International corporate corruption: why the Foreign Corrupt Practices Act is not enough to stop widespread usage of shaving cream pies.

Author:Pristash, Allison L.
 
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  1. INTRODUCTION

    After following the escalating News Corporation (News Corp.) scandal for several months, the world watched as a shaving cream pie was hurled at Rupert Murdoch during his testimony in a Westminster hearing conducted by British lawmakers. (1) Murdoch's wife and others leapt to his defense but the comedic effect of a pie in the face could not outweigh the tension in the courtroom caused by the underlying problem, namely, the CEO's lack of knowledge, or acknowledgement, of the deception and foul play within his own organization. (2) In addition to the charges pending in the United Kingdom, News Corp. is facing an investigation in the United States under the Foreign Corrupt Practices Act of 1977. (3) Though these charges focus on similar practices to those being investigated in the United Kingdom, there is not one common agency that could cover both investigations, or impose harsher penalties for the widespread practices within the corporation. (4)

    This Note addresses the problems that occur as a result of corporate corruption in the absence of an international remedy, and argues for a global solution. (5) It begins by chronicling the development of corporate bribery and corruption, both in the United States and around the world, that created the situation business communities face today. (6) Next, this Note describes action taken to stop these practices by examining the Foreign Corrupt Practices Act of 1977 and its international counterparts. (7) This Note analyzes the inadequacies of the existing laws and calls for an overarching regulatory scheme to curb these corporate practices. (8) Finally, this Note argues that corruption and bribery will continue to exist as a widespread practice without an effective international mechanism to combat them, which calls into question the stability of the international economy. (9)

  2. DEFINING CORRUPTION WITHIN THE CORPORATE CONTEXT

    In order to be successful, the response to corruption must begin with how it is defined. (10) At its most basic, corruption deals with the abuse of power for personal and private benefit. (11) In a corporate setting, the focus moves to the bribery of foreign officials by representatives of a corporation, either to open doors or close mouths. (12) An important component of bribery in this framework is that payments are made with the intention of influencing the official receiving the bribe to act in a way that he otherwise would not act. (13)

    In order to gain a competitive edge, or even just to be able to compete on an international level, corporations engage in illegal activity by making illicit payments to officials in the countries in which they wish to do business and disguising them in their corporate accounting records. (14) There are several classifications regarding the recipients of corporate payoffs. (15) By focusing on the exchange of power between these participants, governments and other interested groups can gain information about these corporate transactions. (16) Watching items of value change hands is also a tangible way for interested parties to monitor corruption. (17)

    1. Tracking the Development in Modern Corporate Society

      It is difficult to quantify exactly how many instances of corporate corruption take place around the world at any given time. (18) In some places, corruption is so prevalent and acceptable that it is included in the country's tax code. (19) In spite of that difficulty, however, there are several technical mechanisms in place to attempt to quantify it. (20) Monitoring the public and legal scandals related to corporate corruption gauges the prevalence of corruption in society. (21) The recent cases seem to be bigger and more egregious than instances of corruption from the past. (22) If corruption is a commonplace occurrence that does not shock the public conscience, corporations will continue the practice without hesitation. (23)

    2. Some Early Attempts to Combat Corruption

      International efforts to combat corporate corruption and the results of those efforts have varied based on the organization attempting to tackle it. (24) Many governmental organizations have developed strategies to regulate their corporations and officials to prevent corruption in their own countries. (25) Though there are often benefits to government action, such as having access to information and resources that otherwise might be protected, government hands are often tied by formalities and historical hostilities. (26) For these reasons, non-governmental agencies have become involved to identify holes in government efforts, and to provide additional avenues of support for the anti-corruption measures enacted. (27) Individually, none of these steps are sufficient to quell the growing trend, but they do provide a strong foundation for a more integrated global effort in the future. (28)

