A pharmaceutical company seeking to have one of its products adopted by a government-run clinic finds that the clinic’s director is demanding a bribe. An oil company seeking to launch exploration in an underdeveloped country discovers that its vast wealth allows it to easily buy off local officials, leading them to ignore the damage that drilling does to the environment. These hypothetical scenarios are some typical examples of transnational bribery. Transnational bribery, the bribery of actors located outside the nation where the bribing entity is located, brings together multinational corporations and public officials around the world. It poses special problems for the criminal justice system since both the bribers and the bribed are based in different countries. The actions usually take place in a nation other than where the charged corporation is headquartered. Many corporations now have subsidiaries located around the world, often operating with little supervision from the headquarters. By its very nature, the prosecution of transnational bribery requires cooperation between governments, since often corporations are prosecuted by their home governments, but the actions being investigated took place in other nations.1
The modern transnational anti-bribery regime traces its origins back to the 1970s, when a series of scandals, including but not limited to Watergate, raised awareness of the unethical actions of American multinational corporations. The Foreign Corrupt Practices Act (1977) was the first law to ban bribery of foreign officials. But for two decades, the FCPA was seen as ineffective: prosecutions were rare, while American firms believed they were being held to an unfair standard. It was only with the passage of a series of international agreements around the beginning of the 21st century that prosecutions became common. This new regime has enabled much more widespread cooperation between governments and has led more countries to ban the bribery of foreign officials. But there are still many criticisms of the FCPA: that it is too broad, too vague, too permissive on some counts, too restrictive on others. The business community has long been ambivalent on the FCPA. Some corporations helped build the transnational bribery regime in the 1990s, and have supported groups like Transparency International and the Center for International Private Enterprise. But business associations such as the U.S. Chamber of Commerce and the National Association of Manufacturers have been less supportive, perhaps reflective of a broader distrust of government regulation.
The Foreign Corrupt Practices Act
Following the Watergate scandal which revealed widespread illegal corporate contributions to Richard Nixon’s presidential campaign, in response, Stanley Sporkin, the enforcement director of the Securities and Exchange Commission, led an investigation into the financial records of leading U.S. corporations. His efforts uncovered the widespread use of “slush funds” for illegal political contributions and for bribery, not just within the United States, but around the world. During the same period, congressional and journalistic investigations discovered extensive bribery by leading U.S. firms. The most infamous affair involved the widespread bribery of government officeholders by the defense contractor Lockheed; the scandal led to the conviction of former Japanese Prime Minister Kakuei Tanaka and the disgrace of many other foreign officials. Sporkin encouraged the passage of legislation outlawing both transnational bribery and the falsification of corporate records to disguise the practice.2
The bribery scandals led to a flurry of legislation being offered in a Congress attuned to ethical issues in the wake of Watergate. In 1976-77, Sen. William Proxmire, D-Wis., introduced the Foreign Corrupt Practices Act, which passed easily in both houses and was signed into law by President Jimmy Carter. The bill enjoyed bipartisan support, and prominent Republicans such as Texas Sen. John Tower praised it for defending the integrity of a market economy. The chairman of Gulf Oil, one of the corporations besmirched by scandal, endorsed the bill in congressional testimony. But the U.S. Chamber of Commerce and the National Association of Manufacturers opposed the legislation as unnecessary and unenforceable. Other skeptics argued that requiring corporations to disclose money spent on bribes paid overseas was a more effective approach than criminalization, since it would not require prosecution for offenses committed outside the United States. Observers have identified four major motivations for the passage of FCPA: moral outrage, damage to relationships with allies and trading partners, damage to the reputation of the United States (and its allies), and damage to the global marketplace.3
The FCPA forbade any act of bribery committed on U.S. soil, regardless of the parties’ nationalities or business ties. It also applied to any actions taken by U.S. citizens, nationals, or residents, or by U.S. corporations and their subsidiaries, or by foreign entities that had their primary place of business in the United States. Its accounting and record-keeping provisions applied to any entity that issued securities traded on U.S. markets; they cover a broader array of activities and have been the basis for more prosecutions than the FCPA’s ban on transnational bribery. A bribe must have been made to obtain or retain business. It must have been made with the intent of inducing a foreign official to misuse his or her position. (Unlike some other anti-bribery laws, the FCPA does not forbid accepting bribes). The bribe can consist of “anything of value;” it need not be cash (but not all gifts are forbidden). Corrupt payments may not be made through third parties and intermediaries; corporations are liable for those acting on their behalf.
