Transcript Foreign Corruption - Stuart S. Malawer

FOREIGN
CORRUPTION
Stu Carroll
Hatice Cellik
Erika Chiang
April 25, 2012

http://www.youtube.com/watch?v=LuBstLZINco
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HISTORY

In the wake of Watergate scandal, SEC found:

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400+ American companies had spent hundreds of
millions of dollars bribing official overseas.
It turns out that bribing foreign government
officials was not illegal anywhere!
In fact, some European countries even allowed
foreign bribes to be deducted from corporate
taxes as an expense.
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FOREIGN CORRUPT PRACTICES ACT OF
1977 (FCPA)


Passed despite protests from American
companies that it would make them
uncompetitive
Codified “15 U.S.C. §§ 78dd-1, et seq.”
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2 MAIN PROVISIONS OF FCPA
1.
Articles relating to bribery of foreign
officials.
2.
Articles relating to accounting
transparency
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PROVISION I - BRIBERY


“Enacted for the purpose of making
it unlawful for certain classes of
persons and entities to make
payments to foreign government
officials to assist in obtaining or
retaining business.”
Revised in 1989 it to apply to
foreign firms and persons who
cause corrupt payments to take
place within the territory of the
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United States.
Text from http://www.justice.gov/criminal/fraud/fcpa/
PROVISION II – ACCOUNTING
TRANSPARENCY


“Requires companies whose securities are listed
in the United States to meet its accounting
provisions.”
Require corporations to
a) make and keep books and records that accurately
and fairly reflect the transactions of the corporation
b) devise and maintain an adequate system of internal
accounting controls
Text from http://www.justice.gov/criminal/fraud/fcpa/
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WHO DOES FCPA APPLY TO?

Issuers

Domestic Concerns

Foreign companies or persons
* U.S. parent corporations may be held liable for
the acts of foreign subsidiaries where they
authorized, directed, or controlled the activity in
question, as can U.S. citizens or residents, who
were employed by or acting on behalf of such
foreign-incorporated subsidiaries.
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EXCEPTIONS FOR FCPA


Payments made to facilitate or expedite
performance of a "routine governmental action”
A person charged with a violation of the FCPA's
anti-bribery provisions may assert as a defense
that the payment was lawful under the written
laws of the foreign country or that the money was
spent as part of demonstrating a product or
performing a contractual obligation.
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DEFINITION OF A BRIBE

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Corrupt intent to induce the recipient to misuse
his official position to direct business wrongfully
to the payer or to any other person
Paying, offering, promising to pay (or authorizing
to pay or offer) money or anything of value.
Recipient is a foreign official, a foreign political
party or party official, or any candidate for
foreign political office, of any rank or position.
Payments through intermediaries count!
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NUMBER OF FCPA CASES BY YEAR
Year
1978
1979
1980
1981
1982-1985 1986 1987-1995
Cases
2
1
1
1
Year
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Cases
5
3
1
3
5
8
18
10
12
15
15
3
0
1
0
1996
1997
1998-1999
2000
1
1
0
1
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COUNTRIES WITH THE MOST PENALTIES
SINCE 1977
Prior to 2000, only 8
cases.
Countries with most
cases:
• Nigeria – 24
• China – 19
• Iraq – 18
• Mexico – 15
• Argentina – 8
Sector with most
penalty:
• Energy - $2.03
billion
• Manufacturing –
$225.80 million
Total penalty: $4.04
billion
As of October 31, 2011
Sources: James Mintz Group, http://www.fcpamap.com/
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TOP 10 FCPA SETTLEMENTS
Country
Settlement Amount
(million)
Year
Germany
$800
2008
KBR/Halliburton
USA
$579
2009
BAE
UK
$400
2010
Holland/Italy
$365
2010
Technip S.A.
France
$338
2010
JGC Corporation
Japan
$218.8
2010
Germany
$185
2010
France
$137
2010
Switzerland
$81.8
2011
USA
$70
2011
Company
Siemens
Snamprogetti
Netherlands B.V. /
ENI S.p.A
Daimler AG
Alcatel-Lucent
Panalpina
Johnson & Johnson
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INTERNATIONAL AGREEMENTS

Organization for Economic Cooperation and
Development’s (OECD) Anti-Bribery Convention
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(Today 38 countries have adopted the Convention.)
Organization of American State’s (OAS) InterAmerican Convention Against Corruption
United Nations Convention Against Corruption
Council of Europe’s (COE) Criminal Law
Convention on Corruption
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WHAT DO OTHER COUNTRIES DO?

