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11th Circuit “Foreign Official” Decision – Perspective Including As To The Court’s Flawed Reasoning

Previous posts here, herehere, here and here have highlighted various aspects of the 11th Circuit’s recent “foreign official” decision in U.S. v. Esquenazi (the first time in FCPA history that an appellate court has directly addressed the enforcement theory that employees of alleged state-owned or state-controlled enterprises can be “foreign officials” under the FCPA).

This post contains additional perspectives and highlights the 11th Circuit’s flawed reasoning.  For purposes of this post, knowledge of the court’s opinion and the facts and circumstances underlying the case are presumed.  As previously disclosed, I served as a pro-bono expert to the defendants’ pro bono counsel in the 11th Circuit appeal and was previously engaged as an expert by defense counsel in prior “foreign official” challenges.

For starters, it is important to understand what was not at issue in the 11th Circuit appeal and what was at issue.

What was not at issue is whether the FCPA should be a comprehensive anti-bribery statute such as the U.K. Bribery Act.  Congress could have passed a comprehensive anti-bribery statute in 1977 – as well as when the FCPA was amended in 1988 and 1998 – and could still pass a comprehensive anti-bribery statute today if it chooses.  However, it is undisputed that Congress has not done so and the FCPA’s anti-bribery provisions are qualified in many ways, including as pertinent to the 11th Circuit appeal, through the category of recipients of the alleged improper payments.

What was not at issue was whether the 11th Circuit’s decision would have any practical effect on corporate compliance programs. The bulk of commentary regarding the 11th Circuit decision has been written by law firms writing for corporate audiences and I agree that the 11th Circuit decision has little practical impact on corporate compliance programs because risk-adverse business organizations were already structuring compliance policies and procedures to the DOJ and SEC’s enforcement theory that employees of SOEs were “foreign officials.”  Such corporate positions were not evidence of the validity of the enforcement agency position for the same reason that the trending corporate position of eliminating facilitation payments is not evidence that the FCPA’s express facilitation payment exception is invalid.

Rather what was at issue in the 11th Circuit appeal was the basic and fundamental principle of ensuring – when the government marshals its full resources against individuals and deprives the individuals of their liberty – that each element of the charge alleged is being applied consistent with Congressional intent in enacting the statute.  After all, the DOJ and SEC should only enforce a law that Congress passed.

Notwithstanding what was at issue in the 11th Circuit appeal, some have suggested:

“For those who challenged the government’s legal interpretation of the term “instrumentality,” they need to pick and choose better places to challenge the FCPA and the government’s enforcement  program.”

Given what was at issue in the 11th Circuit appeal, as well as the other “foreign official” challenges, you will not find me apologizing one iota for my involvement in these cases or my “foreign official” declaration that partly served as a basis for the challenges.

Moreover, notwithstanding the 11th Circuit decision, let’s not forget the ultimate outcome of the other enforcement actions in which “foreign official” was challenged.

  • A federal court judge granted, at the close of the DOJ’s case, John O’Shea’s motion for acquittal and found him not guilty of all substantive FCPA charges.  In this post, O’Shea’s lawyers opine that the “foreign official” issue played a role in the ultimate outcome of the case.
  • In the Carson “foreign official” challenge, “foreign official” issues moved to the jury instructions and the judge issued a pro-defendant jury instruction concerning “knowledge of status of foreign official” (see here for the prior post).  Soon thereafter, the DOJ offered – what can only be described as lenient plea deals – that the risk adverse defendants accepted and the DOJ never had to prove its case.
  • In the Lindsey Manufacturing enforcement action, the judge ultimately dismissed (see here) the case after finding numerous instances of prosecutorial misconduct.  Although the prosecutorial misconduct was seemingly unconnected to “foreign official” issues, post-trial motions concerning, among other things, “foreign official” issues were pending at the time of dismissal.

One final big-picture point before highlighting the 11th Circuit’s flawed reasoning.

