Foreign anti-corruption laws present a puzzle: why would the government of one country care to prevent corruption in another? Such laws impede the business activities of the country enacting them in order to benefit citizens somewhere else. Enacting laws to benefit foreign nationals may be a laudable goal, but doing so against the interests of the domestic business lobby seems like political suicide.
Yet foreign anti-corruption laws have proliferated around the globe. The first mover in this apparently quixotic crusade was the United States, which passed the Foreign Corrupt Practices Act (FCPA) in 1977. After a two-decade gap of relatively lax enforcement, a series of multi-national agreements, most notably the OECD Anti-Bribery Convention and the UN Convention Against Corruption, other nations finally enacted their own laws against foreign bribery and corruption. And it is not just enactment. In the past decade enforcement activity has increased dramatically, if unevenly. Some nations, most notably the US, enforce foreign corruption laws aggressively, while other nations enforce hardly at all. What explains these patterns?
In ‘Toward an Interest Group Theory of Foreign Anti-Corruption Laws’, we address these puzzles with a new theory of foreign anti-bribery laws. Our basic claim is that the enactment and enforcement of foreign anti-bribery laws can be explained by reference to the interests of each country’s domestic business lobby—the interest group driving much of the national agenda. This focus distinguishes our account from prior theories, which we characterize as ‘Rights Based’, ‘Realist’, or ‘Institutionalist’.
‘Rights-Based’ theories focus on freedom from bribery and corruption as a basic human right. But these theories fail to wrestle with the public good problem inhibiting the passage of such laws. ‘Realist’ accounts make the opposite error. In explaining anti-bribery and corruption law as a form of rent-seeking, these theories cannot answer why such laws are not more commonly enforced. Finally, nuanced ‘Institutionalist’ theories are excessively top-down, focusing on the multi-national institutions through which collaborative action is organized, but failing to account for the political impetus to enact and enforce such laws in the first place.
In contrast to these accounts, our ‘Interest Group’ theory starts with the basic incentives and constraints facing a country’s domestic business lobby. After the shock of the passage of the FCPA in 1977, the US business lobby had two goals: first, lax enforcement of the law, and second, a ‘level playing field’ vis-à-vis foreign competitors. It achieved the first right away. The FCPA was weakly enforced during its first two and a half decades. The second goal was achieved only later, starting with the OECD convention and other treaties, but becoming meaningful only with aggressive US enforcement against foreign companies.
Once the US began to enforce the FCPA on foreign firms, the incentives of those firms changed. The interests of foreign firms, at least those subject to material FCPA risk, came to mirror those of US firms in the early days of the FCPA. They faced an uneven playing field vis-à-vis domestic competitors which, due to their domestic or regional reach, were subject to less risk of US enforcement. In order to level the playing field against such competitors, foreign multinationals came to favor the importation of a parallel regulatory regime into their own country.
Our theory not only explains patterns in the enactment and enforcement patterns of foreign anti-corruption laws around the world, it also suggests a way to get foreign countries to increase their own enforcement efforts. The way to nudge foreign partners into action is to increase extraterritorial enforcement against their firms, thereby encouraging foreign business interests to pressure their own regulators to level the playing field against domestic competitors beyond the reach of US enforcers.
Finally, we draw upon international relations theory to look into the future of foreign anti-corruption laws. We see two possibilities. Either the small group of countries willing to enforce their laws will cohere into a stable ‘K-Group’ with a shared interest in promulgating foreign anti-corruption laws abroad, or an alternative ‘counter-hegemon’ may emerge. In our view, China seems most likely to play the role of counter-hegemon, supporting a different set of norms in which bribery and corruption are acceptable business practices. If a strong counter-hegemonic norm does indeed emerge, multi-nationals may again pressure their home state regulators for lax enforcement in order to compete more effectively with foreign businesses beyond the effective reach of anti-bribery laws.
The full article is available for download here. Comments are most welcome.
Sean J. Griffith is T. J. Maloney Chair and Professor of Law, Director of Corporate Law Center at Fordham Law School.
Thomas H. Lee is Leitner Family Professor of International Law and Director of Graduate and International Studies at Fordham Law School.