Ethics case

Read the three articles posted on Blackboard about the Foreign Corrupt Practices Act (FCPA). Assume that you are working for a Washington, D.C. policy thinktank. You have been tasked with preparing a report on whether the FCPA should be repealed. Prepare a report covering the following topics:? An overview of the FCPA.? A discussion of at least two ethical theories, e.g., utilitarianism,deontology, social justice and social contract theory, and virtue theory.These will be “your selected ethical theories.”? A description of the ethical issues involved with either repealing orsustaining the FCPA.? An application of your selected ethical theories to the ethical issuesinvolved with either repealing or sustaining the FCPA.? The conclusion that each of your selected ethical theories would reach onthe question of either repealing or sustaining the FCPA.? A discussion of your personal ethical beliefs, and the conclusion that thosebeliefs would reach on the question of either repealing or sustaining theFCPA. Six reasons why corporations like (and want)
the Foreign Corrupt Practices Act even if they
won’t admit it
Conniel Malek, Director of True Costs Initiative
There are several reasons why multinationals not only have an interest in preserving the FCPA, but see its infrastructure as a
benefit to business – even if they won’t say it.
The Foreign Corrupt Practices Act (FCPA) gives US companies an invaluable tool to fight corruption abroad. It has also
been an effective tool for foreign countries to reduce bribery, and it has led to billions of dollars in fines. President Trump
has labeled the FCPA a “horrible law” and insisted that it stifles American businesses conducting business abroad. “It puts
us at a huge disadvantage,” he told CNBC in May 2012. The jury is still out on whether the Trump administration will take
concrete steps to weaken the FCPA and it is possible that perception is not reality when it comes to President Trump and the
Act.
It is not however, inconsequential that using the Congressional Review Act, the Trump administration killed a rule to crack
down on foreign bribery by US energy companies. That action does not augur well for the administration’s commitment to
the FCPA and related anti-corruption regulations. Foreign civil society advocates and US supporters of this Act who have
seen the benefits reaped from increased anti-bribery enforcement and intergovernmental cooperation, are understandably
concerned about what the administration might do next. But as they wait for the proverbial shoe to drop, civil society
advocates may find unlikely allies within corporations. There are several reasons why multinationals not only have an
interest in preserving the FCPA, but see its infrastructure as a benefit to business – even if they won’t say it.
1. Corporations love predictability. Reverting to a world without the stricture of the FCPA is unappealing for
several reasons. The non-FCPA world is an expensive and risky one. Corporations want certainty in their contracts,
costs, investments and the framework within which their foreign business operations take place. If bribes and
corruption are rampant, their logistics planning, the efficiency of their business operations and ultimately their return on
investment are all potentially at risk because they can’t predict the expensive and unpredictable demands of corrupt
government officials and intermediaries.
2. The FCPA is good for US businesses. Corporations thrive when they can maintain their competitive advantage.
In a business environment where corruption is rare, corporations distinguish themselves based on the superiority of
their product, efficiency of their logistics, business models etc. This is where US corporations have an advantage. In a
world in which corruption is rampant, foreign companies which typically could not compete with US corporations,
because of poor product for example, are often able to out-compete US business because they engage in bribery and
other corrupt practices. US companies actually stand to gain when businesses around the world are operating on
relatively the same regulatory plane.
Reverting to a world without the stricture of the FCPA is unappealing for several reasons. The non-FCPA
world is an expensive and risky one.
3. Large multinational corporations have already built the compliance infrastructure to support FCPA
requirements and they have seen the secondary benefits of these increased internal controls for their core
businesses. Corporations have invested tremendous resources in building legal and compliance infrastructure to
support the management of FCPA and other compliance risk within their business units and supply chains. This
compliance infrastructure positions companies to achieve concrete business benefits such as improved quality control,
stronger internal controls and general efficiency. Also, within large corporations, the FCPA has essentially become
everybody’s business. Corporations have an incentive to maintain that and are unlikely to pull the Jenga-block on what
has become an integrated and important building block to their corporate business and governance structure.
