Foreign Corrupt Practices Research Articles

The Deterrent Effect of Anti-Bribery Law Enforcement on the Quality of Earnings

This paper studies the effect of anti-bribery enforcement on the accrual quality of investigated firms and their peers. We analyze a hand-collected sample of 241 bribery cases investigated under the US Foreign Corruption Practices Act (FCPA) over the period 1978-2015. Exploiting the disclosure of anti-bribery law enforcement actions, we document a positive effect on the accrual quality of investigated firms’ peers, but not the investigated firms themselves. Additional tests document that this positive effect is significant only for cases revealed before 2005, when the prosecutors developed their enforcement activity and the use of alternative resolution vehicles. Our results show a positive impact of anti-bribery law enforcement that incentivizes peer firms to enhance their accrual quality once they acknowledge bribing behavior in their industry.

Walmart de Mexico and the Foreign Corrupt Practices Act: Stepping Over the Border and Stepping Over the Line

This case examines the allegations of bribery of government officials by Walmart’s Mexican subsidiary and the subsequent investigation carried out by the U.S. Department of Justice. The primary subject matter of the case is the Foreign Corrupt Practices Act (FCPA) and the potential lack of effective leadership. The case reviews the important components of the FCPA, looks into the specific acts of potentially illegal behavior in Mexico and the United States relative to the incident, and proposes the question of how Walmart could have handled the situation more effectively. The case provides a view into potential pitfalls MNCs encounter when conducting business in developing countries with differing ethical standards.

The Virtue of Common Ownership in an Era of Corporate Compliance

Recent years have seen a tremendous rise in common ownership, a structure in which large institutional investors — such as BlackRock, Vanguard, State Street Advisors and Fidelity — have significant holdings in corporations that are horizontal competitors. Common ownership has long been the topic of scholarly debate with many scholars traditionally arguing that common ownership presents antitrust problems. Rather than enter into the antitrust debate, this Article argues that common ownership presents tremendous virtue for corporate governance, and more specifically — corporate compliance. In recent years the Department of Justice (DOJ) and other enforcement authorities have increasingly directed their resources towards enforcing laws that are typically oriented to specific industries, such as healthcare (pharmaceuticals), financial and energy industries, or geographic areas. These laws — including the Foreign Corruption Practices Act (FCPA), False Claims Act (FCA), Bank Secrecy Act, as well as laws and regulations aiming to prevent Money Laundering, Environmental and Anti-Trust violations — expose companies associated with specific industries to tremendous legal risks — which I term macro legal risks. This Article argues that institutional investors who hold shares in corporations in line with the common ownership structure are uniquely positioned to enhance the compliance of those corporations with industry-oriented laws, and to minimize exposure to macro legal risks. Institutional investors who invest in corporations that operate in the same industry, can take advantage of three interrelated merits of common ownership: (1) enhanced incentives for monitoring compliance of corporations with industry-oriented laws and accordingly, minimize macro legal risks, (2) privileged access to rulemaking and lawmaking, and (3) experimental learning of macro legal risks. These merits allow them to better monitor corporations in which they invest and practice effective corporate governance and compliance. The incentives of institutional investors increase due to increased aggregate exposure to problems affecting a certain industry, and the difficulty of responding to these problems decreases as institutional investors are able to apply a one-size-fits-all approach to these problems, rather than develop individualized solutions for specific corporations. This Article provides concrete examples of institutional investors’ engagement with companies regarding macro legal risks, reflecting their enhanced incentives. Due to their status as major asset holders, institutional investors develop close relationships with regulators and lawmakers, giving them a chance to influence regulation beyond the normal notice and comment process and anticipate trends in law and regulation. This Article provides examples of how institutional investors engage in dialogue with regulators in an attempt to assist in the rulemaking process. Finally, as a result of their wide holdings, institutional investors can apply knowledge gained in investigations and enforcement proceedings against a corporation, to prevent this from happening to other corporations within the industry. This Article is the first to analyze the benefits of common ownership in the area of corporate governance and more specifically corporate compliance, and to bridge the compliance literature with the institutional investor literature. This Article argues that in an era of increasing enforcement based on industry-oriented characteristics, institutional investors who invest in line with a common ownership structure, will become more active in overseeing corporate compliance and more effective in minimizing corporate wrongdoing.

