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Doing Better For The World

Professor Andrew Brady Spalding of the Chicago-Kent College of LawThe absurd conclusion to the Giffen prosecution illustrates, as effectively as any case could, the foreign policy debacle that is FCPA enforcement.  

As I have previously written on the FCPA Blog, U.S. industry lost much of its influence in Kazakhstan following Giffen’s arrest. The void was filled by Chinese companies who, most assuredly, did not bribe less.  Now, with the judge in Giffen’s trial essentially suggesting that the DOJ was wrong to go after him, there are no winners at all in this seven-year saga. The DOJ didn’t get its man. U.S. influence in a crucial region diminished. And the Kazakhstani people were left vulnerable to a business presence that they largely resent but feel powerless to resist. Everybody loses.

The U.S. Chamber Institute for Legal Reform has issued a credible set of proposed amendments. We must remember, however, that the impact of FCPA enforcement is felt not just by the U.S. business community; it is also felt by the citizens of the countries where enforcement actions take place, and these are usually developing countries. With their interests in mind, I would like to suggest five reasons to amend the FCPA:

1.  Studies confirm that the present FCPA enforcement regime leads to a decrease in foreign direct investment in developing countries. Kazakhstan is but a single example; we have multiple reports from the U.S. Department of Commerce and academic economists confirming this predictable and intuitive effect. Indeed, one former high-ranking DOJ attorney personally told me that she considered this a good thing —
that withdrawing our FDI from corruption-prone countries will aid in the fight against global corruption. I submit that it will not, for the reasons below.

2.  We influence developing countries through our presence, not our absence. Such was the original vision of the FCPA, as the legislative history reflects — we would set a good example in developing countries by operating there without participating in corruption. Indeed, the president of one of the biggest conglomerates in Asia told me that the prospect of curbing corruption in his country lies not in any effort that his government might initiate, but in increased interaction with companies that are subject to the FCPA.

3.  Curtailing our FDI has exactly the opposite effect.  The FDI void is filled by companies from countries that are not subject to anti-corruption measures. These “black knights” move in and do business in precisely the ways the FCPA seeks to prevent, thus perpetuating the culture and practices of corruption. This is currently occurring throughout the developing world.

4.  FDI is the best remaining tool for promoting good governance in developing countries. Economic sanctions haven’t worked. Government aid hasn’t worked. And military occupation is most certainly not working. Indeed, each has tended to increase, not decrease, corruption. So what is left?  FDI is the best tool we’ve got.

5.  We increasingly believe that a corrupt-free government is a human right. The Obama Administration has made this very claim. While the DOJ has historically focused on the perpetrators of corruption, we
should start thinking of the victims: the citizens of developing countries. I propose that we not leave them to be ravaged by companies that bribe recklessly.

We can do better — for ourselves and for the world.

Andrew Brady Spalding is a member of the faculty at Chicago-Kent College of Law. He conducted research in Kazakhstan as a Fulbright Scholar on the impact of FCPA enforcement. Professor Spalding’s research has been featured in the Wall Street Journal, Forbes, and various international publications. He has lectured to law schools, business schools, and political science departments throughout the United States and the world, including India, Turkey, Thailand, Bangladesh, Kazakhstan, the United Arab Emirates, and South Africa. 

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