00:00:01:10 - 00:00:05:21
Unknown
Thanks, everybody, for coming today to the first webinar
00:00:05:21 - 00:00:31:11
Unknown
of the academic year. Very, very excited today to have my dear friend Eddy Malesky here today. He is, the professor, he's a professor of political economy and political science at Duke and the scientific director of the VinUniversity Green-X Research Center. He has done all sorts of really interesting things in his career.
00:00:31:11 - 00:01:05:23
Unknown
Most importantly, he works a lot on issues around corruption, both from the United States side and from elsewhere. He's done a lot of work on how corporations interact with authoritarian governments, especially in Vietnam, and just all sorts of really great work. So I'm very excited to have him here today. He's going to present his, paper “Making Bribery Profitable Again, the Market Effects of Halting Extraterritorial Accountability for Overseas Bribery”, which I'm very excited to learn about how we can bribe officials and, get benefits.
00:01:05:23 - 00:01:40:05
Unknown
So please teach me how I can bribe people. No kidding. But take it away, Eddy. I'm very excited to learn more about this. And just a reminder for people, to please put their questions in the Q&A and, we'll talk for a little bit and then, we will take questions. All right. Sorry. Now, take it away, Eddy
.
00:01:40:17 - 00:02:03:09
Unknown
Maggie, can you give me a thumbs up if the slides are showing correctly. Yep. They look good. Okay, great. Yeah, well, I am, I'm delighted to be here today. I'm really grateful for, Maggie for, inviting me and for the UCLA Burkle Center for hosting this really interesting seminar. I'm really glad that I can be a part of it
00:02:03:11 - 00:02:29:04
Unknown
So this is, this is pretty new work. It's actually the first time I've ever presented it. It was, I was working with my coauthors, Lorenzo Crippa who's at, Strathclyde University in England, and Lucio Picci, who's at the University of Bologna. And we're working on a different project on the OECD anti-bribery convention when the Trump administration decided to halt the enforcement of the Foreign Corrupt Practices Act.
00:02:29:06 - 00:02:59:03
Unknown
And I'll tell you a little bit that struck us as really important and really interesting, both from a policy perspective. What would it mean, for how firms would behave after the reduction, after the, halting of the act, but also there it help to answer a larger theoretical question, that exists in the corruption literature about what's what's more important for reducing corruption. Enforcement or, the uncertainty caused by the corrupt act itself?
00:02:59:03 - 00:03:25:12
Unknown
And so this gave us a lens to kind of get into this. And, but I think it, it has it tells us a larger story, about the Trump administration and a larger story about economic behavior. In today's current environment that I, that I hope that you'll find really interesting. So let me just begin by I don't, I don't I'm don't presume to know that everybody knows what the Foreign Corrupt Practices Act is.
00:03:25:14 - 00:03:54:01
Unknown
It has been a vital part of my, my career for a long time. But I wanted to give you. So you can understand what's going on in the paper. A few sort of, bullet points that would help you understand. So the key issue in the Foreign Corrupt Practices Act is a recognition that it's very difficult to fight corruption by insisting that countries abroad reduce their corrupt activities.
00:03:54:01 - 00:04:19:00
Unknown
We can't control third party governments and what they're going to do and what they're going to demand of firms, that's a that's a very difficult enterprise. And, and so what that means is that when US companies are competing abroad, it can create problems for them, because while paying a bribe may be helpful for any individual company, collectively, it's generally bad.
00:04:19:01 - 00:04:41:16
Unknown
It raises the costs and raises the risk of all firms activity so the Foreign Corrupt Practices Act basically said, well, let's deal with that collective action problem. Let's deal with the fact that it's beneficial for any individual company to bribe. While it's overall bad for countries as a whole. And we know we can't change the government of Cambodia.
00:04:41:18 - 00:05:09:18
Unknown
So let's put in place a legal theory called extra territoriality, and extra territoriality means that if a US company, later U.S. companies or foreign companies operating in the US, if they committed an act of bribery abroad, they could be punished in the US, and they could be punished by the Department of Justice if it was criminal, or by the SEC if it was, us, a civil penalty.
00:05:09:20 - 00:05:32:21
Unknown
So the Foreign Corrupt Practices Act was legislated in 1977. There were some big amendments there was a clarification of standards that took place in 1988 that had to deal with exactly what bribery was, what counted, did what are called facilitation payments. So paying a bribe to get a document that you were due any way legally, was that actually a bribe.
00:05:32:21 - 00:06:00:20
Unknown
And so they clarified that facilitation payments were in fact a bribe. In 1998, the US and I'll talk about this more in detail, realized that the Foreign Corrupt Practices Act was handcuffing U.S. firms and decided that they would like their global competitors from Japan, from Korea, from the UK to also have similar exemptions. So they pushed for something called the OECD anti-bribery convention, and that changed the rules a little bit.
00:06:00:22 - 00:06:33:19
Unknown
And so the FCPA created this global model for anti-bribery laws. And as I said, the key feature here was this notion of extra territoriality. So there's been a lot of work about whether the FCPA was successful and that the general theory, the general conclusion that it has been extremely successful, that, there's been a dramatic reduction in bribery, that, that there's been a lot of compliance.
