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A Renewed Declination Proposal

According to an October 28th article by Mary Jacoby in Main Justice, “Duross on Declinations,”  DOJ FCPA Unit Chief Charles Duross was recently asked whether the DOJ would publish information on its FCPA declination decisions.  According to the article, Duross said he was not “particularly comfortable doing it” and that disclosing declinations was a “very foreign concept” to him.  Duross is quoted as saying that DOJ doesn’t “disclose declinations of drug cases or bank robberies” and he “likes to think [that DOJ treats FCPA cases] like any other criminal case.”

However, FCPA cases are not like other criminal cases.  The majority of corporate FCPA enforcement actions are voluntarily disclosed, drug cases and bank robberies are not ordinarily voluntarily disclosed, and therein lies the difference.

My proposal (see here for the prior post from August 2010 when I first made this proposal in the aftermath of Digi International’s disappearance act)  is triggered when a company voluntarily discloses an FCPA internal investigation to the DOJ  and when the DOJ declines enforcement.  In these situations, it is in the public interest to require the DOJ  to publicly state, in a thorough and transparent manner, the facts the company disclosed to the DOJ and why the DOJ declined enforcement on those facts.

Here is why I think the proposal makes sense and is in the public interest.

For starters, the DOJ is already enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both the DOJ are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at the DOJ when it comes to the FCPA.

Further, the DOJ has the resources to accomplish this task as it has touted its increased FCPA resources and the new personnel hired to focus on the FCPA. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable.

Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release  a process the DOJ frequently urges those subject to the FCPA to utilize.

Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has 30 days to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA.

The DOJ’s opinions are publicly released  and the FCPA bar and the rest of FCPA Inc. study these opinions in great detail in advising clients largely because of the general lack of substantive FCPA case law.

If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct

Such agency opinions would seem to be more valuable to those subject to the FCPA than the already useful FCPA Opinion Procedure Releases. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.

Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.

Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advises clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA.  Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel.  If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.

A final reason in support of the proposal is that it would give companies  a benefit by contributing to the mix of public information about the FCPA.  In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent millions investigating and disclosing conduct that the DOJ  did not conclude violated the FCPA.

However, if the DOJ was required to publicly justify its declination decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies declination decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ’s enforcement conclusions.

Transparency, accountability, useful guidance, a return on investment.

All would be accomplished by requiring the DOJ  to publicly justify a declination decision in the limited instances where no enforcement action follows a voluntary disclosure.

DOJ Declines To Get Specific In Declination Responses

During the June 14th House FCPA hearing (see here for the prior post) Representative Sandy Adams (R-FL) asked Greg Andres (DOJ) about the DOJ’s FCPA declination decisions and requested that the DOJ provide more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. [A declination decision in the FCPA context is generally viewed to mean that the DOJ learns of conduct that likely violates the FCPA, typically through a corporate voluntary disclosure, but in the exercise of its prosecutorial discretion the DOJ declines to prosecute or bring an enforcement action.]

Soon after the hearing, Representative Adams and Representative James Sensenbrenner (R-WI) sent Andres a letter and requested as follows.  “Please provide to us information on cases that been brought to the attention of DOJ, but your agency decided, for one reason or another, not to investigate or pursue prosecution within in the last year along with the rationale for those decisions.”

In this August 3rd letter, Assistant Attorney General Ronald Welch begins with references to the DOJ’s Principles of Federal Prosecution of Business Organizations.  Welch then responds as follows.  “Pursuant to these guidelines, the Department has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters, and taking into account the available evidence.  For example, during the previous two years, the Department of Justice declined matters in which some or all of the following circumstances existed:  a corporation voluntarily and fully self-disclosed potential misconduct; corporate principles voluntarily engaged in interviews with the Department and provided truthful and complete information about their conduct; a parent corporation voluntarily and fully self-disclosed information to the Department regarding alleged conduct by subsidiaries;a parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries, and engaged in significant remediation efforts in acquiring the relevant subsidiaries; a company provided information to the Department about the parent’s extensive compliance policies, procedures, and internal controls, which the parent had implemented at the relevant subsidiaries; a company agreed to a civil resolution with the Securities and Exchange Commission, while also demonstrating that a declination was appropriate for additional reasons; a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”

Welch concluded the letter by stating that the DOJ “cannot comment more specifically about FCPA matters where prosecution was declined” to “protect the privacy rights and other interests of the uncharged and other potentially interested parties.”  Given that many declination decisions are assumed to be made after corporate voluntary disclosures, it is difficult to understand what privacy rights would be implicated by more specific answers.

