This post is not about the U.S. government’s two-pronged approach to fighting bribery and corruption: Foreign Corrupt Practices Act enforcement and the DOJ’s so-called Kleptocracy Asset Recovery Initiative.
Rather, this post highlights this dandy op-ed by Jay Newman recently published in the Wall Street Journal to explore a picture issue previously explored on these pages and that is whether the U.S. government bears some responsibility for certain root causes of foreign bribery and corruption.
In the WSJ op-ed, Newman states:
“The modern world is awash in [Al] Capones, but the most brazen don’t run brothels, guns or moonshine. They run countries. Many even get generous financial support from American taxpayers. Far from turning a blind eye to this corruption, the wealthiest countries oversee a labyrinthine system of financial institutions that inadvertently enable international crime.
When Western institutions drop money into the capitals of developing countries, they think themselves do-gooders. Instead they’re tools in an unprincipled scheme. Here’s how the racket works: German plumbers and New York waitresses pay taxes. Their respective governments contribute some of that money to the IMF, the World Bank and an alphabet soup of other outfits. Those groups funnel money to nations with corrupt politicians.
Sure, there’s no way to track any specific dollar from the waitress’s wallet to the ruler’s pocket, but money is fungible.
Every dollar sent to corrupt countries also liberates local taxes for other use—or misuse. Poor farmers don’t know or care whether their new road is built with capital from a state-owned monopoly or taxes withheld from waitresses in Manhattan. But corrupt politicians do care, deeply. Paying for local infrastructure with foreign money allows them to claim credit for good works and to liberate cash for their own use.
International institutions should stop funding countries with weak rule of law and endemic corruption.”
There have been several FCPA enforcement actions that occurred in the context of U.S. government aid or assistance programs. (The below actions are in addition to numerous references in the FCPA’s legislative history for how the Defense Department and State Department were participants in, or at least enablers of, the conduct giving rise to the FCPA – see here for “The Story of the FCPA”).
See here for an enforcement action against Venturian Corporation, along with its wholly-owned subsidiary NAPCO International, in connection with the Foreign Military Sales (FMS) program in which the U.S. government made loans to certain foreign governments to finance the purchase of defense items of U.S. origin.
See here for an enforcement action against Control Systems Specialist / Darrold Crites in connection with the Defense Reutilization and Marketing Service (DRMS) under the Foreign Military Sales (FMS) program.
See here for an enforcement action against Lockheed Corp. in connection with an Egyptian contract funded by U.S. aid in the form of grant money administered by the Department of Defense under the Foreign Military Financing (FMF) program.
See here for an enforcement action against Metcalf & Eddy Inc. in connection with projects in Alexandria, Egypt sponsored by the United States Agency for International Development (“USAID”).
See here for an enforcement action against Richard Pitchford in connection with the The Central Asia American Enterprise Fund (“CAAEF”) – wholly funded by an appropriation of $150 million from Congress pursuant to the Support for Eastern European Democracy Act of 1989 (the “SEED Act”) and the Freedom for Russia and Emerging Eurasian Democracies and Open Market Support Act of 1992.
Regarding international institutions, see here for an FCPA enforcement against World Bank employees Ramendra Basu and Gautam Sengupta in connection with a World Bank road construction project in Kenya.
In addition to the above examples, in “The Uncomfortable Truths and Double Standards of Bribery Enforcement” I observed:
“Not all uncomfortable truths regarding the U.S. crusade against bribery are as obvious as the U.S. government providing bags full of cash to foreign government leaders, the highest levels of the U.S. government having knowledge of and supporting private bribery, or the U.S. government not charging strategically important companies with actual FCPA violations. [T]he uncomfortable truth is sometimes a bit more subtle.
[Various] examples raise the question of whether there is a difference between the U.S. government using public taxpayer money to offer or to pay a foreign government to induce that government to purchase U.S. company product and a company using private shareholder money to offer or pay a foreign official to induce the government to purchase its product. Similarly, why does the U.S. government construct programs around the former and call it “foreign military financing” or “foreign military sales” while criminally prosecuting the latter as bribery?
As to these questions, as others have noted:
“the [U.S.] government wants to give the impression that it is law-abiding and others are not when the same behavior is engaged in” by both and that “when the government itself gives bribes to foreign countries every day, every day of the week, they just call it foreign aid.”
[It] has been noted: “It’s not that the United States lacks corruption . . . or even pervasive corruption. It’s just not of the low-level and petty variety like the kind [in certain emerging markets in places like Africa], not most of the time anyway. In America, corruption is concentrated at the highest levels of society—and it masquerades [under different names].
Bribery, however, ought to be bribery pure and simple, and subtle distinctions should not be drawn based on the source of money or influence. Doing so merely creates a distinction without a difference. Indeed, perhaps because of this uncomfortable truth regarding the U.S. crusade against bribery, U.S. government enforcement agencies frequently employ overblown and inconsistent rhetoric when describing FCPA enforcement.”
As highlighted in this previous post, the notion that the U.S. government bears some responsibility for certain root causes of foreign bribery and corruption was even discussed while Congress was contemplating what would become the FCPA.
As highlighted in this prior post, one of the more insightful things found in the FCPA’s extensive legislative history is an October 1975 article by Milton Gwirtzman published by the New York Times Magazine. At this point in time, Congress was in the midst of its investigations into the so-called foreign corporate payments problem and Gwirtzman noted:
“If corporate bribery abroad has offended the post-Watergate morality, the companies implicated have nevertheless taken a greater share of the blame than they deserve. […] The responsibility for present practices must also be shared by our Government, which not only encouraged investment in countries whose ethical standards differ from ours, but also in many respects set the pattern for the graft under censure today. […] The rapid acceleration of American private investment in foreign lands, which began in the mid-nineteen-sixties, was seen by our foreign policy makers as a welcome opportunity. If U.S. firms could build a nation’s infrastructure, supply its consumer goods and hire a portion of its workers, the greater the likelihood the nation would be bound to ours by the safest and strongest of ties, economic self-interest. As a result, our Government wrote the foreign investment laws of several developing countries and urged our multinationals to make use of them. New programs were established to insure foreign investment against the risks of war and expropriation. Embassy personnel were ordered to scout out export possibilities for American firms, which were published in Commerce Business Daily, the Government’s daily list of business opportunities.”
Gwirtzman then stated as follows. “For all these reasons, it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust. It is a symbol of far deeper issues that really involve America’s role in the world.”
FCPA Institute - Houston (March 26-27, 2020)
A unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills through active learning. Learn more, spend less. CLE credit is available.