- Risk key
- MODERATELY LOW
- MODERATELY HIGH
Corruption in the judiciary is a moderately low risk for companies, but ideological influences permeate the US justice system. Companies express confidence in the independence of the judiciary (GCR 2017-2018). Companies also express general confidence in the efficiency of the legal framework pertaining to settling disputes and challenging regulations (GCR 2017-2018). Judicial favors in return for irregular payments and bribes are uncommon (GCR 2015-2016). Three-quarters of Americans express confidence in the court system in their state (NCSC 2016). Three out of five Americans considered the state courts to be ‘political’ (NCSC 2016). The adversarial legal system has several negative consequences; administrative discretion is reduced, causing delays in decision-making, and increasing reliance on the judiciary to help design policies (SGI 2017). New decisions are often appealed by multiple parties, causing lengthy uncertainty as to what the obligations are for firms under the regulation (SGI 2017). The US has expansive judicial review procedures for legislative and executive decisions (SGI 2017). However, judicial review is not limited to merely ensuring compliance with the law (SGI 2017). The decisions of the courts are heavily influenced by ideological tendencies; there is a lack of structures or practices that ensure stability or moderation in constitutional doctrine (SGI 2017). The Securities and Exchange Commission, an independent government organ tasked with enforcing FCPA regulations, protecting investors and regulating the securities markets, has increasingly come under attack for its use of internal administrative procedures and in-house judges instead of Federal Courts (WSJ, Aug. 2015). The Supreme Court is likely to rule on whether using these internal administrative procedure is appropriate before the end of 2018 (New York Times, Sept. 2017).
Enforcing a contract in the US court system is slightly faster than the OECD high-income average, but in Los Angeles courts the costs involved are double the OECD high-income average (DB 2018). The US is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and it is also a state party to the International Centre for the Settlement of Investment Disputes (ICSID).
Former Tennessee Judge Casey Moreland is facing five felony counts in relation to trying to bribe and frame a woman who alleges he offered judicial favors in exchange for sex (Tennessean, Apr. 2017). Moreland is also accused of trying to bribe the woman with USD 6,000 in cash in exchange for her signing a statement that she never received special treatment (Tennessean, Aug. 2017). The case was still pending at the time of review.
It is unlikely for businesses to encounter corruption in the US police. The country performs well in relation to the reliability of police services to protect companies from crime (GCR 2017-2018). A fifth of Americans surveyed perceive the police as highly corrupt; among African-Americans one in three shares this view (GCB 2017).
Corruption risks when interacting public services are moderate. Businesses indicate that bribes and irregular payments are uncommon when interacting with public services (GCR 2015-2016). Nevertheless, Americans express high anxiety about government corruption; corrupt public administration officials were cited as the single biggest fear in a survey asking Americans about their fears (Chapman Uni 2016). About a quarter of Americans believe their local government officials are corrupt (GCB 2017). There is little arbitrary exercise of authority in the United States (SGI 2017). The transparency of the policy-making process is rated by businesses as among the best in the world (GCR 2017-2018). The US has among the most competitive regulatory environments in the world and remains the biggest recipient of foreign direct investment (DB 2018, UNCTAD 2017). Accordingly, companies rank the burden of government regulation among the lowest in the world (GCR 2017-2018). Companies should be aware that the regulatory environment differs significantly from state to state.
Starting a business takes a step more than the OECD high-income average, and the time required, depending on the local jurisdiction, is either shorter or in line with the OECD high-income average (DB 2018).
There is a moderately low risk of corruption in the US land administration. Companies report that property rights are adequately protected (GCR 2017-2018). Due to deficiencies in the law, particularly in terms of the transparency required in transactions, the real estate sector in the United States is vulnerable to money laundering (TI 2017). The US Treasury has taken some steps to detect money laundering in the real estate sector by requiring title insurance companies to report the identities of all-cash buyers in parts of a number of states (Reuters, Jul. 2016). Registering property takes 12 days in New York City and 20 days in Los Angeles, both require less time than the OECD high-income average (DB 2018).
In one corruption case, Argentina’s President Cristina Fernández has been accused by Argentina’s top anti-corruption official of using ‘dirty money’ to acquire more than 60 properties in Miami (Miami Herald, Oct. 2017).
Corruption in the tax administration is a moderately low risk in the US. Surveyed businesses report that irregular payments and bribes when making tax payments are uncommon (GCR 2015-2016). Complex corporate tax laws present a challenge for companies and require a high degree of vigilance (pwc 2017-2018). Business executives consider tax rates and regulations to be among the most problematic factors for conducting business in the US (GCR 2017-2018). The US tax agency, the Internal Revenue Service, estimates that tax evasion costs the federal government an estimated USD 458 billion a year (Fortune, Apr. 2016). Several US companies practice inversion, a widespread tax evasion scheme that allows companies to reincorporate abroad (Economist, Feb. 2015).
The number of payments and the time required to make tax payments are in line with the OECD high-income average (DB 2018).
