FCPA Theory Meets the Egyptian Streets: Mubarak’s Corrupt Government Falls

By Andrew S. Boutros*

Task Force Co-Chair

On January 25, 2011, widespread civil unrest broke out in Cairo, Egypt. Soon thereafter, Tahrir Square was home to a popular uprising that, according to reports, numbered about two million. It took only eighteen days from the protest’s beginning to end Hosni Mubarak’s 30-year reign.

The people’s grievances with the Egyptian government were plentiful, going to the very core of the Egyptian way of life; men and women marched in opposition to economic, political, legal, social, quality-of-life, and humanitarian ailments that plagued the country. But amidst the chants for reform was another clear demand: an end to widespread systematic corruption. And, indeed, it was corruption that was a primary root cause for the societal maladies against which the Egyptian people revolted.

To this end, for decades, a succession of U.S. Presidents, lawmakers, executive branch senior officials, and members of the Foreign Service have warned that foreign and domestic bribery and other related corruption undermines economic development, financial prosperity, societal growth, democracy, stability, and the rule of law wherever it is found. For some naysayers, these predictions – these protestations – have been dismissed as hollow, empty rhetoric or, even worse, doomsday scare tactics used to justify laws, and the enforcement of laws, such as the FCPA. But the Egyptian people’s democratic reaction to widespread, decades-long corruption – and the across-the-board societal ills such corruption brought about – was one contemporary example of precepts meeting stark reality.

Congress’s Motivation for Enacting the FCPA

When the FCPA was passed in 1977, Congress warned of the foreign policy quagmires that loom when businesspersons bribe foreign public officials. As the House Committee on Interstate and Foreign Commerce then said:

The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical . . . [and] it is bad business as well. . . . In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business.

Corporate bribery also creates severe foreign policy problems for the United States. The revelation of improper payments invariably tends 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. For example, . . . Prince Bernhardt of the Netherlands was forced to resign from his official position as a result of an inquiry into allegations that he received $1 million in pay-offs from [a U.S. company]. In Italy, alleged payments by [several U.S. companies] to officials of the Italian Government eroded public support for that Government and jeopardized U.S. foreign policy, not only with respect to Italy and the Mediterranean area, but with respect to the entire NATO alliance as well.

Similarly, the Senate Committee on Banking, Housing, and Urban Affairs stated:

Recent investigations by the SEC have revealed corrupt foreign payments by . . . U.S. companies involving hundreds of millions of dollars. These revelations have had severe adverse effects. Foreign governments friendly to the United States . . . have come under intense pressure from their own people. . . .

Corporate bribery is bad business. In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet. Corporate bribery of foreign officials takes place primarily to assist corporations in gaining business. Thus foreign corporate bribery affects the very stability of overseas business.

The Department of Justice’s Defense of the FCPA

Since then, DOJ has echoed these sentiments for years. On July 25, 2010, for example, Attorney General Eric Holder stated in his speech to the African Union Summit in Kampala, Uganda, that, “[a]s many here have learned – often in painful and devastating ways – corruption imperils development, stability, competition, and economic investment. It also undermines the promise of democracy.” Relying on World Bank estimates, the Attorney General highlighted that “more than one trillion dollars in bribes are paid each year out of a world economy of 30 trillion dollars.”

Mark F. Mendelsohn, then the Department of Justice’s Chief FCPA prosecutor, emphasized the same points when he was interviewed about the FCPA on February 24, 2009:

[The FCPA is] about not permitting companies and U.S. citizens to undermine the work that we do to try to promote democracy, promote stability, promote the rule of law around the world. That's really what's behind this.

The impact [on the people of other countries] is real. There are residents of some very poor and in some cases desperate countries. In some instances, those countries have real natural resources, real wealth, and their own leaders are depriving them of a better standard of living, a better way of life because they’re diverting public resources for personal gain, which is really the definition of corruption. And so the cost is very real and tangible to the people who live in some of these countries.

The cost is also seen in the corrosive effect that corruption has on the rule of law, the administration of government. Civil servants who are underpaid and in difficult circumstances may be tempted by a bribe for some benefit. And the citizens who are counting on those public servants pay a price for that, a very real price.

