How to reform the Foreign Corrupt Practices Act

That is the topic of my latest Bloomberg column, here is an excerpt:

Like it or not, this law is not going away — and there are some good reasons to have it. The U.S. has been the world leader in taking on corruption, and we shouldn’t give up that position without a fight. There has been a payoff, as other countries move in the American direction with tougher anti-bribery measures. Getting rid of the FCPA now would send the very worst possible message to the world. Furthermore, some aspects of the FCPA are useful in helping U.S. multinationals limit the demand for bribes, by claiming they are unable to comply for legal reasons.

Rather than junking the FCPA, we should consider reforming it, lowering its costs while simultaneously making it harder to use as an instrument of political retribution…

To improve the law, commentators have recommended adding a “willfulness” requirement for corporate criminal liability, limiting liabilities from the activities of subsidiaries or from previous acquisitions, clarifying exactly who counts as a “foreign official,” and more generally swinging the presumption back closer to innocence, especially for companies with active and responsible compliance programs. All of those changes could build in more safeguards for ambiguous cases and for companies that are basically engaged in honest business. Recently announced Department of Justice guidelines do take some steps in these directions, for instance by encouraging voluntary disclosure and remediation of infractions.

The column has plenty of information about how many companies violate FCPA — lots — and what is their chance of prosecution.  We would have to make the penalties at least eight times stiffer to make compliance profit-maximizing, at least on average.

Comments

'That’s not entirely reassuring in a polity when impartiality and the rule of law are not guaranteed.'

You don't really believe that, do you? Because honestly, no one who lives in a democracy can be that willfully naive, as different groups interests are always in flux. That flux is what makes polities democracies, and never been an indication that 'impartiality and the rule of law are not guaranteed' while those polities remain democracies.

'At a time when so many norms are being broken, including personalized presidential tweets attacking business leaders'

Who cares? Presidents have attacked business leaders before - Carter and the energy industry, Eisenhower and the military-industrial complex, and Nixon's enemy list was extremely personal in a way a public 'personalized' tweet can never match.

'attacks on the idea of free speech'

Yes, willfully naive. The 1st Amendment is not under challenge, much less threat, in the United States today, regardless of the number of people who seem to think if they keep repeating this, people will actually believe it.

Clockwork, in each one of your quotes Tyler is taking a simple and moral position, and you hit it with contrary thinking.

What a role reversal.

You know, in a previous page I just said it might be a rather large error to eschew truths the 110 pointers can handle. (Replying to someone who set just that boundary.)

That is the danger of contrarian thought, that in trying to be out there, you leave simple truths lying on the table.

'Tyler is taking a simple and moral position'

No, he is not. There is nothing simple nor moral about saying the 2018 is somehow less impartial and the rule of law is stronger than in 1968. That is simply absurd. The fact that we are debating the FBI's role today is merely a sign of that - J Edgar Hoover's FBI was thoroughly unconcerned about impartiality and the rule of law. A fact that only started to trickle out as Hoover's grip weakened.

'you leave simple truths lying on the table'

The three statements highlighted are not truth. Above you can see why the first is incorrect, assuming the original explanation that democracies are in flux was unsatisfying. Trump is a thoroughly incompetent buffoon, and if we wish to talk about the damage he is causing to the U.S. in broad terms, it would be a reasonable discussion. However, his 'personalized' tweeting is not a part of it. As noted when pointing out history, to an age where the president was actually able to use government for his own goals - like having the FBI and IRS investigate and harass his enemies. Admittedly, anyone can 'attack' free speech, but it would be interesting to have anyone making that argument point out where such attacks are having even the slightest success in even the lowest levels of the American judiciary.

Why is there a new tariff on solar panels?

( ) To support American solar companies

( ) To support American coal companies

In other words, you don't really need to drag 1968 into it.

Who cares why there is a tariff? The U.S. has been routinely using tariffs as part of its trade policy my entire life. That was just as true in 1968 as 2018. That the FBI and IRS are being used as aggressively by the current American president as the one in 1968 is clearly not true. And is actually a sign of increasing impartiality and a strengthening of the rule of rule since Nixon's era.

This doesn't look like trade policy to me, it looks like a way to put hurt on a domestic (solar installation) industry. I think that is an example of the business intervention Tyler is talking about.

"1968" does not appear in Tyler's Bloomberg piece. What's with the fixation?

'This doesn’t look like trade policy to me, it looks like a way to put hurt on a domestic (solar installation) industry.'

The EU has been doing the same thing concerning such tariffs - there is really not all that much question about how Chinese manufacturers are dumping their product on global markets. How one effectively deals with dumping is another discussion, of course.

'1968” does not appear in Tyler’s Bloomberg piece. What’s with the fixation?'

Well, compare the impartiality and rule of law that marked the Nixon Adminstration 50 years ago to that of the Trump Administration, and it becomes laughable to suggest that somehow today is worse in those terms.

Do you know that the solar tariff is on all imports, including from Germany?

"The news sent SMA Solar, Germany’s largest solar group, which makes 46 percent of its sales in the Americas, down 4.6 percent to a four-week low, while Norway’s REC Silicon shed 1.2 percent.

