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Foreign Corrupt Practices Act of 1977

5. Modeling methodology. After careful examination of FOREIGN CORRUPT
the problem, the types of models most appropriate PRACTICES ACT OF
for the problem must be determined.
1977
6. Preparation of the forecast. This is the analysis part of
the process. After the model to be used is deter- The Foreign Corrupt Practices Act of 1977 (FCPA)
mined, the analysis can begin and the forecast can evolved from investigations by the Office of the Special
be prepared. Prosecutor that provided evidence of illegal acts perpe-
7. Forecast verification. Once the forecasts have been trated by U.S. firms in foreign lands. More than 400 U.S.
made, the analyst must determine whether they are companies admitted to making questionable payments to
reasonable and how they can be compared against various foreign governments and political parties as part of
the actual behavior of the data. an amnesty program (U.S. Department of Justice,
http://www.usdoj.gov). Given the environment of the
Each of the seven steps has substages. The steps pre-
1970s and the proliferation of white-collar crimes (e.g.,
sented are the major concerns to the forecaster.
insider trading, bribery, false financial statements, etc.),
particularly the payments made to foreign officials by cor-
FORECASTING CONCERNS
porations, Congress felt obligated to introduce legislation
Forecasting does present some problems. Even though
very detailed and sophisticated mathematical models that led to the act. Congress’s objective was to restore con-
might be used, they do not always predict correctly. There fidence in the manner U.S. companies transacted busi-
are some who would argue that the future cannot be pre- ness.
dicted at all—period!
Some of the concerns about forecasting the future are THE ACT
that (1) predictions are made using historical data, (2) The FCPA is unique. Throughout history, governments
they fail to account for unique events, and (3) they ignore have had laws making it illegal for governmental officials
coevolution (developments created by individual actions).
to take a bribe. One basic provision of the FCPA is that it
Additionally, there are psychological challenges implicit in prohibits U.S. partnerships, companies, and organizations
forecasting. An example of a psychological challenge is from not only giving payments but also offering or
when plans based on forecasts that use historical data
become so confining as to prohibit management freedom. authorizing payments to foreign officials or political par-
ties with the objective of encouraging or assuring business
It is also a concern that many decision makers feel that
because they have the forecasting data in hand they have relationships.
control over the future. There are two types of bribery provisions. The first
Regardless of the opponents to forecasting, the U.S. prohibits any bribes made directly by the U.S. company.
government, investment analysts, business managers, The second prohibits any organization from knowingly
economists, and numerous others will continue to use arranging for a bribe through an intermediary. Many
forecasting techniques to predict the future. It is impera- thought that the FCPA would place U.S. companies at a
tive for the users of the forecasts to understand the infor- disadvantage in the international marketplace because
mation and use the results as they are intended. they could no longer influence foreign governments, offi-
SEE ALSO Budgets and Budgeting; Financial Forecasts cials, political parties, or candidates through gifts or pay-
and Projections; Research in Business ments. There has been no conclusive evidence that this
has actually happened.
BIBLIOGRAPHY The FCPA includes record-keeping provisions for
Fulmer, William E. (2000). Shaping the Adaptive Organization. companies not involved in criminal conduct. These provi-
New York: AMACOM.
sions were an amendment to the Securities and Exchange
Moore, Geoffrey H. (1983). Business Cycles, Inflation, and Fore-
casting. Cambridge, MA: Ballinger. Act of 1934. The FCPA amendment requires all firms
Sherman, Howard J., and Kolk, David X. (1996). Business Cycles under the jurisdiction of the Securities and Exchange
and Forecasting. New York: HarperCollins. Commission (SEC) to maintain an adequate system of
Stock, James H., and Watson, Mark W., eds. (1993). Business Cycles, internal control whether or not they have foreign opera-
Indicators, and Forecasting. Chicago: University of Chicago Press. tions. This provision of the act applies to issuers of regis-
tered securities and issuers required to file periodic reports
Roger L. Luft with the SEC.

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