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Economic Analysis of Damages under the Foreign Corrupt Practices Act (FCPA)

5 May 2011
By Dr. Patrick Conroy and Dr. Graeme Hunter

If a company pays a bribe to secure a project, what is the gain to the company from the bribe?

With international bribery emerging as a regulatory enforcement priority based on the US Foreign Corrupt Practices Act (FCPA) and the soon-to-be-implemented Anti-Bribery Act in the UK, millions of dollars may depend on the correct answer to this deceptively simple question. Monetary fines are based on the "benefit" received from the bribe, but determining an accurate calculation of that benefit can be complex, going far beyond simply counting the profits from a project allegedly secured by a bribe. To date there has been little discussion of the true "benefit" to a company from paying a bribe to secure a project.

In this paper, NERA Senior Vice President Dr. Patrick Conroy and Vice President Dr. Graeme Hunter argue that applying greater precision to the financial benefits of bribery is necessary given increasing enforcement, and use economic analysis to shed light on how to evaluate the effect of a bribe and determine what the appropriate fines, if any, should be. Sophisticated economic analysis is necessary to fully account for the numerous considerations based on the incremental probability of winning generated by the bribe, and the opportunity cost of the project won. Applying such analysis can lead to a more realistic (and sometimes lower) calculation of the true economic profits from the bribe. The paper includes hypothetical examples in areas including oil drilling rigs, investments involving sovereign wealth funds, and insider trading.