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Entries in Andy Spalding (56)


The Good Bribes

Lawyer and Fulbright Scholar Andy Spalding: The idea that deterring bribery must always be good is too simple.Yesterday's post about corruption's positive influence in poor, unfree countries brought the following comment from Andy Spalding. He's a lawyer on a year-long Fulbright Research Grant in Mumbai, India whose own view of anti-corruption laws has caused a stir.

Here's what he said:

Dear FCPA Blog,

I was delighted to read yet another article in our field written in the ever-important vein of constructive criticism.  For those of us who support the FCPA, it is tempting to categorically dismiss the suggestion that in some economies, some of the time, bribery may actually promote development.  But I'm not sure that this is the right response, for at least two good reasons:

1.  This idea has been around for a very long time.  As Carden and Verdon readily admit, theirs is a new permutation on an idea that has circulated in mainstream economics and political science for over forty years.  It grew out of the study of Soviet bureaucracy, and many of us lawyers who took undergrad majors in poli sci, econ, or history, may at least vaguely recognize names like Samuel P. Huntington.  This idea is not new, and it's not radical.  We would do well to see the FCPA, and the problem of corruption, in a broader context of human experience and intellectual inquiry.

2.  Hasn't the FCPA community understood this since 1988?  That was the year that we amended the FCPA to include the affirmative defense -- which some find counter-intuitive, or worse -- for facilitating payments.  How many of us have had the experience of describing this defense to non-lawyers in a compliance seminar, a meeting with clients, or around the dinner table, only to be met with chuckles of astonishment? The non-FCPA world believes that "a bribe's a bribe," and so did we when we originally drafted the FCPA in the mid-70s.  But ten years of experience taught us otherwise.  For those of us today who endorse the affirmative defense -- who do not believe it is a "loophole" that should be abolished, but instead strikes an important balance -- haven't we tacitly accepted at least some version of Carden and Verdon's thesis? 

We may tend to assume, perhaps unconsciously, that if bribery is bad, then deterring bribery must always be good; the logic is seductive in its simplicity.  But as Holmes taught, "the life of the law has not been logic; it has been experience."  Experience in bribery-prone countries, with all its irony and tragedy, teaches us that though bribery is indeed bad, the alternative may sometimes be worse.  Those who amended the FCPA in 1988, and myriad observers of the human condition dating much further back, understood this regrettable fact.  In today's prosecutorial zeal we may try to ignore it, but those who live and work under corrupt and inefficient regimes cannot escape it. 

With thanks,
Andy Spalding


Graft Is Good, Sometimes

Profs Art Carden of Rhodes College and Lisa Verdon of Florida State, both economists, asked: When is corruption bad for economic growth? When is corruption good for economic growth? (It wouldn't occur to us to ask the second question; that's why we read what smart people have to say.)

Carden and Verdon surveyed the literature, analyzed studies and examples that might reveal clues -- there's not much meaningful data about corruption because it usually happens in secret -- and came to some thoughtful, if unpleasant, conclusions.

In their August 2009 paper, they argue that in some circumstances, graft can actually create beneficial change. In a healthy economy, they say, corruption is bad -- it's like sand in the gears of society. But in poor and undemocratic countries, corruption can be oil in the gears. It can help bring change and economic progress. It can be a substitute for freedom by allowing entrepreneurs to beat red tape and get things done.

Here's what they say:

In relatively poor, un-free countries, corruption can overcome some of the barriers presented by formal and informal institutions that would otherwise restrict trade. Bureaucracies and regulators are in a position to exercise veto power over mutually beneficial trades—they can prevent people from picking up the bills left on the sidewalk, so to speak, and thereby reduce specialization, trade, and growth. When this is the case, corruption can increase economic growth by allowing trade.

They cite others who, looking at data from countries such as Zaire, South Korea, and the Philippines, conclude: Corruption is always detrimental in countries where institutions are effective, but it may be positively associated with efficiency in countries where institutions are ineffective.

Does it mean the Foreign Corrupt Practices Act is bad for those places that are the worst off? Are we missing what Carden and Verdon and other scholars would call the "cultural context" of corruption? Do anti-corruption laws like the FCPA and other OECD versions promote suffering in the least developed countries by preserving a miserable status quo? Is America making a cosmic mistake with the FCPA?

The paper is "Corruption Creates Growth When People Aren't Free" by Art Carden and Lisa Verdon (August 20, 2009). It's available at SSRN here.

Readers -- you're invited to give us your two cents. You might also want to look at what Andy Spalding had to say in this space last year.


