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The Bribery Racket

Those are the words on the cover of the current issue of Forbes Magazine.

The feature article (here) by Nathan Vardi is “How Federal Crackdown on Bribery Hurts Business And Enriches Insiders.”

Given my soon to be published piece, “The Facade of FCPA Enforcement” and my other comments on FCPA Inc., the FCPA’s revolving door, voluntary disclosure and the role of FCPA counsel, etc. (see here, here, here and here), Vardi’s article resonates with me, and perhaps with you as well.

Below are a few snippets from Vardi’s article:

“[FCPA is” nice work if you can get it–and to the tune of billions of dollars, lawyers, accountants and consultants, many with past ties to the Justice Department, are getting it. In the last few years, as the feds cranked up enforcement of the 33-year-old Foreign Corrupt Practices Act, a thriving and lucrative anti-bribery complex has emerged. Whether it’s having any impact on reducing bribery is another matter. Instead, companies can find themselves getting extorted in foreign lands, only to get extorted again by Washington. It works generally like this: A company that suspects bribery overseas hires a battery of lawyers, accountants and investigators who may then report any findings to Justice in hopes of some undefined leniency. More likely, the company pays out huge fines and then hires more lawyers as government-mandated compliance monitors, a job that can stretch into years of legal billing.”

“This is good business for law firms,” says Joseph Covington, who headed the Justice Department’s FCPA efforts in the 1980s and is now codirector of white-collar defense at Jenner & Block. “This is good business for accounting firms, it’s good business for consulting firms, the media–and Justice Department lawyers who create the marketplace and then get yourself a job.”

“[Mark] Mendelsohn declines to comment on his new job other than to note that it is routine for lawyers who leave the Justice Department to do white-collar defense work for corporations.” (For more on Mendelsohn see here and here)

“What are these prosecutors accomplishing? Maybe they are fighting for truth and justice. Maybe, that is, it makes sense for the U.S. to hold its corporations to a higher standard of integrity than the French or Chinese outfits they compete against when trying to win business abroad. The prosecutors, though, are doing something else at the same time. They are creating a lucrative industry–FCPA defense work–in which they will someday be prime candidates for the cushy assignments. A former prosecutor, to be sure, does not work on the defense of the same case he had as a government lawyer. But there is nothing to stop prosecutors from ginning up cases that will feed the lawyers who used to have their jobs or from looking forward to a payday in the private sector that will be made possible by their busy successors at Justice.”

“Many of the 150 pending cases will probably end with so-called deferred prosecution agreements. These involve the government threatening to bring an indictment against a company–which could effectively put the firm out of business–unless it agrees to adhere to certain practices. This hammer gives the feds immense power–for one thing, they don’t have to prove their legal theories of bribery in court.” (For more on non-prosecution and deferred prosecution agreements and the FCPA see here).

“The scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it’s unclear if they would prevail in court,” says Lucinda Low, who has helped companies deal with the FCPA for years. “You don’t have the checks and balances you would normally have if you had more litigation.”

“The FCPA provides moneymaking opportunities even after a case is resolved. Following settlements the Justice Department often requires companies to hire a compliance monitor, whose job is to review a company’s continuing anti-bribery efforts. It seems that an important qualification for these gigs is having previously worked at the Justice Department–as 7 of the 13 FCPA monitors have done. When it came time for Daimler to pick a government-mandated compliance monitor for three years, the company hired former fbi director Louis Freeh.” (For more see here and here).

Vardi also discusses the recent NATCO matter (see here) – a case that resulted in a $65,000 SEC civil monetary penalty. Vardi states, “Natco reported the issue to the government and paid outside lawyers and accountants $11 million to investigate, causing Natco cash-flow problems.” (For additional voluntary disclosure cases that have seemingly gotten out-of-hand see here).

There’s alot in Vardi’s article.

So, what do you think?

As always, comments (even if anonymous) are welcome.

