A Transparency’s Eye View on Anti-Corruption Trends (Part 1)

As part of my ongoing exploration of the shifting global landscape facing the anti-corruption community, I spoke recently with Transparency International-US Executive Director Gary Kalman, to ask which changes most concern him, and what he thinks the business community in particular should be watching. Our conversation returned often to the importance of predictability and consistency for businesses. 

In the first installment of this two-part blog, I share Kalman’s views on the immediate and longer-run implications in particular of the February 10 Executive Order on “Pausing Foreign Corrupt Practices Act Enforcement to Further American Economic and National Security,” which suspends FCPA enforcement for 180 days for a review, followed by the issuance of new guidelines. How should businesses react, and is their behavior actually likely to change? 

As Kalman pointed out, while some in the business community may like to see the permanent end of FCPA, there is no appetite in Congress for repeal. Of more concern is that FCPA suspension may embolden corrupt officials overseas to demand bribes. In response, US companies will need to balance risks and make their own assessments carefully. The FCPA statute of limitations is five years, so bribes paid today could be targeted by a future administration. Meanwhile, European laws are still applicable, and some European countries may step up enforcement. Far from helping multinationals by leveling the playing field, there is now greater uncertainty. 

In addition to the risk of future enforcement, companies face another important calculation: the business community has, collectively, spent billions developing internal anti-bribery mechanisms and expertise, both on the legal and risk assessment sides. Abandoning that infrastructure now could mean costly rebuilding in four years. In Kalman’s experience, lawyers are telling their clients to stay the course. Some might “test the waters,” as he put it, but most companies are unlikely to start trying to out-bribe the competition. 

As Kalman sees it, recent years have seen an important evolution in the business community: doing business internationally absent the rule of law will be detrimental to US and Western firms in particular. Companies have seen those real-world challenges in highly corrupt markets. Unable to get too specific, Kalman mentioned that he is aware of several companies that either abandoned plans to do business in certain countries, or pulled out after making substantial initial outlays, due to corruption challenges. Funds either invested or set aside for future operations were either lost or not put to more productive use. Companies want to avoid over-regulation, but they know a lack of clarity puts them at a disadvantage. US and Western firms want to operate in an environment in which they are familiar with the rules of the road. They see the material benefits, as Kalman stressed, citing an Asia-Pacific Economic Cooperation (APEC) report on how anti-corruption achievements have benefited businesses. For instance, that report cites a study from Guadalajara, Mexico, which showed that moving licensing and permitting online caused requests for bribes to drop by 70 percent. That represents a real savings, in addition to a smoother operating environment. Most companies will be reluctant to give up that predictability.

Marc Schleifer