The DOJ China Initiative and the Shifting Policy Goals for the FCPA

Last November, then-US Attorney General Jeff Sessions announced the creation of a new Department of Justice (DOJ) “China Initiative.” The main focus of this initiative is not corruption, but rather the theft of intellectual property by Chinese corporations, as detailed in a 200-page report published by the Office of the U.S. Trade Representative in March 2018, as well as a subsequent report from the White House Office of Trade and Manufacturing Policy. But while most of the DOJ’s China Initiative focuses on this issue, the memorandum describing the initiative listed a number of additional goals, one of which caught the attention of the anticorruption community: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

This reference to enforcing the FCPA against companies from a particular country is quite unusual. According to Eric Carlson at the FCPA Blog, “No one with whom I have spoken can recall another situation where the DOJ has announced that it would target companies headquartered in a specific country for FCPA enforcement.” This aspect of the China Initiative has provoked a strong and generally negative response from members of the anticorruption community. For example, former State Department attorney Kate Hamann worried that the China Initiative exposed the US government to the accusation of “unfairly targeting Chinese individuals and companies.” This concern was echoed by Professor Stephenson, who argued that the project sets a “bad precedent” by explicitly using the FCPA as a tool to protect U.S. companies from foreign competition.

One largely overlooked aspect of the FCPA component of the China Initiative is the degree to which it contradicts one of the main policy goals of the Congress that enacted the FCPA back in 1977. That Congress viewed the FCPA as a way to improve relations with foreign countries, a policy goal that has largely disappeared in subsequent decades. In its place, enforcement agencies (and Congress, in amendments to the FCPA) have developed a theory in which the primary purposes of the FCPA are to protect businesses that “play fair,” and to promote good business practices more generally. (This shift in policy goals was largely made possible by a revision in the text of the FCPA which allowed US enforcement agencies to bring enforcement actions against a wider range of foreign entities.)

In this post, I trace the changing policy objectives of the FCPA to demonstrate the degree to which the Act has historically served a wide range of sometimes contradictory policy goals. I then draw upon that history to suggest two reasons that the China Initiative’s combative posture may be cause for concern.

One of the FCPA’s primary policy goals was to improve relations with foreign countries. The Report accompanying the original House bill provided multiple examples in which foreign bribes by U.S. companies had threatened important diplomatic relationships, and emphasized that this sort corporate bribery could can create foreign policy headaches for the United States. As the House Report put it, “The revelation of improper payments invariably tends to embarrass friendly governments, lower the esteem for the United States among the citizens of foreign nations, and lend credence to the suspicions sown by foreign opponents of the United States that American enterprises exert a corrupting influence on the political processes of their nations.” This focus on foreign relations was also evident in the legislative debates at the time. For example, Senator Church, one of the FPCA’s principal proponents, argued during Senate debate that “U.S.-based corporations should not be allowed to weaken a friendly government,” while Deputy Secretary of the Department of Defense Robert Ingersoll testified that “grievous damage has been done to the foreign relations of the United States by recent disclosures of unsubstantiated allegations against foreign officials.” More generally, members of Congress worried that international corruption allowed U.S. companies to interfere in complex diplomatic relationships. “Surely,” said Representative John Moss, “the public expects more than to have foreign policy made in the board rooms of United Brands or Lockheed.”

But by the late 1990s, when FCPA enforcement started to ramp up after a long period of relative inactivity, the idea that the FCPA should be used to protect U.S. foreign relations had largely been eclipsed by the idea that the Act should be used to protect U.S. businesses. The 1998 amendments to the FCPA focused much more heavily on the economic harms of corruption, and the House Report accompanying those amendments declared that the “goal of the United States”—the goal, that is, of the FCPA—is “the promotion of stronger, more reliable, and transparent foreign legal regimes that, in turn, make for more reliable and attractive investment climates.” The FCPA advanced this goal, the Report explained, because transnational bribery could “undermine the goals of fostering economic development, trade liberalization, and achieving a level playing field throughout the world for business.”

A little more than a decade later, the foreign relations theory behind the FCPA had all but disappeared. For example, the 2012 FCPA Resource Guide, jointly promulgated by the DOJ and SEC, identified a long list of problems that arise from corruption, including adverse economic effects, erosion of the rule of law, and the promotion of criminal activity, but did not mention how overseas corruption by U.S. companies overseas can complicate U.S. foreign relations. Indeed, the guide mentioned the foreign policy concerns motivating the FCPA only in passing (and didn’t cite the House Report or any of the legislative history). Likewise, in public statements following recent FCPA enforcement actions, U.S. officials have emphasized the economic and rule-of-law consequences of corruption, not U.S. foreign relations objectives. (See, for example, here and here.) I’ve looked for, but have not found, any examples of the DOJ or SEC identifying improving of foreign relations as one of the intended purposes of FCPA investigations.

In this context, the China Initiative’s emphasis on FCPA investigations of Chinese firms represents an even greater shift from the Act’s original foreign policy justifications. Now, instead of emphasizing how FCPA enforcement can improve U.S. relations with foreign governments, the tone of the China Initiative is expressly combative, and encourages the DOJ to use the threat of FCPA enforcement actions against Chinese companies as a tool for extracting behavior change from Chinese companies or the Chinese government agencies that supervise them.

