Choosing Governance in the FCPA Reform Debate

Article excerpt

The recent rise in enforcement under the U.S. Foreign Corrupt Practices Act (FCPA) has led to a vigorous debate about the need for reform. Critics say the statute is overenforced and harms shareholders. Regulators disagree and argue in favor of the status quo. This Article examines both sides of the FCPA reform debate and finds them wanting on several levels. First, a variety of factors suggest that critics' fears of overenforcement are often exaggerated. That said, proponents of existing enforcement efforts who believe that nothing needs to change are also mistaken. Instead of overenforcement, there is a risk that the FCPA is being underenforced. Instead of encouraging firms to develop anticipatory and sustainable compliance programs, current enforcement policy incentivizes a focus on static programs that are incapable of addressing the dynamic risk of corruption. Finally, the present regulatory model fails to adequately address how gaps in international anti-corruption enforcement pose unique compliance challenges on the domestic front.

This Article seeks win-win solutions to these problems by recommending a shift of focus toward regulatory strategies designed around principles of collaboration and experimentation that fall within the category of "new governance." Through a governance-based approach to regulation, firms are expected to better institutionalize context-specific compliance tools developed in consultation with the state and other actors. This approach--when ongoing and initiated outside the context of a specific enforcement action--ought to produce more effective and efficient self-regulation and fewer instances of bribery. The public-private learning process envisioned by new governance should also enhance the United States' efforts to promote international anticorruption norms and help level the playing field for American firms.

I. Introduction

II. The Reform Debate

   A. Rise in FCPA Enforcement Activity

   B. Criticisms and Calls for Reform

      1. Enforcement Practices

      2. Overenforcement?

III. Questioning the Current Reform Narrative

   A. The Need for Ambiguity and Flexibility

      1. Focus on Values

      2. Principle-Based Design

   B. Settlement Dynamic

      1. Quantitative Issues

      2. Structural Issues

IV. NEXT STEPS IN THE REFORM DEBATE

   A. Risk of Underdeterrence

   B. Compliance Challenges

   C. Gaps in Multilateral Enforcement

V. Advancing the Debate Through Governance

   A. Collaboration and Information Gathering

   B. Internalization

   C. Implementation

   D. Enforcement, Reputation, and Market Effects

   E. Remaining Domestic Challenges

   F. The International Element

VI. Conclusion

I. Introduction

Corruption is a disease that cannot be cured, only managed. While most agree on this basic point, there is considerable debate about the proper course of treatment. The United States' weapon of choice for combating transnational commercial bribery--the type of corruption under consideration here--is the Foreign Corrupt Practices Act (FCPA). (1) Mostly dormant for its first 25 years, the FCPA is now in the midst of an unprecedented surge in enforcement. More firms are coming under FCPA scrutiny, including several of the largest and most well-known companies in the world, and large criminal and civil sanctions are common.

The rise in enforcement places FCPA compliance at the forefront of any board's agenda. It has also led to an increasingly impassioned debate about the wisdom and viability of FCPA reform. On one side of the debate are critics who claim that ambiguity in the statute creates perpetual uncertainty about what constitutes an FCPA violation. (2) They suggest this problem is compounded by fears of indictment that make it practically impossible for firms to challenge aggressive theories of FCPA liability in court. As a result, advocates for reform maintain that firms are forced to settle FCPA cases prematurely--often for sums that go beyond what is necessary for deterrence--and to overspend on internal compliance programs. …