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13 Jun 2017

Conniel Malek, Director of True Costs Initiative

Six reasons why corporations like (and want) the Foreign Corrupt Practices Act even if they won’t admit it

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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. President Trump has labeled the FCPA a “horrible law” and insisted that it stifles American businesses conducting business abroad. “It puts us at a huge disadvantage,” he told CNBC in May 2012. The jury is still out on whether the Trump administration will take concrete steps to weaken the FCPA and it is possible that perception is not reality when it comes to President Trump and the Act.

It is not however, inconsequential that using the Congressional Review Act, the Trump administration killed a rule to crack down on foreign bribery by US energy companies. That action does not augur well for the administration’s commitment to the FCPA and related anti-corruption regulations. Foreign civil society advocates and US supporters of this Act who have seen the benefits reaped from increased anti-bribery enforcement and intergovernmental cooperation, are understandably concerned about what the administration might do next. But as they wait for the proverbial shoe to drop, civil society advocates may find unlikely allies within corporations. There are several reasons why multinationals not only have an interest in preserving the FCPA, but see its infrastructure as a benefit to business - even if they won’t say it.

1.     Corporations love predictability. Reverting to a world without the stricture of the FCPA is unappealing for several reasons. The non-FCPA world is an expensive and risky one. Corporations want certainty in their contracts, costs, investments and the framework within which their foreign business operations take place.  If bribes and corruption are rampant, their logistics planning, the efficiency of their business operations and ultimately their return on investment are all potentially at risk because they can’t predict the expensive and unpredictable demands of corrupt government officials and  intermediaries.
2.     The FCPA is good for US businesses. Corporations thrive when they can maintain their competitive advantage. In a business environment where corruption is rare, corporations distinguish themselves based on the superiority of their product, efficiency of their logistics, business models etc. This is where US corporations have an advantage.  In a world in which corruption is rampant, foreign companies which typically could not compete with US corporations, because of poor product for example, are often able to out-compete US business because they engage in bribery and other corrupt practices. US companies actually stand to gain when businesses around the world are operating on relatively the same regulatory plane.

Reverting to a world without the stricture of the FCPA is unappealing for several reasons. The non-FCPA world is an expensive and risky one. 

3.     Large multinational corporations have already built the compliance infrastructure to support FCPA requirements and they have seen the secondary benefits of these increased internal controls for their core businesses.  Corporations have invested tremendous resources in building legal and compliance infrastructure to support the management of FCPA and other compliance risk within their business units and supply chains. This compliance infrastructure positions companies to achieve concrete business benefits such as improved quality control, stronger internal controls and general efficiency. Also, within large corporations, the FCPA has essentially become everybody’s business. Corporations have an incentive to maintain that and are unlikely to pull the Jenga-block on what has become an integrated and important building block to their corporate business and governance structure.

4.     Corporations are risk averse. As much as corporations espouse the importance of “disruptive technologies”, “embracing risk” and using creative strategies to “maximize their competitive advantage”, corporations at their core are actually quite risk averse.  This risk aversion is evident in the increasing use of risk analysis firms, pre-acquisition FCPA and other due diligence. They want to take managed risks that will pay off but won’t get them on the front page of The New York Times. They want to protect their reputational exposure at all costs, and a sure-fire way to assail that reputation is an FCPA investigation or lawsuit. Corporations are motivated to keep this infrastructure in place because it also helps them manage outsized risk and protect their reputations.

The FCPA has become everybody’s business. Corporations have an incentive to maintain that and are unlikely to pull the Jenga-block on what has become an integrated and important building block to their corporate business and governance structure.

5.     Astute CEOs know that FCPA regulations do not have a significantly adverse effect on business profits. The FCPA has not signaled the death knell of American businesses abroad as some opponents claim. In fact, the majority of the largest FCPA enforcement actions in 2016 and the FCPA enforcement actions in history were against foreign companies.
6.     Large corporations increasingly recognise the strong connection between corruption and business & human rights abuses. And (the smart ones) 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.  CEOs will continue to recognise that this connection is devastatingly real and that corruption is rarely a solo artist.

Supporters of corporate accountability should keep each of these in mind as they develop their strategies for defending the FCPA and strengthening its application in the business & human right field: 1) They should be sure not to ignore some, admittedly unlikely, but useful allies - especially those large corporations which have implemented extensive and more than face-value FCPA compliance programs.  2) They should identify opportunities to engage these corporations as part of their strategies to fight corruption especially in the Global South. They may find some compliance departments are quite receptive to their ideas, input and in some cases their direction.  3)  Finally, they should ramp up their efforts to communicate more clearly to the wider public, to Corporate Social Responsibility offices and CEO’s the inextricable link between corruption and human rights and environmental abuse.

So, even if we haven’t yet seen dramatic attempts by the current administration to dismantle the FCPA, when the other shoe does drop (and even if it doesn’t drop), it is important that civil society advocates of the FCPA seek corporate allies. Not to do so would be to miss an important opportunity for an intersection of interests to preserve an essential tool in the fight against corruption.