What Role Should Corporations Have In
Fighting Bribery?
The world that we live in is like a giant set of dominos set precipitously close to one another. An unstable government, weak economy, or rampant corruption in one country has far reaching consequences. At the other end of the spectrum, however, positive action taken by one country can set the dominos spiraling as countries join together to fight against common evils.
Corporate bribery has been shown to be one of the core causes of international human rights violations. The United States led the fight against corporate bribery beginning with the passage of the Foreign Corrupt Practices Act in 1977. That act has been amended several times in an effort to both fight corporate bribery and support United States corporations’ efforts in the global market. Beginning in the late 1990s the international community has joined the fight.
As the movement to fight corporate bribery has developed into an international movement, many United States corporations have recognized that they have a role to play. Unfortunately, they have also discovered that adherence to United States anti-bribery law frequently comes at the cost of business. The United States led the fight against corporate bribery and now it is time for the United States to work with corporations that are trying to join that fight.
The article (1) examines the effect of bribery at both the local and global levels, (2) analyzes the domestic, global, and corporate efforts that are currently being made to combat bribery and (3) proposes two amendments to the current FCPA that will give corporations victimized by bribery an appropriate remedy and also allow corporations to participate in the fight against bribery.
Corporations are People too: what role should corporations have in fighting bribery?
Do not accept a bribe, for a bribe blinds those who see and twists the words of the righteous.
The world that we live in is like a giant set of dominos set precipitously close to one another. An unstable government, weak economy, or rampant corruption in one country has far reaching consequences. At the other end of the spectrum, however, positive action taken by one country can set the dominos spiraling as countries join together to fight against common evils.
In the 1970s, the United States recognized the devastating and far-reaching impact of bribery and became the leader in fighting corporate bribery. In 1977, the United States passed the Foreign Corrupt Practices Act – ground breaking legislation that allowed the Department of Justice to press criminal charges against any corporation or individual working on behalf of a corporation that made a bribe to a foreign official to obtain business. The Foreign Corrupt Practices Act was designed to “promote confidence in international trading relationships and domestic markets.” Unfortunately, this Act placed U.S. Corporations at a distinct disadvantage in the global marketplace. While U.S. Corporations were facing prosecution for engaging in bribery, foreign countries were allowing corporations to claim bribes paid in the course of business as tax exemptions. As the outcry of U.S. Corporations grew, the United States began to urge the international community to join in the fight against bribery.
The United States has led the way in calling for a joint effort by all nations to fight against bribery , but there is still more that the United States can do. It is time for the United States to recognize that corporations can be a positive player in this fight. Ethical corporations are affected whenever they lose business to corporations willing to engage in bribery. Corporations are also part of the positive chain of dominos when they take a stand against bribery. The United States government can recognize this by giving victim corporations a private right of action and by empowering corporations to bring an action against unethical corporations on behalf of the United States government.
This Note will (1) examine the effect of bribery at both the local and global levels, (2) analyze the domestic, global, and corporate efforts that are currently being made to combat bribery and (3) propose two amendments to the current FCPA that will give corporations victimized by bribery an appropriate remedy and also allow corporations to participate in the fight against bribery.
The Case for Fighting Bribery
Bribery: “The corrupt payment, receipt, or solicitation of a private favor for official action.”
Previous generations have viewed bribery as a necessary and even effective tool for conducting business transactions between corporations and foreign governments. However, the international community is now in agreement that bribery has a devastating impact on governments, developing countries, individuals, and even corporations.
Corruption is now recognised [sic] to be one of the world’s greatest challenges. It is a major hindrance to sustainable development, with a disproportionate impact on poor communities and is corrosive on the very fabric of society. The impact on the private sector is also considerable – it impedes economic growth, distorts competition and represents serious legal and reputational risks. Corruption is also very costly for business, with the extra financial burden estimated to add 10% or more to the costs of doing business in many parts of the world. The World Bank has stated that “bribery has become a $1 trillion industry.”
Bribery’s Impact on Our Natural Resources
Bribery affects every level of society. A recent study by Transparency International documents the effect that bribery is having on the world water crisis. According to this study nearly 1.2 billion people do not have guaranteed access to water and more than 2.6 billion people do not have adequately sanitized water. “It is estimated that by 2025 more than 3 billion people could be living in water stressed countries.” What is the link between this crisis and bribery?
Funds for water resources management, which safeguards the sustainability of water, often end up in the pockets of corrupt officials. Additionally, water pollution is going unpunished due to bribery. In China, aquifers in 90 percent of Chinese cities are polluted and more than 75 percent of the river water in urban areas is not suitable for drinking or fishing.