What Others Are Saying About Mendelsohn’s Departure

Earlier this week (see here), it was reported that Mark Mendelsohn (DOJ Deputy Chief – Fraud Section responsible for overseeing FCPA prosecutions) is headed to the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Earlier today, Paul Weiss released this statement. Among other things, the Paul Weiss release says that Mendelsohn “is internationally acknowledged and respected as the architect and key enforcement official of the DOJ’s Foreign Corrupt Practices Act (FCPA) enforcement program.” The release notes that Mendelsohn “built the DOJ’s modern FCPA program,” “designed and implemented the DOJ’s current FCPA enforcement program,” and “was responsible for overseeing all investigations and prosecutions under the FCPA.” According to the release, Mendelsohn’s “background and experience will be an enormous asset to our clients, which are facing increased scrutiny on FCPA and other cross-border criminal and regulatory issues.”

For other coverage of Mendelsohn’s departure see below.

The FCPA Blog (here) notes, among other things, that “Mark Mendelsohn transformed the FCPA from a legal backwater to a headline practice” and that during his “term, no corporations mounted a courtroom defense against FCPA charges; instead all made deals with the DOJ to settle their cases.” According to the FCPA Blog, “[t]hat gave Mendelsohn extraordinary power — in the FCPA realm, he and the DOJ became prosecutor, judge, and jury.”

Compliance Week (here) notes, among other things, that Mendelsohn “led a revival of FCPA enforcement when the law had lain largely dormant for more than 20 years” and that Mendelsohn “spoke at just about any public event he could find […] to preach the gospel of FCPA compliance.” The Compliance Week post contains unattributed comments calling Mendelsohn “the Moses of FCPA,” and “a veritable Oracle of Delphi … if he spoke at a conference, the high priests of the compliance world would work feverishly to decipher the meaning of his words.”

Main Justice (here) notes that Mendelsohn, “the face of the Justice Department’s aggressive crack down on Foreign Corrupt Practices Act violations” … “now stands to make millions in the private sector, where the business of offering advice to companies and individuals about complying with anti-bribery laws or dealing with investigations is a hot and burgeoning area of the law.”

Mendelsohn To Paul Weiss

The Wall Street Journal is reporting (see here) that Mark Mendelsohn (DOJ Deputy Chief – Fraud Section responsible for overseeing FCPA prosecutions) is headed to the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.

According to a source, Mendelsohn “stands to earn $2.5 million annually.” The WSJ notes that this is a significant sum “particularly for a lawyer arriving at firm without a ready list of clients.”

The WSJ notes that “Mr. Mendelsohn has overseen a hot field in prosecution in recent years” and that “it has been up to the Justice Department – and specifically to Mr. Mendelsohn – to interpret the law.”

The WSJ notes that “corporations are likely to be eager for his inside views on how the Justice Department goes about deciding which cases to investigate and prosecute among the many that it comes across every year.”

According to the WSJ, Mendelsohn was courted by several other firms.

Clarifying Comments

When I launched this blog in July 2009, part of my mission was to “explore the more analytical ‘why’ questions increasingly present in this current era of aggressive FCPA enforcement” and to “foster a forum for critical analysis and discussion of the FCPA (and related topics) among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons (see here for the complete mission statement).

From time to time, I am in contact with journalists who are interested in learning more about the FCPA, FCPA enforcement, and the issues explored in this blog.

I enjoy these exchanges, including the public service component of assisting (mostly non-lawyer) journalists better understand the FCPA and FCPA enforcement issues.

It is also gratifying to have one’s ideas and scholarship covered by various outlets.

However, from time to time, one’s ideas and opinions can be taken a bit out of context and that is, I believe, what occurred in the Corporate Crime Reporter’s (“CCR”) recent piece (see here).

Thus, the purpose of this post is to provide important clarifying comments – some of which appear in the more “complete” version of the interview in the print edition of CCR.

