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In The Words of Stanley Sporkin

Stanley Sporkin, as Director of the SEC’s Division of Enforcement in the mid-1970’s, played a key role in addressing the foreign corporate payments issues being investigated by Congress and in shaping what would become the FCPA’s books and records and internal control provisions.  Calling Sporkin the “Father of the FCPA” (as many have) is, in all due respect, a bit of an overstatement as Sporkin’s SEC was not in favor of what would become the FCPA’s anti-bribery provisions and wanted no part in enforcing those provisions.  Nevertheless, Sporkin was a key participant, and has remained a key player, on FCPA issues throughout his storied career.

Sporkin has been talking about FCPA reform for years – long before the U.S. Chamber released its FCPA reform proposals in October 2010.

Thanks to a reader, we can all read some of Sporkin’s early FCPA reform speeches.

In a 2004 speech (here), Sporkin spoke of the SEC stumbling upon the foreign payments issue in connection with its Watergate-related investigations.  The FCPA was not a singular outgrowth of Watergate –  Congress was already actively investigating allegations of overseas bribery and corruption separate and apart from the Watergate scandal – yet Watergate is nevertheless relevant to the FCPA’s origins.  In his speech, Sporkin also talks about the relationship between the FCPA and Sarbanes-Oxley Section 404 (a hot-button issue in 2004 when Sporkin delivered the speech).  As to “Next Steps,” Sporkin stated as follows.  “[W]e need more than Congress passing new statute, and the SEC requiring strict compliance with existing legislation.  We need a comprehensive assault on the problem.  This means we need the assistance of our government and indeed all the countries of the world along with the world business community, to provide a climate which enables our corporations to compete honestly and fairly throughout the world.  There is a way to fix this problem if there is a will to do so.”  Among other things, Sporkin proposed – no doubt in recognition that most FCPA issues arise from use of foreign agents –  the “establishment of a country-by-country list of agents that have been properly vetted and have agreed to be examined and audited by an independent international auditing group.”

In 2006, Sporkin returned to the podium (see here) as the FCPA neared its 30th year.  He stated as follows.  “What I envisioned when the law was enacted was a new corporate regime where bribery of foreign officials would be almost completely extinguished at least as it pertained to major U.S. corporations.  As all of us here have observed, the wild-eyed-do-gooder predictions never occurred.  Instead statistics indicate that bribery of foreign officials has maintained a steady pace over the years.”  [Counterpoint – perhaps bribery of foreign officials, as envisioned by Congress and indeed Sporkin’s SEC, has largely been extinguished, but the issue (in 2006 and still today) is that the goalposts have been moved … and not by Congress].

In his 2006 speech, Sporkin did not advocate the FCPA’s repeal, but he did “think the Department of Justice and the SEC can do something forward-looking which would be win-win for both the government and the private sector.”  He called it the “FCPA Immunization-Inoculation Program.”  Sporkin stated that the “quasi-amnesty program” would consist of the following:  (i) “agreement by participating firms to conduct a full and complete review [conducted jointly by a major accounting firm or specialized forensic accounting firm and a law firm]  of the company’s compliance with the FCPA for the previous 3 years; (ii) the company would agree “to disclose the results of the legal-accounting audit to the SEC, its investors, and the public; (iii) “if any violations turned up in the process of the audit, the participating [company] would agree to take all steps to eliminate the problems and implement the appropriate controls to prevent further violations; (iv) participating companies “would agree to subject themselves to a similar audit on an annual basis for at least 5 years to ensure that compliance was being maintained; (v) participating companies “would be required to create the position of FCPA compliance officer, whose sole responsibility would be to ensure the company’s compliance with the FCPA” and make an annual certification; and (vi) “in exchange … the SEC and DOJ would give qualified assurances that no actions would be brought for violations exposed by the review.”  As envisioned by Sporkin, the “limited amnesty would not apply if violations rose to flagrant or egregious level.”

According to Sporkin, the “immunization-inoculation program would serve the dual purpose of: (1) creating suitable incentives to compliance-minded companies to adopt and maintain high ethical standards in the conduct of their business; and (2) reducing the case load and investigative burden of governmental agencies that enforce the FCPA while reassuring regulators that companies are taking active steps to limit corruption in their foreign contracting and other activities.”  Sporkin conceded that “some adjustments may be necessary” but he believed that his proposal “would provide the right-thinking corporate community with the necessary assurances that it needs to develop a vibrant overseas business without having to defend itself against very costly and time consuming investigations.”

