Dutch Won't Open Old Lockheed Wound

The leader of the Dutch government has refused to open a new investigation into the role played by Prince Bernhard in the Lockheed scandal that broke in 1976.

The head of the left-wing liberal D66 party, Alexander Pechtold, asked for 'a commission of historians . . .  to bring clarity to the affair after historian Gerard Aalders said Bernhard's involvement was greater than so far thought,' according to DutchNews.

Prime Minister Mark Rutte told Parliament last month he won't authorize a new inquiry.

Bribery scandals involving Lockheed in Holland, Japan, and Italy helped push Congress to enact the Foreign Corrupt Practices Act. President Carter signed the FCPA into law in December 1977.

DutchNews said the Lockheed scandal 'nearly led to the abdication of then Queen Juliana when it broke in 1976. Bernhard had to renounce his military functions in exchange for judicial immunity for taking a $1.1 million bribe from Lockheed fifteen years earlier. He died in 2004.'

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To read more about the FCPA's legislative history, see Prof Andy Spalding's Beyond Balance series.

Beyond Balance V: The Ethical Business Criterion

By Andy Spalding

“A problem well stated is a problem half solved.” So said the American inventor Charles Kettering. In FCPA circles, we’re debating whether and how to fix assorted problems in our anti-bribery regime. But the first step in designing solutions is to state the problem well.  

As is so often the case, the two sides have defined the problem differently: to the business community, the FCPA’s severity deters investment in otherwise promising economies; to the anti-bribery advocates, the continued pervasiveness of global corruption shows that our laws must become more effective, not less.  

But perhaps, upon closer examination, these are not different problems. Maybe they're two ways of looking at exactly the same problem.And if they are, then maybe they call for exactly the same solution.

Like Kettering’s electric automobile ignition, statutes prohibiting the bribing of overseas government officials were invented to solve a well-stated problem. In our case, the problem was unethical business; the solution was a criminal legal regime that incentivized ethical business.

But notice that this solution has two components: 1) ethical; and 2) business. Our aim was to promote both, and to deter neither. We did not want business without ethics; nor did we want ethics without business.  Either one, without the other, fails to achieve the FCPA’s fundamental goal of encouraging political and commercial transparency overseas.  

Today, some complain of a lack of ethics, while others, a lack of business. But this dichotomy proves false -- not because both sides are wrong, but because both are right.  

Reforms, then, should lead to an increase in ethical business. To the extent that a proposed reform would permit companies under FCPA jurisdiction to engage in bribery, it fails this test. At the same time, to the extent that any feature of a current or proposed legal regime induces companies to withdraw from particular projects, or sectors, or countries, it decreases the amount of ethical business and thus also fails this test. And as explained in my prior post, when FCPA-bound companies withdraw, reckless bribe-payers from foreign jurisdictions fill the void. In other words, we cannot promote norms in places we aren’t.  

So I want to suggest that this is the principle criterion by which all reform proposals should be evaluated.  We’ll call it the ethical business criterion. If a proposed reform would increase ethical business, it is good; to the extent that it would deter such conduct, it is not.

Ultimately, we can all agree: the current problem with our anti-bribery regime is a deficiency of ethical overseas business. Kettering teaches that the problem is now half-solved. The remainder may be found -- invented? -- by evaluating various reform proposals by the ethical business criterion. That’s where we’re headed.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance.'

Beyond Balance I can be viewed here, Beyond Balance II here, Beyond Balance III here, and Beyond Balance IV here.

Symposium Will Focus On FCPA

The Ohio State Law Journal's FCPA symposium happens March 16 in Columbus.

Thirty-five years of FCPA history will be celebrated by asking: What are the priorities and goals of the FCPA? Is the FCPA effective and an efficient use of resources? What are the appropriate FCPA risk-management strategies for corporations? What international efforts are being made to fight bribery and corruption? And what are the effects of the FCPA on the global economy and civil society?

(See also Professor Andy Spalding's Beyond Balance series.)

There's more information here.

Symposium editor Katie Linehan can be contacted by email here or at (614) 292-6829.

Beyond Balance IV: New Players, Same Playing Field

By Andy Spalding

Serendipity is a wonderful thing. What better segue from my last posting than Wednesday's announcement that Russia has signed the OECD Anti-Bribery Convention. This is a remarkable and important event. I hope we fully understand why.

When the U.S. enacted the FCPA in 1977, it was the only law of its kind in the world. And we were by and large comfortable at the time in our assumed role as the lone ranger of international commercial bribery. When the question arose in congressional debates of whether the statute would put U.S. businesses at a competitive disadvantage, many testified that it would not. Why? Because, they said, when U.S. companies do business overseas, they are only competing against other U.S. companies. We were, or so we then thought, the only game in town.

