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Tax Law And The FCPA’s Legislative History


To commemorate tax season, this post looks back to the FCPA’s legislative history and the tax implications of what Congress was investigating.

Upon discovery of the foreign corporate payments problem, Congress’s first task was to determine if the payments were adequately captured by existing law or whether a new law was needed. While certain existing laws did indirectly deal with various aspects of the problem, the prevailing view was that existing laws were deficient and that a new and direct legislative remedy was needed.

The primary focus of Congress’s investigation was whether the existing securities laws, tax laws, and/or antitrust laws adequately addressed the foreign corporate payments problem.

Singleton Wolfe, Assistant Commissioner of Compliance for the Internal Revenue Service, stated as follows during a House hearing as to whether existing tax laws adequately captured the discovered foreign corporate payments:

“Section 162(c) [of the Internal Revenue Code] . . . provides that no deduction shall be allowed for any payment made directly or indirectly to an official or employee of any government, of any agency or instrumentality of any government, if the payment constitutes an illegal bribe or kickback, or, if the payment is to an official or employee of a foreign government, the payment would be unlawful under the laws of the United States if such laws were applicable to such payment and to such official or employee. In plain language, the Internal Revenue Code prohibits the allowance of any deduction for moneys paid to a foreign official if a similar payment would have been unlawful under the Federal statutes of the United States, whether or not the payment is lawful under the laws of the particular country employing the foreign official who receives the payment or the benefit of the payment.”

Thus, under section 162(c), the violation is not in making the payment, but rather deducting the payment for tax purposes.

Donald Alexander, a Commissioner for the Internal Revenue Service, stated as follows during the House hearing:

“We become involved in the process only if two things occur in a bribe situation. One, the bribe is made, and, two, the bribe is improperly treated for tax purposes, deducted by the briber or the bribee, if also subject to U.S. tax, fails to report it. . . . . . . . I am sure that many bribes to foreign officials have no tax consequences . . . because it was solely a foreign transaction which at best might have a deferred consequence for U.S. tax purposes.”

In addition to the tax laws, Congress likewise concluded that existing securities laws and/or antitrust laws did not adequately address the foreign corporate payments problem.

Rather, Congress concluded that a new and direct legislative remedy was needed and, after considering various different approaches, the Foreign Corrupt Practices Act was enacted in 1977.


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