ILLEGAL CORPORATE BRIBERY: THE PRESSURE TO “MAKE DO” AND ACHIEVE GOALS

Using a sample of firms prosecuted under the Foreign Corrupt Practices Act (FCPA) we examine how investments to produce more sought-after offerings and firm performance relative to aspirations are associated with propensity to engage in illegal bribery. Results suggest that investments in marketing and R&D reduce the incidence of bribery. Performance improvements decrease the incidence of illegal bribery for firms performing above aspirations, but increase it for those performing below aspirations. Jointly the results suggest that managers in firms pushing to achieve nearby goals who must “make do” should be most on guard against the pressure to engage in bribery.

Managers’ use of language in corrupt firms’ financial disclosures: Evidence from FCPA violators

This paper explores management’s use of language in financial disclosures of corrupt firms by looking at a sample of firms that have been prosecuted for violating the Foreign Corrupt Practices Act (FCPA). We find that the management of FCPA violators use more negative, less litigious, more complex and less conservative language when disclosing financials than non‐violators. The language effect prior to an FCPA prosecution is driven by firms with low corporate governance performance. By contrast, firms with high corporate governance use less complex and more conservative language before an FCPA prosecution than firms with low corporate governance performance. Furthermore, we find that after an FCPA prosecution the language becomes less litigious and complex than before the FCPA litigation.

US Securities and Exchange Commission’s announcement of chief of Foreign Corrupt Practices Act unit signals possible anti-bribery enforcement focus on non-United States issuers

PurposeThis paper explains how recent statements by the US Securities and Exchange Commission’s (SEC’s) leadership – including the new Chief of the SEC’s Foreign Corrupt Practices Act (FCPA) Unit – signal the American regulator’s intent to “level the playing field” by stepping up its investigations and enforcement of companies worldwide and what non-US issuers can do to prepare.Design/methodology/approachUses information included in the announcement naming Charles E. Cain as Chief of the SEC’s specialized FCPA Unit to lay out an argument that the Unit’s priorities may focus more on non-US companies than US companies.FindingsBased on past statements and written accounts made by Mr Cain, and with the tacit support of other senior SEC officials, it can be assumed that non-US companies will experience additional scrutiny from the SEC, in the name of leveling the playing field. Furthermore, it can be assumed that the SEC will place additional pressure on anti-corruption regimes in other international jurisdictions to do their part in combatting corruption.Originality/valueThis paper is of value to personnel within non-US issuers who are responsible for creating and enforcing their organization’s anti-bribery or anti-corruption policies and internal controls. It is also of value to legal counsel interested in developing an understanding of the current priorities of the SEC as far as the FCPA is concerned.

A Proposed Amendment to the Foreign Corrupt Practices Act to Crack Down on Corruption in the Environmental Crime Scene

Corruption in the global, political and economic systems and the exploitation of natural resources account for many of the world’s most extreme cases of environmental injustice and human rights abuses. Corruption can be considered a catalyst for environmental crime because it plays an important role in signing and forging import and export certifications, unlawfully clearing customs, issuing licenses, facilitating fraudulent trade and the transportation of illicit goods and “turning a blind eye.” Environmental crime is one of the most profitable forms of criminal activity, generating profits in the amount of tens of billions of dollars for criminal enterprises each year, and it is vastly expanding. A disproportionately high percentage of environmental crime occurs in disadvantaged communities that lack sufficient resources to prevent the crime or impose penalties on the perpetrator. The FCPA contains an exception for “routine governmental action” — more commonly referred to as the “facilitating payments” or “grease payments” exception — which is a highly debated topic within FCPA law because it is difficult to distinguish an act that is “ordinarily and commonly performed” from an act that would be deemed “part of the decision-making processes.” This loophole has led to a “gray area of corruption” because it has effectively blurred the distinction between acceptable facilitating payments and illegal bribes. Environmental regulation in any country gives rise to opportunities for exchanges between government officials and individuals in the private sector, and each point of contact creates an opportunity to pay a bribe or seek improper influence. Many of the payments made to foreign officials throughout these standard regulatory processes or procedures fall within this “gray area of corruption.” This Article proffers a proposed amendment to the FCPA that repeals and replaces the facilitating payments exception and requires the DOJ’s Attorney General to develop a comprehensive strategy to combat corruption in the context of environmental crime.

