Whistleblowers that report international corruption including bribes to Indian Government officials can get rewards for complaints under the FCPA

What is the Foreign Corrupt Practices Act, 1977 (FCPA)?

It is an American Federal Law that is focused on dealing with international corruption by corporations. Violation of the FCPA results in civil and criminal penalties, remedies like fines, disgorgement, imprisonment, and sanctions.

It is focused on individuals or companies with some nexus to the U.S. bribing government officials of any foreign country to obtain and retain business in a foreign country. Any individual/agent/employee/director of a company may also be liable under the FCPA.

The FCPA considers employees of State-owned or State-controlled entities as foreign officials. This broadens the types of entities that could be covered in India – as long as the entity is “controlled by the government of a foreign country (India, for example) that performs a function the controlling government treats as its own” United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014), cert. denied, 135 S. Ct. 293 (2014), it comes withing the FCPA. Examples of government functions in India include:

Government doctors and public healthcare administrators.

Defence and military employees.

Public sector Banks

State controlled agriculture, mining, chemical plants, power plants and natural resources.

Business and other functional licensing authorities.

Harbourmasters and Railway employees

State owned natural monopolies.

What is the range of FCPA Whistleblower Rewards?

Rewards for whistleblowers are enforced through the SEC Dodd Frank Whistleblower Program. If the whistleblowers original voluntary information leads to civil penalties over $1 Million, then they are entitled to 10-30% of the monetary recoveries of the SEC. Like other SEC whistleblower programs, an FCPA whistleblower can file anonymously only if represented through qualified counsel. Additionally, confidentiality of the whistleblower can also be respected by the SEC in any public announcements of awards or settlements. The Department of Justice also is operationalizing a similar whistleblowing mechanism for FCPA violations by non-issuer companies. This space will be updated once the exact mechanism is in place. As on now the intent to operationalize the mechanism in 2024 has been made by the U.S. DOJ.

Can International Whistleblowers recover under the FCPA?

The FCPA whistleblower regime envisages non-U.S. residents and non-U.S. citizens as whistleblowers. There is no residency or citizenship requirement for bringing an FCPA claim.

Who is Responsible for Enforcing the FCPA?

Both the Department of Justice (DOJ) and the SEC jointly enforce the FCPA. SEC can only enforce civil penalties.

What Types of Entities’ Corruption is the FCPA concerned with?

The types of entities that the SEC is concerned with under the FCPA are [FCPA Covered Entities]:

Issuer: Any company (U.S. or foreign) listed on any U.S. stock exchange or required to file periodic reports with the SEC bribing foreign government officials. [Example of unlisted companies that may still come under SEC jurisdiction: Companies that have a class of securities that are quoted in the U.S. over-the-counter market and traded via broker dealers must file periodic reports with the SEC even though they are not listed on U.S. stock exchanges.] Issuers are defined as companies that have securities registered under §12 of the Securities Exchange Act of 1934, or are required to file periodic reports with the SEC under §15(d) of the Securities Exchange Act of 1934
Domestic Concerns: Any entity [Company, LLC, or partnership] organized under U.S. laws including officers, directors, employees, agents, and domestic and foreign shareholders and U.S. citizens and residents bribing foreign government officials.
Foreign concerns: Foreign individuals and companies that are not issuers and domestic concerns who engage in a corrupt payment within the U.S.

The type of entities that the DOJ is additionally concerned with under the FCPA are:

Non-Issuer companies: Any company [U.S. or foreign] having some presence in the U.S. bribing foreign government officials.

What Kinds of Claims come under the FCPA?

The FCPA is concerned with two broad areas:

Bribery of governments by companies or persons directly or indirectly linked to the U.S. Bribery could be in the form of gains such as:

Obtaining permits, licences, government contracts and tenders
Favourable tax treatment
Evading or reducing tax or customs
Preventing competition in a national market by obtaining government action
Exemptions from regulations, licences, permits or other applicable local laws.
Affecting the outcome of a domestic investigation or adjudication

Ensuring foreign subsidiaries and affiliates of U.S. issuers comply with accounting provisions for record keeping and internal control requirements i.e.,

Maintain accurate books and records.
Maintain a system of internal controls that ensure that the control, authority and responsibility of the company’s assets lies with the management.

What is the Global and Extra-Territorial Reach of FCPA?

An illustrative list is below:

Publicly traded global software company based in Germany had an over $220 million SEC action for bribes to government officials in South Africa and Indonesia. The only link with the U.S. is that it is listed on the NY Stock Exchange.

British Brokers that participated in a scheme to bribe Ecuadorian government officials through meetings held in a U.S. State and money sent to a U.S. Bank account were under the FCPA lens.

Swedish telecom company Ericsson had to settle allegations that it used third-party agents and consultants to make bribe payments to government officials and to manage off-the-books slush funds in Djibouti, China, Vietnam, Indonesia, and Kuwait. These agents were often engaged through sham contracts and paid pursuant to false invoices, and the payments to them were improperly accounted for in Ericsson’s books and records.

Herbalife Nutrition Ltd. (Herbalife), a U.S.-based publicly traded global nutrition company, has agreed to pay total penalties of more than $122 million to resolve the government’s investigation into violations of the Foreign Corrupt Practices Act (FCPA). The resolution arises out of Herbalife’s scheme to falsify books and records and provide corrupt payments and benefits to Chinese government officials for the purpose of obtaining, retaining, and increasing Herbalife’s business in China.

