ed to a foreign official or a third party, with knowledge that the third party will pass it on to such an official. Fourth, the payment must be made to "corruptly influence" that official such that he violates the legal duty of his position. Finally, the purpose of the payment must be to "obtain, retain, or direct" business or to receive "improper advantage" which favors the payer of the bribe.
Requirement that bribes be accurately reflected in financial reporting
Prior to the passage of the Act, it was not uncommon for a company which did pay bribes to foreign officials to hide the transaction in the process of financial reporting. Although that practice itself was a violation of GAAP,13 many corporations found it easier to bury the expense through creative accounting applications than to explain in their footnotes why certain expense ratios or certain regional results seemed out of sync with expectations.14
The FCPA didn't particularly prohibit that practice, it went one step further. The original legislation demanded that if unlawful payments were being made, they not only couldn't be buried, they needed to be "disclosed in reasonable detail and identified in a way that call[ed] attention to their impropriety."15 This provision applied to any company that was an "issuer" under the Securities and Exchange Act of 1934.16
B. The FCPA since 1977
Since its original enactment, the FCPA has been twice amended. The first amendment was made in 1988 and is most notable for adding an exclusion for payments characterized as "facilitating" in nature.17 The Fair Competition Act of 198818 characterized as "facilitating" those payments made to expedite or secure performance of "a routine action" of a government official that was done as part of his ordinary job duties.19 There were other changes made at that time that included broadened jurisdiction over non-U.S. persons acting within the United States and over U.S. persons acting outside of the United States.20 The reach of the Act was also extended to cover payments made to secure "improper advantage." The amendment also expanded the definition of "foreign official" and eliminated the exemption from criminal penalties for certain non-U.S. nationals.21
The second amendments to the Act, signed on November 12, 1998, "brought U.S. law into conformance with the terms of the OECD Convention."22
Penalties under FCPA
Under the provisions of the FCPA, penalties for a violation can be very substantial. Individuals guilty of accounting violations may be subject to fines of up to $1 million USD and/or up to 10 years imprisonment, while businesses face fines of up to $5 million USD.23 For violations of the bribery provisions, individuals face fines of up to $100,000 USD and/or up to five years imprisonment, while businesses face fines of up to $2 million USD.24
Two affirmative defenses do exist for charges of an FCPA violation. Liability may be avoided if the payment was made in accordance with the laws of the territory where it was made, or if the payment constituted a reasonable and bona fide business expenditure.25 Where there is uncertainty about a payment a corporation wishes to make, the safest approach is to request a determination from the U.S. Dept. of Justice.26
II. International efforts to control corruption
A. Inter-American Convention Against Corruption
The Inter-American Convention Against Corruption, which is the first of the modern international anti-corruption efforts, was adopted at the Specialized Conference at Caracas, Venezuela on March 29, 1996 and became effective March 6, 1997.27 In many respects, this treaty contains a high level of parity with the FCPA (see Appendix A). Its most distinct difference from the FCPA, as well as from the other conventions discussed, is that it prohibits both active and passive bribes--those that are offered to the foreign official as well as those that are solicited by a foreign official.28
A final, yet interesting element of the treaty regards the seizure of property associated with illegal bribes. In certain situations the state which assists in the investigation or prosecutions offenses will be allowed to share in seized property. This element should act as a powerful incentive for states to aggressively enforce the spirit of the treaty.29
As is to be expected, the list of signatories includes only states of the Americas and the Caribbean.
B. OECD Anti-Bribery Convention
This treaty, formally known as the "OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions," became effective Feb. 15, 1999. It should not be surprising to find that this treaty very closely models the FCPA, given that the United States was instrumentally involved in its development.30
This treaty is highly duplicative of the Inter-American Convention, but does stand out for its lack of coverage making bribes paid to domestic officials a prosecutable offense.31 Liability for this action is included in both the Inter-American and the Council of Europe Conventions, and has been part of the body of American domestic law for many, many years.
