Charting The FCPA

"Cash crunch could result in more corruption cases," says a headline in the current Financial Week (available here.) In the article, Steven Tyrrell, the head of the Justice Department's fraud section, says the credit crisis may produce a crop of additional Foreign Corrupt Practices Act cases. The targets this time would be banks and others that went looking for cash from sovereign wealth funds in exchange for favors rendered to the host-country's rulers.

"Mr. Tyrrell," the article says, "noted the recent boom of sovereign wealth funds is an area at the top of the Justice Department’s hit list, though it has not yet garnered any definitive cases."

We've never seen empirical studies on the subject, but we've noticed that FCPA cases generally spring from industries that deal in scarce commodities -- whatever those happen to be at any moment in history. It could be energy, telecommunications licenses, access to hospital patients, metals, food, cash and so on.

Wherever buyers are scrambling for supply, sellers have opportunities to squeeze them. Rising energy prices over the past decade, for example, increased the leverage corrupt oil-producing countries could exert over foreign buyers. In her excellent book, Bribery and Extortion, Alexandra Wrage talks about corruption in Nigeria's ruling family during the energy and metals boom. The story is grotesque, and the scenario was repeated in resource-rich, governance-poor countries around the globe. The pressures in energy-related markets eventually resulted in many FCPA enforcement actions, culminating in Jack Stanley's shocking guilty plea last month.

These days, a commodity in short supply is cash. Sovereign wealth funds have it and banks need it. Will the financial institutions succumb to market pressures? Will they abandon FCPA compliance to save their balance sheets? Some might, as the DOJ's Steven Tyrrell predicts. And if that happens, pin-striped tragedies are sure to follow.

We don't have empirical evidence for this one either. But we're fairly certain that anyone who has ever occupied a jail cell because of an FCPA offense wishes they'd complied instead.

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Comments

[Anonymous]

I have a question about how DOJ and SEC provide numbers of prosecutions/enforcement actions for a particular year. First, when they say 2008, is it fiscal year (e.g., Oct. 2007-Oct. 2008) or calendar year? Second, do you know what they count as an action? I assume it is any indictment, plea agreement, DPA/NPA/or (in the case of the SEC) settlement or enforcement action filed, but not sentencing? Thanks, your blog is a tremendous resource.