At the November 2010 Senate FCPA hearing, FCPA practitioner Michael Volkov (here) resurrected Sporkin’s proposal – see here for Volkov’s prepared statement.  [By the way, for those of you looking for the complete transcript of that hearing, along with the prepared statements, and post-hearing Q&A’s – see here].

While Sporkin’s FCPA reform proposals are, in certain ways, different from many of the proposed FCPA amendments being discussed at the moment, the point of this post – other than to highlight Sporkin’s reform proposals, is to demonstrate that the screams of some – that FCPA reform is solely a Chamber issue or somehow akin to waving the white flag of surrender to corporate bribery – are off-base.

What various FCPA reform proposals through the years have in common is experienced and knowledgeable individuals (including many former DOJ and SEC enforcement attorneys who helped shape the FCPA and FCPA enforcement) sharing a belief that the current ad hoc, inconsistent, arbitrary, and largely opaque enforcement only climate is in need of reform.

Compliance Defense Legislative History

One of the reform proposals likely to make its way into a soon to be expected FCPA reform bill is a so-called compliance defense.  As noted in this previous post, such a compliance defense would be similar to the adequate procedures defense in the new U.K. Bribery Act, and would make the FCPA consistent with the “FCPA-like” laws of several other countries that – like the U.S. and the U.K. – are signatories to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

In short, amending the FCPA to include a compliance defense is not a novel idea.

Nor is it, as I have referenced several times, a new idea.  Several FCPA reform bills in the 1980’s (a period of sparse and measured FCPA enforcement compared to the current era) included a compliance defense and this post provides a summary of the legislative history relevant to the compliance defense.

In connection with my Carson “foreign official” declaration (here), I reviewed the FCPA’s entire legislative history.  The first apparent reference to a compliance defense occurred on October 6, 1983 during a House Hearing of the Committee on Foreign Affairs, Subcommittee on International Economic Policy and Trade, that examined legislation to amend the FCPA.  Testifying at the hearing was Arthur Matthews, a former SEC enforcement official, who was then a partner at Wilmer, Cutler and Pickering.  Although the bill under consideration at the hearing, HR 2157, did not contain such a compliance defense, Matthews stated as follows.  “I would also support some type of affirmative due diligence defense that a corporation would be able to prove to avoid criminal responsibility on a reckless disregard theory.  Since 1933, in the Securities Act of 1933, there has been a due diligence defense for issuers and their officers and directors with respect to whether or not a registration statement is false.  I think comparable language could be placed in the bill so that corporations would have an affirmative due diligence defense.”  FCPA reform, along with Matthews’s suggestion of a compliance defense, fizzled for several years.

It appears that the first FCPA reform bill to include a compliance defense was H.R. 4708 introduced by Rep. Don Bonker (D-WA) on April 30, 1986.  Titled the Export Enhancement Act of 1986 – Title IV of the Act contained the following.

“Due Diligence. – An issuer or domestic concern “may not be held vicariously liable, either civiallly or criminally, for a violation [of the FCPA’s anti-bribery provisions] by its employee, who is not an officer or director, if – (1) such issuer [or domestic concern] has established procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such employee, and (2) the officer and employee of the issuer [or domestic concern] with supervisory responsibility for the conduct of the employee used due diligence to prevent the commission of the offense by that employee.  Such issuer [or domestic concern] shall have the burden of proving by a preponderance of the evidence that it meets the requirements set forth in paragraphs (1) and (2).  The first sentence of this subsection shall be considered an affirmative defense to actions under [the anti-bribery provisions].”

The House Committee on Foreign Affairs favorably reported out H.R. 4708.  See Report 99-580 – Export Enhancement Act of 1986.  (May 6, 1986).   The Report notes that if a “corporation has set up internal controls to avoid illicit payments or has otherwise acted to keep within the law, its ‘due diligence’ can be used as a defense against both civil and criminal liability in cases where its employees have nonetheless engaged in bribery.”  Elsewhere, the Report states as follows.   “A company may not be held vicariously liable if it can show that it has established procedures to prevents its employees from making bribes and that it supervisory employees had used ‘due diligence’ to prevent employees or third parties from making bribes.”