00:06:33:21 - 00:07:01:22
Unknown
Most of the defendants, like 92% of the defendants, have chosen to settle. So and, you can see this in the behavior of U.S. companies after the law, there was a great deal more compliance, transparency in their behaviors. There was some evidence of hidden bribery. So, for example, a US company not paying the bribe directly, but hiring a local law firm to pay the bribe and then asking for an un-itemized receipt.
00:07:01:24 - 00:07:30:01
Unknown
So, so that the bribes never showed up. There was evidence of bribes shifting like other countries. Actually starting to bribe because the US companies could not bribe. But the on the whole, the, the idea was that, that generally that, that overall this had led to a larger reduction in a better competitive environment for U.S. companies, competing abroad.
00:07:30:03 - 00:08:08:03
Unknown
So, as I mentioned, in 1997, the US pushed for this for 41 other countries to also sign on through what was called the OECD anti-bribery convention, where countries around the world agreed to legislate similar levels of extra territoriality within their own countries. So the signatories, as I said, included the UK, Australia, Japan, Korea, it was phased in in three phases, with first countries changing their legal codes, then the second phase training their judges, and the third and most important phase, which started in 2010.
00:08:08:03 - 00:08:35:09
Unknown
Phase three actually enforcement phase. The cool thing about the OECD is that there's a peer review system where countries are evaluated on how well they're meeting the phases. And, there's these reports that can be scathing if countries have not met them. And so there's been research on the OECD anti-bribery convention. Across the board, the signatories have reduced their bribery activity.
00:08:35:11 - 00:09:00:00
Unknown
Investigations of bribe actions have gone up. So there there has for the signatories, there's been a general recognition that the OECD Anti-Bribery convention has reduced bribery as a whole. So just to give you a sense, this is from Stanford Law School's foreign corrupt act clearing House. You can see, here the civil actions by the SEC or the DOJ actions.
00:09:00:00 - 00:09:34:08
Unknown
These are investigations. How many have been taking place a year? You can definitely see that increase in 2010 after the enforcement of the OECD anti-bribery convention, many more cases taking place, with a little bit of a drop down during Covid. And then as I'm going to show you a tremendous drop down recently in 2024, one key thing to keep in mind is that the FCPA punishes so it the US interprets its jurisdiction quite broadly.
00:09:34:10 - 00:09:55:05
Unknown
And so the FCPA can be levied not just against US companies who have their tax home or their base here, but any country that has some connection to US business. So if if some part of a business activity take place on US soil, the FCPA can be used against them. And sometimes this is like some pretty staggering fees.
00:09:55:07 - 00:10:28:10
Unknown
For Siemens, was was fined $1.6 billion, for bribery. That was in coordination with German authorities as part of an OECD anti-bribery convention. Goldman Sachs. As for bribery in Malaysia, was fined $2.9 billion. So this is a real, really considered to be, you know, a real enforcement, a real detriment to companies that do this and, you know, and hopefully righting the playing field here for other companies to compete.
00:10:28:12 - 00:10:58:00
Unknown
A key thing that I want you to highlight, because it's really important to the work that we do on this, is that I won't go into the econometrics here. They're not really all that important. But I do want you to know two things, which is that there seems to be, a pattern in behavior companies that have committed FCPA violations in the past and had investigations, are more likely to have them.
00:10:58:00 - 00:11:39:06
Unknown
Again. More than 40% of all FCPA actions are followed by another action targeting the same firm. Now, it's part of that is like a reputational thing. These companies are used to kind of skating on the edge of the law. Part of it is that when an investigation starts, they often uncover other information that leads to future investigations. And I think as a result of that, when people are looking at risk ratings about whether to invest in companies, FCPA companies that have had FCPA, investigations not not even necessarily that they were found guilty, but have had FCPA investigations of them have a 28% worse reputational risk.
00:11:39:06 - 00:12:09:12
Unknown
So on this scale, it's higher. The higher the number, the higher the risk, about a 28% higher risk. So the idea is that the FCPA sends, having an FCPA violation sends a signal, that your company is kind of, maybe at risk of, bad behavior going forward. And then and as I said here, the the question that we care about, I think, as academics is what are investors worried about knowing that piece of information?
00:12:09:14 - 00:12:33:20
Unknown
Are they worried that there will be an investigation and that company will be fined and it will hurt their returns or are they worried that the investigation reveals that that company is behaving badly, and it's the uncertainty about that company's behavior that it, that it that it cuts corners, that it doesn't follow the law. That's actually the investment risk isn't the enforcement or the uncertainty.
00:12:33:22 - 00:13:06:08
Unknown
So, so, that's the theoretical question. So on February 10th, 2025, the Trump administration passed an executive order there and is right there pausing FCPA enforcement for 180 days. So this was, they reviewed it in June. Trump had many times in his 2016 administration, had said that he didn't like the FCPA because he thought that it hurt US companies versus other companies.
00:13:06:13 - 00:13:30:12
Unknown
Now, remember, that was the whole point of the OECD anti-bribery convention. But the Trump administration held that view. They said they wanted to restore competitiveness to other firms. And so the DOJ in under Pam Bondi, instructed to review the ongoing law in new cases. Now, there was a lot of criticism about this. There was a warning that would undermine global anti-corruption.
00:13:30:14 - 00:13:55:08
Unknown
Activity. And right away we can see a decline in new investigations. We just it just falls off a cliff. For the number beginning after this FCPA act So what we wanted to do in this paper was, see how investors behaved on the stock markets, looking at companies that were, subject to the, to the FCPA.
