Thirty years after its enactment, the Foreign Corrupt Practices Act (“FCPA”) has proven to be neither the crippling impediment to trade that its critics feared nor the harbinger of global reform that its proponents hoped. American companies have mostly adapted to it, although the recent increase in prosecutions, self-disclosures and settlements demonstrates that compliance remains less than universal.

Internationally, the U.S. continues to press trading partners to adopt the principles of the FCPA. These efforts have been partially successful, at least on paper. As a practical matter, however, the U.S. remains virtually the only country that vigorously prosecutes its companies for bribing foreign government officials. 

With its roots in the Watergate scandal of the 1970’s, the FCPA was based more on reformist than economic principles.  As the legislative history notes, the Act reflected a view that bribery was “morally repugnant” and “tarnished” the reputation of American business. However, Congress also recognized that bribery distorts markets and confers competitive advantages on those willing to engage in it, at least in the short term. More practically, it siphons profits and exposes companies to ongoing demands for ever-increasing payments. Indeed, one of the enduring benefits of the FCPA is that it gives U.S. companies a strong basis for resisting demands for payments from foreign officials. 

Since the enactment of the FCPA, the U.S. has pressed the international community to adopt similar legislation. While this extended effort is based on the principles underlying the Act, it also reflects complaints from American businesses that the FCPA places them at a competitive disadvantage. The primary vehicle for trying to “level the playing field” has been international agreements.

While the international community has proven eager to join in anti-corruption treaties, their practical impact remains far over the horizon. Most fundamentally, many governments are simply reluctant to pursue their companies for bribery that occurs elsewhere.

The most successful agreement is the Organization for Economic Co-Operation and Development (OECD) Anti-Bribery Convention of 1997. All of the OECD countries have enacted legislation prohibiting the bribery of foreign officials. All but one has stopped allowing the tax deductibility of such bribes.

Of more recent vintage, the UN Convention Against Corruption (UNCAC) entered into force at the end of 2005. With 143 nations signing and 93 ratifying the UNCAC, it sweeps far more broadly than the OECD Convention.  

In addition to pursuing multilateral efforts against corruption, the U.S. has moved unilaterally to address the address the issue. In establishing the Millennium Challenge Corporation, the Administration conditioned aid to developing countries on a commitment to anti-corruption and good standing on the World Bank Institute’s Control of Corruption Index. In 2004, President Bush issued Presidential Proclamation 7750, giving the President power to deny entry into the U.S. those people previously or currently involved in public corruption. 

Aggressive U.S. enforcement practices have drawn the attention of the international business community and may provide a more practical deterrent over the short term. The $44 million in criminal and civil penalties agreed to by Baker Hughes set a new record for FCPA enforcement penalties. 

Another recent case, ABB Vetco, shows that the U.S. is increasingly willing to initiate investigations and enforcement actions where the primary actors are outside the U.S. (in this case, Nigeria).

As a matter of policy, the U.S. has taken the lead in trying to institutionalize and globalize the principles of the FCPA. As practical matter, it remains the only country that aggressively enforces those principles. While the U.S. has successfully enforced the FCPA against foreign companies, U.S. companies operating in corrupt environments remain uniquely at risk of criminal prosecution for overseas bribery, a circumstance that will change only slowly. wt



Michael Marinelli, the head of the International Trade practice group at Cooley Godward Kronish in Washington, D.C., is an expert in the FCPA, federal regulation of international trade, as well as in representing companies involved in government audits, investigations and enforcement proceedings.