“In a private meeting, the king [King Abdullah of Saudi Arabia] committed to a $60 billion weapons deal including the purchase of eighty-four F-15’s, the upgrade of seventy-15s already in the Saudi air force, twenty-four Apache helicopters, and seventy-two Blackhawk helicopters. His ministers and generals had pressed him hard to buy either Russian or French fighters, but I think he suspected that was because some of the money would end up in their pockets. He wanted all the Saudi money to go toward military equipment, not into Swiss bank accounts, and thus he wanted to buy from us. The king explicitly told me saw the huge purchase as an investment in a long-term strategic relationship with the United States, linking our militaries for decades to come.”
The above quote comes from Robert Gates recent book, Duty: Memoirs of a Secretary at War. I would like you to identify how many interests of the US are contained in the above quotation. I can identify at least five interests of the US: (1) US security interests; (2) US foreign policy interests; (3) US military interests; (4) US economic interests; and (5) US legal interests as reflected in compliance with the Foreign Corrupt Practices Act (FCPA).
The above quote synthesizes succinctly concepts that I have tried to articulate for some time as to the worldwide effects of the FCPA. The fight against terrorism has many different tools and I certainly recognize the FCPA as one of them. But this citation from former Secretary of Defense Gates clearly shows the convergence of several interests of the US through the effectiveness of the FCPA. If it had not been for the effective compliance programs of the US aerospace and armament industry, the Saudi Arabian ministers, who advised the King to buy something other than American, might have held sway. But because bribing such ministers would violate US law and put the US companies under potential legal liability, the King had confidence that the US companies were not bribing his ministers to get the Saudi business.
Put another way, what is the cost of paying a bribe to a foreign governmental official? It means that said official’s judgment is clouded by his own self-interest in giving the business to a company, which has bribed him for his business. As Jeff Kaplan would say, there is a clear conflict of interest by the bribe receiver because they are being paid to make a decision to award the business to a company which lines their pockets. Or, in the case of the Saudi ministers that the Saudi King referred to, their collective Swiss bank accounts.
I recognize that the FCPA is a supply side focused law. It criminalizes the conduct of the bribe-giver and not the bribe-receiver. But because of this fact it means that US companies that comply with the law can help foster the US interests that I listed above and perhaps others that I have not identified. So just as I believe that the FCPA helps in the fight against terrorism, I also believe that the FCPA helps to foster US foreign policy, US economic interests and US legal interests.
I see this most clearly in Houston, Texas, generally recognized as the epi-center of FCPA enforcement. There have been more FCPA enforcement actions against companies based in Houston than in any other single city in the world. This is largely because Houston is the self-proclaimed energy capital of the world but this profusion of FCPA enforcement has also led to companies in Houston having some of the most mature compliance programs and it has also led to quite a bit of FCPA knowledge throughout businesses in the city. Nonetheless the key is the business response to the issue and not strictly a legal response.
In the energy industry, the exploration and production companies (E&P) are usually thought of as existing at the top of the food chain (i.e. Mega-Big). Below them are the service companies, which actually do the work of exploration (i.e. Very-Big). The next level down are companies which all work with the service companies, from the multi-billion chemical production firm down to the $15MM company which has a piece of software which does something useful. All of these companies down the chain are required to have a compliance program.
In practice it works something like this. A service company needs a product or service. As part of the regular contracting process, the service company will inquire into the contractor’s compliance function and policy. If the contractor provides a service which deals with a foreign government in any way or has foreign government touch points, the service company may well come and audit the contractor’s compliance program prior to executing the contract. Thereafter the contractor is subject to being audited for not only the execution of the contract but also the continued maintenance of its compliance program. All of this is done for business reasons. It is a business response to a legal issue, that being compliance with the FCPA.
FCPA compliance can be expressed through the formulation articulated by Paul McNulty and Stephen Martin, of Baker and McKenzie, which they call the “Five Elements of an Effective Compliance Program”, which are leadership, performing a risk assessment, instituting standards and controls, then providing training and communication on those standards and controls and, finally, oversight of your compliance program. While McNulty and Martin have written and spoken extensively on these five elements to flesh them out, these basic concepts are usually quickly and easily understood. Further, and perhaps not said as often as it should be said, companies which have a robust compliance program, are usually better run companies because of the controls that are put in place.
In other areas, anti-corruption compliance programs are becoming requirements to access cash to fund your business. If your company is going through traditional corporate refinancing in the next 18 months, any bank or other financial institution that you go to will want to not only review your compliance program but may well want to review where that compliance program may be in terms of an overall assessment of the compliance risks that your company faces. If you want to sell your business, enter into a joint venture (JV) or even receive some other type of funding, your compliance program will be assessed.
While the world is not free of US companies that run afoul of the FCPA, to paraphrase Dick Cassin, there is certainly more anti-corruption compliance going on in the world. But FCPA compliance serves many interests of the US. Robert Gates’ passage above makes clear that the FCPA is doing what it was intended to do and perhaps much more. But of even greater significance is that the King of Saudi Arabia recognized the effectiveness in a business context. Policy makers need to consider how powerful the FCPA is in a variety of US interests before they argue for a change in the law.