Several other bills containing FCPA reform provisions (such as H.R. 4800 introduced on May 9, 1986;  H.R. 4830 introduced on May 5, 1986; and  H.R. 2150 introduced on April 23, 1987) also contained such a compliance defense – although not all bills containing FCPA reform provisions did include a compliance defense.

The compliance defense was included in H.R. 3, Omnibus Trade and Competitivness Act of 1987, introduced on Jan. 6, 1987.  H.R. 3 was favorably reported out by the House Committee on Energy and Commerce on April 6, 1987.   The House Report noted as follows.  “The bill also provides incentives for self-policing by business, by setting forth standards of due diligence to prevent and detect violations of the law by employee and agents.”

The House Report further stated as follows.

“Under current law, in appropriate circumstances, a firm may be held vicariously liable for violations of the FCPA by employees or agents.  This is the proper result, because firms should be responsible for taking appropriate steps to prevent violations.”

“The lack of enforcement resources at the SEC and the Department of Justice make it clear that the enforcement agencies are able to detect and pursue only a small number of violations of the FCPA, as is true of violations of many other statutes.  Consequently, enforcement agencies under this statute, as well as many other, must depend upon the deterrent effect of the law, and, more importantly, self-policing by responsible businesses.”

“The bill establishes in Section 701 a new, ‘due diligence’ defense for civil and criminal liability of issuers and domestic concerns for violations of the FCPA by employees and agents.  It provides that if the issuer or domestic concern has established procedures for detecting violations, and if the officers and employees with supervisory responsibility for the employees or agent violating the law have exercised due diligence to prevent the violation, then no vicarious liability will apply.  Of course, supervisory responsibility for the actions of a particular employee or agent may be exercised by many officials in an organization and can include, for example, the general supervisory authority of high level corporate officials.  The requirements must be established by a preponderance of the evidence.”

“Although ‘due diligence’ is a familiar concept under the Federal securities laws, the bill does not specifically define the term.  It is intended that what would constitute ‘due dilgence’ would be factual determination by the trier of fact and would vary depending upon the particular circumstances of the transaction at issue.  Due diligence might include many of the steps currently employed by firms seeking to comply with current law:  regular training and updating of all levels of involved corporate personnel; independent investigation of the background and reputation of agents and other participants in the transaction; contract provisions obligating the parties not to violate the Act and voiding the contract if the Act if violated; a right to perform a full or partial audit of the books of agents or other transaction participants; disclosure of the existence and terms of agency relationships to the foreign government purchase; periodic compliance certifications by corporate personnel and participants; and independent opinions of local counsel that local law will not be violated by any part of the transaction.”

“The scope of due diligence may also vary according to the circumstances of the transaction.  Many companies seeking to comply with current law, for example, have indicated that certain factors, such as those set forth below, may indicate the need to undertake additional inquiry on the part of corporate officials:  any unusual proposal relating to the method of payment to any participants in the transaction, particularly through third countries or in currency; any known or suspected family relationships between any participants in the transaction and any foreign government official; refusal by any participants in the transaction to sign affidavits or make representations that they will not violate the FCPA; the size of the commission paid to the agent in relationship to the services performed; any known or suspected misrepresentations by the agent or others in connection with the proposed transaction; requests by any participant in the transaction that the company prepare false invoices or any other type of false documentation; and any negative information developed as part of the independent investigation into the activities and reputation of the agent or other participants in the transaction, including any information developed regarding the financial interests of any foreign government officials in any companies participating directly or indirectly in the transaction.”

“The size of the company and the resources available to it may also be considered in determining the scope of the due diligence steps.  For example, many large multinational companies have the capacity to place corporate officials in foreign countries, while many smaller exporters must rely almost exclusively on foreign agents.  In many cases, it may be impossible for an exporter to determine with absolute certainty that an agent will abide by the law.  In meeting the defense under this section, it must be shown that reasonable steps were taken.  It is perhaps most important that firms create an environment which fosters good business practice and compliance with the law.  In this connection, employees and agents should be encouraged to comply with the law and to report factors that may indicate improper behavior.”

H.R. 3 passed the House and a different bill containing FCPA reform provisions passed the Senate.  Conference Report 100-576 (April 20, 1987) Omnibus Trade and Competitiveness Act of 1988 stated as follows.   “The House bill established a new ‘safe harbor’ defense for civil or criminal liability if issuers and domestic concerns for FCPA violations by their employees or agents.  Under current law, under appropriate circumstances, a firm may be held vicariously liable for violations of the FCPA by its employees or agents.  Under the House bill, a firm could not be held vicariously liable for such violations if it had established procedures ‘reasonably expected to prevent and detect’ any such violation, and the officer and employee with supervisory responsibility for the offending employee’s or agent’s conduct used ‘due diligence’ to prevent the violation.”   The Conference Report notes that the Senate amendment contained no provision and that in conference the house receded to the Senate.

