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More On Graft Is Good, Sometimes

Last week we heard from Washington, D.C. lawyer and former aid worker Stephanie Connor. She disagreed with some comments Andy Spalding, left, has made in this space. Andy’s a lawyer on a year-long Fulbright Research Grant in Mumbai, India.

He’s questioned whether bribery is always bad and enforcement of the Foreign Corrupt Practices Act always good. (His concepts were discussed without attribution to him in a recent WSJ Law Blog post “Is the FCPA Standing in the Way of Haiti’s Recovery?” here.)

Here’s his response:

Hi Stephanie,

First, nice to meet you and thanks for your comments. They have forced me to examine my assumptions in some unexpectedly difficult ways.

I understand the crux of your comment to be that we should not treat the FCPA as if it were primarily designed as a poverty reduction tool. I agree.

Rather, the statute is primarily designed to be a bribery reduction tool, and we should not evaluate its success in the first instance by the extent to which it reduces poverty. But to say that it is not designed to be a poverty reduction tool is very different from saying that we should enforce it without regard to its impact on poverty.

As strongly as I agree with the former statement, I disagree with the latter. Indeed, many believed in 1977 and still believe today that proper enforcement of the FCPA will have the collateral effect of mitigating poverty — through reducing corruption, we will eventually improve economic productivity. I am among those who subscribe to this theory, when thinking about the very long term.

But what if FCPA enforcement has the more immediate effect, quite unwittingly, of exacerbating already severe social problems, including but not limited to poverty? Should we take notice? Should we modify our approach to enforcement? Can the FCPA be enforced in such a way that it can deter bribery without deterring investment in developing countries? I certainly believe that it can, and that it should. Is there a reason why it should not?

I would truly love to hear your response.

All the best,
Andy Spalding

Views from other readers are also welcome.

Editor’s Note: For the record, Andy has never said graft is good. Our over-zealous headline writers came up with that phrase. Andy himself says: ” I certainly don’t believe that ‘graft is good’ . . . I do believe, though, that our efforts to reduce bribery can, quite unintentionally, sometimes produce bad results.  But fortunately, we need not choose between enforcing the FCPA or not.  Rather, we should develop an approach to enforcement that is more sensitive to the reality of collateral damage in economically desperate countries, one that punishes bribery without punishing the citizens, for example, of Haiti.”

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2 Comments

  1. This calls to mind the following article in the NYT, inasmuch as an undoubtedly beneficial law is recognized as having unfortunate side effects.

    http://www.nytimes.com/2010/03/21/world/asia/21marja.html?ref=world

    Although arguably this is more complicated, since one of the intended benefits of the FCPA is for citizens of the "bribed" country, whereas the drug interdictions in Afghanistan are more for the benefit of the rest of the world. Probably…

  2. I realize I'm joining this conversation a bit late but I did get a chance to take a look at Prof. Spalding's law article "Unwitting Sanctions: Understanding Anti-Bribery Legislation as Economic Sanctions in Emerging Markets."

    While I thought it was a very good, thought-provoking piece and I agree with Prof. Spalding's assertion that the drafters of the FCPA intentionally did not want to address demand-side corruption, ("the legislation was not designed to punish the recipients or solicitors of such bribes, let alone the governments that tolerate bribery"), I wonder whether the idea of demand-side corruption control is actually an unwanted concept today ("The FCPA ultimately proves to be a large-scale study in the law of unintended consequences.")

    Although Spalding makes a good point that demand-side corruption control can result in undue damage to the very people who were already victimized by an oppressive government, it is not something that is conceptually foreign to American policy makers. Hon. Ben Nighthorse Campbell (R-Co.), then-Chairman of the Commission on Security and Cooperation in Europe, proposed a bill in the Senate in 2001 specifically aimed at regulating countries with weak anti-bribery regimes (S.988). The bill provided that countries receiving foreign assistance be “conducive” to U.S. business, which would depend, inter alia, on a country’s progress in eliminating corrupt trade practices by private persons and government officials. Under the bill, the State Department would be required to submit a report and the President to certify by March 1 of each year that countries which are receiving U.S. foreign aid are, in fact, conducive to American businesses and investors. Certification would be specifically based on whether a country is making progress in, and is committed to, economic reform aimed at eliminating corruption. If a country is deemed hostile to American businesses, aid from the United States would be cut off.

    Although the bill never became law, the mere fact that it exists shows that deterring investment in developing countries where bribery is tolerated may not just be one of the "perverse and unanticipated consequences" of the FCPA, but today actually be a welcome result. Even without bringing the FCPA into this, at the very least, it shows that there are other members of Congress who would be happy to know that foreign governments where bribery is tolerated are having to deal with "de facto economic sanctions" by American businesses.


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