Why the Law Against Business Bribes Is Good for Business

The Foreign Corrupt Practices Act has served as a global standard against corruption for almost half a century. Suspending its enforcement harms both business and the rule of law.

- By Michael H. Posner

IN FEBRUARY, THE TRUMP ADMINISTRA-tion announced that it was suspending enforcement of the Foreign Corrupt Practices Act (FCPA), pending a six-month review. It is fair to speculate that President Trump hopes to kill the FCPA altogether. This would be bad for both business and the rule of law. To understand what it means for businesses, it helps to understand why this law exists and the effect it has had since being enacted.

Until the late 1970s, U.S. companies routinely paid bribes to foreign officials around the world. The practice was seen as a cost of doing business. A 1976 investigation by the U.S. Securities and Exchange Commission (SEC) concluded that “the problem of questionable and illegal corporate payments is, by any measure, serious and sufficiently widespread to be a cause for deep concern.” A year later, the U.S. became the first country to ban corporate bribery of this sort, enacting the FCPA.

One goal of this clear prohibition is to help companies insulate themselves against demands by corrupt foreign officials. For almost half a century, the FCPA has served as a global standard and one of the most powerful tools in the fight against corruption.

Corruption is a massive problem globally. The United Nations and the World Economic Forum have estimated that corruption reduces the world’s gross domestic product by 5%, or about $5 trillion, annually. As the nonprofit anti-corruption organization Transparency International has warned, “At the company level, corruption raises costs, [and] introduces uncertainties, reputational risks, and vulnerability to extortion. It depresses a company's valuations, makes access to capital more expensive, and undermines fair competition.”

The FCPA: Protecting U.S. Business Interests