In a recent event hosted by Securities Docket, Jay Clayton (U.S. Attorney for the Southern District of New York) stated that he “hates corruption of foreign officials” but also “hates the FCPA as applied” and noted “because of the application of the FCPA and the way we do it, I think corruption in many places around the world has increased.”
These pages have highlighted Clayton’s candid observations about Foreign Corrupt Practices enforcement for many years and the above statement is consistent with Clayton’s long-held views.
A 2011 whitepaper titled “The FCPA and Its Impact on International Business Transactions” written by a New York City Bar Association committee chaired by Jay Clayton stated:
“The costs to the United States of the FCPA extend beyond out-of-pocket costs and missed opportunities that are borne by specific firms subject to the FCPA. For example, the costs the FCPA imposes on U.S. regulated companies provide an incentive for non-U.S. companies not to offer or register their securities in the U.S., or, if they have previously listed their equity securities on a U.S. exchange, to delist, in an effort to avoid FCPA jurisdiction and other compliance costs. It is clear that the FCPA has contributed to the decisions of several companies to terminate their U.S. stock exchange listing. At least 60 companies that delisted their securities from a U.S. stock exchange between 2007 and 2011 specifically referred to the high administrative, regulatory and other costs associated with a U.S. listing as the reason for such decision and, in at least one case, the delisting was announced shortly after an FCPA settlement.”
As highlighted in this prior post, in 2019 as SEC Chair, Jay Clayton, gave a specific FCPA speech in which he noted that “in many areas of the word, our [FCPA] work may not be having the desired effect.” He stated:
“Turning now to the effectiveness of our efforts, together with our colleagues at the Department of Justice, to combat offshore corruption around the globe. For the past two plus decades we have vigorously enforced the Foreign Corrupt Practices Act or “FCPA.” The SEC has brought nearly 80 FCPA cases in the past five years alone, involving alleged misconduct in more than 60 countries.
To be clear, I believe this is important work. Corruption is corrosive. We see examples where corruption leads to poverty, exploitation and conflict. Yet, we must face the fact that, in many areas of the world, our work may not be having the desired effect. Why? In significant part, because many other countries, including those that have long had similar offshore anti-corruption laws on their books, do not enforce those laws. Couple this unique enforcement posture of the U.S. with: (i) the fact that U.S. jurisdiction generally is limited to areas where U.S. and U.S.-listed companies do business; and (ii) the reality that there are countries where the business opportunities are attractive but corruption is endemic, and the potential for undesirable results becomes clear.
Let’s go to the economists. John Nash, Jean Tirole—and many of the other greats who developed and applied game theory to economics and regulation—could tell us a lot about the strong incentives for other countries not to enforce vigorously offshore corruption laws against their companies. Assume a hypothetical country with business promise, but endemic corruption. If all other countries pursue the common, cooperative, morally grounded policy—or “strategy” in game theory terms—of not allowing their companies to engage in offshore corruption, the country with widespread corruption may change its practices and cross-border business would be conducted competitively and on the up and up. However, when this cooperative, anti-corruption strategy is being pursued by others, the benefits of playing a non-cooperative strategy are great, particularly if your company is the only one who is “cheating”—your company “wins” the lucrative offshore business with no competition.
This is not a new observation. Speaking generally, the response to this observation has long been to acknowledge the need for greater international cooperation and cite a few isolated indicia of improvement. Speaking for myself, I have not seen meaningful improvement.
To be clear, I do not intend to change the FCPA enforcement posture of the SEC. We should, however, recognize that we are acting largely alone and other countries are incentivized to play, and I believe some are in fact playing, strategies that take advantage of our laudable efforts.
Taking a step back, this experience, including the FCPA-driven withdrawal of U.S. and U.S.-listed firms from certain jurisdictions, illustrates that globally-oriented laws, with no, limited or asymmetric enforcement, can produce individually unfair and collectively suboptimal results. I assure you that this reality is at the front of my mind when I engage with my international counterparts on matters where common, cooperative enforcement strategies are essential, including the recent calls for greater securities law-based regulation of environmental and social issues.”