4. Corporations are risk averse. As much as corporations espouse the importance of “disruptive technologies”,
“embracing risk” and using creative strategies to “maximize their competitive advantage”, corporations at their core are
actually quite risk averse. This risk aversion is evident in the increasing use of risk analysis firms, pre-acquisition
FCPA and other due diligence. They want to take managed risks that will pay off but won’t get them on the front page
of The New York Times. They want to protect their reputational exposure at all costs, and a sure-fire way to assail that
reputation is an FCPA investigation or lawsuit. Corporations are motivated to keep this infrastructure in place because it
also helps them manage outsized risk and protect their reputations.
The FCPA has become everybody’s business. Corporations have an incentive to maintain that and are unlikely
to pull the Jenga-block on what has become an integrated and important building block to their corporate
business and governance structure.
5. Astute CEOs know that FCPA regulations do not have a significantly adverse effect on business profits. The
FCPA has not signaled the death knell of American businesses abroad as some opponents claim. In fact, the majority of
the largest FCPA enforcement actions in 2016 and the FCPA enforcement actions in history were against foreign
companies.
6. Large corporations increasingly recognise the strong connection between corruption and business & human
rights abuses. And (the smart ones) want to avoid both. Comprehensive independent investigations have revealed
the connection between corruption, slavery and human rights abuses in big industries. In Thailand, the world’s third
largest seafood exporter, trawlers use Thai and migrant slaves to catch fish sold in the US, UK and elsewhere in Europe.
While the situation in Thailand reveals a variety of problems– weak government enforcement, lack of worker and
migrant rights, extensive violence and unsustainable fishing practices – many acknowledge and accept that blatant
corruption tied to corporate business operations is a consistent theme running throughout. In fact, several seafood
companies signed a memorandum of understanding pledging to eliminate associated products from their supply chains.
Increasing shareholder activism and human rights campaigns will help make the connection between human rights
abuses and corruption even more clear. CEOs will continue to recognise that this connection is devastatingly real and
that corruption is rarely a solo artist.
Supporters of corporate accountability should keep each of these in mind as they develop their strategies for defending the
FCPA and strengthening its application in the business & human right field: 1) They should be sure not to ignore some,
admittedly unlikely, but useful allies – especially those large corporations which have implemented extensive and more than
face-value FCPA compliance programs. 2) They should identify opportunities to engage these corporations as part of their
strategies to fight corruption especially in the Global South. They may find some compliance departments are quite
receptive to their ideas, input and in some cases their direction. 3) Finally, they should ramp up their efforts to
communicate more clearly to the wider public, to Corporate Social Responsibility offices and CEO’s the inextricable link
between corruption and human rights and environmental abuse.
So, even if we haven’t yet seen dramatic attempts by the current administration to dismantle the FCPA, when the other shoe
does drop (and even if it doesn’t drop), it is important that civil society advocates of the FCPA seek corporate allies. Not to
do so would be to miss an important opportunity for an intersection of interests to preserve an essential tool in the fight
against corruption.
DOES THE FOREIGN CORRUPT
PRACTICES ACT WORK?
July 18, 2016
The Foreign Corrupt Practices Act (FCPA) seems as American as apple pie. The law is
meant to prohibit bribery of foreign officials, promoting the kind of fair-play economy
that politicians of all stripes can get behind. Begun in the aftermath of the Watergate
scandal, during which numerous corporations admitted to maintaining slush funds to
bribe foreign officials, the FCPA was the first legislation in the world to address bribery
abroad [1].
By Jennifer Reich, JD’18
BACKGROUND
It has two primary components: 1) prohibiting bribes from American companies and companies that do business
in America, and 2) mandating adequate accounting provisions for corporations to prevent such bribes from taking
place [2]. Enforcement of the FCPA relies primarily on self-reporting by companies, who, in return for footing the
bill for investigations, get leniency from the prosecuting agency [3]. In fact, the investigations themselves can be
so costly that they act as a deterrent; companies are afraid of doing anything that might even trigger one [3].