I highlight above four of the circumstances DOJ identified because they undermine the DOJ’s staunch opposition to a potential FCPA compliance defense – a defense  Andres (testifying on behalf of the DOJ at the June hearing) called “novel” and “risky.”

How is an FCPA compliance defense “novel” and “risky” when it would include factors the DOJ already considers in declining to bring FCPA enforcement actions?   Would it not serve the public interest for such factors to be removed from the shadowy world of opaque DOJ decision making and codified in an open and transparent manner in an FCPA compliance defense?

Many have called for more transparency in DOJ declination decisions.  In this guest post, Homer Moyer, a dean of the FCPA bar, called for “internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.”  In this previous post, I proposed that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.   In a 2010 Q&A with Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.”  Even William Stuckwisch (current DOJ-FCPA) wondered aloud in this video (at the six minute mark) whether DOJ declination decisions should be made public.

Given the opportunity to demonstrate to Congress, the business community, the FCPA bar, and others that it runs a consistent, principles-based, transparent FCPA enforcement program, the DOJ in its responses once again “circled the wagons.”

For additional analysis of DOJ declination decisions, see this prior post.

Declinations

James Tillen (here) and Marc Bohn (here) of Miller Chevalier recently published (here) a dandy article about declinations. Titled “Declinations During the FCPA Boom,” the article chronicles the “less publicized trend that has paralleled” the increase in FCPA enforcement actions and that is “decisions by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to conclude formal and informal investigations into potential violations of the FCPA without bringing enforcement actions.” Although the authors note that “it is difficult to know how frequently they occur” Tillen and Bohn “partially corroborated” – using SEC filings and other public records – DOJ’s claims that there were a record number of declinations in 2010.

The authors note as follows. “Even where we have been able to confirm a declination, there are usually significant unanswered questions as companies, in most instances, do not state the basis for the declinations they have received and often provide only limited information about the conduct that was investigated. Thus, it is often unclear why a government investigation has closed without enforcement. It could be that no violations were found to have occurred, that no basis for jurisdiction existed, that enforcement authorities elected to do nothing in deference to a foreign investigation, or that the declination itself represents a benefit in recognition of a company’s voluntary self disclosure, remediation and/or cooperation.”

Tillen and Bohn also found as follows.  “Although divining the specific rationale of the DOJ and SEC in individual cases like these can be challenging, the vast majority of known declinations are nevertheless in response to conduct that companies have voluntarily self disclosed.  Nineteen of the twenty five declinations we identified (or 76 percent) involved self disclosures.  It is clear that, as general matter based on known declinations, a company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not.”

Tillen and Bohn’s article is an excellent contribution to this emerging issue of importance to the FCPA debate.  Yet the biggest unknown variable in my estimation – and one that is directly relevant to their conclusion that a “company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not” – is the triggering mechanism causing the company to disclose in the first place – an issue that really boils down to risk tolerance.

For instance, if Company A discloses conduct that counsel advises is only 30% likely to trigger an enforcement action (because of the lack of solid evidence, applicability of the FCPA’s exception or affirmative defenses, etc.); Company B discloses conduct that counsel advises is 60% likely to trigger an enforcement action; and Company C discloses conduct that counsel advises is 90% likely to trigger an enforcement action – in all of these situations the company voluntarily disclosed given their risk tolerance, yet the declination vs. enforcement action decision will likely be based on other factors.  In other words, not all voluntarily discloses are created equal making an analysis difficult.

Readers may recall that DOJ declinations were a topic covered during the June FCPA hearing in the House.  See here for the prior post.  During the hearing, Sandra Adams (R-FL) asked DOJ representative Greg Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.”  Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion.  Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.

I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.

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.

House Hearing – Overview and Observations

Representative James Sensenbrenner (R-WI) today chaired a hearing of the House Judiciary Committee, Subcommittee on Crime, Terrorism, and Homeland Security titled “Foreign Corrupt Practices Act.” (See here for the video).

This post provides a chronological overview of the hearing as well as observations.

