Letter From Central Asia

Andy Spalding, a lawyer on a year-long Fulbright Research Grant in Mumbai, India, writes to us from time to time. Here’s his latest dispatch:

Dear FCPA Blog,

I have just returned from a week in Almaty, Kazakhstan, which your readers know to be an FCPA hot spot. I tried to preach the anti-corruption message through a series of lectures at one of the law schools, and interviewed a number of local practitioners.  This experience taught two undeniable lessons:

1.  It is nearly impossible to overstate the importance of curbing corruption in Kazakhstan. Graft is endemic (the country ranked a miserable 120 on the 2009 Corruption Perception Index) and perpetuates all manner of legal and social pathologies. The citizens of Almaty are perhaps as cynical about their government as any I have ever met, and with very good reason. Worse yet, U.S. companies have participated in, and reinforced, this culture of corruption, as we all learned through watching the James Giffen case explode in 2003. But this brings me to the second lesson:

2.  The present FCPA enforcement regime has done that country tremendous harm. How did the U.S. respond to the discovery of systematic bribery by U.S. companies in Kazakhstan? The same way that we respond to nearly every such revelation: we slapped severe criminal sanctions on myriad U.S. persons and hoped that other companies would get the message. Those companies did indeed get a message; whether it is the message we want to convey is a very interesting question. Since Giffen’s arrest, western investment in the oil and gas sector in Kazakhstan has dropped precipitously. This is hardly surprising, and some would argue that it is precisely the desired outcome. But consider what happened in its wake. In that same period of time, investment has gone up, just as rapidly, from a well-capitalized country that has refused to adopt the OECD Convention: China.

Query: is Kazakhstan any better off now? I can tell you that the Kazakhstanis most certainly do not think so. There is a level of apprehension there about rising Chinese investment and influence that is quite shocking. A lawyer from a leading U.S. firm said, “My clients used to all be from the west, and now they’re almost all Chinese.”  Another lawyer said, “The Chinese don’t like to spend as much on lawyers, because they solve their legal problems through other means.” Those of us in anti-corruption circles know exactly what that lawyer meant. The law students are petrified by the prospect of working for, or with, Chinese companies — “they don’t do business the same way,” so many of them told me. And yet, many of these same students are taking Chinese language classes.

Will corruption go down in Kazakhstan after the Giffen case? Certainly not. Has our withdrawal of FDI from Kazakhstan somehow set that country on the road to reform? This answer is also certain.

What’s the remedy? Finding a way to enforce the FCPA that deters bribery without deterring investment in developing countries like Kazakhstan. We’re smart enough to figure it out. Simply washing our hands of corruption by pulling out of developing countries like Kazakhstan, leaving them to be ravaged by companies that bribe without any fear of penalty, is morally irresponsible.

Thanks,
Andy Spalding

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Readers with experiences in Kazakhstan or similar countries are welcome to comment as well.