      One such non-governmental organization is Transparency International (TI). (29) Founded in 1993, the Berlin-based group attempts to bring people together to end the impact that corruption has on the global community. (30) Though there are strengths to the plan of action taken by TI, existing as a voluntary coalition without the power to sanction countries and corporations that act in disregard of their measures ensures that TI's actions will not be effective. (31) Another global organization involved is the International Chamber of Commerce. (32) The International Chamber of Commerce, along with partners including TI, has promulgated a global initiative called Resisting Extortion and Solicitation in International Transactions (RESIST) to help companies train their employees to understand and counteract the prohibited practices. (33)

  3. WHEN GOVERNMENTS GET INVOLVED ...

    1. United States' Response

      1. Foreign Corrupt Practices Act of 1977

        In the United States, the federal government is best equipped to combat corrupt corporations. (34) Congress' major legislation to counteract bribery at the hands of representatives from United States' corporations came in the form of the Foreign Corrupt Practices Act (FCPA). (35) Enacted in 1977, the FCPA prohibits the payment of bribes to foreign officials in corporate situations. (36) The FCPA contains provisions detailing both the practices that the legislature is trying to prevent and the enforcement mechanisms available to combat instances of corruption as they arise. (37)

        1. Origins of the FCPA: Watergate Sparks Change

          Based on the goal of preventing bribery between corporate officers and foreign officials, the initial focus of the proposed legislation was simply to encourage transparency among U. S. corporations. (38) While being considered by the legislature, provisions that mandated internal self controls and outlawed bribery were added before the FCPA was sworn into law. (39) Enactment of this statute had a strong impact on corporate behavior and many corporations actively lobbied for its repeal, or at least reform. (40) Though there have been two major sets of amendments, the original law remains largely in effect and has been very successful over time. (41)

          The FCPA has been amended several times since its enactment. (42) It was first amended eleven years after its passage by the 1988 Omnibus Trade and Competitiveness Act. (43) In addition to several other important provisions, this amendment mandated action by the President. (44) The FCPA was amended again by Title V of the Omnibus Trade and Competitiveness Act of 1998. (45) This second round of amendments extends the scope of the FCPA to apply to "any persons" making payments, rather than just to issuers and domestic concerns. (46) In addition to the recent amendments, the strength of the FCPA has also been bolstered by the passage of other United States business and securities laws. (47)

        2. What is Happening Now: Enforcement and Recent Cases

          The FCPA creates both civil and criminal enforcement powers. (48) The responsibility to enforce the provisions of the FCPA is split between the Fraud Section of the Department of Justice (DOJ) and the United States Securities and Exchange Commission (SEC). (49) The FCPA also provides sanctions that are available when a violation of these provisions occurs. (50) Though not taken seriously by all at the time of its enactment, the FCPA is still "the world's toughest law against foreign bribes." (51) One of the significant changes contained in the 1988 amendments is an increase in penalties imposed for violations. (52)

          When enacted, Congress intended that the criminalization of foreign corporate bribery would act as a self-enforcing mechanism to prevent further acts of corruption from occurring. (53) Though many corporations have created provisions to prevent illicit payments in-house, the SEC and the DOJ have also prosecuted many cases since the enactment of the FCPA. (54) Cases can either be brought under the accounting provisions or the antibribery provisions, but not many violations of the FCPA have progressed all the way to trial:5 Several cases have been instrumental in interpreting the meaning and the intent of the provisions as they applied to actual instances of corruption. (56) Nevertheless, some of these precedents seek instead to highlight ambiguities within the statute. (57) Though prosecution began separately through each of the agencies, recently agencies have prosecuted jointly as the agencies began to realize that they are more powerful acting as one. (58)

      2. RICO--How the United States Handled a Similar Issue

        As with international corporate corruption, law enforcement in the United States struggled to slow down the spread of organized crime in the absence of overarching federal legislation to combat it. (59) When faced with an inability to prohibit organized crime in any serious or efficient manner because of the disconnect between state police organizations and federal law enforcement agencies, and the difficulty of compiling evidence and bringing substantial charges, the United States...

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