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Academic

: Conglomerate

The FCPA as Trade Sanction

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

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Andy Spalding is spending the next year as a Fulbright Scholar at the University of Mumbai in India, where he will be studying corruption in international business. His first offering is a reconceptualization of the Foreign Corrupt Practices Act, the Watergate-era anti-bribery statute that many of us touch upon in Business Organizations. In Unwitting Sanctions: Understanding Anti-Bribery Legislation as Economic Sanctions against Emerging Markets, Andy argues that the statute should be viewed as a trade sanction, and that perspective leads to some interesting insights. Here is the abstract:

Although the purpose of international anti-bribery legislation, particularly the U.S. Foreign Corrupt Practices Act, is to deter bribery, empirical evidence demonstrates a more problematic effect: in countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment. Drawing on literature from political science and economics, this article argues that anti-bribery legislation, as presently enforced, functions as de facto economic sanctions. A detailed analysis of the history of FCPA enforcement shows that these sanctions have most often occurred in emerging markets, where historic opportunities for economic and social development otherwise exist and where public policy should encourage investment. This effect is contrary to the purpose of the FCPA which, as the legislative history shows, is to build economic and political alliances by promoting ethical overseas investment.

These perverse and unanticipated consequences create two policy problems. First, the sanctions literature suggests that the resulting foreign direct investment void may be filled by capital-rich countries that are not committed to effectively enforcing anti-bribery measures. This dynamic can be observed, for example, in China's aggressive investment in Africa, Latin America, and Central Asia, and creates myriad ethical, economic, and foreign policy problems. Second, by enforcing these laws without regard to their sanctioning effects, developed nations are unwittingly sacrificing poverty reduction opportunities to combat bribery. The paper concludes with various proposed reforms to the text and enforcement of international anti-bribery legislation that would further the goal of deterring bribery without deterring investment.

Full post as published by Conglomerate on July 06, 2009 (boomark / email).