Page 51 - U.S. FOREIGN CORRUPT PRACTICES ACT

A Resource Guide to the U.S. Foreign Corrupt Practices Act. Second Edition.

(iv) the certifying officers have disclosed to the Who Is Covered by the Accounting
issuer’s audit committee and auditors all significant Provisions?
internal control deficiencies.
Civil Liability for Issuers, Subsidiaries, and
SOX Section 404 (15 U.S.C. § 7262)—Reporting on
Affiliates
the State of a Company’s Internal Controls over
The FCPA’s accounting provisions apply to
Financial Reporting
every issuer that has a class of securities registered
Sarbanes-Oxley also strengthened a company’s
pursuant to Section 12 of the Exchange Act or
required disclosures concerning the state of its
that is required to file annual or other periodic
internal controls over financial reporting. Under
reports pursuant to Section 15(d) of the Exchange
Section 404, issuers are required to present in their
Act. 252 These provisions apply to any issuer whose
annual reports management’s conclusion regarding
securities trade on a national securities exchange
the effectiveness of the company’s internal controls
in the United States, including foreign issuers with
over financial reporting. This statement must also
exchange-traded American Depository Receipts. 253
assess the effectiveness of such internal controls
They also apply to companies whose stock trades
and procedures. In addition, the company’s
in the over-the-counter market in the United States
independent auditor must attest to and report on
and which file periodic reports with the Commission,
its assessment of the effectiveness of the company’s
such as annual and quarterly reports. Unlike the
internal controls over financial reporting.
FCPA’s anti-bribery provisions, the accounting
As directed by Section 404, SEC has adopted
provisions do not apply to private companies. 254
rules requiring issuers and their independent
Although the FCPA’s accounting provisions are
auditors to report to the public on the effectiveness
directed at “issuers,” an issuer’s books and records
of the company’s internal controls over financial
include those of its consolidated subsidiaries and
reporting. 249 These internal controls include those
affiliates. An issuer’s responsibility thus extends
related to illegal acts and fraud—including acts of
to ensuring that subsidiaries or affiliates under its
bribery—that could result in a material misstatement
control, including foreign subsidiaries and joint
of the company’s financial statements. 250 In 2007,
ventures, comply with the accounting provisions.
SEC issued guidance on controls over financial
For instance, DOJ and SEC brought enforcement
reporting. 251
actions against a California company for violating
SOX Section 802 (18 U.S.C. §§ 1519 and 1520)— the FCPA’s accounting provisions when two Chinese
Criminal Penalties for Altering Documents joint ventures in which it was a partner paid more
Section 802 of Sarbanes-Oxley prohibits than $400,000 in bribes over a four-year period
altering, destroying, mutilating, concealing, or to obtain business in China. 255 Sales personnel in
falsifying records, documents, or tangible objects China made the illicit payments by obtaining cash

with the intent to obstruct, impede, or influence a advances from accounting personnel, who recorded
potential or actual federal investigation. This section the payments on the books as “business fees” or
also prohibits any accountant from knowingly and “travel and entertainment” expenses. Although
willfully violating the requirement that all audit or the payments were made exclusively in China
review papers be maintained for a period of five by Chinese employees of the joint venture, the

years. California company failed to have adequate internal
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