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Case Title:

US’ Foreign Corrupt Practices Act, 1977: Governance Musings on US-Listed Companies?

Abstract:
This case study is primarily targeted to ignite a debate whether it is fair to penalize a particular company, for corrupt practices, when the business environment itself nurtures rampant corruption. This case can also be used to discuss the correctness of the formulae that are used to calculate the penalty and which country should impose such penalties – the country to which the company belongs to or the country where it had indulged in corrupt activities.

Corruption, across the world, has been identified to be a detrimental factor for multinational companies and thus was touted an issue that needs to be dealt at the earliest. Despite efforts of all major governments the number of corruption cases has been increasing leaps and bounds. With globalization the multinational companies are showing urgency to set up their subsidiaries in the developing and underdeveloped nations, which, by definition, have weaker regulations on business ethics. With this, the number of cases of corruption from the US listed companies has been ever growing, draining billions of dollars into parallel economies. To tackle this issue the US government has enforced the Foreign Corrupt Practices Act (FCPA) during 1977. Though the law has been instrumental in unearthing corrupt activities of global companies such as Dow Chemical, AT Kearney, Xerox Corporation etc, largely the law has proven to be rather ineffective. The case captures recent trends and patterns in FCPA enforcement and enables discussion of the follow questions

  • How does the company’s foreign operation’s be monitored effectively by its respective a domestic/national law?
  • Will FCPA succeed in curbing corruption of business practices of all US listed companies operating across the globe?
  • Is it practically feasible to have a government eye on the global operations of companies?

Pedagogical Objectives:

  • To analyse the relationship between Transparency International’s Corruption Index and the number of MNCs operating in the bottom-50 countries i.e. the most corrupt countries in the world
  • To examine the nature of MNCs operating in the most corrupt countries in the world from the standpoint of MNC’s country of origin and those countries’ respective ranking in the Transparency International’s Corruption Index
  • To discuss and debate on the efficacy of USA’s FCPA and its provisions from the point of companies operating in most corrupt countries in the world
  • To raise a larger year subtle debate on whether US-listed (native as well as foreign) companies get penalized for their dutiful discharge of duties as required by SEC disclosure norms.

Course: Corporate Governance and Business Ethics

Concept: General

Key focus: To understand the logic behind the foreign investment in the most corrupted countries across the globe and will FCPA be successful in curbing corruption of all US-Listed entities operating across the globe?

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