Companies should note a moderate risk of corruption in the customs administration. Companies perceive that bribes or irregular payments are not commonly made during customs procedures (GETR 2016). Companies are generally satisfied with the efficiency and the time-predictability of customs procedures (GETR 2016). Companies do complain about burdensome import procedures as a problematic factor to doing business (GETR 2016). A report by Homeland Security analyzed that the US Customs and Border Protection (CBP) is susceptible to corruption and misconduct within its workforce and that the agency must increase its efforts to adequately address such risks (Los Angeles Times, Jun. 2015). Over 140 customs officers were arrested or convicted for corrupt acts in the past twelve years; many of the corruption charges pertained to bribery schemes to smuggle either illegal immigrants or drugs into the country (The Texas Tribune, Jul. 2016).
The time required to deal with customs compliance procedures are generally lower than in other OECD high-income countries, but the costs involved are higher (DB 2018).
There is a moderate to low risk of corruption in the public procurement sector. Businesses perceive that favoritism in the decisions of government officials and the diversion of public funds are fairly uncommon (GCR 2017-2018). Bribery and irregular payments and irregular payments are uncommon in the process of awarding government contracts (GCR 2015-2016). More than one in five businesses indicate they have experienced procurement fraud (pwc 2016). Business opportunities, regulations, resources, and training are available on Acquisition Central. State agencies collect and report data on public procurement through the Federal Procurement Data System – Next Generation (FPDS-NG).
An expansive case in the US Navy dubbed the ‘Fat Leonard’ case has launched investigations into 30 admirals and 170 others over corruption investigations (San Diego Union Tribune, Jul. 2017). The case revolves around a Malaysian businessman dubbed ‘Fat Leonard’ who bribed ‘scores’ of navy officials with prostitutes and luxury items into giving him classified information which he subsequently used to manipulate the US Navy into using his port services for which his company GDMA significantly overcharged (San Diego Union Tribune, Jul. 2017). A number of officials, including an active U.S. Navy commander have been found guilty in the case (FCPA Blog, Aug. 2017). The case is ongoing. Companies are recommended to use a specialized public procurement due diligence tool to evaluate and avoid corruption risks related to procurement in the US.
The United States scores well in terms of regulatory quality, transparency, and control of corruption in the oil and gas sector (NRGI 2017). However, the US is falling behind other advanced economies in terms transparency in terms of payment and tax in the sector (NRGI 2017). Of particular negative effect is the Trump administration’s repudiation of a new so-called resource extraction rule under the 2010 Dodd-Frank Act that would require more transparency in payments from extraction companies to foreign governments (NRGI 2017). The Trump administration has also withdrawn the US from the Extractive Industries Transparency Initiative (EITI) (Reuters, Nov. 2017).
The United States has elaborate and extensive mechanisms for investigating and prosecuting corrupt practices (SGI 2017). The Racketeer Influenced and Corrupt Organizations Act (RICO Act) and the Hobbs Act provide for investigation, prosecution and criminal penalties for public corruption, including abuse of office and extortion. The Travel Act criminalizes bribery of US government officials and commercial bribery. Money laundering is criminalized by the Money Laundering Control Act. The anti-corruption legal framework is enhanced by the Sarbanes-Oxley Act (SOX), which addresses fraudulent practices in enterprises, ensures the accuracy of corporate disclosures, and provides penalties of up to 10 years in prison for retaliation against whistleblowers. The Securities and Exchange Commission provides monetary rewards for individuals that leads to FCPA action resulting in recoveries exceeding USD 1 million. The Dodd-Frank Act also introduces rewards to whistleblowers for information that leads to a successful enforcement action. A bill expanding the protections for federal whistleblowers is awaiting the signature of President Trump as of the time of review (AP, Oct. 2017). President Trump scrapped the resource extraction rule of the Dodd-Frank Act that requires resource extraction companies to disclose any payments exceeding USD 100,000 made to the US or foreign governments (Wall Street Journal, Feb. 2017). A report found that individual states have large gaps in their integrity legislation; many state legislators engage in glaring conflicts of interests and relationships with lobbyists without consequence (SPI 2015). Many state watchdogs are understaffed and powerless to enforce laws containing numerous easily exploited loopholes (SPI 2015). US public procurement is well regulated by the Federal Acquisition Regulation that aims to contain corruption risks, and applies to all executive and military departments, and to state-owned companies. It contains provisions on conflicts of interest and increases the use of suspension and debarment on companies guilty of fraud and breach of contract.
The most widely enforced anti-corruption law in the world is the Foreign Corrupt Practices Act (FCPA), which prohibits US persons and entities from bribing foreign government officials. FCPA Resource Guide and FCPA Compliance Quick Guide can help companies avoid corruption risks abroad and help comply with legislation. The FCPA provides a narrow exception for facilitation payments and for recorded gifts of appropriate, minimal value. Gifts and facilitation payments may, however, violate other anti-corruption laws depending on their value and purpose. Under the Justice Department’s new enforcement policy, companies may obtain a settlement provided there is voluntary disclosure of violations, cooperation with the authorities, remediation and, root cause analysis.
