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The Shrinking U.K. Bribery Act

Recent developments reported by the U.K. Telegraph suggest that when Bribery Act guidance is finalized and released, the Bribery Act will look very much like the FCPA. In fact, because of the Bribery Act’s adequate procedures defense and other hinted at limitations, the Bribery Act may turn out to be more lenient than the FCPA.

The Telegraph reported (here) that eventual guidance to be released by the U.K. government “will make allowances for the use of so-called ‘facilitating payments'” and that the guidance “will clarify how the law will view corporate hospitality and will give companies some protection against illegal acts committed by joint venture partners.”

According to the Telegraph, “the new guidance will acknowledge [facilitating payments] payments are a global problem that cannot be eradicated overnight.” According to the Telegraph, the eventual guidance “will say that while facilitating payments remain illegal, payments not considered ‘serious’ may not attract prosecution.”

This eventual guidance seems to be similar to the conclusion Congress arrived at in 1977 when enacting the FCPA. For instance, House Report No. 95-640 (September 28, 1977) states as follows:

“The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”

Even though the Bribery Act will still apparently prohibit facilitating payments – in contrast to the FCPA’s express facilitating payment exception – numerous prior posts (see here, here and here for example as well as all the CustomsGate enforcement actions) raise the issue of whether the enforcement agencies recognize such an exception and whether the FCPA’s facilitating payment exception has any real meaning.

The expected U.K. guidance on corporate hospitality would seem to be akin to the FCPA’s current affirmative defense for “reasonable and bona fide expenditures, such as travel and lodging expenses, incurred by or on behalf of a foreign official” ” directly related to (A) the promotion, demonstration, or explanation of products or services; or (B) the execution or performance of a contract with a foreign government or agency theorof.”

Without the benefit of an actual analysis of the expected guidance on joint ventures, it is a bit difficult to draw conclusions from the Telegraph article. But if, as reported, the eventual guidance “will give companies some protection against illegal acts committed by joint venture partners” this protection will make the Bribery Act even more lenient than the FCPA (or at least FCPA enforcement theories).

Several FCPA enforcement actions in recent years, including some of the most high profile (see e.g., Bonny Island, Nigeria enforcement actions), have been based on conduct of joint venture partners.

Of note, the reported U.K. guidance regarding joint ventures would seem to conflict with the justification underlining the recent SFO charges against MK Kellog Ltd. under the Proceeds of Crime Act. (See here).

The oft-cited statement that the Bribery Act is the “FCPA on steroids” was curious to begin with; the statement now appears to be completely off-base given expected guidance on the Bribery Act.

Another “Foreign Official” Challenge

In “The Facade of FCPA Enforcement” (here) I noted that “no enforcement agency interpretation contributes more to the facade of FCPA enforcement and no FCPA element is more urgently in need of judicial scrutiny than the FCPA’s ‘foreign official’ element.”

Last week, various defendants in the U.S. v. Stuart Carson et al. case filed a motion to dismiss challenging the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. See here for the prior post.

Yesterday, Lindsey Manufacturing Company, Keith Lindsey, and Steve Lee – defendants in U.S. v. Enrique Faustino Aguilar Noriega, et al. also filed a motion to dismiss challenging the same enforcement theory.

See here for the motion to dismiss.

Judge Blasts SEC’s Lack of Dilligence

Dig into the details of most FCPA enforcement actions and one quickly discovers that the conduct at issue is old – in some cases very old.

The February 2011 enforcement action against Tyson Foods for instance related to conduct between 2004 and 2006. See here for the SEC’s complaint.

The January 2011 enforcement action against Maxwell Technologies alleged conduct going back to 2002. See here for the SEC’s complaint.

The December 2010 enforcement action against Alcatel-Lucent alleged conduct going back to 2001. See here for the SEC’s complaint.

The June/July 2010 Bonny Island bribery enforcement actions alleged conduct going back to 1995. See here for the SEC’s complaint against Technip for instance.

The FCPA does not have a specific statute of limitations, rather the “catch-all” provisions in 18 USC 3282 (for criminal actions) and 28 USC 2462 (for civil actions) apply.

Cooperation is often the name of the game in FCPA enforcement inquiries and, because of that, tolling agreements are frequently agreed to. Thus, discussing a fundamental black-letter law concept like statute of limitations in the FCPA context seems foolish.

But imagine a world (a world that perhaps is slowly developing – see here for instance) in which individuals and companies in FCPA enforcement actions do mount legal defenses based on black-letter legal principles such as statute of limitations.

In that world, it is likely one would see judicial opinions like the recent opinion from U.S. District Court Judge Jane Boyle (N.D. Tex.) in SEC v. Microtune, Inc. et al (see here for the opinion).

The relevant facts are as follows.

In June 2008, the SEC filed an enforcement action against Microtune and two of its former executives alleging a fraudulent stock-option backdating scheme between 2000 and mid-2003. As noted in the opinion, the “crux” of the limitations defense “was that most of the acts forming the basis of the SEC’s case occured between 2001 and mid-2003.”