Introduction: towards a better understanding of corruption and anti-corruption

Despite widespread interest in corruption and how to root it out, the problem continues to grow. Anti-corruption strategies and methods have proved ineffective in achieving lasting reductions in corruption. Anti-corruption academic research has not been free of criticism, and part of the problem is its emphasis on macro-level analysis. The case studies in corruption and anti-corruption in this symposium focus on specific areas that have received surprisingly little attention in the literature: the effectiveness of political finance supervisory bodies; the impact of European Union post-conditionality on anti-corruption efforts; and the increased use of the Foreign Corrupt Practices Act (FCPA) in shaping the way that corruption is conceptualised and combated on a global scale. Together, the articles in this symposium offer some novel insights and approaches to the issue of how best to understand and assess different ways of addressing corruption in specific sectors which have received insufficient attention in the literature to date.

Foreign Corrupt Practices Act Continuity in a Transition Year

With the election of Donald Trump as President and based on citizen Trump’s prior blunt statement that the FCPA is a “horrible law and it should be changed,” some apprentice commentators predicted that the FCPA “is likely to be substantially weakened, perhaps even repealed” and that “the era of vigorous FCPA enforcement… is over.” However, those hyperventilating regarding the FCPA’s future were encouraged to take a deep breath, focus on facts and enforcement fundamentals, and realize that the FCPA was not going away and that FCPA enforcement was not going to substantially change. While 2017 enforcement did not eclipse 2016’s record breaking year of enforcement (after all, records can’t be broken every year), this article highlights that in 2017 there was a continuation of robust FCPA enforcement by the Trump administration involving the same enforcement theories and same resolution vehicles used in prior administrations. Like prior years, 2017 was notable for enforcement actions against business organizations across a wide industry spectrum, involving conduct around the globe, and ranging from egregious instances of corporate bribery executed at the highest levels of the company and involving hundreds of millions of dollars to garden variety allegations of sports tickets, internships for family members of alleged foreign officials, and charitable donations. In addition, 2017 was also notable for enforcement agency policy and related developments including the Department of Justice’s announcement of an “FCPA Corporate Enforcement Policy.” This article, part of a continuing yearly analysis of FCPA enforcement and related developments, provides a detailed overview of 2017 FCPA enforcement and related developments and will be of value to anyone seeking to elevate their FCPA knowledge.

Banning Bribes Abroad: US Enforcement of the Foreign Corrupt Practices Act and its impact on the global governance of corruption

The USA vigorously enforces its Foreign Corrupt Practices Act (FCPA), increasingly on an extraterritorial basis. The application of the FCPA to persons and circumstances outside the territory of the US shapes international anti-corruption efforts in ways that may run counter to effective governance practices and meaningful anti-corruption reform in the global economy. This short essay explores three aspects of FCPA enforcement which detract from the broader goals of global anti-corruption governance: the narrow conception of corruption upon which the FCPA is based, the strategic trade frame which underlies the FCPA’s internationalization, and the legitimacy problems these raise.

Global corporations, bribery and corrupt practices: Anti-bribery laws and the limits of state action

The regulation and control of bribery and corrupt practices by globally active corporations has become a matter of increasing concern in recent years. For many years the US Foreign Corrupt Practices Act (1977) has stood as a model for other countries. Other countries have been slow to introduce improved anti-bribery laws and have often only been prompted to review their laws and practices in this area as a result of major corporate scandals. The passage of the UK Bribery Act (2010) has now provided a more broad-ranging model that has built upon prior experiences, such as in the USA, as well as upon advances in regulatory theory. Multilateral efforts, such as by the G20, have also become more important in encouraging countries to enhance global anti-bribery mechanisms. This paper critically examines this national and multilateral regulatory experience and discusses difficulties that individual states, such as Australia, have had in responding to the need for more effective anti-bribery laws and enforcement mechanisms.

Calculating Corporate Compliance & The Foreign Corrupt Practices Act

Technology is rapidly disrupting every industry and institution around the globe. Yet, corporate compliance has remained relatively unaffected by technological change when compared to other industries. If firms continue to lag behind in their compliance efforts, their risk exposure to the potentially lethal sanctions associated with major compliance failures will continue to increase with time. This is particularly true in the context of the Foreign Corrupt Practices Act (“FCPA”). Generally, the FCPA is a regulatory statute that forbids bribery and false accounting for domestic firms doing business abroad. And, in the past decade the DOJ and SEC have begun aggressively enforcing the FCPA. Firms should begin using technology to develop more robust and cost-efficient compliance programs in order to insulate themselves from the FCPA’s harsh penalties. This paper provides an algorithm that allows firms to evaluate and improve their compliance programs in accordance with several published sources of guidance. Compliance scholars have made clear that it is critical for firms to maintain strong corporate compliance programs and have suggested different models and frameworks for internal evaluation and auditing. However, those suggestions fail to consider how technology may be used to improve the cost-efficiency of corporate compliance & ethics programs. This paper takes an informatics based approach to evaluating and improving firm compliance by focusing on the most important compliance functions according to the DOJ, courts, and other Government actors. Indeed, firms may drastically improve the cost-efficiency of their compliance efforts by adopting the analytical framework proposed in this paper.

