It was November 1979 and the Foreign Corrupt Practices Act was nearly two-years old. Philip Heyman was the DOJ Assistant Attorney General and he gave a speech outlining the DOJ’s FCPA enforcement priorities. Below is an excerpted copy of his speech. (The full speech was published by the American Banker on Nov. 21, 1979).
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“Two English writers several centuries ago took widely different views of bribery. John Gay told us, with a worldly wink, in 1738: ‘Corruption’s not of modern date; it hath been tried in every state.’
Shakespeare agreed the practice was antique, but took a harsher line. Brutus says to Cassius in Julius Caesar: ‘Shall we now contaminate our fingers with base bribes. . .? I had rather be a dog, and bay the moon.’
Two years ago, Congress voted with Shakespeare and decided to keep American business out of the doghouse. The passage of the Foreign Corrupt Practices Act was a signal event. It represented Congress’ determination that competition in overseas markets should be based on the merits — on price and product quality — rather than on questionable payments to foreign political leaders. Its operative principle, if I may quote Shakespeare again, is that ‘corruption wins not more than honesty.’
The Act passed almost unanimously. In a curious reversal of the usual process, most of the open dissent on how to deal with foreign payments has been percolating to the surface since the passage of the Act, rather than in the debate before.
The dissenting voices should be heard out, because there is an element of truth on their side. These dissenters tell us that, just as international relations is an area in which conventional rules of law do not always operate, international trade is also an unusual arena. Almost every company and entrepreneur in modern-day America accepts that bribery of domestic officials is not an allowable tactic. But international trade is said to pose different problems.
For shorthand, the problems might be dubbed ‘economic extortion’ and ‘keeping up with the Joneses.’ Imagine a foreign official in charge of contract evaluation who announces that a 10% commission must be paid to his brother to assure favorable consideration. A company might well feel tempted. No matter how much faith it has in its product, it can’t tell whether the evaluation will be on the merits, or on its willingness to make the payment. What is a company to do about a monopsonist who won’t buy without a kickback?
A second problem is how to keep up with foreign competitors who are not governed by an antibribery statute. An American company seeking a foreign contract may fear that its non-Americans rivals are indulging in corrupt payments and feel pressure to keep up with the Joneses. Congress can’t legislate rules of behavior for most non-American companies and, the dissenters would tell us, it’s unfair to put a one-sided burden on American companies.
Production Threatened
As well as looking at the burden on individual companies, one should consider the overall economic cost, we are told. On the economic side of the scale is the adage that ‘the business of America is business.’ Any disincentive to American exports is an economic cost and can inhibit production, increase unemployment, and worsen our balance of payments, weakening the dollar and fueling inflation. In the context of foreign corrupt payments, surely one interest to be balanced is the need to strengthen the domestic economy by promoting exports.
These voices of dissent have been late in emerging. Even now they don’t venture to openly advocate a repeal of the Foreign Corrupt Practices Act. I have sometimes had a suspicion that the desire for so-called ‘guidelines’ has included a wistful hope that the Act would be cut away quietly through interpretation. But even those asking for guidelines haven’t dared to openly oppose the Act.
The reason for the hanging back is that the foreign corrupt payments issue has another side to it, the side that Congress and this Administration chose. And there is no way to make light of the interests on this side of the scale. First, what is one to make of companies that use corrupt payments in a foreign market where all other competitors are American? The pre-Act Lockheed case was this kind of situation. Corrupt practices were committed by Lockheed in Japan in an attempt to win a contract for wide-bodied jets against two other American manufacturers. In such a market there is no one-sided burden from a law that requires competition on the merits. To the contrary, without such a law, each time any American company makes an illicit payment there is created a one-sided incentive for its American competitors to follow suit, in a race to the bottom. Bribery in such a situation does not win trade for America; it simply carves up the market among domestic rivals. And what is one to say of corrupt practices where a foreign country is making a conscientious attempt to enforce its anticorruption laws and where, so far as one knows, foreign competitors have been acting with restraint?
