Clans and the Foreign Corrupt Practices Act: individualized corruption prosecution in situations of systemic corruption.

Author:Puckett, Blake

TABLE OF CONTENTS INTRODUCTION I. CURRENT ANTI-CORRUPTION PARADIGM A. Individual Actor Paradigm B. Supply Side: FCPA And Its Progeny i. FCPA ii. International FCPA Progeny C. Demand Side: Responding to Kleptocrats i. Criminal Prosecution of Corrupt Leaders ii. No Safe Haven iii. Asset Collection and Anti-Money Laundering II. SYSTEMIC CORRUPTION A. Rise of Anti-Corruption/Post-Soviet Developments B. Current Levels of Corruption C. Types of Corruption D. Clientelism III. A COMPREHENSIVE APPROACH A. The Shortcomings of Individualized Prosecution i. Individual or Network? ii. Non-network Actors Are Particularly Vulnerable B. Islands of Integrity C. Squaring the FCPA with U.S. Foreign Policy Goals i. Modifying the FCPA a. Extortion Defense b. Facilitating Payments c. A Developmental Defense ii. Geostrategic Considerations Beyond Effective Anti-Corruption Policies a. Investment as Development b. Geostrategic Presence CONCLUSION "Corruption hampers U.S. international trade, affecting the ability of U.S. companies to do business abroad--which in turn erodes U.S. jobs. In some countries, large government contracts are awarded on the basis of bribes rather than merit. U.S. companies are believed to have lost out on business opportunities worth about $27 billion in the past year alone, because they refused to violate honest business practices. Some have abandoned markets altogether, while some unscrupulous competitors take advantage of the corrupt environment to gain control of strategic markets and materials."

--David T. Johnson, Assistant Secretary of State, February 4, 2010 (1)


The United States has taken the lead on fighting global corruption since the introduction of the Foreign Corrupt Practices Act (FCPA) in 1977. Convinced that the conduct of U.S. corporations reflected on the image of capitalism and democracy in its competition with communism in the Cold War, Congress passed the FCPA to outlaw bribery by U.S. corporations of foreign officials. Subsequent efforts to expand the FCPA and create a global anti-corruption regime have resulted in, first, the OECD Anti-Corruption Convention and, more recently, the UN Convention Against Corruption.

This article argues that the Foreign Corrupt Practices Act, and many later efforts aimed at curbing corruption, has at its core an understanding of corruption that focuses on the individual (bad) actor, what I term the individual actor paradigm. The efforts to reduce the supply side of bribes through the FCPA and its OECD and UN equivalents and the more recent efforts to tackle the demand side of corruption are important responses to the incredible harm of international corruption, but they misdiagnose the dynamics in highly corrupt countries and so fail to adequately address many of the dimensions of corruption. The former Soviet republics of Central Asia, and perhaps other regions, are plagued by a far more complex problem, that of systemic corruption. An effective anti-corruption strategy must begin with an understanding of the political economy of the developing state, and so requires a more sophisticated approach for the sake of both long-term development and the United States' own geostrategic interests.

This article is divided into three parts. In Part I, I outline the individual actor paradigm, with its focus on the individual as the locus of the corruption problem and individualized prosecution as the primary solution. The anecdotal nature and moralistic tone of most corruption stories, the study of corruption situated in economics and in the modern liberal state, and concerns over essentializing corruption all contribute to this individualized focus. International responses to corruption, both on the supply side and the demand side have largely followed this pattern, bringing an individualized prosecution approach that addresses the symptoms but not the underlying structures.

Part II presents post-Soviet Central Asia as a case study of the types and extent of corruption that policy makers must address. Central Asia provides an important case study as the rise of the anti-corruption movement is closely tied to policy challenges in the post-Soviet space. However, the current state of corruption in the region calls into question the current international approaches to corruption, particularly in light of scholarship that suggests that corruption points to systemic issues. If the corruption is systemic, then removal of specific individuals leads only to their replacement by other individuals still constrained by the system. The larger body of literature on clientelism suggests that what holds true for Central Asia may be indicative of similar problems throughout the developing world. (2)

In Part III I then detail the need for a comprehensive approach to corruption as one aspect of a larger effort to transform the political economies of these nations and suggest ways that the current approach, particularly the FCPA, should be modified to accommodate this more strategic comprehensive approach. In addition, this section also considers other foreign policy considerations that may weigh on the implementation of the FCPA.


