Top Menu

In The Words of Stanley Sporkin

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

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

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

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

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

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

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

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

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

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

“No-Charged Bribery Disgorgement”

The most recent issue of Debevoise & Plimpton’s always stellar FCPA Update contains an interesting article titled “Do FCPA Remedies Follow FCPA Wrongs?  ‘Disgorgement’ in Internal Controls and Books and Records Case.”  See here. The article chronicles the “growing trend” in which the SEC “has obtained hefty FCPA-related settlements including company obligations to ‘disgorge’ various amounts” even though the corporate defendant is not charged with an FCPA anti-bribery violation.

Indeed, it is a growing trend. In my 2010 SEC FCPA Enforcement Year in Review post (here), I calculated that 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest (including in cases where the SEC does not charge an FCPA anti-bribery violation).

The Debevoise author group (which includes Paul Berger (here) a former Associate Director of the SEC Division of Enforcement) concludes that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” The authors note that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”

In pointed language, the author groups concludes as follows.  “Given the bedrock principle that a court’s equitable power to order such disgorgement goes only as far as the scope of the violation, it is difficult to determine how a court could lawfully allow disgorgement of profits for uncharged violations without the remedy crossing line into ‘punishment’ for the violations actually charged.  Although settling companies that willingly accept disgorgement as a remedy in such cases may have important strategic interests at stake – e.g., avoiding primary anti-bribery charges – even these companies (as well as the SEC) must consider that the federal courts may at some point step in and forbid such settlements as beyond ‘the bounds of fairness, reasonableness, and adequacy.’  Similarly, although stipulated  SEC civil cease and desist orders do not require judicial approval for their entry, the same result could occur if, and when, the agency seeks judicially to enforce the requirements of a jurisdictionally-flawed order in one of the ‘no charged bribery disgorgement’ cases.  At some point, in any event, Congress may well determine that the practice of seeking ‘disgorgements’  in cases in which there is no jurisdictionally-cognizable bribery charged by the SEC is an inappropriate use of the agency’s authority.  In light of these serious legal issues, the Commission itself may wish to re-examine its settlement practices in this arena.”

For additional reading on this topic, see my article “The Facade of FCPA Enforcement”  (here) – specifically the section titled “Disgorge What?” (pages 981-984).


How Fast Did You Drive Today?

Yesterday  I traveled from Point A to Point B.  The route included country roads, state highways, and an interstate.  Each road had the speed limit displayed and along the route police cars were monitoring traffic and an few motorists were in fact pulled over.  During the trip, I stayed below the speed limit, but nevertheless when I arrived home last night I logged my trip (route, speed limit, purpose of trip, etc.).  In fact, I do this every day so that at the end of the year I can report my speed to a federal agency.

Sound a bit foolish to you?

If you answered yes, you should likewise conclude that Section 1504 of Dodd-Frank is foolish.  As detailed in this prior post, Section 1504 was the “Miscellaneous Provisions”  titled “Disclosure of Payments by Resource Extraction Issuers”  tucked into Dodd-Frank at the last minute (even though the original bill languished in Congress). 

Once the SEC issues final rules as to Section 1504, the rules are likely to substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments.  As noted in the prior post and in this submission I made to the SEC, Section 1504 is akin to “swatting a fly with a bazooka” and it attempts to legislate an issue that was sensibly put to rest in the mid-1970′s when Congress held extensive hearings on what would become the FCPA.  In short, bribery and corruption are bad, but that does not mean that every attempt to curtail bribery and corruption is good.

I was reminded of Section 1504 last week when reading Joe Palazzolo’s article in the Wall Street Journal Corruption Currents page about how Royal Dutch Shell “is trying to curb” the reach of Section 1504’s disclosure requirements.  The article links to an August 1st letter from Shell to the SEC (here) in which Shell “provide[d] greater clarity regarding [its] expected costs associated with the Commission’s proposed rules in its release titled Disclosure of Payments by Resource Extraction Issuers.  (See here for the proposed rules).   In the letter, Martin ten Brink (Executive Vice President Controller) focuses on material vs. immaterial projects and states as follows.  “… [W]e wish to inform the Commission that if it were to adopt rules requiring disclosure for immaterial projects, disclosure that by definition is not important to reasonable investors, our marginal costs for this additional disclosure, with the required changes to our financial systems, needed to gather, assure and disclose the proposed information, would be in the tens of millions of dollars. However, by revising its proposed rules to limit disclosure to material projects, those projects that a reasonable investor considers important, we have estimated that the increase in our marginal costs would be reduced very significantly.”

