United States risk report
Corruption does not represent a significant business risk for foreign investors in the US. The US offers a competitive market and abundant business opportunities; however, companies should be prepared to deal with bureaucracy due to the decentralized structure and business activities governed by federal, state, county and municipal laws. Business costs are increased by extensive anti-corruption legislation and tough requirements for compliance and internal controls. Money laundering, abuse of office, extortion and commercial bribery are prohibited by law. Companies should be aware that the US government actively and effectively enforces the established anti-corruption legislative framework, including the FCPA. The FCPA provides a narrow exception for facilitation payments and for recorded gifts of appropriate, minimal value. While gifts and facilitation payments are uncommon in practice, they may violate other anti-corruption laws depending on their value and purpose. You can find a summary of the FCPA here and a guide to compliance with the law here.
Judicial system Low risk
Corruption in the judiciary is a moderately low risk for companies. Companies express confidence in the independence of the judiciary (GCR 2019). Companies also express general confidence in the efficiency of the legal framework pertaining to settling disputes and challenging regulations (GCR 2019). Judicial favors in return for irregular payments and bribes are uncommon (GCR 2017-2018). Most Americans express confidence in the court system in their state, however, 55% of Americans considered the state courts to be ‘political’ and 44% considered them intimidating (NCSC 2020). The adversarial tendencies of the legal system have several negative consequences; administrative discretion is reduced, delays in decision-making, and increasing reliance on the judiciary to help design policies (SGI 2020). New decisions are often appealed by multiple parties, causing uncertainty about firms’ obligations under the regulation for several years (SGI, 2020). The US has expansive judicial review procedures for legislative and executive decisions (SGI 2020). The Securities and Exchange Commission, an independent government organ, is tasked with enforcing FCPA regulations, protecting investors, and regulating the securities markets (SEC 2021).
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 2020). 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).
Police Very low risk
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 2019). A fifth of Americans surveyed perceive the police as highly corrupt; among African-Americans one in three shares this view (GCB 2017). The frequency of hate crimes in the US has increased and the issue of violence against black Americans by the police has remained in the spotlight (SGI 2020).
Public services Moderate risk
Corruption risks when interacting with public services are moderate. Businesses indicate that bribes and irregular payments are uncommon when interacting with public services (GCR, 2017-2018). 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, 2020). 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 2020, UNCTAD 2017). Accordingly, companies rank the burden of government regulation among the lowest in the world (GCR 2019). 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 2020).
Land administration Low risk
There is a moderately low risk of corruption in the US land administration. Companies report that property rights are adequately protected (GCR 2019). 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 (Transparency International, Dec. 2020). The US Treasury has taken some steps to detect money laundering in the real estate sector in 2016, by requiring title insurance companies to report the identities of all-cash buyers in parts of a number of states. the U.S. Treasury has since indicated that these measures have been effective (JD Supra, Mar. 2020). 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 2020).
A recent study has indicated that the US real estate sector is a safe haven for money laundering, according to the study, USD 2.3B was laundered through US real estate, most of which was commercial real estate (Global Financial Integrity, Aug. 2021).
Tax administration Low risk
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 2017-2018). Complex corporate tax laws present a challenge for companies and require a high degree of vigilance (PWC 2020). 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 1T a year, which is more than twice as high as the 2016 estimate (New York Times, Apr. 2021). Inversion, a tax avoidance scheme that allows companies to reincorporate abroad, has become uncommon during the Obama administration and, is now facing even more stringent measures from the Biden administration to prevent this type of tax avoidance from returning. (Bloomberg, Apr. 2021)
The number of payments and the time required to make tax payments is in line with the OECD high-income average (DB 2020).
Customs administration Moderate risk
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 study by the San Diego University linked the increase in corruption among officers of the Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP) to the United States’ attempt at enforcing stricter border controls (OCCRP, Oct. 2019).
The time required to deal with customs compliance procedures is generally lower than in other OECD high-income countries, but the costs involved are higher (DB 2020).
Public procurement Low risk
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 are uncommon in the process of awarding government contracts (GCR 2017-2018). 37% of US companies lost an opportunity to a competitor that they believe paid a bribe (PWC 2020). 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).
Natural resources Very low risk
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 of transparency about payment and tax in the sector (NRGI 2017).