"Declinations with Disgorgement" in FCPA Enforcement

This Article addresses the recent pretrial diversion scheme undertaken by the Department of Justice in conjunction with its Foreign Corrupt Practices Act Pilot Program—specifically, “declinations with disgorgement.” Pursuant to the Pilot Program, the Department of Justice declined to prosecute or even continue an investigation, provided the company disgorge its alleged ill-gotten gains. This Article dissects both the purpose of, and terminology used in, declinations with disgorgement and argues that this novel and creative pretrial diversion is a dangerous conflation of legal remedial theories and terms. A criminal disposition cannot be a declination with attendant penalties because either illegal activity occurred or it did not; prosecutorial discretion does not allow an “in-between” option of declination while simultaneously requiring disgorgement. Calling these dispositions “declinations” and the penalties associated therewith “disgorgement” is a wild misuse of the terms, which creates a crisis in the expressive function of the Foreign Corrupt Practices Act and in the legal lexicon itself.

Honest or Excluded?

This article analyzes two corruption data sets through the lens of gender: defendants convicted under the criminal anti-bribery provisions of the Foreign Corruption Practices Act, and defendants convicted of federal anti-corruption crimes while serving on the Chicago City Council. In both instances, the data points to a much larger number of convictions of men than women. While a single cause is difficult to pinpoint, perhaps the most compelling explanation is that social norms associated with gender provide women with fewer opportunities for corruption. By contrast, the homophily of patronage networks, long cited as breeding grounds for corruption, has for generations favored an old boys club that gives rise to more men engaging in corruption than women.

Comparative Analysis of Internal Control System in USA, Japan and Korea

The internal control system is an essential process to maintain and manage an organization. It helps an organization achieve its goal by containing risks that might affect its accomplishment of the goal. The system is considered increasingly important as it is a fundamental procedure to protect a company’s asset by detecting and preventing irregularities and malpractices. This research compares and analyzes laws and regulations pertaining to internal control systems in the U.S., Japan, and Korea and their key elements. The research result is as described below. The U.S. was the first country to establish laws and regulations on corporate internal controls in order to improve its law enforcement and public disclosure guidelines. The U.S. Securities and Exchange Commission (“SEC”) played a leading role in establishing the Foreign Corrupt Practices Act (“FCPA”) to prevent accounting irregularities of the U.S. companies. The Model Business Corporation Act (“MBCA”) provides basic guidelines of internal controls and stipulates that the board of directors meeting shall be responsible for building and operating the internal control system. Moreover, the Act practically enforces practical control over companies in the U.S. by stipulating compulsory internal control (including com- pliance issues) in the listed company manuals of the stock exchange. After that, Sarbanes-Oxley Act (“the SOX Act”) was established to have management and external auditors responsible for internal control in a stronger and stricter manner. The SOX Act provides regulations on accounting, corporate governance, and audit, encompassing all three areas of internal control covered in Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) report. Japan introduced regulations on establishment of the internal control system in its Corporate Act of 2005. Afterwards, due to the unlawful acts of Japanese companies, articles and provisions concerning internal control system were stipulated in the Financial Instruments and Exchange Act (“FIEA”). In particular, establishment of the internal control systems is a legal requirement in Japan’s Corporate Act. According to the Act, every large company in the country shall establish an internal control system and issue a public disclosure on the operational result of the system. Where the operation is considered inappropriate, the system shall face an audit. Japan’s Corporate Act categorizes companies in three major groups; companies with board of directors meeting, those without the board, and other companies with committees. It is to specify the responsibility of directors for internal control. The enforcement decree of the Corporation Act specifies matters concerning the compliance management system, for instance directors’ performance of duty shall be in compliance with laws, regulations, and the articles of incorporation. Moreover, FIEA regulates internal control only in terms of corporate accounting, such as reliability of financial reporting. Hence, the definition of internal control suggested by the Corporation Act and FIFA is different from each other and the discrepancy has led to some controversies. Japan reckons internal control as an integrated framework, similar to as suggested by the COSO report of the U.S. issued in 1992. In line with the context of the COSO report, Japan is trying to reflect circumstances of local companies in its legal system. As such, there are some differences in the relevant laws of the U.S. and Japan. The SOX Act of the U.S. largely focuses on financial reporting in regard of internal control, while internal control function is dependent on the monitoring of the board of directors. However, Japan’s Corporate Act mandates large companies and companies with committees to make financial reports on their internal control system as well as ensures the companies lawfully and efficiently perform their business. Korea has broader regulations about internal control in finance related laws including the Financial Investment Services and Capital Markets Act and the Act on External Audit of Stock Companies. Finance related laws already have articles about internal control standards and compliance officer system. But it was only April 2011 that the Commercial Act of Korea stipulated compliance control standards and compliance officer system. Hence the Act includes only compliance control standards, not internal control standards for companies. To establish the internal control system, a clear definition on internal control organizations shall be established to ensure independence of their status and duties. In addition, an effective internal control system has to be installed, including internal control criteria. At the same time, the management of companies and financial institutions should have strong commitment to actively establish and operate the internal control system. This research limits its study scope to comparison and analysis of internal control related regulations and key factors in the U.S., Japan, and Korea and suggests indications from the analysis result. A following research will provide an empirical study based on the result of this research.