Compared to the Senate’s FCPA hearing in November 2010 (see here for the prior post) today’s hearing (approximately two hours) was much more contentious. For instance, during the hearing Chairman Sensenbrenner noted that FCPA enforcement has become a “considerable windfall for the federal government” and he concluded the hearing by telling Greg Andres (DOJ) that it “would behoove the DOJ to realize that the statute needs updating” and that those on the Committee will be drafting a reform bill.

The hearing focused on a wide range of issues and in many ways was similar to FCPA reform hearings in the 1980’s in that a common theme explored during the hearing was whether the current state of FCPA enforcement harms U.S. business.

There is clearly a push to introduce FCPA reform legislation and members of both parties appeared receptive (to at least certain) FCPA reform proposals most notably clarifying the FCPA’s definition of “foreign official” / “instrumentality” and exploring an FCPA compliance defense. In fact, John Conyers (D-MI), who appeared most supportive of the current state of FCPA enforcement, stated he would support such reform proposals. The DOJ supports neither of these proposals.

Other issues explored in the hearing included prosecutorial discretion and DOJ declination decisions – including a request that the DOJ provide further information as to its declination decisions.

What happens next is a good question.

It seems like an FCPA reform bill will soon be introduced and hearings as to the specifics of such a bill may occur. Whether such a bill can get out of committee for full consideration by the House, and whether similar bills will be introduced in the Senate, is the open question. Politically, any FCPA reform efforts are likely, because of the topic at issue, to attract substantial opposition – including opposition that is less than informed as to the actual issues.

It bears noting that the last time Congress enacted significant FCPA amendments, the process took eight years and the statute was amended, not through a stand-alone bill, but through Title V, Subtitle A, Part I of the Omnibus Trade and Competiveness Act of 1988.

Opening Statement of Chairman Sensenbrenner

Sensenbrenner began by noting that when Congress passed the FCPA in 1977 the “world was a different place.” In response to slush funds and secret payments to foreign governments that adversely affected U.S. foreign policy, Congress passed the FCPA and the law “sent a strong signal.” (For an overview of the facts and circumstances motivating Congress to pass the FCPA – see here).

Sensenebrenner next observed that thirty-four years later, the world has turned upside down, China is a power, the nature of overseas business has changed, and many countries have some state-control over business.

Sensenbrenner noted that there has been a dramatic increase in FCPA prosecution and that last year approximately 1/2 of all DOJ criminal penalties were in FCPA cases (see here for the DOJ release) – a dynamic he called a “considerable windfall for the federal government.”

In touching upon themes similar to when Congress held substantive FCPA hearings in the mid-1980’s, Sensenbrenner placed the increase in FCPA enforcement in the context of the current economic downturn. Indeed a theme throughout the hearing was that the current state of FCPA enforcement may be harming U.S. business interests.

Sensenbrenner stated that “FCPA prosecutions should be effective and fair,” but also “predictable” so that the “rules of the road are clear” so that “business can start moving again.”

In closing his opening statement, Sensenbrenner stated that the Committee was well-suited to examine the impact of the FCPA and to ask hard questions – such as whether the FCPA was succeeding in its mission or hurting job creation.

Opening Statement of Ranking Member Scott

Robert Scott (D-VA) next made an opening statement. Scott summarized the reform proposals including providing greater clarity to the “foreign official” definition. As a potential compliance affirmative defense, Scott observed that companies are spending substantial sums – millions of dollars in some cases – on FCPA compliance – a result he indicated may often result in “overcompliance” because companies would rather be “safe than sorry.” Scott stated that “punishing those companies and individuals who are operating in good faith runs counter to the basic tenets of fairness and justice.” He also indicated that successor liability “runs counter” to a system of justice that should only punish the guilty party.

In closing, Scott said that effective enforcement of the FCPA is “crucial” and he applauded aggressive enforcement of the law. At the same time, Scott noted the necessity of periodically reviewing laws to make sure “they remain fair and just.”

Opening Statement of John Conyers

John Conyers (D-MI) also made an opening statement. After a few sentences about unemployment figures and the Obama administration, Conyers asked the following question: will somebody explain to me how 140 cases in 10 years is “overly aggressive prosecution.”

Conyers did indicate in his opening statement that he does support certain FCPA reform proposals. As to clarification of “foreign official,” Conyers said he can “support this one” because it can create a problem when those subject to the FCPA do not have a clear understanding of who a “foreign official” is. Conyers also said that he can support the addition of a compliance defenses so that companies can fight imposition of criminal liability if individual employees and agents circumvent compliance measures. Conyers did not support other FCPA reform proposals – such as limiting successor liability, limiting parent company liability for acts of foreign subsidiaries, and adding a wilful mens rea requirement for corporations.

