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In The Words Of J.T. Smith


Future posts will discuss the recently enacted Foreign Extortion Prevention Act (FEPA) and how it turns U.S. anti-corruption enforcement into a muddy mess when the much more practical and simple solution to capture the so-called “demand” side of foreign bribery was to amend the FCPA (see here for suggested FCPA amendments).

Nevertheless, the purpose of this post is to go back approximately 45 years to highlight the policy gap filled by FEPA – a policy gap that has long been recognized.

In the mid-1970’s Congress held numerous hearings over several years to address the so-called foreign corporate payments program. (“The Story of the Foreign Corrupt Practices Act” provides a detailed overview of the FCPA’s legislative history).

Although Congress sought to address the foreign corporate payments problem from a variety of angles, two main competing legislative responses soon emerged. The Ford administration (in office during the early FCPA legislative history) favored a disclosure approach as to a broad category of payments; however, key congressional leaders, as well as the Carter administration (which took office in January 1977) favored a criminalization approach as a narrow category of payments. Despite significant minority concern, the FCPA adopted a criminalization approach as it was viewed as more effective in deterring improper payments and less burdensome on business.

During a 1976 hearing in Congress, J.T. Smith (pictured – General Counsel, Department of Commerce) stated as follows in advocating the Ford administration position:

“[T]he existence of the criminal prosecution would be of some value to an American businessman in resisting improper requests for payments abroad. I don’t believe, however, that it would have as much value as the disclosure requirements, for the following reasons. A would-be foreign extorter who asks for $50,000 to do something of importance to the American company, on the one hand would be told, “I can’t give you that money because if I do I might have to go to jail,” and the extorter says, “That is your problem, bud, but there is no way, your law can reach me.” If you have a disclosure provision and the American businessman says, “If I give you that money, I am going to have to report the payment to the Department of Commerce, possibly to the SEC, and it will therefore be in the public record, and your name will be in the public record.” If we are right that every other country in the world, virtually every other country, has laws against public bribery and extortion, then it is our guess that the extorter will be substantially deterred. We believe that a combination of sunlight and encouragement of other nations to enforce their own laws represents a much more effective way to end corrupt payments than does direct, unilateral criminalization by this country of actions taking place in foreign jurisdictions. We urge the Congress not to substitute tokenism for real action to deal with the questionable payments problem. The danger in such tokenism is that it will create complacency. Congress will wash its hands of an important problem without having taken meaningful, enforceable action.”

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