The precise issue before the court was “whether the doctrine of fraudulent concealment, relied on by the SEC, operate[d] to toll the running of the five-year limitations period under the facts of the case.” The SEC argued that it was entitled to judgment as a matter of law on the limitations defense “because the ‘discovery rule’ and certain equitable tolling principles including ‘fraudulent concealment’ and the ‘continuing violations doctrine’ applied and salvaged claims that would otherwise be barred by the five-year statute of limitations.” The court had previously rejected the SEC’s “discovery rule” and “continuing violations doctrine” claims, and focused on the SEC’s “fraudulent concealment” theory for tolling the statute of limitations.

The court noted that in order for the SEC to prevail on its “fraudulent concealment” claim, it had to show that it “acted diligently once [the SEC] had inquiry notice, i.e., once [the SEC] knew of or should have known of the facts giving rise to [its] claim.” The court held that there was “no genuine issue of material fact as to whether the SEC acted diligently nor as to whether the SEC discovered the alleged wrongdoing within the limitations period.”

As noted in the opinion, “when asked about the SEC’s diligence” counsel for the SEC explained as follows: “we, often for resource reasons, wait until the company does its own investigation before we complete ours.” [In July 2006, Microtune announced it was commencing an internal review as to the alleged practices].

Judge Boyle was not persuaded and stated as follows. “While perhaps an understandable method of allocating Commission resources, such justification does not excuse the SEC’s apparent inactivity from mid-2004 to mid-2006, when further investigation would have uncovered the full extent of Microtune’s backdating and would have allowed the SEC to bring a complaint against Microtune much earlier than 2008.”

Accordingly, the judge dismissed all claims against the defendants falling outside of the five year limitations period – except those saved as a result of tolling agreements reached in 2007 and 2008.

See here for an article about the ruling from Shannon Green at Corporate Counsel.

Ask any FCPA practitioner and, in a candid moment, they will tell you that SEC FCPA inquiries often unnecessarily drag on for many years, including long stretches of complete inactivity, unreturned phone calls, and other delays due to SEC resource issues – including turnover of SEC attorneys assigned to the case.

Again, because cooperation tends to be the name of the game in FCPA inquiries and because tolling agreements are frequently agreed to, the SEC’s lack of diligence in an FCPA matter is generally not a relevant issue.

However, every once in a while it is interesting to think of what would happen if FCPA enforcement largely took place in the context of an adversarial system.

The recent Microtune decision would seem to provide a glimpse.

Big, Bold, and Bizarre

Many words could be used to describe Foreign Corrupt Practices Act enforcement in 2010.

The words I selected in this Year in Review piece recently published by BNA’s White Collar Crime Report are big, bold, and bizarre.

The article provides an overview of the year that was and describes the big, bold, and bizarre year in FCPA enforcement; the increased scrutiny of the FCPA and FCPA enforcement; and events related to the FCPA as well as other anti-corruption laws and initiatives.

The FCPA in 2015 – What Will It Look Like?

The Dow Jones Global Compliance Symposium (see here for details) is set for March 31st and April 1st in Washington DC at the Park Hyatt Washington.

I am pleased to be participating in a panel discussion on March 31st titled “The FCPA in 2015 – What Will It Look Like?”

Moderated by Dionne Searcey (Legal Correspondent – Wall Street Journal), other panelists will include: Mark Mendelsohn (Paul Weiss); Peter Jaffe (Chief Ethics & Compliance Officer, AES); and Frederic Miller (PricewaterhouseCoopers).

Other panels or interviews at the Symposium will focus on the FCPA and related issues as well.

Joe Palazzolo (Dow Jones and Wall Street Journal Corruption Currents) will speak with Stephen Reynolds (SVP & General Counsel, Alcatel-Lucent) in a keynote interview titled “Moving Forward: Alcatel-Lucent’s Anti-Corruption Program.” See here for prior posts on the December 2010 Alcatel-Lucent FCPA enforcement action.

Georg Kell (Executive Director, UN Global Compact) will be interviewed on “Stamping Out Corruption: The Role That Corporations Can Play.”

Dionne Searcey will speak with Commissioner Dabney Friedrich (U.S. Sentencing Commission) in a featured interview expected to cover how new and evolving corporate and anticorruption regulations are being enforced.

David Wessel (Economics Editor, Wall Street Journal) will speak to former U.S. Senator Arlen Specter in a keynote interview titled “FCPA Enforcement: How to Comply. If No Compliance, Then Jail Time, Not Just Fines.” As highlighted in this previous post, Senator Specter chaired the November 30, 2010 Senate Judiciary Subcommittee hearing on “Examining Enforcement of the Foreign Corrupt Practices Act.”

Jean Eaglesham (Senior Reporter, The Wall Street Journal) will speak with Lorin Reisner (Deputy Director, Enforcement Division, Securities & Exchange Commission) in a keynote interview expected to cover the SEC’s enforcement of the Foreign Corrupt Practices Act.

Cassell Bryan-Low (Reporter – Wall Street Journal) will speak with Vivian Robinson (General Counsel – U.K. Serious Fraud Office) in a featured interview titled “The U.K. Bribery Act: Dispelling the Myths.”

In addition, other events or interviews at the Symposium are sure to touch upon FCPA issues as well.

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