Bribery in the global market: A critical analysis of the Foreign Corrupt Practices Act

Washington and Lee Law Review, Winter 1997 by Steven R Salbu

1. Introduction

Over the past twenty years, the United States has adopted and refined rigorous legislation to curb the payment of bribes by U.S. companies. Through the Foreign Corrupt Practices Act of 1977' as amended in 1988 (FCPA),2 payment of bribes abroad by U.S. businesspersons has become a crime subject to incarceration, fines, or both.3 Under the FCPA's influence, corruption in world markets has become an important legal issue for U.S. companies doing business abroad.

The U.S. approach to bribery under the FCPA is severe by global standards. The United States is the only nation that has criminalized the extraterritorial payment of bribes by domestic companies.4 A district court decision suggests that the reach of the FCPA may go even further - that under appropriate conditions, foreign nationals subject to U.S. jurisdiction may be convicted under the provisions of the FCPA for paying bribes outside U.S. borders.5 The impressive scope and enforcement potential of the FCPA are enhanced by the recognition of private actions under appropriate conditions. Furthermore, if a pattern of violations exists, the FCPA's rigor can be intensified by the assessment of civil penalties, including treble damages, under the Racketeer Influenced and Corrupt Organizations Act (RICO). 7

Historically, authorities have been lax in enforcing the FCPA.8 Although the government has instituted aggressive surveillance policies during the past few years,9 illegal payment of bribes remains among the most prominently publicized white-collar crimes,10 both domestically and internationally.ll Corruption is a tenacious reality in many global markets, where foreign officials continue to solicit bribes routinely from U.S. companies and their representatives.'2 The proliferation of illegal payments has been exacerbated by recent increases in the size of typical kickbacks.'3

The remainder of this Introduction provides background information concerning the current worldwide challenge of corruption. Subpart A outlines a wide range of recent global efforts to eliminate bribery. Subpart B provides examples of corruption or alleged corruption in the 1990s, demonstrating the pervasiveness and persistence of the problem. Subpart C outlines the challenges Congress faces as a result of the observations made in subparts A and B. Subpart C also outlines the body of the Article, which assesses and ultimately rejects the wisdom of the FCPA approach.

A. Recent Efforts to Eliminate Bribery

Although it is the only country to criminalize the extraterritorial payment of bribes,l4 the United States is working to encourage other nations to follow suit. In the spring of 1995, U.S. Trade Representative Charlene Barshefsky stated that the United States would move aggressively to promote adoption of FCPA-type laws in other major trading nations as part of an effort to increase transparency in frequently furtive government procurement processes."5

By early 1996, the Organization of Economic Cooperation and Development (OECD) addressed a tax policy that is widely believed to encourage or support international bribery - the deductibility of bribes paid to foreign officials as business expenses in a number of industrialized nations.16 The OECD's Committee on Fiscal Affairs adopted a resolution that member countries reject or abolish such deductions.l7 Because the resolution represents a commitment only from the twenty-six member countries of the OECD, the organization is seeking ways to encourage nonmembers to institute similar reforms.ls

Likewise, U.S. and Latin American officials are working on the development of a hemispheric agreement to curb the payment of bribes to foreign officials.'9 In March of 1996, the Organization of American States (OAS), consisting of thirty-four Western Hemisphere members, drafted a multilateral agreement to prevent bribery and corruption in international business.20 Under the agreement, known as the "Inter-American Convention Against Corruption" (Convention), 21 signatories make a commitment to adopt laws that are the "rough equivalent" of the FCPA.' The Convention also supports extradition, asset seizure, and evidence gathering; creates common ethical principles among signatories; and seeks regularity and transparency in financial disclosure and record-keeping practices.23 The Convention was a central issue at an OAS meeting held in Panama City in June of 1996. Later that month, the United States became the twenty-second member of the OAS to subscribe to the agreement.25 While the ramifications of the OAS Convention remain uncertain, a State Department official observed that "for the first time in a regional setting, other countries have signed up in some measure" to the principles of the FCPA. 26The degree to which signatories follow through on their commitments by adopting FCPA-style prohibitions of extraterritorial bribes remains to be seen.

Simultaneously, other organizations committed to free trade are looking for ways to combat bribery. In 1995, a United Nations committee drafted a code of conduct that would prohibit public officials from accepting gifts and favors.' In 1996, the U.S. delegation proposed a United Nations declaration calling for international transparency in accounting standards, accurate record-keeping practices, and international cooperation in the investigation of bribery.28