are falsely recorded; and (3) situations where transactions are recorded correctly but are also misrepresented in substance (e.g., where a payment is correctly recorded is being made to the appropriate person but with substantial certainty that person then will transfer the payment to another person for an unlawful purpose.
The FCPA does not mandate the specific elements or form of internal control system. The Act requires reasonable detail and assurances. "Materiality" is not a minimum threshold safe harbor, not is lack of knowledge or substantial certainty.
The accounting and internal control provision requires covered companies to:
1. Keep books, records and accounts that, in reasonable detail, accurately and fairly reflect the company's transactions; and
2. Devise and maintain a system of internal control sufficient to provide reasonable assurance that:
-Transactions are authorized by management;
-Transactions are recorded to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles and other applicable standards, and to maintain accountability over assets;
-Access to assets is permitted only with management authorization; and
-Recorded accountability for assets is periodically reconciled with existing assets.
The Act also requires that a covered company that holds sufficient voting power over another company, including a foreign corporation, comply with the Act's provisions with respect to the other company. Sufficient voting power is present when a covered company controls 50 percent or more of the voting securities of a subsidiary. However, depending on the facts and circumstances, sufficient voting power also can be present when a covered company controls between 20 and 50 percent of a subsidiary--subject to contrary proof by the covered company that its ownership does not constitute control.