A 1977 study by the SEC revealed that some 400 companies had funneled hundreds of millions of dollars in questionable payments to foreign officials. The result was the Foreign Corrupt Practices Act, passed in December of that year. The act, which makes it a criminal offense to bribe foreign officials in order to obtain business, also requires that companies “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances” that corporate funds are not used for corrupt purposes.

Interpretation of the new act is still confused. Critics argue that the act provides few guidelines on how it should actually be applied. For instance, so-called “grease” payments are not specifically outlawed, but it isn’t clear whether payments to expedite shipments, secure permits or reduce taxes constitute grease payments.

In April of 1979, the SEC proposed rules to govern the reporting of internal controls under the act. These met with an overwhelmingly negative reaction from the business community, and the Commission withdrew its proposal in June of 1980. It observed, however, that it would monitor “practice in voluntarily providing management’s statements on internal accounting control and in engaging independent accountants to report on such statements” and would reconsider mandated reporting in the spring of 1982.

Although the Foreign Corrupt Practices Act seems certain to hinder foreign trade to some extent, a new bill recently introduced by Senator John Chafee offers some hope for companies doing business abroad. It proposes, among other things, to add a materiality standard to the act and to clarify the types of gifts, payments, etc., that would be legal.