The FCPA and Doing Business In A Pure Pay to Play Country

Excerpt:

Since March 15th 2010, the blogosphere has seen some interesting discussions about the economics of the Foreign Corrupt Practices Act (FCPA). The spark which ignited the blog-world was a statement by Wall Street Journal editorial board member Mary Anastasia O'Grady in a piece entitled "Democrats and Haiti Telecom." In this article Ms. O'Grady cited "an [un-named] American entrepreneur" for the quote "We did not bother with Haiti as the Foreign Corrupt Practices Act precludes legitimate U.S. entities from entering the Haitian market. Haiti is pure pay to play". This statement has led to a discussion of the economics of the FCPA and whether the US should abate or suspend its enforcement to allow US companies to conduct business in Haiti after the devastating earthquake. This article will explore such discussion and give companies which desire to do business in high risk countries, such as Haiti, some suggestions under the current version of the FCPA.

The Problem

This "pay to play" statement led George Mason University Economics Professor Tyler Cowen, writing in the Marginal Revolution Blog, to postulate that "one of the best ways to help Haiti" is to "pass a law stating that the Foreign Corrupt Practices Act does not apply to dealings in Haiti. As it stands right now, U.S. businesses are unwilling to take on this legal risk and the result is similar to an embargo. You can't do business in Haiti without paying bribes." Professor Cowen has since further noted that "in countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment." Professor Cowen's initial statement led Eric Lipman, writing in the Legal Blog Watch, to pose the following query "[i]t should not be necessary to suspend enforcement of an anti-corruption law to enable U.S. companies to participate, but, realistically speaking, is it justified in this case to look the other way for a time?"

There was no economic analysis of the effect of the FCPA on foreign countries done prior to the enactment of the legislation. Nor was there any process by which to exempt out particularly corrupt states from being subject to the legislation. It was U.S. based legislation, enacted to deal with U.S. based problems. The purposes for the bill were written into the Preamble to the original 1977 FCPA legislation. In this Preamble, Congress set out three clear policy goals for the enactment of the FCPA. First, was the public revelation that over 400 U.S. companies had paid over $300 million to bribe foreign governments, public officials and political parties. Such payments were not only "unethical" but also "counter to the moral expectations and values of the American public". Second was that the revelation of bribery, tended "to embarrass friendly governments, lower the esteem for the United States among the citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations". Third was by enacting such resolute legislation, U.S. companies would be in a better position to resist demands to pay bribes made by corrupt foreign governments, their agents and representatives. [footnotes omitted]

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