Mostly nothing!

UK recently passed their Bribery Act 2010

Germany, Japan and Saudi Arabia are the last
G-20 countries that have not ratified the United
Nations Convention Against Corruption.
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PROBLEMS WITH FCPA
1.
Cultural differences in definition and use
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2.
How do you measure bribery?
Definition of bribery is different in every country –
does the exception apply?
Challenges state sovereignty
States such as China has state-owned or controlled
enterprises. Who counts as foreign officials?
Reduces competitiveness of U.S. businesses
overseas


What Americans define as bribery may be
requirements to develop business “relationships”
overseas
U.S. standards much higher than the rest of the
world even compared to other Western countries
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ONE ISSUE:
COMPETITIVENESS OF US BUSINESSES

Enhanced FCPA enforcement will cause US
companies to reduce investment in places where
corruption is common .
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POLICY PROPOSAL

Expanding the agreements to include more countries
OECD Anti-Bribery Convention: 34 member countries plus
5 non-members (Russia just joined this month!)
 UN Convention Against Corruption: 140 signatories out of
193 members
 Council of Europe’s (COE) Criminal Law Convention on
Corruption: 43 signatories out of 47 members


Involve the World Trade Organization

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Make this an issue at the next round of discussions
Encourage individuals, NGOs and media to serve as
“watchdogs” to ensure transparency; freedom of the
press (i.e. Transparency International)
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PROS

Less operating costs for companies
No need to pay bribes
 No fines due to non-compliance with FCPA
 Eliminates legal fees to defend against FCPA


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Lower risk of non-compliance with FCPA for U.S.
companies
Levels the playing field for all companies
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CONS

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You can’t force countries to join; thus the field
will never be entirely even
Prisoner’s Dilemma
Countries receiving bribes will lose profits at
least in the short run
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COUNTER-ARGUMENTS

Even if a minority of countries continue to accept
bribes
Companies may choose not to do business there to
avoid fines and uphold their image
 It can become internationally unacceptable; subject
to public shaming

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Over time countries learn to adapt to prisoner’s
dilemma

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Find it beneficial to cooperate rather than undercut
others
In the long run, making bribes illegal will help
the stability and sustainability of the economy.
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IMPACTS ON U.S. TRADE AND FOREIGN
POLICIES

U.S. is the leader in prosecuting foreign bribery

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Can spearhead the effort internationally
One step closer to true global trade liberalization
The reduction of bribery will contribute to
sustained economic growth and more competitive
trade in other countries
Less aid from U.S.
 Economic stability
 Political stability

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IMPACTS ON U.S. COMPANIES

Private U.S. companies will be on the same
playing field as companies from other countries

Leads to fair competition

Less costs as mentioned before
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QUESTIONS?
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REFERENCES
Council of Europe, Criminal Law Convention on Corruption,
http://conventions.coe.int/Treaty/Commun/ChercheSig.asp?NT=173&CM=&DF=&CL=E
NG.
Giorleny D. Altamirano, The Impact of the Inter-American Convention against
Corruption, The University of Miami Inter-American Law Review , Vol. 38, No. 3
(Spring, 2007), pp. 487-547, http://www.jstor.org/stable/40176742.
OECD, Directorate for Financial and Enterprise Affairs, OECD Convention on
Combating Bribery of Foreign Public Officials in International Business
Transactions,
http://www.oecd.org/document/21/0,3746,en_2649_34859_2017813_1_1_1_1,00.html.
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