1. Importance of the FCPA
The FCPA in its current version serves the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. The FCPA was enacted in 1977 and is part of a number of laws that were passed as a result of Nixon’s Watergate scandal.
The FCPA essentially ensures that companies operating in the US refrain from bribing foreign officials to secure business deals. Since 1977, the FCPA has applied to all US persons and certain foreign issuers of securities. After certain amendments in 1998, the FCPA has also applied to foreign firms and persons who – directly or through agents – cause an act in furtherance of such a corrupt payment to take place within the US territory. Breaches of the FCPA lead to heavy criminal and civil penalties. The government has collected billions of dollars due to the enforcement of FCPA sanctions since 2020. In 2020 alone, the last year of President Trump’s first term, nearly $6 billion was collected.
2. The Impact of the new Executive Order
The Executive Order is titled “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security” and forces the Department of Justice (DOJ) to cease new and review ongoing investigations and enforcement actions under the FCPA. New investigations are only possible if the Attorney General determines that an individual exception should be made. The background of this is that “overexpansive and unpredictable FCPA enforcement” has allegedly wasted “limited prosecutorial resources” and has supposedly harmed “American competitiveness and, therefore, national security”. It is stated that this happened in cases that are considered “routine business practice in other nations”.
The Executive Order leads to a 180-day standstill period, during which the Attorney General shall cease initiation of any new FCPA investigations or enforcement actions, review in detail all existing FCPA investigations or enforcement actions and take appropriate action with respect to such matters to restore proper bounds on FCPA enforcement and preserve Presidential foreign policy prerogatives. Lastly, the Attorney General shall issue updated guidelines or policies, as appropriate, to adequately promote the President’s authority to conduct foreign affairs and prioritize American interests, American economic competitiveness with respect to other nations, and the efficient use of Federal law enforcement resources. New FCPA investigations and enforcement actions shall be governed by the aforementioned guidelines or policies and must be specifically authorised by the Attorney General. The standstill period may be extended for an additional 180 days at the Attorney General’s discretion.
As a result, it is possible that the DOJ may not enforce the FCPA in cases where this would put American citizens’ and/or companies’ competitiveness at risk. It appears as if enforcement actions of FCPA breaches are considered “excessive barriers to American commerce abroad”.
3. Potential consequences
There are several consequences to be expected from the Executive Order. The FCPA applies to American and foreign companies issuing securities on US territory. Foreign individuals are also subject to FCPA prosecution. Given that the Executive Order focuses on protecting American interests in terms of competitiveness, it is possible that new guidelines or policies pertaining to the FCPA may lead to foreign companies and individuals coming under more scrutiny than before. Prosecutorial resources may be used to investigate potential foreign acts of corruption rather than American acts of corruption.
In the new guidelines, the Attorney General shall also determine whether “remedial measures with respect to inappropriate past FCPA investigations and enforcement actions, are warranted and shall take any such appropriate (remedial) actions or, if Presidential action is required, recommend such actions to the President. This appears to allow the Attorney General to revisit former enforcement actions. This could potentially lead to individuals being pardoned or sentences being reduced. Out-of-court settlements pertaining to breaches of the FCPA could be reviewed and lifted. This will have to be watched tentatively.
4. Key Takeaways
It is important to note that President Trump has not “legalised” corruption by American or foreign citizens/companies. The Executive Order merely puts a halt on enforcement. Breaches of the FCPA are still punishable.
There will also likely be no “moral hazard”, as the statute of limitations (5 years) for a criminal violation of FCPA provisions outruns President Trump’s administration. A breach of these provisions in 2025 may still be prosecuted in 2030. Trump will not be in charge anymore then.
The US Securities and Exchange Commission (SEC) may still enforce FCPA provisions against companies in the US with publicly traded securities. It retains its civil authority insofar and has not announced any changes to the FCPA enforcement program (yet).
As the US appears to take a more lenient approach to bribery, the contrary will be the case in Europe (especially the EU. Many European countries have ramped up their enforcement of anti-corruption laws. Given that the US will now refrain from doing so, Europe will be even more on alert and pay close attention to potential corruption activities by citizens and companies.
5. Outlook
Compliance programs are therefore as necessary as before. Once the Attorney General issues the new guidelines, companies operating in or from the US will need to review their compliance management system to ensure it adheres to potentially new requirements. It may be necessary to make adjustments. Meanwhile, companies operating in or from the US are well-advised to focus on compliance with international anti-corruption laws. The pause of enforcement of the FCPA shall not lead to compliance being viewed as less important. On the contrary, it is necessary to ensure compliance programs remain effective and sharp. The threat of criminal investigations is still looming. It is merely taking a hiatus.
