Severity of US sanctions against foreign firms: evidence from the FCPA enforcements

Purpose: The purpose of this study is to examine whether foreign firms pay disproportionately higher monetary penalties after controlling for factors that affect the sanctioning of the firm. Design/methodology/approach: In this paper, a cross-sectional data analysis has been used to examine the enforcement actions of the Foreign Corrupt Practices Act (FCPA) against all private and public companies from 1978 to 2019. Findings: The findings indicate that that foreign firms pay disproportionately higher monetary penalties than domestic firms after controlling for factors that affect the sanctioning of firms. On average, foreign firms pay $43.3m more to the US government than US firms pay. This is a considerable difference in monetary penalties and equal to 68.95% of the average monetary penalty. Originality/value: This paper shows that the US government treats US firms more favorably than foreign firms in monetary sanctions. Because the FCPA is not applied equally, this is contrary to US government guidelines and to the rule of law. The government needs to reconsider the consequences of imposing disproportionately higher penalties on foreign firms. Given the lack of judicial scrutiny of the FCPA settlement amounts against foreign firms, prosecutorial harshness against them can be remedied by amending the FCPA to eliminate the unequal treatment of foreign entities.