Corporate Corruption and Bribery

1. Corporate Corruption and Bribery The Foreign Corrupt Practices Act (FCPA)

2. Overview The Bribery of foreign officials by US corporations to influence decisions of foreign officials, foreign political parties, or candidates for political office is occurring with greater frequency Bribes are often given to ensure favorable actions by foreign governments Involving but not limited to the following industries: • Drugs and Health Care • Oil and Gas Production/Services • Food Products • Aerospace, Airlines and Air Services • Chemicals

3. US Companies Involved in Overseas Bribery Dow Chemical Xerox (India) Tyco (Venezuela) Accenture (Middle East) IBM (South Korea) Monsanto Titan Enron …Just to name a few…

4. Not Just a US Problem… “ May 1, 2003 and April 30, 2004 the global competition for contracts worth up to $18 billion ‘may have been affected by bribes by foreign firms of foreign officials’”- Report from the US Department of Commerce A global survey by Price Waterhouse Coopers in 2003 found that 49% of companies surveyed were required to offer or pay a bribe at least four times

5. The Detriments of Bribery Unethical- The payments of bribes conflicts with the moral expectations and values of US citizens Bad for Business- Bribery erodes publics confidence in the integrity of the free market. Bribery also gives those businesses with inefficient operations an unfair competitive advantage Unnecessary- “…We find in every industry where bribes have been revealed that companies of equal size are proclaiming that they see no need to engage in such practices” Former SEC Chairman Roderick Hills Foreign Policy Problems- The disclosure of US bribes lowers the esteem for the US among foreign nationals, embarrasses allied governments and suggests that US enterprises exert a corrupt influence on foreign political processes

6. The Foreign Corrupt Practices Act Enacted in 1977 to prevent the corporate bribery of foreign officials Prohibits both the US and foreign corporations and nationals from paying or offering anything of value to a foreign political party, foreign government official, candidate for foreign public office, or an official of a public international organization in an attempt to obtain or retain business Main Parts • Requires corporations to keep accurate books, records, and accounts • Requires issuers registered with the Securities and Exchange Commission to maintain a responsible internal accounting control system • Prohibits bribery by US corporations of foreign officials

7. History of FCPA Legislation -Consideration began during the 94th Congress -Based extensively on the “Report on Questionable and Illegal Corporate Payments and Practices” issued by the SEC May 12, 1976 *Revealed the widespread practice of questionable corporate foreign payments -September 21 and 22, the Subcommittee on Consumer Protection and Finance held hearings on numerous bills that should to prohibit these payments *HR 15481; HR 13870; HR 13953; S 3664 *due to end of session pressures, the Subcommittee was unable to report prior to adjournment -Continued in the 95th Congress -April 20 and 21, 1977 *focused on HR 1602 and HR 3815 -Full committee reported the bill on September 20, 1977

8. Key Provisions Provide criminal penalties for US businesses found to use mail or interstate commerce “corruptly” in order to further an offer or payment of anything of value to a foreign official to influence the person in their decision making to obtain or retain business Prohibits the payment of money to any person by a business if the business knew that the payment was to be used to bribe a foreign official to influence business cooperation Requires companies with publicly traded stock in the US to practice required accounting, books, records internal controls Exclusions The definition of “foreign official” excludes foreign government employees “whose duties are essentially ministerial or clerical” The Act is not intended to cover “grease payments” (payments made to expedite shipments, secure required permits, obtain adequate police protection, etc) Extortions of money by foreign officials may be used as defense against charges of bribery by a business if either its property or the lives of its employees are threatened Section 2 regarding the prohibition against certain payments to officials by registered companies was made to amend the Securities and Exchange act of 1934. The SEC is therefore to retain investigative jurisdiction over this matter due to their relatively easy access to reporting companies books and filings

9. Parties Involved Enforcement -Securities and Exchange Commission (SEC) -Justice Department US Corporations (Public and Private) -Bristol-Myers; Exxon Mobil; Daimler Chrysler; IBM; Halliburton; Syncor; Monsanto; Titan; etc… Companies with stock publicly traded in the US