The US has ratified the OECD Convention on Bribery of Foreign Officials in International Business Transactions (exception for facilitation payments), the United Nations Convention Against Corruption (UNCAC), the Council of Europe’s Criminal Law Convention against Corruption, the Inter-American Convention Against Corruption, and the United Nations Convention against Transnational Organized Crime. Enforcement of the anti-corruption legislation by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) is effective, and companies in the US are under increasing pressure to comply with stringent and wide-reaching anti-corruption legislation (SGI 2017).
The United States Constitution explicitly protects freedoms of speech and of the press (FotP 2017). Most media outlets are privately owned and are provided a high level of legal independence (FotP 2017). Despite journalists in most states not requiring to disclose their confidential sources and actively reporting on cases of corporate and official corruption, there are reports of pressure in the form of legal pressure or surveillance on journalists to reveal informants of leaked security information (FitW 2017). News reports are increasingly polarized but the overall media landscape retains a high degree of pluralism (FitW 2017). The Freedom of Information Act (FOIA) protects citizens’ right to access official information, but a large number of requests yield no files or redacted documents (FotP 2017). The media environment and the Internet in the US are considered ‘free’ (FotP 2017; FoN 2017).
Civil society is well-developed in the US, where trade associations, NGOs, and interest groups are offered freedom to organize and pursue civil and policy agendas (FitW 2017). Civil society’s competence in the US is very high thanks to their communication skills and ability to recruit highly professional staff (SGI 2017). Civil society groups tend to favor views on the extreme ends of the spectrum due to membership and ideological demands (SGI 2017). A 2010 Supreme Court decision striking down limits on privately (individual and corporate) funded political advertising has led to the rise of Super PACs, groups that are allowed to make unlimited contributions to political campaigns (SGI 2017).
- World Bank: Doing Business 2018.
- World Economic Forum: Global Competitiveness Index 2017-2018.
- Bertelsmann Stiftung: Sustainable Governance Indicators – United States Report 2017.
- pwc: Doing Business in the United States: A Guide to the Key Tax Issues 2017-2018.
- Freedom House: Freedom of the Press 2017.
- Freedom House: Freedom in the World 2017.
- Freedom House: Freedom on the Net 2017.
- Natural Resource Governance Institute: United States Profile 2017.
- Transparency International: Global Corruption Barometer 2017.
- Transparency International: Doors Wide Open: Corruption and Real Estate in Four Key Markets 2017.
- United Nations: World Investment Report 2017.
- Reuters: “U.S. Withdraws from Extractive Industires Anti-Corruption Effort”, 2 November 2017.
- AP: “Congress OKs Expanded Protections for Federal Whistleblowers”, 12 October 2017.
- Miami Herald: “Argentina’s Former Leader Stashed ‘Dirty Money’ in Miami, Official Says Before Election”, 6 October 2017.
- New York Times: “Why the Supreme Court May Review the S.E.C.’s In-House Judges”, 5 September 2017.
- Tennessean: “FBI Questions Second Nashville Judge in Casey Moreland Case”, 22 August 2017.
- FCPA Blog: “Navy Commander Guilty of Obstructing Fat Leonard Investigation”, 16 August 2017.
- San Diego Union Tribune: “Has Navy Been Going Soft on Most Suspects in Historic ‘Fat Leonard’ Corruption Scandal”, 22 July 2017.
- Tennessean: “Ex-Nashville Judge Casey Moreland Indicted on Federal Bribery, Tampering Charges”, 26 April 2017.
- Compliance Weekly: “Trump Administration Deals Another Blow to Transparency Initiative”, 22 March 2017.
- Wall Street Journal: “Trump Signs Measure Curbing Dodd-Frank Rules on Energy and Mining Companies”, 14 February 2017.
- Chapman University: America’s Top Fears 2016.
- pwc: Global Economic Crime Survey – US Results 2016.
- World Economic Forum: Global Enabling Trade Report 2016.
- National Center for State Courts: National Survey 2016.
- Reuters: “US Treasury Expands Hunt for Money Laundering in Real Estate”, 27 July 2016.
- The Texas Tribune: “Cracks in the Wall: When Border Watchdogs Turn Criminal”, 7 July 2016.
- Fortune: “Here’s How Much Tax Cheats Cost the US Government a Year”, 29 April 2016.
- World Economic Forum: The Global Competitiveness Report 2015-2016.
- The Center for Public Integrity: State Integrity Investigation 2015.
- Wall Street Journal: “Federal Judge Rules SEC In-House Judges ‘Likely Unconstitutional’”, 12 August 2015.
- Los Angeles Times: “Homeland Security Advisory Council Interim Report”, 30 June 2015.
- Economist: “An offer they could refuse”, 7 February 2015.