Wonderful Things Happened

Christmas! 'Tis the season for kindling the fire of hospitality in the hall, the genial fire of charity in the heart.  -- Washington Irving

We're warmed by the generosity of those who support this project. Our readers let us know what they like, our sponsors provide financial and moral support, and many of you send hints, tips and ideas that eventually become posts.

Cody Worthington has been here since the beginning, lending a hand many times when we were stuck in deep snow. Marc Bohn, whom we haven't mentioned before, has been another stalwart -- with at least a dozen ideas and corrections (despite his own busy practice and publication schedule).  Among others who were an important part of the blog this year are Elizabeth Spahn, Rebecca Walker, and Andy Spalding.

We just heard from Andy. Writing from India, he said:

Dear FCPA Blog,

I hope this email finds you well. I thought you might be glad to know that the FCPA Blog has now become, among many other things, a social networking site! When I came to India to do my FCPA research I first went to the Blog and found the names of Mayur Joshi, CEO of Indiaforensic, and his then-colleague Pradeep Akkunoor. Mayur and Pradeep sponsored India's first FCPA conference back in 2007, which you generously covered on the Blog. As a result of these introductions, two wonderful things happened.

First, I discovered that Pradeep is now an MBA student at Sasin Business School in Bangkok, and he invited me out to the school to do a presentation on the FCPA, which I did on Dec. 4th. Then Mayur and I decided to organize our own conference in Pune, India, which was held on Dec. 18th. It was a tremendous success -- many of the biggest Indian companies attended, and we received ample coverage in the press. 

I wanted to thank you for making these connections possible. As you know, I am concerned about the sanctioning effect of the FCPA in developing countries, and I have come to believe that the most effective remedy is education. To the extent that we can raise awareness of the statute's provisions among potential business partners in historically bribery-prone countries, companies subject to the FCPA's jurisdiction will be less uneasy doing business there. And in my view, when that happens everybody wins. 

This effort would not be nearly as effective without a central repository of information on all things FCPA related, and in all seriousness, your blog is serving this purpose extraordinarily well.

Merry Christmas,

Andy Spalding

Now it's our turn to thank Andy and all of you for your countless gifts that simply couldn't be greater.


The FCPA's Imperialist Myth

Elizabeth Spahn (left), a professor at the New England School of Law, stopped by this week. She left a comment about Andy Spalding's latest post. In it, she cited her recent article that asks: Why is there so little legal scholarship regarding international bribery? Why aren't law professors training their students on the issue? Why, she asks, don’t legal educators want to talk about international anti-corruption initiatives?

The answer, she says, is tied up with false notions in the West about legal imperialism. Law professors (she's been one since 1978) shy away from teaching about bribery abroad "because of a well intentioned discomfort with the idea of imposing Western moral values on cultures and systems vastly different from our own." In 72 pages of clear and exciting prose, she explores -- and debunks -- the idea that the Foreign Corrupt Practices Act and other anti-bribery initiatives are bad for anyone except those who are caught and punished.

Prof Spahn was a Fulbright professor at Peking University Law School and the Beijing Foreign Studies University during 1999–2000, lecturing on American constitutional law and employment law. In 2005, she returned to China as a Fulbright senior specialist in Chongqing. The corruption she saw in Asia left her in no doubt about what's wrong and what has to be done:

A global “culture of corruption” has indeed arisen. . . . It directly affects the safety of ordinary consumers throughout the world who depend on imports from a wide spectrum of MNCs doing business in countries with high levels of corruption and weak legal regimes. It directly undermines environmental reform technology and clean up efforts globally. It frustrates efforts to achieve very basic human rights. Bribery skews purchasing decisions making a mockery of any hope of a rational market. If the economists are to be believed, bribery significantly exacerbates the growing global gap between the unimaginably rich and the desperately poor.
Prof Spahn has the courage to put her heart into her scholarship. Having real people in mind elevates her words and her message. Listen to this:
My own attention was directed to anti-corruption reform at the very beginning of my field work in Asia. Before entering China to teach law, I decided that I should learn more about rice in order to better understand the root of Asian culture. I spent six weeks in Bali, Indonesia (an idyllic setting). One week I spent in a village without running water or electricity, vainly attempting to learn how to plant rice. At the inevitable banquet, on the night before I, as a Western “imperialist human rights feminist rule of law” advocate, was nervously to enter Communist China, I chatted with the patriarch of the Balinese family, a gracious elderly farmer who was blind due to cataracts he knew could be cured by Western surgery if only the money were available.

