The Cost of Bribery - Financial Transparency Coalition

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The James Mintz Group recently released a fascinating interactive database, which compiles decades of data on violations and penalties under the Foreign Corrupt Practices Act, the U.S. flagship legislation that makes bribery of foreign officials a crime. Since its inception, prosecutors have penalized over 200 companies under the FCPA in about 80 countries, amassing about $4 billion in penalties. The database, which they call Where the Bribes are Paid, allows users to see how the total penalties amassed in each country break down by sector.

It is a relatively unsurprising finding that the energy sector has generated the largest penalties under the FCPA, to the tune of $2 billion or just about half of the total. The consulting sector comes in second, with $847 million in penalties, and the defense industry in third, with $443 million.

The top countries for penalties are also unsurprising. Nigeria tops the list, with most of its penalties in the energy sector. Nigeria is followed by China, Russia, Mexico, Argentina, and Iraq. Patrick Kelkar, a partner at the Mintz Group who handles FCPA investigations, pointed out that China was the only country in the database that cut across all of the sectors.

Unfortunately there are limitations to the database. It does not give us an unbiased picture of “where the bribes are paid” because the database relies on data from FCPA penalties, and so would skew the results toward those countries where FCPA cases are more prevelant. But the database also reveals a great deal. Jim Mintz, founder and president of Mintz Group, told the Wall Street Journal that database aims to create a “stark way of showing the risks of bribery.” And it has the potential to achieve much more.

Here are some things potential areas of expansion that could be illuminating:

A timeline. Sure, China and Nigeria top the list today, but was that true 25 years ago? Yes, the energy sector dominates the total violations, but have those violations fluctuated with price of crude over the last three decades? If we had the data in timeline form we could shed light on some of these questions.
A comparison to other data. How do these data stack up against other measures of corruption, such as Transparency International’s Corruption Perceptions Index or Global Financial Integrity’s illicit financial flows report? If you controlled for overall corruption, would the same countries top the list or do some countries attract a disproportionately large amount of FCPA violations?
A scale. The energy sector is by far the largest earner of penalties in Nigeria, but it is also a hugely dominant portion of the economy. If you scale the violations by the size of the industry within a given economy, which sectors come out on top? I’m willing to bet the consulting sector would skyrocket, while the energy, health, and defense sectors would plummet. But only data can tell.

On its own, however, the database provides an interesting and tangible way for us to identify with FCPA violations. And $4 billion is quite a lot of money, so it’s interesting to see how it all breaks down. On the other hand, however, $4 billion is just a drop in the bucket against the full cost of bribery to the world. Understanding those costs is just the beginning.