trade relations.monday.corruption-fcpa (fall 2007)

7/29/2019 Trade Relations.monday.corruption-FCPA (Fall 2007)

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Corporate Corruption and

BriberyThe Foreign Corrupt Practices Act

(FCPA)


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Overview

The Bribery of foreign officials by US corporations to influencedecisions of foreign officials, foreign political parties, orcandidates for political office is occurring with greater

frequencyBribes are often given to ensure favorable actions by foreign

governments

Involving but not limited to the following industries: Drugs and Health Care

Oil and Gas Production/Services Food Products

Aerospace, Airlines and Air Services Chemicals


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US Companies Involved inOverseas Bribery

Dow ChemicalXerox (India)

Tyco (Venezuela)Accenture (Middle East)

IBM (South Korea)Monsanto

TitanEnron

Just to name a few


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Not Just a US Problem

May 1, 2003 and April 30, 2004 the global competitionfor contracts worth up to $18 billion may have been

affected by bribes by foreign firms of foreignofficials- Report from the US Department of

Commerce

A global survey by Price Waterhouse Coopers in 2003found that 49% of companies surveyed were required

to offer or pay a bribe at least four times


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The Detriments of Bribery

Unethical- The payments of bribes conflicts with the moral expectationsand values of US citizens

Bad for Business- Bribery erodes publics confidence in the integrity ofthe free market. Bribery also gives those businesses with inefficient

operations an unfair competitive advantage

Unnecessary-We find in every industry where bribes have beenrevealed that companies of equal size are proclaiming that they see noneed to engage in such practices Former SEC Chairman Roderick Hills

Foreign Policy Problems- The disclosure of US bribes lowers the esteemfor the US among foreign nationals, embarrasses allied governmentsand suggests that US enterprises exert a corrupt influence on foreign

political processes


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The Foreign Corrupt PracticesAct

Enacted in 1977 to prevent the corporate bribery of foreignofficials

Prohibits both the US and foreign corporations and nationals frompaying or offering anything of value to a foreign political party,

foreign government official, candidate for foreign public office,or an official of a public international organization in an attemptto obtain or retain business

Main Parts Requires corporations to keep accurate books, records, and

accounts Requires issuers registered with the Securities and Exchange

Commission to maintain a responsible internal accounting controlsystem

Prohibits bribery by US corporations of foreign officials


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History of FCPA Legislation

-Consideration began during the 94th Congress-Based extensively on the Report on Questionable and IllegalCorporate Payments and Practices issued by the SEC May 12,1976

*Revealed the widespread practice of questionable corporateforeign payments

-September 21 and 22, the Subcommittee on ConsumerProtection and Finance held hearings on numerous bills thatshould to prohibit these payments

*HR 15481; HR 13870; HR 13953; S 3664*due to end of session pressures, the Subcommittee was unableto report prior to adjournment

-Continued in the 95th Congress-April 20 and 21, 1977

*focused on HR 1602 and HR 3815-Full committee reported the bill on September 20, 1977


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Key ProvisionsProvide criminal penalties for US businesses found to use mail or interstate commerce corruptly in order to

further an offer or payment of anything of value to a foreign official to influence the person in theirdecision making to obtain or retain business

Prohibits the payment of money to any person by a business if the business knew that the payment was to beused to bribe a foreign official to influence business cooperation

Requires companies with publicly traded stock in the US to practice required accounting, books, records internalcontrols

ExclusionsThe definition of foreign official excludes foreign government employees whose duties are essentially

ministerial or clerical

The Act is not intended to cover grease payments (payments made to expedite shipments, secure requiredpermits, obtain adequate police protection, etc)

Extortions of money by foreign officials may be used as defense against charges of bribery by a business if

either its property or the lives of its employees are threatenedSection 2 regarding the prohibition against certain payments to officials by registered companies was made to

amend the Securities and Exchange act of 1934. The SEC is therefore to retain investigative jurisdictionover this matter due to their relatively easy access to reporting companies books and filings


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Parties Involved

Enforcement

-Securities and Exchange Commission (SEC)

-Justice Department

US Corporations (Public and Private)

-Bristol-Myers; Exxon Mobil; Daimler Chrysler; IBM;Halliburton; Syncor; Monsanto; Titan; etc

