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Ethics or cash cow?

September 8, 2014

There are those who would argue that the scale of fines being imposed by US courts and regulators on major corporations reflect high principles and a determination to raise ethical standards. Others take the view that this is a cynical way to raise cash and that it damages longer-term US economic interests.

The United States is certainly unique in the degree to which it claims ‘extra-territorial’ rights. In both the extent and the scale of the penalties it imposes on foreign businesses and their top management, it presents itself as an imperial power, policing the world stage. While many other nations may applaud and adopt the ethical principles which these reflect, none comes anywhere close to the scale of the financial levies imposed by the US judicial system, nor do they act so freely in extraditing and imprisoning foreign citizens (indeed, it is impossible to imagine the US ever operating to such arbitrary rights with regard to its own people).

Recent judgments such as those against France’s BNP or the UK’s BP have generated increasing concern in European capitals and warnings to the US authorities that their legal system is seen as lacking balance. Certainly these high profile cases add to the perception that the US operates with a high level of unpredictability and that operating and investing in is markets is therefore risky. Ironically, it is the sort of reputation that causes hesitation about investment in markets such as China, India or Russia – that is, doubts over the extent of the ‘rule of law’.

Part of the problem is the extent of localism in the US – there really Is not a national legal system until you reach the Supreme Court. Another is the entire culture of litigation and excessive numbers of lawyers chasing fees, regardless of the merit of their cases. A system controlled by lawyers, who are then major beneficiaries of that system, always runs the risk of lacking balance. Certainly the BP case appears to lack equity and is enriching people who are undeserving.

But on the counter-side, this same system has also imposed major penalties on US corporations and this tends to undermine arguments of institutional prejudice against foreign firms. On balance, I believe that the intentions behind the system are honorable and are driven by a genuine desire to raise ethical standards.

The challenge is this issue of balance and how external behaviors are influenced. I think the US does try to operate as a force for good in the world, but in order to gain credit for this position it must be seen to operate fairly and with reasoned judgments. The decisions of its courts do not consistently meet these standards; they need to be better controlled and there needs to be a central authority that can step in far faster when review is required.

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