SEC Chair Jay Clayton criticized lax enforcement of anti-corruption laws by “many” countries in a speech delivered Monday to the Economic Club of New York.
Noting that in the past five years the SEC has brought almost 80 Foreign Corrupt Practices Act (FCPA) cases involving alleged wrongdoing in more than 60 nations, Clayton said the United States is “acting largely alone” in this arena. Yet other countries “are incentivized to play, and I believe some are in fact playing, strategies that take advantage of our laudable efforts,” Clayton said.
The problem of course is that not playing by the rules can be quite lucrative for organizations that flout them while going undetected or, if caught, are not punished too severely. “The benefits of playing a non-cooperative strategy are great, particularly if your company is the only one who is ‘cheating’—your company ‘wins’ the lucrative offshore business with no competition,” Clayton acknowledged in his remarks.
Limited enforcement, insufficient results
Even as the United States’ reach under the FCPA is broad, it is not boundless. “U.S. jurisdiction generally is limited to areas where U.S. and U.S.-listed companies do business,” Clayton noted in his prepared remarks.
Moreover, countries with shaky records on anti-bribery and anti-corruption matters often remain alluring to businesses for other reasons (think natural resources and cheap labor). Clayton, in his remarks, acknowledged “the reality that there are countries where the business opportunities are attractive but corruption is endemic.”
“Laws without enforcement are just words.”
SEC Chair Jay Clayton
At the same time, corporations that do follow the rules are cheated by those willing to pursue inappropriate means of winning new business in regions where anti-corruption laws are either nonexistent or go unenforced. “Globally oriented laws, with no, limited, or asymmetric enforcement, can produce individually unfair and collectively suboptimal results,” Clayton said.
This unfairness and insufficiently meaningful improvement are “at the front of my mind when I engage with my international counterparts on matters where common, cooperative enforcement strategies are essential, including the recent calls for greater securities law-based regulation of environmental and social issues,” Clayton said, noting he does not plan to modify the SEC’s enforcement posture with respect to the FCPA.
Even so, Clayton maintained that “we must face the fact that, in many areas of the world, our work may not be having the desired effect” because “many other countries, including those that have long had similar offshore anti-corruption laws on their books, do not enforce those laws.”
The Organisation for Economic Co-operation and Development reports 36 member countries and eight non-members (Argentina, Brazil, Bulgaria, Colombia, Costa Rica, Peru, Russia, and South Africa) have adopted the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Under this agreement, countries agree to develop anti-corruption measures and the ability to enforce them.
Yet, according to a 2018 survey, 21 of those 44 countries have yet to conclude an enforcement action.
“Laws without enforcement are just words,” Clayton said.
A few words on Main Street investors
Clayton began his remarks talking about the Main Street investment advice market and the SEC’s package of rulemakings and interpretations intended to “enhance the quality and transparency of retail investors’ relationships with investment advisers and broker-dealers.”
The measures, which include the Regulation Best Interest, the new Form CRS Relationship Summary (Form CRS), and two separate interpretations under the Investment Advisers Act of 1940, bring “the standards of conduct and required disclosures of financial professionals in line with what a reasonable investor would expect,” Clayton said.
Stating that “Congress and the SEC have long sought to expand Main Street access to our private capital markets while preserving investor protection,” Clayton pointed to recent initiatives including Regulation Crowdfunding, expanding Regulation A, and lifting the ban on general solicitation for Rule 506 offerings under Regulation D.
“These various efforts have had benefits, but they also have added new patches to an already patchwork regulatory framework that remains rooted in income and wealth tests for investor access,” Clayton said. He reported the SEC is taking a fresh look at this framework with the aim to increase access to private markets for Main Street investors.
Clayton said he also hopes to “increase the attractiveness of our public capital markets as places for companies to raise capital.”
Lori Tripoli is a writer based in the greater New York City area who focuses on legal and regulatory issues.