In this series, the author explores the limits of the deterrence theory of punishment that underlies anti-bribery enforcement. See Part One, Part Two and Part Three here.
We’re trying to understand what happens in the world when some countries seek to deter foreign bribery by enforcing FCPA-type laws and some do not.
We know that companies subject to meaningfully enforced anti-bribery laws bribe less (or at least, we have very good reason to believe it). But what happens to overall rates of bribery in those developing countries?
Based on these assumptions, I think we can figure it out.
A more sophisticated explanation is here, but this is the upshot.
Imagine companies from two jurisdictions. One jurisdiction decides to start enforcing an anti-bribery law, and the other does not. Companies from the enforcing jurisdiction start bribing less. Overall rates of bribery in the developing country therefore go down.
This is good; no, it’s great. It’s an historic success.
But then, buoyed by its successes, that jurisdiction ramps up enforcement. Companies under its jurisdiction now bribe even less than they did before.
So far, so good. But we know they will start to pull out of certain transactions; the sources of evidence here are many. The developing country still needs the foreign investment.
So other companies, whose home countries do not enforce anti-bribery laws, move in. In other words, transactions that once involved low-bribing companies now shift to relatively high-bribing companies.
Say the low-bribing company was paying bribes half of the time in its various transactions (inspections, permits, customs, and such). Those transactions now shift to a company that pays bribes as often as it needs. In many jurisdictions, this is nearly all the time. What has happened to the overall rate of bribery in that developing country?
It has gone up.
That explanation is grossly over-simplified; if you want the fuller version, see the paper. But the point is that our enforcement at first drives overall rates of bribery down, and then begins to drive them back up.
Don’t believe me? Check out the paper and tell me where you think I’m wrong.
But if I’m not, then deterrence isn’t working; in fact, it’s doing the opposite of deterrence. It’s causing crime to proliferate; not among our own companies, but within the countries where we do business. If our goal is truly to reduce crime, we’ve got to try something else. We need a new model, a new framework for understanding how to punish multinational corporate bribe payers.
We’ll explore that paradigm in the posts that follow.
Andy Spalding is a senior editor of the FCPA Blog. He is an Assistant Professor at the University of Richmond School of Law.
Andy, great series, as always. I think your proposals for reforming enforcement are excellent, and I hope that we will see some changes in the future. One of the considerations that I didn't notice in your analysis is the global trend towards increased corruption enforcement. Won't that have a long term overall reduction in corruption?
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