Overcriminalization in action: the FCPA

Larry Ribstein —  1 August 2011

I have written about the problems of criminalizing corporate agency costs and the intersection between these agency costs and the agency costs of the government agents who prosecute the crimes.

Joe Yockey, in his recent paper Solicitation, Extortion, and the FCPA, shows that Foreign Corrupt Practices Act prosecutions provide a particularly acute illustration of these issues.  Here’s the abstract:

The U.S. Foreign Corrupt Practices Act (FCPA) prohibits firms from paying bribes to foreign officials to obtain or retain business. It is one of the most significant and feared statutes for companies operating abroad. FCPA enforcement has never been higher and nine-figure monetary penalties are not uncommon. This makes the implementation of robust FCPA compliance programs of paramount importance. Unfortunately, regardless of whether they have compliance measures in place, many firms report that they face bribe requests and extortionate threats from foreign public officials on a daily basis. The implications of these demand-side pressures have gone largely unexplored in the FCPA context. This Article helps fill that gap. First, I describe the nature and frequency of bribe solicitation and extortion to illustrate the scope of the problem and the costs it imposes on firms and other market participants. I then argue that current FCPA enforcement policy in cases of solicitation and extortion raises several unique corporate governance and compliance challenges, and ultimately poses a risk of overdeterrence. Though these concerns can be partially addressed through enhanced statutory guidance, I conclude by urging regulators to shift some of their focus from bribe-paying firms in order to directly target bribe-seeking public officials. Confronting the market for bribe demands in this way will help reduce corruption in general while also allowing employees and agents to spend less time worrying about how to respond to bribe requests and more time on legitimate, value-enhancing transactions.

I note in my article that “[i]t can be particularly hard to define when corporate agents’ behavior crosses the line into criminal conduct.” These problems seem especially acute in FCPA cases. The inherent difficulty of drawing the line between bribery and extortion is exacerbated by the fact that, as Yockey says, “[i]n many countries, payments made in response to subtle hints by foreign officials do not breach obvious social norms in the same way that behaviors like theft or assault do.”

The FCPA turns the screws by forcing firms to record all payments while increasingly failing to appropriately distinguish bribes from excusable responses to extortionate threats. As Yockey points out, “[t]his dynamic can confuse firms that are legitimately trying to comply with the law and limit their ability to provide instructions that will give agents and employees clear direction.”

Why, you might ask, is FCPA liability escalating?  Yockey suggests one possible explanation is that “[t]he rise in FCPA enforcement has produced a cottage industry of FCPA experts, including lawyers, accountants, and consultants at prestigious firms, which DOJ and SEC personnel often join after leaving their federal jobs for considerably higher compensation.”  Of course more prosecutions mean more jobs.  This nicely illustrates the “revolving door” problem I discuss in my article (which Yockey cites).

The article paints a classic picture of over-criminalization in action and how a poorly designed and over-enforced law is crippling U.S. firms ability to compete internationally.

Larry Ribstein

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Professor of Law, University of Illinois College of Law

5 responses to Overcriminalization in action: the FCPA

  1. 

    i also agree the rise in FCPA enforcement has produced a cottage industry of FCPA experts, including lawyers, accountants, and consultants at prestigious firms

  2. 

    it is hard to credit this note with even being one dimensional.

    Ribstein doesn’t understand that the FCPA represents the sound policy of trying to prevent the following, suggested a recent jury verdict here in Missouri.

    Mining company is offered license to mine lead if it pays a bribe. The mining company, having no moral compass of its own, pays the bribe, and makes up the losses by environmental damage by releasing lead poisoning the locals instead of incurring costs of cleanup. Truth is discovered, gov’t, formerly favorable to US is overthrown, with attendant billions in losses because defense bases have to be moved to another country.

    IOW–every time Ribstein argues that those without a moral compass need a free pass what he is actually arguing for is nothing but socializing losses. The profits go to those without a moral compass; the losses, we the taxpayer pay those.

    Every time I read Ribstein I recall a Mark Lanier story. Opening statements have been completed at about 4:15 in the afternoon. Lanier stands up and states, Your honor, Plaintiff calls the defendant’s representative, John Doe, as a witness. Ribstein, for the defense, objects. Your honor, Mr. Doe has not been prepared to testify. Lanier retorts, Your honor, I wasn’t aware that a witness need preparation in order to be able to tell the truth.

    My two cents—its not hard to run an honest business.

    http://en.wikipedia.org/wiki/Privatizing_profits_and_socializing_losses

  3. 

    Is it a bug or a feature of the idea of urging “regulators to shift some of their focus from bribe-paying firms in order to directly target bribe-seeking public officials” that the latter are, almost by definition, outside of the jurisdiction of the regulators?

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