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Paper: The FCPA is a new ‘international business tax’ on non-U.S. companies

After conducting statistical analysis on Foreign Corrupt Practices Act penalties, it’s clear that foreign firms are paying nearly four times higher FCPA penalties as domestic U.S. firms. 

In “The Extraterritorial Application of the Foreign Corrupt Practices Act” I explore the proposition that the U.S. government’s targeting of non-U.S. firms, and the lack of prosecution of their American counterparts, has the effect of giving U.S. companies an unfair competitive edge in the global marketplace. This is a shocking revelation, considering that most claim that the FCPA puts American companies at a competitive disadvantage

The new research suggests that, to the contrary, it is actually foreign companies that are paying the highest fines to settle FCPA related charges. This represents a recent shift in the trends, whereby the SEC and DOJ are increasingly targeting foreign firms for FCPA violations, illustrated by the FCPA Blog’s top ten list. However, the discrepancy in fines between foreign and domestic firms suggests that the regulating agencies may be straying from the FCPA’s original purpose, which was to restore faith in the American corporation.

I examine several recent case examples to show that the broad application of the FCPA jurisdiction is, in practice, in conflict with certain customary principles of international law. When the SEC or DOJ assert jurisdiction based on a mere e-mail or wire transfer through a correspondent bank account, these acts alone may not be sufficient to meet the territorial nexus test required under international law.

Additionally, given the ease with which the U.S. government can bring charges against a foreign company, coupled with the fact that such charges are usually settled as opposed to litigated, the FCPA looks more like an international anti-corruption business tax, rather than a domestic criminal law with limited extraterritorial applications. I explore in the article the consequences of this new “international business tax” — namely the power of the U.S. federal government to determine who pays the tax, how much they pay, and when they pay are further explored. I also examine certain separation of power issues that come into play when prosecutors are given so much power to force companies into settlement.

“The Extraterritorial Application of the Foreign Corrupt Practices Act” will be published in February in the Willamette Law Review. A working copy of the paper can be downloaded here on SSRN.

The paper was also presented in September at a conference at Yale Law School and was included in the Worth Reading Section of the e-newsletter “War Crimes Prosecution Watch,” which is affiliated with Case Western University School of Law.

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Annalisa Leibold currently clerks for the Honorable Judge David Campbell, District Court, Phoenix, AZ. She previously worked on FCPA matters and international arbitration at Hughes, Hubbard, & Reed in Washington, D.C. She’s a graduate of Yale Law School (2011) and received her Bachelors with highest honors in economics and political science from the University of Michigan (2008).

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2 Comments

  1. Research on global business behavior has indicated that corruption and bribery occurs more openly in foreign countries for various reasons. Some are culturally based others are to gain a competitive advantage. The problem I have with this article is it fail to recognize how corruption in foreign markets influence business activities, and the lack of enforcement by OECD member nations to eradicate this practice. If foreign companies are being hit with more severe fines than United States companies it could mean that more United States based firms are getting the message and have systems in place to make sure they comply with the FCPA. Foreign companies will continue to bribe and conduct their business in a corrupt manner until their countries enforce anti-corruption laws. If foreign firms want to conduct business in the United States they must be aware of this law. This article is one example that critics are using to try to water down the FCPA with amendments. Without the extraterritorial reach of this act United States businesses would be at a disadvantage in global business environment. It seems no other country is interested in enforcing ant-bribery laws (UK is the exception).

  2. Another take on it is to observe that there have been notable instances of non-cooperation with FCPA investigations by non-US companies lately. If the evidence turns up despite your stonewalling, it's going to cost you.


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