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FCPA Accounting Provisions

Accounting provisions only apply to issuers who are required to keep records and accounts which accurately reflect the transactions and dispositions of the issuer’s assets. A company may be liable if its records:

  • Omit a transaction, such as a bribe, illegal commission or other improper payment.
  • Disguise records to conceal improper activity or fail to identify the improper nature of a recorded transaction.

Internal controls

Issuers are required to maintain a system of internal accounting controls to provide reasonable assurances that transactions are executed in line with management’s authorization. All transactions must be recorded in a manner that permits the preparation of financial statements that conform with generally accepted accounting principles (GAAP) and to maintain accountability for assets. The access to assets is allowed only with management’s authorization and the accountability for said assets must be compared with the existing assets at reasonable intervals. When identified, appropriate action must be taken with respect to any differences.

Liability for acts of subsidiaries

Issuers can be held liable for the conduct of their foreign subsidiaries, even though the improper conduct occurred outside of the U.S. The scope of liability is based on the issuer’s incorporation of the subsidiary’s financial statements in its own records and SEC filings.

Obligations of minority owners

An issuer who owns fifty percent or less of the voting power of another company is subject to modified accounting provisions. It is the issuer’s responsibility to use its influence to have the company develop and maintain a system of internal accounting controls.

National security exception

The accounting provisions do not apply if an issuer’s liability results from its cooperation with the federal government on a matter concerning national security.

SARBANES-OXLEY

Senior management may be liable if they certify statements which fail to disclose known violations of the Foreign Corrupt Practices Act’s accounting provisions.