Egypt’s Rankings on the World Stage

Fast-forward to 2011: According to the CIA’s The World Factbook, Egypt is the 16th most populous country in the world, with slightly more than 80 million people; it comes in right behind Germany, which ranks at 15, and ahead of Turkey at 17. Egypt also is home to a workforce of approximately 26.1 million people, right behind the United Kingdom at approximately 31.4 million (ranking 19th). Egypt even boasts a top 30 world GDP ranking. What’s more, according to U.S. State Department data, Egypt received approximately $1.3 to $2 billion in direct and indirect aid from the United States annually, with approximately 20 percent in the form of economic assistance, including democracy promotion programs. In fact, in the last 36 years, the United States provided Egypt with more than $30 billion in financial assistance, starting in 1975. Yet, despite its above average economic performance, a fair question persists: How much higher would Egypt and its people rank on the world’s economic wealth and opportunity barometer were it not for Egypt’s long-lasting corrupt governmental customs, both real and perceived?

Corruption within Egypt’s Borders

In this regard, according to Transparency International’s 2010 Corruption Perceptions Index (“CPI”), Egypt is tied with Mexico and Burkina Faso (in West Africa), ranking 98th out of 178 in perceived corruption. And, Egypt’s 2010 below par anti-corruption score is not an outlier. Transparency International has awarded Egypt roughly the same low (and, indeed, declining) anti-corruption perception score year in and year out going as far back as 1996.

For the last 15 years of President Mubarak’s presidency, the CPI’s message has been roughly the same: People doing business in Egypt view corruption as a major problem, and one about which little has been done. In fact, in 2007, Egypt’s perceived anti-corruption efforts worsened – actually dropping below 3.0 for three consecutive years.

Year	Corruption Rank	Corruption Score: Out of 10
2010	98 of 178	3.1
2009	111 of 180	2.8
2008	115 of 180	2.8
2007	105 of 179	2.9
2006	70 of 163	3.3
2005	70 of 158	3.4
2004	77 of 145	3.2
2003	70 of 133	3.3
2002	62 of 102	3.4
2001	54 of 91	3.6
2000	63 of 90	3.1
1999	63 of 99	3.3
1998	66 of 85	2.9
1997	Not Scored	---
1996	41 of 54	2.84
1995	Not Scored	---

Egypt’s anti-corruption perception numbers have remained stagnant even after Egypt signed the United Nations Convention against Corruption in Merida, Mexico in 2003. In fact, as Transparency International has explained, “experts agree, corruption in Egypt is pervasive and the use of wasta (‘influence’ in Arabic) and facilitation payments are essential to get most things done.” But, the corruption at issue in Egypt goes beyond mere facilitation payments. In one recent example, in August 2010, German-based Vietz GmbH’s owner and managing director, Eginhard Vietz, admitted in an interview to a German business newspaper that his company routinely paid bribes to Egyptian foreign officials in an effort to win business. Similarly, United States authorities have brought criminal and administrative FCPA enforcement actions involving improper payments in Egypt against a host of companies, including Daimler, Lockheed Martin, Metcalf & Eddy, Textron, United Industrial Corporation, and York International. According to Transparency International, “corruption has infiltrated all aspects of Egyptian society,” with the country “facing major challenges in combating both grand and petty corruption.” (Emphasis added). In 2007 this reality led the Egyptian government to admit that corruption was a “serious problem,” and caused the nation’s Prime Minister to commit publicly to combating bribery.

Hosni Mubarak was Egypt’s President since October 14, 1981, nearly four years after the FCPA became law. After three decades of control, the Mubarak regime saw its curtain fall in a matter of days. Yet, even then, Mubarak and his inner circle demonstrated that old habits die hard. According to news reports, Mubarak spent his last days in office squirreling away billions of dollars of wealth he amassed as Egypt’s President – wealth that has now been frozen by international authorities. And, since the regime’s demise, Egypt’s public prosecutor has launched corruption investigations into four of Egypt’s onetime top politically active businessmen.

Conclusion

Since the FCPA’s inception, Congress has warned that international corruption and bribery are the foes of democracy, economic development, and prosperity. DOJ’s senior leadership has restated this position with exceptional and unambiguous clarity. If the masses who were in Egypt’s streets demanding reform, economic opportunity, and honest, transparent government, were at all reflective of the deep discontent the Egyptian people had with the former (corrupt) status quo, a compelling argument can be made that our public officials were right to enact the FCPA – and are right to vow to continue to enforce it to the full extent of the law.

*This article represents the author’s views only; it was written by the author in his personal capacity.

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Andrew S. Boutros

Andrew S. Boutros