PHILADELPHIA (Legal Newsline) - Is the Foreign Corrupt Practices Act of 1977 (FCPA) a law primarily geared to protect the image of ethical America business abroad or is it a tool of foreign policy?

A proponent of the foreign policy theory is Michael J. Koehler, assistant professor, Southern Illinois University School of Law.

He states that the law arose from the Lockheed Martin bribery scandal and oil company payments to various Italian political parties. (The Lockheed Martin scandal took place from the late 1950s to the 1970s in the process of negotiating the sale of aircraft). These scandals played to the stereotype of corrupt capitalism. This was particularly deleterious to efforts to try to steer Italy from communism to capitalism.

Koehler maintains a blog about FCPA issues, billing himself as a leading expert on the FCPA and one whose expertise and views "are informed by a decade of legal practice experience at an international law firm during which he conducted FCPA investigations around the world, negotiated resolutions to FCPA enforcement actions with government enforcement agencies, and advised clients on FCPA compliance and risk assessment."

Koehler cited the remarks of U.S. Rep. Robert Nix (D-Pa), who he said, chaired hearings in 1975 about foreign corporate payments.

Nix said, "There ha[s] been a negative impact on our foreign policy already because of these revelations. Peru has expropriated property of the Gulf Corp. in that country. Costa Rica is considering expropriation legislation and other countries in Latin America may be considering such steps. The interference in democratic elections with corporate gifts undermines everything we are trying to do as a leader of the free world... In Italy the Communist Party is using the fact of multinational bribery in Italy against the political friends of the United States."

He also cited the comments of Mark Feldman who was a State Department legal advisor. Feldman was cited by Koehler as saying: "Let me give a few examples of events related to the disclosure of the last weeks which have impacted our foreign relations. The head of a friendly government has been removed from office and other friendly leaders have come under political attack. Both multinational enterprises and U.S. government agencies have been accused of attempting to subvert foreign governments. A firm linked with payments in one country has had property in another country expropriated, not because of any alleged impropriety in that country, but simply on the grounds that it was an undesirable firm. Several governments have presented firms suspected of making payments with ultimatums of economic retaliation or criminal prosecution."

Koehler is not alone in his views that the FCPA is a tool of foreign policy.

Andy Spalding is a law professor at University of Richmond who writes a great deal about the FCPA. In January he wrote, "We forget that the FCPA was also a response to a foreign policy crisis, and is endowed with an important foreign policy purpose."

This also is the view, apparently, favored by the editorial board of USA Today which wrote April 29, "The law passed in 1977 not as a morality play, but because a bribery scandal involving Lockheed Corp. and foreign governments damaged America's standing and almost caused Lockheed to fail."

So while the FCPA is considered to be used as a matter of foreign policy and protect America's image abroad there are those who see it as primarily protecting investors at home - and just plain bad business.

A House Report which was to accompany H.R. 3815 in 1977 to amend the Securities Exchange Act of 1934 was titled, "The Unlawful Corporate Payments Act of 1977."

This document, which is referred to by the Department of Justice as a reference for the legislative history of the FCPA, contains a section titled "Need for the Legislation."

"More than 400 corporations have admitted making questionable or illegal payments," the document states. "The companies, most of them voluntarily, have reported paying out well in excess of $300 million in corporate funds to foreign government officials, politicians, and political parties. These corporations have included some of the largest and most widely held public companies in the United States; over 117 of them rank in the top Fortune 500 industries. The abuses disclosed run the gamut from bribery of high foreign officials in order to secure some type of favorable action by a foreign government to so-called facilitating payments that allegedly were made to ensure that government functionaries discharge certain ministrial [sic] or clerical duties. Sectors of industry typically involved are: drugs and health care; oil and gas production and services; food products; aerospace, airlines and air services; and chemicals.

"The payment of bribes to influence the acts or decisions of foreign officials, foreign political parties or candidates for foreign political office is unethical. It is counter to the moral expectations and values of the American public. But not only is it unethical, it is bad business as well. It erodes public confidence in the integrity of the free market system. It short-circuits the marketplace by directing business to those companies too inefficient to compete in terms of price, quality or service, or too lazy to engage in honest salesmanship, or too intent upon unloading marginal products. In short, it rewards corruption instead of efficiency and puts pressure on ethical enterprises to lower their standards or risk losing business."

It is not until a few paragraphs later that the concern of foreign policy is mentioned.

University of Cincinnati law professor Barbara Black took a different tack.

She asked why the SEC, which exists to protect investors, was given the authority to enforce the FCPA.

She wrote in a June 6 Social Science Research Network, "Although critics have identified a variety of flaws in both the law and its enforcement, no one has seriously questioned a basic policy choice: why an agency whose mission is to protect investors is charged with civil enforcement of the FCPA's anti-bribery provisions. ...the SEC began to enforce the FCPA in the early 2000s with increasing enthusiasm. It has set up a specialized unit and publicized its large settlements, without ever providing an explanation of how enforcing the foreign bribery provision relates to the agency's mission "to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

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