The costs of irrigation in agriculture are substantially inflated due to corruption. Irrigation makes up 70 percent of water corruption. That land in turn produces 40 percent of the world’s food. Corruption in this industry leads to food shortages and poverty. In India, “the total corruption burden on irrigation contracts is estimated to exceed 25 percent of the contract volume, and is allegedly shared between officials and then funneled upwards through the political system, making it especially hard to break the cycle of collusion.” Bribery is a direct cause of the world’s water crisis.
Bribery’s Impact on Our Nations
Bribery affects more than just the availability of our most cherished natural resources.
“In the last 15 years, there has been growing recognition that corruption – including bribery, extortion and misappropriation – has a particularly insidious impact on developing nations. It distorts markets and competition, breeds cynicism among citizens, stymies the rule of law, damages government legitimacy and corrodes the integrity of the private sector. It is a significant obstacle to development and poverty reduction. It also helps perpetuate failed and failing states, which are incubators of terrorism, the narcotics trade, money laundering, human trafficking and other types of global crime.”
In Bangladesh the former managing director of the KAFCO Fertilizer Complex, a foreign investment project, described the project as “‘[T]he story of a poor nation raped by a group of multinationals in the name of industrialization, while three so-called enlightened and helpful governments stood by.’” In that situation, Japanese, Danish, and Italian companies spearheaded the project with the support of the Japanese, Danish, and British governments. KAFCO ultimately cost $150 million more than anticipated and $480 million more than a similar facility in another location in Bangladesh. Millions of dollars that should have been used to provide better healthcare, education, and decrease the overall impact of poverty on that country instead went to a failed project riddled with bribery.
Bribery’s Impact on Our Corporations
From the stories it looks like this is an open and shut case when it comes to identifying the “bad guys.” Obviously, they are the multinational corporations. If the corporations stopped paying bribes, it would eliminate this epidemic. However, a closer look reveals that corporations are both the key to eradicating bribery as well as one of the victims in a vicious cycle.
Businesses are directly impacted by corruption. They run the risk of being prosecuted if they engage in bribery. However, they also run the risk of losing valuable business opportunities if they do not engage in bribery. While corporations are typically demonized as the perpetuators of bribery,
. . . an increasing number of corporations . . . appreciate . . . that countries that respect human rights have more open and transparent laws and financial systems, less corruption, a better-educated workforce, more stability and more security. As the leading employers and revenue source in many developing countries that are transitioning to democracy, companies are uniquely placed to lead by example where they operate.
In a 2006 survey conducted by Control Risks and Simons & Simons, of 350 international companies surveyed, 43% believe that they have lost business over the last five years because competitors paid a bribe. The same survey revealed that very few companies believed that they had any avenue for recourse.
For this reason we need to give these corporations the ability to bring suit against other corporations that are engaging in unethical business practices overseas.
Response to Bribery on the Domestic and International Scene
For nearly two decades, the United States fought alone against corporate bribery. However, beginning in the late 1990s the international community joined the fight. There has been a surge in prosecutions and convictions of FCPA cases due to international cooperation. German prosecutor Anton Winkler said, “‘A decade ago, requests for international legal assistance meant months of waiting or no answer at all. That has changed.’”
U.S. Leads the Way in the Fight Against Bribery
The press brought the problem of bribery in the United States to the attention of the public and Congress in the 1970s when it reported allegations of United States corporations making questionable payments to foreign government officials as a tool of doing business. As the extent of this behavior became known, the Securities and Exchange Commission agreed not to prosecute companies that 1) disclosed past payments and 2) implemented internal practices to prevent future bribery. As a result of this program more than 400 companies, “including 117 of the top Fortune 500 companies,” reported making illegal payments to foreign government officials totaling more than $300 million.
Congress reacted by passing the Foreign Corrupt Practices Act (FCPA) of 1977 to prohibit a corporation from bribing foreign officials and to establish stricter accounting requirements. The FCPA’s ultimate purpose is to prevent individuals and/or corporations from using bribery in order to obtain business.
One of the ongoing criticisms of the FCPA is that it places American businesses at a disadvantage when they try to compete in a global market with companies that do not have the same restrictions against bribery. The FCPA was amended in 1998 to level the proverbial playing field for American corporations by working with the International Community to develop anti-bribery provisions. “Taking action today to update the Foreign Corrupt Practices Act (FCPA) in concert with action to be taken by our major trading partners, is designed to achieve an international marketplace of greater integrity and fairness.”