00:13:55:10 - 00:14:17:07
Unknown
And so the hypothesis that we wanted to test was that company companies previously targeted by the FCPA or who had ongoing investigations of FCPA, will see an improvement in their share prices after that executive order, compared to similarly situated firms at less risk of new corruption charges. So we want to see how the stock market would change.
00:14:17:07 - 00:14:42:21
Unknown
And, the reason why that's really interesting is the FCPA paused when removing the FCPA pause enforcement, but it didn't get rid of the uncertainty. These companies were still ones that had we we had been accused of behaving badly before. So uncertainty remained, but enforcement went away. So how would investors respond to that change in, in the market?
00:14:42:23 - 00:15:04:17
Unknown
Okay. So the way we do this, this is very common in, financial markets. And I just want to spend a little bit of time really quickly to show you, how we're going to estimate this. So this is called a two window estimate estimation design. So what we're going to do is we're going to follow a bunch of companies from this time period.
00:15:04:19 - 00:15:30:01
Unknown
So about 180 days before the halting of the FCPA to the halting of FCPA. And we're going to look at their average returns in the stock market. So daily returns in the stock market, okay. And we're going to use that to come up with a prediction of what their future returns will look like. And then here comes the executive order, on February 10th.
00:15:30:03 - 00:16:03:09
Unknown
And we're going to now compare the previous returns and what our expectation would be to this new period, which is what we call the event window, which is what their returns were after that announcement. And so that gives us two estimates, an estimate of returns here in the first window, and an estimated returns in the second window. And from that we can that prediction and we can compare in the second window the actual returns to the predicted returns.
00:16:03:11 - 00:16:29:21
Unknown
And when you did better than would have been expected by the previous hundred and 180 days, we call that abnormal returns. That is, the returns to your company were way higher than we would have expected given previous performance. We can also so and then we can compare abnormal returns from companies that had FCPA violations in the past, to companies that had, that did not have FCPA violations.
00:16:29:21 - 00:16:52:01
Unknown
And also, I'll show you, we'll do a little bit more to try and make sure that we're comparing apples to apples. We can also calculate something called a cumulative average return, which is we're going to look at cumulative abnormal return, which is going to look at not just that first day, but, you know, it's you know, the magic of compounding interest after a company does.
00:16:52:01 - 00:17:23:18
Unknown
Well, the first day, how did those, that early shock, how does that lead to cumulative returns later on? So do they benefit, over that time period? Okay. So so here's us just to show you. So we're following, these companies, here's the observed returns and then the counterfactual returns. And you can see that generally we do pretty well matching the observed to the, to the predicted up until right here in that event window.
00:17:23:18 - 00:17:59:17
Unknown
And we see that divergence between the observed and the counterfactual returns that gap and that. So that gap there is the abnormal returns. So, so, companies that were FCPA targets were on average, they had 0.69 percentage points above market expectations. It's statistically significant. That is about a market capitalization, an increase of market capitalization for the average FCPA target historical target of about $160 million.
00:17:59:19 - 00:18:24:01
Unknown
And just to give you to put that in context, that's higher than the average FCPA. Fine. So the returns from removing the FCPA were higher than the fine. So, now we're just comparing firms to how they would have done and generally comparing the firms that were targeted to the other sort of S&P 500. But that might not be accurate enough.
00:18:24:01 - 00:19:02:17
Unknown
So one thing that we wanted to do was, create a matching estimate. So essentially find statistical twins, for FCPA violators. Did they operate in the same number of countries. Were they foreign owned? Did they have subsidiaries? What were their overall, revenues? So we created a placebo set of firms, and we're going to do the same thing of look for abnormal returns versus our firms versus, the FCPA violators versus this placebo set that never had an FCPA violation.
00:19:02:19 - 00:19:27:18
Unknown
So, so just to, to show you this first period here, that is that this is after the Trump executive order, that's that initial spike in the, abnormal returns right here. That's what I showed you before on February 10th, that quickly goes to zero. That's what the efficient market hypothesis would predict. Right here goes to zero.
00:19:27:23 - 00:20:02:05
Unknown
But the cumulative average returns continue over the course. So like so that initial spark led to continued gains for those companies. Afterwards. Now non FCPA targets down here we don't see that same jump after after February 10th. So we don't see investors responding so positively to the idea that anti-corruption enforcement will be halted. And we definitely don't see that increase in cumulative returns.
00:20:02:07 - 00:20:26:21
Unknown
So, just to probe a little bit deeper into the data in a way that I think is quite interesting. That we see when we separate firms by whether the violation was historical. It happened in the past and had been concluded versus whether it was ongoing. You can see here that, both the abnormal returns and the cumulative average returns are much higher.
00:20:27:01 - 00:20:52:00
Unknown
When it was an ongoing, the company had an ongoing investigation. So the halting of that ongoing investigation, by to about a 4.23 percentage point increase, and cumulative average return. So that's almost five times as high as the firm average firm in the sample. So just to wind up, and I know we're going to get to a Q&A.
00:20:52:02 - 00:21:35:20
Unknown
So, just to give you this by the numbers. So there was a $39 billion market surge. Former FCPA targeted firms gained $39 billion in market capitalization the day after anti-corruption enforcement was halted. The average at risk company saw $160 million increase in value in one day, roughly equal to the typical FCPA fine. Stock returns for past violators jumped 0.69 percentage points above expectations, which is massive, and then gains persisted with an average $6.5 billion capitalization increase still evident a month later.
