Question

1. What are the pros and cons of enforcing the Foreign Corrupt Practices Act? A complete response should include the impact on business, individuals affected, and general societal impacts.

Answer 1

The Foreign Corrupt Practices Act of 1977 (FCPA) is a United States federal law known primarily for two of its main provisions:

1. It addresses the accounting transparency requirements under the Securities Exchange Act of 1934 and

2. Concerning bribery of foreign officials.

The act was introduced after Investigations by the U.S. Securities and Exchange Commission in the mid-1970s revealed that over 400 U.S. companies admitted making questionable or illegal payments in excess of $300 million to foreign government officials, politicians, and political parties to secure some type of favorable action by a foreign government. These payments that were made to ensure that government functionaries discharged certain ministerial or clerical duties.

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.

The non-FCPA world is an expensive and risky one. If bribes and corruption are rampant, their logistics planning, business operations and return on investment are all at risk because one cannot predict the expensive and unpredictable demands of corrupt government officials and intermediaries.

A country thrives when there is competitive advantage among companies. If corruption is rare, then industries has to promote themselves on the basis of their product quality, efficient service and business models. So FCPA gives US corporations an advantage. If corruption is rampant, foreign companies which typically could not compete with US corporations, because of any reason be it poor product, unable to access the market, incomplete resources, come out to compete against US business because they engage in bribery and other corrupt practices. Beside companies will stand to gain if the businesses around the world are operating on relatively the same regulatory plane.

The corporations have built the compliance infrastructure to support FCPA requirements and increased the internal controls for their businesses. A tremendous invested of resources is done in building legal and compliance policies to support the management of FCPA. It helped companies to achieve concrete business benefits like improved quality control, stronger internal controls and general efficiency.

Corporations want to protect their reputational exposure at all costs, and so to avoid an FCPA investigation or lawsuit at all costs. Corporations are motivated to keep this infrastructure in place because it helps them in managing outsized risk and protect their reputations.

Smart corporations recognise the strong connection between corruption and business & human rights abuses and they 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.

But it is also observed that FCPA created an uneven playing field for American businesses and that foreign competitors would persistently seek to take advantage of this fact. There is evidence that American companies have consistently lost business because of the FCPA and the the root of the issue was corruption. The public is weary of the scandals that plaque American business and demands the continued transparency and access into these companies. The international movement to prevent these types of transactions seeks to choke the supply side of bribery. The countries that have adopted and signed the OECD convention or similar anti-bribery legislation has showed that they will hold their companies to a higher standard of business practices and corporate governance. The success of the FCPA needs a resolute effort from every level of private and public officials to have a permanent impact on business and to promote business practice.