In the minds of some, the “foreign official” issue has now been “resolved” and “settled.”  To this, I respond:  can anyone name another instance in which a key element of an important law is deemed “resolved” or “settled” because of one appellate court decision?

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The 11th Circuit recognized that the plain meaning of the word “instrumentality” in the FCPA only provides a partial answer as to its plain meaning and thus the court turned to “other tools to decide what instrumentality means in the FCPA.”

However, the court’s decision lacks any discussion of two statutes – one passed before the FCPA (the Foreign Sovereign Immunities Act) and one passed after the FCPA (Dodd- Frank, Section 1504) that explicitly contain the term instrumentality as well as SOE concepts.

It is a basic maxim of statutory construction that all terms in a statute are presumed to have distinct meaning and the 11th Circuit itself stated “it is a cardinal rule of statutory construction that significance and effect shall, if possible, be accorded to every word.”

However, the 11th Circuit dodged the salient question – if instrumentality was viewed by Congress to encompass SOEs, then why do statutes passed before the FCPA, as well as after the FCPA, explicitly contain the term instrumentality as well as SOE concepts?

If Congress believed the term “instrumentality” to encompass SOEs without an express definition saying so, then both FSIA and Dodd-Frank contain redundant terms which itself violates a basic maxim of statutory construction that statutes are presumed not to contain redundant terms.  Indeed, where a particular element is explicitly set out in one statute, but it is not likewise set out in the statute at issue, courts presume that Congress did not intend to include that element in the statue at issue.

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The court also examined the “broader statutory context” of the term “instrumentality” and examined the FCPA’s 1998 amendments and legislative history related thereto relevant to “foreign official.”  However, the court’s decision lacks any discussion of the FCPA’s enacting legislative history relevant to “foreign official” and thus violates another maxim of statutory construction that enacting legislative history governs the meaning of a statutory term, not subsequent legislative history.

Here, the 11th Circuit recognized that it was skating on thin ice when it stated as follows.  “Although we generally are wary of relying too much on later legislative developments to decide a prior Congress’ legislative intent, the circumstances in this case cause us less concern in this regard.”  Indeed, the court even cited a Supreme Court decision stating that “the views of a subsequent Congress form a hazardous basis for inferring the intent of an earlier one.”

Nevertheless, the court stated as follows.

“This is not an instance in which Congress merely discussed previously enacted legislation and possible changes to it.  Rather, Congress did make a change to the FCPA, and it did specifically to ensure that the FCPA fulfilled the promise the United States made to other nations when it joined the [OECD] Convention.  The FCPA after those amendments is a different law, and we may consider Congress’s intent in passing those amendments as strongly suggestive of the meaning of ‘instrumentality’ as it exists today.”

The 11th Circuit’s rationale for consulting post-enactment legislative history, but not enacting legislative history, is not persuasive.  Perhaps most important, the 1998 FCPA amendment to “foreign official” did not even concern the “department, agency, or instrumentality” prong of the “foreign official” definition.  Rather the 1998 amendment to “foreign official” merely added those associated with “public international organizations” to the definition of “foreign official.”

As detailed in my “foreign official” declaration, the salient points from the FCPA’s enacting legislative history are as follows.

  • During its multi-year investigation of foreign corporate payments that preceded enactment of the FCPA, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities.
  • In certain of the competing bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOEs. These bills were introduced in both the Senate and the House during both the 94th (1975-76) and 95th (1977-78) Congresses.
  • An American Bar Association committee informed the Chair of the House subcommittee holding hearings on these bills that the definition of “foreign government” in these bills, specifically the portion of the definition referring to “a corporation or other legal entity established or owned by, and subject to control by, a foreign government” was “somewhat ambiguous.” The American Bar Association committee suggested a “more precise definition of this aspect of the definition of ‘foreign government’ and proposed the following language: “a legal entity which a foreign government owns or controls as though an owner.
  • Despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.

The above points have never been disputed in any of the “foreign official” challenges.

