Volume 20, Number 6
INTERNATIONAL LAW AND PRACTICE
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FIGHTING INTERNATIONAL CORRUPTION
By John W. Brooks
John W. Brooks is founding chairman of the International Services Group at Luce, Forward, Hamilton & Scripps, LLP, in San Diego, California.
In 1977 Congress enacted the Foreign Corrupt Practices Act (FCPA). From that time until the late 1990s, the United States was the only country to attempt to prohibit bribery of foreign officials. Many U.S. companies felt unfairly burdened by the FCPA. Too often, U.S. Companies complained they faced either bribing foreign officials and risking FCPA prosecution, or refusing to engage in bribery and losing the contract. Since 1977 the U.S. government has attempted to even the playing field by encouraging other countries to enact anti-bribery laws. More international treaties and conventions combating bribery and corruption have been passed in the last seven years than in any other period in history. To take advantage of this new era of anti-bribery sentiment, U.S. businesses and foreign companies doing business in the United States need to understand the basics of these new laws and how they should affect the behavior of these businesses in their quest to gain international contracts.
The FCPA consists of a basic prohibition and a collateral mandate. The basic prohibition is that issuers of publicly traded securities regulated by the Securities and Exchange Commission, U.S. citizens, resident aliens, businesses organized under U.S. law, and anyone while within the territory of the United States may not, directly or indirectly, make payments, promises, or offers of anything of value to foreign officials to obtain or retain business or to secure an improper advantage. This prohibition extends to such payments, promises, or offers to pay to a foreign agent or other third party while knowing that the third party will make the prohibited payments. A business subject to the FCPA may make payments to a foreign official for routine governmental actions and payments that are reasonable and bona fide business expenditures. However, while so-called grease payments are countenanced by the FCPA, they are not countenanced by the legislation adopted by a number of other countries. The collateral mandate is that companies whose securities are listed in the United States must establish a system of internal controls to ensure accountability of assets that might otherwise be used to make prohibited payments.
New developments in international corruption law. The most significant development recently in international corruption law is the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention) that entered into force in 1999. It calls on member countries to "take effective measures to deter, prevent, and combat bribery of foreign officials in connection with international business transactions." The focus of the convention is to eliminate the supply side of bribery by eliminating the offering of bribes to "public officials" rather than eliminating the acceptance of bribes by those officials.
Despite considerable U.S. efforts, however, the convention does not prohibit bribery of political party officials. Each OECD member country may pass any legislation it sees fit to implement the convention as long as it imposes "effective, proportionate and dissuasive" criminal and civil penalties against those companies and individuals that violate the law. The OECD Convention also requires each country to assist other signatory countries in prosecuting bribery and either to prosecute or extradite an individual accused of bribery.
In 1996 the Organization of American States approved the Inter-American Convention Against Corruption (Inter-American Convention) designed to eliminate bribery and corruption in the member countries. Although similar to the FCPA and the OECD Convention in many respects, the Inter-American Convention takes additional steps to combat bribery and corruption: It addresses the demand side, or passive corruption, by forbidding governmental officials from demanding improper payments. It requires member countries to criminalize solicitation and acceptance of illicit payments (demand side), offering of illicit payments (supply side), acts or omissions by government officials for the purpose of obtaining a bribe, fraudulent use of property derived from such activities, and participation as a principal, accomplice, or accessory after the fact in a conspiracy to commit those acts. Unless an exception under certain circumstances is taken, the Inter-American Convention also requires that each country prohibit illicit enrichment, defined as an "unexplainable significant increase in wealth." Unfortunately, the Inter-American Convention lacks an enforcement mechanism to ensure that its signatories fulfill their obligations.
In 1998 the United Nations adopted a resolution entitled "Action Against Corruption and Bribery in International Commercial Transactions," calling on member nations to take all necessary steps to eliminate corruption and obligating the UN to provide advice and technical support to assist countries in developing anticorruption policies. In December 2000, high-level UN member countries signed the United Nations Convention Against Transnational Organized Crime (UN Convention), committing themselves to criminalizing offenses including corruption and corporate organized crime offenses, speeding up and widening the reaches of extradition, boosting prevention of organized crime at the national and international levels, and developing protocols containing measures to combat specific acts of transnational organized crime. Like the Inter-American Convention, the UN Convention criminalizes acts of corruption including bribing or offering to bribe public officials and the solicitation and acceptance of bribes. And, for the first time, companies will be liable for taking part in or profiting from serious crimes involving organized crime groups.
In 1996 the World Bank and the International Monetary Fund instituted policies that allowed them to investigate complaints of corruption and to blacklist companies and governments that participate in bribery. Both of these organizations can cancel financing to a country that condones bribery and can prevent a bribing company from participating in contracts financed by the World Bank.
In 1995 the European Union established a framework for countries to enforce administrative sanctions against acts of corruption, and it passed a Convention on the Protection of European Communities' Financial Interests, obligating member countries to impose criminal penalties in cases of serious fraud. More recently the European Council has approved the Protocol to the Convention on the protection of the European Communities' Financial Interests (EU Corruption Protocol) and a general convention on corruption (EU Corruption Convention), but neither has yet obtained the necessary ratification to enter into force.
Why these developments should affect the behavior of international businesses. Most companies engaged in international business will find it in their best interests to take advantage of the FCPA amendments and these other recent international developments. For some, that will require a change in behavior as a result of (1) the expansion of FCPA jurisdiction to include U.S. nationals and companies incorporated in the United States that participate in corrupt practices in any fashion outside the United States and (2) the new prohibition of any activity to "secure any improper advantage." The OECD, Inter-American, and UN conventions all require the signatory countries to cooperate in prosecutions. Therefore, U.S. prosecutors will now have the opportunity to gain needed information to aid in the prosecution of companies under their jurisdiction and will gain allies in their ability to enforce the FCPA. In addition, countries under these conventions obligate themselves to prosecute or extradite those suspected of bribery. These factors have combined to increase enforcement of the FCPA.
FOR MORE INFORMATION ABOUT THE SECTION OF INTERNATIONAL LAW AND PRACTICE
- This article is an abridged and edited version of one that originally appeared on page 1 of International Law News, Summer 2002 (31:3).
- For more information or to obtain a copy of the periodical in which the full article appears, please call the ABA Service Center at 800/285-2221 or go to www.ababooks.org.
- Website: www.abanet.org/intlaw/.
- Periodicals: The International Lawyer, quarterly journal; International Law News, quarterly.
- Books and Other Recent Publications: Careers in International Law, 2d ed.; Negotiating and Structuring International Commercial Transactions, 2d ed.; ABA Guide to International Business Negotiations, 2d ed.; Joint Ventures in the International Arena; ABA Guide to Foreign Law Firms, 3d ed.; International Lawyer's Deskbook, 2d ed.