Another day is spent in the past – see here for yesterday’s post as well.

Buried deep in the FCPA’s legislative history is a dandy article by Milton Gwirtzman published by the New York Times Magazine in October 1975.  At this time, Congress was in the early stages of investigating what it called the foreign corporate payments problem.  As noted in this 2011 obituary, Gwirtzman was a “Washington lawyer and political consultant who was best known as a confidant to John, Robert and Edward Kennedy.”

Gwirtzman observed, “this has not been an easy year for American business” and that “some of the country’s flagship corporations – Exxon, Lockheed, Northrop, Gulf, United Brands – have admitted funneling massive amounts of cash to officials of foreign governments and hiding the transactions from their shareholders and directors.”

Gwirtzman observed that the revelations brought to light business practices that have “existed at least since the 1600′s when the British East India Company won duty-free treatment for its exports by giving Mogul rulers ‘rare treasures,’ including paintings, carvings and ‘costly objects made of copper, brass and stone.”  Yet Gwirtzman equally observed that “in the United States, this traditional way of doing business abroad has become food for scandal because of the new climate of openness and honesty that former Vice President Agnew ruefully but accurately called in his resignation speech the ‘post-Watergate morality.’”

Gwirtzman then observed that “all of this presents the American businessman operating abroad with a seemingly cruel dilemma.  If he keeps paying foreign officials, he runs afoul of the post-Watergate morality in all its fury.  If he is prevented from making these payments, either by law or by the chilling effect of disclosure, he risks the loss of important sales and investment opportunities to foreign competitors, who can apparently continue to pass bribes without embarrassment.”

Gwirtzman then states as follows.  “If corporate bribery abroad has offended the post-Watergate morality, the companies implicated have nevertheless taken a greater share of the blame than they deserve.  Bribery abroad is not exactly the corruption of innocents.  Several of the incidents spotlighted by the Senate hearings smack more of protection and extortion than of simple bribery.  In the most outrageous case, the chairman of the ruling party in South Korea threatened to close the $300 million operating plant of Gulf Oil in that country unless the company made a donation of $10 million to his party’s presidential campaign.  Gulf’s chairman, Bob Dorsey, was able to shave the demand down from $10 million, which he considered ‘not in the interests of the company’ to $3 million, which he said was.  The reasons multinational must do business amid a profusion of outstretched hands go deep into the history and structure of the lands in which they operate.  In much of Asia and Africa, the market economy as we know it, in which the sale of goods and services is governed by price and quality competition, never has existed.  What has developed in its stead are intricate tribal and oligarchic arrangements of social connections, family relations and reciprocal obligations, lubricated by name forms of tribute, including currency. [...]  In most developing countries, civil-service salaries are deliberately low – the average Indian bureaucrat makes $1,650 a year – on the assumption that people will supplement their salaries by asking for money where they can find it.  Where political instability is the rule, the tenure of high officials is always uncertain and often short.  Bribes provide a form of retirement fund.  It is considered far more patriotic to take money from rich foreign corporations than out of one’s own country.”

Gwirtzman then observes as follows.  “The responsibility for present practices must also be shared by our Government, which not only encouraged investment in countries whose ethical standards differ from ours, but also in many respects set the pattern for the graft under censure today.  American intelligence agencies have regularly dealt in bribery and payoffs wherever they seemed to be useful tools in strengthening America influence abroad and frustrating the designs of Communist nations.  Bribes have been used not just to acquire useful information, but to restore the Shah to power in Iran, to purchase votes in international organizations against Cuba, and to ‘destabilize’ the Allende Government in Chile.  We shall probably never know how many of the electoral campaigns of pro-West political parties were financed by secret contributions from the CIA.  The important thing here is that these have been accepted tactics for more than a generation.  The rapid acceleration of American private investment in foreign lands, which began in the mid-nineteen-sixties, was seen by our foreign policy makers as a welcome opportunity.  If U.S. firms could build a nation’s infrastructure, supply its consumer goods and hire a portion of its workers, the greater the likelihood the nation would be bound to ours by the safest and strongest of ties, economic self-interest.  As a result, our Government wrote the foreign investment laws of several developing countries and urged our multinationals to make use of them.  New programs were established to insure foreign investment against the risks of war and expropriation.  Embassy personnel were ordered to scout out export possibilities for American firms, which were published in Commerce Business Daily, the Government’s daily list of business opportunities.”

Gwirtzman the stated as follows.  “For all these reasons, it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust.  It is a symbol of far deeper issues that really involve America’s role in the world.”

For instance, Gwirtzman noted as follows.  “Since our multinational companies, like Government agencies, are important instruments of our nation’s global power, it is argued they should not be hobbled by home-bred notions of business morality.  After all, if such firms were government-owned, as many of their foreign competitors are, their managers would be servants of the state and presumably have the same license as intelligence agents to pass bribes for the good of the country.  And is there really a distinction in this regard between state-owned companies and firms like Northrop and Lockheed, whose customers are governments and whose products give our policies their clout?”

Is Gwirtzman right?  Is it unwise and unfair simply to write off certain FCPA enforcement actions as evidence of corporate lust?  Are certain FCPA enforcement actions a symbol of far deeper issues that really involve America’s role in the world?

As to the issues Gwirtzman raises, the following recent events come to mind.  This prior post regarding the James Giffen case, this prior post regarding the sentencing of Bobby Elkins, and this prior post regarding sentencing in the Nguyen enforcement action.