Federal Prosecutors Target Foreign Corporations for Illegal Activities
Featured Story, Justice, The Latest News

Federal Prosecutors Target Foreign Corporations for Illegal Activities

But They May Be Giving U.S. Companies Passes for Similar Wrongdoing

Phil Mattera

Questions of fairness arise out of recent fines exacted on foreign companies.

Federal prosecutors recently announced telecommunications giant Ericsson will pay more than $1 billion to resolve allegations that it conspired to make illegal payments to win contracts in five countries. The settlement included a $520 million criminal penalty imposed by the Justice Department and a $540 million civil payment to the Securities and Exchange Commission.

This was the latest in a long series of cases brought under the Foreign Corrupt Practices Act, the 1977 law. The act emerged out of the Watergate-era revelations about improper overseas payments by U.S. corporations. But what the case against Sweden’s Ericsson highlights is the extent to which the law is being applied to foreign versus domestic corporations.

$4 Billion in Penalties

In fact, companies based outside the United States increasingly appear to be the primary targets of prosecutors. Since Donald Trump took office, foreign corporations have paid about $4 billion in penalties. That is more than seven times the sum paid by domestic firms. Apart from the Ericsson settlement, the largest combined penalties have been paid by a Russian company, $831 million by Mobile TeleSystems PJSC, and another Swedish firm, $731 million by Telia.

By contrast, U.S.-based firms have gotten off much easier. The only domestic company paying more than $100 million was Walmart. Yet, long-delayed $281 million penalty was well below expectations.

The tougher treatment of foreign companies can also be seen in the prosecution of price-fixing. Violation Tracker shows that during the Trump administration foreign companies have paid more than $723 million to DOJ in criminal penalties; domestic firms, only $44 million. There were seven fines of $50 million or more among the foreign companies; none among those based in the United States.

Not Just Trump

Imposing heavier penalties on foreign companies is not unique to the Trump years. During the Obama administration, seven of the 10 largest FCPA settlements involved foreign corporations, as did nine of the 10 largest price-fixing cases.

There is no evidence to suggest that foreign companies are more prone to law-breaking and thus account for more of the penalties. When it comes to offenses that are more purely domestic in nature – such as environmental, consumer protection and employment violations – U.S.-based companies more than hold their own.

Is the United States using  enforcement powers to put an added burden on the foreign competitors of U.S. companies? Perhaps this is an indirect form of protectionism.

I have no problem with the prosecution of foreign corporations that are engaged in misconduct, as long as wayward domestic companies are not being let off the hook.

Phil Mattera is research director at Good Jobs First and director of the Corporate Research Project. This article first appeared in the Dirt Diggers Digest newsletter.

January 16, 2020