The FCPA Enforcement Pause Won’t Give U.S. Companies Any New Competitive Advantages

There’s something to be said for keeping the quiet part quiet.

Depending on whom you ask, U.S. President Donald Trump’s Executive Order pausing enforcement of the Foreign Corrupt Practices Act is either the end of anti-corruption as we know it, or the beginning of a needed discussion about how the law is enforced. But lost in the hand-wringing and pish-poshing is perhaps the most important question for businesses: How will America’s competitors react?

To see how this may play out, consider the $23 billion sale of a majority stake by Hong Kong-based CK Hutchinson of its maritime business, which operates ports along the Panama Canal and in dozens of other countries, to a group led by U.S. investment management firm BlackRock. For Hutchinson, the deal looked like a bonanza when compared against analyst valuations, and investors seemed to ecstatically agree. For Trump, it was a self-declared political victory.

While the purchase itself lacks any hallmarks of FCPA risk,* it achieves a goal that the enforcement pause aims to facilitate – helping the “United States and its companies [in] gaining strategic business advantages whether in critical minerals, deep-water ports, or other key infrastructure or assets.”

Perhaps as a sign of how future transactions in these areas may play out, mouthpieces for Beijing were vocally unhappy about the sale. But the anger may have been be less about access to the waterway than about its value as a bargaining chip.

Despite musings otherwise, ownership or operation of the ports is probably not a major strategic priority for China, because control of the overall canal zone still remains with a Panamanian government entity, which is treaty-bound to run the ports and waterway on a neutral basis. Pricing, for instance, is based on a transparent formula that is blind to the vessel’s origin and generally corresponds to its size. And while transit through the canal is vital for global commerce, only about 2 percent of China’s seaborne trade goes through it. This number may get even smaller as China continues to build major ports elsewhere in the world, and as the canal’s capacity dwindles (perhaps by half in just 25 years) thanks to changes in the environment.

But because the canal was so important to Trump, dangling ownership of Hutchinson’s port business could have netted Chinese President Xi Jinping an important concession in trade talks. By selling off a bargaining chip that likely meant little to Beijing, but could have extracted much more in return from Washington, Hutchinson raised Beijing’s ire.

Observers might have initially feared retribution for BlackRock – after all, they were the ones who seemingly handed Trump a victory. But BlackRock’s presence is China is scant, and China’s ability to squeeze the company is limited. For every $1000 in assets that the company manages, 15 cents come from accounts in China. (One suspects, though, that any forced marriage between TikTok and an American buyer will no longer be with BlackRock, if it were ever interested.)

Hutchinson and its ruling family may also ultimately emerge unscathed, not just because there is little China can do to actually stop the deal, but because most of the company’s business lies outside Mainland China and Hong Kong. (The family, though, may end up losing some of its soft power – the kind that gets prime government-owned real estate handed to you for free.)

But by rattling its sabers at Hutchinson, Beijing has sent a clear signal to companies in the energy, infrastructure, and extractive industries sectors to be wary of deals with American companies, or those who work with them. This may create a chilling effect amongst other countries or companies, including those with critical minerals, to think twice about working with American companies or their partners. A pause on FCPA enforcement would not overcome that chill, and American companies now seem to have swapped out manageable regulatory risk for a much more complicated iteration of geopolitical risk.

To be fair, protecting American commercial interests has long been baked into FCPA enforcement. In its first go-around, the Trump administration purported to advance American commercial interests by directing enforcement efforts against non-U.S. companies, notably Chinese ones. The Biden administration largely went along with this approach, going so far as to insinuate that China weaponizes corrupt practices as a form of foreign and industrial policy, even as it cozied up to one of the world’s most venal tyrants.

This might have seemed unfair, but it was hard to argue against punishing a company that cheats. On the other hand, this administration has signaled that it will look the other way when American companies cheat. To use an analogy from the sports world, it’s like the difference between calling out those to dope, and spying on your opponents.

Overtly politicized enforcement of the FCPA is a loud signal that the U.S. wants American companies to be acting in the country’s political interest, and will let them cheat to do so. And whether or not those companies really do act for those reasons, the reality is that they will now be seen to be doing so. For China, this becomes a call to economic arms. For American companies, their appeal as business partners may have just been diminished.

Dave Lee

FCPA Compliance Consultant

* This is because Hutchinson is not subject to U.S. jurisdiction. Continued operation of the ports, on the other hand, could have exposed BlackRock to FCPA risk. In addition, one may wonder whether, by handing the Trump administration a very expensive political triumph, BlackRock hoped to sway Washington’s sentiment on a tax loophole that greatly benefits its CEO and fund managers.