Anti-bribery Compliance Risk May Grow Amid Uncertainty over Trump Deregulation

The willingness of US President Donald Trump to take on global corruption will be a big regulatory question looming over his new administration. He assumes office having done business in high-risk and sanctioned countries and in the past has called the 40-year-old Foreign Corrupt Practices Act “a horrible law” that hampers US competitiveness. 

With its heavy reliance on cross-border enforcement, the FCPA may be vulnerable to Trump’s “America first” and deregulation mission.

Business leaders have long supported curtailing the law in part because they have argued that US authorities have had little cooperation from trading partners in enforcing corruption laws in the past. But anti-corruption professionals and legal experts say the efforts finally paying off and an FCPA pullback by this country could threaten the growing cooperation that led to record prosecutions over the past year.

Blow Seen to International Efforts 

Concern is growing that any pullback in US enforcement could deal a blow to the fight to shut off the estimated $1 trillion global “corruption tax” businesses pay each year. Beyond the cost of such bribes, a less effective US anti-bribery presence could make life harder for US compliance teams already struggling to manage the behavior of their own employees working in high-risk locations. 

“If we get rid of of the law, or stop enforcing it as we wave, we will be sending a very dangerous signal that it is a free for all for bribery.” Daniel Dorsky, a former US prosecutor and corporate compliance offer who heads Compliance Risk Concepts anti-corruption practice.

The impact could be largest in new converts to the anti-corruption fight. Brazil and Malaysia, most notably, have required international backing to take on top political figures over the past year. In the most advanced economies, as well, a US pullback could mean that the strong enforcement relationships forged over the years with the UK, Australia, Hong Kong and other nations could deteriorate.

“I suspect other countries around the world would pull back in kind if the US stepped back or made it less of a priority,” said Dan Zitting, ACL chief product officer and anti-corruption specialist.

Cost of Bribery Free-For-All vs Lax Regulation 

For compliance, the challenge of operating in risky environments could get riskier. The alternative to FCPA, allowing governments to accept handouts for approving business “is not the stuff America is good at” Dorsky said. Government-backed industries of countries such as Russia and China could use their massive state resources to push aside US private enterprises in an all-out bribery war. 

“It would put us at a huge competitive advantage to get rid of FCPA,” he added. 

Few would endorse a free-for-all, but a watering down of enforcement could win support. The proposed new head of Trump’s SEC, corporate lawyer Jay Clayton, was the author of a widely cited 2011 white paper that calls for keeping the law in place but taking “steps to reduce the regulatory costs for firms currently subject to the FCPA.” 

Trump’s attorney-general designate, Republican Senator Jeff Sessions, a former prosecutor, had as senator asked regulators to provide more details on the impact of FCPA “on the competitiveness of American business overseas relative to that of other countries.” 

The SEC and Justice Department cooperate on the enforcement of FCPA and an FBI unit was set up in 2015 to specialize in FCPA cases. US cases topped $2 billion last year, as JP Morgan and Och Ziff settled major cases in a year that ended with the. US authorities claiming part of the largest-ever global bribery settlement of $3.5 billion paid by Brazil's Odebrecht stemming from the so-called Operation Carwash money laundering probe in that country. 

Perception Matters 

The public perception of anti-corruption is important in fighting graft, say anti-compliance experts, since effective anti-bribery programs require a high level of credibility with stakeholders both inside and outside a company. Policy and regulatory decisions on anti-corruption matter are sure to be closely watched by countries under US sanctions, such as Russia, or with a reputation for official corruption.

The extent of Trump's business dealings in high-risk locations is unclear. But he has been known to hold high-level meetings with officials in Russia as he explored business ventures. He has also met with officials in Turkey, Brazil, the Philippines, and India, where he has properties.

The government's top ethics official has charged that Trump does not "meet the standards" of government officials and past presidents, and he has declined to disclose alleged loans from China and Russia. A watchdog group has filed a lawsuit under the Constitution's emoluments clause banning acceptance of foreign government payments to US officials. The effort is aimed at forcing him to disclose his dealings. Trump has said the clause does not apply to his dealings, and that his firm will make no new foreign deals while he is in office.

Trump's representatives have said he is complying with all ethics rules.

Team of Conflicts 

Trump’s team of corporate insiders include a Secretary State nominee, Rex Tillerson, who will move directly from doing deals with Russia as Exxon chief to heading up state, Wilbur Ross, another investor with large China holdings, who is set to head commerce and unpaid senior advisor Carl Icahn, who has said he has no plans to cease his active investing while he advises Trump without pay. China has been the most-often cited FCPA violator over the past decade. 

The ties by members of Trump’s team surfaced on Inauguration Day when news surfaced that a company in which Icahn is the largest investor, vitamin supplements giant Herbalife, disclosed it was being investigated by the SEC over alleged corruption in China. A critic of the country’s “absurd regulatory environment,” the billionaire investor is helping vet candidates for agencies who could make key decisions on Herbalife and other of his holdings. Icahn called it “almost crazy” that some saw him with conflicts of interest.

How FCPA Might Fit "America First" 

Trump’s executive team takes over as Congress is pushing for regulators to relax pressure on business, and the first order of business with the newly seated US House of Representatives was the passage of a bill requiring the SEC to perform a cost-benefit analysis on regulatory measures. 

Russell Sacks, a partner in Sherman & Sterling’s international finance and regulation practice, said the administration could take a broader view and see the value of FCPA. It would fit "the new administration's emphasis on fair dealing between countries, strong borders, and cracking down on cross-border, criminal activities.”

With 70 percent of FCPA enforcement cases targeting non-US firms – and China perennially leading the list – Trump could find the law a convenient tool in running an America-first policy. But some worry such a plan could politicize it and undermine its legitimacy. Similarly, an incremental pullback could lend uncertainty to the enforcement environment and cooperation agreements with other countries. The FCPA enforcement cannot be carried out without local assistance since US prosecutors cannot compel documents or testimony abroad with it. 

Compliance Challenge Could Grow

Uneven enforcement of the law could add to the difficulty for compliance departments enforcing global programs, with employees already uncertain about what constitutes a bribe or illicit payment. Paying a consideration to a government official, alone, does not break a law, but it becomes illegal if it is connected to a specific business decision.

To deal with the complexity of risky markets, compliance teams have worked for years to build expertise and relationships with local law enforcement and US FCPA investigators. Companies that ease controls could find it difficult to rebuild under the next US presidential administration, and could find themselves vulnerable to prosecution. The FCPA has a five-year statute of limitations. 

Civil lawsuits and shareholder actions also remain financial risks, and the Wells Fargo phantom account case showed the damage of reputational risk can be even greater than fines. The toxic mortgage debt still being pursued by states and regulatory authorities from other countries shows the long tail of enforcement actions. Liability for risk and control professionals managing far flung teams will remain as high as ever if the law is relaxed. 

Compliance teams should be wary. Even a significant pullback in US enforcement “would leave us with a very active enforcement culture at a lot of agencies,” given the massive buildup of regulation in the post financial crisis era, said Sacks. “No one has made any money betting on decreased enforcement in the last 20 years,” he said. 

”It would be a very unwise financial institution that was willing to take risks in this environment."


Richard Satran is a financial journalist covering daily and emerging issues for Thomson Reuters Regulatory Intelligence.