Congress acted in a typically courageous and American fashion when it passed the Foreign Corrupt Practices Act (FCPA) in December 1977. Designed to regulate the overseas conduct of United States business, the FCPA has been controversial since the day it was passed.
Ironically, this law has undermined US leadership in promoting an international agreement on illicit payments, businesses have found the act difficult to understand, and many have pulled their entire operations out of countries rather than risk unintentional violations of the FCPA. Throughout the world, business and government officials find that the FCPA exacts an exorbitant price in lost trade to deter corruption.
With four years of experience behind us, it is time to amend the act in order to remove the ambiguities which have created needless disincentives to trade. This effort must not be misunderstood. We must set a clear example in the world marketplace -- the United States does not condone bribery, and we can prevent it without slashing away at our international business.
Opponents of FCPA reform assert that the asct has not affected trade, pointing to the fact that US exports have increased since 1977. They typify changes to the act as an example of shutting one's eyes to morality in favor of another break for big business.
A deeper look at the issue shows otherwise. Much of our trade increases over the past four years were facilitated by a "weak" dollar. As the value of the dollar plummeted in the world market, foreign consumers found American products attractive and often cheaper than goods in their own countries.
Meanwhile, ambiguities in the FCPA have cost this country billions of dollars in additional legitimate exports. Using conservative estimates, the Emergency Committee for American Trade (a small independent trade association) has projected $2 billion in losses for its members alone. A General Accounting Office study maintains that businesses have legitimately claimed that the FCPA is "unclear and unreasonable" and has a chilling effect on American exports.
Sen. John Chafee ahs proposed amendments to the FCPA which respond to the trade disincentives documented by both the Carter and Reagan administrations as well as businesses throughout the country. The bill would not weaken the FCPA's tough stand on bribery. Any corporation which bribes a foreign official under the revised act would be subject to a $1 million fine; individuals would face a
The amendments would clarify the act's ambiguous language and enable American firms to understand what is legal and what is not.
For example, the FCPA holds US companies liable should they have a "reason to know" that an agent was planning to make an illegal payment in a foreign country. But there is no legal definition of what constitutes "reason to know".
The proposed amendments drop the FCPA's "reason to know" clause and incorporate language from domestic antibribery law which prohibits corporations from "directing or authorizing" questionable payments outside the United States. Opponents of the Chafee bill characterize this change as an open invitation to corporate malpractice, yet they give no reason why standards judged adequate regarding domestic bribery are inadequate to regulate foreign bribery.
To make US foreign and domestic antibribery laws consistent and predictable, the Chafee bill consolidates enforcement authority in the Justice Department rather than splitting authority between Justice and the SEC. The Justice Department already enforces all criminal aspects of the FCPA and handles all domestic bribery cases.
In addition, the administration would replace the FCPA's costly accounting controls with provisions which make it a crime to falsify books and records for the purpose of concealing illegal payments to foreign officials. Such criminal sanctions link the necessity for firms to show accounting accuracy to the law's antibribery provisions, thus confining cost of compliance to companies that actually export.
Some have argued that these changes in the accounting provisions would eliminate the "paper trail" which led 450 companies to disclose more than $300 million in questionable payments. In reality, US firms voluntarily disclosed these payments before the FCPA became law. It is also unlikely that businesses will turn back their calendars to 1975 and abandon their extensive investments in internal accounting controls -- the costs are too great and the publicity arising from bribery scandals too damaging.
Once the US demonstrates to its trading partners that it can create a reasonable and fair, yet stringent and comprehensive prohibition against bribing foreign officials, it will have set the foundations for an international agreement outlawing bribery.All countries would benefit from such a multilateral arrangement. Illegal payments destroy market forces, and they undermine foreign policy objectives. They are morally wrong.
The administration strongly supports the Chafee bill as an important step toward restoring the balance between government's responsibility to protect the people and the private sector's ability to compete in foreign markets within the bounds of a comprehensive US law.