As noted by Palazzolo, the Shell letter specifically references the recent decision by the U.S. Court of Appeals (D.C. Circuit) in Business Roundtable and Chamber of Commerce vs. SEC.  In the opinion (here) a three-judge panel unanimously struck down the SEC’s so-called proxy access rule (Rule 14a-11) because “the Commission acted arbitrarily and capriciously for having failed once again […]  adequately to assess the economic effects of a new rule.”  As noted by Palazzolo, the SEC was supposed to have Section 1504’s rules finalized by April, but the agency pushed the deadline to the end of the year.

The SEC is not to blame for Section 1504.  Congress put this issue on the SEC’s plate and said you write the rules.  With the SEC struggling mightily to write the rules implementing Section 1504, the remedy should be for Congress to revisit Section 1504 and for it to reach the sensible conclusion (a conclusion a prior Congress reached in considering legislation to address the foreign payments issues in the mid-1970’s)  that disclosure of perfectly legal and legitimate payments to foreign governments is not necessary.  

Many NGO’s and civil society organizations support Section 1504 and have been known to say that companies who do not bribe should not be bothered by Section 1504’s disclosure requirements.   That is like saying motorists who do not speed should not be bothered by the speed disclosures referenced at the beginning of this post.

A Focus On The SEC

From an FCPA reform perspective, most of the recent scrutiny has been on the DOJ and its enforcement policies and positions.

Yet, the FCPA is also enforced by the SEC.

As a civil enforcement agency only, the SEC’s stick is less sharp the DOJ’s. Nevertheless, the SEC’s FCPA enforcement positions on issues such as “foreign official” and “obtain or retain business” are seemingly identical to the DOJ’s.

Moreover, certain of the SEC’s enforcement theories as to the FCPA’s books and records and internal control provisions are subject to controversy. As I highlighted in “The Facade of FCPA Enforcement” (here at pgs. 976-984), with increasing frequency, the SEC has charged FCPA books and records and internal control violations based on untested and dubious legal theories, as well as theories seemingly in direct conflict with the FCPA’s statutory provisions.

For instance, the SEC routinely charges parent companies with FCPA books and records and internal control violations based solely on the conduct of indirect subsidiaries or affiliates in the absence of any allegation that the parent company participated in, or had knowledge of, the conduct at issue – even though the FCPA specifically states that issuers that demonstrate good faith efforts to cause indirect subsidiaries and affiliates to devise and maintain effective internal controls “shall be conclusively presumed to have complied with” the FCPA’s applicable requirements.

The SEC’s FCPA enforcement theories and policies are now being questioned. See here for the June 30th letter from Senator Mike Crapo (R-ID) to SEC Chairman Mary Schapiro.

The letter begins with Senator Crapo stating that “Congress and the agencies that enforce the FCPA must work together to ensure that the statute’s goals are being met without perverting the risk and reward calculus U.S. firms face when considering overseas business opportunities that would support domestic job growth.”

In the letter, Senator Crapo says he is “concerned by the recent Congressional testimony about the increased compliance costs for businesses operating in good faith to abide by the FCPA’s strictures and the deterrence of U.S. firms’ entry into, or expansion of, overseas operations.”

Senator Crapo then asks Chairman Schapiro for answers to the following questions.

1. Should the FCPA be amended to provide an affirmative defense, which may be raised where violations resulted from the conduct of individual employees or agents who circumvented compliance measures that were reasonably designed to identify and prevent such violations?

2. Does the Commission believe that regulations or guidance explaning factors it considers when determining whether an entity’s officers or employees are “foreign officials” would be helpful to U.S. firms? Would the Commission support legislation that more clearly defines the term “foreign official” under the FCPA?