The CCR piece suggests that I am “constantly butting heads with FCPA Inc.” I don’t believe this is accurate. I have friends working at law firms who have an FCPA practice and through this blog, I have come to know many other FCPA practitioners, some of whom have accepted my invitation to guest post in this space. Other FCPA practitioners have told me “thanks for the very helpful blog … [it] goes a long way toward knitting together the FCPA and anti-corruption bar.”

In speaking of “FCPA, Inc.” I am speaking of an issue previously covered by other news outlets, including the Washington Post (see here). Among other things, the Post pieces notes that “FCPA business is booming, a welcome growth area for Washington law offices just as work on mergers and securities offerings has begun to wane.” The Post piece note as well that also “sharing in the bonanza [are] accounting firms, forensic computer specialists and a growing army of compliance consultants.” The Post piece concludes with this “… don’t think law firms aren’t playing off those fears by aggressively marketing their services as investigators, risk mitigators and compliance counselors” and the article notes that “the result is [a] sudden flood of labor-intensive legal work for both partners and associates, particularly in the local offices of big international firms.”

To suggest, as the CCR piece does, that my position is that the DOJ’s enforcement of the FCPA “is all a facade” is not true. The author of the CCR piece has a copy of my draft article titled “The Facade of FCPA Enforcement” which clearly states on page 1 that “This article does not argue, or even suggest, that every FCPA enforcement action is unwarranted or that no company or individual has never violated the FCPA. Rather, this article demonstrates that a significant majority of recent FCPA enforcement actions are a façade and argues that addressing the façade and subjecting FCPA enforcement actions to judicial scrutiny is in the public interest and of vital importance to those subject to the FCPA as well as the broader marketplace.” When presenting my paper at Georgetown Law School on March 22nd, I also made these clarifying remarks.

The CCR article discusses my contrarian position regarding Mark Mendelsohn’s defense of the Siemens matter and my follow up “point-counterpoint” exchange with Billy Jacobson that I included on my blog with his written permission (see here and here). What was a respectful exchange and critique has been recast in a way that may leave the appearance that I was questioning the integrity of these individuals. Do I disagree with the legal and policy positions of these current and former DOJ officials – often times yes. Am I accusing them of any actual improper conduct – most assuredly no.

Last week the Wall Street Journal ran a piece titled “SEC Lawyer One Day, Opponent the Next” (see here). Among other things, this article noted that “Iowa Sen. Charles Grassley, a Republican who has criticized the SEC’s revolving door, says the commission could include more-stringent limitations than the law requires in employees’ contacts, but more disclosure would help, too.”

In talking about the undeniable fact that most DOJ FCPA enforcement officials have big law firm FCPA experience and that most leading FCPA practitioners have DOJ or SEC FCPA enforcement experience, I am merely extending the WSJ’s SEC piece to the DOJ in the FCPA context.

I continue to believe, like many others, that such dynamics can raise red flags and have the potential for conflicts of interest. In a similar vein, my December 2009 post titled “Voluntary Disclosures and Role of FCPA Counsel” talks about potential conflicts of interest present in representing corporate clients in an FCPA enforcement investigation or action. (That post bolds the word potential at least 15 times).

Finally, I was clear in my more complete comments to CCR that I was raising issues of potential conflicts of interest and potential red flags. Left out of the CCR web article are my significant clarifying comments that I am not accusing anyone of anything, but rather raising, as others have, significant public policy concerns that, as evidenced by the WSJ article, are being raised and debated at the highest levels of government as well.

Polish Up The Resume

Do you know a thing or two about the FCPA?

Does foreign bribery enforcement policy interest you?

Do you like to design and conduct FCPA training sessions?

Do you like to publicly speak on FCPA issues?

If you answered yes to these questions, the DOJ has a job for you!

Title – Deputy Chief, Fraud Section – FCPA.

The current DOJ Deputy Chief, Fraud Section – FCPA is Mark Mendelsohn. His pending departure has been discussed and confirmed for some time now.

Last Friday, DOJ posted this job opening.

Looking for an extra perk? You will be covered by this, and other, blogs!

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