Foreign Bribes and the Securities Acts’ Disclosure Requirements

The Securities Act of 1933 and the Securities Exchange Act of 1934 require most major corporations to disclose to investors all material information concerning company operations. Although they were not intended to regulate the conduct of business, these disclosure obligations can have a deterrent effect upon improper corporate activities. The recent revelation that a significant number of corporations have been making bribes and similar payments abroad has created interest in the feasibility of employing the disclosure requirements to curtail this practice. This Note will show that, despite recent pressures for change, the Securities and Exchange Commission has continued to view its disclosure requirement as applying primarily to material information of financial, rather than of social or political, concern to investors. Improper payments in foreign countries can, under certain factual conditions, be found material in this traditional sense through ad hoc adjudication. The Note will then demonstrate the difficulty of delineating new tests for materiality that could be made specifically applicable to all improper payments abroad. It will further argue that, even if payments can be brought within the scope of disclosure requirements, the deterrent effect would be insufficient to curb objectionable conduct. The Note concludes that reliance upon the securities laws to control improper corporate conduct abroad is thus inferior to ·the direct sanctions normally used by society to prevent antisocial behavior and may, in fact, undermine the traditional purposes of federal securities legislation.