3. What are the mechanisms by which the Commission could or does provide guidance on FCPA related matters?

4. Is it the Commission’s policy to hold firms strictly liable for foreign subsidiaries’ actions in violation of the FCPA?

5. Under what circumstances, if any, is it appropriate for both the Commission and the Department to seek the recovery of penalties from the same entity for the same conduct?

Prior to responding to Senator Crapo’s letter, Chairman Schapiro and others at the SEC’s FCPA Unit would be well served by reviewing a 1981 speech by then Chairman of the SEC – Harold Williams – on the FCPA’s books and records and internal control provisions.

To best understand (and place in context) current SEC FCPA enforcement positions and policies, it is useful to understand past SEC FCPA enforcement positions and policies. Statements made by the SEC Chairman in 1981 bear little resemblence to the SEC’s current enforcement of the FCPA’s books and records and internal control provisions.


The year was 1981, the event was the American Institute of Certified Public Accountants, and the speaker was Harold Williams, the Chairman of the SEC. Williams focused his remarks (here) “solely to one major auditing development of recent years: the accounting provisions of the Foreign Corrupt Practices Act of 1977.”

Williams began has remarks as follows. “When viewed from an abstract perspective, the Act’s accounting provisions seem merely to codify a basic and uncontroversial management principle: no enterprise of any size can operate successfully without maintaining effective controls over its transactions and the disposition of its assets. Perhaps in part because these provisions were considered truisms, the Act was passed without Congressional dissent. However, practical experience with new legislation – even a law thought to be noncontroversial – often will reveal unanticipated problems. Newly enacted standards, for example, may be subject to differing constructions or raise compliance difficulties and ambiguities unforeseen by their draftsmen. And, until these problems are resolved by an agency, the courts or the Congress, those who are subject to these laws are often faced, unfortunately, with some disquieting circumstances. The anxieties created by the Foreign Corrupt Practices Act – among men and women of utmost good faith – have been, in my experience without equal.”

Williams noted that “such uncertainty can have a debilitating effect on the activities of those who seek to comply with the law. My sense is that, as a consequence, many businesses have been very cautious – sometimes overly so – in assuring at least technical compliance with the Act. And, therefore, business resources may have been diverted from more productive uses to overly-burdensome compliance systems which extend beyond the requirements of sound management or the policies embodied in the Act. The public, of course, is not well served by such reactions.”

Unlike many SEC speeches that contain the usual – this is only my personal opinion disclaimer – Williams specifically noted that he “conferred” with his “colleagues before presenting these remarks, and they have authorized me to advise you that these remarks constitute a statement of the Commission’s policy.”

As to the FCPA’s books and records provisions, Williams stated as follows. “This provision is intimately related to the requirement for a system of internal accounting controls, and we believe that records which are not relevant to accomplishing the objectives specified in the statute for the system of internal controls are not within the purview of the recordkeeping provision. […] nor could a company be enjoined for a falsification of which its management, broadly defined, was not aware and reasonably should not have known.”

As to the FCPA’s internal control provisions, Williams stated as follows. “The Act does not mandate any particular kind of internal controls system. The test is whether a system, taken as a whole, reasonably meets the statute’s specified objectives. ‘Reasonableness,’ a familiar legal concept, depends on an evaluation of all the facts and circumstances.”

Under the heading “deference” Williams stated as follows. “Private sector decisions implementing these statutory objectives are business decisions. And, reasonable business decisions should be afforded deference. This means that the issuer need not always select the best or the most effective control measure. However, the one selected must be reasonable under all the circumstances.”

Under the heading “state of mind” Williams stated as follows. “The accounting provisions principal objective is to reaching knowing or reckless conduct.”

As to the “purposes of the Act,” Williams provided a brief review of the “events which led to the [FCPA].” He stated as follows. “Clearly, Congress went further than determining whether the payments which gave the new law its name were ethically and commercially justifiable. It also chose to consider the corporate accounting and control deficiencies which had been breeding grounds for these practices. And, by doing so, it addressed the far more serious issues raised by these disclosures. […] These payments and falsifications were not only previously unknown to public investors and independent auditors, but many were also unknown to the payor’s board and, in numerous examples, even to its senior management. In some of these instances, internal controls existed, but they were shown to be ineffective or easily subverted. Unauthorized payments and related falsifications of corporate records seemed to evidence – indeed, were fostered by – a lack of adequate accounting records and controls. Consequently, in the legislation which ultimately emerged from Congress, prohibiting questionable payments and mandating control and recordkeeping were inexorably interconnected.”

