So, corruption is cool again. Not so fast!
Yesterday, I was asked by an investor what the impact would be of the (temporary) suspension of the Foreign Corrupt Practices Act (FCPA) enforcement. Specifically, they asked:
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“How might the halted FCPA enforcement affect the competitive landscape for U.S. companies operating in countries with high corruption risks?
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What are the potential long-term reputational risks for U.S. companies that may relax their anti-corruption practices during this non-enforcement period?
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How should U.S. companies adapt their internal governance and compliance strategies to navigate this period of regulatory uncertainty?
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What implications does the halted FCPA enforcement have on U.S. companies’ relationships with foreign partners and their ability to conduct due diligence?“
My response went something like this.
Bribery is illegal everywhere, but enforcement is weak in most places. FCPA enforcement saw the DOJ/US act as corruption ‘world police’. FCPA enforcement didn’t just target US firms (most fines went to foreign businesses with ties to the US, e.g., subsidiaries). So, the police force was not just policing its citizens but most MNCs.
Other transnational legislation exists (notably the UK and France), but their agencies lack the capacity/funding to prosecute. This context is crucial, as it helps answer your questions.
- Predatory or opportunistic corrupt officials may ‘test’ US firms by being more brazen in soliciting bribes. However, the real effect of halted enforcement will be much more significant than just US MNCs. Any firm that wants to bribe will be emboldened. This move doesn’t improve US competitiveness.
- I can’t see many US entities scrubbing anti-corruption policies and saying, “Have at it”; it’s still illegal everywhere. “Relaxing”, if it comes, will be in the loosening of internal enforcement (audits, investigations, monitoring, etc.) and pulling of resources (e.g., shrinking compliance). The reputational exposure may stem from this “relaxing” being leaked, which it will be.
- They shouldn’t (beyond tweaking FCPA-referencing wording, if they feel that’s needed). Bribery/corruption remains illegal, and like other poorly enforced legislation (e.g., fraud), most firms will still want to prevent it.
- It depends. Less ethical US firms may now be able to deal with partners who were too ‘hot’. However, it’s unlikely that foreign partners (often within the FCPA’s extraterritorial scope) will view U.S. firms as some distinct subset now—no impact on ability to conduct DD.
If you’re investing in mid-caps and scale-ups, the FCPA was never what they feared. For those firms, especially in emerging markets, corruption is not some looming threat of enforcement by an omniscient world police. It’s a bleeding, insidious, parasitic grind on the wheels of operation. The impact of Trump’s rollback may send tremors through the legal teams in listed MNCs. Still, for the rest of us, corruption remains a scourge that impairs business continuity, harms our stakeholders, and creates significant opportunity costs. In other words, we continue to fight the good fight and prevent a practice as harmful to business as any other form of extortive criminality.
How do you think this news will impact you?