Policeman for the World: The Rise in Extraterritorial FCPA Enforcement and Foreign Investment Competition

Abstract

Using insights gained from Foreign Corrupt Practices Act (FCPA) enforcement actions against corporations from 1977 to 2017, we show that a mid-2000s increase in US extraterritorial FCPA enforcement has a significant deterrent effect on foreign direct investment in high-corruption-risk countries by non-US firms headquartered in developed countries. Regulatory compliance costs appear to play a role in deterring investment. Contrary to prior research on the impact of FCPA enforcement against US firms only, our evidence suggests that extraterritorial enforcement reduces both the FCPA’s anticompetitive impact on US firms and aggregate foreign direct investment in high-corruption-risk countries.

Keywords: Foreign Corruption Regulation; Extraterritorial Enforcement; Foreign Corrupt Practices Act (FCPA); Foreign Direct Investment; Mergers and Acquisitions; Internal Controls

JEL Classification: F50; F60; K2; M4; O1