Rather, the DOJ argued that because SOEs were discussed during the legislative debate, Congress must therefore have intended to include SOEs in the definition of the “instrumentality” even though there is no explicit reference in the thousands of pages of legislative history for this position.  The logic of the DOJ’s position would mean that Congress must have intended, despite the lack of explicit reference in the thousands of pages of legislative history, to include commercial bribery within the scope of the FCPA because there was much reference during the legislative history to commercial bribery payments.

In short, the 11th Circuit’s reasoning was flawed because in consulting legislative history the court consulted the wrong legislative history.  The correct legislative history, the enacting legislative history, says what it says and the salient points from my “foreign official” declaration have never been disputed.

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The 11th Circuit’s reasoning is further flawed by the inference in the court’s opinion that the FCPA’s 1998 amendments fully conformed the FCPA to the OECD Convention and, because of this, the FCPA must include SOEs because the OECD Convention does.

This is plainly false.

For starters, and as detailed in my “foreign official” declaration, it is clear that Congress was informed and understood that the 1998 amendments would not fully conform the FCPA to the OECD Convention.  Rather, the OECD Convention was described as “closely modeling” the FCPA; being “very similar” to the FCPA; being “largely consistent” with the FCPA; and “closely tracking” the FCPA.

For this reason, the 11th Circuit’s statement that Congress amended the FCPA in 1998 to “implement[…] the Convention’s mandates” is false.

Indeed, this was previously recognized in U.S. v. Kay where both the trial court and appellate court rejected the DOJ’s position that the FCPA captured payments to secure an “improper advantage” because the OECD Convention captured such payments.

The trial court decision stated:

“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”

Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate court likewise stated as follows concerning the FCPA’s 1998 amendments:

“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’

Even thought the U.S. signed the OECD Convention, the Convention was not self-executing.  Rather the Convention encouraged parties to “take such measures as may be necessary to establish that it is a criminal offense under its law for any person intentionally to offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a foreign public official …”.

The notion that the FCPA changed in 1998, in the absence of specific implementing legislation as to specific elements, because of generic references to the OECD Convention is false and has previously been rejected by the Fifth Circuit.  In short, the OECD Convention was not self-executing and it is black letter law that if a treaty is not self executing it is not the treaty, but the implementing legislation, that is the law of the land.

Yet, the 11th Circuit suggested that because the “only change to the definition of ‘foreign official'” in the 1998 amendments was to add “public international organizations,” that “this seems to demonstrate that Congress considered its preexisting definition already to cover” employees of alleged SOEs.

For the reasons stated above in terms of the FCPA’s enacting legislative history, this suggestion is off-base and not supported by any explicit statement in the FCPA’s voluminous enacting legislative history.

The inference in the 11th Circuit’s decision is that the FCPA changed – presumably through a process of osmosis – because the U.S. signed the OECD Convention.  Taking the court’s rationale to its logical conclusion, does the FCPA no longer have an express facilitation payment exception because the Convention does not?  Does the FCPA no longer apply to payments made to political parties because the Convention does not?  Congress surely did not change through osmosis the scope and meaning of the FCPA on these issues despite its generic references to the Convention in the 1998 amendments.

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Throughout the “foreign official” challenges, the DOJ advanced the argument that a decision contrary its position (i.e. that employees of SOEs are not “foreign officials”) would result in the U.S. being out of compliance with its OECD Convention obligations.

This has been a red-herring argument all along.  Another another U.S. law, the Travel Act, which the DOJ has often used in connection with FCPA enforcement actions, can capture payments outside the context of “foreign officials” and is capable of capturing payments to SOE officials as contemplated by the OECD Convention.

Moreover, the DOJ’s position ignores the fact that courts in other OECD Convention countries have concluded that employees of alleged SOEs are not “foreign officials.”  (See here for a previous guest post regarding the issue in Korea).

Nevertheless, the 11th Circuit accepted the DOJ’s red herring argument and incorrectly concluded that it was “constrained to interpret ‘instrumentality’ under the FCPA so as to reach the types of officials the United States agreed to stop domestic interests from bribing when it ratified the OECD Convention.”  Elsewhere, the court stated that to interpret instrumentality to exclude SOEs “would put the United States out of compliance with its international obligations.”

