President Trump has paused enforcement of a federal law he has long bemoaned: the Foreign Corrupt Practices Act, which prohibits companies from bribing foreign officials.
The law, enacted in 1977, makes it illegal for companies that operate in the United States to pay foreign government officials to secure business deals. Mr. Trump’s order on Monday bars federal prosecutors from launching new investigations or enforcement actions for 180 days. The Trump administration also said it would review existing investigations to “restore proper bounds” on the law.
The law, which is enforced by the Department of Justice and the Securities and Exchange Commission, has been leveraged heavily over the past two decades to crack down on bribery, including in countries where it is a common business practice.
It is unclear how Mr. Trump’s executive order, which pauses criminal investigations, will apply to the S.E.C., which often brings civil actions in tandem with the Justice Department. Civil and criminal penalties can include millions of dollars in fines and prison time for individuals.
Here’s what to know about the anti-corruption law:
Why is Mr. Trump pausing enforcement of the law?
In ordering the pause, Mr. Trump argued that the law put American firms at a disadvantage, echoing a criticism long made by the business community. The White House wrote in a fact sheet on Monday that U.S. companies were harmed by “overenforcement” because they were “prohibited from engaging in practices common among international competitors, creating an uneven playing field.”
During his first term in the White House, Mr. Trump asked administration officials to help kill the act, an effort that did not gain traction. But Democrats and Republicans alike have criticized its enforcement, said Mike Koehler, a scholar of the Foreign Corrupt Practices Act who teaches at Texas A&M and other universities.
“Many of these substantive issues talked about in that executive order have been talked about by many people for several years,” Mr. Koehler said. The Justice Department in prior administrations had “already been tinkering around with F.C.P.A. enforcement,” he added, noting that cases were dropped on national security grounds.
Critics have also argued that by being more aggressive than other countries in prosecuting foreign bribery cases, the United States increases businesses’ compliance costs. The influential New York City Bar Association questioned those costs in a 2011 report.
How has the anti-bribery rule recently been applied?
Both federal prosecutors and securities regulators have aggressively pursued large companies for violations. Last year, there were about 30 F.C.P.A. enforcement actions; in 2004, there were four.
One notable recent case was an investigation into Goldman Sachs’s involvement in the scandal over Malaysia’s 1MDB sovereign wealth fund. The investment bank had been charged with paying bribes to Malaysian officials so it could manage billions of dollars in bonds issued by the fund.
The investigation culminated with a Goldman subsidiary’s pleading guilty to a foreign bribery charge and paying more than $2.9 billion in fines and penalties. A former Goldman banker was sentenced to 10 years in prison.
Last year, F.C.P.A. enforcement actions included a $220 million settlement with SAP, a multinational software company, to resolve investigations into schemes to pay bribes to government officials in South Africa and Indonesia. Deere & Company also agreed to pay nearly $10 million to settle S.E.C. charges stemming from allegations of bribes paid by its Thailand subsidiary.
What are the implications of pausing enforcement?
While some pending investigations could end as a result of Mr. Trump’s order, it’s unclear if cases will be dropped. In November, U.S. prosecutors accused Gautam Adani, the Indian tycoon, of bribing Indian officials and charged him with fraud. His company, the Adani Group, has called the allegations baseless.
Pausing enforcement could lead to a rise in corrupt activity, said Karen Woody, a law professor at Washington and Lee University who focuses on securities law and financial regulation. Ms. Woody said that she had criticized “heavy-handed prosecution” under the Foreign Corrupt Practices Act, but that a halt could allow companies to avoid prosecution for bribery.
“For multinational companies, it is a big deal that this is not going to be enforced,” Ms. Woody said. “It really is a major sea change.”
But, she added, “that doesn’t mean they’re off the hook for foreign bribes or shady foreign business practices.” Other countries, including Britain and Germany, have anti-corruption provisions, she said.
Even before Mr. Trump’s executive order, his new attorney general, Pamela Bondi, signaled that her office would take a less expansive view of foreign bribery cases. In a memo outlining her priorities, Ms. Bondi said F.C.P.A. cases would focus on investigations involving drug cartels or international crime organizations.
And if the Justice Department in Washington steps back, local U.S. attorneys may be able to initiate cases on their own, said Richard Donoghue, a partner at Pillsbury Winthrop Shaw Pittman and former Justice Department official. He added that there was likely to be a shift toward prosecution of individuals who paid bribes, rather than companies.
“Going forward, this creates more opportunities for businesses to argue to prosecutors that they should not be held liable for the misconduct of their employees,” Mr. Donoghue said.
Matthew Goldstein and Isabella Kwai contributed reporting.
