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UK Anti-Corruption Champion Appointed

As indicated in this U.K. Ministry of Justice release, Kenneth Clark has been appointed “as the United Kingdom’s new international anti-corruption champion.”

According to the release, Clark’s appointment “demonstrates the coalition government’s clear commitment to transparency and accountability and recognises the significant cost of international corruption to our economy.” The release further notes that Clark “will ensure the effective implementation of the Bribery Act 2010, legislation which will help to achieve the highest in international standards and demonstrates cross-party commitment to the fight against bribery.”

The U.K. Serious Fraud Office has been criticized in recent months for its lack of transparency in resolving corruption matters (see here for more) and many have questioned the U.K.’s commitment to effectively prosecute such cases in light of the BAE bribery, yet no bribery enforcement action (see here, here and here).

Yet with the U.K.’s new Bribery Act, a new era is set to begin.

Record Year for Alliance One International Despite Pending $20 Million FCPA Enforcement Action

Earlier this week, leaf tobacco merchant Alliance One International Inc., (see here) announced record revenue, gross profit and operating income (see here).

The company also announced (see here at p. 8) that its negotiations with the DOJ and SEC to resolve previously disclosed Foreign Corrupt Practices Act issues “have reached a stage at which an agreement in principle has been reached and we are able to estimate a probable loss in connection with these matters of $19.45 million for any disgorgement, fines and penalties.”

I’ve posted before about the FCPA and reputational damage (see here) and posed the question whether companies that disclose FCPA issues or settle FCPA enforcement actions actually suffer any reputational damage?

For every company like Avon that has its credit downgraded during an FCPA investigation (see here), there seems to be more instances like Alliance One (i.e. a company doing just fine, in some cases really fine, notwithstanding an FCPA investigation or resolution of an FCPA enforcement action).

This raises the question – do customers, potential customers, and investors of an affected company even care if the company discloses FCPA issues or resolves an FCPA enforcement action?

Or, because of how the FCPA has come to be enforced (i.e. enforcement actions based on dubious and untested legal theories, subject to little or no judicial scrutiny, and subject to little or no legal defense by the company because of what that may mean in terms of cooperation) do customers, potential customers and investors of an affected company view the FCPA with a collective yawn?

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If Alliance One sounds familiar, you have a good memory.

In April, the SEC resolved an FCPA enforcement action against individuals employed by predecessor companies of Alliance One (see here).

Often times, it is the company that first resolves an FCPA enforcement action that is then followed by (although not in all cases) an enforcement action against culpable employees.

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For another tobacco company that also recently announced record earnings as well as a pending FCPA enforcement action (see here) regarding Universal Corporation.

When the Dust Settles

Documents used to resolve a typical FCPA enforcement action (whether a non-prosecution or deferred prosecution agreement, plea, or settled civil complaint) are often peppered with vague generalities.

This is not surprising given that there is little serious threat of defense challenges and/or judicial scrutiny.

One element that is often vaguely described is the “foreign official” recipient of the alleged bribe. (This is in contrast to what the U.K. SFO has been doing in some of its recent enforcement actions when it “names names” – see here and here).

For instance, in the recent Daimler action (see here), certain of the “foreign officials” are described simply as follows:

“Nigerian government officials,” “high-level members of the executive branch of the Nigerian government,” “high-level executive branch official of Nigeria,” and “a member of the Nigerian police force” and

“senior official of a [Egypt] government owned factory.”

Given the ease in which information now flows and the world-wide interest in corruption and bribery, FCPA enforcement actions are read around the world.

Not only by foreign government officials and law enforcement agencies, but also by foreign media, foreign-based non-governmental organizations, and just plain old people.

It is thus not surprising that when the dust settles on the U.S. FCPA enforcement action, many are left wondering … who are those “foreign officials”?

For the foreign government involved, it is potentially embarrassing to have “one of your own” (assuming that all “foreign officials” in FCPA enforcement actions are properly deemed as such) become the focus of a bribery investigation in the U.S. without doing something about it “at home.”

Thus, with increasing frequency, one sees stories such as this recent Reuters report which details how the Nigeria Economic and Financial Crimes Commission has begun to probe the alleged bribe payments to the Nigerian “foreign officials” mentioned above.