German Finance Minister Peter Altmaier said the cost of solar products in the U.S. was likely to increase, and that Berlin would discuss the matter with Washington."

"it looks like a way to put hurt on a domestic (solar installation) industry."

Easier to just kill the subsidies, and would play better with conservatives.

Occam's razor suggests it's to produce more manufacturing jobs.

I am not too bothered by this, because I don't think any factories will slow down, or any panels will go uninstalled. They'll just go to poorer countries, with the US out of the bidding.

It is just sadly transparent though. A tariff against imported panels, from anywhere in the world, including I believe Canada and the only top 10 manufacturer in North America.

"Canada and the only top 10 manufacturer"

Wikipedia lists American "First Solar" above "Canadian Solar" but I believe much of First's production is offshore.

'Do you know that the solar tariff is on all imports, including from Germany?'

Again, so what? And here is some information about washing machines, because they are also subject to same round of recent tariffs - 'The first 1.2 million imported large residential washing machines in the first year will have a 20% tariff imposed on them, while there will be a 50% tariff on machines above that number.

By the third year, these will drop to 16% and 40% respectively.' http://www.bbc.com/news/business-42784380

Of course, what makes this so funny is this little nugget - 'The tariffs were opposed by America's largest solar industry group - the Solar Energy Industries Association (SEIA). SEIA said Suniva and Solarworld had used the complaint to cover for bad business practices - and pointed out the two companies are actually foreign-owned even though the produce panels in the US.'

You do know that Solarworld is basically a German company, right? https://en.wikipedia.org/wiki/SolarWorld

...well, yeah -- at best TC is very confused about American legal principles.

The U.S. government has no legal jurisdiction over events in foreign nations, thus invalidating the FCPA.

TC thinks it a nice idea '...to add a “willfulness” requirement for corporate criminal liability'.
He is unaware that “willfulness” (Mens Rea) is a fundamental requirement of Anglo-American Law for criminal conviction. Its absence in FCPA further negates FCPA Constitutional validity.
Grossly invalid laws require abolition not tweaking -- and criminal prosecution for anybody actively enforcing such phony "law".

The U.S. has zero legal authority to be "the world leader in taking on corruption". Nor does it have much moral authority with its own larges scale corruption in American government. If TC truly wants to improve any U.S. laws -- he's got a steep learning curve ahead of him.

My understanding, which may be wrong, is that prior to 1977 US companies could organize bribes in US boardrooms. The FCPA pushed bribery off-shore. This removed a protection US companies had, to do the bribe from here and to a foreign jurisdiction.

Now the foreign sales agent might do a bribe, but it is on Saudi Arabia or China or whoever to police their own.

The demand lowering angle is quite interesting. Put on the shoes of an honest sales person. It is much easier to tell the client "I am not paying because of legal trouble risk" than because of personal values/principles. It allows to reject the client offer without alienating him. This leaves the door open to future (clean) deals.

The US and other developed nations must have mechanisms to stop their companies engaging in corrupt acts abroad and stop foreigners from using their institutions to stock, multiple or launder the proceeds of corruption.

US Africa Center for Strategic Studies had published a good paper a few years ago titled The Anatomy of the Resource Curse exposing how predator investors take advantage of isolated and/or rogue regimes due to their ability to operate in developed nations positioning themselves as the link broken by International sanctions of AML laws, which shows the need for FCPA. So strengthening of existing laws is a must, not the contrary.

... and what mechanisms exist to stop U.S. government agencies from engaging in corrupt acts ??

your tunnel vision misses much

"The U.S. has been the world leader in taking on corruption ...": a masterly deployment of the intrinsic ambiguity of "taking on". Very chortle-making.

"There has been a payoff ...": encore!

'a masterly deployment of the intrinsic ambiguity of “taking on”'

FIFA was taken on - 'Fifa, football's world governing body, has been engulfed by claims of widespread corruption since summer 2015, when the US Department of Justice indicted several top executives.

It has now claimed the careers of two of the most powerful men in football, Fifa President Sepp Blatter and Uefa President Michel Platini, after they were banned for eight years from all football-related activities by Fifa's ethics committee. A Swiss criminal investigation into the pair is also continuing.

Fifa's president Sepp Blatter has always denied any wrongdoing - but in September, he too was made the subject of a Swiss criminal investigation, launched alongside the US inquiry.

The scandal erupted in May, with a raid on a luxury hotel in Zurich and the arrest of seven Fifa executives - conducted at the behest of the US authorities.' http://www.bbc.com/news/world-europe-32897066

But then, considering how miserable Americans play 'football,' that is what you would expect, right?

clockwork is like some early edition of an online arguing bot. He posts material loosely related to the topic, and where possible makes the most easily available contrary assertion, however tenuous. Here though, there seems to be a bug, I can't even work out how someone could get in an argument with this post. I can't figure out even how to respond to it, other than this droll analysis.

So, the actual application of an American law to charge and arrest non-American citizens for crimes that at best tangentially involved the U.S. but which did involve foreign corrupt practices has nothing to do with this discussion?

