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International Law

: The FCPA Blog

Those Are Fighting Words

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Whoa. Did that guy just say the Foreign Corrupt Practices Act causes corruption and hurts poor people? What kind of person would talk that way? Doesn't he know how the FCPA spreads the good news of American business ethics to the four corners of the planet? That he's attacking a law that, as Jeffrey Garten once told us, falls into the same category as mom and apple pie?

But here's the thing. The guy doing the attacking (OK, the scholarly analysis) has made a good case for his argument. He's Andy Spalding -- a well-mannered and generous lawyer on a year-long Fulbright Research Grant in Mumbai, India. We heard from him earlier this week:

Dear FCPA Blog,

I am a lawyer from D.C. currently studying the impact of the FCPA on emerging markets. I am working on a law review article that develops some of my thoughts, and I would love to hear your (and your readers') reaction.

My paper picks up an idea that economists have been batting around for about fifteen years -- that FCPA enforcement doesn't just deter bribery, but actually deters investment in countries where bribery is perceived to be more common. I argue that we should therefore understand FCPA enforcement as de facto economic sanctions, and that these sanctions have most often targeted emerging markets. This raises a number of ethical, economic, and foreign policy problems, as I discuss.

You might find the chapter on legislative history interesting (as might your readers). There is a lot of material there that, as far as I know, has not been developed in the law review literature and that might be helpful in briefs and such. I invite anyone to use it.

Best regards,

Andy Spalding

The paper itself is all that he says it is, and more. He looked at the 125 enforcement actions since the FCPA's inception (his count). Only nine, or 7%, involved developed countries, whereas more than "two-thirds of all FCPA violations ? 85 instances, or 68% of the total ? have occurred in emerging markets, as defined today by Standard & Poor?s." And he found that as FCPA enforcement goes up, foreign investment from the U.S. and other compliant countries goes down.

His conclusions: The FCPA scares clean money away from the most corrupt nations, opening the door to investments by "capital-rich countries that are not committed to effectively enforcing anti-bribery measures." Think China in Africa, Latin America, and Central Asia, for example. So the patterns of FCPA enforcement, he says, amount to undeclared economic sanctions against developing countries, which in turn send them deeper into corruption and poverty. "The FCPA is thus revealed to be a large-scale study in the law of unintended consequences," he says.

That's right. The paper is a real mind-bender. Download it from SSRN here and let us know what you think. We'll be coming back to this topic sometime soon.

By the way, in footnote 199, the author levels a rather serious charge against The FCPA Blog. He calls our posts on respondeat superior "balanced and sophisticated." We forgive you, Andy.
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Full post as published by The FCPA Blog on July 08, 2009 (boomark / email).