How quaint that notion now seems. And indeed, within ten years we would come to see that the U.S. had ceased to be monolithic in international business. In 1988, Congress specifically instructed the President to lobby the world’s other capital-exporting nations to adopt similar laws. We would achieve historic success in 1997 in the form of the OECD Convention. And as my prior post explained, we thought at the time that the OECD encompassed all the major players in international business: the U.S., the U.K., Germany, France, Japan.

And now that notion, too, seems quaint. Just as the global business world was once U.S.-dominated, so too was that world once OECD-dominated. But no more. A prominent Asian anti-corruption activist once described the OECD to me as a “wealthy nations club.” How many of the BRICs are full members? Answer:  none.

All the more important, then, that we bring non-member nations within the anti-bribery fold. But why is it important? We have historically spoken of “leveling the playing field,” but this metaphor is deeply business-centric. If multinational corporations are the players in this supposed game, what then are the countries in which they do business? The spectators? Or the turf?

Indeed, what the business community sees as a “competitive disadvantage” is, from the perspective of a developing country, something altogether more harmful. When companies subject to FCPA jurisdiction lose business they are out-competed, and thus displaced, by companies that are not subject to anti-bribery laws. These companies pay bribes and engage in other socially destructive forms of business conduct without fear of penalty. When companies subject to the FCPA are rendered unable to do business, we leave developing countries to be ravaged by foreign competitors whose own governments don’t much care.

But we should care; those who fought so hard to enact the FCPA in 1977, and to amend it in 1998, most certainly did. And if we do indeed care, what does it mean for FCPA reforms? We’ll go there next.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance.'

Beyond Balance I can be viewed here, Beyond Balance II here, and Beyond Balance III here.

Beyond Balance III: Our Forgotten History, cont.

By Andy Spalding

I previously argued in this space that the contemporary FCPA reform debate is strikingly disconnected from history; both camps seem to have collectively forgotten how we believed the FCPA would operate in the world. Today, the pro-business reformers charge that the FCPA leads to a loss of U.S. business overseas; others counter that any effort make the statute more business-friendly would render the law less effective. But it was not always so; this dichotomy most certainly did not control the original decision to enact the FCPA.

Neither was it true during our last successful reform movement, in 1998. Then, as now, the business community vociferously argued that the FCPA lead to a loss of U.S. business. And then, as now, the incumbent administration and much of the public insisted that we should make the FCPA more effective, not less. But the government’s view of the relationship between fighting bribery and encouraging international business could not have been more different from our own.

Indeed, the official position of the U.S. Government in 1998, much to our surprise today, was that the FCPA did in fact cause substantial losses to U.S. companies. The General Counsel to the Secretary of Commerce, Stuart Eisenstat, and the General Counsel to the Secretary of Commerce, Andrew Pincus, both testified to this effect. (For a more complete account of the legislative history, see "Unwitting Sanctions: Understanding Anti-Bribery Laws as Economic Sanctions Against Emerging Markets," at SSRN here.) Moreover, President Clinton would endorse this very position in his signing statement. The administration provided a very specific number -- by its calculations, U.S. companies lost an estimated $30 billion, each year. And these losses were estimated at a time that preceded the modern enforcement push by five years.

But note that these are not pro-business interest groups and their counsel testifying; this is a presidential administration. And the administration was Democratic; no neo-conservative hawks were these.

So why would the U.S. Government, under a Democratic administration, emphasize the fact that the FCPA was causing at that time a loss in U.S. business? Why would a Government that sought to make the FCPA more effective, not less, trumpet this fact so loudly and in such concerted fashion? The administration was lobbying Congress to amend the FCPA pursuant to our obligations under the OECD Convention. And in doing so the government then recognized, in ways we seem to have forgotten, that an anti-bribery regime should not discourage overseas business. Indeed, they believed strongly, as did the FCPA’s original advocates in 1977, that the purpose of anti-bribery law is to encourage ethical business and not merely to deter bribery. They knew then that an anti-bribery regime which led to a substantial withdrawal of capital from developing countries was, simply put, a policy failure. And they believed we could do better.

Today, the business community repeats the chorus that the FCPA hurts U.S. business, but the government conspicuously does not. Why not? Have we any reason to think that the FCPA would not have a similar effect today? Or have we forgotten how this statute should operate? I’ll address these questions next time.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance.'

Beyond Balance I can be viewed here and Beyond Balance II here.