00:21:35:22 - 00:22:02:06
Unknown
So bottom line, some markets interpreted the enforcement pause as a green light to invest in riskier and more corruption prone firms. Rewarding the firms that as I showed you before, were most likely to re-offend. So, so theoretically, I definitely we can't say for certain that uncertainty doesn't matter, but we can say for certain that enforcement matters.
00:22:02:06 - 00:22:33:18
Unknown
The suspension of FCPA enforcement sharply increased the valuations for tainted firms. And that that proves the benefits of legal accountability. There's some real moral hazard risk here. This is why we call the paper making, bribery profitable again. And why, why Maggie was asking whether it's time to start bribing. Removing the enforcement rewarded firms that were most likely to engage in corrupt activities.
00:22:33:20 - 00:23:14:21
Unknown
There is a global ripple effect. The US was the instigator for the OECD anti-bribery convention. Other countries modeled their anti-corruption laws on the US Foreign Corrupt Practices Act. So, this pause, definitely led to less enforcement across the board, which hurts the competitive environment of companies everywhere. So, you know, we looked a little bit at which industries, were most likely to benefit from this, those that were in government procurement or construction or national resource exploitation, but definitely more more can be done to investigate that.
00:23:14:23 - 00:23:45:22
Unknown
So, from a policy perspective, you know, we haven't really seen the results of the, investigation that was announced in June that they were still, looking at the FCPA, effects. But I think that we can say from our investigation that, to prevent this sort of profitable bribery, restoring strong, consistent enforcement and international coordination is essential.
00:23:45:24 - 00:24:16:10
Unknown
I think I can say, you know, we can hopefully we'll get to it in the Q&A, but I'll show you, you know, we can't prove it definitively, but I can show you that there did appear to be a blip a little bit before the February 10th investigation, which made us, as I said, we can't prove it, but us a little concerned that maybe there were some investors that knew that the FCPA was going to be halted and took actions prior, which may have given them a market advantage.
00:24:16:12 - 00:25:01:00
Unknown
All right, I'll stop there and take some questions. But, yeah, I'm really looking forward to your ideas and thoughts. Thank you very much. Awesome Thanks. Thanks so much, Eddie. I'm going to start with, one question from one of our guests. Which I think it's kind of a clarifying question. So businesses might be worried that, that even if they are not going to get sued today under the FCPA, that they or under the OECD anti-bribery convention that come 3 or 4 years from now, if there's a new administration in power, that they will be, that they will later be held accountable.
00:25:01:02 - 00:25:20:01
Unknown
Do you? But it seems like markets don't think that way. What do you is it is there a statute of limitations on these things, or do you think that, you know, companies are right, that they'll just sort of get away with it for now, like there won't be enough evidence? What's your thought there? Like why don't markets think like, oh, yeah.
00:25:20:03 - 00:25:45:05
Unknown
That's a it's a great question. There, there. So there, there is a statute of limitations, but it's quite long. I think the market expectation here is, at least for the four years of the Trump administration, these activities were not likely to be punished. And so, well, so I think that's what market investors are reacting to this, this this was one of the first actions of the Trump administration.
00:25:45:07 - 00:26:09:23
Unknown
There's a four way window here. And the company and what they were basically saying was these companies that were tainted are going to have a four year window when they can when that taint is not going to affect their market performance. I think you're right. Like a new administration might decide to do this and might, enforce it, but I'm, I'm actually kind of I mean, I don't I'm, I'm less sanguine about that.
00:26:10:00 - 00:26:33:07
Unknown
Because, as I said, like, this action also undermined the activities of other countries that had signed on to this anti-corruption activity. So to some extent, the the international anti-corruption architecture was really damaged here. So it would take a while to be and I'm not telling you, I saw that the person that did it, I think is, runs a business abroad.
00:26:33:07 - 00:26:54:10
Unknown
So I, I don't want to say go ahead and commit bribes. Like, don't I don't want to be sued later because you got sued by the FCPA. But I think the reaction was, there's a window here where companies can do this, you know. Yeah. One other question I had just thinking what you said right now is the international reaction is like, I could have seen the international reaction going two ways.
00:26:54:10 - 00:27:29:15
Unknown
One is, okay, if the U.S is letting everybody off the hook, we're all going to let everybody off the hook to back to, you know, the Wild West the other way is why especially because many of those countries don't like Donald Trump. Why not? Like double down on enforcement against U.S. firms using their own extra territoriality? You know, all these US firms or many of them do business abroad, like you mentioned, Goldman Sachs, they do brisk business everywhere, in the world.
00:27:29:15 - 00:27:51:18
Unknown
Why not? Why don't the Germans or the British or the French go after for go after, like U.S. companies as a way to maybe punish Trump or as a way to like, gain back, sort of like maintain their commitment and or gain back the edge. Yeah. I think it's a great question. I don't I actually don't know.
00:27:51:19 - 00:28:24:17
Unknown
I can't say I know definitively what the answer was. I can imagine they were worried about getting in some sort of tit for tat, which is some like basically malicious investigations of their firms, from a Trump administration back at them. So maybe the better idea was to sit on their hands, you know, what we've been and what we've been investigating is, you know, what happens in in countries where companies were competing directly with companies that were subject to these laws.
