Can American Companies Compete Without Bribing?

Had Walmart come clean to U.S. authorities about the 2005 investigation, it might have been cleared of any wrongdoing. Daniel Aguilar / Getty Images

National Notebook: How to succeed in emerging markets without really bribing is not the title of a new Broadway musical but the vexing question du jour in the boardrooms of multinational corporations. Companies are wrangling like mad with how to effectively push their wares abroad without running afoul of the Foreign Corrupt Practices Act. This 35-year-old legislation was designed to prohibit firms operating in the United States from bribing government officials around the world to win business. From a strictly moral perspective, it’s hard to argue with holding companies to a code of proper conduct wherever they operate. But as the act has been given new oomph by the Justice Department and the Securities and Exchange Commission under the Obama administration, the bright line between what is acceptable behavior and what is not has become muddled. Ironically the law itself, and the way the government enforces the rules, has made matters worse. It may be time to give the FCPA a revamp.

Consider last week’s Walmart shocker. According to The New York Times, the mega-retailer’s Mexican unit sprinkled some $24 million of baksheesh into the pockets of local worthies to enable its store expansion. The alleged cover-up of its own 2005 investigation into the matter suggests a deceptive corporate culture at Bentonville HQ. What Walmart actually did in Mexico, though, may not have been illegal. The Justice Department says the law aims to make “it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business.” But Walmart was not technically obtaining new business—it was already active in Mexico. Second, the retailer handed the money to fixers tasked with helping speed along things like zoning approval processes. These sorts of “ministerial and clerical type payments were meant to be beyond the reach” of the FCPA, according to Mike Koehler, a law professor at Butler University. So had Walmart voluntarily brought the findings of its own internal probe to U.S. authorities, it might have been cleared of any FCPA wrongdoing.

Why Walmart executives instead sought to sweep the matter under the carpet when they learned of the payments isn’t clear. But it’s hard not to see the absence of any meaningful judicial challenges involving the law as a factor. Public companies like Walmart almost never fight back in court against the government because the risks of losing are far too great. A successful criminal conviction would essentially mean game over. As a result, virtually every case ends in a settlement. “If we had more judicial interpretations of the law, companies would have a clearer idea of the barriers and the bright lines,” says attorney Richard L. Cassin, founder and principal writer for the FCPA Blog. Without this, of course, American companies may take a more conservative approach to doing business abroad. Maybe that’s good. But if it impedes the ability of companies to export, expand, and exploit new markets, it’s not entirely consistent with broader public and economic policy. That’s something lawmakers might want to consider.