Neither statement is true.

The U.K. Enters The Facade Era

In my 2010 article “The Facade of FCPA Enforcement,” I warned that this was going to happen.

Under the heading “why the facade of FCPA enforcement matters,” I noted, among other things, the “increasing frequency by which other nations are modeling enforcement of their own bribery laws on U.S. enforcement methods and theories” and stated that “these methods and theories, unless addressed and corrected here in this country, will continue to be replicated elsewhere, perhaps leading to a global facade of enforcement.”

Today, the U.K. formally enters the facade era as deferred prosecution agreements become available to U.K. prosecutors.  (See here and here for relevant documents recently released by the Serious Fraud Office (SFO) and Crown Prosecution Service (CPS)).

To anyone who values the rule of law, reading these documents is truly distressing and I imagine Sir William Blackstone (the famed English jurist best known for his Commentaries on the Laws of England) has flipped in his grave.

Why did the U.K. adopt DPAs?

In short, the SFO and CPS tell us that doing things the old-fashioned way (i.e. proving a criminal violation in an adversarial system) is too difficult and takes too long.  The SFO Director’s language on this issue is blunt as he states that “one of the principal purposes of DPAs is to bring resolution to cases of corporate criminality more quickly.”

The U.K.’s justification for DPAs is really quite sad as ease and efficiency are not concepts normally associated with the rule of law and justice.  Yet, when politicians and civil society groups are clamoring for more prosecutions this is the end result.

Before highlighting certain troublesome features of the U.K.’s new system, it is important nevertheless to recognize the following.

When the U.K. was considering its approach, it rejected U.S. style non-prosecution agreements and stated that such agreement

 “[Are] unsuitable for the constitutional arrangements and legal traditions in England and Wales.  We have concluded that [NPAs] are not suitable for this jurisdiction due to their markedly lesser degree of transparency, including the absence of judicial oversight.”  (See here for the prior post).

Moreover, even though the U.K. is adopting DPAs, the DPA regime is most certainly different from the U.S. regime in that the U.K. regime contemplates active and early involvement by the judiciary.

U.K. DPAs will be used to resolve a variety of corporate criminal actions, not just actions under the Bribery Act.  My opposition to the U.K. adopting DPAs has been limited to application to Bribery Act offenses (see here for my prior submission to the U.K. Ministry of Justice as well as prior posts here, here and here).  The questions I posed have never been answered.

“Why does a law with an adequate procedures defense require the third option of a deferred prosecution agreement (the first two options being prosecute vs. not prosecute)? If a corporate has adequate procedures, but an isolated act of bribery nevertheless occurs within its organization, the corporate presumably would not face prosecution under the Bribery Act. This seems like a just and reasonable result and there is no need for a third option in such a case. On the other hand, if a corporate does not have adequate procedures (thus demonstrating a lack of commitment to anti-bribery compliance) and an act of bribery occurs within its organization, it presumably would face prosecution under the Bribery Act. This seems like a just and reasonable result. Does a third option really need to be created for corporates who do not implement adequate procedures? I submit the answer is no and urge the MoJ to reject use of DPAs in the Bribery Act context.”

For years, I have been highlighting how the DOJ picks and chooses which aspects of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions it chooses to follow.  When the DOJ wants to justify a position it is taking and feels like the OECD Convention supports this position, the DOJ cites to the OECD Convention.  However, when the DOJ is acting inconsistent with the OECD Convention, it simply ignores the Convention.

For instance, OECD Convention Article 5, under the heading “Enforcement,” states that investigation and prosecution of bribery offenses “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”  Every time the DOJ enters into an NPA or DPA and justifies its decision through reference to potential collateral consequences that may result to a particular company, the DOJ is considering the “identity” of the “legal persons involved” in violation of Article 5.

The U.K.’s Code of Practice for DPAs does the same thing.

