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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.

Latest FCPA Opinion Procedure Release Reflects High Level Of Anxiety

During last month’s House hearing on the FCPA (see here for the prior post) Representative James Sensenbrenner told Greg Andres (DOJ) that if Andres were the general counsel of a company 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.”

Indeed, the current era of FCPA enforcement has led to a high level of anxiety and skittishness over things that should not, with the end result being overcompliance and inefficient use of resources.

Case in point, the latest FCPA Opinion Procedure Release.

Despite a statutory affirmative defense concerning reasonable and bona fide expenses concerning promotion, demonstration or explanation of products or services, and despite several past “on-point” Opinion Procedure Releases that a first-year associate would be capable of analyzing, the Requestor in Release 11-01 was still apparently skittish enough to go through the time (and no doubt expense) of obtaining a DOJ seal of approval as to conduct that would not raise an eyebrow if directed to a non-foreign official

On June 30th, the DOJ released (here) its first FCPA Opinion Procedure Release of the year – a release dealing with reasonable and bona fide travel expenses in connection with the promotion, demonstration or explanation of products or services – an affirmative defense under the FCPA’s anti-bribery provisions.

The Requestor was a “U.S. adoption service provider” that “proposes to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies to learn more about the services provided by the Requestor.”

According to the Release, “the two officials will be selected by their agencies, without the involvement of the Requestor” and the Requestor “has no non-routine business pending before the foreign government agencies that employ these officials.”

The Requestor “intends to pay for economy class air fare, domestic lodging, local transport, and meals” and it represented, among other things, that:

it “will host only the designated officials, and not their spouses or family members;”

it “intends to pay all cost directly to the providers [and] no cash will be provided directly to the officials;

any souvenirs to the officials “would reflect Requestor’s business and/or logo and would be of nominal value;” and

it will not “fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.”

Based on the Requestor’s representations and the above facts and circumstances, the DOJ stated that “the expenses contemplated are reasonable under the circumstances and directly relate to ‘the promotion, demonstration, or explanation of [the Requestor’s] products or services” and therefore the DOJ “does not presently intend to take any enforcement action with respect to the planned program and proposed payments described in the request.”

For additional commentary on the Release 11-01, see here from Thomas Fox (“the question posed to the Department of Justice (DOJ) is so straight-forward, and has been previously asked and answered, that it is difficult to understand how any first year compliance practitioner did not know the answer to it”); here from Howard Sklar (“this is, simply put, not a situation that should have gone to the DOJ”); and here from the FCPA Blog (“in its first FCPA Opinion Procedure Release of 2011, the DOJ confirmed what should be obvious — that the promotional expenses affirmative defense can be used to pay travel expenses of government officials who are being shown a company’s products”).

Libya

Two feature articles this week, one from the New York Times the other from Canada’s Globe and Mail, focus on business dealings in Libya.

The New York Times article (here) by Eric Lichtblau, David Rohde and James Risen begins by noting that “some companies, including several based in the United States, appeared willing to give in to” Libya’s demand for monetary contributions to help Libya pay $1.5 billion for its role in the downing of Pan Am Flight 103 – as a condition of continuing to do business in the country.

The article also notes that after the U.S. reopened trade with Libya in 2004, American and international oil companies, telecommunications firms and contractors “discovered that Colonel Qaddafi or his loyalists often sought to extract millions of dollars in “signing bonuses” and “consultancy contracts” — or insisted that the strongman’s sons get a piece of the action through shotgun partnerships.”

Among other examples cited, the articles notes that “in 2008, Occidental Petroleum, based in California, paid a $1 billion “signing bonus” to the Libyan government as part of a 30-year agreement.” According to the article, “Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license.”

One strange aspect of the FCPA is that it does not prohibit payments to foreign governments, only foreign officials. See e.g., DOJ Opinion Procedure Release 09-01 (here) stating that the conduct at issue would “fall outside the scope of the FCPA” in that the things of value “will be provided to the foreign
government, as opposed to individual government officials …”.

The Globe and Mail article (here) by Nathan Vanderklippe begins as follows.

“Near the centre of Tripoli sits the bunker, residence and military command post of Moammar Gadhafi. It is hidden behind three concentric rings of defensive walls. It is a fortress that sprawls over six square kilometres. But for much of the past decade, those working hardest to penetrate it have not been citizens rising up against a despot. They have, instead, been wealthy Western companies, intent on wringing riches from the Libyan desert’s massive oil reserves. For some of them, gaining access to Col. Gadhafi – whether directly, or through one of his powerful sons, or through a shadowy network of well-connected “consultants” – was just one of the many challenges of operating in a country some remember as downright bizarre.”

The FCPA Mulligan Rule?

The FCPA Opinion Procedure regulations (here) state that issuers and domestic concerns subject to the FCPA may “obtain an opinion of the Attorney General as to whether certain specified, prospective — not hypothetical — conduct conforms with the Department’s present enforcement policy regarding the antibribery provisions of the Foreign Corrupt Practices Act.”