00:28:24:17 - 00:28:54:07
Unknown
Right. And like and more likely, what we saw was a bribe shifting, which was then when a company got handcuffed by one of these laws, other companies that were not subject to them increased their bribe activity as a way of taking advantage of that halt. And so I think the I think the fear was here that if for a lot of these was that that's what U.S. companies would do, which is that they would increase their market advantage by taking advantage of the fact that they were now constraint free.
00:28:54:09 - 00:29:27:13
Unknown
Yeah. And and another question, what does it say about investors? So as I look at this, this says to me that many investors think the only problem with bribery is that the enforcement maybe and less and less about the uncertainty. But maybe we can't totally say that from your data. But I was sort of thinking more about, like, do companies bribe because they have to, like, you know, you want to do some project in another country.
00:29:27:15 - 00:30:05:06
Unknown
You have to bribe or do companies or or like you were saying in your theory, like companies, it's a signal that, like, I'm actually kind of a bad company. And the only way I can get business is through bribery. And I was wondering, like, is there any way to tease this out in the data by thinking about bribery in country like companies that work mostly in countries that we think are more clean, where a bribe would be a signal that, like, I'm a bad company versus, you know, if I'm working in I don't I don't want to like, denigrate any countries If I am operating in Russia where I think, like, I just got
00:30:05:06 - 00:30:27:06
Unknown
to pay bribes no matter what. Do we see, do do you see any differences by like where companies are working? I guess you're also getting at some of industry differences. Yeah. So let me so let me like answer this a couple ways. Like first is so what the, the idea of the FCPA was like, and I probably should have made this clearer.
00:30:27:08 - 00:30:54:05
Unknown
It was to some extent to provide a credible commitment to the business that it could say no in an environment where it felt obligated to pay a bribe, which is to say, look, don't harass me because I cannot pay the bribe in this situation because the risk of me being punished in the US is worse than what I might gain in this situation.
00:30:54:05 - 00:31:32:06
Unknown
So. So that the idea was to some extent liberate US companies by tying their hands on the bribery front. That was that's the theoretical logic behind it. But yeah, but you're right. Like there's a whole bunch of different bribery activities that take place, some where there is more or less choice. Right. So in some cases, like so as I was saying, there are some situations where there is one, telecommunications, license that's going to be given or one natural resource exploitation license.
00:31:32:08 - 00:31:55:13
Unknown
And if you want to do business, you need that license. And if that country's a corrupt country, what are your options? Right. It's either just not invest in that country or go somewhere else. Your hands are pretty tied. There's there's other ones where, bribery would increase the speed of the transaction or increase the efficiency of it, but it actually doesn't.
00:31:55:17 - 00:32:20:09
Unknown
It wouldn't. It's not actually 100% necessary for your activities. And then there's this set that's been heavily debated, which are, sometimes called petty bribery. But what you might call facilitation fees, which is that. So I need, an operating license, a general operating license, or I need a business registration certificate. And it's pretty standard that there's a formal fee for that.
00:32:20:09 - 00:32:41:18
Unknown
And then there's an informal fee, and I, I need that document to be able to, to be able to compete and that, that the it's due to me no matter what. And but I'm going to have to pay a bribe in this particular environment to get it. So one issue has been, are those is that a bribe or not.
00:32:41:21 - 00:33:06:08
Unknown
And some countries said that was not a bribe. So for a long time some companies in some countries allowed companies to actually tax deduct that. Right. They could I paid a facilitation fee and then I could write it off as a tax. But in the later on in 2010, in the OECD anti-bribery convention, they would say that, no, that in fact is a bribe because it's actually raising the cost for everybody in the better scenarios for all of us to say no to that.
00:33:06:08 - 00:33:33:23
Unknown
So yeah, it definitely that level of voluntariness differs by industry. It differs by country. There are some countries that are more prone to corruption. One thing about both the FCPA and the OECD Anti-Bribery convention is both of them reduced investment activity in countries that were highly corrupt. So some companies that didn't want to violate them just stopped doing business there altogether and went to places that were less corrupt.
00:33:33:23 - 00:34:04:13
Unknown
That's one one major piece of evidence that, that's been found. Yeah. So I have these are sort of many, use that to segway into to questions from a chat. So one question is from, somebody in Indonesia, who's wondering like how how did these cases affect growth in a place like Indonesia? And can we quantify the damage caused by these cases?
00:34:04:19 - 00:34:28:24
Unknown
And I think we can think and the other question was like, will countries, emerging markets interpret the FCPA halt as a tacit permission to loosen their own domestic corruption controls? So as we think about sort of the more global effects of these results, do we think like in some ways it might lead to more investment in countries that are corrupt, but it could also increase corruption.
00:34:28:24 - 00:35:03:11
Unknown
So if you were going to think about like, what is the net effect on growth or any in the country, like what do you think the net effect might be if any, or do these sort of cancel out. Yeah. So the you know, it's really hard to say what the growth effect of was a case because like, we don't know, like I think, I think the economic evidence is generally that corruption is, is bad for growth because it increases uncertainty and essentially is like a tax on it's like a very arbitrary tax on companies.
00:35:03:13 - 00:35:44:17
Unknown
And it tends to reduce the level of investment and reduce the level of economic activity. So generally, corruption is thought to be bad for growth in in countries there's some arguments about greasing the wheel, but I think these are more marginal cases where corruption can facilitate in a country that has weak capacity, can facilitate actions. But and so because the general corruption environment, it's hard to know whether the case discovery is the case is just a symptom of ongoing corruption or whether the case itself might have hurt because it was such a big case that led to, such problems.
