OPINION:
President Trump’s executive order temporarily pauses enforcement of the Foreign Corrupt Practices Act, which is a huge win for American businesses and will make them more competitive internationally. The executive order directs Attorney General Pam Bondi to “cease initiation of any new FCPA investigations or enforcement actions” for 180 days. During this time, she will review all existing actions and prepare updated guidelines and policies for enforcement.
The executive order surprised many observers but should not shock anyone who understands Mr. Trump’s “America First” agenda and Herculean efforts to make the government more efficient. Of course, media outlets are pouncing on this development, declaring that “Trump loosens the reins on corruption,” “Trump curtails anti-corruption efforts,” and “Trump’s onslaught on checks and balances is ushering in a new age of political corruption.”
A closer look at the evolution of Foreign Corrupt Practices Act enforcement over the past several years reveals that these reflexively anti-Trump outlets miss the point entirely. The law began as an effort to combat corruption and bribery but “has been systematically, and to a steadily increasing degree, stretched beyond proper bounds and abused in a manner that harms the interests of the United States.” The Justice Department must, therefore, “streamline the FCPA” to support the “America First” priorities of promoting the country’s competitive advantage, ending predatory prosecutions, and redirecting limited government resources to more pressing matters.
Despite good intentions when it was enacted in 1977, the Foreign Corrupt Practices Act has morphed into a bureaucratic morass that has nothing to do with the original intent of the law. As Mike Koehler, an expert on the act, explained, “the limited nature of the law that Congress passed” was not because Congress — or American corporations, for that matter — approved of corruption. Instead, Congress intended to “capture only a narrow range” of conduct under the Foreign Corrupt Practices Act in recognition of the fact that, as Securities and Exchange Commission Chairman Raymond Garrett put it, “all improper foreign payments … are not big bribes. Many of them are small and in the foreign community where made possibly not really regarded as improper at all.”
Since then, however, the Foreign Corrupt Practices Act has evolved in a way that damages American businesses. As noted in the Justice Department’s resource guide, much of this evolution came with the law’s 1998 amendments, which drastically and vaguely expanded its scope. In the mid-2000s, the federal government ramped up its Foreign Corrupt Practices Act activities. According to data from a 2020 study, there were 53 enforcement actions from 1977 until 2004, averaging about two per year. From 2004 to 2017, there were 284 enforcement actions — a jarring 1,000% increase to about 20 per year. Data shows that, when extensively applied to American companies, the Foreign Corrupt Practices Act can harm American competitiveness and increase bribery by foreign corporations that understand the draconian limitations and measures applied to their American competitors.
Moreover, the Justice Department has turned enforcement of the Foreign Corrupt Practices Act into a revenue-generating shakedown with little economic or social benefit to American citizens. Through deferred prosecution agreements, the Justice Department strong-arms corporations into “resolving” Foreign Corrupt Practices Act investigations by paying millions of dollars in criminal fines in exchange for not being criminally prosecuted, which could become a death sentence for a corporation. These fines often amount to significantly more money than the corrupt practices generated for the company in the first place and involve placing the companies on burdensome and expensive monitorships that last years.
In December, the Justice Department announced that McKinsey & Co. Africa signed a deferred prosecution agreement to pay more than $122 million for the actions of one of its South African partners. Notably, this fine was calculated after considering how McKinsey Africa “immediately and proactively cooperat[ed] from the inception of the department’s investigation.” Despite its “timely remedial measures,” which included “reporting, in real-time, newly discovered information and documents” that the since-terminated South African partner tried to hide, the Justice Department will scrutinize the company for at least three years. Thus, the Justice Department has been using the Foreign Corrupt Practices Act for all the wrong reasons, prioritizing predatory prosecutions and deferred prosecution agreements over actual anti-corruption efforts.
Finally, the Foreign Corrupt Practices Act is a poor use of government resources in light of the nation’s other problems, including violent crime and historic overdose deaths. While not discounting the existential threat of corruption in countries such as South Sudan, Somalia and Venezuela, the United States must focus on the most pressing issues facing Americans, which do not include foreign corruption.
This is precisely why Ms. Bondi announced in a Feb. 5 memorandum that the Justice Department’s Foreign Corrupt Practices Act division should “prioritize investigations related to foreign bribery that facilitates the criminal operations of Cartels and [transnational criminal organizations]” — two of the largest threats facing the nation — “and shift focus away from investigations and cases that do not involve such a connection.” In other words, there is nothing “America First” about devoting scarce resources to police a company’s actions overseas.
That said, the future of the Foreign Corrupt Practices Act is uncertain after Mr. Trump’s executive order. Until the Justice Department announces updated policies and guidelines, corporations should follow the law and engage in ethical practices. Most critically, however, corporations subject to burdensome deferred prosecution agreements should use the executive order to reevaluate their agreements to see whether they constitute what the executive order describes as “inappropriate past FCPA investigations and enforcement actions.”
• Jonathan Fahey is a lawyer who served as deputy assistant secretary of homeland security and senior official who performed the duties of the director of Immigration and Customs Enforcement. Jared Bauman, an associate at Holtzman Vogel, focuses his practice on commercial litigation, political and election law.
Please read our comment policy before commenting.