“Foreign official” has been interpreted to include officials of state-owned firms, political party leaders and candidates for office. Actions that are legal under local law are not banned by the FCPA. “Reasonable and bona fide” expenditures for travel and lodging are exempted.
The FCPA almost immediately came under criticism. Few prosecutions were brought, in part because of the difficulty of gaining the cooperation from foreign governments that was necessary to build cases. As U.S. corporations faced increasing competition in a rapidly globalizing economy, they complained that the FCPA placed them at a significant disadvantage — a grievance that was joined by the Reagan Administration. (One group that led the charge for amending the FCPA was the Emergency Committee for American Trade, a coalition of business leaders interested in supporting free trade; the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers).4 Several attempts were made to alter the FCPA in the 1980s, culminating in the passage of amendments in 1988. The package legalized “facilitation payments,” small amounts given to induce non-discretionary actions by foreign officials. (This remains one of the most controversial provisions of the FCPA). It also expanded the defenses available to those charged under the FCPA. A firm could only be liable for bribery by a third person if it could be shown that it knew of those actions. The previous standard was “know or have reason to know.” Most importantly, Congress instructed the executive branch to encourage other nations to pass laws similar to the FCPA. This action was the start of a new international regime aimed at banning transnational bribery.
The creation of a regime
The 1990s saw the beginnings of widespread collaboration among nations to outlaw the bribery of foreign officials. This movement had multiple origins. Under both George H. W. Bush and Bill Clinton, the United States government, aided by NGOs such as Transparency International (created in 1993), made creating an international regime against transnational bribery a priority. A series of bribery scandals affecting European firms proved embarrassing to their home nations. The 1997 Asian financial crisis exposed the corrupt links between governments and business in what had been some of the fastest growing economies in the world. The expansion of global capitalism increased the urgency surrounding the topic, while the end of the Cold War broke down some barriers to international cooperation. The privatization schemes that followed the fall of Communist regimes (and the broader expansion of market economics) were often riddled with corruption. The Internet made it easier to move money around the globe. Multinationals such as General Electric found it problematic for their units to operate under different standards around the world.5
The 1994 Summit of the Americas gave rise to one of the first regional accords on bribery, the Inter-American Convention Against Corruption. But the Organization for Economic Cooperation and Development (OECD), which represents 34 of the most economically important nations, spearheaded the creation of the international regime against transnational bribery.6 The OECD played an especially important role since its members are home to most of the multinational firms that supply bribes overseas. In 1995, the OECD adopted a convention calling upon member nations to end the tax deductibility of bribes (then a widespread practice). Two years later, the OECD ordered member nations to outlaw the bribery of foreign officials; the convention went into effect in 1999. Since it led to a global wave of legislation, the Anti-Bribery Convention is widely seen as giving rise to an international “compliance industry” of lawyers, accountants and consultants.7 (Its definition of bribery closely paralleled the FCPA’s). The convention has subsequently been amended to mandate that states cooperate in prosecution of bribery, that penalties be effective and dissuasive, and that states prosecute bribery by their nationals that occurs abroad. In 1998, the United States amended the FCPA to comply with the Anti-Bribery Convention; it also somewhat expanded its jurisdiction. Other intergovernmental organizations used their influence to combat bribery. In alliance with Transparency International, the World Bank and the International Monetary Fund also worked to make opposition to corruption a more central value in their work. As the European Union expanded, new members found that adopting anti-corruption rules were a requirement for entry.
The OECD’s actions gave rise to a wave of regional and global compacts banning transnational bribery and encouraging international cooperation in its prosecution. These conventions led to a rise in prosecutions and convictions, particularly in those countries that have developed an effective enforcement capability. These agreements included:
- The European Union Convention Against Corruption Involving Officials (1997).
- The Pacific Basin Economic Council’s Statement on Standards of Transactions Between Business And Government (1997).
- The Group of States Against Corruption (1999).
- The United Nations Convention Against Corruption (passed 2003, entered into effect 2005, ratified 2005).
