On the threshold of the adoption of global antibribery legislation: a critical analysis of current domestic and international efforts toward the reduction of business corruption.

• Author: George, Barbara Crutchfield

1. INTRODUCTION

   As never before, current socio-political, economic, and technological changes are having an impact on domestic and international attitudes toward business corruption. This has precipitated a recent dramatic increase in anti-corruption activities within the United States and by international government and non-governmental organizations. A relevant question to consider is what factors have caused the current change in attitude. An answer to this question is found through an evaluation of a multiplicity of significant changes in the environmental framework for international business.

   As the first antibribery legislation of its kind worldwide, it is necessary to start the examination of environmental changes with the 1977 Foreign Corrupt Practices Act (FCPA or the Act),(1) which, in response to criticisms from the U.S. business community,(2) was amended in 1988.(3) Few legal actions were ever brought under the provisions of the 1977 FCPA by either the Department of Justice (DOJ) or the Securities and Exchange Commission (SEC) from the initial passage of the Act to the time of its 1988 amendments.(4) Until recently no other country was willing to consider following the lead of the United States in adopting prohibitions against bribery. In fact, some countries continued their practice of allowing the tax deductibility of bribery payments.(5)

   Only since 1989 has the interplay of various dynamics led to a more negative global perspective regarding corrupt business practices and a marked increase in anti-corruption activity domestically and by international governmental and nongovernmental organizations. Such dynamics include: the model provided by the FCPA since its adoption in 1977 and the more aggressive enforcement of it in the last decade; the transition of many former socialist countries to market economies at the end of the Cold War; the increased integration of Europe; the proliferation of international mergers; the advent of a borderless global market enhanced by technological advances; and a developing worldwide awareness of the economic costs of corruption.(6)

   This Article will 1) briefly discuss domestic U.S. anti-corruption efforts through a review of the substantive content of the 1977 FCPA and its 1988 amendments; 2) evaluate indicators of changes in domestic attitudes and policies toward business corruption as evidenced by the breadth and scope of recent increased enforcement activities of DOJ and the SEC; 3) analyze the factors causing recent changes in international attitudes and policies toward business corruption; and 4) examine the resulting international efforts to combat business corruption by governmental and non-governmental organizations, financial standard setting organizations, and financial institutions.

2. DOMESTIC EFFORTS TO ERADICATE BRIBERY

   1. Domestic Legislative History

      It is important to examine the legislative history of the FCPA in order to fully understand the current domestic efforts--since the 1988 amendments--to eradicate bribery, as well as to analyze the statute's impact on international anti-corruption efforts.

      U.S. attention first focused on business corruption with the discovery of massive bribery by the U.S. business community during the "Watergate" scandal in the early 1970s. During the investigation of illegal campaign contributions made to Richard Nixon's campaign for a second presidential term, it was discovered that at least twenty-five of America's largest companies were making illegal contributions, including American Airlines, Ashland Oil, Exxon, General Motors, Gulf Oil, International Telephone and Telegraph, Lockheed Aircraft, and United Brands.(7)

      In addition to the discovery of illegal campaign contributions, the U.S. government(8) discovered that the practice of offering kickbacks and making cash gifts in exchange for business was simply part of the modus operandi.(9) When the Watergate scandal occurred, the United States had no laws prohibiting multinational companies from bribing foreign officials to obtain favorable consideration on contracts and other business transactions.

