One of the US’s greatest gifts to the global economy is under threat from Trump
One of the US’s greatest gifts to the global economy is under threat from Trump
The Foreign Corrupt Practices Act is the jewel in the crown of America’s fight against international business bribes and corporate favors. Intended to promote American business and foreign-policy ideals around the world, and give US companies a tool to battle corruption abroad, it has also helped other countries crack down on bribery, and has extracted billions of dollars in fines.
But under US president Donald Trump, it may lose its bite, according to anti-corruption activists, Democrat lawmakers, and legal experts. At worst, some worry, he could try to repeal it altogether.
They have cause for their concern. Trump has dubbed the FCPA a “horrible law” that stifles American businesses trying to work abroad. “It puts us at a huge disadvantage,” he told CNBC in 2012. As president, he has killed a rule to crack down on foreign bribery by US energy companies, refused to release his tax returns, and canceled ethics training for White House staff.
Trump’s business has also come under public scrutiny regarding the FCPA. The New Yorker reported on March 6 that the Trump Organization had helped build a hotel in Azerbaijan owned by the family of a cabinet minister with ties to the Iranian Revolutionary Guard Corps, which the US government has accused of money-laundering and terrorism. Though it’s not clear if the deal itself violated the FCPA, in order to avoid breaking the law, US companies usually extensively investigate potential partners for corruption. One lawyer told the New Yorker, “I’ve had very few clients do so little due diligence” as the Trump Organization did.
Finally, Trump has nominated Jay Clayton, a Wall Street defense lawyer, to head the Securities and Exchange Commission. The SEC enforces the FCPA along with the Department of Justice (DoJ). In 2011 Clayton co-wrote a lengthy paper criticizing the law and its “zealous” enforcement.
What is the FCPA for?
The FCPA makes it illegal for US companies and people working abroad to engage in corrupt acts such as bribing officials. It bans foreign firms and people from doing the same in the US. American companies with listed securities must keep accurate, transparent records and not hide payments in “off-the-books” accounts.
The act was passed after the Nixon era, when the Watergate special prosecutor found that US companies were secretly making campaign contributions to US politicians and funneling money to foreign entities. (You can read a great history of the act’s genesis here). Defense giant Lockheed had paid millions to the prime minister of Japan, and oil giant Exxon forked out cash to political parties in Italy, for example.
The act had noble goals—not just to rein in businesses but to change the world. “The interference in democratic elections with corporate gifts undermines everything we are trying to do as a leader of the free world,” said US representative Robert Nix, who chaired hearings on the payments in Congress in 1975. In signing it, president Jimmy Cartersaid corrupt company payments “undermine the integrity and stability of governments.”
What has the FCPA achieved?
Though the law was passed in 1977, the US really started enforcing it in earnest only under president George W. Bush. It also put pressure on its allies to step up, says Alexandra Wrage, president of anti-bribery organization TRACE. That led to crackdowns on bribery by foreign governments too—as seen in the chart below.
“The FCPA is the best thing to fight corruption that I have seen,” said Dmytro Shymkiv, the former CEO of Microsoft in Ukraine, now the deputy head of the country’s presidential administration. It ensures executives aren’t paying bribes or doling out favors to government officials, and creates a culture of zero tolerance and leniency, he said. Every year, Microsoft does an internal audit of its business in corruption-prone countries, using the FCPA guidelines and principles, and while it means more paperwork, “you know there are double eyes on everything.”
Mark Simon, a Hong Kong-based American executive with Next Digital, who was previously a government affairs manager at a global shipping company, calls the FCPA “a real gift for Americans” because it gives them an ironclad reason not to pay a bribe. Moreover, he says, it helps reduce corruption in other countries. Governments “know that the Americans are going to be watching and if we keep losing contracts and the supply of goods and services/government bids, we are going to ask questions and those questions become public in that country.”
Last year alone, the US Treasury collected $2.43 billion in fines and penalties from over 20 firms that had brushed up against the FCPA.
What’s the case against it?
As Trump put it in 2012: “Now every other country goes into these places and they do what they have to do,” he said. “Every other country in the world is doing it—we’re not allowed to.” (“It,” of course, means bribery.) In his 2011 paper, Clayton, Trump’s SEC nominee, wrote that FCPA compliance costs put US companies at a “competitive disadvantage” to their rivals.
Getting caught is certainly costly. If a company is found to have paid a bribe in one country, the DoJ and SEC require it to investigate the entire company’s practices before they will resolve the charge. That can cost millions and take years. Avon Products, the cosmetics company, spent nearly $350 million investigating itself, on top of a $135 million fine, after a whistleblower said it was paying bribes in China.
