Beyond Balance III: Our Forgotten History, cont.

By Andy Spalding

I previously argued in this space that the contemporary FCPA reform debate is strikingly disconnected from history; both camps seem to have collectively forgotten how we believed the FCPA would operate in the world. Today, the pro-business reformers charge that the FCPA leads to a loss of U.S. business overseas; others counter that any effort make the statute more business-friendly would render the law less effective. But it was not always so; this dichotomy most certainly did not control the original decision to enact the FCPA.

Neither was it true during our last successful reform movement, in 1998. Then, as now, the business community vociferously argued that the FCPA lead to a loss of U.S. business. And then, as now, the incumbent administration and much of the public insisted that we should make the FCPA more effective, not less. But the government’s view of the relationship between fighting bribery and encouraging international business could not have been more different from our own.

Indeed, the official position of the U.S. Government in 1998, much to our surprise today, was that the FCPA did in fact cause substantial losses to U.S. companies. The General Counsel to the Secretary of Commerce, Stuart Eisenstat, and the General Counsel to the Secretary of Commerce, Andrew Pincus, both testified to this effect. (For a more complete account of the legislative history, see “Unwitting Sanctions: Understanding Anti-Bribery Laws as Economic Sanctions Against Emerging Markets,” at SSRN here.) Moreover, President Clinton would endorse this very position in his signing statement. The administration provided a very specific number — by its calculations, U.S. companies lost an estimated $30 billion, each year. And these losses were estimated at a time that preceded the modern enforcement push by five years.

But note that these are not pro-business interest groups and their counsel testifying; this is a presidential administration. And the administration was Democratic; no neo-conservative hawks were these.

So why would the U.S. Government, under a Democratic administration, emphasize the fact that the FCPA was causing at that time a loss in U.S. business? Why would a Government that sought to make the FCPA more effective, not less, trumpet this fact so loudly and in such concerted fashion? The administration was lobbying Congress to amend the FCPA pursuant to our obligations under the OECD Convention. And in doing so the government then recognized, in ways we seem to have forgotten, that an anti-bribery regime should not discourage overseas business. Indeed, they believed strongly, as did the FCPA’s original advocates in 1977, that the purpose of anti-bribery law is to encourage ethical business and not merely to deter bribery. They knew then that an anti-bribery regime which led to a substantial withdrawal of capital from developing countries was, simply put, a policy failure. And they believed we could do better.

Today, the business community repeats the chorus that the FCPA hurts U.S. business, but the government conspicuously does not. Why not? Have we any reason to think that the FCPA would not have a similar effect today? Or have we forgotten how this statute should operate? I’ll address these questions next time.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We’re grateful to Professor Spalding for allowing us to serialize ‘Beyond Balance.’

Beyond Balance I can be viewed here and Beyond Balance II here.