Aside from the villa on Lake Como and the Aston Martin in the garage, the greatest perk that comes from tending this garden is hearing from so many talented experts in the field of the Foreign Corrupt Practices Act. Last week, for example, a generous reader shared with us a soon-to-be published paper about Facilitating Payments. Seeing our favorite FCPA topic treated with such thorough scholarship, and wrapped in a truly eloquent presentation, was genuinely exciting. It made our day.
We mention the incident, first, to express our gratitude to that particular reader and to all who contribute to the FCPA Blog in so many ways. We also mention it because the paper in question made copious use of the FCPA’s rich legislative history — stimulating us to revisit some of Washington’s original debate about the law. Indeed, the Congressional record is still a deep well of meaning and inspiration for FCPA practitioners, judges and scholars.
Among the goodies in the legislative history are the reasons given in 1977 for why the country needed the FCPA. Thirty years on, we think those reasons still ring true.
Here’s what the House Committee on Interstate and Foreign Commerce said:
More than 400 corporations have admitted making questionable or illegal payments. The companies, most of them voluntarily, have reported paying out well in excess of $300 million in corporate funds to foreign government officials, politicians, and political parties. These corporations have included some of the largest and most widely held public companies in the United States; over 117 of them rank in the top Fortune 500 industries.
The abuses disclosed run the gamut from bribery of high foreign officials in order to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharge certain ministrial [sic] or clerical duties. Sectors of industry typically involved are: drugs and health care; oil and gas production and services; food products; aerospace, airlines and air services; and chemicals.
The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical. It is counter to the moral expectations and values of the American public. But not only is it unethical, it is bad business as well. It erodes public confidence in the integrity of the free market system. It short-circuits the marketplace by directing business to those companies too inefficient to compete in terms of price, quality or service, or too lazy to engage in honest salesmanship, or too intent upon unloading marginal products. In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business.
Bribery of foreign officials by some American companies casts a shadow on all U.S. companies. The exposure of such activity can damage a company’s image, lead to costly lawsuits, cause the cancellation of contracts, and result in the appropriation of valuable assets overseas.
Corporate bribery is also unnecessary. The Secretary of Treasury testified before the Subcommittee on Consumer Protection and Finance: Paying bribes. . . is simply not necessary to the successful conduct of business in the United States or overseas. My own experience as Chairman of the Bendix Corp. was that it was not necessary to pay bribes to have a successful export sales program.
Nor is Secretary Blumenthal’s experience unique. Former SEC Chairman Hills testified: Indeed, we find in every industry where bribes have been revealed that companies of equal size are proclaiming that they see no need to engage in such practices.
Despite the fact that the payments which this bill would prohibit are made to foreign officials, in many cases the resulting adverse competitive affects are entirely domestic. Former Secretary of Commerce Richardson pointed out that in a number of instances, “payments have been made not to “outcompete” foreign competitors, but rather to gain an edge over other U.S. manufacturers.”
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, in 1976, the Lockheed scandal shook the Government of Japan to its political foundation and gave opponents of close ties between the United States and Japan an effective weapon with which to drive a wedge between the two nations. In another instance, 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 Lockheed. In Italy, alleged payments by Lockheed, Exxon, Mobil Oil, and other corporations 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.
Finally, a strong antibribery statute would actually help U.S. corporations resist corrupt demands. According to former Gulf Oil Co., Chairman Bob Dorsey: If we could cite our law which says we just may not do it, we would be in a better position to resist these pressures and refuse those requests.
On the Senate side of the Hill in 1977, the problem of improper payments to foreign officials by American corporations was on the agenda of the Committee on Banking, Housing and Urban Affairs. Its final report contained a more concise although no less articulate (and even passionate) description of the need for the legislation. By the way, the working title of the bill, before it became the FCPA, was the “Unlawful Corporate Payments Act of 1977.”
Here are the Senate’s words:
Recent investigations by the SEC have revealed corrupt foreign payments by over 300 U.S. companies involving hundreds of millions of dollars. These revelations have had severe adverse effects. Foreign governments friendly to the United States in Japan, Italy, and the Netherlands have come under intense pressure from their own people. The image of American democracy abroad has been tarnished. Confidence in the financial integrity of our corporations has been impaired. The efficient functioning of our capital markets has been hampered.
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. Foreign corporate bribes also affect our domestic competitive climate when domestic firms engage in such practices as a substitute for healthy competition for foreign business.
Managements which resort to corporate bribery and the falsification of records to enhance their business reveal a lack of confidence about themselves. Secretary of the Treasury Blumenthal, in appearing before the committee in support of the criminalization of foreign corporate bribery testified that: “Paying bribes – apart from being morally repugnant and illegal in most countries – is simply not necessary for the successful conduct of business here or overseas.”
The committee concurs in Secretary Blumenthal’s judgment. Many U.S. firms have taken a strong stand against paying foreign bribes and are still able to compete in international trade. Unfortunately, the reputation and image of all U.S. businessmen has been tarnished by the activities of a sizable number, but by no means a majority of American firms. A strong antibribery law is urgently needed to bring these corrupt practices to a halt and to restore public confidence in the integrity of the American business system.
View House Report No. 95-640 (September 28, 1977 – Ordered to be printed) here.
View Senate Report No. 95-114 (May 2 (legislative day, March 28), 1977 – Ordered to be printed) here.