Editor’s note: “International Business Corner” is a weekly column written by Joan Keston that provides information for people involved in or considering international operations. Keston is an international business consultant. Over the next several months she will be writing about important issues that international businesses face as they compete in the 21st century global business environment.

This article is the third in a series that addresses international law.

RALEIGH, N.C. – One of the primary areas in international business where the issues of international law are currently playing out regards the Foreign Corrupt Practices Act (FCPA) and its application and enforcement. This Act defines the unlawful activities regarding the payment of foreign public officials to gain or maintain business or an improper competitive advantage.

The FCPA was enacted as a result of an SEC (Securities and Exchange Commission) investigation in the mid-1970s pursuant to which 400 US companies admitted making questionable or illegal payments in excess of $300 million to foreign government officials, politicians and political parties. Congress enacted the FCPA to restore public confidence in the integrity of the American business system.

Public International Law

Following passage of the FCPA, Congress became concerned that American companies were operating at a disadvantage compared to foreign companies who routinely paid bribes and were even permitted in some countries to deduct the cost of the bribes as business expenses on their taxes. Therefore, Congress directed the Executive Branch to commence negotiations in the OECD (Organization of Economic Cooperation and Development) to obtain the agreement of the US’ major trading partners to enact legislation similar to the FCPA. In 1997, the US and 33 other countries signed the OECD Convention on Combating Briber of Foreign Public Officials in International Business Transactions. Similarly the Organization of American States adopted the Inter-American Convention Against Corruption in 1996.

Private International Law

Although many countries have adopted or ratified these treaties, the enforcement of their terms or the terms of domestic anti-bribery or corruption legislation is often lax. Consequently, the DOJ (Department of Justice) and the SEC have increasingly been applying and enforcing the FCPA on activities in foreign countries and upon foreign nationals. Following are examples of the application of the FCPA:

• Any act in the US in furtherance of a corrupt act outside the US, i.e., a business meeting in the US of foreign nationals

• US company liable for corrupt payment authorized by employees or agents operating entirely outside of the US

• US parent company liable for acts of foreign subsidiaries where activity was authorized, directed or controlled

• US citizens or residents liable while acting on behalf of foreign incorporated subsidiaries

• Upon the resulting company of a merger between a US company and foreign company, holding the resulting company liable for the prior activities of the foreign company

Practical Results

The extent to which the DOJ and SEC are applying and enforcing the FCPA may be questionable under principles of international law. Aside from this argument, US businesses are being greatly disadvantaged by the recent aggressive application and enforcement. Most countries, even those who have ratified the OECD or OAS conventions, restrict the reach of enforcement on activities in foreign countries.

Many business environments and cultures depend economically on the exchanging of favors. While bribery and corruption are not legal in any country, the line of legality is often different from that in the US. For example, campaign contributions and lobbying while legal in the US are prohibited under with the FCPA.

The US should work through public international law principles in combating corruption, and not impose standards that only serve to handicap US business interests. As the international business environment continues to change over the coming years and as alternatives to doing business with the US become increasingly more common, our government should be assisting and not jeopardizing our global businesses.

About the author: Joan Keston is the Managing Principal of Keston & Associates, Ltd., an international business consulting firm located in Raleigh, NC, and a Partner at Paladin and Associates, Inc. She has 25 twenty-five years of experience with mature as well as entrepreneurial companies, domestically and internationally, coupled with an executive managerial and legal background. Her firm facilitates international business transactions, and assists companies establish, grow and integrate their international operations. She can be reached at (919) 881-7764 and jkeston@kestonassociates.com.