10. Increased Enforcement Due to recent increases in global mergers and acquisitions as well as increasing revelations of corporate bribery and corruption instances, FCPA enforcement levels have reached record highs. The number of enforcement actions is likely to increase further in upcoming years as the US government shifts additional resources into this area

11. Criticisms Dissuades Export Trade- The “grey” areas that exist within the legislation regarding what is and is not permissible have led many corporations to cease foreign operations rather than face uncertainties Remove the “Reason to Know” Standard- Removing the standard concerning the liability for actions of a specific business agent while in a foreign country would eliminate the legal responsibility of the management of a domestic firm over the unauthorized actions of the agent Too Costly- The internal accounting controls mandated by the Act were too burdensome and costly on domestic firms. Failure to implement these controls made officials unnecessarily cautions Questionable Exports- In some nations, acceptance of a fee of payment by a government official from a business is customary. If the US makes this payment illegal, it appears that we are more concerned with exporting our cultural biases rather than our products Ambiguities- Defendants have been able to claim there is no prohibition of bribes intended to reduce customs duties or tax obligations

12. Are U.S. Companies Disadvantaged in World Trade by the FCPA? • If US businesses are restricted from bribery while foreign businesses are not, does this result in an major disadvantage for US businesses in global competition

13. International Anti-Corruption Agreements • OECD • Convention on Combating Bribery of Foreign Public Officials in International Business Transactions • Adopted November 1, 1997 • UN • United Nations Convention Against Corruption • Adopted September 29, 2003 • WB • Anti-Corruption Program (through good governance)

14. International Enforcement • Lack of enforcement by OECD and UN • “Lack of compliance with the [OECD] convention’s provisions continues to hinder corruption investigations and prosecutions.” • Transparency International • OECD convention is the strongest international convention against corruption to date

15. Implementation • Lack of or Partial Implementation by Domestic Governments • Continued corruption in some OECD countries • Lack of enforcement domestically • Degree of Punishment possible

16. Status of Worldwide Corruption

17. Non-OECD Countries • OECD convention only signed by the 37 members and 5 non-members • What about all the other non-OECD countries? • Incentives to companies to operate in non-OECD countries to escape FCPA restrictions? • Impacts of major new trading centers- Singapore, China, etc.

18. Policy Proposal • Bi-lateral and Multi-lateral Agreements • World Trade Organization (WTO) • DSU offers some recourse for implementation • Doha Agenda • the topic of “building an "anti-corruption" strategy more explicitly” was raised (by Transparency International representative Eigen) • Current issues facing the Doha Round

19. Conclusion • “Addressing bribery, and with it its detrimental economic, social and political effects…could, further enhance the development opportunities and outcome.” • WTO, Development Opportunities from Doha ****************************************** Corruption and bribery are trade distortions. To level the playing field it is necessary for all countries to cooperate to eliminate corruption.

20. Works Cited • Congressional Research Service. CRS Report to Congress: Foreign Corrupt Practices Act.http://www.fas.org/irp/crs/Crsfcpa.htm • Organization for Economic Co-Operation and Development. The OECD Convention on Combating Bribery of Foreign Officials in International Business Transactions. http://www.oecd.org/document/20/0,2340,en_2649_34859_2017813_1_1_1_1,00.html • Transparency International. Corruption Perceptions Index 2007. http://www.transparency.org/policy_research/surveys_indices/cpi/2007 • United Nations. United Nations Convention Against Corruption.http://www.unodc.org/pdf/crime/convention_corruption/signing/Convention-e.pdf • United States Department of Justice. Foreign Corrupt Practices Act.http://www.usdoj.gov/criminal/fraud/fcpa/ • World Bank. Governance and Anti-Corruption.http://web.worldbank.org/WBSITE/EXTERNAL/WBI/EXTWBIGOVANTCOR/0,,contentMDK:20672500~menuPK:1740553~pagePK:64168445~piPK:64168309~theSitePK:1740530,00.html • World Trade Organization. The Doha Development Agenda and Beyond. (April 29, 2002). http://www.wto.org/english/tratop_e/dda_e/summary_report_dev_opport_doha.doc