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

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, characterized by international cooperation and prosecutions based on the FCPA’s recordkeeping provisions, has a significant deterrent effect on foreign direct investment by non-US firms in high-corruption-risk countries. Regulatory compliance costs appear to play a role in deterring investment. Our evidence suggests that extraterritorial FCPA enforcement significantly affects the investment policies of non-US firms under US jurisdiction, thereby limiting the FCPA’s anticompetitive impact on US firms relative to firms from other developed 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