Statement by Greg Andres

Greg Andres (Deputy Assistant Attorney General) next delivered an opening statement. His prepared statement can be found here.

Among other things, Andres noted that DOJ’s FCPA prosecutions involve “systemic long-standing bribery schemes” not the payment of single bribe payments of nominal sums.

Andres specifically cited the Daimler AG and Siemens FCPA prosecutions to support this point. However, the irony is that neither of these FCPA enforcement actions involved FCPA anti-bribery charges against the parent company or any related individual prosecutions.

As to a potential FCPA compliance defense, Andres stated that the DOJ already considers a company’s pre-existing compliance policies and procedures pursuant to the Federal Principles of Prosecution of Business Organizations (see here).

As to providing guidance, Andres noted that the DOJ’s goal “is not simply to prosecute FCPA cases” and that senior DOJ officials often speak publicly on the FCPA and highlight relevant considerations and practices companies should adopt. Andres also discussed the DOJ’s FCPA Opinion Procedure program (see here for more).

In closing, Andres stated that DOJ is proud of its enforcement record and that it looks forward to working with Congress.

Statement by Michael Mukasey

Former Attorney General and current Debevoise & Plimpton partner Michael Mukasey next delivered an opening statement on behalf of the U.S. Chamber of Commerce. See here for his prepared statement.

Mukasey began by noting that no one favors bribery and that while the FCPA indeed does have merit, “more than 30 years of experience” with the law demonstrates that it can be improved.

His testimony focused on two of the Chamber’s FCPA reform proposals: clarifying the definition of “foreign official” and “instrumentality” and amending the FCPA to include a compliance defense.

As to the later, Mukasey observed that statutory guidance can be found in Title VII of the Civil Rights Act which provides for something akin to a compliance defense. Mukasey stated that “dozens, if not hundreds of cases are resolved under this compliance defense” and that the defense reduces discrimination by encouraging employers to have robust compliance systems.

As to “foreign official,” Mukasey referenced the recent judicial opinions on this issue (see here and here for the prior posts), yet noted that the judges did very little to clarify the limits of the “foreign official” issue other than say that whether an employee of an alleged state-owned or state-controlled enterprise could constitute a “foreign official” varied depending on the circumstances. Mukasey stated that leaving this issue in the hands of a jury in a criminal trial makes it “impossible” for companies to determine in advance who is a “foreign official” thereby increasing uncertainty and barriers to U.S. business. According to Mukasey, “majority ownership is the most plausible threshold” for whether a state-owned or state-controlled enterprise constitutes a foreign government “instrumentality.”

Statement by George Terwilliger

George Terwilliger (White & Case) next delivered an opening statement. See here for his prepared statement.

Terwilliger opened by stating that he favors “fair enforcement of sensible corruption statutes” and that “leveling the playing field” is essential. He noted that the DOJ and SEC are “realizing their enforcement goal of driving companies into far greater compliance,” but also noted the less desirable effects of stepped-up enforcement. He spoke of the “hidden effect” of foregone business opportunities because of FCPA enforcement concerns and noted that the current state of enforcement may hurt job creation.

According to Terwilliger, the “hidden costs” of FCPA enforcement are the result of uncertainty and that companies sometimes forego deals, take a pass on certain projects and withdraw from other projects – not because such companies are necessarily risk averse – but because of the risk-reward ratio in this current FCPA enforcement environment.

Terwilliger proposed a further FCPA reform proposal related to successor liability and that is a statutory safe harbor provision during which an acquiring company could be shielded from FCPA liability for a defined time period post-closing. During this post-closing period, the acquiring company would undertake a thorough review of the target’s business operations and have the opportunity to self-disclose any FCPA issues to the enforcement authorities.

Statement by Shana-Tara Regon

Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers) next testified. See here for her prepared statement.

She observed that given the general lack of judicial scrutiny over FCPA enforcement, the FCPA says whatever essentially the DOJ says it means and that the FCPA has, in many instances, become a strict liability statute “in ways that those who created the FCPA could never have envisoned.”

Regon stated that NACDL does not advocate bribery and similarly stated that advocating for reform is not akin to advocating for bribery. Her testimony was focused on two reform proposals – clarifying the definition of “foreign official” and strengthening the mens rea requirement for corporate offenses. She stated that the FCPA is “emblematic of the general problem of overcriminalization” and that FCPA enforcement has several “unintended consequences” including over-compliance.