Economic Extortion
Then too, consider how easy it is to claim ‘economic extortion’ as an excuse for a bribe. Any seller can say that his bribe was the foreign buyer’s idea and that otherwise he would have been excluded from selling in that market. For this reason, among others, Congress concluded that problems of so-called economic extortion should not be a valid defense to bribery. As the Senate Banking Committee concluded, ‘At some point the U.S. company would make a conscious decision whether or not to pay a bribe. That the payment may have been first proposed by the recipient rather than the U.S. company does not alter the corrupt purpose on the part of the person saying the bribe.’ So-called economic extortion is too easy a cover story for voluntary bribers.
Consider also that each time a bribe is paid by an American company, it makes it easier for economic extortion to occur. A foreign official may reason that if one American corporation is willing to come forward with a corrupt payment, then surely most can be made to pay. In such circumstances, it is not surprising that Congress thought the best solution was to cut the problem off at the source and simply forbid such payments.
The antibribery side of the balance also gains strength from the importance of stability in our foreign relations. If an American company bribe is exposed in foreign newspapers, it may cause the downfall of that government. The rise and fall of foreign governments is a matter too serious for private determination. The foreign policy repercussions of overseas bribery are by themselves reason enough to ban the practice.
There is, also, a matter of mortality and of national honor. Bribery of our officials by foreign companies is something we take extremely seriously; the Koreagate investigation is proof of that. Congress has decided that corruption of foreign officials by American companies is an equally serious matter. Foreign countries have as much right as we do to aspire to honest government. And our effectiveness in seeking a multilateral treaty to ban overseas bribery by any country depends at least in part on the lead we take in showing that such practices are unworthy of a Free World competitor.
Those who argue an antibribery statute involves an economic cost to the U.S. may or may not be right. We have only impressionistic evidence. But the Senate Banking Committee heard testimony from then-Secretary of the Treasury Michael Blumenthal, and former Under-secretary of State George Ball, that in their best judgement overseas bribery was an unnecessary weakness.
Mr. Ball concluded that without corrupt practices, ‘for a limited time span some American countries might lose certain business opportunities,’ but noted ‘the example of a number of our most successful enterprises that rigorously reject such practices yet still do enormous business all over the world.’ Secretary Blumenthal testified that ‘paying bribes. . .is simply not necessary for the successful conduct of business here or overseas.”
“Ethically Repugnant”
Within our governmental system, it is the legislative branch which is responsible for striking the major balance among competing interests. With the passage of the Foreign Corrupt Practices Act, Congress struck that balance and did so with virtual unanimity. Congress determined that the United States should assume a position of moral leadership in the world; that bribery was harmful to U.S. foreign policy interests; and that any short-run economic cost was worth tolerating for the good health of our political and economic system. It was a balance the President adopted at the time he signed the Foreign Corrupt Practices Act. President Carter said: ‘I share Congress’ belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our business institutions.’
Our country has pretentions of national honor, which have been enacted into law and which no one is prepared to renounce. Any who believe that the Executive Branch might ‘wink’ at violations of the law are misguided. The President has made this very clear to us and to Congress. Any who believe the Foreign Corrupt Practices Act can be scuttled quietly, administratively, do not realize that such hypocrisy would be the most damaging vice.
But there is a legitimate role for the Department of Justice in giving advice about its enforcement intentions under the Act. The interpretive questions arising under the Act depend on subtle judgments of fact and law. We’re dealing with a new Act, where no one has much enforcement experience. It is an Act that presents questions there has never been occasion to address in domestic bribery law — for instance, which officials fall outside the Act because their duties are ‘essentially ministerial’ and whether a foreign corporation becomes a ‘government instrumentality’ when only a minority of shares is owned by the foreign government. And there is a national economic interest in avoiding unnecessary uncertainty that could deter acceptable export practices. President Carter noted in his export policy statement of a year ago the hope that ‘American business will not forego legitimate export opportunities because of uncertainty about the application of this statute,’ and asked the department to provide some form of guidance to the business community.
