Anti-Corruption Laws and Geographic Reporting Transparency 

By | December 19, 2022

Do companies attempt to disguise their exposure to foreign corruption? Our research investigates whether U.S. companies respond to heightened regulatory risk exposure from foreign anti-corruption laws by increasing or decreasing their geographic reporting transparency regarding their underlying exposure to countries with high risk of corruption. 

The U.S. Foreign Corrupt Practices Act (FCPA) exposes U.S. and foreign companies under its jurisdiction to significant potential penalties for foreign bribery. Over the last decade, other countries have enacted similar anti-corruption legislation under the auspices of the Organization for Economic Cooperation and Development (OECD), and countries increasingly cooperate in joint bribery investigations and prosecutions of multinational corporations (MNCs). In a landmark case in 2008, U.S. and German regulators jointly prosecuted Siemens AG, with the two countries sharing $1.6 billion in direct fines and penalties. Such joint prosecutions are becoming more common in anti-corruption enforcement. For companies that violate anti-corruption laws, the “layering effect” from multiple settlements with different enforcement agencies results in far higher direct and indirect costs than for cases involving only U.S. prosecutors.   

Until 2010, the U.K. was not part of this trend as it did not have effective anti-corruption legislation in place. This all changed in 2010 with adoption of the U.K. Bribery Act (UKBA). The UKBA is modeled on, and in many ways is tougher than, the FCPA. With the adoption of the UKBA, U.S. companies with a business presence in the U.K. were now exposed, for the first time, to possible joint prosecution for the same or related bribery offenses by both the U.S. and U.K., significantly increasing the costs these companies could face for potential anti-bribery investigations and settlements. 

Our research takes advantage of this regulatory change to examine whether and how U.S. companies exposed to a foreign corruption law (the UKBA) adjust their disclosures regarding their underlying exposure to countries with a high risk of corruption. We specifically test whether, following the enaction of the UKBA, U.S. MNCs with a business presence in the U.K. increased or decreased the transparency of their geographic disclosures (as they relate to exposure to high-corruption-risk countries), in comparison to other U.S. MNCs without a U.K. business presence. 

Under Generally Accepted Accounting Standards (U.S. GAAP) and International Financial Reporting Standards (IFRS), companies are required to provide disclosures that disaggregate a company’s performance into its various operational and geographic components. These are reported within a company’s segment and entity-wide financial statement note disclosures. Entity-wide geographic disclosures inform investors about material countries and regions in which companies generate revenues. However, the disclosure standards (specifically, Accounting Standard Codification (ASC) 280) are principles-based, allowing companies considerable discretion in selecting and labeling the regions where they sell to their customers. Companies can, for example, report sales in the “U.K. and Ireland,” two relatively homogenous countries in terms of underlying corruption exposure, or in the “Europe, the Middle East, and Africa (EMEA),” the latter region encompassing a more diverse range of countries in terms of corruption exposure including, for example, both Nigeria and Finland. As a company reports more of its sales in aggregate regions such as EMEA or “Other,” their underlying corruption exposure becomes less clear to investors reading the company’s financial statements.    

We find that, following the adoption of the UKBA, U.S. MNCs with a significant business presence in the U.K. experience a decline in their corruption transparency when compared to other similar U.S. MNCs with no significant U.K. business presence. We find no results in a similar “falsification test” comparing U.S. MNCs with and without a significant business presence in Germany, suggesting that our main findings are U.K.-specific. Further analysis shows that the decline in transparency is not driven by companies explicitly changing the labels of the regions they disclose, e.g., reporting revenues in EMEA in lieu of Nigeria or Finland. Rather, the decline is attributable to a more implicit and subtle cause—companies reporting a larger fraction of their revenues in opaque region-level segments such as “Other” or EMEA. That is, companies show an increasing percentage of their revenues reported in the more opaque region-level reporting areas they disclose, while opting not to further disaggregate their reporting into finer geographic areas to compensate for the decline. While it is challenging to pinpoint the exact cause of the increased percentage of revenues reported in more opaque areas, additional analysis suggests that it is most likely the result of two effects: Higher corruption risk in opaque reporting areas is associated with a greater opportunity for business growth, and companies can shift revenues from less opaque reporting areas to more opaque reporting areas. 

Our research offers several insights. First, we show that U.S. MNCs reduce their geographic reporting transparency with respect to their underlying corruption exposure in response to heightened regulatory risk arising from the introduction of a new anti-corruption law. Second, and more broadly, our findings show that U.S. MNCs respond to foreign laws with extraterritorial reach. That is, the adoption of a non-U.S. law affects the behavior of U.S. MNCs. Finally, our findings highlight a challenge posed by the existing principles-based approach of U.S. GAAP to geographic segment disclosures. The existing accounting standards (specifically, ASC 280) grants companies considerable discretion in selecting the reporting areas they use to disaggregate geographic sales results to investors. This feature of the reporting standards enables companies to potentially camouflage important aspects of their business risk exposure that arise from the global nature of their business, such as their presence in corrupt countries.  


Donal Byard is a Professor of Accounting at the Zicklin School of Business at Baruch College, City University of New York 

Heemin Lee is an Assistant Professor of Accounting at the Zicklin School of Business at Baruch College, City University of New York 

Edward Xuejun Li is an Associate Professor of Accounting at the Zicklin School of Business at Baruch College, City University of New York 

Amanda Sanseverino is an Assistant Professor of Accounting at the O’Malley School of Business, Manhattan College 


This post is adapted from their paper, “Anti-Corruption Laws and Geographic Reporting Transparency,” available on SSRN.  

Leave a Reply

Your email address will not be published. Required fields are marked *