FCPA reform, which for most of the 1980’s was incorporated into omnibus export and trade bills, did not occur in 1987.  FCPA reform was accomplished in 1988 when President Reagan signed H.R. 4848, the Omnibus Trade and Competitiveness Act of 1988.  However the FCPA portion of H.R. 4848 (Title V, Subtitle A, Part I) did not contain a compliance defense.

A Focus On FCPA Reform

The FCPA was enacted in 1977, amended in 1988, and amended again in 1998.

It is widely expected that an FCPA reform bill will be introduced this month.   Who will introduce the reform bill, what specific amendments will it seek, will hearings be held, will the reform bill succeed?  All interesting issues to monitor.

Against the backdrop of expected FCPA reform, several articles have been written in recent weeks.  In this Politico article, Assistant Attorney General Lanny Breuer stated, “I don’t really accept the fact that the FCPA is truly a burden on American business.”  Several former DOJ officials (not to mention many others) disagree.  One of the more vocal proponents of FCPA reform has been former U.S. Attorney General Michael Mukasey who testified at the June House hearing on behalf of the U.S. Chamber of Commerce.  (See here for links to his prepared statement as well an overview of the hearing).  In the Politico article, Mukasey states that “nobody is looking to slacken in cases involving real bribery of public officials.”

Former Deputy Attorney General George Terwilliger, who also testified at the June hearing, is in favor of reforming the FCPA as well.  Terwilliger recently penned a client alert (here) titled “Can the FCPA Be Good for Business?”  Placing FCPA reform in the context of current economic conditions, Terwilliger stated as follows.  “Those responsible for making and enforcing our laws are in a position to adopt laws and policies that can help foster, rather than inhibit, business growth. At the heart of that analysis, asking whether broad-ranging laws like the FCPA are functioning as an impediment to a restored economy is worthwhile.”  Terwilliger adds that “because of its global impact on the expansion of U.S. businesses abroad, it is worth looking specifically at the FCPA as a case study for worthwhile reform initiatives.”

Continuing a theme he discussed during the June hearing, Terwilliger writes as follows.  “One of the surest methods for US businesses to expand globally is through the acquisition of existing foreign companies. In many emerging markets, most acquisition targets are beyond the purview of the FCPA and thus unlikely to employ anti-corruption compliance policies. But these companies have become attractive targets because of their position in growth markets. Those markets are also noted as typically more corrupt than other, more established markets subject to closer scrutiny by governments. Preacquisition due diligence, looking specifically at indicia of potential FCPA compliance issues, can be an asset to decision making. But in most circumstances, the opportunity for the kind of in-depth examination that is likely to reveal potential FCPA compliance issues is quite limited. As a result, any acquisition abroad, and particularly those in emerging markets, can carry a ticking time bomb of FCPA compliance issues.  I have advocated in congressional testimony that Congress amend the statute to provide a period of repose under the FCPA following an acquisition. The idea is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days. At its most elemental level, this procedure would serve the fundamental objectives of the FCPA, which are to root out and eliminate corruption in the global marketplace. That it may also tip the balance toward overseas expansion by reducing the risk of hidden FCPA liability is good for business and good for the US economy.”

Terwilliger’s acquisition period of repose concept has merit, however it would seem that such a concept could easily be embedded within a compliance defense rather than a separate FCPA amendment.

Other recent articles regarding FCPA reform include here from David Hilzenrath at the Washington Post and here from Dan Froomkin at the Huffington Post.  Froomkin’s article is lengthy and contains views on both sides of the issues including those of Harvard Law Professor David Kennedy who correctly notes that the FCPA has “led to a quite remarkable network of measures across the world.”  However, coverage regarding other OECD member countries that have adopted FCPA-like measures lacks any mention (as noted in this prior post) that many of those countries have embedded compliance-like defenses in their domestic laws.  In addition, coverage regarding the U.K. Bribery Act also lacks any mention of the Act’s adequate procedures defense, a defense that undermines the foolish rhetoric that the Act is somehow the “FCPA on steroids.”

