I’m rarely one to agree with Trump and disagree with Tyler Cowen but I’m inclined to think we should eliminate the Foreign Corrupt Practices Act rather than merely implement the minor changes he suggests. At a gut level I find the idea that we are imposing our norms about how law, public office etc.. should work on other countries unpalatable and at a more cerebral level feel that we shouldn’t put people in prison or even fine companies without a compelling reason to think it serves some important social good. My mind could be changed by substantial evidence this law improves the welfare in other countries but there is no apriori reason to think it will reduce, rather than increase, corruption overseas (e.g. the game theoretic aspects to providing insurance to the bribe taker that the bribe giver can’t turn them in).
If the question was whether we should help overwhelmed countries who find their anti-corruption efforts foiled by American companies wealth and global nature that would be a different matter and I support assigning DOJ resources to assist worthy local corruption prosecutions. I’d even favor a law which allowed the foreign government to request prosecution by a US court for bribery actions taken by US companies when they felt their own courts weren’t capable of doing the job. However, this law doesn’t leave the question of prosecution and appropriate sanctions to the jurisdiction where the crime took place but substitutes our American sensibilities about the badness of bribery and even the role of laws regarding bribery for local understanding.
One might object that this law is only triggered when the practice at hand is illegal under local law. That’s true, but all laws don’t mean the same thing. Imagine the UK had a law which imposed massive fines or a 10 year penalty for any UK citizen living in the states who intentionally ‘evaded’ local tax laws. Now it’s true that in the States we too regard many types of tax fraud as a bid deal….but there is a societal acceptance (perhaps a bad one) that evading state sales tax by ordering products from out of state isn’t a big deal the way cheating on income tax might be and any US enforcement of such laws will reflect that understanding but UK enforcement of a hypothetical foreign tax evasion law would not. Similar points could be made about laws with harsh penalties for consuming illegal drugs in a foreign country….often, as with decriminalization, what the laws on a country’s books say and how the society there understands the system to work don’t always agree.
In short, respecting the sovereignty1 of other states requires letting them decide on the relation between their explicitly codified law and actual enforcement/social understanding and the framework for this law seems to coopt that understanding.
Also, it’s not even clear if the net effect of this law will be to reduce bribery and corruption abroad. If, as might be expected, in corrupt countries foreign companies tend to be less corrupt than the locals the net effect of such a law might be to favor local companies that face no deterrence from the US government. As the structure of the law punishes bribes paid by US companies or the corporations they control or hire but not bribes paid by customers or local companies engaged in arms length transactions it creates an incentive for the most corrupt locals to start businesses they wouldn’t have otherwise2. Indeed, the very fact that a socially accepted system of bribery imposes a barrier that keeps US firms out of the market may even make public corruption reforms unpopular for protectionist reasons.
Finally, one needs to ask what the game theoretic effect is of a law. A really effective way to clamp down on bribery is to turn people who have given bribes into witnesses against the official (e.g. by offering them immunity in this or another case or even a reward) and often the bribe taker will be in far more jeopardy than the bribe giver potentially putting them at jeopardy of blackmail. However, add the potential for charges by the US government which the local prosecutor can’t bargain away but are unlikely to be brought at all as long as no one local rats and you have a very nice game theoretic mechanism of ensuring that your bribe giver doesn’t rat you out (threaten to report any company that bribed you to the US DOJ if you get convicted…might even be a good way of ensuring someone pays for your defense).
Whether or not any of these actually work out in the real world is anyone’s guess but that fact alone should be enough justification not to be (even potentially) handing out 20 year prison sentences. That is in addition to all the other problems of the law that Cowen notes.
Are you worried there may be corruption in the American executive branch today, yet also fearful that the tools for rooting out such malfeasance may be abused? If so, welcome to the dilemmas surrounding the Foreign Corrupt Practices Act.
- Now ultimately, of course, I only believe in respect for the sovereignty of countries (or the right of self-determination) because it’s a good heuristic for positive results but it’s a pretty damn good one. Not only do attempts to intervene in foreign cultures rarely work they tend to create a good deal or resentment against whoever does the intervention. This is true whether the intervention is a direct political one or merely a cultural one such as refusing to do business in the customary way in that place and the FCPA certainly raises that possibility. Even disregarding resentment when it comes to legal regimes there is a much stronger reason to respect sovereignty: penalties imposed by a foreign potentate rarely provoke compliance or respect so drag along all the harms of law enforcement plus without the social benefits that make those costs worth paying. ↩
- For instance, maybe a certain degree of bribery is expected to win contracts to supply the government with services and all local companies bidding simply pay the expected bribes. If US suppliers simply entered the market and complied with these necessary rules for doing business locally there would be little effect on corruption. On the other hand if they refuse but offer superior products at better prices there is a strong incentive for those locals who are best at greasing palms to set up a company which simply subcontracts the work to the Americans after bribing the government (without telling the Americans about the bribe) and since such a company is literally in the business of bribing and faces competitors in that buisness it is more likely to increase local corruption than if the US company had simply played along. ↩