The Foreign Corrupt Practices Act: Clarification Is Not Enough

Originally published at Cato Institute by Walter Olson | November 11, 2011

The Foreign Corrupt Practices Act, enacted in 1977 and the subject of a high‐​profile federal enforcement campaign in recent years, is a feel‐​good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage. It is extraterritorial, purporting to punish overseas misdeeds which deprive no Americans of liberty or property and whose punishment is better left in the hands of authorities elsewhere. It is vicarious, inflicting massive liability on businesses and unknowing higher‐​ups over the actions of rogue local subsidiaries, salespeople and facilitators. It is punitive, menacing its targets with twenty‐​year prison terms and inflicting huge penalties over less‐​than‐​huge misbehavior. And finally, it is vague, leaving companies to guess at the proper line between tolerated payments (e.g., gratuities to speed up visa and license issuance in developing countries) and improper “bribes,” and even such basic questions as who counts as an “official.” In the face of a mounting outcry from the business community, the Obama administration has now finally conceded that there is some validity to this last point, and Criminal Division chief Lanny Breuer says the Department of Justice will develop guidelines to provide greater clarity as to what it believes the law does and does not forbid. Better than nothing, but why not consider the case for wider reform or even repeal?

To begin with, it’s hardly as if the law has succeeded in cleaning up the climate of official corruption that afflicts so many ill‐​governed countries around the globe. It does, however, confer a huge competitive advantage on companies not within the reach of the U.S. Department of Justice, above all those of China, which does not even pretend to apply similar rules to its overseas enterprises, and also including Europe, which has mostly chosen to address the problem in less adversarial ways. (See, for example, this Economist editorial on Britain’s FCPA‐​equivalent.)

Chicago‐​Kent law professor Andy Spalding has argued that the FCPA in fact amounts to a form of unintended economic sanctions against developing countries, sometimes with “tragic” and anti‐​humanitarian results. Guest‐​posting at PrawfsBlawg, Spalding offered the example of India, where a poor rural population stands in desperate need of roads:

India lacks the financial and administrative (or authoritarian?) capacity to build the needed roads, so it has aggressively solicited outside investors. Nonetheless, of all public requests for road construction proposals in India, almost half receive absolutely no bids. No one is willing to build these roads, at any price. Why aren’t more U.S. construction companies seizing this profit opportunity? Answer: corruption. The infrastructure sector is notoriously corrupt; the FCPA risks are far too high.

Query: if the criminal penalties now associated with FCPA enforcement have made the costs of building roads in developing countries prohibitive, such that roads aren’t built, farmers can’t sell, and kids can’t eat, have we done the right thing?

More on FCPA at Overlawyered and at my former website Point of Law.