“What one thing would help his family most?” I asked. I anticipated several potential answers: running water, better medical access, perhaps electricity run into the village (I had already provided the all-important new soccer ball for the village kids as my thank you gift). His answer was that if only the corruption could be eliminated or even just reduced, his family, his village, could manage the rest on their own. This was the beginning of my true education about Asia.

Eighteen months later, at the end of my long stay in China, I was no longer nervous. (The saying is that you visit China for two weeks, you write an article; you visit for six months and write a book. After a year you can no longer speak at all. After a year and a half immersion, my connection to Chinese culture was firm, and I was pretty much speechless.)

Walking around elite Peking University’s beautiful Nameless Lake for the last time with one of my very favorite Chinese students of all time, who is perhaps the last of the genuine true believers in Marxism and the Party, I asked what topic I could work on that might really help Chinese people. “Corruption,” he said.

The simple Balinese rice farmer and the elite Peking University Party Member agreed. And so this human rights /rule of law advocate turned her attention to corruption. Seven years of hard study later, I must say they were both correct. I am grateful to both of them for my education and happy to have my speech back.

Elizabeth Spahn's article, "International Bribery: The Moral Imperialism Critiques," 18 Minn. J. Int'l L. 155 (2009), can be downloaded here.


The FCPA's Thwarted Intent

The first time we heard from Andy Spalding (left), a lawyer on a year-long Fulbright Research Grant in Mumbai, India, he floored us with the idea that the Foreign Corrupt Practices Act causes corruption and hurts poor people. We just heard from him again, this time about the way the Justice Department explains the purpose of the FCPA and approaches enforcement. We'll let Andy speak for himself (because he does it so well). Here's what he said:

Dear FCPA Blog,


I was recently reading the DOJ's "Lay-Person's Guide to the FCPA," available here, which provides a helpful overview of the FCPA, including a brief reference to its legislative history. I am generally grateful for any effort on Justice's part to make the statute transparent and user-friendly; the more that can be done in that area, the better. But I must take issue with Justice's brief but telling account of the statute's legislative history, particularly the political events of the 1970s that precipitated the bill's enactment. The guide is telling, not for what it says, but for what it does not say -- that is, for what the DOJ has seemingly forgotten. And as Edmund Burke famously warned, "those who don't know history are destined to repeat it."

The guide refers to the SEC report, well known to your readers, which disclosed that hundreds of companies had engaged in overseas bribery. The guide further implies that recognition of the need for anti-bribery legislation occurred mainly in response to this report. But the report was not released until mid-1976, and Congress had begun deliberating on the need for anti-bribery legislation as early as August of 1975. What, then, was Congress talking about in 1975, if not the SEC report?

Look to the transcripts of the earliest testimony. Congress was concerned with the conduct of one company in particular -- Lockheed -- which was publicly known at the time to have bribed officials from several overseas governments, particularly Japan, the Netherlands, and Italy. Scandals erupted in these countries, and public officials were shamed or forced to resign as a result. That much remains in our memory, but we forget the rest of the story. Particular attention was paid in congressional testimony to Italy, whose parliament at the time was divided roughly in half between the democrats and, yes, the communists.

Witnesses and congressmen alike, from both sides of the political aisle, expressed concern that revelations of bribery would confirm the stereotype of the corrupt capitalist that was widely promoted in communist propaganda. This, in turn, would weaken our political ties to unstable countries, and open the door to further influence from countries that we believed were hostile to the values of a liberal democratic society. The FCPA, then, was designed not only to promote business ethics, but to serve as an instrument of foreign policy. Ample support for this account in the legislative history may be found at your post here.

Although the Cold War is over, the FCPA nonetheless operates today in an international political context that is only slightly less delicate than in the 1970s. As Congressman Stephen Solarz (D-NY) stated in 1976, "it is important to examine the problem of overseas payments in broader terms than simply a matter of economics or even morality." I would ask, does the DOJ heed the congressman's warning today? Does it consider the impact of FCPA enforcement on delicate international political relationships? I see absolutely no evidence that it does. Indeed, I would politely throw down the gauntlet and challenge anyone to provide an account of Justice's foreign policy vision of FCPA enforcement that requires more than just a couple sentences to articulate.

Many thanks,
Andy Spalding




The Statecraft Of Enforcement

Should the Foreign Corrupt Practices Act be used to punish nations that don't behave the way the United States wants them to? Michael Jacobson (left) from the Washington Institute thinks so. In the September 24 issue of Policy Watch, he proposes targeted enforcement of the FCPA against non-U.S. companies that do business with Iran (U.S. companies aren't allowed there under current law). The purpose is to sanction the country and its leaders on the nuclear issue.