Hong Kong-based subsidiary of Credit Suisse Group AG (CSAG), a Swiss-based issuer of publicly traded securities in the United States, reached a resolution with the Department of Justice and agreed to pay a $47 million criminal penalty for its role in a scheme to corruptly win banking business by awarding employment to friends and family of Chinese officials.

JP Morgan Chase and its Hong Kong subsidiary had to pay $264 Million for kickbacks given by way of employment provided to relatives of Chinese leaders to win business in China.

An American medical device company agreed to pay around $14 million to resolve charges that it made improper payments to doctors at government-owned hospitals in Brazil to increase revenue.

Examples of FCPA actions concerning India

Any Indian subsidiary, agent, contractor, affiliate of an FCPA covered entity, i.e., a U.S. Issuer or U.S. Domestic entity providing a bribe to an Indian government official would in addition to violating the Indian prevention of corruption act would fall foul of the FCPA.

Any Indian subsidiary, agent, contractor, affiliate of an FCPA covered entity that manipulates its books of accounts may fall foul of the FCPA.

India-based Adani Conglomerate’s Gautam Adani, his nephew Sagar Adani and others are subject matter of a DOJ criminal indictment for alleged bribes to Indian government officials to secure solar energy supply contracts for a U.S. Issuer, Azure Power Global Limited (Incorporated in Mauritius and used to be listed on N.Y.S.E.) and its Indian subsidiary. The indictment alleges that the money for these bribes was raised by Adani Green Energy Ltd., by misrepresenting their anti-bribery practices and obtaining (i) two U.S. dollar-denominated syndicate loans of around $2 billion from international financial institutions and U.S.-based investors; and (ii) two Rule 144A bond offerings (resale of privately placed securities to qualified institutional buyers) of around $1 billion, which were marketed and sold to investors in the U.S., among other places.

Cadbury’s Indian subsidiary hired a consultant to obtain a business licence and according to the SEC they made illicit payments to obtain government licenses and approvals for a chocolate factory in India through this agent. $13 Million was paid in a penalty. Cadbury including its Indian subsidiary was acquired by Mondelez International Inc. and traded on the NYSE which is how the SEC had jurisdiction.

A publicly traded speciality chemicals manufacturing company Albemarle agreed to pay more than $218 million to resolve investigations by the U.S. Department of Justice and the Securities and Exchange Commission (SEC) for FCPA violations involving corruption with governments of multiple countries including India. In India, Albemarle used a third-party intermediary to bribe India’s state-owned oil company to obtain and retain catalyst orders and secure sensitive, non-public information. One of the tells was when over $100,000 (Rs 85 Lakh) was submitted as vague and unsupported expense of “Business Development Expenses” and “HPC division Expenses”

The technology company, Oracle had to settle two FCPA cases. One, that its subsidiaries in India, Turkey and the U.A.E. violated the anti-bribery, books and records, and internal accounting controls. In India one allegation was that Oracle’s Indian subsidiary offered an excessive discount to a company predominantly owned by the Indian Railways. Slush funds were created with these discounts with Oracle’s distributors and those were used for making improper and unauthorized payments to government officials. Two, that it violated FCPA by failing to prevent a subsidiary from secretly setting aside money to make unauthorized payments to sham vendors in India and kept these payments outside the books of accounts.

A London-based leader in advertising (WPP Plc) agreed to pay more than $19 million to settle charges that it violated the anti-bribery, books and records, and internal accounting controls provisions of the FCPA in connection with violations at its subsidiaries in India, Brazil, China, and Peru. According to the order, a subsidiary in India continued to bribe Indian government officers in return for advertising contracts despite WPP receiving seven anonymous complaints highlighting the corrupt conduct. SEBI assisted the SEC in their investigation here.

Cognizant Technology Solutions Corporation has agreed to pay $25 million to settle charges that it violated the Foreign Corrupt Practices Act, and two of the company's former executives were charged for their roles in facilitating the payment of millions of dollars in a bribe to an Indian government official. The bribe was paid through the construction firm that was responsible for building Cognizant's 2.7 million square foot campus in Chennai. According to the SEC Complaint, Cognizant allegedly used sham change order requests to conceal the payments it made to reimburse the construction firm based in India.

Beam Suntory Inc.’s Indian subsidiary had to resolve an FCPA claim that it used third-party sales promoters and distributors to make illicit payments to government employees to increase sales orders, process license and label registrations, and facilitate the distribution of Beam’s distilled spirit products. The SEC claimed that the Indian subsidiary reimbursed third parties for the illicit payments using fabricated or inflated invoices, and then falsely recorded the expenses at the subsidiary level. The case was settled for $8 Million.

A Brazilian-based aircraft manufacturer settle charges that it violated the FCPA to win business in India, Dominican Republic, Saudi Arabia, and Mozambique. The settlement was for $205 Million. The allegation with respect to India was that $5.76 million was paid to an India-based agent for the sale of three highly specialized military aircraft for India’s air force, and the payments were illegitimately recorded in Embraer’s books and records as part of a consulting agreement.

A Belgian based brewery, Anheuser-Busch InBev had to settle FCPA allegations that it used third-party sales promoters to make improper payments to government officials in India to increase the sales and production of their products. The company agreed to pay $6 million to settle charges that it violated the FCPA and tried to threaten and retaliate against a whistleblower who reported the misconduct.

SEC found that London-based Liquor Company, Diageo PLC paid more than $1.7 million through its subsidiaries in India to obtain lucrative sales and tax benefits relating to its Johnnie Walker and Windsor Scotch whiskeys, among other brands. This resulted in a profit of more than $11 million. Diageo agreed to pay more than $16 million to settle the SEC’s charges.