Dateline: Vancouver, Canada
The Foreign Corrupt Practices Act (FCPA), around since 1977, is a scary law put in place that essentially allows the government of the USA to have carte blanche on policing businesses both home and abroad on who they are sending money to.
The reason I say it’s “scary” is that, for one, it is not defined what exactly “corruption” means. We are leaving that to the discretion of whatever bureaucrat happens to be in charge, and whatever they may conclude is “corrupt”. Secondly, we are allowing the most corrupt organization on the planet to sit back and judge others for the very crimes they commit on a daily basis.
The US government is run by a system of bribes, yet, in the FCPA, bribes seem to be there biggest accusations against companies. For example, in 2012, the government went after Wal-Mart under the FCPA for allegedly bribing Mexican officials to quickly get the permits to build their superstores south of the border.
Is it shocking that a business paid off officials in Mexico to get something done? And, we have to wonder…why is the fine money going to the US Treasury? Were they the ones hurt by Wal-Mart’s expansion? Was anyone hurt? The only victim here from a free market perspective is Wal-Mart itself, who in order to expand into Mexico were forced to pay off the local mob.
The implications of the FCPA are enormous to the US economy. If the FCPA is heavily enforced, more businesses will move away from the Land of the Free, and to places that will actually allow them to run their business as they see fit.
And unfortunately, FCPA enforcement is up in the past few years. The reason? Many say “fighting terrorism”.
Here are 5 reasons why the FCPA is bad for business:
1. It creates an unlevel playing field
The FCPA puts Chinese corporations at a competitive advantage over those in the US. China’s corruption laws are not enforced like they are in America. Therefore, companies in China can get away with a lot more, and dominate markets more easily than readily-fined American ones.
2. It doesn’t acknowledge local business practices
The FCPA allows for a company to make “reasonable” expenditures for expenses incurred in the process of promoting products or services. This includes “reasonable” travel expenses, and certain entertainment expenses.
Where an American company pays for travel expenses on behalf of a foreign official, two important requirements must be satisfied. The payment must be “reasonable”, and it must clearly be for the purposes of promoting or demonstrating a product or service. Complying with these requirements is anything but straightforward, and a typical travel or entertainment expense could be construed as a “bribe” under the FCPA.
3. Definitions are vague
In order to violate the FCPA, offers must be made to a “foreign official.” For purposes of the FCPA, “foreign official” is broadly defined. Anyone working for a government-owned or managed institution or enterprise (including doctors, lawyers and accountants) is considered a foreign official. In some countries, this would include most of the population!
4. American companies must police their business partners
This means in any joint venture situation with a foreign company, not only would your own company be liable under the FCPA, but you must audit your potential partner company and make sure they are following all the rules under the FCPA. This means more paperwork, more lawyers, and more chance of getting fined.
5. Ignorance of the law is no excuse
The “corrupt intent” element encompasses the notion of a benefit given or offered to persuade a foreign official to misuse their position or authority through action or inaction. The U.S. government does not need to establish the defendant knew their conduct violated the FCPA. Any offer, payment, promise, or authorization of payment to a “foreign official” with the intention of securing an advantage in obtaining or retaining business is prohibited by the FCPA.
Like other laws, or opinions backed by guns, the FCPA is sadly under another blow to the head of American business, and fails to protect anyone other than corrupt politicians and their greed.
And where does it end?
Who’s policing the FCPA?
What if… companies are bribing the FCPA?
This bureaucracy is run by human beings, easily as capable of being corrupted and taking bribes as the companies they proclaim to stop.
The challenge with the FCPA is that US citizens are required to abide by it no matter where they live. Like filing a US tax return, no expat or company is exempt from it.
My lawyers tell me there are a few cases where US citizens running offshore companies can apply for licensing that gives them more latitude, but when it comes to bribery, Americans are at a disadvantage in countries where corrupt cash is the name of the game.