What about that “senior official of a [Egypt] government owned factory”?

I’ve been told that this issue has become sort of a guessing game in Egypt and that Egyptian authorities have launched an investigation (see here)

Whether such foreign government investigations are bona fide or merely politically expediate cover is a valid question.

However, the take-away point is that just because the U.S. Foreign Corrupt Practices Act enforcement action is over, does not necessarily mean that all the dust has settled. Often, other persons, for entirely different reasons, remain interested.

An Interesting Corollary

Last week’s guest post (here) about the 1988 amendments to the Foreign Corrupt Practices Act and the DOJ’s decision not to issue compliance guidance provides an interesting corollary to private rights of action under the FCPA.

How so?

Around the same general time frame as the 1988 FCPA amendments, several courts addressed the issue of whether the FCPA contained an implied private right of action.

The answer was no.

Guess what was a key factor in the courts’ reasoning?

The guidance that Congress envisioned the Attorney General would issue.

The leading FCPA private right of action case is Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).

Here is what the court had to say:

“Recognition of the plaintiffs’ proposed private right of action, in our view, would directly contravene the carefully tailored FCPA scheme presently in place. Congress recently expanded the Attorney General’s responsibilities to include facilitating compliance with the FCPA. See 15 U.S.C. §§ 78dd-1(e), 78dd-2(f). Specifically, the Attorney General must ‘establish a procedure to provide responses to specific inquiries’ by issuers of securities and other domestic concerns regarding ‘conformance of their conduct with the Department of Justice’s [FCPA] enforcement policy….’ 15 U.S.C. §§ 78dd-1(e)(1), 78dd-2(f)(1). Moreover, the Attorney General must furnish ‘timely guidance concerning the Department of Justice’s [FCPA] enforcement policy … to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to [FCPA] provisions.’ 15 U.S.C. §§ 78dd-1(e)(4), 78dd-2(f)(4). Because this legislative action clearly evinces a preference for compliance in lieu of prosecution, the introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”

Given that the expected Attorney General guidance was a key factor in the court’s reasoning that the FCPA does not contain a implied private right of action, how would a court address this issue today given that the Attorney General never issued the guidance?

Also, what about the snippet from the Sixth Circuit’s opinion – that the 1988 amendments “clearly evinces a preference for compliance in lieu of prosecution.”

In this era of so-called aggressive FCPA enforcement, does the DOJ have its priorities backwards

DOJ Guidance and the FCPA

That is the issue addressed by James Parkinson (Mayer Brown – see here) in the below guest post.

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As followers of this blog know well, the UK’s newly-enacted Bribery Act (here) calls for the UK government to “publish guidance about procedures that relevant commercial organisations can put into place to prevent persons associated with them from bribing…” Seeing this provision in the Bribery Act suggests the question whether similar guidance issued by the US government would be helpful.

As it turns out, the US government considered this very question over 20 years ago but declined to offer guidance to companies affected by the FCPA. In the 1988 amendments to the FCPA, Congress added provisions entitled “Guidelines by Attorney General,” which required the following:

“Not later than one year after August 23, 1988, the Attorney General, after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue–

(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and

(2) general precautionary procedures which issuers may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.

The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title.”

15 U.S.C. §§ 78dd-1(d), 78dd-2(e).

Following the 1988 mandate, the DOJ issued a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” Department of Justice, Anti-Bribery Provisions of the Foreign Corrupt Practices Act, 54 Fed. Reg. 40,918 (Oct. 4, 1989).

What happened?

On July 12, 1990, the DOJ declined to issue guidelines on the anti-corruption provisions of the FCPA, stating:

“After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”

Department of Justice, Anti-Bribery Provisions, 55 Fed. Reg. 28,694 (July 12, 1990).

How many responses did the DOJ receive?

According to the OECD’s Phase I Report on the US implementation of the Convention (at 15), “[o]nly 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary.”

This suggests another question: what would the commentary landscape look like today if the DOJ published a new Federal Register notice soliciting “views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines”?

Given the rise in enforcement activity and the focus companies now bring to compliance, it seems very likely that far more than five people would submit comments.

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