Since 1980, the DOJ has issued 55 FCPA opinion procedure releases (see here and here).

In nearly every instance the DOJ expresses an opinion that it does not intend to take any enforcement action as to the disclosed facts or conduct? If my figures are correct, in 54 of the 55 opinion procedure releases (98%) the DOJ expressed such an opinion. [The only exception would appear to be 98-01 (here)].

Perhaps you already knew this, but recently I learned something that may help explain this 98% no enforcement statistic.

What did I learn?

That often times, when the requestor senses that it will not receive a favorable DOJ opinion, it simply withdraws the request. I confirmed that this practice does indeed occur with a former high-ranking DOJ FCPA official and others.

Call it the FCPA mulligan rule.

Sec. 80.15 of the opinion procedure regulations specifically states that “a request submitted under the foregoing procedure may be withdrawn prior to the time the Attorney General issues an opinion to such request.”

But here is the issue as I see it.

How does the requestor get the sense that it will receive an unfavorable DOJ opinion so that it can withdraw the request before the opinion procedure is publicly released?

After all, Sec. 80.09 of the regulations, titled “no oral opinion,” states: “no oral clearance, release or other statement purporting to limit the enforcement discretion of the Department of Justice may be given.”

This would seen to eliminate DOJ oral communications to the requestor as to DOJ’s initial observations which may then motivate the requestor to withdraw the request.

Sec. 80.8 of the regulations requires that the Attorney General “respond to the request by issuing an opinion …”. So if the initial DOJ observation which then motivates the requestor to withdraw the request is communicated in writing, should the writing be made public in the same fashion as the opinions that are actually released? Would this not add to the mix of information available as to the FCPA?

As long as I am in question mode, let me throw out this question (see here for the prior post) – should DOJ’s declination decisions be made public?

At a recent public event, I asked Charles Duross (DOJ FCPA chief) this question and he said (see here) that it was a “difficult issue.” In a recent video (here – start at the 6 minute mark), William Stuckwisch (DOJ) wondered aloud whether DOJ declination decisions should be made public. Last, but not least, in this recent Q&A with Sue Reisinger of 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.”

My Two Cents On The FCPA’s Affirmative Defenses

Students looking for scholarship ideas, should consider the Foreign Corrupt Practices Act.

Why?

There is a good chance that publication of an article will generate coverage and discussion on the blogosphere and elsewhere.

Case in point is Kyle Sheahen’s “I’m Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act.” (see here).

For prior coverage of Sheahen’s article see here, here and here.

Sheahen’s article is about the FCPA’s two affirmative defenses – the so-called local law and promotional expense defenses.

Big picture, Sheahen terms these defenses as being “hollow,” “illusory,” and “useless in practice.”

For starters, I respectfully disagree with Sheahen’s statement that “business and businessmen accused of giving bribes to foreign officials have fared poorly in federal courts” as well as the implication that this somehow supports his thesis.

The three FCPA trials cited from 2009 – Frederick Bourke, William Jefferson, and Gerald and Patricia Greene were a mixed bag for the DOJ, not slam-dunk successes.

For starters, the jury found Jefferson not guilty of substantive FCPA anti-bribery violations (see here).

Sure, Bourke was found guilty by a jury of conspiracy to violate the FCPA and the Travel Act (as well as making false statements to the FBI) (see here), yet when the DOJ alleges that one is a key participant of a “massive bribery scheme” yet secures only a 366 day sentence (see here) from a judge who remarks that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both” – I struggle to put such a case in the decisive “win” category for the DOJ. Plus, Bourke’s case is currently on appeal (see here).

The Green case (see here) would seem to represent the cleanest win for the DOJ even though the sentencing judge expressed concerns whether the Green’s conduct caused any harm in sentencing the couple to six months in prison thereby rejecting the DOJ’s recommended ten year sentence. (See here).

Sheahen’s article was published before the Giffen Gaffe (see here). Giffen aggressively mounted a legal defense and, whether for legal, political or other reasons, the case that began with charges that Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan” ended with a one-paragraph superseding information charging a misdemeanor tax violation. Further, back in 2004, Giffen was successful in having FCPA-related criminal charges dismissed when the trial court judge (see here) concluded that the DOJ offered “the slenderest of reeds” to support the collateral criminal charge.

Going back in time …

George McLean won his FCPA case when the Fifth Circuit concluded, see 738 F.2d 655 (5th Cir. 1984) that the FCPA, as it then existed because of the subsequently repealed Eckhardt Amendment, barred prosecution.

Donald Castle and Darrell Lowry (two Canadian “foreign officials”) won their FCPA-related cases, see 741 F.Supp. 116 (N.D. Tex. 1990), when the court dismissed their criminal indictments. The DOJ asserted that even though the officials could not be prosecuted under the FCPA, they could be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. However, the court declined DOJ’s invitation to extend the reach of the FCPA through the application of the conspiracy statute to Castle and Lowry.

