Security Assistance and Arms Export Control Act of 1976 (P.L. 94-329; 90 Stat. 767), approved June 30, 1976. Under it, the Department of State must require adequate and timely reporting of all such payments in connection with sales of defense articles or services. See post, Ch. 14, § 9, pp. 777-778.

On July 2, 1976, the Senate Committee on Banking, Housing and Urban Affairs reported favorably S. 3664, "To amend the Securities and Exchange Act of 1934 to require issuers of securities registered pursuant to section 12 of such Act to maintain accurate records, to prohibit certain bribes, and for other purposes." The Committee report, submitted by Senator Proxmire, summarized the proposed legislation as follows:

Section 1. This section adopts the recommendations of the SEC [Securities and Exchange Commission]. It requires reporting companies to create and to maintain accurate books and records. Secondly, it requires internal accounting controls sufficient to assure that transactions will be executed in accordance with management's instructions, that transactions will be accurately recorded, that access to corporate assets is carefully controlled, and that the representations on company books will be compared at reasonable intervals with actual assets, and any discrepancies resolved. This section also makes it a crime for a reporting company to falsify books, records, accounts, or documents, or to deceive an accountant in connection with an examination or audit. Section 2. This section applies to corporations subject to the jurisdiction of the SEC by virtue of the reporting requirements of the Securities Exchange Act of 1934. It applies the existing criminal penalties of the securities laws (up to two years imprisonment and a fine of up to $10,000) for payments, promises of payment, or authorization of payment of anything of value to any foreign official, political party, candidate for office, or intermediary, where there is a corrupt purpose. The corrupt purpose must be to induce the recipient to use his influence to direct business to any person, to influence legislation or regulations, or to fail to perform an official function in order to influence business decisions, legislation, or regulations, of a government.

Section 3. This section applies the identical prohibitions and penalties provided by Section 2 to any domestic business concern other than one subject to the jurisdiction of the SEC pursuant to Section 2. Violations of the criminal prohibition under Section 3 by persons not subject to SEC jurisdiction would be investigated and prosecuted by the Justice Department. Violations under Section 2 would normally be investigated initially by the SEC, but referred for criminal prosecution to the Justice Department.

S. Doc. 94-1031, 94th Cong., 2d Sess., pp. 2-3. On Sept. 15, 1976, S. 3664 passed the Senate by a vote of 86–0. It was referred to the House Interstate Commerce Committee on Sept. 16, but not reported out. The House of Representatives did not act on the bill in the 94th Congress.

On August 3, 1976, President Ford transmitted to Congress a proposed "Foreign Payments Disclosure Act," to require reporting to the Secretary of Commerce of certain classes of payments made by U.S. businesses and their foreign subsidiaries and affiliates in relation to business with foreign governments. It was introduced in the Senate on August 6, 1976, as S. 3741. In his message to Congress, President Ford described his proposal, in part, as follows:

The reporting requirement covers a broad range of payments relative to government transactions as well as political contributions and payments made directly to foreign public officials. By requiring reporting of all significant payments, whether proper or improper, made in connection with business with foreign governments, the legislation will avoid the difficult problems of definition and proof that arise in the context of enforcement of legislation that seeks to deal specifically with bribery or extortion abroad.

The Secretary of Commerce will, by regulation, further define the scope of reporting required. Small or routine payments will be excluded, as will certain clearly bona fide payments such as taxes. Reports will include the names of recipients.

Reports will be made available to the Departments of State and Justice as well as to the Internal Revenue Service and the Securities and Exchange Commission. The Department of Justice and the State Department will, in appropriate instances, relay reported information to authorities in foreign jurisdictions to assist them in the enforcement of their own laws.

Reports also will be made available to appropriate congressional committees. All reports would be made available to the public one year from the date of their filing, except in cases where a specific written determination is made by the Secretary of State or the Attorney General that considerations of foreign policy or judicial process dictate against disclosure.

This proposed legislation is intended to complement and supplement existing laws and regulations which can affect questionable corporate payments abroad.

... I wish to recognize and build upon the fine record of the Securities and Exchange Commission. . .

[T]he legislation which I am proposing deals with all U.S. participants in foreign commerce-not just firms subject to Commission regulatory requirements-and it calls for the active involvement of the Secretaries of State and Commerce and the Attorney General in administering a system which addresses the full range of public policy interests inherently involved in the questionable payments problem.

We remain mindful that the questionable payments problem is an international problem which cannot be corrected by the United

States acting alone. Consequently, we are continuing our efforts to secure an international agreement which will establish a mutually acceptable framework for international cooperation in eliminating improper business practices.

H. Doc. 94-572, 94th Cong., 2d Sess. The 94th Cong. did not act on the President's proposed legislation.

Section 604 (b) of the International Security Assistance and Arms Export Control Act of 1976 (P.L. 94-329; 90 Stat. 767), approved June 30, 1976, added a new section 39 to the Arms Export Control Act, to require reporting on political contributions and fees or commissions in connection with the sale of defense articles or services. See post, Ch. 14, § 9, pp. 777-778.

Section 1065 of the Tax Reform Act of 1976 (P.L. 94-455; 90 Stat. 1653; 26 U.S.C. 952, 964, 995), approved October 4, 1976, denies certain tax benefits attributable to bribe-produced income. It provides that the amount of any illegal bribe, kickback, or similar payment to a foreign government official by a foreign subsidiary or a Domestic International Sales Corporation (DISC) of a U.S. company is subject to current taxation as a deemed distribution to the U.S. parent corporation. In addition, the foreign earnings and profits of any corporation paying a foreign bribe are not to be reduced by the amount paid. The provision is effective for illegal payments made 30 or more days after the date of enactment of the Act.

