Branislav Hock, Associate Professor, University of Portsmouth
The recent decision by the Trump administration to pause the enforcement of the Foreign Corrupt Practices Act (FCPA) has ignited intense discussions among legal experts, criminologists, and policymakers (see, e.g. here). Many interpret this pause as a sign of reduced scrutiny on US corporations. However, there are crucial aspects to consider regarding this decision. This move, purportedly linked to national security interests, suggests that foreign bribery could be overlooked if it aligns with US goals. Nevertheless, one might argue that the US FCPA has anyways been predominantly enforced extraterritorially against non-US corporations, rather that US businesses, so not much is actually changing.
Understanding the FCPA
The Foreign Corrupt Practices Act, established in 1977, set out to prevent companies from engaging in corrupt practices internationally. This crucial legislation holds US, and non-US, corporations accountable for bribing foreign officials to gain or maintain business. Interestingly, the FCPA has often directed its enforcement toward non-U.S. firms, leading to a relatively lax enforcement environment for American companies (see here and here).
Key components of the FCPA include requirements for accurate record-keeping and implementing internal controls. These stipulations demand higher ethical standards from U.S. businesses operating in international markets. The act's primary aim is to promote fair competition and ethical practices worldwide.
The Recent Pause on FCPA Enforcement
The Trump administration's halt in FCPA enforcement has raised eyebrows, particularly concerning national security implications (for summary, see here). Critics argue that foreign bribery may be seen as acceptable if it supports US interests. This perspective could enable US companies to operate more liberally in markets where bribery is a common practice, potentially undermining global efforts to establish ethical business standards.
The pause on enforcement of the FCPA alone Transparency International described as a ‘major blow’, that ‘risks undermining decades of progress in tackling cross-border corruption’ and ‘will work to the advantage of unscrupulous business actors around the world’. Another commentator described the change as ‘Trump comes out in favour of corruption’.
Implications and The Duality of Enforcement
The FCPA pause is not simply a retreat from enforcement. The extraterritorial reach of US law remains significant. Research highlighted in the book "Extraterritoriality and International Bribery" notes that FCPA enforcement has historically focused on non-U.S. entities. This could mean intensified enforcement against foreign firms even if American companies face reduced scrutiny.
This nuanced situation could lead to even more selective enforcement of the FCPA, favoring U.S. businesses while tightening restrictions on foreign entities. Such a strategy could give American firms an unfair competitive edge globally. For instance, if a U.S. corporation engages in bribery in a country known for corruption while foreign firms face penalties, the U.S. firm may gain a substantial market advantage without adhering to the same ethical standards.
Combatting Corruption as a Policy Choice?
The national security rationale raises critical questions about justifying foreign bribery to serve U.S. interests. This change could enhance U.S. companies' market positions but simultaneously erode global norms surrounding corporate governance and ethical practices.
Understanding the ramifications of this enforcement pause is vital, not just for businesses but also for the integrity of international trade. The effects of the Trump administration’s FCPA enforcement pause underscore a fragile intersection of commerce, ethics, and national security, and illustrates complexity of policy considerations underlying enforcement. The world will be watching to see how US law enforcement adapts to political leadership and its rhetoric.
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