      It is clear that after Watergate the American public needed some demonstration by Congress and other political leaders that they recognized that changes in government attitudes towards ethics and morality were imperative. The United States directed its efforts to eliminate corrupt business practices towards the adoption of a statutory prohibition against corporate bribery of foreign government officials for the purpose of obtaining or retaining business.(10) In 1977, the Congress took strong legislative action by passing the Foreign Corrupt Practices Act (FCPA), which includes antibribery provisions and accounting provisions.(11) This statute was the first legislation worldwide to target the problem of business corruption by criminalizing the giving of bribes by business entities, in contrast to the approach of criminalizing the taking of bribes by government officials.(12)

      1. Foreign Corrupt Practices Act, 1977

         The Act is divided into two sections: the first section specifically prohibits bribery of foreign officials,(13) and the second section includes accounting provisions intended to deter and detect such illicit payments.(14) The latter accounting provisions regulate corporate financial record keeping and internal control systems.(15)

         To facilitate an understanding of the FCPA and its impact on governmental ability to curb business corruption, the substantive content of the statute and its amendments are reviewed briefly in the following sections.

         1. Antibribery Sections

            The antibribery provisions include: 1) A prohibition against the direct and indirect bribery of foreign officials by issuers and reporting firms under the jurisdiction of the Securities and Exchange Commission (SEC),(16) and 2) a prohibition of direct and indirect bribery of foreign officials by domestic concerns, including any U.S. citizen, national, or resident, and any business entity organized under U.S. law.(17)

            Through the use of the term "domestic concerns" both SEC registrants and non-registrants are covered by the Act.(18) Prosecutors were given an advantage in carrying the burden of proof against a defendant for the intent element that is required for prohibited acts under the FCPA. The Act prohibited bribes to "any person, while knowing or having reason to know that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to any foreign official, to any foreign political party or official thereof, or to any candidate for foreign political office."(19) "Facilitating" or so-called "grease" payments made to "foreign officials"(20) were exempt.(21)

         2. Accounting Sections

            The accounting provisions of the FCPA were passed as part of a series of amendments to the Securities Exchange Act of 1934 (1934 Act).(22) Unlike the antibribery sections of the Act, the accounting provisions in section 102 of the FCPA apply only to "issuers" registered under the Securities Exchange Act of 1934.(23) Therefore, Section 102 applies to all corporations covered by the 1934 Act, and thus covers companies that are engaged solely in domestic businesses, as well as those engaged in international business. As a result, an American company does not have to be either foreign or corrupt to come within the FCPA's jurisdiction.(24)

            The accounting provisions of the Act represent an attempt by Congress to address the overall problem of corporate concealment of illicit payments; such payments are often disguised through the use of improper accounting procedures by companies subject to SEC jurisdiction. The accounting provisions follow through with the ideas that first appeared in the SEC Report submitted to Congress in 1976 prior to the adoption of the FCPA. The Report noted that although deterrence of corporate bribery is an important goal, the most important goal of the FCPA is to establish a system of controls that will ensure general corporate accountability.(25)

            The accounting provisions of the Act are (1) section 13(b)(2)(A), which establishes record-keeping requirements by mandating that all corporations "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer,"(26) and (2) section 13(b)(2)(B), which requires corporations to "devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances" that transactions and assets are properly maintained.(27)

            The accounting provisions of the FCPA were considered by some to be the broadest application of federal law to corporate management and accountability since the 1934 Act.(28)

      2. Passage of Amendments to the FCPA in the Omnibus Trade and Competitiveness Act, 1988

         1. Amendments to the Antibribery Provisions

            (1) Change in the "Scienter" Requirement

            The language of the original FCPA created uncertainty because the requisite mens rea for a violation was established when the defendant knew or had reason to know that a corrupt act had taken place. As a result, Congress eliminated the phrase "having reason to know," in the 1988 amendments,(29) leaving a "knowing"(30) standard that incorporates only prohibited acts that involve "actual knowledge" of intended results.(31) The requisite "state of mind" for these categories of offenses is satisfied when there is a "conscious purpose to avoid learning the truth."(32) The effect of the amended Act is to remove the possibility that there might be a prosecution based on more ambiguous situations,

            (2) Clarification of "Facilitating Payments"

            As previously discussed, an exception existed under the original Act for "facilitating payments" made to foreign officials whose duties were "essentially ministerial or clerical."(33) This distinction was not easily made in countries where difficulties were encountered with language and cultural...