Date of this Version
Harvard Journal on Legislation
The Foreign Corrupt Practices Act (the “Act”) may be one of the most misunderstood pieces of legislation within the federal corpus of laws. Its genesis is often ascribed to an almost reactionary moral indignation over the abuses of a presidential administration, whereas in reality Congress had more prosaic objectives, one of the more important of which was to preserve and enhance the strength of the global market. The Act has often been described as the first and for a time only law of its kind, even though in reality it joined a very similar Swedish law.1 Most seriously, the Act has been analyzed through the prism of a mode of thought that could be called neomercantilism, a mode of analysis that this Article demonstrates is fundamentally erroneous.
Neomercantilism draws from the much older political theory of mercantilism, which sought to increase national wealth through managed trade. Mercantilism suffered from a fundamental misunderstanding of concepts such as wealth and trade; similarly, neomercantilism fails to understand the world as it actually exists. This Article identifies a basic fallacy in the neomercantilist mode of thought, namely that business can be thought of as siloed within national boundaries and that some sort of neomercantilist scorecard can be based on those siloed national champions.
Analysis of the Foreign Corrupt Practices Act redounds with neomercantilist thought. Scholars persistently speak of the Act as though it and only it applies to U.S. businesses, and as though U.S. businesses are constrained by no other transnational corruption laws.2 Practitioners and policymakers often adopt the same mode of analysis.3 Neither group is correct. The Foreign Corrupt Practices Act by its very definitions applies only to business firms or their affiliates that engage in some form of transnational activity.4 The reality of transnational business activity, often labeled globalization, consists of networks of relationships that take little notice of national borders and which cannot be siloed. Moreover, Congress intended for the Act to be part of a global regime to control bribery.5 That regime has been created and is now the relevant regulatory environment in which transnational business occurs. The Foreign Corrupt Practices Act is domestic legislation, an integral part of the federal law of the United States. Meaningful analysis of the Act, however, must take account of the contextual reality of the transnational business firms regulated by the law and of the global market that the law is intended to protect. To do otherwise not only lacks intellectual rigor but also risks losing the benefits to be accrued from a well-functioning global market.
This Article begins in Part II with the definition of corruption used by Congress in the Act. Part III explores Congress’ motives in enacting and amending the Act. Part IV demonstrates the use of neomercantilist thought in analyses of the Act, while Part V explains the fallaciousness of that thought from the perspectives of both business and regulatory reality. Part VI examines proposals to alter the Act, and shows how neomercantilist thought skews analysis of those proposals and fails to identify important issues.
Nichols, P. M. (2016). The Neomercantilist Fallacy and the Contextual Reality of the Foreign Corrupt Practices Act. Harvard Journal on Legislation, 53 203-246. Retrieved from https://repository.upenn.edu/lgst_papers/22
Date Posted: 27 November 2017
This document has been peer reviewed.