Extra-Territorial Law Enforcement as a Mechanism of Legal Diffusion

• In Event: The International Diffusion of Law and Policy

Abstract

Why do states enforce their laws extra-territorially? This paper examines one prominent area of US extra-territorial enforcement—prosecution under the Foreign Corrupt Practices Act (“FCPA”) of foreign citizens or corporations for the bribery of public officials to obtain business advantages abroad (“foreign bribery”). Previous research has found that these US prosecutions can increase the likelihood that the defendant’s home state will begin to prosecute this kind of bribery, which suggests that the rationale for extra-territorial law enforcement by the US is to propel prosecutorial action by other states (Kaczmarek and Newman 2011).

However, more recent anti-foreign bribery actions raise questions about the relationship between US extra-territorial enforcement and anti-foreign bribery enforcement in the defendant’s home state. For instance, in 2009 US enforcement authorities imposed a $9 million penalty on the Danish corporation Novo Nordisk in connection with bribes that the company paid to Iraqi government officials. Still, as of the end of 2017, Denmark had yet to impose sanctions for a single case of foreign bribery. Other examples also indicate that US extra-territorial FCPA enforcement actions do not necessarily increase enforcement efforts by the defendant’s home state. In 2011, US enforcement authorities imposed a $218 million penalty on JGC Corp., a Japanese engineering company, for the payments of bribes to Nigerian public officials. But Japanese enforcement remained stagnant for several years after, and it was only starting in 2015, following sustained pressure from the OECD, that Japan has increased the enforcement of its anti-foreign bribery laws.

In this paper, we re-visit the argument put forward by Kaczmarek and Newman (2011) using a substantially expanded dataset. While Kaczmarek and Newman’s data ended in 2008, our paper will analyze anti-foreign bribery enforcement actions across the OECD through the end of 2017. Using this expanded dataset, we will re-examine the hypothesis that Kaczmarek and Newman (2011) proposed: that a US FCPA enforcement action against a foreign defendant increases the likelihood that the defendant’s home state will begin to enforce its anti-foreign bribery law. Further, we will explore whether US FCPA enforcement actions against foreign defendants are linked to increasing anti-foreign bribery enforcement by home states that have already begun to enforce their foreign bribery laws. We also consider several alternative hypotheses, including whether OECD monitoring, and in particular critical public reports from the OECD, are associated with increases in anti-foreign bribery enforcement. Finally, using bilateral FDI data, we test whether countries that tend to invest in more corrupt host states are likely to prosecute bribery.

We expect that this more recent data will also reveal clusters of enforcement—where prosecutors in both the US and in the defendant’s home state complete enforcement actions for the same bribery scheme, even sometimes prosecuting the same corporation or individual. This is puzzling given the logic of Kaczmarek and Newman and suggests a distinct rationale for US extra-territorial enforcement. Rather than simply propelling anti-foreign bribery enforcement by the defendant’s home state, US extra-territorial prosecutions can serve as a mechanism of legal diffusion and harmonization. Here US extra-territorial enforcement actions can be used to reward enforcement practices of foreign states that align with US practices and enable the creation of global settlements. These global settlements reduce the resource burden on the US of international criminal enforcement and increase legitimacy for US enforcement practices. To assess the plausibility of this mechanism of US extra-territorial influence, we plan to conduct several in-depth case studies of multi-jurisdictional prosecutions and carefully examine the role of US prosecutions in the decision-making process to launch anti-foreign bribery enforcement actions in the defendant’s home jurisdiction.

Authors

• Michael O. Allen

• Elizabeth Acorn, Yale University