FCPAméricas Blog

A Five-Part Answer to the Question “Isn’t the FCPA Bad for U.S. Business?”

Author: Matteson Ellis

This weekend I attended a bachelor party near Yuma, Arizona. We canoed 40 miles down the Colorado River, the section of the river south of the Grand Canyon that separates California from Arizona. The group consisted of several young guys working in a variety of industries. One was back from two tours in Iraq. We asked each other about our work. They were unfamiliar with the U.S. Foreign Corrupt Practices Act (FCPA). When I explained the law, many of them reacted the same way: “Isn’t the FCPA bad for U.S. business?”

FCPA practitioners often get this question from those outside of our immediate professional circles. Here is the five-part response I gave.

1. Yes, In Part. It is pretty obvious that the FCPA can be a disadvantage for a U.S. company operating in a country where corruption is commonplace. The FCPA prohibits the company from engaging in certain business activities that might otherwise give it an advantage. When U.S. companies are permitted to pay bribes to win business, they can compete by giving more to foreign officials than their competitors do.

2. Leveling the Playing Field. The U.S. Government attempts to address this imbalance by enforcing the FCPA against foreign entities as well as U.S. entities. In fact, the FCPA is one of the clearest examples of an aggressive application of extraterritorial jurisdiction by the U.S. government. If a foreign company has shares publicly listed in the United States, or if it or its officials take actions in the United States in furtherance of a bribery scheme, or if a foreign individual works for a U.S. company or serves as a director or officer of the company, the foreign company or individual can be subject to the FCPA.

In 2010, more than half of the actions against companies involved non-U.S. entities. In 2011, five of sixteen actions involved foreign companies. Foreigners often go to U.S. jail for violations. Finding an example of a foreign company or executive under investigation is not hard to do. In the last five months we have learned of investigations involving Siemens Argentina’s executives, Brazil’s Embraer, and others.

3. Proliferation of International Conventions / Enforcement Activity by Other Countries. The proliferation of international anti-corruption conventions and parallel enforcement by other countries also works to put U.S. companies on the same playing field as foreign companies.

The international community has a better understanding now of the detrimental effects of corruption in the global economy. This understanding, along with active encouragement by the U.S. government, has led to the proliferation of conventions requiring signatories to prohibit foreign bribery by their own companies. For example, the OECD Anti-Bribery Convention’s provisions are largely modeled off of the FCPA. That convention now has 34 member countries, including most of the largest economies in the world. The UN Convention against Corruption now has 140 signatory countries throughout the world. Regional conventions in the Americas, Africa, and Asia are at various stages of development. The very first regional agreement was the Inter-American Convention against Corruption.

With years of active encouragement by U.S. authorities and pressure by non-governmental watchdog groups like Transparency International, countries are starting to do a better job at reforming and enforcing their own laws. Countries like the UK and Germany are helping to lead the charge. Others are starting to come on board (an overview of efforts by Brazil can be found here). For the countries that still lag behind (see a discussion on Mexico here), continued pressure from the international community means promise for reform in the future.

When more countries reform their laws and prosecute cases, it is harder for competitors of U.S. companies to get ahead by paying bribes. These trends see little sign of turning back.

4. China and Russia. The major weak links in the international battle against corruption are undoubtedly countries like China and Russia that have huge economic influence and have demonstrated a lack of sincere interest in holding their companies and business people to international anti-corruption standards. Personally, I have driven on the roads that Chinese companies are now building in countries like Tajikistan. I have investigated Russian companies for paying bribes to win contracts that are financed by multi-lateral lending organizations. I have waited in line at Angolan immigration behind hundreds of Chinese citizens who were waiting to work on infrastructure projects there. Chinese and Russian companies are often winning many of these contracts, not because they build better roads or bridges, but because they are willing to engage in activities that U.S. companies cannot.

But is this really the type of business in which we want our companies engaging? Do we really want our business people setting up deals in dark rooms with shady agents of foreign government officials? Do we want to be doing business with bags of cash?

The United States began and has led the international movement to criminalize bribery and clean up the global economy. There is now, finally, clear evidence that our efforts are bearing fruit. We have demonstrated over the years that our goods and services can compete on quality and price. Maybe, eventually, with continued pressure, countries like China and Russia will come on board. Even if they do not, our commitment to the FCPA means that, while we might lose some business, we still maintain our integrity. And we still work to maintain the integrity of the market.

5. The Case for Compliance. Companies subject to the FCPA are expected to implement anti-corruption compliance programs if they want to mitigate risk. Establishing an effective program requires much sustained commitment and resources. I work with companies every day that are going to great lengths to retool their operations to better manage risk. It is not easy work.

Some might consider the requirements of compliance to be an additional disadvantage caused by the FCPA. But companies are beginning to see the broad benefits. For example, because of enhanced oversight, companies have a better handle on the activities of their third parties. They are now forced to justify the business case for engaging new third parties. They can focus their efforts on improving the quality of their goods and services because they know that this is how they will win in an increasingly competitive global market. Their employees take pride in working for companies that truly value ethics, and they work harder. In fact, companies with state-of-the-art compliance programs are now dominating the market. Apple could sell almost 200 million iPhones in 2012. Siemens continues to grow.

In addition, active anti-corruption compliance programs are starting to affect the way foreign officials conduct themselves, as described here. This further works to level the playing field.

The ways that U.S. businesses are affected by the FCPA can be complex. Not everyone has hours on a canoe traveling down the Colorado River to discuss them. But this short outline might help.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2012 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Anti-Corruption Compliance, Argentina, Brazil, Enforcement, Ethics, FCPA, IACAC, Mexico, OECD, Third Parties, Transparency International, UNCAC

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One Response to “A Five-Part Answer to the Question “Isn’t the FCPA Bad for U.S. Business?””

  1. High Tide: From A Whistleblower Crackdown To Toy Laundering | Rishwat – Campaign against Corruption in India Says:

    […] series on balance in the FCPA, and notes that all corruption is local. The FCPA Americas blog has a five-part answer to the question as to whether the FCPA is bad for business. Tom Fox proscribes a third-party […]

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