Solicitation, Extortion, and the FCPA

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. INTRODUCTION I. FCPA ENFORCEMENT A. Background 1. Anti-Bribery Provisions 2. Accounting and Internal Control Provisions B. Recent Enforcement Trends II. DEMAND-SIDE PRESSURES: THE PROBLEM OF BRIBE SOLICITATION AND EXTORTION A. Nature and Frequency of Bribe Demands B. Costs C. Incongruity of the FCPA and Other International Anti-Bribery Instruments D.FCPA Enforcement in Cases of Solicitation and Extortion... III. GOVERNANCE AND COMPLIANCE CHALLENGES A. Practical Issues B. Expansive and Aggressive Statutory Interpretation 1. The Meaning of "Corrupt" and the FCPA's Business Nexus Requirement 2. The Facilitation Payment Exception 3. Who Is a "Foreign Official"? 4. Implications: Increased Monitoring Costs and the Risk of Overdeterrence IV. SUGGESTIONS AND ALTERNATIVES A. Changes to the FCPA 1. Permit All Bribes 2. Clearly Prohibit All "Bribes" a. Clarifying the Purpose of Anti-Bribery Legislation b. Normative Fairness Concerns c. Market Exit B. Enhanced Regulatory Guidance C. Demand-Side Intervention CONCLUSION INTRODUCTION Maintaining compliance with the Foreign Corrupt Practices Act (FCPA) a represents one of the most significant issues facing American firms today. The U.S. Department of Justice (DOJ) recently said that enforcing the FCPA, which prohibits firms from bribing foreign officials to obtain business, is now its top priority--"second only to fighting terrorism." (2) This has translated into a sharp rise in FCPA case volume during the past decade. (3) Last year alone saw more FCPA actions than ever before in the statute's thirty-three-year history, with resulting fines routinely reaching into the hundreds of millions of dollars. (4) Estimates further suggest that federal regulators currently have over 200 open FCPA investigations, (5) leading to the observation that FCPA enforcement is "at an all time high and likely to remain there." (6) In many respects the increasing rate of enforcement is a positive development. Bribery blights lives, undermines democracy, and distorts markets. The FCPA's resurgence is a key part of the global anticorruption response and encourages firms to adopt compliance programs designed to counter corrupt practices. …