- The African Union Convention on Preventing and Combating Corruption (2006).
- The World Trade Organization Agreement on Government Procurement (2014).
In 2010, the United Kingdom passed the Bribery Act, which is now considered to match the FCPA as the model law for fighting transnational bribery. Unlike the FCPA, the Act bans both “active bribery” (the offering of a bribe) and “passive bribery” (the receipt of a bribe). It allows for an “adequate procedures” defense; a corporation can argue that followed “adequate procedures” to prevent bribery, and so should not be held liable for the actions of a rogue employee. It does not allow “facilitating payments.” The person receiving the bribe need not be the one performing the “corrupt” function.8
The rise of enforcement
For its first two decades, the Foreign Corrupt Practices Act led to few prosecutions. Not only was its language vague, but international cooperation was often lacking. But after the turn of the century, enforcement increased dramatically. The international regime begun by the OECD conventions greatly increased the cooperation offered to the United States by other nations. The collapse of Enron and WorldCom increased concern about corporate malfeasance, and led to the passage of the Sarbanes-Oxley Act in 2002. This legislation improved corporate record-keeping, increased whistleblower protections and made many multinationals more vigilant about the activities of their foreign subsidiaries. The 9/11 attacks increased international cooperation between law enforcement agencies, and raised awareness about the connection between corruption and terrorism. The 2008 financial crisis lessened corporate vigilance about bribery, cut the funds available for oversight, and gave rise to stimulus projects often vulnerable to corruption. As multinationals increased their investments in China, they confronted an economy where state-owned firms are common and corruption is entrenched.9
The Securities and Exchange Commission (SEC) conducts civil investigations under the FCPA, especially those concerning the record-keeping provisions of the act. The Department of Justice conducts both civil and criminal investigations, with the assistance of the SEC and the Federal Bureau of Investigation. All three entities have increased the resources devoted to the battle against bribery. While prosecutions have increased dramatically over the past fifteen years, relatively few cases result in a trial.10 Instead, parties usually reach either a Non-Prosecution Agreement (NPA) or a Deferred Prosecution Agreement (DPA). In September 2015, Deputy Attorney General Sally Yates released a memorandum announcing that the Department of Justice was to increasingly emphasize criminal prosecutions of individuals. Many observers saw this as a major shift in the government’s priorities.
The global anti-bribery regime itself requires steady vigilance, much of it under the auspices of the OECD. The OECD Working Group on Bribery seeks to harmonize domestic laws, conducts meetings of prosecutors working on issues of international corruption, and manages a process of peer review that evaluates the conduct of states that have signed the Anti-Bribery Convention. The OECD also regularly issues Guidelines and Recommendations in the effort to combat corruption. Eurojust coordinates activity among the prosecutors of EU nations. Several of the most prominent prosecutions have involved cooperation between multiple nations. Nonetheless, Transparency International has stated that “the complexity of arranging mutual legal assistance is a serious obstacle.” It recommends that the OECD Working Group hold meetings to share the experiences of nations that are successful in cooperation in prosecution. While the OECD conventions and its offshoots have greatly increased enforcement activity, Transparency International has found that only four nations actively enforce anti-bribery laws: the United States, the United Kingdom, Germany and Switzerland.11
Siemens (2008). The joint U.S.-German prosecution of the Munich-based engineering giant is generally considered the largest and most important transnational bribery case ever brought. The case found that Siemens possessed a $40-50 million slush fund for bribery around the world. Siemens was found to have paid bribes in cases ranging from a contract to develop a national identity card for Argentina to mobile phone contracts in Bangladesh. Siemens ultimately paid a fine of more than $1.6 billion.
Vimpelcom (2015). Vimpelcom, a Russian mobile phone operator, paid $795 million in fines to Dutch and U.S. authorities in February 2016. The company admitted paying $114 million in bribes to the daughter of the president of Uzbekistan, in exchange for obtaining telecom licenses.
