After multiple foreign corruption scandals came to light in the 1970’s, Congress passed and President Carter signed into law the Foreign Corrupt Practices Act. In 1974, due to Watergate and the release of the Pentagon Papers, many Members of Congress were defeated and a new, younger elected official emerged. These were people who questioned the status quo and asked the simple question, “why”?

A combination of these new Members of Congress and a vibrant generation of investigative journalists, inspired by Watergate, people began to take a new look at our government and our business sector. Further, the Church Commission, headed by U.S. Senator Frank Church uncovered CIA sponsored assassinations and bribery of foreign officials. The U.S. citizenry began to see how our country and our businesses conducted themselves overseas, and they were not happy. Changes were made. One such change was the Foreign Corrupt Practices Act (FCPA) which focused on making it illegal to bribe a foreign official. Bribery of a U.S. official has been illegal since the dawn of the republic, but there was nothing pertaining to bribing a foreign official.

The Church Commission uncovered major bribery scandals including a number by Lockheed Corporation. These included a series of multimillion dollar bribes by Lockheed to officials in West Germany, Japan, Italy and other countries. The scandal almost destroyed the Lockheed. At the same time, the Church Commission learned about the ongoing bribery of officials in Central American countries, predominantly Honduras, by Chiquita and United Fruit. Further, the Commission found the CIA, under pressure from United Fruit, had orchestrated the assassination of Guatemalan President Arbenz because of his push to tax fruit exports. The concern in Congress was that bribing of foreign officials leads to a slippery slop culminating in assassination of foreign officials. Congress did not want the rest of the world to view the U.S. in such a manner, and felt it was time pass the Foreign Corrupt Practices Act.

How does the FCPA relate today? One example is the Fort Worth, Texas, based company Bell Helicopter. For years Bell Helicopter would fight for large government contracts against various helicopter manufacturers, including the French. Bell’s competitors would pay bribes and would often win the government contracts around the world. Bell had to follow the FCPA, the competitors did not. The view is that the FCPA puts Bell at a disadvantage.

Did “doing the right thing” by Bell Helicopter help or hurt? Was the FCPA good for the “soul”, but not the “pocketbook”? One has to look deeper. Bell was in fact, extremely successful in selling helicopters overseas. But why is this the case? Their competitors should have been able to bribe and secure all these multimillion dollar contracts. To understand, one must look at the variables. In headed to head comparison, the Bell Helicopter is fairly even in performance with the top tier counterparts. What is critical is the perception of the buyer towards “Made in the U.S.A.” Helicopters made by Bell are viewed to be a better product than those of their competitors. Foreign buyers look at a product made in the U.S. and feel they are buying a properly built and legitimately tested product. A U.S. manufactured product is viewed as to not be constructed under the cover of bribery, where inferior components and methods would be used. The FCPA gives the buyer the level of comfort where they feel the U.S. made product is superior even though its performance is equal to a foreign made product. A buyer can look at a seller and understand that if a bribe is offered, then how can the buyer trust the workmanship of the product itself? In this environment, the FCPA works.

A second example of the FCPA was in Africa during the height of the AIDS crisis. U.S. companies selling HIV tests and anti-retroviral products to Africa ran into problems as they attempted to sell to HIV programs run by African governments. In many occurrences, the U.S. companies would have a product with equal efficacy and efficiency, and of comparable cost, yet would still be unable to secure the contracts. Time and again, U.S. companies would uncover bribes by their competitors. In 2003, in Kenya, almost the entire National Laboratory staff was receiving bribes. Some medium level officials were receiving bribes as high as $20,000USD per month. President Kabaki appointed a new Minister of Health, Charity Ngilu, and she cleaned up the scandal, but still faces a huge problem of bribery at other levels of government. Programs run by USAID, European NGOs (non-government organizations) and religious based programs want to provide the best care, but are handcuffed by government policy often steering their purchasing to the companies providing the bribes. In many instances, these groups just throw up their hands and follow the individual country’s guidelines.

U.S. companies wanting to get their products approved for use in a country must have their product tested. There is cost to this testing which provides an opportunity for a bribe to come in through “the back door”. There is no envelope with cash in it or money wired to a Swiss bank account. These transactions come in the form of an itemized receipt and paid through the accounts payable process. It is often at the discretion of the party doing the testing to come up with the cost of the testing. This “soft” bribery is common throughout the world and difficult to stop.

In Africa, even with competitors paying bribes, a U.S. made product is without question, the product of choice. “Made in the U.S.A.” means a lot a great deal and forces the competitors to put forth a significant bribe to overcome the strong USA label favor. One can find even in the smallest village, this willingness to choose the U.S. made product over an equally performing product of a competitor.

To understand the standard, the U.S. made product is viewed as superior, just as we found with the helicopters made in the U.S. If the variables are equal, the U.S. made product will win the contract. This is why the competitor’s bribe comes into play. To combat this favoritism, Great Britain passed an even more stringent FCPA law. The British recognized their products in many instances were viewed as inferior to the U.S. because they did not have an FCPA. The British products were put into the category with the inferior manufactured products and the buyers were expecting bribes to “compensate” for the lack of trust in the product’s workmanship.

In other European countries, bribe costs incurred by business can be written as a tax deduction. It is viewed as a cost of doing business overseas. As for accounting purposes, this is quite understandable. But for practical and legal purposes, it can become problematic. The British law, and its application to EADS, the European manufacturing conglomerate, will be of interest. The U.K. is a partner country in EADS. How will sellers of EADS products comply with British law, when there is no similar FCPA laws in other EADS partner countries?

As an expansion to FCPA, the U.S. broadened the spirit of the FCPA to include “business to business” bribery. Because business meetings and transactions are harder to regulate and are not considered of “public record”, it is much harder to police. Publically traded companies must divulge most activities which could lead to FCPA investigations, but private companies are not bound to releasing their activities.

A common tradition is the trade of gifts among business leaders during business trips. The question that comes into play is, “what constitutes a bribe”? Is it purely a cash exchange for consideration? If so, then how does one put a value on significant gift exchanges if the two parties represent multi-billion dollar companies? Time will tell on how the business to business FCPA will ultimately take shape as an effective weapon to keep the playing field for all companies.

With the world recognizing the strength of “Made in America”, and the U.K. following suit, it will be good to take note on how the U.S. made brands maintain their leadership role.