Section 2.7 of the Code of Practice states:

“Prosecutors should have regard when considering the public interest stage to the U.K.’s commitment to abide by the OECD Convention on ‘Combating Bribery of Foreign Public Officials in International Business Transactions’ in particular Article 5.  Investigation and prosecution of the bribery of a foreign public official should not be influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved.”

Yet a page later, at Section 2.8 under the heading “additional public interest factors against prosecution,” the Code of Practice sets forth the following:

“[whether] a conviction is likely to have disproportionate consequences for [an organization], under domestic law, the law of another jurisdiction including but not limited to that of the European Union …”

“[whether] a conviction is likely to have collateral effects on the public, [an organization’s] employees and shareholders of [an organization] and/or institutional pension holders.”

In other words and contrary to Article 5, the U.K., like the U.S., will take into account the identity of the legal person involved.

Notwithstanding the above, the most troubling feature of the Code of Practice concerns the evidence sufficient for U.K. prosecutors to resolve an action via a DPA.  In defending adoption of the “lower evidential test” in the Code of Practice and addressing concerns that this standard “was so easily satisfied as to have very little substance,” the SFO’s response is, in pertinent part, as follows.

“One of the principal purposes of DPAs is to bring a resolution to cases of corporate criminality more quickly.  […] If a prosecutor had to be satisfied that the evidence against an organization was sufficient to meet the Full Code Test (“Prosecutors must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction against each suspect on each charge”) without the alternative of the ‘lower’ evidential test before considering whether a DPA was in the public interest, a key purpose of DPAs, as was the express intention of parliament, would become redundant.  In order to achieve one of parliament’s key intentions in legislating for the introduction of DPAs a ‘lower’ evidential test is necessary.”

“Satisfaction of the Full Code Test, particularly in view of the well documented difficulties in proving corporate liability, would in most circumstances require a complete an full scale investigation, sometimes spanning many jurisdictions, which inevitably is time consuming and expensive.  It is not intended for there to be such an investigation before a DPA is entered into.”

This response is nothing short of laughable and truly distressing to anyone who values the rule of law.  The SFO is defending the DPA regime by saying that the old regime of proving corporate criminal liability required a complete and full scale investigation that took too long.

At the end of the day, the U.K.’s adoption of DPAs is a political response to show results.  Because this new system expands the market for legal services, you will find few opposing it.

What a sad state of affairs the U.S. has started and is now spreading across the world.

Friday Roundup

Siemens delists, former Siemens execs fail to show up, quotable, to FCPA Inc. and for the reading stack.  It’s all here in the Friday roundup.

Siemens to Delist ADRs

The record-setting 2008 FCPA enforcement action against Siemens A.G. was primarily based on the fact that the company had its shares listed on a U.S. exchange and was thus subject to the FCPA’s books and records and internal controls provisions.  (Note:  Siemens AG itself was not charged with FCPA anti-bribery violations).

I doubt – six years after the fact – that there is a cause and effect relationship here, but it is interesting nevertheless to note that last week Siemens announced that “it is planning to delist its American Depositary Receipts (ADR) from the New York Stock Exchange (NYSE).”  The company further announced that “Siemens intends to terminate its reporting obligations (deregistration) to the American Securities and Exchange Commission (SEC).”  As stated in the release:

“The goal of the delisting and deregistration is to address the change in the behavior of its investors. As a consequence processes of financial reporting are simplified and efficiency is improved. The trading of Siemens shares is nowadays conducted predominantly in Germany and via electronic trading platforms (‘over-the-counter’). Trading volume of Siemens shares in the USA is low, amounting to significantly less than 5% of its global trading volume in the year 2013.”

A delisting of course does not remove Siemens from the reach of the FCPA.  There still is the 78dd-3 prong of the FCPA, but the jurisdictional reach of it is the most restrictive found in the FCPA.

For a moment, let’s just pretend that Siemens delisting was related, in some way, to the FCPA.  If so, is this a good thing or a negative impact of the DOJ and SEC’s expansive jurisdictional theories of FCPA liability against foreign actors?