Terwilliger concludes his alert by rightly putting part of burden for FCPA reform on U.S. business.  He states as follows.  “US businesses can help themselves by advocating for reform of the FCPA’s terms and its enforcement. Until such reforms gain momentum, these companies will have to be prepared to face greater FCPA risk than is necessary as part of the price of moving businesses forward and bringing sustained growth to US companies and the economy—which is so dependent on them for job creation and expansion.”

However, what business or industry sector is going to step up to the plate and advocate for FCPA reform?  The atmosphere is just too toxic to do so.   Indeed, Froomkin begins his piece by noting that the U.S. Chamber is “taking on something as seemingly unassailable as an anti-bribery law.”

And therein lies the problem.

So I leave you with some guiding words from some of the major players the last time Congress undertook substantial FCPA reform in the 1980’s.

“The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”  “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”   (Senator Alfonse D’Amato – 1981).

“We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”   “Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”   (Senator John Chafee – 1981).

“… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”  (Senator John Heinz – 1981).

And my personal favorite.

“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’  That is too easy a way out.  Retreating from controversy will not cure the law’s deficiencies.  Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years.  After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond.  Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”  (Honorable William Brock – U.S. Trade Representatives – 1983).

It will be an interesting Fall.  Feel free to make your voice heard on FCPA reform issues on this site.  E-mail me at mjkoehle@butler.edu.

 

Oracle – Another World’s Most Ethical FCPA Violator?

It surprises most people to learn that a company with pre-existing FCPA compliance policies and procedures – and a company otherwise making good faith efforts to comply with the FCPA –  can still face legal liability when a non-executive employee or agent nevertheless acts contrary to the company’s pre-existing FCPA compliance and procedures.  

And rightfully so.  Yet because of respondeat superior principles, the company is exposed to FCPA liability.   Such pre-existing policies and procedures are relevant to charging decisions under the Principles of Prosecution as well as to the ultimate fine amount under the Sentencing Guidelines, but not relevant to liability as a matter of law.

It is even possible for a company to earn designation as one of the “World’s Most Ethical Companies”  yet still, during the same general time period, resolve an FCPA enforcement action.  Ethisphere’s “World’s Most Ethical Companies” designation (see here) “recognizes companies that truly go beyond making statements about doing business ‘ethically’ and translate those words into action.”  As stated by Ethisphere, the designation is “awarded to those companies that have leading ethics and compliance programs, particularly as compared to their industry peers.”  A company only earns the designation after a “methodology committee of leading attorneys, professors, government officials and organization leaders” assist Ethisphere in creating the scoring methodology and after Ethisphere conducts an “in-depth analysis” of the company.  Companies that have earned “World’s Most Ethical Company” designation during the same general time period as also resolving FCPA enforcement actions or being under FCPA scrutiny include the following:  General Electric, Statoil, Deere & Company, Hewlett-Packard, Rockwell Automation, AstraZeneca, Novo Nordisk, and Sempra Energy.

Add Oracle Corporation, a recipient of  “World’s Most Ethical Company” designation more than once, to the list.

Yesterday, Joe Palazzolo and Samuel Rubenfeld broke the story in the Wall Street Journal, “U.S. Probes Oracle Dealings,” that “U.S. authorities are investigating whether Oracle Corp., one of the world’s largest software companies by sales, violated federal antibribery laws in its dealings abroad …”.  According to the report, “agents in the FBI’s Washington field office and fraud prosecutors in the Justice Department’s Criminal Division are handling a criminal investigation, which has been underway for at least a year.”  Palazzolo and Rubenfeld also report that the SEC is also investigating for possible civil violations.  According to the report, “the agencies are examining whether Oracle employees or agents acting on the company’s behalf made improper payments in Africa in order to land sales of database and applications software.”

Time will tell whether the Oracle investigation will lead to an FCPA enforcement action and, if so, the nature and extent of the improper conduct.  If the investigation follows a pattern often seen in FCPA enforcement actions, the improper conduct will have been engaged in by non-executive employees or agents who acted contrary to the company’s FCPA policies and procedures and the company’s otherwise good faith efforts to comply with the FCPA.

