The Hidden Costs of the FCPA Pause (Part 2): Will SMEs be the Biggest Losers?
The Hidden Costs of the FCPA Pause (Part 2): Will SMEs be the Biggest Losers?
The Foreign Corrupt Practices Act (FCPA) has been a critical part of global business integrity since its adoption in 1977; it formed the cornerstone for global anti-bribery and anti-corruption norms. At its core, it deters bribery and ensures fair competition. The FCPA benefits multinational corporations (MNCs) and small and medium enterprises (SMEs) by creating a global market where every business can compete fairly. The Trump administration executive order pausing FCPA enforcement signals that FCPA enforcement may weaken. This shift in global anti-corruption and anti-bribery regulatory compliance enforcement will create uncertainty and instability. This uncertainty and instability will impact all businesses, but SMEs will face unique challenges in this new regulatory environment.
Strong FCPA enforcement encourages fair competition. Discouraging bribery and corruption in global business is an advantage for SMEs with limited compliance resources. Oftentimes, compliance functions for SMEs collapse into legal or human resource functions. SMEs can develop appropriate systems for their size and risk exposure. However, they become vulnerable in a weakened regulatory environment. A weakened FCPA may embolden bad actors. SMEs will need to be ready to face more exposure to corruption, unfair competition, and unethical business practices.
A Weakened Regulatory Environment Disadvantages SMEs
Large corporations with robust compliance processes may continue to uphold anti-bribery measures, especially as they may have compliance obligations in multiple jurisdictions. However, SMEs may struggle to keep up with evolving regulatory expectations. The costs for SMEs may include:
Increased Due Diligence Requirements: MNCs may fill in the gap caused by decreased FCPA enforcement and increase their due diligence expectations. This will place more compliance burdens on SMEs with limited resources.
Increased Costs: A natural consequence of increased due diligence expectations for SMEs is increased costs. If SMEs are unable to cover the costs of these burdens, they may be removed from supply chains that prioritize compliance, ethics, and integrity.
Exclusion from Markets: If unethical competitors take advantage of a shifting regulatory environment to cut costs and engage in corruption, then SMEs will again be excluded from markets where corruption is tolerated.
For SMEs, proactive compliance practices in a regulatory environment with consistent enforcement are the key to growth.
Strong enforcement of anti-corruption and anti-bribery is not just a matter of doing what is right but also a mechanism that creates fair competition. Weakened FCPA enforcement will have a disproportionate impact on SMEs, making them the biggest losers as FCPA enforcement is weakened.
Anti-Corruption and Governance Expert