00:35:44:17 - 00:36:13:20
Unknown
So like in the case of the one 1MDB scandal in Malaysia, so neighboring Indonesia, I don't think the case caused the problems in the Malaysian economy. What caused the problems in the Malaysian economy was the the fact that the sovereign wealth fund was being used for personal purposes, and Goldman Sachs being sued for assisting that is was not the problem that led in Malaysia's economy after the one 1MDB scandal.
00:36:13:22 - 00:36:40:13
Unknown
Yeah. In terms of these net effects, like, yeah, I mean, it's you're you're right. It's very complex. I don't know, I think I don't know if we know the answer, to, to these but I will say that like I think, we may I think we may be entering a world where adherence to these types of international rules is going to be on the decline.
00:36:40:15 - 00:37:11:23
Unknown
And I think for, for a lot of companies, for some companies, that's going to be very profitable for a lot of companies. I think it's going to lead to inefficiencies as they have to self protect their assets, as they have to take on additional risk for, for operating in corrupt environments. And I think generally, I think my expectation would be that the knock on effects of this are going to be more damaging for the global economy.
00:37:12:00 - 00:37:49:21
Unknown
Okay. One of our guests asks, do you think that, like, halting the FCPA enforcement as part of, like, broader populist backlash against global governance institutions, or thinking more about why Trump decided to halt the FCPA enforcement? I, I, the way I see it, I, I see it through the same way that I view Trump's tariffs.
00:37:49:23 - 00:38:37:04
Unknown
I think like the generally like from an economics perspective, I think that the tariffs are generally damaging for the global economy. But I think that the way Trump sees it is bilateral competition between the US and other countries. And other countries taking advantage of the U.S. And he sees the FCPA as part of this general worldview of the previous US presidential administrations, have worked to tie the hands of the US leaders and US companies, and actually hurt the US because we were agreeing to all of these rules at the WTO.
00:38:37:05 - 00:38:57:08
Unknown
And so the FCPA for him was, why are we why is the US hurting its companies when other countries in the world are not? And as I said, like many countries joined the OECD anti-bribery convention, but not all of them, right? China is not a party to it. Taiwan is not a party to it. Singapore is not a party to it.
00:38:57:14 - 00:39:20:07
Unknown
So if you see the world purely in terms of competition, you might ask yourself like, why? Why are we doing this to US companies and not others I like I disagree with that because as I was explaining, I think there's a collective action here. Any one company benefits from bribery. As a whole, bribery in the international system raises the costs for all companies.
00:39:20:09 - 00:39:52:05
Unknown
So getting rid of the FCPA is essentially essentially increasing the tax on all US companies competing abroad. Right. But, but if you're focused on the first move and not the later collective action, then you might come to the conclusion that the Trump administration that, yeah. So they announced that they're no longer enforcing the FCPA, but does that mean they're also not going to enforce, like the OECD anti-bribery convention under extra territoriality?
00:39:52:07 - 00:40:11:20
Unknown
Because I would think like it would be a good case of like for my friends, anything for the, for everybody else, the law. Like, why not, not impose it on American firms but go extra hard on foreign firms. What. So the FCPA is our commitment to the OECD anti-bribery convention. So that's like that law is in the US.
00:40:11:20 - 00:40:44:01
Unknown
And we basically said other countries need to have something similar to our FCPA. So we looked at the British Anti-Corruption act and the Australian Anti-Bribery Act, and we said you need to do what we're doing. The FCPA could be targeted at foreign firms. Right. So you're right. By deciding to halt the FCPA for the time they did, they did give away their ability to punish foreign firms that were working in the US.
00:40:44:01 - 00:41:13:21
Unknown
They did surrender that ability. And maybe when they evaluated, they may decide that that ability to punish might be worth bringing back. But. Right. But when they halted the FCPA, they halted both domestic and foreign punishments. Yeah. All right. I have another question from the chat. So asking whether companies that don't participate in bribery try to lobby governments to crack down on these activities abroad.
00:41:13:23 - 00:41:36:02
Unknown
And how do like different types of companies react to this? Like did you see after the announcement, were there any companies who came out against it? But yeah, there were there were a lot. Yeah, there was a lot of activity, but there were a lot of industry groups that were saying this was a bad idea. You know, there there was a lot of fears.
00:41:36:02 - 00:41:58:01
Unknown
There were fears about reciprocity. Other countries, other countries doing the same thing. There were fears about, you know, a lot of companies have invested very heavily in FCPA compliance over the years, hired expensive lawyers to help them with it, and were kind of like, and now you know, now they were basically saying like, you know, we did all this to behave well.
00:41:58:03 - 00:42:23:12
Unknown
And now these other companies that didn't do this are being punished. So there was activity, and, and it didn't I don't think it had much effect, at least for the 180 days after the after it was created. But, but maybe it will have an effect going forward. I suspect not. Yeah. And then is there any sort of another question from the Q&A?
00:42:23:12 - 00:42:56:02
Unknown
Is there any multilateral organization that could play a larger role now that major powers are scaling back? So could. So to give an example like I do, you work with the IOM, which is a U.N. agency. So I have to sign all this paperwork about like, I will not bribe and I will not do other things. Could these major international organizations play a role, at least through the funding that they control?
