Many anticorruption activists and commentators–including many contributors to this blog (see here, here, here, and here)–dream of a world in which acts of transnational bribery would trigger not only an enforcement by the “supply-side” state (that is, the home or listing jurisdiction of the bribe-paying firm) but also parallel enforcement against the bribe-taking public officials by the “demand-side” government. In such a dream world, if a large US multinational were to bribe a public official in a developing country to obtain contracts, two things would happen: the US would prosecute the firm under the Foreign Corrupt Practices Act (FCPA) and the government official who took the bribes would be prosecuted by their domestic authorities. This would create a strong deterrent effect, both for the companies for the government officials.
I, too, support the vision of a truly global fight against corruption. But perhaps some caution is warranted. This is one of those areas where the old adage to “be careful what you wish for” may apply.
Implicit in the vision of increased demand-side prosecutions is the notion that the labor of fighting corruption will be neatly divided, with the supply-side enforcer punishing the multinational and the demand-side enforcer punishing the local official. Admittedly, this arrangement does have a certain appeal — but why should a demand-side prosecutor stop at punishing just the local officials? It is entirely within their legal right to launch a parallel investigation against the foreign multinational as well.
Put differently, if demand-side countries do become much more aggressive in pursuing transnational bribery cases, they are as much or more likely to go after the foreign company as they are to go after the local public official. More aggressive demand-side enforcement against public officials will subject bribe-paying firms to greater legal exposure overall. For a vivid recent illustration of this, consider the nearly half-billion dollar fine that China levied on the pharma giant GlaxoSmithKline for allegedly bribing Chinese doctors and hospital officials–and while we can only hope that the corrupt officials are being prosecuted in China, we know all too well that GSK is still under FCPA investigation by the US authorities for the same conduct.
This may seem like a good thing–a developing country should exercise its sovereign authority to penalize bribes paid on its soil, and heavier penalties would strengthen deterrence (especially as some studies of current FCPA penalties suggest that they are far too low to offset the economic benefits of foreign bribery). However, as Matthew pointed out in an earlier post, demand-side prosecutions of bribe-paying firms might discourage companies from self-disclosing potential violations to supply-side enforcers (such as the US DOJ and SEC), and if this perverse effect is strong enough, it might weaken rather than strengthen deterrence overall. Self-reporting is already unpalatable, but at least it leads to a predictable settlement with supply-side enforcers — if self-reporting also started triggering unpredictable demand-side prosecutions, then the calculus may change.
Even if multinationals were not concerned with saving their own skin, they may avoid self-reporting to protect the demand-side officials who gave them the undue benefit in the first place. If it became clear that supply-side prosecutions from certain countries (like the US) triggered demand-side prosecutions as well, officials in developing countries may avoid doing business with American firms. Better to deal with multinationals from jurisdictions that don’t prosecute transnational corruption at all. Faced with the unappealing prospect of losing foreign government contracts to firms from less parsimonious jurisdictions, supply-side firm may choose to avoid self-disclosure altogether.
Matthew’s earlier post, which cautions against rushing headlong into an analogous set of mis-incentives, is well worth the read to understand why a decline in self-disclosures could be disastrous for the global anticorruption movement. While I absolutely support the movement to encourage prosecution of officials who take bribes (my organization LIDS Global is exploring Ignacio Boulin-Victoria’s proposal to do just that), I raise these sobering possibilities so that us dreamers can carry on undisturbed.