The FCPA has become a key regulatory compliance tool in the fight against global corruption and for a more even
commercial playing field. After the 2008 financial crisis, the Department of Justice (DOJ) and the Securities and
Exchange Commission (SEC), the two government agencies tasked with enforcing the FCPA, dramatically
increased their efforts and drove a significant upswing both in the number of cases and in the dollar value of
settlements [4]. Settlements under the FCPA range from thousands of dollars into the billions [5]. For example, in
2008 Siemens agreed to pay $1.6 billion to American and German authorities as a result of systematic bribery of
officials to win international government contracts [5]. Many other countries have followed the United States’ lead,
and individual countries like Germany and France, as well as member countries of the Organization for Economic
Cooperation and Development, have instituted similar reforms addressing foreign corruption [6].
In May 2016, the DOJ Fraud Section’s FCPA Compliance Unit issued new FCPA guidelines and instituted a pilot
program to encourage voluntary reporting [7]. In addition to doubling the number of attorneys in the Fraud FCPA
unit, DOJ adjusted prosecution policies to require full cooperation by companies to qualify for leniency [8], [9].
Some law firms read the change as a signal that DOJ plans to increase enforcement actions under the FCPA [8].
The U.S. Chamber of Commerce protested the reform, arguing that the all-or-nothing policy would discourage
corporate cooperation because of the excessively high standards it requires [10]. Regardless, FCPA enforcement
appears to be an evolving field with increasing implications for American corporations.
CRITICISM OF THE FCPA
However, the FCPA is not without its critics. The high penalties are seen as a handicap, disadvantaging American
business through dramatic over-deterrence [11], [12]. The Institute for Legal Reform (ILR), an arm of the U.S.
Chamber of Commerce, views the FCPA as overly vague, penalizing honest businesses, and generally an
enforcement overreach by the SEC and DOJ [13]. The ILR argues that honest businesses will conduct
unnecessary investigations, avoid business opportunities, or lose contracts to foreign competitors, based on their
unwillingness to engage in practices that are ambiguous under the FCPA, while their less scrupulous counterparts
and businesses from other countries will use such tactics to get ahead [13]. The ILR cites statistics claiming over
$1 billion could be lost annually in export trade due to the FCPA’s provisions [13].
In a 2010 report, the ILR set out a number of proposals to improve enforcement of the FCPA, including adding an
affirmative defense for compliance, limiting companies’ liability for other companies they acquire or for
subsidiaries, and offering more concrete definitions of relevant terms [13]. Although DOJ does regularly issue
clarifying guidance, the agency’s wide interpretation of the law leaves many questions still unanswered. As such,
none of the ILR’s proposals have been implemented in any significant way.
Cato Institute affiliate and Harvard professor Jeffrey Miron has argued for the repeal of the FCPA entirely [14]. He
argues that the FCPA is actually counterproductive, because in impoverished countries where corruption is
endemic, the impediments to economic growth created by American companies’ inability to do business there
retards those countries’ developments, rather than promoting more stable economies [14]. Miron points out that
even in other countries where FCPA-equivalents have been enacted, they are not enforced on nearly the same
scale, putting American companies at a disadvantage both against countries with no FCPA-equivalent and even
against those that have cooperated with similar measures [14].
Despite the protests of strong corporate interests, the FCPA is not going anywhere any time soon. The
controversy itself belies one significant point, raised in DOJ testimony to Congress: “If ‘companies aren’t paying
bribes, they have nothing to fear with respect to enforcement’” [11].
DOES IT WORK?
As with any regulation, the FCPA has had negative consequences, from increased overhead costs for companies
seeking to do business internationally to costly investigations of companies later determined to be in
compliance [14]. The arguable success of the FCPA depends on the measuring stick used to evaluate the law.
From the perspective of curbing corruption facilitated by businesses and generally promoting the rule of law, the
FCPA works. From the perspective of encouraging American business growth in foreign markets, it has been a
hindrance. Based on its role improving the economic situations of the people living under corrupt governments
and curbing the overall numbers of corrupt officials, the picture is less clear.
The FCPA is, in many ways, a law with long term goals. By throwing America’s global economic heft behind more
ethical business practices, the United States can push developing nations towards ultimately more stable, less
corrupt governance. As more countries adopt similar laws one can be optimistic about the future, but time will tell
whether the FCPA can live up to its promises.