The 1998 amendments implemented the Organization of Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Before the 1998 amendments, the FCPA only covered “issuers” and “domestic concerns.” The 1998 amendments, however, expanded the Act to include “any person” who commits bribery while “in the territory of the United States.” For the first time the FCPA was made applicable to foreign citizens and corporations doing business in the United States. This Act is now comprehensive in its application in that it applies to people who have “formal ties” to this country as well as anyone who violates the Act while operating within the United States. The application of the FCPA to individuals and corporations operating within the United States, but with no formal ties to the United States, has given the Department of Justice the ability to bring criminal charges against foreign corporations.
Elements of a FCPA Violation
In order to prosecute a corporation for violation of the FCPA, the Act requires proof of the following elements:
(i) a U.S. “issuer,” “domestic concern,” or “any person,” including any officer, director, employee, or agent of such person or any stockholder thereof acting on behalf of the issuer, domestic concern, or person, (ii) makes use of the mail or any means or instrumentality of interstate commerce, (iii) in furtherance of an offer, payment, promise to pay, or authorization of the payment of anything of value, (iv) to any foreign official, foreign political party or official thereof, or any candidate for foreign political office, or other person, knowing that the payment to that other person would be passed on to a foreign official, foreign political party or official thereof or candidate for foreign political office, (v) inside the territory of the United States or, for any United States personality, outside the United States, (vi) to corruptly (vii) influence any official act or decision, induce an action or an omission to act in violation of a lawful duty, or to secure any improper advantage, (viii) or induce any act or decision that would assist the company in obtaining, retaining, or directing business to any person.
Exceptions and Affirmative Defenses to the FCPA
The Foreign Corrupt Practices Act provides both an exception and an affirmative defense for corporations. The Foreign Corrupt Practices Act does not apply to “any facilitating or expediting payment to a foreign official, political party, or party official” for the purpose of expediting or securing a routine governmental action. Further, corporations have an affirmative defense for any payments, gifts, offers, or promises that are lawful under the foreign official’s laws, or that are a “reasonable and bona fide expenditure” incurred by or on behalf of a foreign official and that was related to “the promotion, demonstration, or explanation of products or services; or the execution or performance of a contract with a foreign government or agency.”
Sanctions Under the FCPA
Violators of the bribery provisions of the Foreign Corrupt Practices Act face criminal and/or civil penalties by the Department of Justice and/or the Securities Exchange Commission. Businesses face criminal fines of up to $2 million for violating the bribery provisions of the Act. Individuals involved in bribery, including officers, directors, employees, agents and stockholders, face penalties of up to $100,000 and/or five years in prison. Businesses and individuals also face up to $10,000 in civil fines.
After more than thirty years in existence, however, the Foreign Corrupt Practices Act still provides no private right of action for corporations who have lost business after refusing to pay a bribe.
International Community Joins The United States in Combating Bribery
For twenty years after the United States passed the FCPA, the U.S. remained the only country to actively prosecute bribery by its corporations. It was not long before “multinational corporations based in the United States considered themselves disadvantaged in the global markets due to the 1977 FCPA. [] Seeing its companies undercut by those who could engage in illegal handouts, the U.S. government became a leading advocate for the creation of international standards to limit cross-border bribery.”
Arthur Downey, head of the United States’ National Association of Manufacturers’ Task Force on International Bribery was asked why the International Community has begun to work together to curb bribery and corruption. He said, “What has changed in the world? . . . I have concluded that it is because there is a general, world revulsion to corruption. This world revulsion to corruption is a result of the realization that the potential and actual liabilities associated with corrupt practices are making those practices cost-prohibitive.”
Since the mid-1990s, the international community has come together to fight this growing problem. The most notable legal instruments include :
- OAS Inter-American Convention Against Corruption (1996)
- OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (1997)
- EU Convention on the Fight Against Corruption Involving Officials of the European Communities or Officials of Member States of the European Union (1997)
- Council of Europe Criminal Law Convention on Corruption (1999)
- African Union Convention on Preventing and Combating Corruption (2003)
- UN Convention Against Corruption (opened for signatures in December 2003)
Another tool for getting the support of the international community to fight bribery is by using international pressure. In October 2008, Britain was criticized by the Organization for Economic Cooperation and Development after the government “blocked an investigation into an arms deal with Saudi Arabia in 2006.” In response to the criticism from the international community England’s Justice Secretary Jack Straw said that the government would “carefully consider the report’s recommendations alongside proposals from the Law Commission to reform bribery legislation. ‘It is crucial that we get these reforms right and I appreciate the OECD’s contribution to this process . . . The U.K. is fully committed to combating foreign bribery, which hurts honest companies and raises the costs of doing business.’”
