Toward an interest group theory of foreign anti-corruption laws

Scan J. Griffith and Thomas H. Led

Foreign anti-corruption laws—laws that prohibit businesses from paying bribes abroad—have proliferated around the globe. The United States took the lead in 1977 with the passage of the Foreign Corrupt Practices Act (FCPA), which criminalized what many then considered an ordinary cost of doing business abroad.[1] Multilateral international treaties came two decades later, with the Organization for Economic Cooperation and Development (OECD) Anti-Briber}' Convention in 1998, followed by the United Nations Convention Against Corruption in 2003. Individual states’ domestic laws against foreign corruption came next, in large part because the treaties obligated ratifying countries to enact domestic laws penalizing the payment of bribes to foreign officials. But enforcement, as we shall see, trailed enactment.

Foreign anti-corruption laws present a puzzle. Why would the government of one country care to prevent corruption in another? Laws against domestic corruption are longstanding and easy to justify. Corruption—the abuse of public power for private gain—distorts political decision-making and leads to the misallocation

Toward an interest group theory 65 of government revenues, the degradation of civil services, and the disenfranchisement of the poor. Governments designed for the benefit of their people thus have a plain interest in preventing corruption at home. The reasons for promulgating laws to curtail foreign corruption, however, are much less apparent, especially considering that the principal means a government has at its disposal is to regulate the extraterritorial conduct of the domestic businesses paying the bribes to foreign officials. But without the ability to pay bribes abroad, domestic businesses may be at a competitive disadvantage vis-à-vis unregulated foreign businesses that will continue to supply bribes in bidding for the same international business contracts. The foreign competitor pays the bribe and wins the business while the domestic company suffers. Imposing pain on domestic business interests, given their lobbying power, is a dangerous political strategy for any government. So why would a government enact and then enforce foreign anti-corruption laws when the principal beneficiaries are the citizens of other countries? And, given the limited impact on the global supply of corruption of any unilateral state action, why even bother? Yet foreign anti-corruption laws exist and are increasingly being enforced across the globe.

This chapter seeks to solve the puzzle by offering an interest-group account for the spread of foreign anti-corruption laws across the globe. It is important to distinguish at the start between enactment and enforcement of foreign anti-bribery laws, because the two trends do not go together. The FCPA, for example, was sparsely enforced for more than two decades after being enacted.[2] The bevy of foreign anti-corruption laws passed by countries around the world in the wake of the OECD Anti-Bribery Convention and the UN Convention Against Corruption have also been rarely enforced until very recently in a select few signatory countries. As of 2017, 23 of the 43 states that ratified the OECD Convention had not conducted a single foreign-bribery prosecution. Moreover, despite the fanfare for the OECD and the UN conventions, and the ratification of regional anti-corruption conventions in Africa, the Americas, and Europe, direct treaty-based enforcement has generally failed to materialize.

The pace of enforcement of foreign anti-corruption laws has accelerated dramatically in the 21st century. Most significantly, FCPA enforcement in the US has ramped up not only against US-based companies but also against multinational companies, mostly from capital-exporting economies. More recently, many of the countries whose companies have been the targets of FCPA enforcement— notably, the United Kingdom, Germany, France, and Brazil—have now not only enacted foreign anti-bribery laws, but have also begun to enforce them. Many

other countries, meanwhile, continue notto enforce foreign anti-corruption laws, though most capital-exporting countries have enacted such laws.[3]

The explanation for trends in enactment and enforcement of foreign anticorruption laws outlined in this chapter breaks from the existing literature. Much of the prior academic work focused exclusively on the FCPA and explains it either as a tool for the altruistic advancement of human rights or, alternatively, as a tool for prosecutorial rent extraction. Our account eschews both normatively tinged framings and looks instead to the political interest groups affected by the passage of foreign anti-bribery laws in various capital-exporting countries—not just the United States—to explain evolving trends. Our explanation also differs from institutionalist accounts that emphasize international organizations and domestic governance organs as the primary causal mechanisms for the spread of anti-corruption norms. Our analysis, by contrast, is bottom-up and focused on private interest groups, rather than top-down and focused on state institutions.

Our interest-group based theory posits that observed patterns of enactment and enforcement can be explained by looking to the incentives of each country’s domestic business lobby. Consider first the United States. Immediately after the FCPA was passed in 1977, US business interests favored lax enforcement, if not outright repeal. That was the status quo for over two decades. At the same time, a second-best preference of US multinational corporations was to obtain a ‘level playing field’ vis-à-vis foreign competitors not subject to the FCPA. This goal was eventually attained in the form of the 1998 OECD Convention and, just as critically, in resultant amendments to the FCPA empowering the US Department of Justice (DOJ) to enforce the statute vigorously against foreign companies with some connection to the US. Achieving robust enforcement against foreign

Toward an interest group theory 67 competitors was a key component of getting US business interests on board.[4] But our story’ does not end there.

