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September 05, 2012 10:06 AM The International Consequences of US Anti-Bribery Law

By Henry Farrell

The New York Times had an article yesterday on the foreign consequences of the US Foreign Corrupt Practices Act.

A law intended to prohibit the payment of bribes to foreign officials by United States businesses has produced more than $3 billion in settlements. But a list of the top companies making these settlements is notable in one respect: its lack of American names. The companies that have reached the biggest settlements under the law, known as the Foreign Corrupt Practices Act, include Siemens, the German engineering giant; Daimler, the maker of Mercedes-Benz vehicles; Alcatel-Lucent, the French telecommunications company; and the JGC Corporation, a Japanese consulting company. The lone American company in the top 10 is KBR, the former Kellogg Brown & Root, a subsidiary of Halliburton, the Texas oil services company. As a group, they have paid nearly $3.2 billion in settlements.

The article doesn’t discuss the consequences that this has for enforcement of anti-bribery law in the home jurisdictions of these and other foreign companies. Sarah Kaczmarek and Abe Newman find (in an article published late last year in International Organization that there is a robust statistical effect.

The association between U.S. extraterritorial cases and national enforcement is positive and substantively very strong. Holding all other variables constant, the odds of a country enforcing its first case are twenty times greater if a country has experienced extraterritorial application of the FCPA
as compared to countries that have not. This finding offers considerable support for our expectation that extraterritorial interventions will be positively associated with the behavior of the target jurisdiction’s enforcement activities.

In other words, many countries that have anti-bribery legislation on their books are disinclined to enforce this legislation against their firms, until the US makes an issue of prosecuting their firms for them. This results in a remarkably large rise in the likelihood of subsequent enforcement.

[Cross-posted at The Monkey Cage]

Henry Farrell is an associate professor of political science and international affairs at George Washington University.