Impact of Foreign Corrupt Practices Act on U.S. Business

The Foreign Corrupt Practices Act prohibits bribery of foreign officials and also contains significant accounting requirements that apply to all activities of companies registered with the Securities and Exchange Commission (SEC). GAO has found that the Act has brought about substantial changes in business activities which should strengthen corporate accounting controls and reduce illegal payments made to foreign officials. However, the Act's provisions have been steeped in controversy and confusion over what constitutes compliance. The accounting provisions have been criticized as being vague and causing business to incur unnecessary costs. The antibribery provisions have been cited as ambiguous and causing U.S. firms to forego legitimate export opportunities. Proposed legislation addresses these issues. GAO sent a questionnaire survey to 250 companies. About 60 percent of the respondents reported that the Act has influenced changes in codes of conduct. Seventy-five percent of the respondents reported changes in their systems of internal accounting control. About 55 percent of the respondents reported that their efforts to comply with the Act resulted in costs that were greater than benefits received. More than 30 percent reported that they had lost overseas business as a result of the Act. Without an effective international ban against bribery, unfair competitive advantage could be given to non-U.S. firms. Quantifiable evidence of the Act's impact on foreign business is not presently available. To avoid potential noncompliance and possible enforcement action, companies may go to greater extremes in keeping books and establishing controls than Congress intended. Proposed legislation would add an explicit materiality standard, related to financial disclosure, to the Act's accounting provisions. GAO believes that the existing criminal penalties should be repealed and Congress should consider legislation to establish criminal penalties for the knowing and willful falsification of corporate books and records. Additional guidance should be provided to businesses through the use of hypothetical situations and legislation developed to clarify various terms used in the Act. A strong international antibribery agreement is needed.