The United States has strong safeguards against corruption, which include an independent law enforcement system, a free press, and an active civil society sector, furthermore, a variety of regulations and oversight institutions within the government are designed to tackle conflicts of interest and other situations that could lead to wrongdoing (FitW 2021). 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 lead to FCPA action resulting in recoveries exceeding USD 1M. The Dodd-Frank Act also introduces rewards to whistleblowers for information that leads to successful enforcement action. A bill expanding the protections for federal whistleblowers has been signed by President Trump in 2018, the bill gives federal whistleblowers more options to appeal retaliation claims (Bloomberg, Jul. 2018). The Trump administration issued an executive order in 2017 that limited the ability of appointees to shift to lobbying work after leaving government, but the same order also eased restrictions on lobbyists moving into government (FitW 2021). US public procurement is well regulated by the Federal Acquisition Regulation which 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.
In 2021, President Biden formally announced that combating corruption is a core United States national security issue and released the administration’s strategy on countering corruption outlining the government’s plans. This likely means that the Biden administration will intensify enforcement of FCPA (JD Supra, Jun. 2021).
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 2020).
The United States Constitution explicitly protects freedoms of speech and of the press (FitW 2021). Most media outlets are privately owned and are provided a high level of legal independence (FitW 2021). Violence against journalists in the United States has been rare in recent decades, however, in the context of the nationwide protests sparked by the killing of George Floyd by a police officer, media watchdog groups registered widespread press freedom violations (FitW 2021). The US Press Freedom Tracker documented 123 arrests of journalists and 334 assaults on journalists in 2020, compared to just 9 arrests and 34 assaults in 2019 (FitW 2021). The constant villainization of media outlets by President Trump has led to a decline in trust of the mainstream media (FH 2019). The Freedom of Information Act (FOIA) protects citizens’ right to access official information, but government performance on FOIA declined during the Trump administration (FitW 2021). The media environment and the Internet in the US are considered ‘free’ (FitW 2021).
Civil society is well-developed in the US, where trade associations, NGOs, and interest groups are offered the freedom to organize and pursue civil and policy agendas (FitW 2021). Civil society’s competence in the US is very high thanks to their communication skills and ability to recruit highly professional staff (SGI 2020). Nevertheless, civil society groups tend to favor views on the extreme ends of the spectrum due to membership and ideological demands (SGI 2020). 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 2020).
- Freedom House: Freedom in the world 2021.
- Arkansas Democrat Gazette: "Ex-Arkansas judge, who admitted giving leniency for sexual favors, cites judicial immunity from lawsuit", 25 October 2021.
- Global Financial Integrity: "New Report Finds U.S. Real Estate Sector a Safe Haven for Money Laundering", 9 August 2021.
- JD Supra: Biden Memorandum on Combating Corruption Likely Means Increased FCPA Enforcement. Miller Canfield", 14 June 2021.
- The New York Times: "Tax cheats cost the U.S. $1 trillion per year, I.R.S. chief says", 13 April 2021.
- Bloomberg: "Biden Tax Plan Targets Inversions to Keep Them From Coming Back", 8 April 2021.
- JDSupra: "Treasury Report Targets Money Laundering Risks in Real Estate and Gatekeeper Professions. JDSupra", 5 March 2021.
- World Bank: Doing Business 2020.
- SGI: United States Report. Sustainable Governance Indicators 2020.
- Transparency International: Corruption Perception Index 2020.
- NCSC: State of the State Courts – Survey Analysis. National Centre for State Courts 2020.
- PWC: Doing Business in the United States: A guide to the key tax issues 2020.
- Freedom House: Media Freedom 2019.
- World Economic Forum: The Global Competitiveness Report 2019.
- OCCRP: "Study: Stricter US Border Control Increases Corruption. Organized Crime and Corruption Reporting Project", 8 October 2019.
- World Economic Forum: The Global Competitiveness Report 2017-2018.
- Supreme Court of the United States: LUCIA ET AL. v. SECURITIES AND EXCHANGE COMMISSION 2018.
- NPR: "What's Scarier Than Zombies And Ghosts? Government Corruption And Running Out Of Cash. National Public Radio", 18 October 2018.
- Bloomberg: "Trump Signs Federal Sector Whistleblowers Bill", 10 July 2018.
- Transparency International: Global Corruption Barometer 2017.
- Natural Resource Governance Institute: United States Profile 2017.
- United Nations: World Investment Report 2017.
- World Economic Forum: Global Enabling Trade Report 2016.