During the hearing, Global Financial Integrity (see here for yesterday’s post) tweeted as follos: ” This group of witnesses is such a sham. All three non-DOJ witnesses spewing disingenuous pro-#bribery #AmChamb talking points #FCPAHearing.” (See here).

Chairman Sensenbrenner reserved his questions for the end and next called on various Representatives present.

Q&A Session

Tom Marino (R-PA) asked Andres (DOJ) about the DOJ’s top enforcement obstacle.

Andres stated that because FCPA violations focus on conduct abroad, the DOJ often needs to rely on MLAT requests which can take longer. He noted that the DOJ is in favor of extending the FCPA’s statute of limitations given that it generally takes a long time to investigate FCPA cases. Andres further stated that while there is much discussion as to the increase in FCPA enforcement, this discussion often “fails to recognize the size and magnitude of the problem.”

Robert Scott (D-VA) next asked Mukasey whether the compliance defense proposed was a total defense or an affirmative defense. Mukasey stated that the proposal was for an affirmative defense and that where there is a proved violation of the FCPA, the question should then become whether the company had a compliance mechanism in place reasonable designed to detect and prevent the conduct. Mukasey noted that this issue may be an “uphill climb” for a company, but that the FCPA ought to at least allow a company to pursue such a defense.

Scott next asked Mukasey about the mens rea reform proposal for corporate liability. Mukasey seemed to be advocating a corporate liability standard similar to the (soon to be old) U.K. standard and the current Canada law standard when he stated that a company should only be held liable if someone in a “policy making position” was involved in or condoned the improper activity.

Scott next asked Andres (DOJ) the general question of whether any de minimis cases have ever been brought by the DOJ. Andres stated “no,” the DOJ has never prosecuted “cup of coffee, lunch, taxi-ride type of cases” and he further stated that because of the FCPA’s corrupt intent element and the affirmative defense for reasonable and bona fide business expenditures, it is an open question as to whether such facts even violate the statute.

Even so, Andres stated that the DOJ is opposed to creating a de minimis exception to the FCPA because small, recurring payments can amount to significant bribery. He stated that the amount of the bribe is not the relevant consideration, rather the intent of the bribe is and that all bribery is inappropriate. Andres said that all the talk of taxi-ride payments and meals being in violation of the FCPA “is not reflected in our enforcement actions.”

Taxi-cabs were a recurring issue throughout the hearing. Mukasey stated, in response to a question, that the taxi-cab example is real and that when “nervous counsel” found out that a company may have paid a “foreign official’s” taxi-cab fare, the company disclosed the conduct to the DOJ and the DOJ requested that the company investigate its entire relationship with the “foreign official.” Mukasey stated that this investigation cost the company approximately $200,000, no violation was found, and that the company could have used this money for something more beneficial than conducting in investigation as to these facts.

Louie Gohmert (R-TX) next stated that those subject to the FCPA “ought to have a clear enough line” so that people don’t have to think “is it or isn’t it a bribe” to make this payment. Gohmert said that Congress can define bribery so that companies “can have a clear line” so that a company does not have to spend $200,000 to figure out whehther paying for a cab is an FCPA violation. Gohmert then made an interesting observing that the FCPA allows a “young prosecutor” or an “FBI agent seeking to make a name for himself” the opportunity to pursue all sorts of enforcement actions and that enforcement then ends up being more aggressive than it should be.

Gohmert next asked Andres (DOJ) as follows: why should a company be prosecuted if a company has a compliance program set up according to the standards set forth in Chapter 8 of the U.S. Sentencing Guidelines (see here). Gohmert stated that if a company has done everything it can do, it seems like a strict liability standard if the company is prosecuted because of the act of an employee acting contrary to the company’s policy. Andres stated that the DOJ “does not prosecute companies based on the acts of a single, rogue employee.”

Rather, Andres stated that the DOJ looks at how pervasive was the conduct or whether the conduct involved a high-ranking employee. Andres specifically stated that the DOJ opposes consideration of an FCPA compliance defense. He stated that DOJ already seriously considers compliance programs in its charging decisions, along with other factors such as cooperation and voluntary disclosure.

