A Bright Take on FCPA Compliance
Here’s a splendid bit of research for all you FCPA aficionados: Business professors at the University of Chicago have quantified the economic benefit of corporate anti-corruption programs — by measuring, of all things, the nighttime use of electric lights in African villages near mining businesses subject to the law.
The findings come from Hans Christensen, Mark Maffett, and Thomas Rauter, three professors at the university’s Booth School of Business. They measured the economic activity in villages across 34 African countries, using “nighttime luminosity” as their benchmark. They found that from 2004 to 2013, villages within six miles of mines or oil & gas wells operated by companies subject to the FCPA had significantly more luminosity — roughly equivalent to 14 percent more economic activity — than villages near mines or oil & gas wells that weren’t subject to the FCPA.
Moreover, the professors found that enforcement of anti-corruption standards didn’t lead to lower levels of employment in the extractive industries; and did lead to the local populations having a better opinion of local government. They were 8 percent less likely than people in other areas to view public officials as corrupt, and 18 percent more likely to be satisfied with their local governments after 2004 (when more aggressive FCPA enforcement began in the United States).
“Our results suggest that anti-corruption regulation imposed on multinational corporations by countries with strong institutions (in this case, the United States) can increase the extraction sector’s contribution to local economic development in countries with weak political institutions,” the three wrote in their research paper, published in December and written up in the Chicago Booth Review earlier this month. “This is important because developing countries may not have the institutional strength or political will to address misconduct by multinational corporations themselves.”
Shining a Light on the Details
So what did Christensen, Maffett, and Rauter do, exactly? They selected 487 mines and 113 oil & gas wells located across Africa; and then used location, ownership, and commodity data to determine whether each site’s owner had been affected by the increased enforcement of the FCPA.
Then they cross-referenced all that information with satellite imagery collected by the U.S. Air Force to measure nighttime luminosity over time. Why look at nighttime lights? Because, according to the economists who study these things, nighttime luminosity is one way to measure economic development without any worries about whether locally reported GDP data is reliable. Plus you can get much more precise in your measurements of luminosity, since satellite imagery these days can pretty much get right down to individual light bulbs.
If you want to delve into the full data analysis, read the professors’ paper. For non-academics who trust that these guys know what they’re doing, the shorter article in the Chicago Booth Review gives a more layman’s perspective.
Their most important conclusion, however, is worth excerpting from the paper:
To summarize, the evidence… indicates that local economic activity increases in cells around extraction facilities with owners subject to foreign corruption regulation, suggesting that the FCPA’s corruption-reducing effects outweigh any opposing effects arising from a reduction in economically beneficial investment.
Translated: FCPA compliance may be a pain in the [expletive], but it stimulates better governance and local economic growth more than it drives corporations to close up shop because compliance is too much of a hassle.
The Bigger Picture in FCPA Compliance
I adore this study for several reasons. First is the sheer ingenuity of using nighttime luminosity as a metric for economic development. Second is the painstaking research these professors brought to the project. Studying satellite imagery photos across hundreds of locations for years on end; and then cross-referencing that data with corporate ownership of local mines and public opinion surveys on local corruption — that all takes a lot of work. Ethics and compliance officers’ ability to argue in favor of strong anti-corruption programs rests on such work, so we in the corporate realm owe this team a debt of thanks.
Above all, however, I love the moral and economic motives that blend together in their conclusions.
Too many cynics out there still see bribery as a victimless crime, and anti-corruption programs as a benefit-less endeavor. This study challenges both those views. In African villages where bribery still dominates, there are victims: the people who live there, and who suffer with less economic development and prosperity. In African villages where anti-corruption programs exist, there are beneficiaries: the people who live there and enjoy more economic prosperity; and the businesses that operate there, putting their capital to use more efficiently because they don’t need to squander that money on bribes.
Ultimately, those more prosperous villagers and businesses can drive even more demand for goods and services, both at home and from global corporate players. We all reap the benefits of conducting business at higher ethical standards.
Now, let’s not mince words. FCPA compliance programs are expenditures that U.S. corporations undertake to benefit other people. Those compliance programs are not easy to administer. We must implement compliance programs because the FCPA requires them, but we should implement these programs because it’s the right thing to do.
Helping less advantaged people to eradicate corruption and stand a fair shot at achieving prosperity is a worthy end unto itself. Full stop.
This research, however, demonstrates the economic benefit to that morally compelling action. The economic benefit isn’t immediate to us in wealthy countries, even though the expense of compliance certainly is. But the overall benefit of anti-corruption compliance is real and worth pursuing.
Imagine a world where Africa is as law-abiding and prosperous as Europe and North America. We’d all be far richer. That day may be a long way off, but it is one possible outcome from pursuing our anti-corruption quest.
That’s worth it to me. I suspect I’m not alone.
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