For instance, as noted in this 2010 post, approximately one month after Daimler resolved its FCPA enforcement action it decided – after 17 years on being on the NYSE to delist from the exchange.  (See here for more).

Former Siemens Execs

One way for the SEC to win its FCPA cases is when the defendants do not show up.

As highlighted here, in December 2011 the SEC filed a civil lawsuit against former Siemens executives Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi, and Bernd Regendantz.  The complaint was based on conduct concerning the Argentine prong of the 2008 Siemens enforcement action.

On the same day the enforcement action was announced, Regendatz agreed to resolve the enforcement action.  As noted in the SEC release, Regendatz “paid a €30,000 administrative fine ordered by the Munich prosecutor (equivalent to $40,000 in U.S. dollars).”

As highlighted in this prior post, when put to its burden by Steffen, Judge Shira Scheindlin dismissed the SEC’s complaint in February 2013 for lack of personal jurisdiction (an initial threshold issue not unique to the FCPA).

As noted in this prior post, in April 2013 Uriel Sharef agreed to resolve the enforcement action by paying a $275,000 civil penalty.  (See here).

The SEC voluntarily dismissed its claims against Carlos Sergi in October 2013.

Earlier this week, on February 3rd, Truppel consented to a final judgment in which he agreed to pay a $80,000 civil penalty.

Also earlier this week, on February 4th,  Judge Scheindlin entered a default judgment as to Bock and Signer.  As part of the order, Bock was ordered to pay $937,957 (a $524,000 civil penalty, $316,452 in disgorgement, plus prejudgment interest of $97,505) and Signer was ordered to pay a $524,000 civil penalty.  The Bock and Signer settlement amounts rank first and third in terms of individual SEC FCPA settlements amounts with Ousama Naaman (approximately $877,000) ranking second.

The burning question of course is whether the SEC would have prevailed against Truppel, Bock and Signer if put to its burden of proof.  Like in Steffen, there would no doubt have been an initial threshold issue of personal jurisdiction before turning to FCPA specific jurisdictional issues.

The relevant jurisdictional allegations against Truppel were as follows.

“Truppel participated in meetings in Miami, Florida, and New York, NY, in which bribes to Argentine officials were negotiated and promised. He caused Siemens to pay, and promise to pay, millions of dollars in bribes in an effort to retain the DNI Contract. Some ofthe bribes were paid via bank accounts in the United States.”

The relevant jurisdiction allegations against Bock were as follows.

“Bock participated in a meeting in Miami, Florida, at which bribes to Argentine officials were negotiated and promised. Bock also provided false testimony in two arbitration proceedings, one of which was filed in Washington, D.C., in an effort to conceal Siemens’ corrupt payments and recover its expected profits from the DNI Contract.”

The relevant jurisdictional allegations against Signer were as follows.

“Signer authorized the payment of bribes to government officials in Argentina. Some of the bribes were paid to bank accounts in the United States.”

Quotable

As noted here OECD Secretary General Angel Gurria warned that the bribery of foreign public officials by businesses was contributing to an “erosion of public trust.”  True, but “enforcing” bribery and corruption laws through resolution vehicles not subjected to judicial scrutiny and otherwise inconsistent with rule of law principles (see here for my recent article) also contribute to an “erosion of public trust.”

Gurria also reportedly stated:  “corporations need to stop bribing public officials, and that is going to help recover public trust and legitimacy, that is going to help markets work.”

In all due respect, this is just such a naive way to view the problem of bribery and corruption.

I like what Alexandra Wrage (President of Trace International) said here:

“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery. They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them. This is not inappropriate. Companies are regulated, subject to laws and answerable to shareholders. The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement. Abacha. Suharto. Marcos. Duvalier. It’s a longstanding tradition, still thriving in many countries today. U.S. and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon. While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable. […] The simple reality is that there are just some things that companies can’t do about corruption.”

See here and here for further reasons why Gurria’s statement is off-base.