TSKJ Cases. TSKJ was a four-company consortium created to construct liquified-natural-gas facilities in Nigeria. (The members included the Texas-based contractor Kellogg Brown & Root, the Japanese construction firm JGC, the French engineering firm Technip and the Dutch-Italian oilfield services company Snamprogetti). Through intermediaries, TSKJ bribed Nigerian officials to win the necessary contracts. After the bribery was discovered, the United States, the United Kingdom and France cooperated to prosecute the companies involved in TSKJ as well as their intermediaries. In March 2011, Jeffrey Tesler, a British lawyer who delivered TSKJ’s bribes to Nigerian officials, paid $149 million as part of a plea agreement. In September 2008, Albert “Jack” Stanley, CEO of KBR, pleaded guilty to violating the FCPA and was later sentenced to two-and-a-half years in prison. The four corporate partners all paid large fines to the Department of Justice. The total amount paid by both firms and individuals reached $1.65 billion. The TSKJ cases were seen as an example of how extractive industries exploit resource-rich nations. (“Multi-Jurisdictional Bribery Law Enforcement.”)
Role of business and civil society
The business community was generally supportive of the FCPA, although they sometimes complained that it put the United States at a competitive disadvantage compared to other industrialized nations. Business executives took a particular leading role in building the transnational anti-bribery regime in the 1990s. Corporate America has been generous to anti-corruption groups such as Transparency International.
Many of the corporate supporters of Transparency International and its American affiliate come from industries long seen as vulnerable to bribery: resource extraction (Exxon Mobil, Freeport McMoRan, Shell Oil, ENI), defense contracting (General Electric, Lockheed Martin, Raytheon), construction (Bechtel, Fluor), pharmaceuticals (Johnson & Johnson, Pfizer). Other supporters come from industries that are part of the “compliance industry” that enforces the transnational bribery regime: law, accounting, auditing, business consulting. The Center for International Private Enterprise is funded primarily by the National Endowment for Democracy, the U.S. Agency for International Development, the U.S. Department of State and the British High Commission. But it has strong institutional ties to the Chamber: Greg Lebedev, chair of CIPE’s board of directors, was previously a top Chamber executive, while Chamber president Thomas Donohue serves on the board. Nevertheless, CIPE has been supportive of the transnational anti-bribery regime.
In recent years, however, the U.S. Chamber of Commerce has called for reforming the FCPA.12 The Chamber argues that the law hurts the competitiveness of American business, imposes heavy compliance costs and creates confusion over its requirements. It has also complained that the Department of Justice and the SEC operate with minimal judicial oversight. The Chamber’s Institute for Legal Reform has proposed four changes to the FCPA:
- Adding a compliance defense
- Limiting a company’s liability for the prior actions of a company it has acquired.
- Adding a “willfulness” requirement for corporate criminal liability.
- Limiting a company’s liability for acts of a subsidiary and redefining a “foreign official” under the statute.13
The transnational bribery regime shows both the influence of the American business community and the limits to that influence. The FCPA and the international conventions passed over the past twenty years have successfully spread the mores of First World business to developing nations. Much of the American business community has encouraged the development of the transnational bribery regime, if only to ensure that other nations have to follow the same rules laid out in the FCPA.
The regime faces a variety of challenges. Many countries still do not effectively enforce their laws against transnational bribery. Liability remains unclear in some areas, such as that involving subsidiaries of multinational corporations and for firms that have taken over companies that turn out to have engaged in bribery. The United States allows for “facilitation payments,” but many other nations do not. Some have proposed that the FCPA be amended to allow for a “compliance defense,” which would allow corporations to argue that they had taken sufficient precautions to prevent bribery. Critics of the FCPA are concerned that much of the law is too vague, that enforcement is too aggressive and that the Department of Justice has been excessively focused on non prosecution and deferred prosecution agreements. But many observers agree that the transnational bribery regime has improved the ethical climate for doing business worldwide.14