See H. Rept. 94-1515 (Committee of Conference).

The Intergovernmental Working Group established by the U.N. Economic and Social Council (ECOSOC) on August 5, 1976, to prepare an accord on corrupt practices held its first meeting at New York on November 15, 1976. U.S. Representative Mark B. Feldman, Deputy Legal Adviser of the Department of State, made a statement summarizing U.S. actions to control illicit foreign payments by American enterprises and reaffirming the U.S. proposal made at Lima on March 5, 1976, for a treaty on a comprehensive system of disclosure of a defined class of payments to be enforced by all contracting parties. See ante, p. 505. Excerpts from Mr. Feldman's statement follow:

There can be no doubt that these corrupt practices-bribery, extortion, and influence peddling-undermine the integrity and stability of governments and distort international trade and investment. They raise the cost of goods and services in all countries, particularly in the developing countries, which can least afford this additional burden on their balance of payments.

Moreover, corrupt practices involving major corporate enterprises and public officials undermine public confidence in the basic institutions of our society.

The U.N. General Assembly recognized the seriousness of this problem when it adopted Resolution 3514 by consensus last December. That resolution condemned all corrupt practices, including bribery by transnational and other corporations, intermediaries, and others involved, and called upon both home and host governments to take all necessary and appropriate measures to prevent such practices. [See the 1975 Digest, pp. 610-611.]

In August the Economic and Social Council took the decision to establish this working group to examine the problem of corrupt practices, in particular bribery, in international commercial transactions and to elaborate in detail the scope and contents of an international agreement to prevent and eliminate illicit payments, in whatever form, in connection with international commercial transactions as defined by the working group.

*

[F]rom the outset the United States determined that it must cooperate with other governments who wish to eradicate corrupt practices in their countries. Accordingly, the United States has concluded bilateral agreements for the exchange of information with the law enforcement authorities of 12 countries. [See ante, Ch. 6, § 6, pp. 313-315.] In addition, we have cooperated with other governments who have established new requirements for the disclosure or regulation of agents' fees paid in connection with sales to or contracts with government agencies.

Our experience has brought the conviction that the illicit payments problem can only be solved by collective international action based on a multilateral treaty to be implemented by national legislation. We have also come to believe that the traditional criminal laws cannot solve the problem by themselves. A survey of national legislation shows that nearly every country of the world has legislation prohibiting bribery of its officials. However, this legislation can be difficult to enforce and has not proved to be a meaningful deterrent. Thus, a new approach is required.

The basic concept of a new approach, as outlined by the U.S. delegation to the Lima meeting of the United Nations Commission on Transnational Corporations last March, would be a comprehensive system of disclosure of a defined class of payments to be agreed upon in a treaty and to be enforced by all the contracting parties. The theory of disclosure, which has been demonstrated by long experience in the United States, is that public scrutiny is an effective deterrent to improper activities by private enterprise or by public officials.

*

For the full text of Mr. Feldman's statement, see Dept. of State Bulletin, Vol. LXXV, No. 1954, Dec. 6, 1976, pp. 696-699.

Protection of Rights of Foreign Individuals

On December 29, 1976, Monroe Leigh, Legal Adviser of the Department of State, wrote a letter to Assistant Attorney General

Rex E. Lee, requesting that a suggestion of interest of the United States be made to the U.S. Court of Appeals for the District of Columbia Circuit in The Boeing Company v. Securities and Exchange Commission, Miscellaneous No. 76-2112, a case concerning allegations of bribery involving agents of American companies and foreign officials. The Court had issued an order on December 14, 1976, requiring that the District Court order temporarily sealing the attachment to the Securities and Exchange Commission's subpoena duces tecum remain in effect until further order of the Court of Appeals. Mr. Leigh's letter stated:

We understand that the Court of Appeals will soon determine whether the seal shall remain in effect. After full consideration of this matter we have concluded, for the following reasons, that the attachment to the subpoena should remain under seal until such time as law enforcement considerations actually require that the seal be removed:

(1) Some of the names listed in the attachment are those of officials of foreign governments, or of persons closely associated with them. While ordinarily the listing of names in a subpoena would not raise foreign policy considerations, it is our conclusion that in the context of this subpoena and at this stage of the investigation into allegations of bribery involving agents of American companies and foreign officials, the disclosure of such names is likely to give rise abroad to adverse and uncorroborated charges, prejudicial to the rights of the individuals concerned, which could reasonably be expected to cause damage to the foreign relations of the United States. Therefore, premature disclosure of such names should be avoided for foreign policy reasons if law enforcement objectives can be met without such a disclosure.

(2) We understand that the documents sought to be obtained by this subpoena are being made available to the SEC, and that the sealing of the attachment in question does not now in any way frustrate the conduct of the SEC's investigation or the performance of its enforcement function.

Accordingly, we request that the Department of Justice call the foregoing views to the attention of the Court.

On January 5, 1977, the Department of Justice, pursuant to 28 U.S.C. 517, filed the suggestion of interest of the United States, requesting the Court to take into account the views of the Department of State.

Foreign Investment

OECD Declaration

The Council of the Organization for Economic Cooperation and Development (OECD) met at the ministerial level at Paris on June 21, 1976, and adopted a Declaration on International Investment and