To FCPA Inc.

Weil Gotshal announced that Adam Safwat, most recently the Deputy Chief in the DOJ’s Fraud Section where he worked on – among other things – FCPA enforcement actions – has joined the firm.  According to the release, “with several years of senior level experience in the DOJ, as well as experience as a former federal prosecutor, [Safwat] brings a deep understanding of criminal and regulatory enforcement to the Firm, including with regard to corporate securities fraud and Foreign Corrupt Practices Act investigations.”

Reading Stack

A handy-dandy “Master List of Third Party Corruption Red Flags” courtesy of the FCPAmericas Blog.

For your viewing enjoyment, the recent program at Fordham Law School “China and the Foreign Corrupt Practices Act:  Challenges for the 21st Century.”

For your viewing enjoyment, Senator Elizabeth Warren talking about an issue discussed in last week’s Friday roundup regarding JPMorgan.

I’ve written before about “offensive use” of the FCPA, but I am still trying to figure out the purpose of this press release.

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A good weekend to all.

Transparency International’s Progress Report

Transparency International (TI) does good work in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world.

Yet, every time I read TI’s annual progress report on OECD Anti-Bribery Convention enforcement (see here for the recently released report), I find myself asking the same question: does TI (and other civil society groups) view more “enforcement” as an inherent good regardless of enforcement theories, regardless of resolution vehicles, and regardless of outcomes?

The answer appears to be yes, as the progress report focuses on the quantity of enforcement actions with little to no discussion of resolution vehicles or the outcomes of those enforcement actions (i.e. quality).

Of course the U.S. is going to have strong quantity of enforcement numbers because of the DOJ’s (and now SEC’s) invention and use of non-prosecution and deferred prosecution agreements.  At present, these resolution vehicles are not used elsewhere, but not surprisingly are desired elsewhere because they lead to more quantity of enforcement.

Would “lagging” governments (that term is used multiple times in the TI report) shine in the eyes of TI if those “lagging” governments came up with resolution vehicles that largely bypassed the judicial system?

Would “lagging” governments shine in the eyes of TI if those “lagging” governments manufactured cases through sting operations – even if those cases were dismissed by the judge after stating that the cases appear “to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”

As to the U.S. enforcement data itself in the progress report, it is presented in a materially different format than the enforcement data from the other countries.  It takes some footnote reading, but “the methodology used to compile enforcement statistics for the U.S.” was as follows.

“For the United States portion of this report, investigations are counted as “initiated” in the year in which an FCPA investigation is first publicly disclosed (for example, in press reports or a company’s securities filings). Investigations not disclosed in public sources are not counted. Cases are counted as “commenced” for the purposes of this report when an enforcement action results in ongoing judicial proceedings not involving a settlement; for example, a criminal indictment filed by the DOJ against one or more individuals, or an unsettled civil complaint filed by the SEC. Where a case “commenced” names multiple defendants under a single docket number, it is counted as a single case“commenced”. Where complaints or indictments are filed against multiple defendants under separate docket numbers, they are counted as separate cases “commenced”. “Cases concluded” include settlements between companies and individuals and the US DOJ and/or SEC, as well as criminal and civil judicial proceedings resulting in final judgment. Parallel settlements between a company and DOJ and SEC are treated as separate “cases concluded”; a settlement between a single US enforcement agency and more than one corporate entity in a corporate group is also counted as  a single “case concluded”. Cases concluded are counted as “major” if they result in more than $25 million in criminal fines, civil penalties or disgorgement (for companies), or if they result in a prison term for an individual. Cases concluded against companies are counted in the year in which the settlement was reached and approved by a judge (for criminal and civil settlements), or finally ordered (for administrative settlements). Cases “concluded” against individuals are counted in the year a plea agreement or civil settlement was reached with the DOJ or SEC and publicly announced, or a final verdict reached by a presiding judge or jury.”

I’ve read this description three times and it still leaves my head spinning.  Is there anything wrong with the simple “core” approach to keeping FCPA enforcement data – an approach even the DOJ endorses?

