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Wednesday
Mar062013

For clues about global enforcement today, look to anti-corruption history

President Jimmy Carter signed the Foreign Corrupt Practices Act into law in December 1977 (photo courtesy of Carter archives)The OECD Anti-Bribery Convention was signed in Paris in December 1997 and prohibited a specific form of active bribery: that of foreign public officials in international business transactions.  

It was a major breakthrough, committing "the world’s leading exporting countries to prohibit bribery, thereby aiming to turn off the spigot on the supply-side of global corruption." (Pieth and Labelle). There was special importance for the United States which had, until that moment, fought an isolated battle against foreign graft. The genesis of the OECD Anti-Bribery Convention provides some of the reasons behind this isolation and therefore indicates why the reaction of the world’s leading exporting nations took so long.

Twenty years earlier, with the birth of the FCPA, constraints were laid upon American business while elsewhere bribes were commonly considered as legitimate income tax deductions. The position of the other OECD nations can be "best recognized as permitting their multinational firms to take full advantage of their superior bargaining position granted to them by the United States legislation" (Tronnes). United States law was seen as their enemy by many U.S. multinationals and in the eyes of the American business community "they were losing contracts because foreign corporations were bribing public officials to secure those deals."  (Tronnes)

In fact, many OECD nations continued to see bribery as a way of life in certain developing countries. They often believed this situation would improve only as those nations grew more prosperous and democratic. "[S]ome European countries argued privately that efforts by the industrial democracies of the OECD to change the indigenous practices of developing countries amounted to a form of imperialism." (Tarullo) Many thought bribery was caused by "demand from the payee -- not the payor -- and that prevention of bribes in foreign developing countries was the responsibility of authorities in those countries." (Corr and Lawler)

It was only natural, then, that U.S. business interests demanded modification or repeal of the FCPA. In 1988, President Reagan signed the Omnibus Trade Act. It modified the FCPA by altering the knowledge standard of vicarious liability, adding two affirmative defenses, and introducing the facilitating payments exception. But "practitioners widely viewed these amendments as "anti-climactic" for having little or no practical effect on the statutes' provisional structure or usage. (Duncan)

However -- and crucially with respect to future progress -- the reform "directed the executive branch to urge America’s global trading partners to pass anti-corruption laws to promote international parity with regard to business corruption." (Maris and Singer) The State Department then began discussions within the OECD, bolstered by three main factors:

First, a number of influential U.S. multinationals had relinquished the idea of any repeal or softening of the FCPA.

Second, there had been a shift in the perception of many economists with regard to the impact of bribery in developing countries. 

And third, the United States had a new administration. President Clinton’s administration brought a change in the assessment of national interests and developed initiatives accordingly.

(Tarullo)

Despite these favorable conditions, the United States still had to elevate anti-corruption to the top of the agenda of the other OECD nations. Tarullo says that the U.S. ruled out the possibility of its own firms meeting bribery with bribery. Further, America used parrallel diplomatic channels to push for progress on the issue. For example, "one U.S. move was to communicate to its OECD negotiating partners the message that progress on matters of interest to them would be less likely absent progress on the anti-bribery effort."   Leverage was also brought through the European press and the non-American perspective of Transparency International, which had been founded in 1993. And finally, foreign bribery had by now become an important concern for some developing-country governments.

Nine years after the Omnibus Trade Act and three years after the OECD Anti-Bribery Recommendation of 1994, the OECD governments finally gathered in Paris and signed the Convention. Elizabeth Spahn writes that "the Europeans moved to negotiate only when, during a notorious corruption scandal inside Germany and in the European Union, the Clinton administration deployed domestic political pressure."

How committed these and other nations actually were to giving this text its full impact is open to question. Tarullo’s words are revealing: "while some of these government officials may have been 'converted' to the U.S. view during the negotiations, others quite clearly signed the Convention as the least-cost way of moving the problem out of the public eye.” Moreover, “nothing […] suggests that these governments intended the resulting Convention actually to repress overseas bribery."

Political will is the central pillar of the fight against graft. If, therefore, some major nations did not intend the OECD Anti-Bribery Convention to effectively repress foreign bribery, is it any wonder that levelling the playing field is so proving so difficult to achieve today?

______________

Philip Fitzgerald is a contributing editor of the FCPA Blog.

Reader Comments (1)

This all makes sense and fits in with my understanding of the history too. But what caused the UK to actually get serious about anticorruption and to enact its Bribery Act, which by all accounts it is taking very seriously in terms of enforcement?
March 7, 2013 | Unregistered CommenterLyn Boxall

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