1977 anti-bribery law put businesses at ‘competitive disadvantage’
The Department of Justice has recently begun enforcing a once-obscure anti-bribery law that makes it illegal for multinational corporations to engage in bribery with foreign governments, drawing criticism over the “very aggressive” approach to the law.
The of 1977 (FCPA) has been rarely enforced over the last 35 years. But, currently, 78 companies are under investigation by the Department of Justice, including well-known companies like Avon, Goldman Sachs, Hewlett-Packard, Pfizer and Wal-Mart Stores.
According to the Justice Department website, the FCPA “prohibit[s] the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person.”
In an FBI sting attempt, federal agents collected 800 hours of video and audio over suspected arms trading and bribery in Africa. Twenty-two business executives were arrested as a result, but the case ultimately fell apart. The case drew harsh criticism over the “very, very aggressive” measures used to make the case.
The World Bank estimates bribes to government officials amount to $1 trillion annually. Government officials in Africa alone collect $148 billion a year, according to Transparency International, a corruption-tracking nonprofit.
The case’s failure opened the floodgates of criticism of the methods with which corruption and bribery are fought overseas.
“The crackdown, which began in earnest three years ago, has made it harder for companies to win legitimate business and … has needlessly instilled fear among executives,” reported the New York Times.
Lisa Rickard, president of the United States Chamber of Commerce’s Institute for Legal Reform, told the New York Times, “We are seeing companies getting scooped up in aggressive enforcement actions and investigations. … A culture of overzealousness has grabbed the Justice Department.” Rickard is pushing for a reform of the current law.
For many years, few companies were prosecuted. For example, in 2003, not a single person was brought to trial under this law.
Recently however, there has been a sharp increase in cases. In the last four years, “a total of 58 companies have paid a combined $3.74 billion to settle such corruption charges. Since 2009, some 67 people have been charged, 20 are still awaiting trial or are at large, and 42 have been convicted, some from charges prior to 2009.”
Corporate leaders are complaining that this discretionary enforcement creates a competitive disadvantage, particularly for companies doing business in China. “The prevalence of state ownership, the pervasiveness of discretionary regulatory authority, and a traditional business culture that emphasizes relationships and relationship building make this a high-risk jurisdiction,” Nate Bush, a partner with a Beijing-based company, told the Wall Street Journal.
“Mr. Bush says there is great scope for bribery since government officials often have the authority to grant or deny the licenses and other permits businesses need to operate,” the WSJ adds.
Businessmen feel that the law doesn’t allow them to adapt to local conditions and “is an unfair constraint.” 80 percent of executives actually feel that FCPA is directly putting their firms at a competitive disadvantage in China, according to a report released last November by law firm Allen & Overy.
The competitive disadvantage seems even worse, when you take into account countries like Germany, which actually give tax credits for bribery.
Increases in enforcement of this law began during the Bush years, many suspect as a result of several corporate scandals, such as Enron, Tyco and WorldCom. Attention to foreign bribery coincides the passing of the Sarbanes-Oaxley Act, also known as the Corporate and Auditing Accountability and Responsibility Act, which changed corporate financial accounting and reporting and “ requires executives to certify annually that they are unaware of any fraud at their companies,” as reported by the Las Vegas Review-Journal.
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