Enforcement statistics aside, while the TI progress report bears all the hallmarks of the work of a non-profit, non-governmental organization and is portrayed as an “independent assessment on the status of enforcement,” the fact is, the progress report is an ad hoc compilation of scattered data assembled and opinions expressed by just a few people in their respective countries.

To TI’s credit, this is made transparent in the progress report.  The report states:  “as in years past, this report is based on information provided by national experts in each reporting country responding to a questionnaire.”  Elsewhere, the report states:  “The following country reports summarize the assessments by TI experts of enforcement of the Convention in their countries.”

In the case of the U.S., the TI experts were three people (one senior partner and two associates) at a law firm with a vibrant FCPA practice.  In other words, the U.S. country report and its discussion of “inadequacies in legal framework,” “inadequacies in enforcement system,” the FCPA Guidance, Morgan Stanley’s so-called declination and other topics are merely the opinions of three people.

Regardless of the deficiencies in the TI report, kudos are in order for the recommendation in the report to “ensure the fairness and public credibility of settlements, [and to] make all settlements subject to court approval.”

However, the supporting text states:  “a substantial number of foreign bribery cases are settled through negotiations between prosecutors and the accused companies and individuals.  This is an understandable development in view of the complexity, cost, delays and uncertainties of litigation.”

It may be understandable, but is this a welcome development?

Show me a rule of law principle that suggests charging someone (whether a legal person or natural person) with a crime ought to be easy, cheap, quick and certain?

These issues, along with quality of enforcement, is where the focus ought to be.  Not quantity of enforcement.

Is More “Enforcement” An Inherent Good?

The OECD Working Group on Bribery does good work in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world.

Yet, every time I read its annual report (see here for the recently released report) I find myself asking the same question.

Does the OECD (and other civil society groups) view more “enforcement” as an inherent good regardless of enforcement theories, regardless of resolution vehicles, and regardless of outcomes?

It would appear the answer is yes given the OECD’s focus on and emphasis of enforcement statistics.  Consider the following paragraph from the introduction to the report from the OECD Secretary General.

“Active enforcement is the best weapon we have to fight foreign bribery. Between 1999, when the Convention entered into force, and December 2012 90 companies and 221 individuals were sanctioned under criminal proceedings for foreign bribery, and 83 individuals were sentenced to prison. These figures are set to increase, with approximately 320 investigations under way and criminal charges laid against 166 individuals and entities. However, there has been little or no enforcement in over half of the Parties to the Convention.”

It is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses.  Among other reasons, in most OECD member countries, prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements.  Moreover, in many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than the U.S. respondeat superior standard in which a business organization can face legal liability based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.

In this new era of FCPA enforcement, the majority of “enforcement” is generally accomplished with enforcement vehicles that bypass the judicial system in which the enforcement agency are not put to any burden of proof.

Is this something to highlight and celebrate?

Moreover, if the OECD is going to advance the notion that more “enforcement” is an inherent good, it should at least ensure that its enforcement statistics are accurate.

The OECD report contains a table titled “Decisions on Foreign Bribery Cases from 1999 to December 2012,” and it contains a column titled “number of individuals and legal persons acquitted / found not liable.”  According to the OECD report only 1 individual or legal person has been acquitted or found not liable in a U.S. foreign bribery case.

However, in 2012 alone, 26 individuals or legal persons (combining the defendants in the Africa Sting case, Lindsey Manufacturing case and John O’Shea case) were acquitted or found not liable in a foreign bribery case.

Perhaps though in its focus on more “enforcement,” the OECD cares little about judicial findings of prosecutorial misconduct or statements from judges in FCPA cases that the case represented  “a long and sad chapter in the annals of white collar criminal enforcement” or that the government “shouldn’t indict people on stuff [it] can’t try.”

More “enforcement” of bribery and corruption laws is not necessarily an inherent good.  In legal systems based on the rule of law, enforcement theories and procedures matter, resolution vehicles matter, and outcomes matter.

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