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Criminal Minds: Foreign Corrupt Practices


The latest report[1] by the OECD indicates that there are up to USD 1 trillion in bribes paid every year to foreign officials for the purpose of securing business deals and contracts. Despite the existence of anti-corruption and anti-bribery legislation in every major industrialized nation, as well as their adherence to the 1997 OECD Anti-Bribery Convention, more than half of OECD nations do not have a single prosecution on bribery-related charges.

The United States and Germany lead the way in cleaning up their business practices with 328 prosecutions in the decade plus after 1999. In fact, these two countries account for 77% of all prosecutions during the period studied. Hungary was third with 26, which is almost twice as much as Italy and three times as much as the UK, despite having one-sixth (1/6) of the population of either country and an even lower ratio of GDP. Yet even Italy is fourth on the list of prosecutions: whereas supposedly advanced neighbors like Spain, Portugal and Greece have yet to register a single prosecution. And these nations are not paragons of virtue.


The most obvious recent example is the Panama Canal kerfluffle, where the winning bid was led by a Spanish-Italian-Panamanian consortium led by Spanish construction firm, Sacyr Vallehermoso. This will come as no surprise to those who are familiar with business practices here in Spain – particularly in the bidding for public contracts, where a shameless 98% of the contracts experienced cost overruns[2]. The “winning bid” was USD $1 billion lower than the competition – including fellow Spanish company ACS – while the “unexpected cost overruns” are now assessed at USD $1.6 billion. In fact, competitors complained that “Sacyr’s bid wouldn’t even cover the cost of the cement…”[3] Nor is it entirely surprising that the Sacyr Consortium includes Panamanian company CUSA, headed by Rogelio Alemán, who just happens to be the cousin of Panama Canal Administrator Alberto Alemán[4]. Is anyone truly surprised by all of this? If so, I have a bridge I’d like to sell you….


Low balling is thus a time-honored means of winning bids in foreign markets; and in domestic contracts too. The members of the Sacyr consortium should certainly be investigated and legal action taken against them and their officers if wrong-doing is ascertained.

The US will never meet President Obama’s goal of doubling exports so long as the Foreign Corrupt Practices Act is enforced[5]. Of course, I’m not in favor of repealing it; but foreign companies that ignore their own countries’ anti-corruption legislation with impunity need to be punished in the US market, and far more aggressive action through the WTO needs to be taken as well. In order for enforcement to have real teeth, it must go beyond fines – fines which are assessed as “one-time charges against earnings” and thus not material to future forecasts (thus preserving the stock price and the directors’ salaries). A successful strategy will encompass three key elements:

  1. Ongoing Corporate Impact:
    • Companies that are found guilty should face material fines equivalent to estimated profits on the contracts illegally won, or have those contracts revoked without compensation;
    • Guilty companies should be banned for 10 years from participation as a principal or sub-contractor on all US public procurement contracts, both civilian and military:
    • Guilty companies will be placed on a list of “high risk” companies, whose participation in any future contract will automatically draw regulatory scrutiny, including whole- and partially-owned subsidiaries;
    • Companies which frivolously accuse their competitors of corrupt practices will also face possible fines (to cover administration costs of investigations) and increased regulatory scrutiny. This is to prevent unfounded accusations being used as a weapon to target competitors during bidding.
  2. Personal Impact:
    • Corporate officers should also be held personally accountable for illegal actions, especially the bribing of foreign public officials, and jail-time aggressively sought for them;
    • At the least, corporate officers found guilty of offenses in US courts – mostly likely in absentia – should be declared persona non grata and banned from the United States for a period not to exceed 10 years.
  3. International Scope:
    • The United States should reserve the right to investigate claims made by anyone – not just US companies – regarding violations of the 1997 Anti-Bribery Convention;
    • The United States Department of State should also yearly investigate and publish a list of those states that are failing to live up to their commitments on the eradication of corrupt practices and the prosecution of their nationals who are guilty of it. Repeat offenders would be submitted to Congress along with recommendations for various actions, from the aforementioned banning of their firms from public procurement competitions to heightened SEC scrutiny and other economic actions;
    • Coordination with other states deemed meeting the requirements of current anti-corrupt practices laws and treaties, especially Germany.

I am well aware of the potential for these measures to be abused for political or business purposes. Yet something must be done – foreign corrupt practices not only cost US firms and US jobs, they are a major detriment towards local economies as well as their companies cannot afford the deep pockets of  foreign competitors. And unless something is done, US firms will continue to fight for foreign contracts with both hands tied behind their backs.

Sources and Notes

[1] “Measuring OECD Responses to Illicit Financial Flows from Developing Countries,” OECD 2013
[2] Lomi Kriel and Sonya Dowsett, “Insight: Lowball bid comes back to haunt Panama Canal expansion,” Reuters, 20 January 2014
[3] Wikileaks, Cable 09PANAMA550, 2009-07-09 21:36, US Embassy in Panama
[4] Wikileaks, Cable 10PANAMA1_a, 2010 January 8 17:15, US Embassy in Panama
[5]Foreign Corrupt Practices Act, Wikipedia
[6] Erik Solheim, “Rich Countries’ Dirty Money,” Project Syndicate, 16 February 2014

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