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Small companies: Still vulnerable despite enforcement gains

In the past few years, efforts by the Securities and Exchange Commission and the Department of Justice to enforce the FCPA have intensified at a steady pace, making it harder for U.S. companies to bribe their way into obtaining a business advantage in foreign countries.
In addition to leveling the playing field among firms operating abroad, the FCPA has helped clean up foreign trade and, twenty years after its enactment, has been the catalyst to a coordinated effort among OECD countries to combat foreign bribery. Yet, despite the egalitarian aspirations of the FCPA, companies competing for business opportunities abroad are rarely equal when facing the decision of whether or not to pay a bribe.
A multinational company, when confronted to extortion by a foreign public official, can refuse to pay the bribe and presumably walk away from a business prospect without suffering irreparable harm. The same cannot be said of an SME (‘small and medium enterprises’) . While the multinational will be able to recoup lost investments and move on to the next opportunity, the SME can register substantial losses and potentially be driven out of business.
By the same token, an SME exposes itself to greater repercussions when it does pay a bribe, as the financial impact of civil and criminal fines is evidently harder to absorb for its business. Restoring shareholders’ trust and rehabilitating its public image is also substantially more challenging for a smaller firm.
On top of that, SMEs that do business abroad are often new comers to foreign markets and compete with bigger corporations that grew at a time when foreign bribery was tolerated. These new comers do not benefit from the leniency that older companies used to enjoy, and their growth curve is consequently slower.
Ultimately, although foreign bribery has become a substantial risk for all companies that do business abroad, structural inequalities persist and the risk is significantly higher for SMEs than for larger and older firms.
There seems to be no solution to this problem. The law cannot cure the natural impact of structural differences between firms competing on the same market. Whether at home or abroad, doing business is virtually always more difficult for smaller firms, and the magnitude of business risks is greater. One could argue that this is unfair. But in foreign markets, the survival of the fittest rules, and while it may seem unfair that structural characteristics be the selection criteria, it is, by far, more acceptable than a selection based on the ability to bribe. 

Elisabeth Danon is a legal analyst at the World Bank, where she specializes in public procurement. She holds an LL.M. in International Business and Economic Law from Georgetown University Law Center and a law degree from Université Paris X Nanterre (France). She is admitted to practice law in the state of New York. Prior to joining the World Bank, Elisabeth worked at the Anti-corruption Division of the OECD. She can be contacted here.

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