Companies with stock publicly traded in the US


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Increased Enforcement

Due to recent increases in global mergers andacquisitions as well as increasing revelations

of corporate bribery and corruption

instances, FCPA enforcement levels havereached record highs. The number ofenforcement actions is likely to increase

further in upcoming years as the US

government shifts additional resources intothis area


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CriticismsDissuades Export Trade-The grey areas that exist within the legislation

regarding what is and is not permissible have led many corporations to ceaseforeign operations rather than face uncertainties

Remove the Reason to Know Standard- Removing the standard concerning theliability for actions of a specific business agent while in a foreign country wouldeliminate the legal responsibility of the management of a domestic firm over the

unauthorized actions of the agent

Too Costly- The internal accounting controls mandated by the Act were tooburdensome and costly on domestic firms. Failure to implement these controls

made officials unnecessarily cautions

Questionable Exports- In some nations, acceptance of a fee of payment by a

government official from a business is customary. If the US makes this paymentillegal, it appears that we are more concerned with exporting our cultural biasesrather than our products

Ambiguities- Defendants have been able to claim there is no prohibition of bribesintended to reduce customs duties or tax obligations


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Are U.S. Companies Disadvantaged inWorld Trade by the FCPA?

If US businesses are restricted frombribery while foreign businesses arenot, does this result in an majordisadvantage for US businesses inglobal competition


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International Anti-CorruptionAgreements

OECD

Convention on Combating Bribery of Foreign PublicOfficials in International Business Transactions

Adopted November 1, 1997 UN

United Nations Convention Against Corruption

Adopted September 29, 2003

WB Anti-Corruption Program (through good

governance)


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International Enforcement

Lack of enforcement by OECD and UN Lack of compliance with the [OECD]

conventions provisions continues to hinder

corruption investigations and prosecutions.~ Transparency International

OECD convention is the strongest

international convention against corruptionto date


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Implementation

Lack of or Partial Implementation byDomestic Governments Continued corruption in some OECD

countries Lack of enforcement domestically

Degree of Punishment possible


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Status of Worldwide Corruption


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Non-OECD Countries

OECD convention only signed by the 37members and 5 non-members What about all the other non-OECD

countries? Incentives to companies to operate in non-

OECD countries to escape FCPA

restrictions? Impacts of major new trading centers-

Singapore, China, etc.


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Policy Proposal

Bi-lateral and Multi-lateral Agreements

World Trade Organization (WTO)

DSU offers some recourse forimplementation

Doha Agenda the topic of building an "anti-corruption"

strategy more explicitly was raised (byTransparency International representative Eigen) Current issues facing the Doha Round


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Conclusion

Addressing bribery, and with it itsdetrimental economic, social and politicaleffectscould, further enhance thedevelopment opportunities and outcome. WTO, Development Opportunities from Doha

******************************************

Corruption and bribery are trade distortions.To level the playing field it is necessary forall countries to cooperate to eliminate

corruption.


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Works Cited Congressional Research Service. CRS Report to Congress: Foreign Corrupt

Practices Act.http://www.fas.org/irp/crs/Crsfcpa.htm Organization for Economic Co-Operation and Development. The OECD

Convention on Combating Bribery of Foreign Officials in International BusinessTransactions.http://www.oecd.org/document/20/0,2340,en_2649_34859_2017813_1_1_1_1,00.html

Transparency International. Corruption Perceptions Index 2007.http://www.transparency.org/policy_research/surveys_indices/cpi/2007 United Nations. United Nations Convention Against Corruption.

http://www.unodc.org/pdf/crime/convention_corruption/signing/Convention-e.pdf

United States Department of Justice. Foreign Corrupt Practices Act.http://www.usdoj.gov/criminal/fraud/fcpa/

World Bank. Governance and Anti-Corruption.http://web.worldbank.org/WBSITE/EXTERNAL/WBI/EXTWBIGOVANTCOR/0,,contentMDK:20672500~menuPK:1740553~pagePK:64168445~piPK:64168309~theSitePK:1740530,00.html

World Trade Organization. The Doha Development Agenda and Beyond. (April 29,2002).http://www.wto.org/english/tratop_e/dda_e/summary_report_dev_opport_doha.doc
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