Evaluating the Foreign Corrupt Practices Act (FCPA) 15 USC 78dd1

0 Comment

In 1970s, the market was gradually shifting towards globalization with many multinationals expanding to new markets. The result was that to gain advantage over other players in the market, some U.S firms and individuals bribed foreign government officials for considerations in awarding of contracts and business opportunities that promised increased returns in foreign markets. One of the major corruption scandals that even threatened the government was President Nixon’s Watergate scandal. In 1977, the Congress enacted the Foreign Corrupt Practices Act of 1977 that prohibited bribery of foreign firms or any official by any American corporation or individual. The act aimed at enhancing integrity and repairing the tainted perception of American firms locally and internationally by ensuring firms adhered to high levels of ethics and fairness. This paper will investigate the history behind the act and its respective amendments, the rationale behind implementation of the act, investigating the efficacy of the policy, its implementation and recommending necessary amendments to make the act more effective. 2.0 History of the Act In the mid-1970s, numerous investigations, legal and administrative actions against many local corporations revealed numerous illegal and questionable payments to foreign businesses and government officials. The only mechanism at the time to deal with such payments was through the Securities and Exchange Commission (SEC), which investigated any public corporations for irregular deals concealed from the public (Seitzinger, 1999). The investigated cases were prosecuted by the Department of Justice, DOJ. Through such cases, the government realized that criminalization of bribery practices to foreign officials and enforcement of strict book keeping, accountability and disclosure of firm’s operations to the public were necessary to deal with increasing corruption cases involving American firms in foreign markets. Corruption cases had badly affected American foreign Policies, portraying a negative image of American Democracy abroad. Corruption had badly impaired public confidence in financial integrity in the country’s corporations (Seitzinger, 1999). To deal with these problems, the congress responded by passing the Foreign Corrupt Practices Act of 1977, FCPA. The act was therefore as a result of market failure in ensuring integrity and safeguarding financial integrity in corporations. The act was also motivated by government failure in that the government had failed to effectively implement and put in place measures to reduce bribery under the provisions of the Securities Exchange Act of 1934. The act had failed to ensure effective bookkeeping in corporations to account for all transactions. There was a general lack of elaborate internal accounting control systems that would have guaranteed management’s control, responsibility and authority over a firm’s assets (Seitzinger, 2010). As a public policy prescription, the act discouraged bribery of foreign officials through huge fines and jail terms, which discouraged many from the practice. The act encouraged an accountability culture that improved public’s perception of the country’s corporations. Such change of perception was necessary in ensuring investor confidence and improving the country’s image locally and internationally, which had been tainted by massive bribery and lack of strict financial accountability in