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Consequences Unintended: Does the FCPA Actually Increase Corruption?

By Ashby Jones

Yes, okay, so the Federal Corrupt Practices Act makes intuitive sense: We don’t want U.S. companies helping prop up corrupt regimes by making payments to facilitate overseas business ventures.

But is that really the law’s effect? In Thursday’s Law Journal column, the WSJ’s Dionne Searcey raises the question. Some skeptics, Searcey reports, are pointing out potentially unintended consequences of the initiative that they say could actually cause corruption to proliferate in emerging markets.

Take, for instance, the opinion of Andy Spalding, a Fulbright scholar in India and former securities-fraud lawyer in Washington. Spalding studying the impact of the FCPA in emerging markets, and says enforcement of the act might be deterring corporations from investing in developing countries where corruption is rampant and bribes are commonly sought.

As a result, if U.S. corporations stop investing in emerging markets, then other nations that anticorruption advocates say aren’t as committed to fighting bribery will step up their investments, he says.

“These ‘black knights’ will move in to fill the void,” writes Spalding in a recent paper. “The world economy could slowly begin to bifurcate into two economies: one in which bribery is tolerated and one in which it is not.”

Such a view hasn’t swayed the DOJ, however. The department, along with the Securities and Exchange Commission, has used the FCPA to levy record fines and penalties against large and small multinational corporations. At least 120 companies were being investigated for FCPA violations as of this spring. Federal officials also say they have encouraged other nations to adopt their own antibribery laws.

That said, Spalding’s isn’t the only criticism of the law. Others say the law is too vague. Some bribery experts, for example, say the FCPA doesn’t specify how much money constitutes a bribe; corporations are left to guess whether springing for a $100 dinner could land them in trouble.

“If a company has decided to take the risk of going into a very opaque and corrupt market, give them all the tools you can,” says Alexandra Wrage, president of Trace International Inc., a nonprofit Washington consultancy specializing in antibribery compliance.

Full post as published by Law Blog - WSJ.com on August 06, 2009 (boomark / email).