Now consider the incentives facing a foreign multinational corporation in the wake of the OECD Convention. The best case would be for its home jurisdiction not to enact any foreign anti-bribery law, but that option is foreclosed by the explicit provisions of the Convention. The second-best option is lax home-state enforcement after enactment, which was the outcome multi-national corporations in OECD countries with foreign-corruption laws did achieve for over a decade.

The incentives of foreign multi-nationals changed, however, after the US Congress amended the FCPA in 1998 to permit enforcement against foreign companies based on minimum contacts with the United States—for example, by currency passed through a US depository' institution—and the DOJ and Securities and Exchange Commission (SEC) demonstrated willingness to carry’ out aggressive enforcement against them. Those that bore US enforcement risk now had a substantial incentive to stop paying bribes anywhere and to implement strong FCPA compliance programs. Such compliance measures put these foreign companies at a competitive disadvantage with respect to regional and domestic competitors who operated without significant US enforcement risk and who therefore continued to pay' bribes to win international business contracts. Consequently, foreign multinationals subject to FCPA enforcement developed a level playing field interest parallel to that of US multinationals prior to enactment of the OECD. But for foreign companies, a level playing field entailed enactment and enforcement of foreign anti-bribery' laws in home jurisdictions as against their domestic and regional competitors. This is the world the multinationals eventually got, starting in the United Kingdom and Germany.

This chapter argues that this private business interest-group account explains observed global patterns of enactment and enforcement of foreign anti-corruption laws better than existing explanations grounded in altruism, governmental interests, or international institutional analysis. This account also enables us to make better predictions about future trends in foreign anti-corruption laws than the alternative theories. Specifically, our interest-group explanation allows us to make two concrete predictions regarding enactment and enforcement patterns going forward.

Countries are more likely' to adopt and enforce foreign anti-corruption laws on businesses operating within their borders once multinational businesses based in those jurisdictions face significant risks of enforcement in other jurisdictions, such

as the United States or the United Kingdom. This leads to a critical implication for the fight against global corruption: the best way to get countries to enact and enforce foreign anti-corruption laws is to enforce your own anti-corruption laws against their companies. In other words, the best way to get France to enforce its Law on Transparency, Combating Corruption and Modernization of Economic Life, commonly referred to as ‘Sapin II,’[5] is to enforce the FCPA or the UK Bribery Act against French multinationals.

Countries with few or no multinational corporations and therefore no realistic extra-territorial enforcement risk will be relatively immune to pressure from foreign anti-corruption laws. Even if such a jurisdiction were to enact such laws, insofar as businesses operating within it are not subject to an appreciable threat of extra-jurisdictional enforcement, there will be no real incentive for that country to enforce its own foreign anti-corruption laws. Foreign anti-bribery laws, in other words, are the supply-side solution to a first-world problem: multinational companies paying big bribes abroad. They may fail to solve the problem of bribes paid by companies beyond the reach of first-world enforcement.

But the lens of an international relations theory shows a way that the global anti-corruption norm might yet prevail. ‘Hegemonic stability theory’ examines the conditions under which a global hegemon might provide a public good that benefits all nations, like free trade or a corruption-free international economic order. A variant on the theory posits that a critical mass of leading countries that are enforcing foreign corruption laws, known as a ‘k-group,’ might also jointly provide a public good under certain conditions. It may be the case that we are witnessing the formation of a hegemonic k-group of states forming around a global anti-corruption regime—the United States, Brazil, and Western European nations.

The presence of a foreign anti-corruption k-group of capital-exporting countries may change the incentives in capital- importing states in the following way. Imagine a government official in a capital-importing country who is considering taking a bribe in awarding the contract for a large infrastructure project. Companies from the k-group will not pay bribes, fearing enforcement of foreign anti-corruption laws; companies from non-k-group countries will pay bribes. But if the official accepts a bribe and awards a contract to a non-k-group company, he or she will have to explain why the bids from k-group companies were rejected. Insofar as k-group companies may be viewed as offering higher-quality work than non-k-group companies, this may be a difficult decision for the official to rationalize. In other words, if the traditional competitors of American companies—British, German, and French companies with good reputations—are no longer willing to offer bribes, the official will have a harder time explaining why he or she awarded the contract to a less established company from a country that still does not

Toward an interest group theory 69 enforce foreign anti-corruption laws. This realignment of demand-side incentives on the part of potential bribe recipients will only increase as the k-group spreads due to supply-side incentives.

