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The FCPA “Limits The Universe” Of Business Opportunities

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It is always interesting when the Foreign Corrupt Practice Act is mentioned during investor conference calls. The comments tend to be off-the-cuff (not scripted as much FCPA content is) which make them great.

For instance, during a recent investor call an executive from CF Industries Holdings (an Illinois based manufacturer and distributor of agricultural fertilizers with a largely North American footprint) was asked by an investor:

“What are the next stages of capital deployment, especially as the market is now relatively more stable? Do you still feel industry consolidation is necessary? And just generally, what do you see as your own potential role in the process? And should we limit our thinking to North America?”

The company’s President, CEO and Director responded:

“We’re open to being outside the U.S., as you’ve seen with our U.K. acquisition. That has been a tremendous benefit for us and we’re really pleased with it. But there are some regions in the world where we’re more likely to go than others. It’s easier to operate as a U.S. company subject to a FCPA and OFAC and other kinds of challenges in certain regions and more difficult in others. And we’ll be focused on places where we think we can operate in ways that are in keeping with our culture and the strict interpretation of the law. So that limits the universe to some extent.”

This reminds me …

Despite competitive advantage concerns voiced during the FCPA’s legislative process in the mid-1970’s, a certain degree of competitive disadvantage was accepted by Congress in enacting the FCPA.

For instance, Representative Moss stated as follows during a House hearing:

“[T]o think that no loss of business would occur in every instance would be unrealistic. Can we allow this to occur? Yes, if that is the small price we must pay to return morality to corporate practice. Yes, if that is the small price we pay to show that U.S. firms compete in terms of price, quality, and service and not in terms of the size of a bribe. Real competition works. The vast majority of American companies have operated successfully in foreign countries without the need to resort to bribery.”

Likewise, Treasury Secretary Michael Blumenthal stated during the same hearing as follows:

“To the very, very small extent a particular company may lose a particular contract because it refuses to engage in this practice, I would be willing to say, all right, we will be at a slight competitive disadvantage and we will all sleep the better for it.”

Yet using CF Industries’ risk aversion as an example, does this represent the “success” of the FCPA given the undisputed goal of the law to reduce instances of foreign bribery? Is the world a better place and is the FCPA’s laudable goal being advanced by CF Industries’ risk aversion? Fertilizer and related products no doubt are still being sold in the markets CF Industries is hesitant to venture into. Which company is selling those products and what is their commitment to compliance and ethics compared to CF Industries?

If the FCPA was amended, consistent with the FCPA-like laws of several other peer nations, to include a compliance defense might CF Industries’ universe of business opportunities not be so limited? If the answer is yes, would this represent a net positive and would this advance the FCPA’s goal of reducing instances of foreign bribery?

All interesting questions to ponder relevant to the salient question – in this the FCPA’s 40th year – of whether the law is being “successful” in achieving its objectives. (See here for an approximate 25 minute video titled “Has the FCPA Been Successful in Achieving Its Objectives?”).

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