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“Shifting Gears On Bribes Abroad”

The year was 1981, the FCPA was a mere infant, and the beginnings of a vibrant FCPA reform debate were taking hold as to the new law.  Bill Brock was the U.S. Special Trade Representative and he took to the pages of the New York Times with the following Op-Ed published on August 16, 1981.

Before turning to Brock’s piece, a bit of historical context.

The FCPA was passed in 1977.  As noted in this prior post (which highlights historical articles in Time Magazine) almost as soon as the FCPA was passed, concerns were raised that the law was imprecise and ambiguous and thus harmful to U.S. business. There was much activity on this issue in the early 1980′s.   Among other things: (i) the Carter administration (Carter signed the FCPA into law in December 1977) sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department.” (ii) the GAO released a report in 1981 (see here for a prior post) detailing how the FCPA “is riddled with complicating ambiguities and shortcomings” including the key “foreign official” element; and (iii) the Reagan administration recommended decriminalization of bribery.

The FCPA reform debate on the 1980’s was met with many of the same anti-reform rhetoric heard in the past year.  See this prior post for a sampling of statements from that era.

As to the SEC issue Brock raised in his article, it is sort of ironic to note (in this era when the SEC has a specific FCPA Unit) that the SEC initially wanted no part in enforcing the FCPA’s anti-bribery provisions.   Despite being a reluctant actor, the SEC’s role in helping uncover the foreign corporate payments problem and the expertise it gained in doing so was highly valued by congressional leaders, particularly Senator Proxmire who stated that the SEC was “the only agency in the Government that hasn’t gone to sleep on this issue, and [that it did] a good job under the circumstances.”  That the SEC was also an independent agency, unlike the DOJ, was also highly valued by Senator Proxmire as indicated by the following statement Senator Proxmire made during a hearing.  “If we learned anything in the Watergate affair, we learned that the Department of Justice is not a department we can always rely on, especially when you have top influential corporate officials that are involved. They have a good record in some areas. They prosecute the hoodlums. They haven’t got such a good record on white-collar crime.”  The following statement by Senator Proxmire to SEC Chairman Hills during  a hearing best captures the SEC’s reluctant role in the foreign payments problem.  “[The SEC was] responsible for about the only action we have taken with respect to foreign bribery and your agreements, your work, with various corporations to persuade them to cleanse their operation have been a fine example of how an agency can work to get this job done even without legislation. Because of that, you see, we would like to have you involved at least on the investigative disclosure basis. And perhaps we can work something out that would protect you from not pushing you into something you think you wouldn’t want to do.”  Thus, the dual jurisdiction of the SEC and DOJ on FCPA matters is mostly a historical accident and one of the reform issues in the 1980’s was to strip the SEC of its FCPA anti-bribery enforcement powers, something the SEC itself did not object to.

Back to Brock’s Op-Ed piece which is set forth in full below.

Shifting Gears on Bribes Abroad – Bill Brock – New York Times (Aug. 16, 1981)

“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject – corporate bribery abroad – some people turn a blind eye to its shortcomings rather than risk being accused of being soft on bribery.

That is too easy a way out.  Retreating from controversy will not cure the law’s deficiencies.  Congress is addressing a complex, tough issue in a reasoned manner and deserves our attention and admiration.

As the Senate moves toward final consideration of changes in the act, this is a good time to discuss the modifications, which have been proposed in a legitimate effort to clarify the act’s ambiguous language.

Here are several common misunderstandings and questions about the changes and some straight answers:

1.  In modifying the act, Congress condones corporate bribery of foreign officials.

Wrong.  Any corporation found guilty of ‘paying, giving, offering or promising anything of value to a foreign official for the purpose of obtaining business,’ under the revised act, would be subject to a million-dollar fine.  Individuals would face a $10,000 fine or five years in jail or both.

2.  American businesses are crying wolf.  The act has not discouraged exports.  In fact, American international trade has increased since its enactment.

Not exactly.  True, our trade has increased since 1977.  But much of that increase disappears when adjusted for inflation.  No one contends that the act is solely responsible for the last five consecutive years of trade deficits totaling $100 billion.  However, a General Accounting Office study, the President’s Export Council and extensive testimony by businesses have cited the act as a significant export deterrent because of its vague and unpredictable application.

3.  Without the act’s provisions requiring businesses to establish new accounting systems, bribery of foreign officials will go undetected because the Government will not have a ‘paper trail’ to monitor.

False.  There are two misconceptions in this statement.  First, under this law the Government can not ‘monitor the paper trail’ to track down bribers.  Instead, the act sets accounting and recordkeeping standards that all companies – whether or not they conduct international business – must follow.  Second, the proposed changes would make a felony of falsifying books and records for the purpose of concealing illegal payments to foreign officials.  It makes more sense to penalize the few who falsify their books to conceal a bribe than to impose a broad and expensive standard of recordkeeping on every publicly owned corporation.

4.  If questionable payments are a way of life with some of our trading partners, what is so bad about conforming to accepted business practices in other countries so long as we do not do it at home?

Plenty.  Bribes are morally, ethically and economically wrong.  They create national security problems, distort normal market forces and, by corrupting officials, jeopardize the political stability of friendly nations.  They suffer, and the United States suffers from that ‘way of life.’

5.  Transferring jurisdiction over the act from the Securities and Exchange Commission will insure that bribery of foreign officials will go undiscovered.  After all, the S.E.C. was solely responsible for the disclosure of illegal payments that brought the whole issue to a head in 1975-76.

False.  The S.E.C., under its charter, would continue to police the financial disclosures of American concerns and protect the rights of public investors.  The proposals seek to differentiate between the duties of different Government agencies.  The Justice Department is now responsible for enforcing all criminal penalties but only some civil penalties under the act, leaving the law subject to interpretation by two enforcement authorities.  The changes consolidate under the Justice Department the enforcement authority for all domestic and foreign anti-bribery laws.

6.  The real way to curb bribery around the world is through international negotiations.

True, but don’t hold your breath.  Until now, the United States has had to go it alone.  For six years the United Nations Economic and Social Council and the General Assembly have failed to obtain a commitment by other nations to an international agreement outlawing bribery.  Still, the Administration’s proposals would require the President to pursue international agreements to prohibit illicit payments to foreign officials.  We can strengthen our leadership in attaining international agreements by demonstrating to our trading partners that we have created a stringent yet fair prohibition against bribery without sacrificing exports.

Changing the act is a complex issue, and emotions will run high in the debate.  But the mandate of the American people is clear; a law should be understandable, enforceable and reserve sure and certain punishment for the few who violate it.  As it is now, the act penalizes the innocent more predictably than the guilty, and along with both, our competitiveness in world trade.”

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