The United States
The United States
Foreign Corrupt Practices Act and Campaign Financing
Abstract and Keywords
Corruption has been a persistent issue in American history. This chapter begins with a discussion of the colonial period, in which gifts from the British Crown played an important role, so that corruption was debated heavily when the US Constitution was being enacted. The chapter then moves further forward in history to discuss the Yazoo land rights controversy, and the role of bribery and other corruption in construction of the Panama Canal. It ends with the Watergate scandal, enactment of the Foreign Corrupt Practices Act (FCPA) and involvement with the Organization for Economic Cooperation and Development (OECD), and the Citizens United case.
Corruption has been a persistent issue in American history. This chapter will discuss the colonial period, the enactment of the US Constitution, the Yazoo land rights controversy, the construction of the Panama Canal, the Watergate scandal, and the Foreign Corrupt Practices Act (FCPA) and involvement with OECD. It concludes with a discussion of the Citizens United case.
1. Colonial Heritage
Gifts from the British Crown to influential persons played a prominent role in English politics and also in the American colonies. Gifts of diamond-studded snuffboxes to Benjamin Franklin, Thomas Jefferson, and Silas Deane, who represented the American colonies in London and in Paris, became controversial matters at home. Should such gifts be refused, should they be turned over to the home government, or is disclosure sufficient? Such gifts were commonly presented after the foreign service had been completed, and the recipient had gone home. However, that did not make them less controversial.1
Preventing corruption was a very prominent issue in the Philadelphia debates at which the Constitution was hammered out. James Madison’s handwritten notes include fifty-four references to corruption, more than for any other subject.2 A study by American historians in the 1960s showed that “[c]orruption fears—fears of a conspiracy against liberty . . . nourished by corruption lay at the heart of the Revolutionary movement.”3 George Mason, a prominent delegate from Virginia, stated: “if we do not provide against corruption, our government will soon be at an end.”4
The core metaphor of corruption was a rotting of positive ideals of civic and public integrity. Corruption was compared to cancer “eating at the vitals of the body politic and working a progressive dissolution.”5
Article I, Section 9 of the Constitution, commonly referred to as the gifts clause, provides that “No person holding any office of profit or trust . . . shall, without the consent of the Congress, accept any present, emolument, office, or title of any kind whatever from any king, prince or foreign state.” The gifts clause was designed to prevent corruption. It was a ban on a culture of gift giving and made no exception for token gifts.
3. Yazoo Controversy
From the time of the first settlements in the early seventeenth century, gaining rights to previously unoccupied land was a crucial political and legal issue. (George Washington, it should be noted, was a surveyor.) It remained a key issue as the United States expanded from the East Coast to the Pacific Ocean, and on to Alaska.
The Yazoo dispute followed the decision of the Georgia State legislature in 1789 to sell thirty-five million acres of land along the Yazoo River for $500,000. A contemporary commentator called it the “greatest real estate deal in history.”6 Purchases and resales of the land were made under questionable circumstances. Much of the land was gobbled up by Georgia legislators. (p.71) The western boundary of Georgia was poorly defined, and portions of the Yazoo land became part of the newly established state of Mississippi. Whether purchasers held proper titles was a common issue. Many prominent political and legal figures, including Patrick Henry, John Randolph, Thomas Jefferson, John Marshall, and Joseph Story were on different sides of Yazoo disputes. In Fletcher v. Peck the US Supreme Court decided in 1810 that a subsequent purchaser of Yazoo land had valid title, notwithstanding questions regarding the initial sale of Yazoo land.
4. Construction of the Panama Canal
The Panama Canal was started by the French government, under the leadership of Ferdinand de Lesseps, who had previously built the Suez Canal. De Lesseps used bribery to secure support from French officials and French newspapers. Large bribes were also paid to Colombian officials. (Panama was a province of Colombia at the time.) De Lesseps planned to build a sea-level canal, which proved to be prohibitively expensive, resulting in the bankruptcy of his company after expenditures of approximately $260 million.7
The second phase was undertaken by the US government under the leadership of President Theodore Roosevelt and his secretary of war, William Howard Taft. Roosevelt promoted the secession of Panama from Colombia, sending naval vessels and troops to Panama, and recognized Panama as an independent state. In return, Panama made available to the United States a corridor from the Atlantic to the Pacific for the construction and operation of the Canal.
