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And The Apple Award Goes To …

For the first time, the FCPA Apple Award is given to a legal person (MetLife Inc.) and by extension its CEO Steven Kandarian.

In terms of background, in January 2015 MetLife filed a complaint [1] in U.S. District Court in Washington, D.C., challenging the decision of the Financial Stability Oversight Council (FSOC) to designate MetLife as a “systemically important” non-bank financial institution under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

As has been widely reported (see here [2] from the Wall Street Journal) U.S. District Court Judge Rosemary Collyer recently struck down the order [3] of the FSOC designating MetLife as a systemically important nonbank financial institution under the Dodd-Frank Act.

While the circumstances prompting this Apple Award have nothing to do specifically with the Foreign Corrupt Practices Act, the circumstances present parallels to FCPA enforcement.

In short, it is so refreshing in this seemingly “cooperate with the government and roll over and play dead era” that a company stood up to the government, exercised its due process rights, and forced the government to prove it case.

As detailed in the Wall Street Journal article about Kandarian, the decision to litigate with the government was met with internal questions such as “what are the chances that we will win?.” Some viewed the decision to litigate as risking “customer and regulator opprobrium.”

However, according to the article, Kandarian felt that MetLife was swept up in “the overreaction and overzealousness of regulators to prove they were doing something.” If you don’t see the potential parallels here to FCPA enforcement (i.e. the DOJ and SEC have specific FCPA units that seem to be growing bigger with each passing year), you may want to stop reading to check your pulse.

An independent MetLife director is quoted in the article as saying “[Kandarian] kept saying repeatedly if we believe that the decision is wrong as a matter of law, then it was important that we as a company take advantage of our rights to due process and correct what we believe is an irrational decision, as long as we did it in a respectful way.”

As correctly noted in this recent Wall Street Journal op-ed [4] about the case, it “bears watching well beyond Wall Street” because “it is a challenge to the power of the entire federal bureaucracy.” As noted in the article, MetLife stood up to the government’s ipse dixit (a Latin phrase that means, essentially, “because I said so”).

As highlighted in this previous post titled “Ipse Dixit,” [5] “because I said so” often seems to be the DOJ and SEC’s enforcement theory specifically regarding alleged FCPA books and records and internal controls violations. The post highlighted defense arguments in the SEC’s enforcement action against James Ruehlen and Mark Jackson and tellingly on the eve of trial, the SEC approached the defendants offering to settle the case.

While outside the FCPA context, the MetLife victory is a reminder how the business community’s excessive FCPA risk aversion is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar, has observed [6]:

“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Likewise, as an in-house lawyer at leading company commented to me, what is happening in the FCPA space is a version of the “tragedy of the commons [7].”

As FCPA practitioner Paul Calli rightly recognized in this recent FCPA Flash podcast [8], when companies the subject of FCPA scrutiny hire counsel who are the architects of, or at least the product of, “the cooperate and play dead FCPA culture that often exists”, the end result (settlement) is often a foregone conclusion.

In closing, while I know little about the Financial Stability Oversight Council and the specifics of designating a company a “systemically important” non-bank financial institution under Dodd-Frank, I am confident that if more companies subject to FCPA scrutiny based on aggressive enforcement theories would do what MetLife did, the current FCPA enforcement climate would look much different.

And guess who would benefit from a business organization that exhibits a spine?

Not just that company, but other  similarly situated companies.

*****

The FCPA Apple Award recognizes informed, candid, and fresh thought-leadership on the Foreign Corrupt Practices Act or related topics. There is no prize, medal or plaque awarded to the FCPA Professor Apple Award recipient. Just recognition by a leading FCPA website visited by a diverse group of readers around the world. There is no nomination procedure for the Apple Award. If you are writing something informed, candid and fresh about the FCPA or related topics, chances are high that I will find your work during my daily searches for FCPA content.