    1. Individual Actor Paradigm

      The individual actor paradigm is the dominant lens through which corruption is currently viewed. It sees the problem of corruption as a problem of individuals making corrupt decisions, either to bribe or to be bribed, and generally posits that these individuals are exceptions to the anti-corruption norm within their own community. While the individual's environment might be considered, particularly by analyzing opportunities for corruption, the existence of systems of corruption is rarely considered.

      Perhaps the most basic reason for the individual actor paradigm is the image of corruption--the bribe passed from one hand to another. At its most basic, bribery involves a payment in return for some consideration, the granting of which violates some other duty or responsibility of the recipient of the bribe. There are two individual actors, and the corruption hinges on the exchange between the two. This image is reinforced by the dynamics involved in reporting on corruption. Rarely is a full view of all the corruption available, given the secretive, illegal nature of the transaction. When corruption does come to the light, it is normally in the context of the corrupt individual and what attracts the most attention after the headline amounts are the details: the money in an envelope, or stuffed in a freezer, (3) the first meeting, the closed deal. Journalistic accounts have been followed by literature on corruption that was initially strongly influenced by economics. (4) The classic rational actor model, focused on individual motivations for corrupt actions, has been a regular model for analyzing the problem of corruption. As a consequence, anti-corruption programs have been built around incentives, both positive such as raised salaries and negative such as greater changes of detection and prosecution. While even in systemic corruption the choices of individual actors can be accounted for in a rational actor model, the emphasis on the individual's cost-benefit analysis within the economic approach to corruption has fueled the overall individual actor paradigm.

      The paradigm has been reinforced by the normative concept of liberal democracy, that posits individual citizens in relationship to the State and downplays group identities, whether fairly fundamental ties such as race and ethnicity or more constructed ties based on economic interest, shared histories, or common ideologies. This secular concept is overlaid by a moral/religious component that recognizes bribery as incompatible with certain moral ideals, reflecting poorly on the individual's moral character or religious devotion.

      Finally, the anti-corruption movement has focused on the individual actor paradigm out of concern for essentializing corruption if tied to a group, whether a nation, ethnic group, or entire continent. Rather than walking the fine line between identifying a whole group as prone to corruption (and therefore inherently inferior) and identifying groups where the corruption is qualitatively common the preference has been to affirm the universality of anti-corruption norms and treat persistent corruption as aberrant, even when its occurrence is quite regularized. (5)

      The focus on the individual actor has not reduced efforts to fight corruption. Attempts to address the scourge of corruption have been made on many fronts. Often, these initiatives are divided into two categories, addressing the supply side and the demand side of corruption. The supply side references those entities that are willing to pay a bribe in order to receive a benefit to which they were not otherwise entitled or to avoid a penalty that they otherwise would incur. The demand side refers to individuals in positions of public responsibility who act in ways contrary to their public duties in return for compensation. The Foreign Corrupt Practices Act was the first effort to address the supply side of corruption at the international level, albeit through a purely domestic legal regime.

    2. Supply Side: FCPA And Its Progeny

      i. FCPA

      Congress passed the FCPA unanimously in 1977. Growing out of the revelations of corruption amidst the Watergate scandal, including the payments of significant sums of money by major U.S. corporations to foreign officials in return for business, the focus of the FCPA was to clean up the United States' own system. (6)

      The Foreign Corrupt Practices Act makes it illegal for U.S persons, including natural persons, (7) domestic concerns, (8) and companies registered with or required to file reports to the SEC, (9) to make corrupt payments to a foreign official, foreign political party or candidate, or third-party persons who will knowingly forward the payment to such officials for the purpose of obtaining or...

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