Andres called a potential compliance defense “novel” and one that is not “well-defined.” He said that such a defense could lead to “paper compliance.” He also referenced the U.K. Bribery Act (which does contain such a compliance defense) yet stated that this defense is not yet in effect and thus there is no precedent to analyze to see whether such a defense is effective.

Given that the DOJ frequently takes FCPA enforcement position that are “novel,” are not “well-defined,” and are not supported by precedent, Andres response on this issue was less than convincing.

In closing, Andres stated that an FCPA compliance defense could “create a loophole” and allow for some bribery to occur. He called such a potential defense “novel and risky” and said that the “time is not right to consider it.”

The floor next returned to John Conyers (D-MI). He stated that ignorance of the law is no excuse and wondered why in the case of bribery does there need to be a de minimis rule. He stated that “corporations have more lawyers than anybody else” and “why do they need to know” how low the bribery threshold should be. He said that “they don’t deserve to know that.”

Conyers also conducted the most contentious Q&A exchange of the hearing with Regon. Conyers asked – “give me some examples of overcriminalization of the FCPA.” He repeatedly interrupted Regon and asked “just give me some examples” “give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization.” Conyers stated, “only 140 cases have been brought in 10 years -that averages 14 cases a year – is that overcriminalization to you?” Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occured.

Ted Poe (R-TX) next launched into a criticism of China. He said that “China, through its government, follows a systematic philosophy of corruption” and that China will “do anything in the world to get their way” including stealing from the U.S. and paying bribes. He suggested that “any means necessary” is the Chinese way to get business. “We on the other hand,” Poe stated, “believe in the rule of law.” Poe stated that the “Chinese are effective in their philosophy” and he observed that he just returned from Iraq where he learned that Chinese companies are going to rebuild Iraqi’s oil system and that he suspected money changed hands in order to get this business.

Poe, a former prosecutor, next said that it “disturbs” him when we give DOJ prosecutors too much discretion. Poe said that he was not advocating loosening the standards, but he did prefer “absolute certainty” about what is a violation of the FCPA as “opposed to too much discretion” by the DOJ on what something means and whether it is a bribe.

Judy Chu (D-CA) next asked Andres a series of questions allowing him to further articulate how the DOJ takes into consideration a company’s compliance program and how compliance expectations are stated in public documents such as Chapter 8 of the Sentencing Guidlines and the OECD Guidelines. (See here). Andres further stated that there are situations where the DOJ does not pursue an enforcement action because of a variety of factors, including a company’s pre-existing compliance program, even if these instances are not made public because the DOJ does not issue a press release. Asked by Chu for reasons why FCPA enforcement has expanded, Andres stated that the “problem is as big as it has ever been” and that “at least one reason” for the increase in enforcement is the result of SOX whereby companies have an obligation to test its internal controls – tests that often uncover FCPA issues that are then often disclosed to the DOJ.

Hank Johnson (D-GA) next asked Regon about prosecutorial discretion and whether it is fair to say that the “looser the law the more prosecutorial discretion and the narrower the law the less prosecutorial discretion.” Regon stated that if the DOJ means what it says (i.e. that it targets only explicit instances of bribery and that it does not prosecute based on the actions of rogue employees), then the DOJ should not mind less prosecutorial discretion. Johnson next launched into an unusual statement about illegal crime (blue-collar crime) and legal crime (white collar crime in the sense that prosecutions of white collar crime tend to be less vigorous). Johnson said he was bothered by the fact there has not been much prosecutorial activity as to white collar crime, he said this “seems kind of fishy” and that some “folks are getting off the hook for legal crime.”

Sandra Adams (R-FL) next asked Andres whether the DOJ has a definition of “foreign official” or “instrumentality.” Andres said, in addition to the statute, there are now several decisions by district courts that further “amplified” the definition of foreign official. Andres stated that DOJ does not support a change to the definition of “foreign official” or “instrumentality.”

Adams next Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.”

I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure decisions. Given that most declination decisions would seem to follow disclosure by a company of FCPA scrutiny (in its SEC filings), Andres’s rationale for not making declination decisions public is less than convincing.

Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion.

Adams next asked Andres whether the DOJ is defining what the law means. Andres said that “everyone of these cases is negotiated with experienced defense counsel” and that counsel has “ample opportunity” to address any issues concerning the DOJ’s enforcement.

Mukasey then answered that while resolved FCPA enforcement actions make for interesting case studies, such resolutions are not binding in other cases.

Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.

