Sept. 22, 2011
Iowa law professor suggests changes in how U.S. government fights global corruption
An analysis by a UI law professor suggests that federal prosecution of American firms accused of paying bribes to foreign officials may be needlessly damaging the companies and limiting growth.
Joe Yockey said he doesn't think the feds should stop prosecuting firms that actively offer bribes to foreign officials, but that prosecuting those officials who demand the bribes might more effectively reduce global corruption while easing the costs on American business.
The companies are accused of violating the Foreign Corrupt Practices Act (FCPA). The law, passed in 1977, not only prohibits individual Americans working overseas from providing money or anything of value to foreign officials for business purposes, but holds their firms liable, too.
It also requires publicly held companies to maintain internal accounting controls stringent enough to catch an attempted bribe paid by an employee. The law applies to firms whether they offer the bribe, or pay the bribe upon demand from a government official.
Yockey said bribes and extortion take many forms. For instance, firms report they are often forced to pay in order to move their products into or out of a country, for employees to travel in the country, or to keep employees out of prison on trumped up charges. One survey showed that 40 percent of U.S. executives doing business overseas had been directly solicited.
Yockey said the law was only sporadically enforced until recent years, when FCPA actions jumped from 13 in 2006 to 47 in 2010. He said an estimated 200 FCPA cases are currently open. The stepped up enforcement is due to a combination of forces: globalization compels American companies to expand to foreign markets, putting them at greater risk of encountering corruption; national security officials see rooting out corruption as part of the war on terror; and accounting changes in the wake of the Enron scandal have prompted companies to be more open about potential FCPA violations.
He said fines for FCPA violations are frequently in the hundreds of millions of dollars, with Haliburton paying a $579 million fine in 2009 and Siemens AG paying a record $1.6 billion in 2008.
However, he said that American multinationals are also bearing increasingly heavy costs complying with the law, in part because they may not even know they're paying bribes. In order to work in foreign countries, firms frequently must hire local agents to help them navigate the laws and customs in their countries. The agents are difficult for the companies to monitor, however, and are skilled at hiding bribes they pay to government officials from their employers. In other instances, corruption is such an indelible part of the local culture that a firm's employee sees no other way except to pay a bribe and ignore firm policy that prohibits paying them. Yockey said that even in situations where the firms don't know they're paying bribes, they are still liable.
Direct compliance costs are also high, requiring increased monitoring of overseas agents and launching costly and time-intensive internal investigations of possible FCPA violations. In one case, he said a company spent $3.2 million to investigate a potentially unlawful $50,000 payment.
Yockey said compliance also slows business growth. A recent Dow Jones survey found 65 companies have delayed or canceled business expansions overseas due to uncertainty over FCPA enforcement.
Yockey suggests the U.S. government could alleviate costs on U.S. firms by addressing the demand side of the bribe, targeting corrupt foreign officials for prosecution. Two Haitian telecommunications officials were recently convicted of U.S. anti-money laundering laws after bribing U.S. telecom companies for doing business in Haiti.
American prosecutors have also successfully retrieved bribe money that had been deposited in banks in Singapore and Haiti.
He said governments could also work with non-governmental organizations to publicly identify officials who demand bribes, making it harder for them to engage in corrupt practices.
Yockey's paper, "Solicitation, Extortion and the FCPA: Foreign Corrupt Practices Act," will be published in a forthcoming issue of the Notre Dame Law Review. It can be found online at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1896282.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Iowa City, Iowa 52242-2500.