No, We Don't Need to Suspend the FCPA In Haiti or Any Other Country!

A topic in the blogosphere this week has been whether the FCPA needs to be suspended so that more U.S. companies will invest in Haiti.

The spark igniting this discussion was an opinion piece on Monday by Wall Street Journal editorial board member Mary Anastasia O'Grady titled "Democrats and Haiti Telecom" (see here).

[Although O'Grady's article is titled "Democrats and Haiti Telecom" and although she focuses mostly on Josepth P. Kennedy II and former President Clinton, it should be noted that John Sununu (President Bush's former Chief of Staff and Counselor) currently is the Chairman of Fusion's advisory board (see here).]

The article focused on a 1999 contract between Fusion Telecommunications and Haiti Teleco - an entity in the news recently given that certain former employees have been connected to a wide-ranging FCPA enforcement action (see here for prior posts). The article discusses Joseph P. Kennedy II's role at Fusion as a former member of the board "and the still-unanswered question about why Fusion had access to the Teleco network at a 75% discount to the official rate on file at the Federal Communications Commission." Incidentally, the FCPA enforcement action involving Haiti Teleco that has been in the news since May 2009 includes allegations that the individuals and companies involved received "preferred telecommunications rates" based on improper payments made to Haiti Teleco officials (see here at pages 7-8). Indeed, O'Grady's article notes that a civil action in a Florida federal court alleges that certain U.S. telecom carriers were granted "significantly reduced rates for services provided by Teleco in exchange for kickbacks" and that one of the companies that made payments "to certain off-shore companies" was Fusion.

O'Grady's article concludes with this statement from "an American entrepreneur who does business in the Caribbean" who "recently explained the Haitian landscape" to O'Grady this way - "We did not bother with Haiti as the Foreign Corrupt Practices Act precludes legitimate U.S. entities from entering the Haitian market. Haiti is pure pay to play. The benefit of competitive submarine cables would be transformative for the Haitians. Instead, they were stuck with Clinton cronies taxing the poor."

This unattributed statement by one person (a statement which exhibits misunderstanding of the FCPA) then prompted George Mason University Economics Professor Tyler Cowen to write at the Marginal Revolution Blog (see here) that "one of the best way to help Haiti" is to "pass a law stating that the Foreign Corrupt Practices Act does not apply to dealings in Haiti. As it stands right now, U.S. businesses are unwilling to take on this legal risk and the result is similar to an embargo. You can't do business in Haiti without paying bribes."

This then prompted Eric Lipman at the Legal Blog Watch (see here) to ask - "[i]t should not be necessary to suspend enforcement of an anti-corruption law to enable U.S. companies to participate, but, realistically speaking, is it justified in this case to look the other way for a time?"

This then prompted Ashby Jones at the Wall Street Journal's Law Blog (see here) to ask:

"It’s an interesting question posed by Lipman, we think. Let’s assume, for now, that suspension of the FCPA would, in fact, lead to more badly needed U.S. investment in Haiti — a country in desperate need of every last dollar. Would it make sense to pull back on the law for the time being — say 1-2 years? Or would this send a counterproductive message from the Justice Department — that foreign bribery is okay in some countries but not in others? And is that any way to get a country like Haiti back on its feet — by perpetuating a culture of corruption?"

Here is my two cents - NO, WE DON"T NEED TO SUSPEND THE FCPA IN HAITI OR ANY OTHER COUNTRY!

My initial reaction was something like this - gee if the FCPA can, in effect, be suspended for certain companies selling certain products to certain customers (i.e. BAE), why shouldn't it be suspended to help an impoverished country recover from a natural disaster.

However, the misguided suspension suggestion / argument would seem to rest on certain false assumptions about the FCPA.

First, (Travel Act considerations aside) not all business dealings in Haiti are subject to the FCPA - only those with the Haitian government are (as well as, potentially, those with state-owned or state-controlled entities giving credence, just this once for purposes of this post, to the enforcement agencies' dubious "foreign official" interpretation). In other words, even if suspension of the FCPA would "open up" a portion of the Haitian market, it remains the case that only a portion of the Haiti market is affected by the FCPA.

Second, the misguided suspenson suggestion / argument assumes empirical evidence suggesting that businesses shun markets with high FCPA risk. I remain suspect to such claims, notwithstanding the prevalence of such claims by others including my friend Andy Spalding (see here). For instance, Venezuela, Angola, Russia, Philippines, Nigeria, Vietnam, Indonesia, Jamaica, Brazil, China, India, Thailand, and Mexico all fare (although not as poorly as Haiti) poor in Transparency International's Corruption Perceptions Index (see here) (the index is far from perfect, but it is commonly viewed as a leading barometer). Yet foreign investment in these countries is generally vibrant and generally continues to grow notwithstanding the corruption perceptions. Why? Because these are lucrative markets for companies and when a market is lucrative companies will gravitate to those markets, notwithstanding the FCPA risks involved. Haiti has a rather small population and the purchasing power of its citizens is among the lowest in the world. FCPA risks aside, it is perfectly rational for companies to avoid a country like Haiti in favor of doing business in other more populated, lucrative markets. In other words, suspending the FCPA in Haiti is not likely to change this dynamic.

Further, despite my frequent criticism of HOW the FCPA is ENFORCED by the enforcement agencies, I firmly believe that the FCPA, if enforced consistent with its statutory terms and consistent with legislative intent, is a fundamentally sound statute. Suspending enforcement of a necessary and fundamentally sound statute based on false and misguided assumptions is irresponsible and not sound public policy.

What can be done about Haiti?

For starters, how about removing economically inefficient U.S. import quotas that negatively affect Haitian businesses (see here for the recent broadcast from National Public Radio)? An economist like Cowen, as well as others, should pursue this solution rather than advocating suspension of a fundamentally sound and important law.