REFERENCES
[1] L. Berman, “PART 1: Outlawing Foreign Bribery,” in Exploring the broader questions surrounding the Foreign
Corrupt Practices Act, PBS Frontline, May 2009. Available:
http://www.pbs.org/frontlineworld/stories/bribe/2009/05/lowell-bergman.html. [Accessed June 15, 2016].
[2] Foreign Corrupt Practices Act, An Overview, Fraud Section at the U.S. Department of Justice, Sept. 2015.
Available: https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act. [Accessed June 15, 2016].
[3] D. Hilzenrath, “Justice Department, SEC investigations often rely on companies’ internal probes,” Washington
Post: Business, May 22, 2011. Available: https://www.washingtonpost.com/business/economy/justice-departmentsec-investigations-often-rely-on-companies-internal-probes/2011/04/26/AFO2HP9G_story.html?nav=emailpage.
[Accessed June 15, 2016].
[4] P. Urofsky et al., “Cases and Review Releases Relating to Bribes to Foreign Officials under the Foreign
Corrupt Practices Act of 1977,” FCPA Digest, Shearman and Sterling LLP, Jan. 2016. Available:
http://shearman.symplicity.com/files/614/614f800363c953e3b00a5c61201a2124.pdf. [Accessed June 15, 2016].
[5] E. Lichtblau and C. Dougherty, “Siemens to pay $1.34 billion in fines,” New York Times: World Business, Dec.
15, 2008. Available: http://www.nytimes.com/2008/12/16/business/worldbusiness/16siemens.html. [Accessed
June 15, 2016].
[6] P. Henning, “Be Careful What You Wish For: Thoughts on a Compliance Defense Under the Foreign Corrupt
Practices Act,” Ohio State Law Journal, 73, 5, pp. 883-928, 2012. Available:
http://moritzlaw.osu.edu/students/groups/oslj/files/2013/02/73.5.Henning.pdf. [Accessed June 15, 2016].
[7] A. Weissman, The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance,
Department of Justice, Apr. 2016. Available: https://www.justice.gov/opa/file/838386/download. [Accessed June
15, 2016].
[8] J. Zucker et al., FCPA Enforcement: 2015 Highlights and Trends, Dechert LLP. Available:
http://www.americanbar.org/content/dam/aba/publications/criminaljustice/wccn_2016_zucker.authcheckdam.pdf.
[Accessed June 15, 2016].
[9] S. Yates, Individual Accountability for Corporate Wrongdoing, Office of the Deputy Attorney General at the
Department of Justice, Sept. 9, 2015. Available: https://assets.documentcloud.org/documents/2393039/justicedept-memo-on-corporate-wrongdoing.pdf. [Accessed June 15, 2016].
[10] M. Miner, DOJ’s New Threshold for “Cooperation”: Challenges Posed by the Yates Memo and USAM
Reforms, U.S. Chamber of Commerce Institute for Legal Reform, May 2016. Available:
http://www.instituteforlegalreform.com/uploads/sites/1/YatesMemoPaper_Web.pdf. [Accessed June 15, 2016].
[11] D. Hilzenrath, “U.S. firms say foreign-bribe law lacks clarity,” Washington Post: Business, July 23, 2011.
Available: https://www.washingtonpost.com/business/economy/us-firms-say-costly-foreign-bribe-law-lacksclarity/2011/07/05/gIQAB50jTI_story.html. [Accessed June 15, 2016].
[12] The FCPA and Its Impact on International Business Transactions- Should Anything Be Done to Minimize the
Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?, Committee on International
Business Transactions, New York City Bar, Dec. 2011. Available:
http://www2.nycbar.org/pdf/report/uploads/FCPAImpactonInternationalBusinessTransactions.pdf. [Accessed June
15, 2016].
[13] A. Weissman and A. Smith, Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices
Act, U.S. Chamber of Commerce Institute for Legal Reform, Oct. 2010. Available:
http://www.instituteforlegalreform.com/uploads/sites/1/restoringbalance_fcpa.pdf. [Accessed June 15, 2016].
[14] J. Miron, “Prosecute Wal-Mart, but get rid of anti-bribery law,” CNN, Apr. 26, 2012. Available:
http://www.cnn.com/2012/04/26/opinion/miron-wal-mart-bribery-law/. [Accessed June 15, 2016].