The US Chamber of Commerce began waging a campaign against the FCPA in 2011, publishing a list of grievances that it says harm US businesses that compete with Russian and Chinese companies. It wanted measures that, for example, protect businesses whose employees don’t abide by their compliance systems. That and subsequent efforts didn’t get very far—but the DoJ did publish more detailed guidance, specifying the meaning of terms like “improper gift” and “foreign official.”
The law’s advocates argue these concerns are unwarranted. In fact, they say, American companies now carry the “prestige” of being (comparatively) squeaky clean. “When I travel in Africa it is clear to me that people put a premium on doing business with well-reputed big-name companies,” says Wrage. Simon concurs: “We get business and industry not just because of our market size but because there is a belief in our system being straight.”
The Chamber of Commerce didn’t respond to written and phone requests for comment.
What could the Trump administration do to the FCPA?
There’s little support for a total repeal in Congress or among businesses. “The FCPA train has left the station, and to repeal it now would be analogous to repealing the Civil Rights Act, or our securities law,” said Andrew Spalding, a professor at the University of Richmond School of Law and an FCPA expert.
But the DoJ and SEC could still surreptitiously roll back enforcement.
“Trump takes every opportunity to say he intends to ease the regulatory burden on companies. Compliance with anti-bribery laws is unquestionably a substantial regulatory burden,” Wrage wrote in an email.
There have been some reassuring noises. The new head of the DoJ’s fraud division, Trevor McFadden, called the FCPA (link to Word file) “an important tool in this country’s fight against corruption.” Meanwhile, Sessions committed to enforcing it in a brief written response to questions at his confirmation hearing.
And Rex Tillerson, the secretary of State, reportedly pushed back when Trump complained about the FCPA at a meeting, according to the Washington Post. Recounting an occasion when he had refused to pay a bribe while at Exxon Mobil and had subsequently won the deal anyway, he reportedly told Trump, “people want to do business with America.”
“However,” asks Jessica Tillipman, an FCPA expert and assistant dean at George Washington University’s law school, “the question is, will this continue to be a priority under Sessions’ DoJ? Will they have the same high profile publicity that they always get? Will they have the same support? Is there the same political will within the justice department to make it a continued priority?”
We asked the DoJ those questions. It declined to comment, but pointed us to an enthusiastic recent speech about FCPA enforcement by Kenneth Blanco, acting head of the DoJ’s criminal division. (Blanco, however, was deputy head of the division under Barack Obama. It’s a political appointment which a new president would usually replace—though Trump has been slow to nominate people for DoJ.)
As for the SEC, its role is to instill internal controls on corruption within companies and ensure their accounting isn’t hiding bribery. It can also force them to turn over any profits made from corruption, sometimes worth hundreds of millions of dollars. If and when Clayton is confirmed, Shruti Shah, vice president at Transparency International USA, says she worries he could start putting resources and personnel into different departments. “That would send all the wrong signals” to companies, she said.
Tillipman argued that Clayton may be too busy defanging the Dodd-Frank financial regulations—another focus of Trump’s—to also target the FCPA. But she said if he did, areas he could weaken include the disgorgement of profits from bribery, and the SEC’s decisions on whether to take on cases where the DoJ doesn’t have jurisdiction.
The SEC, likewise, declined to comment.
What happens if the FCPA is weakened?
Not much, at first, FCPA advocates say. Big multinationals already have strict anti-bribery procedures, and it’s not worth the reputational damage they’d suffer if they engage in bribery, Wrage argues.
Plus, they risk falling foul of other countries’ anti-bribery laws, which many are enforcing thanks in no small part to the FCPA. Britain, in particular, launched 29 bribery investigations in 2016—second only to America’s 118—and earlier this year slapped Rolls Royce with £671 million in penalties.
Moreover, since FCPA cases are normally brought three to five years after the alleged crime, Wrage says, businesses would have to bet that enforcement will remain lenient into the next presidential term.
The greater damage would likely be to America’s reputation and “soft-power” influence. Turning its back on a global anti-bribery regime that the US started would, for many, epitomize the worst of Trump’s “America First” foreign policy: abandoning its role as leader of the free world, in favor of pure self-interest. Instead of the US pressing the rest of the world to sort itself out, Tillipman says, “I think we’ll see the reverse with other countries putting pressure on the US to get back to where they were.”
To many American voters, however, Trump’s attitude to the FCPA will likely resonate. “I mean we’re like the policeman for the world—it’s ridiculous!” he said. “It puts us at a huge disadvantage. Let them clean up their own act, we shouldn’t be cleaning up their act for them.”
Source: Quartz; Written by: Max de Haldevang and Heather Timmons