Ethisphere Reaction and Recommendations in Light of the Administration’s FCPA Executive Order
On February 10, President Donald Trump issued an Executive Order that effectively halts enforcement of the Foreign Corrupt Practices Act (FCPA)—a law enacted in 1977 and amended in 1988 that prohibits U.S. businesses from paying or receiving bribes in order to secure international business.
The main reason given by the White House for this order is that the FCPA enforcement creates an uneven playing field for U.S. businesses by prohibiting them from paying bribes in parts of the world where bribery is common to secure business.
History and Context
The FCPA was enacted in 1977, following the Watergate investigation, when Congress learned that a large number of U.S. businesses routinely paid bribes to win business abroad. Noting that this was unhealthy for U.S. businesses, as well as offensive to U.S. values of fair and meritocratic competition, it passed the Foreign Corrupt Practices Act, which was signed into law by President Jimmy Carter. President Ronald Reagan amended the FCPA in 1988 to further define its scope. In 2024, a related statute—the Federal Extortion Prevention Act (FEPA)—was enacted to prohibit the receipt of bribes to secure business as well.
Since the FCPA’s passage in 1977, its critics have argued that the law unfairly constrains business from gaining an upper hand in territories where bribery is common.
Ethisphere does not agree with this assessment.
For two decades, our mission has been to make the world a better place by advancing business integrity. We believe—firmly—that the world thrives when companies win business because they were best-suited to provide a good or service, not because of inappropriate influence or behavior.
Why bribery is bad for business
Bribes are inherently harmful to those who make them, those who take them, and those who live and work in environments shaped by them.
- Bribery is costly and unprofitable. Businesses and individuals pay more than $1 trillion annually in bribes, and the overall cost of bribery itself is some $2.6 trillion or a staggering 5% of the global gross domestic product. This is all money that businesses do not recover. Also, some 40 countries have antibribery and anticorruption laws similar to the FCPA with penalties that prove bribery is not worth the cost. There is no bottom to bribery; once a bribe is paid, those demanding it have zero incentive to stop asking.
- Bribery creates reputational risk. For many organizations, nearly 80% of their total value is in intangible assets like reputation. Reputations are easily tarnished or destroyed outright by perceptions of corruption. Any business won by bribery is far more easily lost by it.
- Bribery hurts communities. When corruption becomes an accepted way of life, the quality of life itself suffers. Government officials and public services simply stop working, and the community in which businesses operate begin to disintegrate. This leaves communities in shambles, which eventually makes it impossible for businesses to succeed there, too. And let’s not overlook how corruption also worsens the climate crisis.
- Bribery is a slipstream for other illegal activity, such as fraud, market manipulation and more. Swiss mining and commodity trading company Glencore may have started by paying bribes to secure business abroad, but that metastasized into other forms of costly fraud like market manipulation. While U.S. Attorney General Bondi issued a Day One memo that the FCPA would be used to target human smuggling and drug trafficking, it is international bribery that allows such crimes to flourish. Even the U.S. State Department agrees.
- Corruption kills. A study of earthquake fatalities over 30 years shows that in highly corrupt countries, the death tolls are far higher because of poor building standards that persist because inspectors have been bought off and builders cut corners. When businesses contribute to corruption, it erodes the safety of everyone, whether it’s companies that end up financing terrorism in Syria or building a dam in China that may one day burst and flood some 400 million people. When people bribe, people die.
Why integrity is good for business
We’ve been collecting data on how good businesses outperform for two decades, and the math backs us up.
The Five-Year Ethics Premium is our annual metric by which we show that businesses with strong ethics and business integrity outperform their peers. Every year for more than a decade, we have taken the publicly-traded companies on our World’s Most Ethical Companies list and looked back over the prior five years to see how a weighted basket of those companies would perform against a comparable index. And year after year, through bull markets and bear markets, the organizations that demonstrated strong governance, compliance and risk management practices did better. For 2024, that outperformance was 12.3 percent. This year’s Premium, which will be released on March 11th, trends the same way.
Our research into ethical cultures with the University of Arizona revealed that companies whose employees have favorable perceptions of the ethical culture within their organizations report a 40% higher return on assets than companies that do not.
Both of these data points make sense when you consider that companies do not have a P&L line for bribes. That money is taken from some other part of the business, whether from R&D, or M&A, or hiring talented employees. In a world where the vast majority of a company’s value is tied up in intangible assets, protecting those assets just makes business sense.
Where E&C leaders should go from here
For ethics and compliance leaders, there is little question we are in a period of uncertainty. But this is far from the time to retreat on our collective commitment to doing business the right way. Here are some important things for leaders to bear in mind.
- This is a pause in enforcement, not a repeal of the law. The Executive Order merely halts DOJ enforcement of the FCPA. It does not halt SEC enforcement, nor does it revoke the FCPA itself. This EO could be undone, and the statute of limitations on FCPA issues is five years, not four. This is not a permanent hall pass for companies to pay bribes internationally.
- International standards remain. Some 40 countries have strong antibribery laws in effect. In fact, the FCPA had to be amended to meet the Organization of Economic Cooperation and Development (OECD) Anti-Corruption Guidance, which is now the global standard. Around the world, the expectation is that companies do not win business by paying bribes, and that there is a substantial risk for those that choose to engage in that behavior.
- Reputational Risk is high. As noted above, more than 80 percent of the average organization’s value is tied up in intangible assets, of which reputation is a critical component. “But everyone else is doing it” doesn’t work to excuse inappropriate behavior. Do not think it will work on the front page of the newspaper, or in a reel on your favorite social media platform.
- Third party risk may grow, so keep a keen eye there. Third party due diligence is already a challenging area, and it may get more difficult to get third parties to engage with questionnaires or ongoing monitoring. It’s a good time to align your efforts around anti-corruption with other control functions looking at your value chain risks like forced labor, modern slavery, cyber security and sanctions.
- You know how to make the case for your function. For the last 20 years, you have been asked to justify your budget as E&C professionals. That has not changed. You know how you make an impact on your organization, and how you build value. You will be needed more than ever, because what this EO will do is embolden those government officials who are inclined to request bribes to brush aside any concerns expressed by your employees and say “come on, your own president says what we’re asking for is fine.” Your efforts will be needed to help them hold the line.
Conclusion
Bribery is bad business, regardless of the prosecutorial risk. Strong companies know better than to even consider bribery as a way of developing opportunities. Our data shows that strong ethics is good business, and companies with integrity are better positioned to win and succeed than those without it.
Tom Bubeck
CEO, Ethisphere
Erica Salmon Byrne
Chief Strategy Officer, Ethisphere
