The Shortcomings of the FCPA

Domestic anti-bribery campaign in Zambia, a country known for corruption (Lars Plougmann/Wikimedia Commons).

One key issue facing multinational US firms is bribery. Although most countries condemn bribery with domestic legislation, the US and Sweden are the only states to formally outlaw bribing foreign officials. The Foreign Corrupt Practices Act (FCPA) of 1997 intends to criminalize and expose bribery by US firms abroad. Ideally, the FCPA not only prevents engagement in corruption, but also causes other nations to limit bribery as an incentive for US investment. However, the FCPA fails because it is vague, injurious and ultimately overreaching. Instead, the US would benefit from adhering to a strict domestic anti-bribery policy, encouraging similar policies abroad and imposing trade sanctions against countries engaging in bribery.

Bribery is generally accepted as a harmful practice; it subverts the natural order of the free marketplace, harms economic growth, misdirects investment (thereby wasting resources) and breeds distrust in the government. The FCPA attempts to counter these effects by, first, prohibiting all bribes made by US firms to foreign officials and, second, requiring strict record-keeping procedures of all monetary transactions abroad. There is some flexibility in the form of “grease payments” for “routine governmental actions,” which mainly include payments to expedite legal government actions. Criticism of the FCPA includes the policy’s ambiguity and its negative repercussions for American companies. Each is addressed below.

Most ambiguity in the FCPA concerns the requirements on what factors make payments illegal. Uncertainties include:

  1. Who qualifies as a foreign official? The line between public officials and those of private companies is often unclear. For instance, in China, many private businesspeople qualify as foreign officials because their companies are partially state-owned-enterprises, and payments to these companies are subject to scrutiny.
  2. What qualifies as “grease payments”? These differ from bribery in the purpose of the payment, not the duties of the recipient. If the payment is without a corrupt motive, then it isn’t bribery. Intent, however, is hard to determine in court; thus, US firms avoid these payments even if they are legal.
  3. When is a parent corporation liable for its subsidiary’s violation? Even domestic companies may be responsible for their international subsidiary’s actions, and must spend time and money monitoring their foreign firms or choose not to have them at all.

The FCPA stipulations are lengthy, and unfortunately, in most cases, firms would rather not defend what might be legitimate and prohibit all foreign payments instead. However, this cripples American investment by limiting the types of business ventures with which companies are willing to become involved.

Another large criticism of the FCPA is its significant consequences for firms abroad. Reportedly, US FDI decreased 12% since FCPA was implemented. Furthermore, US firms have lost many multi-million dollar opportunities by not paying the necessary people, as well as wasting time and resources tied up in FCPA investigations. For example, in 2004, Lockheed Martin was forced to drop a $2.2 billion offer for Titan Corporation after Titan failed to resolve Department of Justice investigations of FCPA violations. Titan not only sacrificed the deal, but also had to pay $28.5 million in the settlement and Lockheed Martin lost out on a large acquisition. There are currently 104 firms under investigation for 2014, including big multi-national companies such as Citigroup, FedEx, Microsoft and Tesco.

Another repercussion is that American investment suffers in countries where expensive gifts and payments may not only be normal, but also courteous. In many Asian countries, for example, it is a common practice to give substantial gifts to ensure cooperation in business agreements.

The FCPA fails to accomplish its goals; however, minimizing American corruption is a justifiable aim. The only way to do this without crippling business ventures is to focus on strict domestic anti-bribery policy. By setting an example and helping others assess the damages of corruption and create and adhere to their own policies, the US could successfully navigate all of the listed shortcomings of the FCPA. Another legitimate option would be to let market mechanisms inhibit corruption. The US could impose trade sanctions such as tariffs and quotas against foreign bribers, and provide contract terms in settlements prohibiting paying and accepting bribes. Similarly, people’s taste could help curb bribery. If all payment records enforced by the FCPA were made public knowledge, then the reputations and standings of both the companies and governments involved in bribery would be affected accordingly.

Ultimately, although the FCPA’s attempt to reduce corruption is well intentioned, it has only harmed economic interests abroad due to its ambiguity and restrictiveness. A more fruitful policy would maintain a hard domestic anti-bribery policy, encourage contracts prohibiting bribes and let the social standing of corrupt firms suffer. This way, the US can stay true to its tradition of freedom in the marketplace while allowing firms to grow and invest where they need.

The views expressed by the author do not necessarily reflect those of the Glimpse from the Globe staff, editors, or governors.


Isabella Soehn
Isabella Soehn is an International Relations and Economics/Mathematics double major at the University of Southern California. She has traveled to 62 countries, and her interests include the effects of globalization, emerging economies, international trade and African studies. During the summer of 2015, Isabella studied arctic governance and climate change as a Wendy Abrams Climate Science Fellow in Iceland, Norway and Finland. On campus, she assists with data analysis in the Security and Political Economy Research Lab and is a member of the Academy for Polymathic Study. Isabella joined Glimpse from the Globe as an Associate Editor in October 2014.