Transcript Corporate Corruption and Bribery

Corporate Corruption and
Bribery
The Foreign Corrupt Practices Act
(FCPA)
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Overview
The Bribery of foreign officials by US corporations to influence
decisions of foreign officials, foreign political parties, or
candidates for political office is occurring with greater
frequency
Bribes are often given to ensure favorable actions by foreign
governments
Involving but not limited to the following industries:

Drugs and Health Care
 Oil and Gas Production/Services

Food Products

Aerospace, Airlines and Air Services

Chemicals
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US Companies Involved in
Overseas Bribery
Dow Chemical
Xerox (India)
Tyco (Venezuela)
Accenture (Middle East)
IBM (South Korea)
Monsanto
Titan
Enron
…Just to name a few…
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Not Just a US Problem…
“ May 1, 2003 and April 30, 2004 the global competition
for contracts worth up to $18 billion ‘may have been
affected by bribes by foreign firms of foreign
officials’”- Report from the US Department of
Commerce
A global survey by Price Waterhouse Coopers in 2003
found that 49% of companies surveyed were required
to offer or pay a bribe at least four times
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The Detriments of Bribery
Unethical- The payments of bribes conflicts with the moral expectations
and values of US citizens
Bad for Business- Bribery erodes publics confidence in the integrity of
the free market. Bribery also gives those businesses with inefficient
operations an unfair competitive advantage
Unnecessary- “…We find in every industry where bribes have been
revealed that companies of equal size are proclaiming that they see no
need to engage in such practices” Former SEC Chairman Roderick Hills
Foreign Policy Problems- The disclosure of US bribes lowers the esteem
for the US among foreign nationals, embarrasses allied governments
and suggests that US enterprises exert a corrupt influence on foreign
political processes
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The Foreign Corrupt Practices
Act
Enacted in 1977 to prevent the corporate bribery of foreign
officials
Prohibits both the US and foreign corporations and nationals from
paying or offering anything of value to a foreign political party,
foreign government official, candidate for foreign public office,
or an official of a public international organization in an attempt
to obtain or retain business
Main Parts

Requires corporations to keep accurate books, records, and
accounts

Requires issuers registered with the Securities and Exchange
Commission to maintain a responsible internal accounting control
system

Prohibits bribery by US corporations of foreign officials
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History of FCPA Legislation
-Consideration began during the 94th Congress
-Based extensively on the “Report on Questionable and Illegal
Corporate Payments and Practices” issued by the SEC May 12,
1976
*Revealed the widespread practice of questionable corporate
foreign payments
-September 21 and 22, the Subcommittee on Consumer
Protection and Finance held hearings on numerous bills that
should to prohibit these payments
*HR 15481; HR 13870; HR 13953; S 3664
*due to end of session pressures, the Subcommittee was unable
to report prior to adjournment
-Continued in the 95th Congress
-April 20 and 21, 1977
*focused on HR 1602 and HR 3815
-Full committee reported the bill on September 20, 1977
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Key Provisions
Provide criminal penalties for US businesses found to use mail or interstate commerce “corruptly” in order to
further an offer or payment of anything of value to a foreign official to influence the person in their
decision making to obtain or retain business
Prohibits the payment of money to any person by a business if the business knew that the payment was to be
used to bribe a foreign official to influence business cooperation
Requires companies with publicly traded stock in the US to practice required accounting, books, records internal
controls
Exclusions
The definition of “foreign official” excludes foreign government employees “whose duties are essentially
ministerial or clerical”
The Act is not intended to cover “grease payments” (payments made to expedite shipments, secure required
permits, obtain adequate police protection, etc)
Extortions of money by foreign officials may be used as defense against charges of bribery by a business if
either its property or the lives of its employees are threatened
Section 2 regarding the prohibition against certain payments to officials by registered companies was made to
amend the Securities and Exchange act of 1934. The SEC is therefore to retain investigative jurisdiction
over this matter due to their relatively easy access to reporting companies books and filings
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Parties Involved
Enforcement
-Securities and Exchange Commission (SEC)
-Justice Department
US Corporations (Public and Private)
-Bristol-Myers; Exxon Mobil; Daimler Chrysler; IBM;
Halliburton; Syncor; Monsanto; Titan; etc…
Companies with stock publicly traded in the US
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Increased Enforcement
Due to recent increases in global mergers and
acquisitions as well as increasing revelations
of corporate bribery and corruption
instances, FCPA enforcement levels have
reached record highs. The number of
enforcement actions is likely to increase
further in upcoming years as the US
government shifts additional resources into
this area
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Criticisms
Dissuades Export Trade- The “grey” areas that exist within the legislation
regarding what is and is not permissible have led many corporations to cease
foreign operations rather than face uncertainties
Remove the “Reason to Know” Standard- Removing the standard concerning the
liability for actions of a specific business agent while in a foreign country would
eliminate the legal responsibility of the management of a domestic firm over the
unauthorized actions of the agent
Too Costly- The internal accounting controls mandated by the Act were too
burdensome and costly on domestic firms. Failure to implement these controls
made officials unnecessarily cautions
Questionable Exports- In some nations, acceptance of a fee of payment by a
government official from a business is customary. If the US makes this payment
illegal, it appears that we are more concerned with exporting our cultural biases
rather than our products
Ambiguities- Defendants have been able to claim there is no prohibition of bribes
intended to reduce customs duties or tax obligations
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Are U.S. Companies Disadvantaged in
World Trade by the FCPA?