Richard Liebo was acquitted, following a three week jury trial, of several counts including nine counts of violating the FCPA’s anti-bribery provisions and one count of violating the FCPA’s accounting and record keeping provisions. See 923 F.2d 1308 (8th Cir. 1991). He was found guilty of one FCPA count concerning his company’s purchase of honeymoon airline tickets for the cousin and close friend of Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force. In connection with this conviction, the Eighth Circuit found that the district court “clearly abused its discretion in denying Liebo’s motion for a new trial” and remanded for a new trial.

Hans Bodmer didn’t fare too badly either in 2004 when Judge Shira Scheindlin (the same judge in the Bourke case) held that the portion of the criminal indictment “charging Bodmer with conspiracy to violate the FCPA contravenes the constitutional fair notice requirement, and the rule of lenity demands its dismissal.”

Of course, the DOJ has had its fair share of FCPA successes, but it remains a misperception that FCPA defendants have “fare[d] so badly” in FCPA trials as Sheahen, and others, have asserted.

Returning to the substance of Sheahen’s article, he discusses the October 2008 Bourke decision by Judge Scheindlin (see 582 F.Supp.2d 535) – a case of first impression on the FCPA’s local law defense.

Bourke argued that the FCPA’s local law affirmative defense was applicable because, under Azeri law even though the payments were illegal, he was relieved from criminal responsibility when he reported the payments at issue to the President of Azerbaijan.

Judge Scheindlin disagreed, drawing a hard line between payments – the focus of the FCPA’s local law affirmative defense in her mind – and the related issue of whether a person could not be prosecuted in the foreign country because a provision may relieve that person from criminal responsibility.

Judge Scheindlin concluded that “an individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law.”

I agree with Sheahen’s statement that Judge Scheindlin’s decision of first impression narrowed the FCPA’s local law defense “to the point of extinction.”

I would go a step further and argue that Judge Scheindlin’s decision would seem to violate the basic axiom that a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.

In other words, courts should not suppose that Congress intended to enact unnecessary statutes and there is a presumption against interpreting a statute in a way that renders it ineffective.

The local law affirmative defense was added to the FCPA in 1988 and we must presume that Congress intended to enact the affirmative defense for some reason.

It was widely assumed by Congress in 1977 (when the FCPA was enacted), and by the Congress that amended the FCPA in 1988 to include the local law defense as well, that no nation’s written law permitted bribery of its officials.

Yet, given Judge Scheindlin’s narrow construction of the local law defense, the decision would appear to render the local-law defense (a statutory term that must have some meaning) inoperative, superfluous and insignificant.

As to the promotional expense defense, I would respectfully disagree with Sheahen’s apparent conclusion that the defense is meaningless just because it has never been successfully invoked by an FCPA defendant at trial.

Because of the “carrots” and “sticks” the DOJ and SEC possess in an FCPA enforcement action, and because of the resolution vehicles typically offered to FCPA defendants to resolve an FCPA enforcement action (such as non and deferred prosecution agreements) there is much about the FCPA that has never been subjected to judicial scrutiny.

That does not mean however that an element or defense not successfully invoked at trial renders that element or defense meaningless or hallow.

Indeed, Sheahen discusses the FCPA Opinion Procedure Release process. Through this mechanism, those subject to the FCPA have gained degrees of comfort from DOJ “no enforcement” opinions that are based on the promotional expense defense.

Although the Opinion Procedure Releases are not precedent, countless others in the legal, business, and compliance communities find comfort in these releases, as well as the statute itself, when analyzing real-world conduct for potential FCPA exposure.

FCPA enforcement is in need of many fixes and indeed the Opinion Procedure Release process is likely not the best way for the DOJ to make its enforcement positions known.

However, these structural flaws in FCPA enforcement, coupled with the typical ways in which FCPA enforcement actions are resolved, necessarily leads to the conclusion that the FCPA’s affirmative defenses are “hollow,” “illusory,” and “useless in practice.”

*****

I provided Sheahen with my draft post so that he could respond and here is what he said.

“Professor Koehler,

Thank you for your thorough analysis. Although DOJ’s trial record in FCPA prosecutions is not a clean sheet, the government has still been substantively successful in almost every FCPA case that has gone to trial. Further, the fact remains that no FCPA defendant has successfully invoked either the local law or the promotional expenses defense in an FCPA enforcement action.

Also, while I agree that the promotional expenses defense provides some guidelines for compliance with the FCPA, neither it nor the local law defense provide a meaningful defense to an enforcement action. Accordingly, Congress must take action to ensure that individual and corporate defendants have the actual ability to raise the affirmative defenses contemplated by the statutory scheme.

Thanks again and all the best,

Kyle Sheahen
sheahen2010@lawnet.ucla.edu

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