- 1 For a good introduction to the regime, see A Resource Guide to the U.S. Foreign Corrupt Practices Act. (Criminal Division of the U.S. Department of Justice and the Enforcement Division of the U.S. Securities and Exchange Commission, 2012). https://www.justice.gov/sites/default/files/criminal-fraud/legacy/2015/01/16/guide.pdf. Also see Stuart H. Deming, The Foreign Corrupt Practices Act and the New International Norms. 2010. 2nd Edition. American Bar Association: New York. (Back to top)
- 2 Michael B. Bixby. “The Lion Awakens: The Foreign Corrupt Practices Act: 1977-2010.” 2010. San Diego International Law Journal. 12:89-146. Beverley Earle and Anita Cava. “When Is a Bribe Not a Bribe? A Re-Examination of the FCPA in the Light of Business Realities.” 2013. Indiana International and Comparative Law Review. 23: 111-131. (Back to top)
- 3 Foreign Corrupt Practices and Domestic and Foreign Investment Improved Disclosure Act of 1977. 1977. Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Philip M. Nichols. “The Neo-Mercantilist Fallacy and the Contextual Reality of the Foreign Corrupt Practices Act.” 2016. Harvard Journal on Legislation. Mark Romaneski, “The Foreign Corrupt Practices Act of 1977: An Analysis of Its Impact and Its Uncertain Future.” 1982. Boston College International and Comparative Law Review. 405-430. Mike Koehler, “The Story of the Foreign Corrupt Practices Act.” 2012. Ohio State Journal. 73: 929-1013. (Back to top)
- 4 Morton Mintz, “Proxmire Assails Colleagues For Bribery Law Proposal,” The New York Times, March 23, 1988. Stuart Auerbach, “Business Groups State Trade Views.” The New York Times. October 16, 1987. (Back to top)
- 5 Frederick Galtung, “A Global Network to Curb Corruption: The Experience of Transparency International” in Ann M. Fiorini, ed. The Third Force: The Rise of Transnational Civil Society. 2000. Carnegie Endowment for International Peace: Washington. Daniel W. Drezner, All Politics Is Global: Explaining International Regulatory Regimes. 2007. Princeton University Press: Princeton, NJ. (Back to top)
- 6 Deming, op. cit., ch. 7. Meg Beasley, “Dysfunctional Equivalence: Why the OECD Anti-Bribery Convention Provides Insufficient Guide in the Era of Multinational Corporations.” George Washington International Law Review. 47: 191-231. Elizabeth K. Spahn, “Multi-Jurisdictional Bribery Law Enforcement: OECD Anti-Bribery Convention.” 2012. Virginia Journal of International Law. Also see OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. 2011. OECD: Paris, France. (Back to top)
- 7 Among the 41 nations that signed the convention and subsequently passed anti-bribery legislation were Canada, France, Germany, Italy, Japan, the Republic of Korea, Mexico, the Russian Federation, Spain, the United Kingdom, and the United States. (Back to top)
- 8 Jon Jordan. “The Need for a Comprehensive International Foreign Bribery Compliance Program Covering A to Z in an Expanding Global Anti-Bribery Environment.” 2012. Penn State Law Review. 117:89-137. (Back to top)
- 9 Amy Deen Westbrook. “Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act.” 2011. Georgia Law Review. 45: 489. (Back to top)
- 10 The number of FCPA cases resolved grew from two in 2002 to 21 in 2010. Since then, the number of resolved has leveled off at between 9 and 12 a year. Fines rose from $2.7 million in 2002 to $1.8 billion in 2010. Since then, fines have fluctuated greatly by year, ranging from $1.5 billion in 2014 to $143 million in 2015. FCPA Digest: Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act. Shearman & Sterling, LLP. July 2016. http://shearman.symplicity.com/files/639/6394f3bd997c378ab5af51586cd2d360.pdf (Back to top)
- 11 Exporting Corruption: Progress Report 2015: Assessing Enforcement of the OECD Convention on Foreign Bribery. 2015. Transparency International: Washington. Also see OECD Foreign Bribery Report: An Analysis of the Crime of the Bribery of Foreign Public Officials. 2014. OECD: Paris, France. (Back to top)
- 12 Joe Palazzolo, “Critics Target Bribery Law.” Wall Street Journal. November 28, 2011. (Back to top)
- 13 Andrew Weissmann and Alexandra Smith. Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act. 2010. U.S. Chamber of Commerce Institute for Legal Reform: Washington. Accessed at http://www.instituteforlegalreform.com/uploads/sites/1/restoringbalance_fcpa.pdf on August 19, 2016. (Back to top)
- 14 Michael Peterson, “Amending the Foreign Corrupt Practices Act: Should the Bribery Act of 2010 Be a Guideline?” 2013. Richmond Journal of Global Law and Business. 417-431. (Back to top)