Occasionally one hears—particularly though not exclusively from the U.S. business community and corporate defense bar—the assertion that aggressive U.S. enforcement of the Foreign Corrupt Practices Act (FCPA) is the result, at least in part, of the desire to raise revenue for the U.S. government. (See here, here, here, and here.) This claim that the FCPA is a government “cash cow” is sometimes offered as a knowing (or cynical) explanation for why the government is allegedly “over-enforcing” the statute. Even among some scholars with less of a personal or professional stake in criticizing the U.S. government’s motives, the idea that FCPA enforcement advances the U.S. national interest by increasing U.S. government revenues seems to be occasionally finding its way into the discourse.
There are, to be sure, lots of legitimate questions about the motives and wisdom of the U.S. government’s current approach to enforcing the FCPA. But the notion that FCPA enforcement is driven by the desire to raise revenue (from beleaguered, helpless multinational corporations) is just implausible. Indeed, I’m surprised so many extremely intelligent people seem to entertain this argument rather than dismissing it outright.
Why do I think it’s so implausible? Two main reasons:
- First, even though the total FCPA fines and penalties paid annually to the U.S. government seem large, they are very small relative to the overall U.S. government budget. Over the five-year stretch from 2010 to 2014, the annual amount recovered by the U.S. government from corporate defendants in FCPA cases was around $972 million, which certainly sounds like a lot. However, total U.S. government revenue in the 2014 fiscal year was a little over $3 trillion. Average annual FCPA penalties are therefore less than a tenth of a percent of total U.S. government revenue. Even compared to the category into which FCPA penalties (and other fines and penalties) fall, “Other miscellaneous receipts,” average FCPA penalties only amount to around 2.6% of the roughly $37 billion that the U.S. government took in in FY2014. By comparison, receipts from corporate income taxes (a relatively small proportion of U.S. revenues) were about $321 billion in FY2014, more than 330 times higher than the average total FCPA penalties over the last five years. Moreover, in thinking about whether the aggressiveness of the DOJ and SEC in FCPA cases is motivated by revenue concerns, what matters is not total FCPA fines and penalties, but rather the difference between (A) total FCPA penalties with an aggressive enforcement strategy (one that, as the critics would have it, whacks the hapless corporate defendants like a piñata until the cash falls out) and (B) total FCPA penalties under a more moderate enforcement strategy. How much of a difference, in annual dollar terms, would that difference in enforcement strategy make? If the U.S. government took a less aggressive approach to enforcing the statute—more along the lines of what the critics claim they want—by how much would it reduce the average annual FCPA penalties paid to the U.S. treasury? By 10%? 20? Let’s be generous and say that if the U.S. government were less aggressive in its FCPA enforcement strategy, average annual FCPA penalties would drop by one-third—that is, by approximately $324 million. If that’s the case, then (again taking FY2014 as a baseline) the U.S. government’s aggressive FCPA enforcement strategy increases the U.S. government’s total revenue why a whopping one-hundredth of one percent.
- Second, and perhaps more importantly, there is no evidence that the DOJ prosecutors and SEC enforcement officials have any structural incentives to focus on revenue generation as an objective, nor is there any reason to suppose that their professional backgrounds would make them think about their jobs in revenue-raising terms. (It’s important to keep in mind here that none of the penalties that the DOJ or SEC collect in FCPA cases go directly into either agency’s budget; under the Miscellaneous Receipts Statute, that money goes to the U.S. Treasury. So claims that the DOJ uses FCPA enforcement to supplement its own budget are particularly wide of the mark.) I’ve never seen anyone point to a shred of evidence that the Treasury Department or the Office of Management and Budget consult with the DOJ or SEC about the the role of the FCPA, or any other criminal statute, as a source of government revenue. This does not mean that DOJ and SEC officials don’t care about getting big fines and penalties. Lots of these folks are career attorneys who take pride—and reap career benefits—from securing big settlements in high-profile cases. Also, as I have argued elsewhere, the large amounts of money collected by the U.S. government in FCPA cases may be helpful to proponents of vigorous FCPA enforcement in arguing for the allocation of government resources to FCPA enforcement–perhaps in the face of skepticism about whether fighting corruption abroad is a worthwhile focus for the U.S. government. I don’t doubt that the rhetoric of “enforcing this statute (more than) pays for itself” sometimes finds its way into these debates about budget allocation. And it’s certainly possible, as FCPA critics often allege or imply, that these incentives to secure large, headline-grabbing penalties might distort enforcement practices in undesirable ways. But to evaluate whether or not this claim is true, we’d need to examine carefully the motives and incentives of prosecutors (or perhaps of the DOJ and SEC as organizations), rather than making broad claims that the U.S. government has an interest in (over-)enforcing the FCPA as a way to raise government revenues. That latter claim is flawed as a matter of logic and lacks any persuasive supporting evidence.