Jacobson's thinking goes like this: Tehran deserves punishment. The U.N. can't do it because China and Russia won't get behind effective sanctions. But the FCPA reaches all foreign companies that have securities registered in the U.S. Some of those foreign companies are doing business with Iran. That country's leaders are corrupt and most deals they do probably violate the FCPA's anti-bribery provisions. Therefore, the Justice Department and Securities and Exchange Commission should target FCPA enforcement against foreign companies doing business with the regime. That will discourage trade with Iran and ultimately inflict real damage on the leadership there. While unilateral U.S. action will work, Jacobson says, the best scenario is for other OECD countries to adopt the same approach under their respective anti-corruption laws.

Is this a serious idea?

Well, the Washington Institute where Michael Jacobson works is a serious think tank. On its board of advisers are five former Secretaries of State -- Warren Christopher, Lawrence Eagleburger, Alexander Haig, Henry Kissinger and George Shultz. Among the other board members are Martin Peretz, editor in chief of the New Republic, Richard Perle, a former Assistant Secretary of Defense, James Woolsey, a former director of the CIA, and Mort Zuckerman, publisher of U.S. News and World Report. That's a lot of horsepower.

Jacobson's bio says he specializes in counterterrorism and intelligence -- particularly "sanctions and financial measures to combat national security threats." Before joining the Washington Institute, he was a senior advisor in the Treasury Department's Office of Terrorism and Financial Intelligence and counsel on the 9-11 Commission. He also worked for the FBI, first as an intelligence analyst, then as assistant general counsel. He holds "a bachelor's degree in psychology from Brandeis University, a master's degree in international relations from Tufts University, and a law degree from Boston College Law School."

So yes, this looks like a serious proposal. But is it a good idea?

We're against corruption and the spread of nuclear weapons. Who isn't? And we know dealing with Iran is frustrating; carrots don't work and there aren't many sticks to reach for. Still, the cost of using the FCPA as a sanction would be high, and it probably wouldn't work.

Today the Foreign Corrupt Practices Act is admired around the world. Called "one of Congress's finer moments" by the Wall Street Journal, it's a hopeful statute that stands for ethics in business and government. Once politicized, however, it'll be just another symbol of heavy-handed and overreaching American diplomacy that's resented overseas. At home, injecting the DOJ and SEC so deep into U.S. foreign policy would compromise their integrity as crime-fighting agencies, with implications far beyond FCPA enforcement.

What's more, using the FCPA to sanction Iran (or any country) is likely to backfire. Targeted enforcement might keep clean money out. But as we heard from Andy Spalding earlier this year, that would open the door for investors from countries "not committed to effectively enforcing anti-bribery measures," like Russia and China, making it even easier for crooked leaders to skim funds from military and civilian projects. End result: more corruption and no less nuclear development.

* * *
RIP William Safire. From Time magazine: "Not for Safire the clodden metaphors, arch constructions, one-sentence paragraphs and dreary wonkery that are the stock in trade of too many modern American columnists. He was of that generation of inky-fingered wretches who remembered that it is not a sin for journalism to entertain — indeed, that one way you can get across a point about which you feel passionately is to make people smile while they are absorbing it."


Friends And Neighbors

These are good days for FCPA junkies like us. More is written now about enforcement and compliance in a week than used to appear in a year. And a lot of it is original and well outside the conventional wisdom. Among the people producing work in that category (and who have appeared on the FCPA Blog before) are:

David Hess, an assistant professor at the University of Michigan's business school. He thinks about incentives for corporations to keep themselves clean -- through the use of sustainability reports, the Federal Sentencing Guidelines, and deferred prosecution agreements, among others.

Rebecca Walker, a private practitioner, whose ideas on “associative liability” and extending codes of conduct to third parties are important to anyone in the compliance business. And she's humble and charming.

David C. Weiss, a law student at the University of Michigan. He wrote a terrific article for the January 17, 2009 Michigan Journal of International Law. It asks why the Securities and Exchange Commission uses disgorgement in FCPA enforcement actions, where the remedy came from, and where it's going. Great questions, and he's got some answers too.

Andy Spalding, a lawyer and Fulbright scholar. He argues that the Foreign Corrupt Practices Act -- are you ready? -- causes corruption and hurts poor people. Andy respects the rule of law but also spends time trying to understand how laws really work. You've got to love a smart, well-spoken policy-wonking lawyer. As we said when we first heard his ideas, they're a real mind bender.