The construction of the Canal was by far the most expensive engineering project undertaken by the US government before World War II, costing $375 million.8 It was completed ahead of schedule, below budget, and without bribe payments; results attributed to able management by Secretary Taft who spent a great deal of time in Panama.
The initial focus of the Watergate investigation established in 1973 was the break-in by President Nixon’s operatives into the headquarters of the (p.72) Democratic party at the Watergate office complex in Washington, DC. The scope of the investigation expanded to cover the sources of the funds raised by the aptly named CREEP, the Committee to Re-elect the President. Investigators from the SEC made the surprising discovery that much of the money came from foreign bank accounts of US corporations, accounts used to pay bribes in the United States. The SEC proceeded to establish a voluntary compliance program under which cooperating corporations were offered amnesty providing they disclosed past bribe payments and enacted anti-bribery compliance programs. Over 400 companies admitted to making payments in excess of $300 million; of these companies 117 were among the Fortune 500.
6. Foreign Corrupt Practices Act
When he became president in 1977, Jimmy Carter was deeply troubled by huge foreign bribery scandals involving Lockheed and Gulf Oil. He pushed the enactment of the Foreign Corrupt Practices Act (FCPA) through a reluctant Congress.9 The FCPA took the unprecedented step of making bribe payments to foreign officials a crime under US law. Carter’s hope that other exporting states would also prohibit foreign bribery was disappointed.10 Major foreign exporters, such as Siemens, British Aerospace, Alstom, Toshiba, and Hitachi, regarded the FCPA a quixotic step depriving US exporters of a powerful competitive tool. Their governments continued to allow their companies to treat foreign bribe payments as tax-deductible business expenses, in effect subsidizing foreign bribery. In an unequal playing field, American exporters lost numerous large orders to foreign competitors.
This created a politically intolerable situation. Efforts to repeal FCPA were unavailing. Members of Congress made clear that voting against FCPA would be politically suicidal because their opponents at the next election would attack them for voting in favor of corruption. FCPA was originally enacted with a ten-year time limit, expiring in 1987. Notwithstanding extensive industry lobbying, FCPA was extended in 1988 by an overwhelming margin, without time limit and with only small changes relating to facilitating small payments to low-level officials.11
(p.73) With the FCPA politically invulnerable in the United States, the only way to build a level playing field was to internationalize the FCPA. This required an international forum, the OECD in Paris, and support from a broad constituency, including Transparency International and the International Chamber of Commerce. Taking the issue to the OECD in Paris was a logical move because OECD’s member governments included the world’s leading exporters.12 In 1997 OECD adopted the “Convention on Combating Bribery of Foreign Public Officials in International Business Transactions,” which mirrored the FCPA; it became effective in 1999.13 The Convention included provisions for follow-up monitoring of compliance by member governments. The OECD Convention is discussed in detail in Chapter 7. The US government also played an active role in the adoption of the UN Convention against Corruption (UNCAC), which is discussed in Chapter 8.
Enforcing of the FCPA is facilitated by flexible jurisdictional provisions that require only minimal US contacts. Sending an email, a phone call, or transferring money to or from the United States is sufficient to provide the jurisdictional basis to bring a lawsuit in the United States.
7. Citizens United Case
After two centuries during which prohibitions on bribery were applied to campaign contributions and gifts to politicians and government officials, the Supreme Court in the Citizens United case held that the First Amendment’s protection of free speech was applicable to campaign contributions and gifts to politicians. By broadening the interpretation of protected free speech to include campaign contributions and gifts, the Court correspondingly narrowed the scope for prosecution of corruption. It held that bribery could only be prosecuted when there was a clear quid pro quo.14 This flies in the face of the experience that bribe payers and bribe recipients are careful to structure their transactions to avoid any appearance of quid pro quos. In practice only very careless bribe payers or bribe recipients are likely to flunk the US quid pro quo test. (p.74)