China is a wild card in both stories. Because many of its international businesses are state-owned or state-influenced, China may be immune to the business-interest incentive story' we are telling. In other words, because our model depends upon the incentives of private business interests—interests that are not as pronounced in China given the role of the Chinese state in enterprise—it does not allow us to venture a strong prediction regarding China. And to the extent that China commands a large share of international business contracts, the willingness of its state-owned or state-influenced companies to bribe may suffice to counteract the anti-corruption norm of the k-group. It is possible that we are headed toward a world of dueling hegemons.

This chapter proceeds as follows. Part 1 highlights important conceptual distinctions between foreign versus domestic corruption and why eliminating foreign corruption became a global policy priority. Part 2 develops our interest-group causal story, tracing the path of enactment and enforcement of the FCPA—the first and most prominent national foreign anti-corruption law—through the lens of domestic business interests. The US business community’s successful lobbying for multilateral treaties to ‘level the playing field,’ which culminated in the OECD Convention, is a key part of this story. Part 3 surveys existing literature and explanations for the rise of foreign anti-corruption laws. It then introduces our contending explanation, which brings in international relations theory' by applying hegemonic stability theory' and its offshoot k-group theory' to explain evolving patterns in the enactment and enforcement of foreign anti-corruption laws. Part 3 also offers predictions on the future trajectory' of laws in this area as well as a framework that can be applied to other international legal contexts. Part 4 then tests our explanation against observed patterns in the enactment and enforcement of foreign anti-corruption laws in other countries in the wake of the OECD Convention. A brief conclusion follows.

  • [1] An earlier version of this chapter was first published as an article in the University' of Illinois Law Review. 2 Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213,91 Stat. 1494 (1977), amended by the Omnibus Trade and Competitiveness Act of 1988, Pub. L. No. 100-418, tit. V, §§ 5001-03, 102 Stat. 1415 (1988), and the International Anti Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366 (1998) (codified as amended at 15 US Code ss 78m, 78dd-l, 78dd-2, 78dd-3, 78ff (2018)). 3 Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, adopted by the Negotiating Conference, 21 November 1997 37 ILM 1 (OECD Convention). 4 United Nations Convention against Corruption (opened tor signature 9 December 2003, entered into force 14 December 2005) 2349 UNTS 41 (UNCAC). 5 Article 2 of the OECD Convention provided that ‘Each Party' shall take such measures as may' be necessary, in accordance with its legal principles, to establish the liability' of legal persons for the bribery of a foreign public official.’ Article 16 of the UNCAC mandated that ratifying states ‘adopt such legislative and other measures as may' be necessary to establish as a criminal offence, when committed intentionally'... the promise, offering or giving to a foreign public official ... directly or indirectly, of an undue advantage’ to ‘act or refrain from acting in the exercise of his or her official duties’ related to international business.
  • [2] See text at n 96ff. 2 See text at n 148ff. 3 See OECD, Fighting the Crime of Foreign Bribery: The Anti-Bribery Convention and the OECD Working Croup on Bribery (2018). 4 See text at n 96ff. 5 See text at n 148ff.
  • [3] Ibid. 2 See, e.g., Andrew Brady Spalding, ‘Corruption, Corporations, and the New Human Right’ (2014) 91 Washington University Law Review 1365. See also Matthew Murray and Andrew Spalding, Freedom from Official Corruption as a Human Right (Brookings Institute 2015) 2. 3 See, e.g., Mike Koehler, ‘Measuring the Impact of Non-Prosecution and Deferred Prosecution Agreements on Foreign Corrupt Practices Act Enforcement’ (2015) 49 UC Davis Law Review 497, 522 (arguing that ‘the use of NPAs and DPAs also allows the DOJ to feed its lucrative FCPA enforcement program’). See also Mike Koehler, ‘The Uncomfortable Truths and Double Standards of Bribery Enforcement’ (2015) 84 Fordham Law Review 525, 541-544 (pointing to inconsistencies between the aspirational goals of ending bribery and enforcement patterns of the FCPA). 4 See, e.g., Rachel Brewster, ‘Enforcing the FCPA: International Resonance and Domestic Strategy’ (2017) 103 Virginia Law Review 1611, 1619 (arguing that the FCPA required ‘international resonance’ through the OECD before it could be meaningfully enforced). See also Rachel Brewster and Samuel W Buell, ‘The Market for Global Anticorruption Enforcement’ (2017) 80 Law and Contemporary Problems 193, 198-200 (explaining FCPA enforcement patterns by reference to the institutional incentives of enforcers). 5 See text at n 57ff. 6 See text at n 57ff. 7 See text at n 82ff.
  • [4] See Brewster (n 14) 1615 (arguing that ‘the FCPA could not be robustly enforced until federal prosecutors could adopt ... an enforcement strategy’ that allowed them to charge both American corporations and their foreign rivals, thus creating a level playing field in international commerce’). 2 See (n 5) and accompanying text. 3 See text at n 148ff.
  • [5] See text at n 148fif. 2 See text at n 12Iff. 3 See text at n 12Iff.
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