00:42:56:04 - 00:43:29:04
Unknown
Yeah. So they know that. Yeah. No, they absolutely could. And there's, there's a UN anti-bribery type of agreement. There is, you know, the OECD still exists and the OECD could do things like this. Individual industry groups say, say, for example, like you might say like a garment association or construction association might make its members voluntarily agree to these things, but none of them have the special thing that the FCPA had, which was extra territoriality.
00:43:29:06 - 00:43:55:10
Unknown
The idea that you could be fined at home, right, for a bribe committed abroad that was very, very special. And that that is what's that's what's lost. There can be some fine, but it will never be as large. And now in also, I guess we we should also not forget the third parties. Right. So here in this case, the idea was Cambodia, Laos, Myanmar.
00:43:55:10 - 00:44:26:18
Unknown
They're not going to do anything about foreign companies bribing because they benefit from it. They may decide to enforce this on foreign companies of their own right. Companies committing bribes. They might they might decide, we're going to increase anti-bribery punishments within our own borders. Right. That might happen. So, you know, so it's true that foreign companies have been caught up in bribery investigations in the ongoing Chinese and Vietnamese anti-corruption campaigns.
00:44:26:23 - 00:45:02:20
Unknown
So domestic countries can also take this into their own hands. Yeah. One of our guests, as sort of a follow up question that I asked, is one I'm interested in is how much do countries use anti-corruption laws at home as an instrument of economic warfare? Or we could even think about it as a way to expropriate, assets, to say like, oh, you committed corruption, therefore we're going to fine you, and if countries do this, how should the U.S respond?
00:45:02:20 - 00:45:34:20
Unknown
Like if China suddenly goes against a bunch of U.S. firms claiming corruption, whether or not it's true, should the U.S., how and what should the US do to respond? Well, yeah, I mean, it's a great question. I don't actually know. I'm gonna I'm going to plead ignorance here. I really don't know, like whether that's a very maybe the maybe the questioner knows whether that's a pretty common activity, that anti-corruption charges are trumped up against a company, as an exploitation strategy.
00:45:34:20 - 00:45:55:02
Unknown
I'm sure it I'm sure it happens, but I don't. I've never measured the scale of it or how often it happens. I, I do think, like, if that were to happen, I think that. I think diplomacy is the answer. If you're the home country of a company that's been caught up in something like that.
00:45:55:04 - 00:46:15:24
Unknown
Yeah. I think that you you should have a right to, to defend the interests of your company. You know, I, I suspect this was something that could have been handled through something like the WTO. If people thought that this was being used in an anti-competitive way, or it could have been used in a, through, international arbitration.
00:46:15:24 - 00:46:46:12
Unknown
But, you know, these are these are, these have also declined, you know, within the past few years in terms of their ability to be able to be effective internationally. Yeah, I know I got to teach WTO enforcement in an hour. So, so yeah, or lack thereof, I think is the thing. Yeah, I think that I mean, I think that this is what we're seeing here and what mine is just a small part of is kind of an unwinding of the international rules based order.
00:46:46:14 - 00:47:20:14
Unknown
You know, we built this, very comprehensive liberal international economic architecture. And it's not just I don't want to blame throw this all on the Trump administration, but like, yeah, so what we're seeing is, countries behaving in ways that violate these rules are choosing to ignore these rules. And I think for, you know, for Maggie and I who's studied international political economy, this is that we see this international rules based order as part of the global prosperity that we experienced.
00:47:20:14 - 00:47:56:02
Unknown
And so I think we're looking at this future world with a great deal of trepidation. Yeah. All right. I'm going to ask you sort of, pie in the sky question. So it is, 2029 and, President Mamdani, or President Buttigieg or, you know, Beshear or whomever asks you to come in and help redesign the FCPA or help get it restarted.
00:47:56:04 - 00:48:19:01
Unknown
What do you think would be effective? Like what would you do in this space given, like all your scholarship on these questions, like how would you design it? And this also asks, like one of our guests asked about like, you know, it's telling to see Goldman Sachs ignore the FCPA to the point of being willing to pay a 2 billion plus bribe to do business in Malaysia.
00:48:19:01 - 00:48:51:17
Unknown
But there is no criminal prosecution and no personal staff actually getting. You know, I don't think that's true. I think yeah, I think like the the two vice presidents of Goldman Sachs were punished criminally for for what happened actually. And the and that the way go the way Goldman Sachs has discussed it publicly is that you know that they had behaved against company policy and they were punished internally.
00:48:51:17 - 00:49:13:00
Unknown
So it was I don't you can disagree with this. Like, I mean, like we can talk about what giant vampire squid sucking on the world, but like whatever, but the Goldman Sachs story was they were out of line. They were behaving against company risk procedures. They were punished internally, and then they were punished by U.S. law afterwards.
00:49:13:00 - 00:49:46:11
Unknown
And Goldman Sachs paid the fine. As rectification for its action. So, rather not that Goldman Sachs determined that it was worthwhile to pay the fine, and and pay the bribes in Malaysia, the what what happened in that particular instance was, just how much money when when you're advising, you know, sovereign wealth fund at several billion dollars and how much money that you can make in fees for advising that sovereign wealth fund on its activities.
00:49:46:11 - 00:50:06:19
Unknown
And I think people were kind of blinded by the price tag and behaved badly individually at the cost of this. You think in that case, that would be my, and then to the to the funds, the fines to those just go to the US Treasury. They do think back Yeah. Yeah. So that answers that question. Okay. Let me go back to my question.
