Analysis of the Foreign Corrupt Practices Act - Research Paper Example

?Foreign Corrupt Practices Act Introduction The Foreign Corrupt Practices Act was enacted in 1977 in United s to regulate the trade and commercefor tight monitoring and transparency in accounting practices adopted by the commerce agents i.e. businesses and corporate concerns which are engaged in carrying out business with foreign countries (Gatti, Clive & Ogrady 1). This act strictly prohibits any act of bribery from or to any person to get things accomplished in an unlawful manner. The law was enacted because there was a serious concern for corrupt practices among American traders. These trading activities had a profound impact on the image of USA among other major trading partners. In the mid of 1970s, more than 400 companies of US origin having international footprints of were paying almost more than $300 million to different groups and individuals such as political parties, major politicians, ministers and the authorities that were holding power (Weiss 6). The renowned company, manufacturer of the world renowned fighter jet F-16 had paid personnel of foreign countries to show a tendency and preference for their product. In another investigation, it was reported that a famous company actually bribed the president of a foreign country, Honduras, to offer them discounted tax policy for their operations in that country. They give $2.5 million to the country’s president for a tax saving of around $7.5 million and another $750,000 to Italian official for allowing the import of the company’s products. When the president of Honduras raised the taxes, the chairman of the company was so depressed that he committed suicide. These were some important reasons which led to the making of this famous law which is now an essential for good corporate governance for any company. The act which was enacted by President Jimmy Carter was further amended in 1988 as the international anti-bribery law. Ethical Standing: Ethical behavior is strictly not a global standard at all. In some of the regions of the world, paying a bribe in terms of cash kickbacks and/or other tangible favours is still not considered an ethical or moral issue that can be termed as unlawful; rather it is just the ‘cost of doing business’ (Howell 1). The question here arises that should the bribe be paid or not. However, with globalization and emerging trade relationships ethics and corporate governance are gaining strong grounds. In most of the business schools, the faculty might be educating their future generations with adaptability and ways of working out with the situation. Mostly the reason they give of doing so is as they believe that the entire motive is the bottom line. So the fact that whether any particular business’s ethics should become accustomed to the local environment or become as a standard for its operations around the whole globe becomes a question mark in terms of ethics. Many of the business graduates and young managers give the argument, "When in Rome, do as the Romans do." In simple words, we should follow local/host country’s practices and assimilate according to their businesses customs if we have to build a successful and sustainable business environment. In Harvard Business School, a termed coined by two leading faculty members of business ethics, Joseph Fletcher and James Adams, was "situational ethics," which was based on bendable and realistic approaches towards such complex business dilemmas (George 1). Perhaps, most business tycoons do follow it as well and that is why they have been very successful. The corrupt systems and politicians with big wide open mouths are ready to swallow dollars for each tiny task they can control. Foreign corrupt practices are an umbrella to guide the businesses when they start operating globally. When businessmen talk about the “business ethics” they typically refer to one of three aspects: Keep away from breach the ‘criminal law’ in their work-related activities Stay away from actions that might result in civil law suits against them or their businesses Avoid any procedures or activities that are not in favour of the company’s image. Such is the case with the standards of ethics, which make it inevitable to set a framework of rules to guide the businesses to avoid corruption when going international. Impact on Businesses: Foreign Corrupt Practices Act had significant repercussions on US companies doing businesses abroad. The frequent dilemma, as discussed above is of how to efficiently operate versus maximizing the bottom line. Companies therefore must establish a reliable policy for business ethics regardless of the fact that if they are buying coffee from Brazil or selling guns to an Asian country. And it is also up to the chairman/president or the high ranking officials such as the top management of the company to drive the same practice back to their home country, support debates and workshops on training their employees and other executives not to engage in corrupt practices while facing real-world issues. They should openly embrace good corporate governance by complying with Foreign Corrupt Practices Act. This goal can be accomplished by strictly holding violators to be accountable and responsible for any means of unethical business practice. It is said that good ethics with corruption avoidance has a direct correlation with good business and ultimately leads to enhancement in shareholders’ value in the long-term. Compliance with the FCPA is itself an additional cost for most of the businesses. This includes the cost of employing the techniques and doing the necessary staffing which cross-checks for any violations, the cost of loosing good business opportunities to other competitors who were not seriously abiding by the Act, the cost of facing a loss after having made huge investments into a given project.. Regulator & Penalties: Securities & Exchange Commission was marked to be the regulator of this Act. The Act covers investors, individuals and enterprises and therefore isn’t restricted to public companies only. It includes any of the U.S. or even foreign corporation that has a class of securities registered or that are required to file any reports under the ‘Securities and Exchange Act of 1934’. Violations of the FCPA can actually result in significant penalties and fines. The penalties may be monetary plus criminal charges such as imprisonment of the violator, i.e. all parties allegedly involved in the transaction violating the Act. Individuals violating the Act may be fined an amount up to $250,000 and/or 5 years of imprisonment. Intentional violation of the Act by companies may end up in a fine of up to an amount of $25 million plus a $5 million in criminal offense in addition to the 20 year imprisonment for the culprit individuals. Apart from the fines and imprisonment, cancellation of government licenses and barring from any government contract services comes along with all of the above. SEC, the regulatory body, has the authority to take hold of any profits that were obtained via the illegal activities that resulted into violation of the FCPA. Conclusion: FCPA is no doubt essential for today’s business environment and if followed closely can be a source of fair competition and good corporate governance. The recent activities against its violation have been significantly successful, for example the case of the Virginian Business Executive, who was allegedly involved and was uncovered by an FBI agent for violating the Act in a transaction involving arms and weapons for an African Country (France 1). However, the dilemma of Business Ethics Vs Bottom Line still needs clarification and until it is made very difficult and costly by strict penalties and laws worldwide; to violate the FCPA, businesses and individuals will continue to make a way out for their lust and greed. Works Cited David C. Weiss. The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the Evolving International Bribery Regime. Michigan Journal of International Law. 2009. 9 Feb. 2011 www.ssrn.com George Bill. Ethics Must Be Global, Not Local. 2008. 9 Feb. 2011 www.billgeorge.com Howell, Llewellyn D. Corruption and crisis in the global economy. 1998. 9 Feb. 2011 www.bnet.com France, Angela. Virginia Business Executive Arrested in Foreign Corrupt Practices Act Bribery Case. 2010. 9 Feb. 2011 http://www.virginiabusinesslawupdate.com Margaret M. Gatti, Clive R. G. Ogrady & O. Forrest Morgan. Foreign Corrupt Practices Act. 1997. 9 Feb. 2011 http://library.findlaw.com Read More