Birth Of The FCPA: This Bribery Is Positively Bananas

Foreign Corrupt Practices Act , SEC Whistleblower Program

Every so often we see on the news reports of heinously unethical behavior that conclude with an infuriating detail- the behavior, while clearly immoral, isn’t technically illegal. Citizens get up in arms and demand to know “how is this legal?!” To placate outraged constituents, legislators call Congressional hearings and hear experts testify on how best to address the issue. Often the experts are government regulators, academics or activists who have been calling for reform for years, but it wasn’t until some particularly salacious story caught the public and media’s attention that anyone cared to listen to them. The Foreign Corrupt Practices Act of 1977 (FCPA), a statute which prohibits the bribery of foreign officials, arose out of this type of situation.

In the mid 1970’s, the Securities Exchange Commission (SEC) began investigating allegations that numerous US corporations were in the practice of bribing foreign government officials to obtain business contracts, enact favorable legislation, or simply “greasing the wheels” to expedite obtaining permits and licenses and other routine government actions. Lockheed Aircraft Corporation, fresh off a $250 million government bailout, was heavily implicated in bribing multiple foreign governments to sell their products. This included a $10 million payment to West Germany’s Minister of Defense for the purchase of 900 F-104G Starfighter jets in 1961, a billion dollar deal. Lockheed also paid over $100 million in commissions to a Saudi arms dealer, and smaller bribes to officials in Japan, Netherlands, and Italy. With Americans growing increasingly critical of the massive defense industry in the wake of the Vietnam War, Lockheed’s bribery scheme smelled like blood money to many citizens. While Lockheed was one of the biggest culprits, the SEC investigation would eventually uncover at least 400 companies who shelled out a combined $300 million on foreign bribes. But the most salacious story was undoubtedly a scandal that came to be known as Bananagate.

In 1975, Eli Black, chairman and president of United Brands Company (now Chiquita Banana), committed suicide by jumping out the window of his Manhattan office. An SEC investigation into his death found that United Brands had paid several million dollars in bribes to the President of Honduras, Oswaldo López Arellano, in order to have taxes on banana exports lowered. In 1974 Honduras increased its tax on banana exports from 25 cents per box to 50 cents. This protective tariff was designed to help the newly formed Union of Banana Exporting Countries (UPEB) wrest control of the banana market from United and other major fruit companies, since at the time nearly all profits from Central American bananas wound up in the hands of North American companies. United paid Arellano $2.5 million to see to it that the export tax was reduced back down to 25 cents, a move that save the company $7.5 million in taxes and led to the collapse of the UPEB.

It bears mentioning that this was not United’s first attempt to meddle in Central American politics to protect its business interest. Students of history will remember that in 1954, United Brands (then United Fruit Company) successfully convinced the Eisenhower administration to launch a US-backed coup in Guatemala, under the paper-thin pretext that the current government was going to align itself with the Soviet Union. The rebel group was trained and equipped by the CIA, whose director Allen Dulles coincidentally was a board member of United Fruit.

So while Bananagate had a severe impact on the Central American fruit industry and the region’s governments, bribery actually ranks quite low on the list of United Fruit’s most heinous acts. And of course the real kick in the pants was, as we have mentioned before, the revelation that bribing foreign officials was not illegal under US law. However, because United was a publicly traded corporation, it was illegal to hide these bribes from the company’s shareholders, thus giving the SEC the green light to launch an investigation of United. The public outcry against United also gave Congressional leaders more urgency in dealing with the bribery issue.

In May 1975 Senator Frank Church’s Subcommittee on Multinational Corporations (Church Committee) held a hearing to discuss U.S. corporate political contributions to foreign governments. In his concluding remarks Senator Church remarked, “In short, we cannot close our eyes to this problem. It is no longer sufficient to simply sigh and say that is the way business is done. It is time to treat the issue for what it is: a serious foreign policy problem.” Partially motivated by public pressure, and partly motivated to prevent corporations from undermining U.S. Foreign Policy, more Congressional hearings followed. It soon became evident to Congress that new and direct legislation was needed. From 1975 to 1977 over 20 bills were introduced to Congress. Initially there were two competing legislative approaches: a disclosure approach and a criminalization approach. Under the Ford Administration, the disclosure approach was favored, but when the Carter Administration took over, it favored criminalization. On December 19, 1977 the FCPA was signed into law by President Carter.

But before long, people began to complain that the statute was too restrictive and was slowing US economic growth. Congress first began discussing amendments in 1980, but it was not until 1988 that they became law. The amendments included an exception for so-called “facilitating” or “grease” payments and several affirmative defenses for defendants in FCPA cases. In 1997 the statute was amended to bring the US law into greater uniformity with the norms agreed on in a convention of the Organization for Economic Cooperation and Development. Finally in 2010 the Dodd-Frank regulations greatly strengthened the FCPA, adding an incentive program whereby whistleblowers can claim a reward of 10-30% of any settlement that the government recovers from an FCPA prosecution. Dodd-Frank also provides for strong protections against retaliation for whistleblowing.

Whistleblower Justice Network Can Help You

Whistleblower Justice Network partners with whistleblowers worldwide to expose worldwide bribery schemes that violate the Foreign Corrupt Practices Act. Utilizing the SEC Whistleblower Program, we aid whistleblowers in bringing corporations that expand their business interests through bribery to justice.

If you have meaningful information regarding corporate bribery that you believe is in violation of the FCPA, Whistleblower Justice Network can help. Working alongside world-class legal counsel, we will ensure you are protected to the fullest extent of the law and that you receive credit for the information you bring to the U.S. government. Partnering with whistleblowers is all we do. Visit us at www.whistleblowerjustice.net, or call us at 844-WJN-4ALL, to learn if we can help you.

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