Or maybe Stasi has a problem with the idiomatic use of 'taking on'? Because as a number of FIFA's highest executives discovered, the U.S. seems to be quite serious about foreign corruption - and can even force the Swiss to play ball.

If Americans come to believe that ethics are optional, whether in business or politics, and that corrupt practices are the norm for success, then we will have receded to the dark ages, when business deals were not the product of contracts enforced by courts of law but rather through any means necessary including corruption and violence. Should oligarchs in Russia set the standard for ethical business practices? Should politicians in Russia set the standard for ethical government practices? Should laws, such as the FCPA, that are intended to discourage unethical practices be weakened to accommodate an epoch of unethical practices? Behavior, including ethical and unethical behavior, is learned from the example of those in positions of leadership, whether leadership in business or leadership in government. Do we wish for those in positions of leadership in America to emulate their counterparts in Russia? Ethics, like virtue, once lost is difficult if not impossible to recover.

Foreign nationals who become subject to the jurisdiction of the United States can get tagged as well with the FCPA, as well as foreign firms.

Would be nice to have an economist analyze the costs and benefits of the FCPA rather than this very general stuff. Also while that economist is at it he can look at whether corporate fines accomplish much in terms of deterrence.

Good TC Bloomberg article, which was mainly about an academic paper. I'm not an expert on this practice of law, but I think TC is right in that everybody does it, and keeping it in place might deter even more corruption. From what I do understand about this law, the loophole is here: "To recap, the FCPA, enacted in 1977, generally prohibits American businesses from offering bribes or other favors to foreign officials to assist in obtaining or retaining business". But a 'fixer' or 'private consultant' is not an 'official' unless it's clear you are hiring the fixer just to be the bagman for a bribe.

Bonus trivia: Spiro Agnew got busted for accepting bags of cash. Today he would become a lobbyist and legally make tons of cash. Hypocrisy or progress?

Yes, when my sister was selling oil equipment the phrase was "local agent."

But I agree, the FCPA is better than a free for all.

The "willfulness" amendment is an old Business Roundtable proposal.

They also wanted the Sherman Act amended to provide damages for only "willful" price fixing.

Let me look the other way so I can't see what you are doing and let me overlook what I see before me so I don't have to stop it or clean it up.

Sounds plausible though a true die hard libertarian would argue why should price fixing be illegal if there's no market power? If me and you, mom-and-pop stores, conspire to fix prices in commodity widgets, it would be a joke rather than a Sherman Act per se violation of antitrust law as it is today.

I'd be interested in a knowledgeable legal opinion on how this compares with US law, i.e. the de facto "Domestic Corrupt Practices" legal constraints. A number of examples of questionable domestic transactions spring to mind.

" a knowledgeable legal opinion on how this compares with US law, i.e. the de facto “Domestic Corrupt Practices”

LMGTFY

also, Hillary is a prominent attorney ... highly knowledgeable and experienced in corrupt practices issues

My problem with the FCPA is the loss of competitive advantage in a market where all other players bribe, and also that it seems to place too much blame on the briber, and too little on the "bribee".

The placing of responsibility on American companies does make sense, as US government has more influence over US companies than foreign governments. But overall, western nations have failed their citizens by letting developing nation governments get away with too much. The value of a western passport as a protection against unjust (third world) government actions keeps dropping, because the western world is afraid of being seen as racist.

Western companies bribing foreign [corrupt] governments is a small issue. Foreign corrupt governments creating hellholes, and thus refugees and illegal immigrants threaten the whole western world way of life, Europe so more than North America, as our long prison sentences discourages the behavior seen in Europe. One way of dealing with this is to determine which country generates the most refugees and illegal immigrants relative to the size, recolonize this country, identify everybody of the former ruling class, and humiliate them by making them do work as domestic servants and prostitutes. It probably would only take a few demonstration examples before the other banana republics understood. Russians might be useful as occupiers, as they don't have the scruples of other European nations, but it might be hard to get them to leave ultimately.

Yes, occupying other countries has been quite easy and rather fruitful the last few times we tried it. Bonus points for alienating the ruling class.

I guess you don't believe incentives matter?

A trillion dollars and ~4000 dead American soldiers is a pretty big incentive not to occupy another country, wouldn't you say?

".. because the western world is afraid of being seen as racist."

Apparently Rod Dreher tried to thread the needle and say that while we are all God's children, people from sh*thole countries are still bad.

Whereas I believe if were born in a poor country back alley they would have just a hard time as anyone. Like a kid facing a major league pitcher.

But whether you are Viking, or Rod, or Donald Trump you can also think being born on third base was your own hard work.

Darn, I cut when I wanted to copy.

"Whereas I believe if [Viking, or Rod, or Donald Trump] were born in a poor country back alley they would have just a hard time as anyone."

Real progress would be to apply the FCPA domestically.

Like it or not, this law is not going away — and there are some good reasons to have it.

Some good reasons for it? In reality the level of direct corruption of companies and governments is helluva a lot better than decades ago and corporations are a lot less directly corrupt than ever. And US businesses are very careful with foreign countries because this corruption can spin easily out of control and small wars get started. And because of these actions long term corruption is diminishing all across the world. (Yes there is plenty of it.)

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