South Africa: The Role Of The Foreign Corrupt Practices Act In Developing Ethical Business Practices In Border Dealings In Africa

Last Updated: 1 August 2019
Article by Derrick Kaufmann
Most Read Contributor in South Africa, August 2019

The Foreign Corrupt Practices Act (FCPA) is a powerful piece of anti-corruption legislation which was adopted by the United States of America (US) in 1977 to dissuade and combat anti-social and corrupt behaviour of US based firms when trading abroad.

Foreign Corrupt Practices Act

In essence, and loosely, it is aimed at ensuring that firms with US links are sanctioned for making gratuitous payments to foreign officials and intermediaries with the purpose of securing an improper advantage in that territory or inducing or influencing a foreign official to assist in obtaining or retaining any business.

Firms that are subject to the provisions of the FCPA can be divided into two categories viz. locals and foreigners:

  • Locals are considered to be firms that are either "issuers" of securities under any exchange regulated by the Securities and Exchange Commission (including subsidiaries who are required to report under the rules of the SEC) or domestic concerns (firms with a principal place of business in the US). The conduct of these firms is subject to the FCPA regardless of where they operate (ie the FCPA acts extra-territorially).

  • Foreigners that fall within the FCPA are those foreign firms and nationals who cause prohibited acts to be done in the US.

The FCPA contains two sections: the first section contains the anti-bribery provisions and the second section contains the accounting provisions. The accounting provisions are there to sanction the whitewash of facilitation payments which fall within the ambit of the FCPA. Penalties are large and far reaching, and can conceivably run into criminal liability for directors and managers, fines and civil claims running into hundreds of millions of Dollars.

Firms which are subject to the FCPA that trade in developing countries are at a much high risk of falling on the wrong side of the FCPA due largely to customary practices that have emerged of paying commissions and facilitation payments for assistance in navigating the challenges they face in the often sticky and unclear regulatory environments in these territories.

Ethics and FCPA

The question of whether the FCPA is having an effect in the development of ethical standards of multinational corporations is a difficult question to answer – largely because it is difficult to establish whether compliance occurs because of the fear of being subjected to sanctions or because of some other noble value held by the firm and its management (to say it more bluntly, do they comply because they have to or because they want to).

In the introduction section fo the Foreign Bribery Report issued by the Organisation for Economic Co-operation and Development (OECD) the point is made that "Corporate leadership is involved, or at least aware, of the practice of foreign bribery in most cases, rebutting perceptions of bribery as the act of rogue employees". In fact, the OECD go to pains to point out that in 41% of cases reviewed by the OECD, management level employees either paid or authorised the bribe!

While many multinational firms seem to pursue FCPA compliance with relentless focus, the truth is that in many cases, it may just be a case of having to "tick the box" and get it out the way, so that they can get on with whatever they need to do in the territories where they operate. It's one thing to say what you do, it's a completely another to do that.

As the well-known FCPA blogger Richard Bistrong puts it "ask if the spoken rules of compliance and the unspoken rules of 'how we do things around here' all carry the same message: 'we don't bribe'?" He further makes the point that "[i]t's becoming harder and harder to downplay the caustic effects of corruption as observers credibly link it to an increased risk of terrorism and civil war and expose it as a driver of poverty and inequality" The link between corruption and human rights violations are not always discussed - largely because there is still a desire to see corruption as potentially beneficial.

There is not enough evidence to suggest that the FCPA is having a positive effect on the ethics of a firm however strict compliance does result in decreased levels of corruption at all levels and helps to foster the correct ethical pathways.

The FCPA remains the international Gold Standard of anti-bribery legislation due not only to scope and ambit of the legislation, but also due to the depth of case law and jurisprudence that has been built off of the back of it. In addition, and what makes this legislation so appealing, is that the this legislation is directed at holding directors accountable. Crimes of corruption and bribery in other states are often silent on this and lack statutory interventions to hold directors accountable for the actions of the firms that they run and operate.

The role of the African Continental Free Trade Agreement

The signature by 22 African countries of the African Continental Free Trade Agreement (ACFTA) ushered in a new (and exciting) era of cross border trade in Africa. This momentous occasion however also raises a number of interesting and demanding questions – including about how the anti-corruption legislative framework of member states needs to be upgraded, homogenised and calibrated.

If two states trading with each other in a free trade area have different legislative frameworks for the combatting of bribery and corruption, it is likely that purveyors of corruption will access the market through the weakest link. Consider for a moment that the illegal (and facilitated) importation of goods into one member country which finds its way into a second member state (which state has tighter anti-corruption and ant-bribery prohibitions and sanctions) effectively render the fabric of the second state porous to the same extent as the first state – regardless of its legislative framework.

The same can be said for the enforcement of the legislative framework. It is one thing to have the legislation; it is another to have the political will and the resources to enforce it.

Homogenous legislative and enforcement standards are an absolute minimum to enable the African continent to successfully fight the scourge of corruption and bribery. Many multinationals trading in Africa are subject to the FCPA and are running and operating sophisticated and well-orchestrated compliance programmes. It makes sense that the FCPA, as the Gold Standard of international anti-bribery and anti-corruption, should therefore form the basis if the framework that the ACFTA nations should look to emulate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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