How Does the Foreign Extortion Prevention Act Impact Your Compliance Program?

On December 22, 2023, the Foreign Extortion Prevention Act (FEPA)¹ was signed into law as part of the National Defense Authorization Act (NDAA).²  The FEPA aims to combat corruption by criminalizing the act of foreign officials demanding bribes.  Before the enactment of the FEPA, only the act of offering/giving a bribe was classified as a criminal activity. Combating bribery is a priority of the White House, which has defined the fight against corruption as a “core U.S. national security interest.”³ The FEPA furthers this objective by addressing the demand-side of bribery and corruption, making it much more difficult for corrupt actors to shield their illicit activities while also enhancing the U.S. Department of Justice’s (DOJ) ability to hold corrupt individuals accountable for criminal behavior.

The enactment of the FEPA presents new anti-bribery and corruption (ABC) requirements for many organizations’ compliance programs.  Moreover, the FEPA’s enactment further aligns U.S. ABC laws with more robust international ABC regulations that already address both the supply-side and demand-side of bribery, such as the UK Bribery Act and France's Sapin II. ABC compliance programs will most likely need to account for the nuanced changes presented by the FEPA. This document is intended to call attention to those changes and their impact on an organization’s ABC compliance program.

FEPA Addresses Gaps within the Foreign Corrupt Practices Act (FCPA)

Before the enactment of the FEPA, only the giving of a bribe abroad was considered criminal activity. The FEPA addresses this by amending the U.S. domestic bribery statute, and not the FCPA, to criminalize the demand-side of bribery. Additionally, unlike the FCPA, the FEPA applies to foreign officials acting in either an official or unofficial capacity. Lastly, the facilitation payments exception found in the FCPA is not reflected in the FEPA. Organizations will need to account for these nuances to be fully compliant with U.S. ABC regulations.

FEPA Criminalizes the Demand Side of Bribery
The anti-bribery provisions of the FCPA criminalize the act of offering/giving a bribe to a foreign official to gain an unfair business advantage. The FCPA does not apply, however, to the corrupt foreign official who received and/or demanded such a bribe. The FEPA addresses this gap by criminalizing the demand and/or receipt of a bribe by a foreign official.

Bribes and Facilitation Payments
Under both the FCPA and the FEPA, a “bribe” is a transaction where anything of value is given with the intent of obtaining or retaining business. Payments made abroad to foreign officials to grease the wheels and expedite routine government actions (e.g., processing paperwork, issuing permits, etc.) are not criminalized under the FCPA—referred to as “facilitation payments.” Moreover, since the FEPA does not explicitly address facilitation payments, and is not an amendment to the FCPA (but rather Title 18),⁴ foreign officials may now be subject to criminal prosecution under the FEPA for engaging in such behavior.

FEPA Expands upon FCPA’s Definition of a “Foreign Official”
The definition of a “foreign official” in the FEPA is aligned with that in the FCPA, although the FEPA expands the definition of a “foreign official” to also include individuals acting in an “unofficial” capacity. This further solidifies the DOJ’s ability to prosecute such illicit behavior.

Preparing for FEPA

To prevent and promptly address ABC-related issues, companies must take proactive steps to effectively manage their fraud risks and maintain a culture of compliance within their organization. Even firms with the most robust ABC policies and procedures, that address both the supply-side and the demand-side of bribery, will need to update their ABC compliance program to account for the FEPA and train their employees accordingly. Hence, to comply with the FEPA, companies may need to enhance their ABC-compliance programs to address facilitation payments, update their escalation process for when an extortion-event occurs, and ensure their FEPA-compliant ABC program is aligned with the FCPA’s recordkeeping/bookkeeping requirements.
 
Enhanced Policy and Procedures
Under the FCPA, the facilitation payment exception is used to protect companies that are forced to pay a bribe to expedite routine government services, but the FEPA provides no such cover for foreign officials who make such demands. Companies that do not address facilitation payments within their ABC compliance programs will need to update their policies and procedures to comply with the FEPA.  Additionally, to be FEPA-compliant, ABC programs must stress the FEPA applies to foreign officials acting in either an official or unofficial capacity.   

Escalation Procedures
A company’s ABC-compliance program should also include detailed escalation procedures that outline the steps to be taken when a foreign official demands a facilitation payment, or when any other type of extortion-attempt occurs. The ABC-compliance program should address what to do if an employee is approached or solicited by a foreign official for a bribe of any sort, regardless of whether it is acted upon. This aligns to the FEPA’s criminalization of the demand-side of a bribe.   

Proper Bookkeeping
In line with the FCPA’s requirement that companies accurately reflect their transactions in their books and records, a company must properly record when a potential extortion attempt occurs. Moreover, its ABC-compliance governance process should not only address how to respond to such extortion  attempts, but also reflect how these types of extortion attempts are recorded.  Accordingly, FEPA compliance in this regard creates an event the FCPA speaks to, namely proper recordkeeping and bookkeeping as it relates to facilitation payments and any other illicit exchanges of value to foreign officials.       

The enactment of the FEPA provides the US with a powerful new enforcement tool to combat corruption by foreign officials at its root. Since the FEPA creates a new criminal offense under the domestic bribery statute, it will be important for companies to monitor how the US enforces the FEPA’s requirements and what direct and/or indirect impacts such enforcement will have on an organization’s ABC compliance program. Companies must continually keep themselves abreast of any new ABC-compliance developments and be cognizant of the evolving ABC-compliance landscape necessary to comply with the FEPA.

How Guidehouse Can Help

Guidehouse’s Financial Crime, Fraud, and Investigative Services Practice (FFI) is composed of experienced professionals including former financial regulators, federal prosecutors, compliance professionals, forensic accountants, and law enforcement officers responsible for investigating and prosecuting ABC, fraud, anti-money laundering (AML), and sanctions matters. Our expertise spans a range of industries, including Life Sciences, Financial Services, Healthcare, Energy, and Defense and National Security. Our team members have served as independent compliance consultants or monitors overseeing remediation efforts mandated by regulatory or enforcement agencies or courts. We combine this experience with years of substantive ABC, AML, fraud, and global sanctions consulting knowledge, along with strong data analytics and IT skills, to assist clients that are responding to regulatory enforcement actions, governmental requests, inquiries, and investigations.

This article is authored by Sandra Desautels, with contributions by Nader Khuri.