Williams stated as follows. “The primary thrust of the Act’s accounting provisions, in short, was to require those public companies which lacked effective internal controls or tolerated unreliable recordkeeping to comply with the standards of their better managed peers. That is the context in which these provisions should be construed.”

Williams then addressed “four of the most important” interpretative questions concerning the then-young FCPA: “first, the degree of exactitude in recordkeeping mandated by the Act; second, the deference it affords business decisions concerning internal controls; third, whether a particular state of mind is necessary for a violation to exist; and finally, liability for compliance by subsidiaries.”

As to the “degree of exactitude” Williams stated as follows. “I turn first to the question of whether the Act’s text or purpose mandates that business records and controls conform to a standard of absolute exactitude or that a company’s control system meet some absolute ideal. The answer is ‘no.’ Both of the Act’s accounting provisions, it should be noted are modified by the key term ‘reasonable.’ […] In essence, therefore, the Act does provide a de minimus exemption, though not in absolute quantitative terms.”

Williams noted that Congress specifically declined to adopt a materiality test and stated that “internal accounting controls are not only concerned with misconduct that is material to investors, but also with a great deal of misconduct which is not.” He noted that while materiality is “appropriate as a threshold standard to determine the necessity for disclosure to investors, [it] is totally inadequate as a standard for an internal control system.”

Williams stated that “procedures designed only to uncover deficiencies in amounts material for financial statement purposes would be useless for internal control purposes” and noted that “systems which tolerated omissions or errors of many thousands or even millions of dollars would not represent, by any accepted standard, adequate records and controls.” Indeed, Williams noted that many of the “questionable payments that alarmed the public and caused Congress to act” […] were in most instance of far lesser magnitude than that which would constitute financial statement materiality.”

“Reasonableness, rather than materiality, is the appropriate test,” Williams stated. He noted as follows. “Reasonableness, as a standard, allows flexibility in responding to particular facts and circumstances. Inherent in this concept is a toleration of deviations from the absolute. One measure of the reasonableness of a system relates to whether the expected benefits from improving it would be significantly greater than the anticipated costs of doing so. Thousands of dollars ordinarily should not be spent conserving hundreds. Further, not every procedure which may be individually cost-justifiable need be implemented; the Act allows a range of reasonable judgments.”

As to the “specific recordkeeping requirement” in the FCPA, Williams stated as follows. “… [T]his provision is not an independent unrestrained mandate to the Commission to establish novel or unprecedented corporate recordkeeping standards; it is, rather, an integral part of Congress’ efforts to assure that the business community records transactions and assets in such a way as to maintain adequate control over them. And this leads to two important conclusions: First, the Act does not establish any absolute standard of exactitude for corporate records. And, second, records which are not related to internal or external audits or to the four internal control objectives set forth in the Act are not within the purview of the Act’s accounting provisions.”

As to “deference” with respect to “issuer liability for recordkeeping violations” Williams stated that the SEC “will look to the adequacy of the internal control system of the issuer, the involvement of top management in the violation, and the corrective actions taken once the violation was uncovered.”

In a sign of just how much FCPA enforcement has changed, Williams then stated as follows. “If a violation was committed by a low level employee, without the knowledge of top management, with an adequate system of internal control, and with appropriate corrective action taken by the issuer, we do not believe that any action against the company would be called for.”

Williams next turned to the “state of mind needed to violate the Act’s accounting provisions.” He reiterated that the “Act’s principal purpose is to reach knowing or reckless misconduct.”