The Political Economy of the Foreign Corrupt Practices Act: An Exploratory Analysis

Critics of the Foreign Corrupt Practices Act (FCPA) have frequently claimed that it puts U.S. firms at a competitive disadvantage. This critique suggests that the beneficiaries of FCPA enforcement are foreign competitors of U.S. firms, and foreign economies that suffer fewer of the inefficiencies associated with corruption. Yet enforcement of the Act has increased dramatically since it first passed in the post-Watergate, anti-corruption era. If the FCPA really promotes foreign interests over the interests of U.S. firms doing business abroad, and if there are no obvious domestic beneficiaries of aggressive enforcement, why have domestic business interests been unable to push back successfully against growing enforcement? This paper suggests several reasons why the adverse effects of FCPA enforcement on U.S. business may be considerably smaller than some FCPA critics suggest, and why significant numbers of U.S. firms may actually benefit from enforcement. Our hypotheses find support in Congressional testimony, business surveys, and interviews with prominent FCPA practitioners and compliance officers.

Review on US Foreign Corrupt Practices Act from a Realist Perspective - Domestic Implications and Countermeasures -

Review on US Foreign Corrupt Practices Act from a Realist Perspective - Domestic Implications and Countermeasures -

China's Anti-Corruption Crackdown and the Foreign Corrupt Practices Act

China’s highly publicized crackdown on corruption may affect the type and number of cases in China that arise under the Foreign Corrupt Practices Act (“FCPA”), but it should not be assumed that the crackdown will necessarily lead to fewer FCPA prosecutions. Although there is some overlap of the goals of China’s corruption crackdown and the goals of the FCPA, China’s crackdown also serves important goals of the ruling Communist Party. The main goal of the current crackdown is to reinforce the Party’s power by targeting enemies and rivals of the current leadership. The crackdown is not aimed at prohibiting bribes given to foreign officials for the purpose of obtaining business; however, the FCPA is aimed at proscribing these types of bribes. As a result, while the crackdown may deter some types of FCPA cases from arising in China, other types of cases will be unaffected or may even increase.

The Foreign Corrupt Practices Act Turns 40

As Walmart’s business has been changing, the company has also evolved and changed in our corporate governance. In 2012, the company started a significant effort to enhance our ethics and compliance programs. Prior to that time the company maintained separate compliance efforts in different countries. For example, Walmart’s business in the United States had a well-developed compliance program. The company had separate compliance-related activities and personnel in our businesses in Canada, China, Mexico, and elsewhere. All of these compliance programs operated independently of each other, reporting to their local business leaders.

The Impact of the Foreign Corrupt Practices Act on Competitiveness, Bribery, and Investment

The Foreign Corrupt Practices Act (FCPA) prohibits U.S.-related firms from making bribes abroad. We analyze the FCPA’s effects in a model of competition between a U.S. and foreign firm for contracts in a host country. If the FCPA only applies to the U.S. firm, it reduces that firm’s competitiveness and either increases bribery by the foreign firm or reduces overall investment. If the FCPA also applies to foreign firms, it reduces total bribery, and in host countries with high corruption levels, it increases total investment. The model suggests that the FCPA will deter bribery and stimulate investment while not disadvantaging U.S. firms if its enforcement is aimed at firms who engaged in bribery in highly corrupt countries and whose main competitors are also subject to the FCPA.