Extraterritorial legal outreach: Why should the US call the shots?

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The logo of the French firm Alstom is photographed in Paris, France, 27 April 2014. Alstom had to pay what was at the time the biggest ever financial penalty imposed by the United States. The company also lost a key part of its business to its biggest US Competitor, General Electric. [EPA-EFE/ETIENNE LAURENT]

A US law aimed at ending corrupt practices by US corporations has morphed into an economic and political weapon, and a virtual goldmine in terms of the resources US agencies have extracted from non-US companies, writes Dick Roche.

Dick Roche is a former Irish Minister for European Affairs and former Minister for the Environment. He also served as Chairman of the Irish Commission of Justice and Peace.

The Foreign Corrupt Practices Act (FCPA) is an extraordinary example of extraterritorial legal outreach by the US.

The application by US authorities of the FCPA spotlights the uncomfortable reality that the operations of many of Europe’s more important companies are effectively regulated in Washington, D.C. rather than in EU capitals. It also raises questions about European sovereignty.

FCPA Origins

As the United States dealt with the Watergate affair, the Lockheed scandal broke. Lockheed boosted aircraft sales for decades by paying millions of dollars in bribes to officials across 15 countries.

An article in New York magazine in March 1976 suggested “the zeal for bribery was partly stimulated by the conviction of Lockheed men that the Europeans – particularly the French – are past masters of the art. They showed something of an obsession with Gallic corruption”.

In March 1977, a US Senate committee approved draft legislation “to prohibit certain bribes”. Six months later, the House of Representatives produced its own draft Bill.

The House Committee, which prepared its Bill, found that more than 400 corporations had been making “questionable or illegal payments”. It concluded that “bribery of foreign officials by some American companies casts a shadow over all US companies”.

In December 1977, President Jimmy Carter signed the US Foreign Corrupt Practices Act [FCPA] into law. The Act gave US agencies the capacity to investigate and punish bribery and corruption by US corporations.

Between 1978 and 2000, the FCPA was used sparingly. The annual number of FCPA enforcement actions was in low single figures through the 1980s and 1990s.

While rarely used, the FCPA was deeply resented by US corporations who complained it disadvantaged them. The Act was blamed in part for the US balance of trade deficits.

On 10 November 1998, President Clinton signed the International Bribery and Fair Competition Act 1998 into law. This legislation fundamentally altered the focus of the FCPA.

Under the guise of addressing the scandal of global corruption, the US awarded itself the right to bring foreign nationals and foreign businesses under the 1977 FCPA, creating a potent US economic weapon in the process.

A statement issued on the day of the White House signing ceremony gives some insight into the thinking behind the legislation. The OECD bribery convention is referenced, as is the belief that bribery is inconsistent with democratic values. The statement’s primary focus is on the disadvantages that US businesses had faced by being subject to the FCPA while foreign competitors “did not have similar restrictions”. It chastised US trading partners for condoning and even “subsidising” corrupt practices and complained that US businesses had to compete “on an uneven playing field”, resulting in their losing “international contracts estimated at $30 billion per year.”

Between 1978 and 1999, when the FCPA applied solely to US corporations, the Act’s enforcement actions averaged just over two per year.

Following the changes introduced in 1998, the US Department of Justice [DOJ] and Securities and Exchange Commission [SEC], the primary FCPA prosecutorial authorities, dramatically increased the number of FCPA enforcement actions and quickly turned their attention outside the US borders.

Open Season on European companies

In 2006 Statoil was charged with bribing Iranian officials. Although a Norwegian company, majority-owned by the Government of Norway, Statoil was deemed to fall within reach of FCPA because the company had a listing on the New York Stock Exchange.

Statoil was found to have “violated the anti-bribery and accounting provisions of the FCPA” in its operations in Iran. The company accepted a deferred prosecution and agreed to accept a DOJ fine of $10.5 million and make a further $10.5 million payment to the SEC under a “disgorgement” order.

Since the Statoil case, it has been open season on European companies. In the last decade, the US has levied FCPA penalties totalling almost $20 billion, a disproportionate amount of which came from European corporations.

From 2010 onwards, European companies have dominated the annual  “top ten” list of FCPA fines and penalties.

The 2010 FCPA ‘top ten’ penalties list features eight European companies Siemens (Germany), BAE (UK), Snamprogetti BV/ENI ENI S.p.A (Netherlands/Italy), Technip S.A. (France), Daimler (Germany), Alcatel-Lucent (France), Panalpina (Switzerland), ABB Ltd. (Switzerland).

Between them, the eight  European companies were required to pay $ 2.36 billion in penalties. The two US companies on the list, Halliburton and Pride, were levied with penalties totalling $635 million.

The 2020 ‘top ten’ list was, again, dominated by companies European companies.  Seven of the companies on the list had their HQs in Western Europe  – Airbus SE (Netherlands/France), Ericsson (Sweden), Telia Company AB (Sweden), Siemens (Germany), VimpelCom (Netherlands), Alstom (France), and Société Générale SA (France).

The seven companies were levied with fines and penalties totalling over $7.1 billion.  The only US company on the 2020 list, Goldman Sachs, was levied with fines and penalties totalling $3.3 billion, the largest penalty ever handed down. The settlements for the two remaining companies Petrobras (Brazil) and MTS (Russia), totalled $5.3 billion.

Financial penalties are not the only aspect of the FCPA that gives cause for concern. US agencies have been particularly aggressive in their approach to non-US companies. This point is demonstrated dramatically in the investigations by US agencies of the French company Alstom, which was accused of paying bribes in Indonesia, Saudi Arabia, Egypt, and the Bahamas.

During the protracted US investigations, several Alstom employees were charged with violating the FCPA. One employee, Frédéric Pierucci, a French citizen peripherally involved in shady Alstom dealings in Indonesia, was held in often brutal conditions in US prisons as an effective economic hostage for two years. Alstom had to pay what was at the time the biggest ever financial penalty imposed by the United States. The company also lost a key part of its business to its biggest US Competitor, General Electric. Pierucci, in his book The American Trap, suggests the FCPA action was important in levering Alstom to talk to GE.

Europe needs to take stock

Extraterritorial jurisdiction for prosecuting crimes under international law is a well-established principle. Its development as a means of repressing war crimes, genocide, torture, or crimes against humanity has been long accepted.

The United States has dramatically expanded the exterritorial principle well beyond the accepted norms.  Increasingly the US has used an assumed extraterritorial jurisdiction as a political and economic lever to apply US determined standards on non-US entities and citizens or as a means of forcing its international partners to toe the line on US determined policies.

The EU has attempted to curtail US outreach. A Council regulation in 1996 extended EU protection to companies lawfully doing business in Iran, Libya, and Cuba. In 2019 a special arrangement was put in place to protect EU companies doing business in Iran. However, these measures have a limited impact.

In the case of the FCPA, European policymakers have been effectively helpless, and the US has run wild.

The time has come for a full-blooded debate on US overreach via the FCPA.  A good starting point could be for the Commission or the Parliament to commission an in-depth analysis of the operation of the FCPA its impact on European citizens and companies as a precursor to bringing forward proposals at the WTO or OECD.

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