While I have no unique insight or knowledge of Oracle’s FCPA compliance policies and procedures, one has got to assume it has been doing the right things to earn, on  more than one occasion, Ethisphere’s highest honor.  Oracle’s “Code of Ethics and Business Conduct” (here) contains a separate section on the FCPA in a Q&A format.  Granted words on paper do not establish much, but the Code also refers to Oracle’s “Anti-Corruption Policy” located on the company’s non-public Compliance and Ethics Program Web Site and indeed what a company’s public website contains as to FCPA compliance is usually just the tip of the iceberg.  Furthermore,  among other things, Oracle has an “Anti-Corruption Training Course” (here) for its partners available in ten languages.

If an FCPA enforcement action against Oracle is indeed forthcoming, such an enforcement action, like previous ones involving other “World’s Most Ethical Companies” highlight the need for an FCPA compliance defense.  As I have highlighted on previous occasions, in the mid-1980’s numerous FCPA reform bills included a specific defense under which a company would not be held liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents.  Such a compliance defense passed the U.S. House, but was never made part of the FCPA’s 1988 amendments.  However, it is likely that an FCPA reform bill will soon be introduced and that it will contain a similar compliance defense.  As I highlighted in this previous post, many of the 38 signatory countries to the OECD Anti-Bribery Convention have compliance-like defenses in their domestic “FCPA-like” legislation.

Nevertheless, Assistant Attorney General Lanny Breuer has, in the past, flatly rejected the need for a compliance defense.  Speaking last March at the Dow Jones Global Compliance Symposium, he said,  “we can’t engage in some sort of formalistic solution from a script that says if you check the following six boxes you’re guaranteed this outcome.” 

More recently, during the June House FCPA Hearing, Greg Andres, testifying on behalf of the DOJ, stated that a potential FCPA compliance defense was “novel and risky” and that the “time is not right to consider it.” 

With another “World’s Most Ethical Company” facing FCPA exposure, the time is right to consider amending the FCPA to include a compliance defense.

Either Enforce the FCPA or Don’t Enforce the FCPA

The DOJ and the SEC (the “Enforcement Agencies”) should either enforce the FCPA or not enforce the FCPA.

For instance, Team Inc. violated the FCPA, but in its August 2nd SEC filing (here) the company stated as follows regarding its previously disclosed FCPA issue.  “In a letter to us dated July 12, 2011, the staff of the SEC informed us that it had completed its investigation and did not intend to recommend any enforcement action by the Commission or impose any fines or penalties against the Company. We have not received formal notification from the DOJ, however in July 2011, the staff of the DOJ informed us that it was likely that the staff would not recommend taking any further action or imposing any fines or penalties against the Company.”

How do we know that Team Inc. violated the FCPA?  Because the company said it did.  For instance, in this August 2010 SEC filing the company said as follows in reference to its previously disclosed internal review regarding its branch operation in Trinidad.  “The report of the independent investigator was delivered to the Audit Committee in March 2010 and to the DOJ and SEC in May 2010.  The investigation concluded that improper payments of limited size were made to employees of foreign government owned enterprises in Trinidad, but determined that the improper payments were not made, or authorized by, employees outside the one TMS Trinidad branch. The investigation of our other foreign operations did not result in any findings of significance and management has remediated or is undertaking remedial action on all matters identified in the investigation. Based upon the results of the investigation, we believe that the total of the improper payments to government owned enterprises over the past five years did not exceed $50,000. The total annual revenues from the impacted TMS Trinidad branch represent less than one percent of our annual consolidated revenues for all years presented. ”  (emphasis added).

Accepting the Enforcement Agencies’ position that payments to government-owned enterprises fall under the FCPA, why didn’t the Enforcement Agencies bring an action?  Sure Team Inc. did voluntarily disclose the conduct at issue and the results of its investigation, but that could also be said for nearly all corporate FCPA enforcement actions.  Sure,  Team Inc.’s  “improper payments” appear to have been isolated, were relatively minor in scope, and were not (per the company) “made, or authorized by, employees outside the one TMS Trinidad branch.”  But again, the same could also be said for a significant percentage of all corporate FCPA enforcement actions

Using the Team Inc. standard, did Rockwell Automation deserve an FCPA enforcement action (see here for the prior post).  Did Comverse (see here for the prior post) deserve an FCPA enforcement action? 

If the FCPA contained a compliance defense (along the lines that a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents) the end result in Team Inc. would have likely been the same and rightfully so.

But at least the result would have been grounded in law, not in the ad hoc, opaque, non-reviewable discretionary decisions of the Enforcement Agencies.

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