Should FCPA Enforcers Focus on Corruption in the Poorest Countries?

A few months ago, the Wall Street Journal published an interview with Charles Duross, the current Morrison & Foerster partner who up until last February led the U.S. Justice Department’s Foreign Corrupt Practices Act Unit. Among the interview’s most interesting revelations was Duross’s description of how he set enforcement priorities. When asked about likely future priorities Duross provided this response:

To be clear we do prioritize cases, based on the significance of the case. For example how big are the bribes? Are we talking about $100 million or $100? But in terms of saying “I have decided what we’re going to do is look at X industry or everybody that’s going to be dealing with this country or this region, and we’re going to scrub those folks in particular,” I don’t think we do that.

Although Duross may well be correct that DOJ doesn’t target particular countries or regions, there is some evidence that FCPA enforcement does disproportionately involve particular kinds of countries–in particular, poorer countries and countries with poorer governance. A working paper by Stephen Choi and Kevin Davis (which Matthew also discussed in a recent post) found that “aggregate total monetary sanctions related to a particular violation country, controlling for the overall bribe level in that country, is greater for countries with a lower GNI [gross national income] per capita, as well as weaker government effectiveness and rule of law scores.” What to make of this? Is it true that companies are penalized more heavily (controlling for the size of the bribe) when they pay bribes in poorer countries with less effective legal systems? If so, is this desirable?

First, it’s important to note that while Choi & Davis’s finding might indicate that U.S. prosecutors (either individually or collectively) have “altruistic” tendencies – that is, an eagerness to slam companies whose behavior is most harmful to the development of low-income states–that is not necessarily the case. After all, even if U.S. enforcers don’t consider poverty or governance quality in the demand-side state at all (as Duruss implies they don’t), it might still be the case that bribery in such countries tends to have more egregious facts or is more easily proven (think briefcases of money, as opposed to secret wire transfers).

But let’s suppose that, whether consciously or not, U.S. enforcers do indeed come down harder on companies that pay bribes to officials in poorer, or more poorly governed, countries. Perhaps this “bias”, if it exists, is a good thing, in that corruption may be most harmful in the very low income countries–this is the “altruism” that Choi & Davis discuss.

However, criminal punishment under the FCPA is supposed to reflect moral culpability, and companies that have engaged in corruption in lower-income countries may tend to be less culpable than those engaging in corruption in higher-income countries, for two reasons. First, a company’s local employees in a poorer country, or a country with weaker rule of law, are less likely to be familiar with international anti-bribery standards. Second, companies in countries characterized by endemic corruption (which tend to be both poorer and more poorly governed) are more likely to be exposed to situations where they face strong pressure to bribe officials to continue doing business at all. Contrast this to companies who engage in bribery in countries where corruption, though a problem, is less systemic, and company employees are less likely to face extortionate demands.

So at the very least, there’s a tension between one of the policy goals that may undergird the FCPA (fighting corruption in the countries where it is most harmful) and criminal law’s traditional culpability norms (reserving the harshest sanctions for the actions that are most morally blameworthy). There’s no clear answer to how to resolve this conflict, at least in terms of substance. But the existence of these kinds of tensions may suggest that the DOJ’s current approach to investigation and charging decisions in FCPA cases should be modified. The tensions between moral culpability and the policy goals behind the FCPA seem like they should be resolved at a higher level, with the input of appointed officials who are more likely to have an eye to DOJ’s overall policy goals. Such oversight, or at the very least clearer prosecutorial guidelines, might help ensure that line prosecutors aren’t unintentionally exacerbating systemic problems in anticorruption enforcement.

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