The Political Economy of Corruption

By Arvind K. Jain | Go to book overview

9

Legislating against corruption ininternational markets

The story of the US Foreign Corrupt Practices Act

Wesley Cragg and William Woof

The passage of the Foreign Corrupt Practices Act (FCPA) by the US government in 1977 was a watershed event in the fight against corruption in the post-war era. Its criminalization of bribery on the part of US citizens and corporations conducting business overseas, and its provisions for mandatory self-regulation through internal control mechanisms, maintenance of transaction records, and other accounting practices made it unique: between the passage of the Act in 1977 and the adoption of the OECD anti-corruption convention in 1997 no other nation initiated similar legislation. 1 Recent studies, however, raise significant questions about the efficacy of this American initiative. Concerns have taken a number of forms. In 1999, Transparency International released the results of a survey ranking nineteen leading exporting countries by the degree to which their companies were perceived to be paying bribes abroad. 2 The United States ranked ninth of nineteen countries in the resulting "Bribe Payers Index." Accompanying the United States in ninth position was Germany, a country where, until very recently, bribes paid to foreign public officials were both legally acceptable and deductible as legitimate expenses for taxation purposes. A number of other studies have looked critically at the structure of the Act itself, its enforcement provisions, its reliance on self-regulation and efforts undertaken by American multinational companies to ensure compliance with its provisions.

This chapter examines questions and concerns raised by these studies. We trace the forces that led to the Senate investigations that in turn resulted in the passage of the FCPA in 1977. We examine the structure of the FCPA, its connection to legislation enacted in the 1930s designed to build transparency into the trading of securities on American stock exchanges, and exemptions related to the protection of the national security interests of the United States. Our analysis of the effectiveness of the legislation will focus on the role given to self-regulation, the response of American corporations to that role, and the history of enforcement between 1977 and 1995. We conclude that the Act has not had a significant positive impact on actual standards of international

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The Political Economy of Corruption
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Figures vii
  • Tables viii
  • Part I - Governance and Corruption 1
  • 1 - Power, Politics, and Corruption 3
  • 2 - The Definitions Debate 11
  • Notes 29
  • Part II - Political Systems and Corruption 33
  • 3 - Political Corruption and Democratic Structures 35
  • 4 - Why Do Voters Support Corrupt Politicians? 63
  • Part III - Policy and Political Outcomes 87
  • 5 - Corruption, Growth, and Public Finances 89
  • Notes 107
  • 6 - Corruption and the Provision of Health Care and Education Services 111
  • Notes 133
  • Appendix 136
  • Bibliography 138
  • 7 - Historical Antecedents of Corruption in Pakistan 142
  • Bibliography 154
  • Part IV - Solutions and Future Research 155
  • 8 - Measuring Corruption 157
  • Appendix 176
  • Bibliography 177
  • 9 - Legislating Against Corruption in International Markets 180
  • Notes 207
  • Bibliography 212
  • 10 - Controlling Power and Politics 214
  • Bibliography 219
  • Index 220
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