As bribery has gained international attention countries have started to work together to find solutions to this epidemic. The United States has joined the International Community in their efforts to stop corporate bribery. One of the steps the United States has taken has been to join the Organisation For Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Convention). Many of the 1998 amendments to the FCPA were an effort to comply with the standards set out in the convention. Further, as a member of the OECD, the United States’ actions to implement and enforce the Convention are regularly monitored. As of 2007, the OECD reported that the United States has taken the following actions:
- In 2000, Congress passed the Civil Assent Forfeiture Reform Act (CAFRA), which makes it possible to “seek civil and criminal forfeiture of the proceeds of foreign bribery.”
- In March 2002, the President signed an executive order “designating the European Union’s organizations and Europol as public international organizations, making bribery of officials from these organizations a violation of the FCPA.”
- Effective November 2002 “violations of the FCPA and violations of the domestic bribery law [are] subject to the same sentencing guidelines.
- The Sarbanes-Oxley Act of 2002 “made violations of foreign bribery laws as predicate offences under the Money Laundering Control Act, 18 U.S.C. Sec. 1956.”
Corporate Response to Bribery
In response to a growing number of prosecutions under the FCPA, public demand for more ethical business practices, and a general realization that bribery hurts corporations, corporations are beginning to take an active role in fighting bribery within their own business as well as the industries that they are affiliated with. For example, The Steele Foundation and its technology partner Securimate [TM} recently released a paper addressing how business can better comply with the Foreign Corrupt Practices Act.
However, despite the efforts of individual corporations and corporate industries, organizations are still using bribery to secure business. Ernst & Young recently published a survey – Corruption or Compliance: Weighing the Costs – detailing their findings after interviewing 1,186 business leaders about global fraud. The survey indicated that 23% admitted that their corporation had been asked to pay a bribe to retain or win business in the last two years. 18% of the respondents said that they had lost business to a rival corporation because of the rival’s willingness to pay a bribe.
It is clear that the threat of large fines and potential imprisonment still is not enough to eliminate bribery. Corporations need to be given incentives not to use bribery. They need to be given an opportunity to sue for damages when a rival takes business away through bribery. They also need to be given an opportunity to be involved in bringing unethical corporations to justice when the government does not have the resources to do so.
Proposed Solutions
Over the last three years, the Department of Justice has increased the number of FCPA investigations sevenfold and according to a recent press release, the DOJ will be hiring new prosecutors to handle FCPA cases. Additionally, the DOJ issued another press release announcing an action filed on January 8, 2009 seeking nearly $3 million of alleged proceeds of a “wide-ranging conspiracy to bribe public officials in Bangladesh and their family members in connection with various public work projects.” Acting Assistant Attorney General Matthew Friedrich said,
This action shows the lengths to which U.S. law enforcement will go to recover the proceeds of foreign corruption, including acts of bribery and money laundering. Not only will the Department, for example, prosecute companies and executives who violate the Foreign Corrupt Practices Act, we will also use our forfeiture laws to recapture the illicit facilitating payments often used in such schemes.
While the United States and the international community have taken significant steps forward in the fight against corporate bribery since the passage of the FCPA in 1977, there is still more that can be done. American Corporations have complained, from the passage of the FCPA to the present, that the United States Government’s push to combat bribery puts them at a disadvantage in the global marketplace. U.S. officials disagree. “As ‘our foreign law enforcement partners see our commitment to combating corruption around the world and to enforcing our own anti-corruption laws, it is more likely that they will prosecute corruption in their own countries.’” However, studies are showing otherwise. According to a Transparency International 2006 report two-thirds of the 31 countries that are signatory to the Organisation for Economic Co-operation and Development Convention on Combating Bribery of Foreign Public Officials “have had little or no enforcement of related bribery laws since 1999.” Transparency International Kenya Director John Githongo said, “Fine words are not enough. Until people are brought before the courts, the Organization for Economic Cooperation and Development Convention (OECD) convention on bribery will not make a difference to the developing world . . .’”
It is time for the United States Government to again assess how current anti-bribery laws are negatively affecting our corporations’ ability to be competitive. It is time for the government to empower corporations to be part of the solution and to provide remedies for corporations who are the victim of another corporation’s willingness to engage in bribery. The United States has found that cooperation by the international community is making it easier to prosecute corporations who are engaging in bribery. Now it is time for the United States to recognize that they will be more effective at combating bribery if they cooperate with corporations who are willing to play by the rules.
