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Foreign Corrupt Practices Act :

Decent Essays
Shivangi Patel
LAW 110 – MO1
Vincent Petraro

Foreign Corrupt Practices Act

Foreign Corrupt Practices Act was introduced in 1977.It was made effective from December
19, 1977. Foreign Corrupt Practices Act applies to all citizen of United State and certain foreign issuers of security and foreign companies. The Minor changes were made in the year 1988 and in 1998.Foreign Corrupt Practices Act has two main Provision (a)Accounting Transparency under Securities Exchange Commission, 1934. (b)Bribery of Foreign Officials.
Department of Justice (DOJ)and Securities Exchange Commission(SEC) are responsible for enforcement of Foreign Corrupt Practices Act. Powerful influence of both Department of
Justice and Securities Exchange Commission
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However, due to enforcement of Foreign Corrupt Practices Act, the US exports decreased which also resulted in decrease of Foreign Direct Investment because
Foreign Corrupt Practices Act discourages firms from investing in foreign markets. Companies engaging in mergers and acquisition in emerging markets face uniquely increased level of regulatory and corruption risk.
This is mainly due to three reasons:
1) In many foreign countries, informal payments substitute for formal economic institutions familiar to enforcement officials in developed countries, implying that on formal payments reduce US companies access to foreign economic institutions.
2) Foreign Corrupt Practices Act enforcement imposes direct cost on international investment through fines. Profit disgorgement, and reputational degradation that occurs when companies are targeted by Department of Justice and Securities Exchange Commission. Also, agencies possess enormous scope while deciding which payments are to be classified as bribes.

3) The lack of clarity of informal payments which triggers increase in legal defense, and due diligence spending by US multinational it raises the cost of investing in the foreign markets. To compete in global markets US firms were trying to subvert anti-bribery legislation. They can substitute financial contribution for hiring additional labors. Thus, they would reduce capital- to-labor-ratio. American firms
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