The FCPA and the fight against terrorism

It has long been understood that corruption is both a part of the strategy of terrorism and a cause of terrorism. The former is one of the reasons for the dramatic increase in the enforcement of the Foreign Corrupt Practices Act (FCPA) in the years after 9/11, when the FCPA was seen as an anti-terrorism tool. Now the U.S. government has made clear the second part of the equation: that corruption is one of the root causes of terrorism and that the United States will use all of the tools available to it in fighting corruption. For U.S. companies doing business overseas and any companies subject to the law, this means the United States will more forcefully use the FCPA as one of its key tools.

One need look no further than the 2013 massacre of civilians in Kenya at the Westgate Mall to see how terrorists use bribery and corruption. Dick Cassin has consistently written about the connection between bribery-corruption and security and did so again after the attack, pointing to ongoing corruption in Kenya and how this allowed for guns and terrorists to cross the border and carry out the attack. Cassin said that due to corruption, border controls are so porous in Kenya that in a prior episode involving the U.K. Serious Fraud Office (SFO), the U.K. government had banned certain Kenyan government officials from traveling to the United Kingdom, in large part because the country failed to take action against obvious cases of bribery and corruption. “The visa ban followed a criminal investigation by the U.K. Serious Fraud Office into contracts between the Kenyan government and U.K. shell businesses,” Cassin wrote. “The contracts for passport controls and border security systems went to phantom overseas companies at prices about ten times the actual cost. Kenya refused to cooperate and, in early 2009, the SFO was forced to end its investigation.”

Author Giles Foden was even more specific about the culture of crime and corruption in Kenya, when he wrote that corruption was one of the signature factors that led to the massacre. “In Kenya crime and terrorism are deeply linked, not least by the failure of successive Kenyan governments to control either,” he wrote. “These attacks are part of a spectrum of banditry, with corruption at one end, terrorism at the other, and regular robbery in the middle. Money that should have been spent on security and other aspects of national infrastructure has been disappearing for generations.”

Terrorists incorporate these concepts into their overall strategy. If a country has strong border controls and government officials, which is the situation in the United States and United Kingdom, then the terrorist will seek out a country friendly to the United States or United Kingdom, where government officials can be bribed or corrupted, and use those countries as ports of entry. Similarly, they can directly attack civilians in a country like Kenya where the border is so porous that both terrorist and arms can flow through with impunity.

In August, U.S. Secretary of State John Kerry went a step further in a speech he gave in Nigeria that directly tied the war on terrorism to the worldwide fight against bribery and corruption.

“The fight against corruption has to be a global security priority of the first order,” Kerry said. “And we, all of us, particularly those nations like mine that have so much more than other countries, have an obligation to help those countries to avoid the downside of what happens when you are left on your own. Bribery, fraud … other forms of venality endanger everything that we hold dear, everything that you value. They feed organized crime. They gnaw away at nation-states. They take away the legitimacy of a nation-state. They contribute to human trafficking. They discourage honest and accountable investment, and they undermine entire communities,” Kerry said.

Simply because the FCPA was passed in the post-Watergate era does not mean that it cannot be used for today’s problems. Secretary Kerry’s remarks now tie FCPA enforcement directly to the worldwide fight on terrorism and the U.S. cannot and will not pull back from leading this effort.

This clearly portends the global enforcement priority in this fight will not only drive for new and more robust laws to fight bribery and corruption but will make enforcement of existing laws such as the FCPA, the U.K. Bribery Act, the Brazilian Clean Companies Act, and a host of similar legislation based upon the OECD 13 Good Practices more robust. It will also degrade any attempts to weaken such laws. When the U.S. Secretary of State says that corruption leads to terrorism, the rest of the world will do more than take notice; it will respond.

