[author: Luciana Silveira]
Ed. Note-Today we have a guest post from Luciana Silveira, who is a Ph.D. Candidate at the Catholic University of São Paulo, Brazil. This past semester, she was a Fulbright Visiting Researcher at American University, Washington College of Law.
In the early 70’s the Lockheed corruption scandals came into light. Millions of dollars had been paid by the US aircraft corporation to public officials to guarantee contracts for military aircraft in Germany, Italy, Japan, Netherlands, and Saudi Arabia. These investigations, together with the Watergate scandal that uncovered slush funds in several US corporations and millions of dollars paid as bribe overseas, lead to the passage of the Foreign Corrupt Practice Act (FCPA) in 1977.
At first, some US companies thought they had a competitive disadvantage because the US was the only country that outlawed and prosecuted foreign bribery. Others, however, appreciated the FCPA because it gave them a shield against solicitations for bribery in foreign markets. Although the US was the first country to criminalize foreign bribery, this initiative was followed by an international movement that resulted in treaties such as the OECD Anti-Bribery Convention and the UN Convention against Corruption, as well as the adoption of similar anticorruption legislations such as the UK Bribery Act and the Brazilian Clean Company Act.
The precise impact of the FCPA to US business abroad is very hard to determine. Many scholars have attempted to isolate the effect of the FCPA to trade and FDI flows, but the results are yet a lot more suggestive rather than conclusive. One undisputable effect of the FCPA, though, was the promotion of a compliance business culture. Based on a stick and carrot approach, the FCPA provides for mitigating factors when a company that holds an effective compliance program is investigated for illicit payment overseas. More recently, the DOJ Pilot Program (2016) brought substantial guidelines on this matter, and so did the sample topics and questions put it together by the DOJ Compliance Expert on the “Evaluation of Corporate Compliance Programs” (2017).
Shortly after the passage of the FCPA, a study developed by the Department of Commerce (1980) showed that US corporations doing business abroad viewed the uncertainty and the lack of clear guidelines in the Act as a barrier to their activities. The General Accounting Office (1981) also developed a study with 250 of the largest US corporations, and noted that 75% of the respondents had implemented internal measures to comply with the FCPA, almost half of them reported an increase in costs averaging from 11% to 35%, and 56.4% of the companies argued that the costs exceeded the benefits. Later on, Prasad (1993) surveyed and interviewed 336 companies out of which 150 reported the FCPA as an “important” or “highly important” factor that affects business abroad.
The survey-based reports developed by Control Risks (2002, 2006 and 2015) also provide interesting pieces of information regarding the US compliance culture. The first report showed that 76% of the US companies surveyed thought the FCPA helped them resist corruption abroad, and this number rose to 80% in 2006. In 2015, 54% of the US companies surveyed indicated that tough anticorruption laws such as the FCPA make it easier to operate in high-risk markets. Also, 42% of the US companies survey in 2002 decided not to go forward with a foreign investment due to the host country corruption risk, and this number decrease to 38% in 2006 and 29% in 2015. Although the figures are still high, Control Risks attributed this trend to companied acquiring more experience and getting better at factoring corruption risks into their strategic plans. In other words, some US companies are turning their compliance programs and internal control measures into a strategic advantage.
As a legislation that criminalizes foreign bribery, the scope of the FCPA’s enforcement is very much focused on international trade transactions. The Fulbright research I am developing focus on better understanding the interaction of these two area, and it will use the US experience as reference to the potential impacts of the Clean Company Act, a similar anticorruption legislation that came into force in Brazil in January 2014. To complement a quantitative analysis regarding merchandise trade flows, I am using a 15-questions survey, available at https://ldosilveira.typeform.com/to/uhtKYZ to developed to measure personal opinion of corporate employees of how the FCPA impacted their corporations’ business abroad. It is confidential, there is no question that requires strategic corporate data, and it will hopefully provide the compliance community with more specific and updated answers regarding the impact of the FCPA. Participation from all corporate employees is welcome and encouraged.
On the verge of completing 40 years, the FCPA has gone through important amendments that helped clarifying the statute, and FCPA enforcement actions rose significantly since the early 2000s. Moreover, decisions concerning corporate liability became even more elaborated in light of the mitigating factors of an effective compliance program. The FCPA certainly changed the US business culture and this can be a great example to other countries.
Luciana Silveira is a Ph.D. Candidate at the Catholic University of São Paulo, Brazil. This past semester, she was a Fulbright Visiting Researcher at American University, Washington College of Law. Luciana can be reached at ldosilveira@gmail.com and connected with on Linkedin at https://www.linkedin.com/in/luciana-silveira-5802bb13/
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On a completely different note, to the anonymous fan who sent me the “World’s Best Blogger” mug, pictured to the left, many thanks. It is great to be so recognized by my peers.
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