It has been hard to keep up with the blizzard of changes made by the new U.S. administration. Controversial nominees for cabinet positions, wild swings in foreign policy, and the many executive orders about business and environmental regulations have “flooded the zone.”
During all this chaos, the executive order issued on February 10 pausing enforcement of the Foreign Corrupt Practices Act (FCPA) might seem minor. But we believe the FCPA will remain an important aspect of the practical ways the business community operates and that its legacy in improving international governance will largely remain in place.
The FCPA was enacted in 1977 in a post-Watergate environment where corruption was in the spotlight. A specific catalyst was a major scandal caused by the revelation of decades of international bribery by the U.S. aerospace and defense company Lockheed, which threatened to significantly erode public confidence in U.S. companies. Despite the law’s good intentions, enforcement was relatively infrequent until the mid-2000s. At that time, a combination of business scandals (such as the Enron fiasco) and the financial crisis put a spotlight on corporate malfeasance. At the same time, the passage of the Sarbanes-Oxley Act, continued globalization, and growing investments into frontier markets which suffered from high rates of corruption, catalyzed a new enforcement regime.
The FCPA has always had a moral component behind it. For decades American foreign policy has sought to empower democratic regimes and shine a light on corruption, at least in theory. Corruption undermines democracy by favoring a narrow class of beneficiaries and hurting transparency. Watching such a class of businesspeople and government officials get rich while others struggle demoralizes society and lays the groundwork for populist violence.
The FCPA has generally been a success story. When enforcement of the statute picked up in the 2000s, lawyers and investigators were kept very busy helping clients to untangle issues that came to light into far-flung areas of their businesses. As prosecutions began to increasingly focus on individual accountability and moved from stiff fines to actual jail sentences for executives, this trend picked up even more as companies developed and enhanced their compliance programs and invested in trainings to prevent corrupt payments. It was common for firms like ours to be approached by companies who realized they had a problem. We would help them untangle what happened and where appropriate, assisted them to self-report to the Department of Justice, which has a policy of crediting companies for such voluntary disclosures.
Over time, the U.S. business community got the message – corruption would not be tolerated. In fact, the prospect of vigorous U.S. government enforcement served U.S. companies by providing them with a justifiable reason for refusing to engage in corrupt practices. That message was enforced because it was being heard in other areas of the world as well. Many countries with the same concerns about corruption undermining their efforts to foster democratic governments and increasing transparency in business transactions passed anti-corruption legislation, such as the UK Bribery Act.
That’s one of the reasons we find the suspension of the FCPA frustrating and counterproductive. The executive order suspending enforcement of the FCPA pointed to “presidential foreign policy prerogatives” as one of the drivers; however, making corruption easier does not advance U.S. interests. Corruption is bad for business as it drives up prices, promotes anti-competitive behavior, and introduces uncertainty into business transactions. It also harms a company’s reputation and impacts corporate culture by eroding employee confidence and promoting corporate misconduct. Corruption also weakens the rule of law, damages the integrity of the global marketplace, and leads to the diversion of public resources. It is not a victimless crime. Corporate bribery can have very real consequences ranging from highways that collapse to hospital equipment that is unsafe for use.
Given that President Trump has been critical of the FCPA for many years, it is likely that that the policy expressed in the executive order will continue even past the six-month suspension in enforcement set forth in the order. However, companies would be unwise to suddenly throw away their own anti-corruption efforts and now view the world as ripe for bribery to advance their bottom-lines. The statute of limitations for FCPA violations is longer than any one administration so companies should take the long view on this issue. In addition, other jurisdictions also maintain their own anti-corruption laws. Multinational companies may be subject to the anti-bribery and anti-corruption laws of other jurisdictions that are not subject to the same pause in enforcement. We could easily envision cases of U.S. companies finding themselves on the wrong side of this situation, especially with international tensions increasing. It is also worth noting that the executive order’s stated purpose is to protect American interests and “advance American economic and national security by eliminating excessive barriers to American commerce abroad.” This means that this administration may shift its focus to FCPA investigations and prosecutions involving non-U.S. companies. The Department of Justice has been keen to test the extraterritorial bounds of the FCPA in recent years and may be even more inclined to do so now.
Going forward, this administration may use the FCPA in a more targeted fashion to advance U.S. foreign policy goals. Indeed, the executive order provides that enforcement has been paused to allow the Attorney General to take action to ensure FCPA investigations and enforcement actions are aligned with the current administration’s agenda. Some areas of focus for future enforcement may include bribery schemes linked to the following: the operation of cartels, gangs, and transnational criminal enterprises; illegal immigration; countries that have retaliated against U.S. tariffs or U.S. sanctions; or otherwise involve the government of a country that is deemed hostile to the U.S. or acting contrary to U.S. interests.
The pause in enforcement of the FCPA should not be confused with a repeal of the statute. The executive order also does not affect enforcement of other laws that have also been used to target foreign bribery. This includes money laundering and the Foreign Extortion Prevention Act (FEPA), which targets the demand side of bribery, and imposes liability on foreign officials who demand, seek, receive, or accept bribes from U.S. companies or individuals, or from any person while in the territory of the United States. There are good reasons for why companies should remain vigilant about anti-corruption compliance starting with the fact that it is simply the right thing to do.
Shrutih Tewarie is a partner at Foley Hoag LLP and Co-Chair of the firm’s International Trade & National Security Practice. Jeremy Hurewitz is Head of Interfor Academy and the author of Sell Like a Spy.
To find out more, please reach out to info@interforinternational.com