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Enforcement Priorities
Let me discuss a second form of guidance. In his export policy statement, President Carter asked the Department to provide some information about what are called ‘enforcement priorities in regard to foreign corrupt practices. I should first make crystal clear what that phrase means. An enforcement priority simply says what type of cases we will generally consider the most urgent and egregious, which efforts deserve highest targeting. An enforcement priority does not say what cases we will decline to prosecute; or case-by-case review procedure is the way to ask that. Every nonpriority violation is still fully open to investigation and prosecution.
Enforcement priorities come into play in deciding when to open an investigation, and deciding what, if any, enforcement action is warranted. The Act provides us with a continuum of weapons, including civil injunctive actions, criminal prosecution of a business entity, and, the most serious of all, criminal prosecution of individuals. Where we are presented with a serious violation, this last sanction will be considered appropriate.
We will regard a violation as extremely egregious if any bribes are used in a market where the other competitors turn out to be American. Equally serious is any bribe in a market where, though there are non-American competitors, the only companies indulging in corrupt practices turn out to be American. We intend to be vigorous in pursuing these cases, so that American companies obeying the law are not disadvantaged by wayward cousins.
We intend also to give high priority to situations where a foreign government is making an effort to clean up the competitive arena. In any instance where a foreign government is attempting to prosecute a corrupt official who has received payments from American companies, we will make every effort to coordinate with them and to prosecute the payer of the bribe. We will try also to exchange useful information and encourage cooperation by American witnesses to assist the prosecution of the corrupt official. We currently have executive agreements for mutual assistance in criminal matters with 25 nations, which provide for conditional exchanges of information about specified companies between the cooperating prosecutors. We anticipate that the number of countries with which we have such agreements will continue to grow.
The level of the official being bribed is another factor in choosing priority cases. We will act most swiftly and harshly where a foreign cabinet officer or other official of high rank is involved. The size of a payment and the size of the economic transaction which the payment affects are also of interest. A $1 million bribe to win a $20 million contract will, you can imagine, be closely scrutinized for suitability as a criminal case. Note that amounts which some might view as modest in the United States can be very substantial sums in developing countries.
If a senior management official is involved in a violation, either actively or passively, the chance of criminal prosecution again increases both for the company and individuals. A violation by a lower-level employee will also be high priority where the company has been less than diligent in monitoring employee activities. Pro forma adoption of an antibribery policy will not insulate top management and the company from intense investigation and prosecution if serious controls are lacking. Conversely, where a company has been making good faith efforts to monitor its employees, that will be relevant in our decision how to proceed.
Of course the major criterion for choosing among cases will always in the end be the strength of the available evidence and the chances for obtaining additional needed evidence. By this I mean only to reinforce my note in the beginning that so-called nonpriority cases are still fully open to prosecution. Whenever we have strong evidence of deliberate or persistent violations of the Act, a prosecution can and should be expected.
Finally, let me say a few words about process. To maintain consistency in enforcement policy and to keep close liaison with the Department of State, SEC, and foreign law enforcement agencies, we have concluded that enforcement responsibility under the Act should be substantially centralized. Unlike other law enforcement areas where primary responsibility for prosecution rests with 94 different U.S. Attorneys around the country, most prosecutions under the Foreign Corrupt Practices Act for payment activities will be supervised by the Multinational Fraud Branch in the Criminal Division in Washington.
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The most efficient means of implementing the Foreign Corrupt Practices Act is voluntary compliance by the American business community. I am convinced that the great majority of American businesses are making every effort to assure that their officers, employees and agents do not violate the Act. The new review procedure should assist companies in good faith compliance efforts and maximize the ability of U.S. companies to make use of legitimate export practices.
Compliance with the new Act may not be costless for the United States. But living up to one’s principles rarely is. The principle behind the Act is basic to our society — that competition should be on the merits. In the long run, the Foreign Corrupt Practices Act and the joint effort of business and government to end corruption in international trade will be an achievement of which our country can be proud.”