Does all of this matter? From a legal perspective, probably not. But from a policy perspective, this historical overview helps us understand two reasons to be concerned with the China Initiative’s adversarial approach to anticorruption.

  • First, this more overtly adversarial posture appears unaccompanied by any type of congressional approval. In contrast, the previous shift in FCPA policy — focusing on promotion of fair business practices, and not on improving U.S. foreign relations — was contemplated by Congress in the 1998 amendments to the FCPA. Of course, congressional buy-in is not a legal necessity, as long as the DOJ and SEC are staying within the bounds of the power granted them by the FCPA. But congressional input might at least be prudent, especially since the China Initiative runs the risk of provoking retaliatory actions by China.
  • Second, the China Initiative runs counter to the trend toward greater international cooperation in anticorruption enforcement, a theme that US enforcement agencies repeatedly emphasize (see here, here, and here). The China Initiative’s suggestion that FCPA enforcement will target a specific country is in some tension with the idea of combating corruption through international cooperation. Of course, it is possible for the United States to collaborate with some countries on anticorruption investigations and to use anticorruption investigations as a threat against other countries. But there’s still a risk that the United States, after successfully turning anticorruption into a transnational, cooperative effort, might undermine some of that work by overtly using anticorruption investigations as a threat to extract certain behaviors from specific countries.

The China Initiative is still fairly new, so it’s too early to make any conclusive judgments, but a few things remain fairly certain. First, the Initiative marks a departure from the previous, dominant understanding of the policy goals of the FCPA, and a nearly 180-degree switch from one of the policy goals that motivated the original Congress that enacted the FCPA. And second, for the reasons described above, that policy change might be cause for concern.

6 thoughts on “The DOJ China Initiative and the Shifting Policy Goals for the FCPA

  1. As Prof. Strange once wrote, “Cave! Hic Dragones” — Kevin, you should realise that this topic is taboo in the too often intellectually dishonest world of American FCPA / anti-corruption commentary. The truth about the fundamental US policy motivations for the FCPA – being to address serious matters affecting US foreign policy and foreign relations that were caused by corrupt American companies bribing whomever the liked, regardless of consequence to US foreign policy – is off limits because it doesn’t fit the finely crafted, dual narratives “American moral leadership” and “level playing field” that were used to justify forcing rival competitor states to enact statutes banning foreign bribery. Fact is, the US was forced to enact the FCPA, and so forced others to ban foreign bribery too. The US has since used this statute to its commercial advantage, and it can’t get rid of it due to the constant threat of US firms going rogue and “bribing the wrong guy” and screwing with US foreign policy. I’d suggest having a close read of Prof. David Kennedy, who is largely honest about this history, but circumspect. If you’re still not sure, read between the lines of Dan Tarullo’s writings in this space; he was intimately involved in pushing the OECD Anti-Bribery Convention. But don’t expect US publishers to be interested in this space; far too much truth … err controversy…

  2. Your USA is a country of world ‘DON’, have to survive as the top culprit nation in business as well as the super-power of this globe. Nothing to say beyond it.

  3. Thanks, Kevin, for this fascinating post. I’m wondering if you have any thoughts as to why the U.S. Congress and the DOJ moved away from the “foreign relations” model of FCPA enforcement toward the “level-playing field” model. There are cynical explanations, of course, but I wonder too if there might be something problematic about using an FCPA-like statute to improve relations with “friendly governments.” The language of some of the quotes you’ve included above suggests to me a potential for selective enforcement, where we care more about what corporations are doing in “friendly” overseas jurisdictions, less so in “unfriendly” jurisdictions. In this way, the foreign relations model of the FCPA might raise some of the same troubling selective enforcement issues as the current China initiative, and in a way that would seem problematic under American prosecutorial principles.

    • Great post, Keller. I’d also be interested in your thoughts on the causes of this shift. As other comments to this post suggest, much of the world is skeptical of U.S. motives for passing and enforcing the FCPA. Is it possible that U.S. officials have shied away from advocating the foreign-policy rationale behind the FCPA because it could be construed as endorsing the view that the FCPA is merely a means of promoting U.S. interests? In other words, do U.S. officials fear that associating the FCPA with foreign policy will somehow delegitimize it in the eyes of the international community? Or is this shift just a result of American politicians pushing a narrative that they believe will appeal to their constituents (perhaps because they see their constituents as exhibiting a “what’s in it for me” attitude when it comes to international relations)? I’m sure there are other explanations too, but those are two possibilities that came to my mind.

  4. Amazing discussion, Keller. I we often hear complaints in the international community of countries using anti-bribery laws to further their economic interests and while these comments are often seen of some sort of conspiracy theory, initiatives as such feed this narrative. In this blog, we had Professor Stephenson arguing that the U.S. might be losing the leadership of anticorruption enforcement in the global context. Do you believe that coupled with a more general perspective of a less proactive attitude in the fight against transitional corruption, initiatives as the one you describe can also contribute to put in jeopardy the U.S. leadership?

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