The primary significance of the treaty appears to be the group of covered nations. Prior to its effective date, there was no international agreement in place covering nations of Asia, Australia, Europe, or the Middle East. Other than the U.S., Canada, Mexico, Argentina, Brazil, and Chile, which were all signatories to both the Inter-American and the OECD conventions, the signatories to this treaty were from Asia, Australia, and Europe. The result was rather uniform international coverage of much of the developed world, simply accomplished under two separate treaties. (See Appendix A).
One additional element of the OCED Convention is that it is the only one of the three which is proactive about continued enforcement. This treaty instituted "a rigorous process of multilateral surveillance." Under the provisions of the treaty, each signatory nation is to monitor and evaluate the actions of other signatories in following through on treaty obligations.32
C. Council of Europe--Criminal Law Convention on Corruption
Formally known as the "Council of Europe, Criminal Law Convention on Corruption33 (No. 173), done at Strasbourg, January 27, 1998, E.T.S. No. 173,"34 this international effort was the last of the three main entrants to the anti-corruption coalition. The primary objective of this effort, which became effective Jan. 7, 2002, was the "coordinated criminalization of a large number of corrupt practices."35 It also provides for "complementary criminal law measures and for improved international co-operation in the prosecution of corruption offences."36
Communicating the terms of this treaty is very simple: it picks up all of the major provisions of the earlier two, plus prohibitions against bribing individuals in the private sector that are not include in either. (See Appendix A). As is the case with the other two treaties, the COE treaty also fails to leave an exception for "facilitating payments" similar to that in the FCPA.
The outstanding feature of this treaty is the participation that it has realized. The signatories are almost exclusively European (plus Japan, Armenia, and Azerbaijan). (See Appendix A).
III. Benefits flowing from the concerted global efforts to control corruption in
international business
Several benefits will flow directly from the combination of international anti-corruption treaties discussed here. For the fist time in the history of the modern global economy, there will be a truly level playing field among many of the nations cooperating and competing in the international business arena. While the United States demonstrated that the lack of that equality was not a bar to effective competition, true parity will add an additional synergy to the field that should over time boost business, international cooperation, and profits to the participants.
A second large benefit to the developments of the past five years is that with so many signatory nations involved in the three treaties, there will be a new level of predictability in international business. Corporations will be able to establish something approaching hard and fast guidelines regarding acceptable behavior for their operatives in foreign nations. It will no longer be necessary for international corporations to adjust their behavior from one market to another inside the substantial group of signatory nations.
Perhaps even more importantly, the enhanced international cooperation among nations and, with respect to the OECD Convention signatories, the additional monitoring of peer nations' behaviors should combine to increase the awareness of both corruption and the costs it imposes on every host society. As in any situation where to "see the problem" you must first "understand the problem," the benefits derived from the absence of corruption should increase at some exponential factor. The more they understand and appreciate, the more dedicated they become and the more rewards they reap, and so on.
Additionally, because the group of signatories is so inclusive, the possibility that a company will face imputed liability based on the actions of a subsidiary in another nation is substantially diminished.
IV. Conclusion
As in many situations involving the rest of the world, the United States often has to take the lead and set the example before our friends and neighbors are willing to go in a new direction.
That did prove to be the case in our rejection of corruption in international business. It may have taken a quarter of a century, but the belief that international business could be done on the "up-and-up," and the FCPA, which the United States used to force U.S. business away from corrupt behaviors, have both stood the test of time.
Ultimately, however, as occurs in nature, the United States' Foreign Corrupt Practices Act--arguably the granddaddy of international anti-corruption regulation, has given way to a new generation of legal progeny--the truly international, international anti-corruption regulation. This new tripartite regulation by treaty is as comprehensive as the FCPA in virtually all respects. More than that, it is inclusive of a broad spectrum of nations beyond perhaps even the dreams of the original 1970s proponents of reform.
_______________
John W. Rossiter is a CPA with a degree in Economics from Albion College and an MBA focused in Marketing from Iowa State University. He is currently completing both a JD with a focus on Intellectual Property and an LLM in International Business and Trade Law at The John Marshall Law School. During the summer of 2002 he also studied EU law and International Arbitration in Rome, Italy. Prior to returning to law school he worked for many years in the area of trust and investments.