00:50:06:19 - 00:50:35:06
Unknown
How would you either design or would you go back to the FCPA. Would you redesign it. So extraterritorial territoriality is a big deal. I do think like I do think it is important to do better training of judges on this. I think that the FCPA could have had a more comprehensive understanding of all the activities of corruption.
00:50:35:06 - 00:51:00:24
Unknown
Right. So I think that it was early on, it was pretty limited and had to be expanded. But I do think I do think that it's really important, where I would advise, you know, the future president, it that it is important to internationalize this, that there needs to be an OECD anti-bribery convention and other countries like, need to be part of it.
00:51:00:24 - 00:51:28:23
Unknown
Because if, if, for example, in in this future world that we're imagining, China decides not to be part of this and, and there is a, a great global competition between the US and China about investments in third party countries. That future president, however, you know, enlightened their ideas are may decide that they don't want to tie the hands of their U.S. companies in this competition.
00:51:28:23 - 00:52:14:14
Unknown
So I do think that this is a situation where internationalization is critical here, you know, if that if, if we're in a more multilateral world at that point, I think then then it might make sense, for, for something that doesn't have to include every single country, but, but some sort of hegemonic, anyway, that's I, but I would, I think, like FCPA increase the stricter enforcement, better understanding of anti-corruption laws, better training of US judges, better information for U.S. companies competing abroad combined with internationalization is the strategy that I think I would, suggest.
00:52:14:16 - 00:52:44:06
Unknown
Yeah. And probably more funding at the Justice Department for cases. Well, yes. Yeah. I mean, yes, the yeah, a Justice Department that's focused on actual criminality, but it could be helpful. Yeah. Yeah. Great. Yeah. So yeah, that's about all of it. That's great. One last question. So what does this study ultimately tell us about the moral foundations of global capitalism?
00:52:44:06 - 00:53:15:14
Unknown
So can you tell me that in five minutes? Well, okay, so I did want to I did want to say one thing. Yeah. Like, if you look at our graphs, you'll see a little blip on February 4th after a Bondi memo came out about the FCPA. And and I see I look back now, discussing the role of the FCPA prior to the halting.
00:53:15:16 - 00:53:38:08
Unknown
And it was at the time it seemed very innocuous, but you can see that there was some trading that took place that day and, and that there was some sort of signal, I believe, some sort of signal to connected investors that were then aware and were able to put themselves in a position to make a lot of money after the halting of the FCPA.
00:53:38:08 - 00:54:02:06
Unknown
So my first sort of like I do worry about a lot of these actions that are taking place right now, these big shocks to the global system and a small coterie of knowledgeable people that are benefiting from them. Right. So that's the first, that's that that's why I wanted to investigate this in the first place. But I as I said, I don't think we have a silver bullet to demonstrate that.
00:54:02:06 - 00:54:43:04
Unknown
But, but we have the signs of what it would look like. Early market activity. The second big lesson, as I said, is that I draw from this is like, so I keep on saying it and I, I it's, I think it sounds kind of academic and kind of silly, but I had been of the belief that that investors would police themselves to some extent, that investing in a company that had been shown to be dirty was enough to make companies not trust it, and that that company would returns, would be hurt just because of the FCPA violation.
00:54:43:06 - 00:55:26:09
Unknown
But what this taught me is that that's not enough, that investors are not policing themselves that way, that enforcement is really necessary and enforcement has to be part of the story, that they will police themselves to some extent. But enforcement plays a big role here. And when that enforcement is absent, there are a lot of people that will go for the, the, the quick buck and the investment and look askance at, at corrupt behavior at, and then I think that's the third lesson is this lesson that we've been talking about here, which is what happens when the U.S, which is the big proponent of an international rules based order, decides
00:55:26:09 - 00:56:04:02
Unknown
to ignore or not enforce or violate these rules? What happens to this entire architecture that's been built upon that commitment of the US? And I think the where this is one element, one piece of what I think, what we're seeing that we I think we should be very concerned about and pay close attention to is because the, the system that will come after this, if this rules based order doesn't hold, will be a system of might makes right and the rich manipulating laws to their own personal advantage.
00:56:04:03 - 00:56:31:17
Unknown
The Foreign Corrupt Practices Act was a way of protecting businesses, allowing economic growth to be more widely shared. Getting rid of those rules, I think, is damaging to all of us. Yeah, I think in particular, just adding on to that point, even with you think between firms like smaller firms don't have the same amount of money to pay bribes that larger firms do, you know, definitely helps bigger players in the market, probably more than smaller players.
00:56:31:19 - 00:56:51:11
Unknown
Yeah, yeah. If you're a startup, you don't have that. You don't have the money. Maybe in the same way you don't have the money to pay. Now $100,000 for H-1b visas. You don't have the money to pay for all those sorts of things which would help, which will hurt like economic dynamism in the future and all that. It's true.
00:56:51:16 - 00:57:12:18
Unknown
Yeah. Well, thanks again, Eddy, for doing this. I always learn so much when I see you present. I learned so much from all your work over all these years and likewise Maggie, I enjoy everything you do and your scholarship. So thanks again. My pleasure. Thank you so much. All right. And thanks for everybody for joining. This was really great.
00:57:12:20 - 00:57:15:23
Unknown
All right. Thanks. Bye everybody.