What does Andrew Spalding, in his article “Unwitting Sanctions”, argue is problematic about the Foreign Corrupt Practices Act?

The Foreign Corrupt Practices Act 1977 came into force in the face of a culture of corruption that was harming the economy, society, and the democracy of institutions.[1] In his appraisal of the FCPA, Andrew Spalding concludes that whilst the aim of this Act was to encourage investment, the actual outcome has been converse to that which was intended and instead the act now deters such investment.[2]

Spalding is of the opinion that w[3] Spalding argues that is detrimental to the US by reasons of the increased cost involved in doing business within such countries. This would seem to suggest that where bribery is a traditional element of doing business within a particular country it should not be uninterrupted. There are several arguments against bribery; the strongest counter-argument to Spalding’s contention of the increased cost being that bribery is rarely a definitive numerical calculation and therefore, it can add an unpredictable cost to the transactions.[4]
here bribery is commonplace, and he notes that this tends to be in emerging markets, the FCPA acts as an unintended sanction on the governments involved.

Disadvantages for US Companies

US businesses that operate on a worldwide scale will find that they are competing against businesses within that jurisdiction that benefit from the ability to participate in the act of bribery. Per se, however, as US companies will fear the inherent sanctions of the FCPA, which can themselves be very high, and this can discourage them from wishing to participate in business within this jurisdiction – this is damaging to trade.

The vicarious element of employees is a further problem for US companies in that, as Spalding argues, the fact that an employer can be vicariously liable for an act of bribery committed by one of their employees, even though the organisation itself may have taken all the relevant preventative measures and was not directly involved in the corrupt practice, they will still find themselves liable under the Act.

Disadvantages for Emerging Markets

By providing a disincentive to investment in emerging markets, where bribery is commonplace, emerging markets lose out on valuable investment. In turn, there is also a danger that the companies that will opt to invest in these markets instead of US companies, companies that are effectively free from FCPA-type legislation, will be companies that are open to the bribery culture and this will only work to promote and further enhance the bribery culture within a country. This is assuming that alternative countries will be prepared to invest into emerging markets and will do so one the same scale as the world’s strongest economic power and its involved countries.

Spalding does not mention, however, that the number of prosecutions under the FCPA was relatively low under the introduction of the Sarbanes-Oxley Act in 2002. This act introduced a zero-tolerance approach whereby directors and companies were prosecuted for bribery and illegal conduct anywhere, including abroad.[5] It could therefore be argued that up until the introduction of the Sarbanes-Oxley Act companies’ fears were unlikely to materialise.

[1] Stuart H. Deming, The Foreign Corrupt Practices Act and the New International Norms, (American Bar Association, 2010), xvii.
[2] Andrew Spalding, ‘Unwitting Sanctions: Understanding Anti-Bribery Legislation as Economic Sanctions Against Emerging Markets’ (2010) 62 Florida Law Review 351, 357 & 357.
[3] Ibid, 368.
[4] Raymond Fishman, et al. ‘Are Corruption and Taxation Really Harmful to Growth? Firm Level Evidence’, (2007) 83(1) J.Dev.Econ. 63, 63
[5] Richard L. Cassin, Bribery Abroad: Lessons from the Foreign Corrupt Practices Act, (Lulu, 2008), 21.

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