If US businesses are restricted from
bribery while foreign businesses are
not, does this result in an major
disadvantage for US businesses in
global competition
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International Anti-Corruption
Agreements


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OECD
• Convention on Combating Bribery of Foreign Public
Officials in International Business Transactions
 Adopted November 1, 1997
UN
• United Nations Convention Against Corruption
 Adopted September 29, 2003
WB
• Anti-Corruption Program (through good
governance)
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International Enforcement

Lack of enforcement by OECD and UN
• “Lack of compliance with the [OECD]
convention’s provisions continues to hinder
corruption investigations and prosecutions.”
~
Transparency International
• OECD convention is the strongest
international convention against corruption
to date
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Implementation

Lack of or Partial Implementation by
Domestic Governments
• Continued corruption in some OECD
countries
• Lack of enforcement domestically
• Degree of Punishment possible
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Status of Worldwide Corruption
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Non-OECD Countries

OECD convention only signed by the 37
members and 5 non-members
• What about all the other non-OECD
countries?
• Incentives to companies to operate in nonOECD countries to escape FCPA
restrictions?

Impacts of major new trading centersSingapore, China, etc.
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Policy Proposal


Bi-lateral and Multi-lateral Agreements
World Trade Organization (WTO)
• DSU offers some recourse for
implementation
• Doha Agenda

the topic of “building an "anti-corruption"
strategy more explicitly” was raised (by
Transparency International representative Eigen)

Current issues facing the Doha Round
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Conclusion

“Addressing bribery, and with it its
detrimental economic, social and political
effects…could, further enhance the
development opportunities and outcome.”
• WTO, Development Opportunities from Doha
******************************************
Corruption and bribery are trade distortions.
To level the playing field it is necessary for
all countries to cooperate to eliminate
corruption.
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Works Cited
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Congressional Research Service. CRS Report to Congress: Foreign Corrupt
Practices Act. http://www.fas.org/irp/crs/Crsfcpa.htm
Organization for Economic Co-Operation and Development. The OECD
Convention on Combating Bribery of Foreign Officials in International Business
Transactions.
http://www.oecd.org/document/20/0,2340,en_2649_34859_2017813_1_1_1_1,
00.html
Transparency International. Corruption Perceptions Index 2007.
http://www.transparency.org/policy_research/surveys_indices/cpi/2007
United Nations. United Nations Convention Against Corruption.
http://www.unodc.org/pdf/crime/convention_corruption/signing/Conventione.pdf
United States Department of Justice. Foreign Corrupt Practices Act.
http://www.usdoj.gov/criminal/fraud/fcpa/
World Bank. Governance and Anti-Corruption.
http://web.worldbank.org/WBSITE/EXTERNAL/WBI/EXTWBIGOVANTCOR/0,
,contentMDK:20672500~menuPK:1740553~pagePK:64168445~piPK:64168309~th
eSitePK:1740530,00.html
World Trade Organization. The Doha Development Agenda and Beyond. (April 29,
2002).
http://www.wto.org/english/tratop_e/dda_e/summary_report_dev_opport_doh
a.doc
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