Risk & Compliance

Global Corruption Enforcement Becomes Focus of U.S. Foreign Policy

U.S. corporations and listed companies would do well to redouble their efforts to comply with the Foreign Corrupt Practices Act.
Daniel R. AlonsoMay 20, 2015

The recent surge in enforcement of the U.S. Foreign Corrupt Practices Act (FCPA) has now reared its head on Wall Street with an aggressive anti-bribery investigation into several large banks.  While this specific inquiry focuses on allegations that banks are giving jobs to relatives of well-connected Chinese government officials, one cannot help but get the impression that there’s more at play here than just a few questionable hires.

Daniel R. Alonso

Daniel R. Alonso

If recent comments out of Washington are any indication, the driving force behind FCPA enforcement is much bigger than any single bribery case.  Increasingly, the U.S. government is wielding the FCPA as a tool to change corrupt cultures in other countries. If the government follows through — and there is every sign that it will — on its recent suggestions that anti-corruption efforts in other countries are meant in part to strengthen national security, U.S. corporations and listed companies would do well to redouble their efforts to comply with the FCPA.

When the FCPA was enacted in 1977 as a result of revelations of bribes paid abroad by Lockheed Aircraft and other major U.S. companies, the policies behind it were straightforward. Far from emphasizing the behavior of other countries and their officials, the act focused largely on the United States itself: rehabilitation of the nation’s image abroad, confidence in the financial integrity of U.S. corporations, and a concern for the efficient functioning of capital markets.

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Opinion_Bug7Notwithstanding those concerns, FCPA enforcement began slowly and took some time to hit its stride. But as C-suites across our country are by now well aware, the Department of Justice and the Securities and Exchange Commission have stepped up their FCPA efforts over the past 10 or 15 years, culminating last year in a near-record $1.56 billion in enforcement action settlements. In practical terms, throughout the FCPA’s history, government officials have typically described enforcement as an effort to level the playing field, taking away the competitive advantage for companies who routinely pay bribes to foreign officials.

Today, though, FCPA enforcement is about more than a level playing field. It has become a matter of national security. This was hammered home in September when the White House released its U.S. Global Anticorruption Agenda (the “Agenda”), which lays out the Obama Administration’s ongoing actions aimed at foreign corruption. The core of the Agenda is that the United States “views corruption as a growing threat to the national security of our country and allies around the world.”

To combat that threat, the Agenda stresses vigorous application of the FCPA, the need to prevent the use of anonymous shell companies to launder corruption proceeds, and plans to strengthen U.S. money laundering laws to cover the proceeds of certain crimes committed overseas. (It also includes several substantive initiatives not related to corruption enforcement.)

What stands out most starkly is the way the Agenda connects the dots from the problem of corruption abroad to the threat to our own national security: “Pervasive corruption siphons revenue away from the public budget and undermines the rule of law and the confidence of citizens in their governments, facilitates human rights abuses and organized crime, empowers authoritarian rulers, and can threaten the stability of entire regions.” For that reason, “[t]he United States continues to use law enforcement and administrative tools to hold corrupt actors accountable and to retrieve the proceeds of corruption hidden in the U.S. financial system.”

This is a big deal. The United States has now made it official policy to reduce public corruption in other countries, not just to root out bad actors among its own people and companies. To be sure, the FCPA does not, as a technical matter, apply to foreign officials who receive bribes. But it would seem that after years of supply-side enforcement with little change in the demand for bribes in certain countries, the government now sees its mission, in part, as seeking change in the behavior of foreign actors.

Aggressive FCPA enforcement is nothing new, of course. Last year saw several high-profile, high-dollar settlements with the DOJ and the SEC, including Alstom S.A. ($722 million); Alcoa ($384 million); and Avon ($135 million). What is new is the transition in our government’s perception of international corruption as a potential gateway to geopolitical instability. The government plainly believes that changing the behavior of at least some foreign officials is within its grasp.

Not surprisingly, the tip of the U.S. sword on this issue has been Assistant Attorney General Leslie R. Caldwell, head of the DOJ Criminal Division, who, in a series of speaking engagements over the last several months, has made it clear that the DOJ is actively pursuing foreign bribery as a direct threat to national security.

She explained at the Duke University School of Law this past October: “You may be asking yourself why the U.S. Justice Department is involved in the fight against corruption abroad.  In fact, there are people who claim that taking aim at foreign bribery puts U.S. companies at a competitive disadvantage in countries where bribery is just business as usual. The threats posed to the United States by international corruption, however, cannot be overlooked.”

Caldwell, one of the most experienced prosecutors in the nation, went on to explain that, in the view of the Justice Department, the fairness imperative — leveling the playing field — goes hand-in-hand with the national security mandate. “Fighting foreign corruption,” she said, “is not a service we provide to the global community, but rather a necessary enforcement action to protect our own national security interests and the ability of our U.S. companies to compete on a global scale.”

It remains to be seen whether U.S.-style deterrence-through-prosecution will have the desired effect in foreign regimes. As Patrick Radden Keefe wrote recently in The New Yorker, “It seems unlikely that any outside force can introduce enough carrots and sticks to persuade a country to reform its political system.” He cited as an example Romania, which embarked on what appeared to be an impressive anti-corruption investigation as part of seeking membership to the European Union, only to dismantle the project after it was admitted.

But the DOJ enforcement effort does not depend on the will of any other sovereign. Rather (and putting aside the obvious value of mutual governmental cooperation in any international investigation), the Department’s endeavor is limited only by the U.S. government’s own will. And that has only been increasing for years and across presidential administrations.

What does this mean for the global financial institutions and multinational corporations at the epicenter of this effort? In the main, the emphasis on national security should only increase the government’s already-strong focus on FCPA enforcement. For that reason, senior executives should redouble their efforts to maintain compliance initiatives that are robust and flexible enough to keep pace with the constantly-changing and expanding web of employees, contractors. and third-party vendors that have become the norm as businesses expand into developing economies.

The road ahead is not an easy one for U.S. multinationals. As the extent of regulatory attention continues to grow, leaders of these businesses would be wise to recognize this foreign-policy focus as an opportunity to further insulate their companies from financial crime risk. If the government is correct in its assessment, such efforts will have the added benefit — which can be viewed altruistically or as an argument for a rainy day — of assisting the national security effort.

Daniel R. Alonso, a former federal and New York State corruption prosecutor, is managing director and general counsel of Exiger, a global financial crime compliance firm based in New York and London.