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Journal of Business Ethics

, Volume 93, Issue 2, pp 255–276 | Cite as

The FCPA and the OECD Convention: Some Lessons from the U.S. Experience

  • Masako N. DarroughEmail author
Article

Abstract

Although corruption is ubiquitous, attitudes toward it differ among countries. Until the 1997 OECD Convention, the U.S. had been one of the only two countries with an explicit extraterritorial anti-bribery law, the Foreign Corrupt Practices Act (FCPA) of 1977. The FCPA employs a two-pronged approach to control the supply side of corruption: (1) anti-bribery provisions; and (2) accounting (books and record and internal controls) provisions. I offer evidence, albeit indirect, to show that the FCPA had limited success. The OECD Convention adopts the same two-pronged approach, but, since it is a multilateral treaty, is likely to be more successful provided that enforcement is vigorous enough. The signatory nations effectively form a cartel to reduce the cost of doing business. As with any cartel, however, each multinational corporation has an incentive to deviate. Thus, the mutual enforcement of the agreement is crucial for its success. However, the two-pronged approach is not sufficient, since internal control does not adequately monitor decisions made at the top level. I argue that the two lessons drawn from the U.S. experience are: (1) law enforcement must be credible; and (2) internal controls alone are not sufficient. Stronger and more effective corporate governance within an appropriate regulatory framework is needed to ensure that multinational corporations conduct their business in an ethical manner.

Key words

bribery cartel corruption corporate governance FCPA internal control OECD convention 

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Notes

Acknowledgments

I am grateful to Sara Berman, Donal Byard, Aloke Ghosh, Michael Maher, Marilyn Neimark, Rita Ormsby, Fred Thompson, and the participants at the seminar at Rutgers University for their insightful comments. I also acknowledge a PSC-CUNY grant.

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Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.Stan Ross Department of Accountancy, Zicklin School of BusinessBaruch College – CUNYNew YorkU.S.A.

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