The FCPA and the business response

Just as governments have a role to play by being part of the solution, so do commercial businesses. In his 2014 Statement on International Anti-Corruption Day, United Nations Office on Drugs and Crime (UNODC) Executive Director Yury Fedotov said, “Business groups need to speak out and, in doing so, acknowledge that a company's brand is driven by good practices, ethical behavior, and sound procurement rules.” This translates into companies having effective anti-bribery/anti-corruption compliance programs. Yet compliance with such laws as the FCPA provide more than simply assistance in the fight against terrorism, they profit U.S. commercial interest and much more. In Duty: Memoirs of a Secretary at War, former U.S. Secretary of Defense Robert Gates wrote just one short paragraph touching on the FCPA:

“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 F-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 he saw the huge purchase as an investment in a long-term strategic relationship with the United States, linking our militaries for decades to come.”

This paragraph synthesizes succinctly some of the positive, worldwide effects of the FCPA for the United States. I can identify at least five interests of the United States contained in the above quotation: (1) U.S. security interests; (2) U.S. foreign policy interests; (3) U.S. military interests; (4) U.S. economic interests; and (5) U.S. legal interests as reflected in compliance with the FCPA.

The fight against terrorism has many different tools, and certainly the FCPA is one of them. But this citation from Gates clearly shows the convergence of several interests of the United States through the effectiveness of the FCPA. If it had not been for the effective compliance programs of the U.S. 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 U.S. law and put U.S. companies under potential legal liability, the King had confidence that U.S. companies were not bribing his ministers to get 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 that lines their pockets. Or, in the case of the Saudi ministers that the Saudi King referred to, their collective Swiss bank accounts.

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 U.S. companies that comply with the law can help foster numerous U.S. interests. Just as the FCPA helps in the fight against terrorism, it also supports U.S. foreign policy, U.S. economic interests, and U.S. legal interests.

This has been most clearly seen in Houston, which is the epicenter 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 to having some of the most mature and robust compliance programs. The key to this anti-corruption compliance is that it is a business response to the issue and not strictly a legal response. This is what UNODC Executive Director Fedotov was asking businesses to do, and this is what compliance with anti-bribery laws require.

In the energy industry, the exploration and production companies are usually thought of as existing at the top of the food chain. Below them are the service companies, which actually do the work of exploration. The next level down are companies that work with the service companies, from the multibillion-dollar chemical production firm down to the $15MM company that sells a piece of special-purpose software. All of these companies down the chain are required to have a compliance program.

Noted FCPA commentator Scott Killingsworth laid out the legal and theoretical foundations of this business solution to FCPA compliance in an article entitled “The Privatization of Compliance.” In this article he coined the term “private-to-private or P2P compliance.” In his introduction he stated, “Embodied in contract clauses and codes of conduct for business partners, these obligations often go beyond mere compliance with law and address the methods by which compliance is assured. They create new compliance obligations and enforcement mechanisms and touch upon the structure, design, priorities, functions, and administration of corporate ethics and compliance programs. And these obligations are contagious: Increasingly accountable not only for their own compliance but also that of their supply chains, companies must seek corresponding contractual assurances upstream. Compliance is becoming privatized, and privatization is going viral.”

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 or even receive some other type of funding, your compliance program will be assessed.

While the world is not free of U.S. companies that run afoul of the FCPA, there is certainly more anti-corruption compliance going on in the world. But FCPA compliance serves many interests of the 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 U.S. interests before they argue for a change in the law.

For the U.S. Justice Department and the SEC this means continued enforcement of the FCPA so that companies subject to the Act will move forward to do business in a way that does not start down the slippery slope to terrorism.

The FCPA is one powerful tool in the fight against the root causes of terrorism, even if that issue was not articulated when the FCPA was enacted in 1977. For just as businesses have a role in the fight against terrorism through compliance with anti-corruption laws such as the FCPA; Secretary Kerry’s remarks also make clear both the U.S. Justice Department and the SEC will continue to enforce the FCPA so that companies subject to the Act will move forward to do business in a way that does not start down the slippery slope to terrorism. Simply because the FCPA was passed in the post-Watergate era does not mean that it cannot be used for today’s problems. Secretary Kerry’s remarks now tie FCPA enforcement directly to the worldwide fight on terrorism and the U.S. cannot and will not pull back from leading this effort.