1. Edmund Burke, 18th Century British (Irish) parliamentarian, orator, and political philosopher.
2. Richard T. De George is University Distinguished Professor of Philosophy, of Russian and East European Studies, and of Business Administration, and Co-Director of the International Center for Ethics in Business at the University of Kansas. He received his Ph.D. from Yale University and he has been a research fellow at Yale University, Columbia University, Stanford University, and the Hoover Institution. He was the Charles J. Dirksen Professor of Business Ethics at Santa Clara University in 1986, and a Visiting Professor at the Graduate School of Business at the University of St. Gallen, Switzerland in 1985." Professor De George has written extensively on the topics of business ethics and integrity. Bio available at <http://www.ku.edu/~philos/faculty/degeorge.html>.
3. Bronwyn Best, From Corporate Responsibility to Social Accountability - Issue Paper 2, Corruption in Business: Ethical Choices and Economic Consequences.
4. Id. at The myth of initial capital formation.
5. Id. at The myth of cost-free corruption.
6. Id. at The myth of a free-floating economy.
7. Id. at The myth of amoral international business.
8. 15 U.S.C. 78.
9. Janet L. Fisher, Selected Issues in Planning Emerging Market Transactions, 1077 PLI/ Corp 45, 68 (Oct. 1998).
10. Andrea Goldbarg, The Foreign Corrupt Practices Act and Structural Corruption, 18 B.U. Int'l L.J. 273, 278 -279 (Fall 2000).
11. Peter W. Schroth, The United States and The International Bribery Conventions, 50 Am. J. Comp. L. 593, 598 (Fall 2002).
12. Jay G. Martin, Summary of Foreign Corrupt Practices Act of 1977, 2 (June 12, 2002).
13. Generally Accepted Accounting Principles, established and promulgated by the Financial Accounting Standards Board (FASB).
14. Schroth, supra note 11, at 600.
15. Id. at 599.
16. Id. at 600.
17. Id. at 598.
18. Martin, supra note 12, at 6.
19. Id. at 3. Facilitating payments include payment to accomplish such things as obtaining permits or licenses; processing paperwork; scheduling inspections; arranging police protection; mail service; utility services; loading and unloading cargo.
20. Schroth, supra note 11, at 603. Following the 1988 Amendment "the FCPA purports to reach foreigners who have virtually any sort of contact with the United States in furtherance of a violation of the act and U.S. nationals who do anything in furtherance of such a violation anywhere in the world."
21. Id. at 6.
22. Stuart H. Deming, Foreign Corrupt Practices, 33 Int'l Law. 507, 510 (Summer 1999).
23. Martin, supra note 12, at 3.
24. Id.
25. Id. at 6.
26. Id. at 11.
27. Alejandro Posadas, Combating Corruption Under International Law, 10 Duke J. Comp. & Int'l L. 345, 383 (Spring/Summer 2000).
28. Id. at 384.
29. Id. at 390.
30. Christopher J. Duncan, The 1998 Foreign Corrupt Practices Act Amendments: Moral Empiricism or Moral Imperialism?, 1 Asian-Pac. L. & Pol'y J. 16, 17 -18 (June 2000).
31. Posadas, supra note 27, at 384 -385.
32. Bribery Convention: Entry into Force available at <http://www.oecd.org/oecd/pages/home/displaygeneral/0,3380,EN-document-88-nodirectorate-no-no-7534-31,00.html>.
33. Treaties and Other International Agreements, Council of Europe, Criminal Law Convention on Corruption (No. 173), done at Strasbourg, January 27, 1998, E.T.S. No. 173 available at <http://www.asil.org/ilib/ilib0203.htm#01>.
34. Also known in Europe as the "Convention pénale sur la corruption."
35. Summary of the Treaty (Criminal Law Convention on Corruption), Council of Europe, available at <http://conventions. coe.int/Treaty/EN/cadreprincipal.htm>.
36. Criminal Law Convention on Corruption (ETS no. 173), Summary of the Treaty, Council of Europe, available at http://conventions.coe.int/treaty/en/Summaries/Html/173.htm
