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The Notion That The CROOK Act Is Going To Reduce “Pressure That U.S. Businesses Face To Pay Bribes Overseas” Is Fanciful


Previous posts here and here discussed House and Senate versions of the “Countering Russian and Other Overseas Kleptocracy Act” (“CROOK Act”).

Both versions of the CROOK Act seek to authorize the Secretary of State to establish a fund to be known as the “Anti-Corruption Action Fund” to aid foreign states to prevent and fight public corruption and develop rule of law based governance structures, including accountable investigative, prosecutorial, and judicial bodies, and supplement existing foreign assistance and diplomacy with respect to such efforts.”

The House version of the CROOK ACT seeks “an amount equal to five percent of each civil and criminal fine and penalty imposed pursuant to actions brought under the FCPA … that would otherwise be deposited in the Treasury of the United States” to fund the Anti-Corruption Action Fund.”

The Senate version of the CROOK ACT seeks to tax certain FCPA enforcement actions (those in which total criminal fines and penalties are in excess of $50 million) by imposing an “additional prevention payment equal to $5 million which shall be deposited in the Anti-Corruption Action Fund.”

Recently in this Trace sponsored podcast titled “The CROOK ACT: Tackling Demand-Side Bribery,” Abigail Bellows (Carnegie Endowment for International Peace) and described as the “brainchild” of the CROOK Act said that the Act, among other things, will be “good for U.S. businesses who face that pressure to pay bribes overseas” and that companies who resolve FCPA enforcement actions will be “paying it forward by helping prevent future bribery.”

In this FCPA Blog guest post titled “The U.S. Has a Chance to Target Demand-Side Bribery With the CROOK Act” Alexandra Wrage (President of Trace) asserts:

“[The CROOK Act] would also offer funding to nongovernmental grassroots organizations that work to curb corruption or develop rule of law-based governance structures in their countries. In order to find money for the fund at a time of skyrocketing budget deficits, the bill drafters propose a $5 million surcharge on criminal penalties levied against companies for violating the FCPA, but only when these penalties exceed $50 million. So, in effect, companies found to have violated the FCPA in some egregious manner will pay to address the underlying causes of the sort of foreign corruption in which they were embroiled.”

The notion that an Anti-Corruption Fund (funded through U.S. law enforcement money) is going to reduce “pressure that U.S. businesses face to pay bribes overseas” or will help prevent future bribery by targeting the “demand-side” of bribery is fanciful.

The reason – as highlighted numerous times on these pages – is that the root cause of many FCPA enforcement actions are foreign trade barriers and distortions.  The narrative is rather simple.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

Consider just a few examples.

Why have several beverage companies (Diageo, Beam, and AB InBev) resolved FCPA enforcement actions in India? It is because the Indian government controls the following aspects of this industry which provide numerous points of contact between industry participants and “foreign officials.”

  • Production hours
  • Shipments
  • Inspections
  • Label registrations
  • Sales to retail stores, product placement, and promotions

How is an Anti-Corruption Fund going to reduce or eliminate these points of contact?

As highlighted in this prior post, why have various numerous FCPA enforcement actions concerned conduct in Angola, particularly in the oil and gas sector?  It is because most of these enforcement actions have involved relationships with Sonangol (a state-owned / state-controlled enterprise) employees, and many of these enforcement actions have, as a root cause, Angola’s local content requirement which requires foreign companies to partner with Angolan companies.

How is an Anti-Corruption Fund going to change this Angolan legal requirement?

Moreover, as highlighted in this post, in the FCPA’s modern era many enforcement actions often involve normal activity such as golfing and drinking, taking someone to a sporting event, making a charitable donation, or offering someone an internship or job. It is only because these “normal” activities are sometimes offered to a foreign healthcare professional or an employee of a certain type of company (that is an SOE) that an FCPA issue arises because the U.S. government considers such individuals to be “foreign officials” and thus on par with Presidents, Prime Minister and other bona fide “foreign officials.”

How is an Anti-Corruption Fund going to stop this “normal” activity from taking place and/or change the U.S. government’s “foreign official” interpretation?

The best answer to the above three representative questions is that the Anti-Corruption Fund is not going to meaningfully change any of these root causes of FCPA enforcement actions or reduce “pressure that U.S. businesses face to pay bribes overseas.

It is for these reasons, that the CROOK Act represents little more than “feel-good” legislation.

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