Shelia Jackson Lee (D-TX) next asked Andres how many attorneys and staff are assigned to FCPA enforcement. He stated that the DOJ’s FCPA unit, includes a core unit in D.C. of 15 to 20 enforcement attorneys and that assistance in trials is given by local prosecutors. Jackson Lee asked “is this an excessive amount” and Andres said “certaintly not in light of the size and magnitude of the bribery problem … it is significant.” Jackson Lee next received a tutorial from Andres as to the FCPA’s jurisdiction over foreign companies.

Ben Quayle (R-AZ) next asked a question very much based on current events and that is the scrutiny of the Macau gaming industry. [Las Vegas Sands recently disclosed that it received subpoenas concerning its conduct in Macau]. Andres stated that it was not appropriate for him to comment on any ongoing investigations.

Quayle next asked Andres whethr General Motors would be considered a U.S. government “instrumentality.” Andres said that in addressing this issue, the DOJ considers government ownership or investment as only one factor. Other factors include characterization of the entity under foreign law, the purpose of the entity, and that under these factors General Motors would likely not qualify as a U.S. government “instrumentality.” Quayle next asked whether it is relevant if the government has communications with the company’s board and the government has the ability to control or influence the entity (a presumed reference to GM’s relationship with the U.S. government). Andres again stated that control and ownership is but one factor and he specifically referenced the recent Lindsey prosecution where the Mexican entity at issue was specifically addressed in the country’s constitution.

Quayle next asked Terwilliger whether he has any knowledge of companies conceding markets to foreign competitors because of the FCPA. Terwilliger stated that “conceding markets” may be a bit strong, but that American companies have become much more circumspect in dealing with foreign business opportunities because of FCPA enforcement. In particular, Terwilliger said that companies may bypass “smaller opportunities” (that might become bigger opportunities) because of the FCPA in that the cost-benefit analysis and FCPA compliance are too much to worry about.

Chairman Sensenbrenner was the last person to ask questions and he began his time by stating as follows. There is “no question in my mind that we have to bring this law up to date.” “No one is in favor of bribery, but there has to be more certainty.” Sensenbrenner said he was “a bit befuddled” by Conyer’s statement that corporations don’t deserve to know what bribery is and he stated that “everyone has a right to know what is illegal.”

Sensenbrenner’s only question (a long one at that as he basically summarized the Chamber’s FCPA reform proposals) was directed to Regon and Andres. Regon focused mostly on the corporate mens rea issue and stated that her organization is supportive of “anything Congress does” to clarify the FCPA. Tara Regon failed to see the rationale for not providing greater clarity as to the FCPA and noted that “we have many bribery statutes on the books, and some of those are written tightly and work well.”

Sensenbrenner then asked Andres – which of Regon’s suggestions do you agree with and Andres said “I don’t agree with any of them.” For instance, Andres said with the definition of “foreign official” that “one thing you need to take into consideration is that the statute covers the whole world” and that what might constitute a “foreign official” in China may be different than what constitutes a “foreign official” in Brazil or France.

Sensenbrenner grasped onto this issue and noted that this part of the uncertainty that people are complaining about.

Andres followed with two points. First, that if there is concern, companies subject to the FCPA can ask for a DOJ opinion. This only seemed to enrange Sensenbrenner further as he stated “come on, China is a communist country – they are not going to tell you what the government involvement is” in a company “they don’t have the type of disclosure we have.”

Andres second point was that the FCPA makes illegal paying a bribe and that if companies aren’t paying bribes they have nothing to fear.

Sensenbrenner then seemed to pose a question at the end of the hearing as to whether the DOJ would support an FCPA amendment that simply makee bribery (all bribery) illegal (perhaps akin to the UK Bribery Act). Sensenbrenner did not pause for Andres to respond and he (Sensenbrenner) concluded the hearing by saying “it would behoove the DOJ to realize that the statute needs updating.” Andres said that the DOJ is “more than willing to work with Congress” to which Sensenbrenner said “see you later we will be drafting a bill.”

Sensenbrenner then commented that if Andres were the general counsel of a corporation advising the CEO and everyone else, he would likely be advising the company in the “most narrow way” and “exercising the greatest amount of caution.” “As a result,” Sensenbrenner stated, legitimate business activity is not pursued and U.S. companies are put in a significant disadvantage compared to foreign companies.

Sensenbrenner then told Andres – “get the message sir and tell that to the AG.”

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