Perception is Not Reality: The FCPA, Brazil, and the Mismeasurement of Corruption

Abstract

Recent years have seen an explosion in the number of Foreign Corrupt Practices Act ("FCPA") enforcement actions by the U.S. government. International corporations have been faced with the challenge of complying with the FCPA in nations whose cultural and legal treatment of corruption can vary widely. Unfortunately, it is difficult for corporate compliance programs to compare FCPA risk between countries because there are no valid quantitative measure for corruption. Instead, corruption researchers have looked to statistical proxies such as the perception of corruption. A growing body of literature suggests that biases which influence corruption perception statistics prevent them from forming a valid basis for comparison between countries or over time. In spite of the limited validity of these corruption perception statistics, many lawyers in the United States advise their clients to use them to help calibrate FCPA compliance programs in their international operations. The use of corruption perception to compare risk between nations is a misuse of these statistical measures, and potentially increases the economic distortion generated by the FCPA.

Keywords: Foreign Corrupt Practices Act, FCPA, Corporate Compliance, Corruption, Bribery, Brazil, Transparency International, Corruption Perceptions Index

JEL Classification: F23, G38, K14, K20, K22, K29, K30, K42, M14