Wrestling with Reform: Financial Scandals and the Legislation They Inspired

Three Approaches, One Law: Foreign Corrupt Practices Act of 1977

Illicit Payments and Slush Funds

- September 8, 1972 “There’s No Need for an Independent Investigation,” Herblock; copyright Herb Block Foundation

Out of the Watergate scandal came an unrelated revelation: hundreds of companies had illicitly funneled millions of dollars to foreign agents and officials.  Few doubted that such payments should be prohibited, but many wondered about jurisdiction and enforcement. Some considered protecting the integrity of financial reporting more important than prosecuting bribery.  Political friction abounded as Congress, the U.S. Securities and Exchange Commission and the Ford Administration all grappled with these issues. 

Stanley Sporkin, SEC Enforcement Director, was watching the Watergate hearings when he realized that the corporate political payments being discussed must have been made without proper disclosure.  His staff uncovered secret slush funds that had been used not only for political purposes but also for commercial endeavors abroad.  On March 8, 1974, the SEC demanded disclosure from corporations making illegal contributions.  Public awareness of the questionable payments issue was heightened by the 1975 suicide of United Brands executive Eli Black.  The scandal burgeoned through the summer as one industrial giant after another came under scrutiny.  As one investigator put it, “I wouldn’t say the whole Fortune 500 made illegal payments, but maybe the Fortune 250 did.” (18) did. As a few companies initiated internal reforms, more scandals emerged, including influence peddling in Pakistan, Greece, West Germany, Australia, the Netherlands, and many others.

The most notorious scandal involved the Lockheed Aircraft Corporation.  After finding references to a “Lockheed-type” operation in the files of competitor Northrop, the SEC began investigating, as did a committee led by Senator William Proxmire (D-Wisconsin).  In August, Lockheed admitted disbursing over $200 million to foreign consultants during the previous five years.  Some $106 million went to Saudi Arabia alone. (19)  Lockheed’s bribes to a former prime minister sparked a political scandal in Japan.  These revelations sent the SEC, Congress and the President searching for a solution.


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Footnotes:

(18) Securities Act Release No. 5466.  New York Times, “SEC Says Northrop Kept $30-Million Secret Fund,” April 4, 1975.  New York Times, “U.S. Is Broadening Study of Company Gifts Abroad,” June 9, 1975.

(19) New York Times, “U.S. Is Broadening Study of Company Gifts Abroad,” June 9, 1975.  New York Times, “Proxmire Says Lockheed Bribed Foreign Officials,” August 11, 1975.  New York Times, “Lockheed Documents Disclose a $106-Million Saudi Payout,” September 13, 1975.

Related Museum Resources

Papers

January 3, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
March 19, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
June 4, 1975
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
August 11, 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
September 24, 1975
transcript pdf (Elliott Richardson Papers, courtesy Library of Congress)
September 29, 1975
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
December 1975
transcript pdf (Courtesy of the National Archives and Records Administration)
January 28, 1976
transcript pdf (Elliott Richardson Papers, courtesy Library of Congress)
January 28, 1976
image pdf (Elliot Richardson Papers, courtesy of the Library of Congress)
March 11, 1976
image pdf (Courtesy of the Gerald R. Ford Library)
April 9, 1976
image pdf (Roderick Hills Papers, Courtesy of the Gerald R. Ford Library)
May 6, 1976
image pdf (Courtesy of the National Archives and Records Administration)
May 7, 1976
transcript pdf (Elliott Richardson Papers, courtesy Library of Congress)
May 18, 1976
image pdf (Courtesy of the National Archives and Records Administration)
May 24, 1976
transcript pdf (Elliott Richardson Papers, courtesy Library of Congress)
January 17, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
January 17, 1977
transcript pdf (Courtesy of the Gerald R. Ford Library)
February 23, 1977
image pdf (Courtesy of the National Archives and Records Administration)
March 21, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
April 26, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
May 10, 1977
image pdf (Courtesy of the National Archives and Records Administration)
September 12, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
September 23, 1977
transcript pdf (Courtesy of the National Archives and Records Administration)
September 25, 2002
document pdf

Oral Histories

08 April 2010

David Doherty

(Made possible through the support of ASECA - Association of SEC Alumni, Inc.)

04 April 2005

Theodore Sonde

23 September 2003

Stanley Sporkin

Programs

15 April 2010

Fireside Chat - Foreign Corrupt Practices Act

Moderator: Jeffrey Manns

Presenter(s): Paul Berger, Stanley Sporkin

Made possible through the support of Debevoise and Plimpton LLP

21 September 2004

Fireside Chat - Forensic Accounting

Moderator: Donald Langevoort

Presenter(s): James Barratt, Ernest Ten Eyck

Galleries

In the Midst of Revolution: The SEC, 1973-1981

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