* * *
Two blogs with full-time FCPA coverage:

wrageblog, where Alexandra Wrage of TRACE has created a bulletin board for the compliance community. She and her contributors dish some great advice. We received a nice invitation to pen a few words there and we're planning to do that soon.

Mike Koehler's fcpa professor is a new resource. He had an FCPA practice for ten years and now teaches business law at Butler University. Many times over the years Mike has helped us understand FCPA enforcement practices, particularly at the SEC. We enjoy his view of the statute itself and what he thinks the words in it are supposed mean.

* * *
And two veteran blogs that only sometimes cover the FCPA but are always worth reading:

Kevin LaCroix's D & O Diary. A reviewer might call his work authoritative, influential, magisterial, and quirky enough to always be inviting. We'll just say it's a must-read site.

Here's a recent excerpt we liked:

It might well be asked why anyone should bother reading both the Wall Street Journal and the New York Times business pages. After all, both usually cover the same stories. Indeed, on Friday, both ran stories discussing the fact that year-to-date bank failures are at the highest level since 1992.
However these same-day articles about the number of bank failures in fact were a great illustration of the value of reading both publications, because the two newspapers presented very different explanations for the run of failed banks . . . . here
Gabe’s Guide to the e_Discovery Universe. It's wild. There can be nearly a hundred posts a month, and its artwork and headlines are reason enough to visit (Crazy woman comes up with notion that e-discovery professionals should be “qualified”).

Our favorite times are when Gabe Acevedo, the blog's creator, hits the road. Then it becomes the world's best (and only?) law-related travelogue. Like his dispatch in April from Chicago:

As everyone knows, the most important part about any conference is the free stuff you get to take home with you, and the ABA Techshow did not disappoint. CDW gave away little mini toy race cars and notepads as well as some other stuff . . . The ABA handed out 2 gig thumbdrives. Definitely one of the cooler types of schwag there. . . . here
Gabe is bursting with enthusiasm and goodwill, and he's always generous with his praise and attributions.

We'll have more to say about other friends and neighbors later.


Those Are Fighting Words

Whoa. Did that guy just say the Foreign Corrupt Practices Act causes corruption and hurts poor people? What kind of person would talk that way? Doesn't he know how the FCPA spreads American business ethics to the four corners of the planet? That the law he's attacking is in the same category as mom and apple pie?

But here's the thing. The guy doing the attacking (OK, the scholarly analysis) has made a good case for his thesis. He's Andy Spalding -- a well-mannered and generous lawyer on a year-long Fulbright Research Grant in Mumbai, India. We heard from him earlier this week:

Dear FCPA Blog,

I am a lawyer from D.C. currently studying the impact of the FCPA on emerging markets. I am working on a law review article that develops some of my thoughts, and I would love to hear your (and your readers') reaction.

My paper picks up an idea that economists have been batting around for about fifteen years -- that FCPA enforcement doesn't just deter bribery, but actually deters investment in countries where bribery is perceived to be more common. I argue that we should therefore understand FCPA enforcement as de facto economic sanctions, and that these sanctions have most often targeted emerging markets. This raises a number of ethical, economic, and foreign policy problems, as I discuss.

You might find the chapter on legislative history interesting (as might your readers). There is a lot of material there that, as far as I know, has not been developed in the law review literature and that might be helpful in briefs and such. I invite anyone to use it.

Best regards,
Andy Spalding
The paper itself is all that he says it is, and more. He looked at the 125 enforcement actions since the FCPA's inception (his count). Only nine, or 7%, involved developed countries, whereas more than "two-thirds of all FCPA violations – 85 instances, or 68% of the total – have occurred in emerging markets, as defined today by Standard & Poor’s." And he found that as FCPA enforcement goes up, foreign investment from the U.S. and other compliance-minded countries goes down.

His conclusions: The FCPA scares clean money away from the most corrupt nations, opening the door to investments by "capital-rich countries that are not committed to effectively enforcing anti-bribery measures." Think China in Africa, Latin America, and Central Asia, for example. So the patterns of FCPA enforcement, he says, amount to undeclared economic sanctions against developing countries, which in turn send them deeper into corruption and poverty. "The FCPA is thus revealed to be a large-scale study in the law of unintended consequences," he says.

That's right. The paper is a real mind-bender. Download it from SSRN here and let us know what you think. We'll be coming back to this topic sometime soon.

By the way, in footnote 199, the author levels a rather serious charge against The FCPA Blog. He calls our posts on respondeat superior "balanced and sophisticated." We forgive you, Andy.

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