Many governments have pledged to band together to crack down on the prevalence of corrupt business practices that corporations are engaging in. The result has been multi-million dollar fines imposed on both business and individuals. However, deterrence through fines is not enough to combat this growing problem. Governments also need to provide incentives for companies that are working hard to uphold ethical business standards.
Corporations as Partners in Fighting Bribery
“While corporate responsibility has gained acceptance as both a principle and a practice, the true hurdle of implementation at the local and sub-contractor level – beyond U.S. factories, communities and borders – lies before us. The ability to achieve real results lies in our ability – as governments, companies, and NGOs – to work together.”
Every time the Department of Justice prosecutes a corporation for a violation of the FCPA the Department of Justice incurs a substantial time and monetary investment. One possible solution is to recognize that large corporations have the resources, information, and motive to act as the prosecutor. By amending the FCPA statute to authorize qui tam actions corporations would have the ability to bring suit against another corporation engaged in bribery. Part of the monetary remedy would then go to the corporation to compensate them for the time and resources involved in bringing the initial suit.
A qui tam action places an informer in the shoes of the attorney general by allowing the informer to bring an action for the recovery of penalties. The penalty is then divided between the one who brought the suit and the government. A critical factor of qui tam actions, however, is the necessity of a statute that specifically authorizes this type of suit.
An example of a statute that allows qui tam actions is the False Claims Act (31 U.S.C. sec. 3729). 31 U.S.C. Sec. 3729 states that “[a]ny person who . . . conspires to defraud the Government . . . is liable to the United States Government for a civil penalty . . .” Civil actions for false claims are generally brought by the Attorney General. However, 31 U.S.C. Sec. 3730(b)(1) states, “A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.”
By amending the FCPA to allow qui tam actions similar to those allowed in the False Claims Act, corporations would be empowered to bring suits against other corporations violating the FCPA and causing them to lose potential business. It would also give corporations the ability to build good will between the corporation and the public as the public sees corporations working to eliminate bribery from their line of work. However, this would be done under the oversight of the Attorney General, which would protect a targeted corporation from frivolous or improperly motivated lawsuits.
Corporations as Victims of Bribery
Since the passage of the FCPA corporations have argued that they are one of the victims in this process. For example, corporations may chose not to do business in a particular country because of the levels of corruption in that country. Other corporations may lose business after the fail to secure a bid due to the corrupt practices of their competitors. When the FCPA was enacted, it was criticized for placing American Corporations on an uneven playing field. One of Congress’s stated reasons for passing the 1998 amendment of the FCPA was to “improve the competitiveness of American business.” While the 1998 amendments have helped to increase the number of corporations who are brought up on charges of corruption, the amendments have done nothing to compensate corporations who lose business as a result of bribery conducted by another corporation. One important way this can be remedied is by giving corporations a private cause of actions for damages.
In Citicorp International Trading Company, Inc. v. Western Oil & Refining Company, Inc. the court reminded the plaintiff that the Foreign Corrupt Practices Act (“FCPA”) “neither contains nor implies any private cause of action for damages.” It is time to revise the FCPA so that it does provide a private cause of action.
In the 2003 amendments to the Trafficking Victims Protection Reauthorization Act Congress found that “[t]rafficking in persons continues to victimize countless men, women, and children in the United States and abroad.” However, up to that point the victims had no right of action to bring suit against the perpetrators. Congress remedied that oversight by amending Section 4 “Enhancing Protection For Trafficking Victims.” The section now includes a civil remedy for victims of human trafficking:
“(a) An individual who is a victim of a violation of section 1589, 1590, or 1591 of this chapter may bring a civil action against the perpetrator in an appropriate district court of the United States and may recover damages and reasonable attorneys fees. (b)(1) Any civil action filed under this section shall be stayed during the pendency of any criminal action arising out of the same occurrence in which the claimant is the victim. (2) In this subsection, a ‘criminal action’ includes investigation and prosecution and is pending until final adjudication in the trial court.”
A similar provision in the Foreign Corrupt Practices Act would give corporations a remedy against other corporations that secure business through bribery. Corporations that are given a remedy to redress their grievances will be less likely to resort to bribery knowing that if they lose a job to a corporation that engages in bribery they will have a remedy.
Conclusion
America has repeatedly proven its devotion to doing business in an ethical manner. Our dedication to pursuing an end to bribery as a tool of business is unparalleled. The lead that the United States took in 1977 set the dominos in motion for positive change in the area of combating bribery. It is time, however, that we provide support for those corporations who do not engage in bribery. By amending the FCPA to include language that will give corporations the ability to bring suits on behalf of the government and also giving corporations a private right of action against competitors who engage in unethical business practices, the government will be sending a strong message of support to our corporations.
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