In another sign of just how much FCPA enforcement has changed, William stated as follows. “… [D]epending on the circumstances, intentional circumventions of a company’s system of records and of accounting controls by a low-level employee would not always be considered violations of the Act by the issuer. No system of adequate records and controls – no matter how effectively devised or conscientiously applied – could be expected to prevent all mistaken and improper transactions and disposition of assets. Given human nature, regardless of the adequacy of the system, a bookkeeper may still erroneously post entries, an overzealous agent may make unauthorized payments, or an unscrupulous employee may falsify records for his own purposes. The Act recognizes each of these limitations. Neither its text and legislative history nor its purposes suggest that occasional, inadvertent errors were the kind of problem that Congress sought to remedy in passing the Act. No rational federal interest in punishing insignificant mistakes has been articulated. And, the Act’s accounting provisions do not require a company or its senior officials to be the guarantors of all conduct of company employees.”

In concluding this portion of his speech, Williams stated as follows. “The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”

As to subsidiaries, Williams stated as follows. “Where the issuer controls more than 50 percent of the voting securities of the subsidiary, compliance is expected. So, too, would it be expected if there is between 20 percent and 50 percent ownership, subject to some demonstration by the issuer that this does not amount to control. If there is less than 20 percent ownership, we will shoulder the burden to affirmatively demonstrate control.”

As to the SEC’s enforcement policy, Williams concluded his remarks as follows. “The genius – and challenge – of [the FCPA’s accounting provisions] , it should be remembered, is their reliance on private sector decisionmaking – rather than specific federal edicts – to address an area of public concern. The Act’s eventual success or failure will, therefore, depend primarily upon business’s response. The Commission’s obligation, in turn, is to provide a regulatory environment in which the private sector can address these issues meaningfully and creatively. In this regard, we must encourage public companies to develop innovative records and control systems, to modify and improve them as circumstances change, and to correct recordkeeping errors when they occur without a chilling fear of penalty or inference that a violation of the Act is involved.”

Mission Creep At The SEC?

Today’s post is from Bruce W. Bean (Professor and Director, LLM Program at Michigan State University College of Law – here).


Last week FCPA Professor had a post (see here) describing the SEC’s internal search for the new Head of the Division of Enforcement’s FCPA Unit.

As previously reported (see here), Cheryl Scarboro, Head of the Commission’s FCPA Unit, will shortly join the Washington, D.C. office of Simpson Thacher.

The internal SEC marketing materials for this position state that this “Unit seeks to expand the Commission’s global reach in this area by executing targeted sweeps and sector-wide investigations, identifying systemic practices that give rise to potential FCPA violations and aggressively enforcing anti-bribery statutes.”

“[E]xpand the Commission’s global reach?” We do not find this concept in the FCPA. Nor is it in the original Securities Exchange Act that established the SEC. Has the Commission really run out of legitimate domestic prosecution targets? Does the Commission actually believe that, having long ignored stock manipulation by Wall Street traders (who can afford to mount a vigorous defense), it should declare victory in the domestic equities markets, shout “Mission Accomplished” and move on to police the rest of the world?

The most revealing aspect of this internal job posting for the new Head of the FCPA Enforcement Unit is this sentence, which encapsulates the SEC’s jurisdictional philosophy. “The Unit selects cases that present unique legal, evidentiary and policy challenges and attempts to develop case law and legal precedent that will have the greatest deterrent impact on conduct that violates the FCPA.”

Certainly “unique legal, evidentiary and policy challenges” are presented each time we have the Commission stretch and distort the language of the FCPA as it “attempts to develop case law.” For example, there is no FCPA language supporting the determination that millions of Chinese employees at State-Owned Enterprises are “foreign officials.” Similarly, we search in vain for the statutory basis for FCPA liability for a foreign company whose foreign subsidiary committed an act which the prosecutor claims violates the FCPA.

This newly developed FCPA “case law,” of course, is largely created by the enforcement attorneys. (See here for a prior post on “prosecutorial common law”). It is seldom fully litigated before the Judicial Branch. After all, few defendants can afford to litigate against the Government, and those that could most often do not wish to risk “debarment” from doing further business with the Government until proven innocent.

FCPA enforcement has come to mean, “Let’s see just how far we can push the inherent ambiguities in the statute.” When that rare defendant does stand up and fight as in U.S. v. Giffen, we see a multi-year, multi-million dollar legal defense during which a Federal Court ultimately did not endorse the prosecutor’s attempt to “develop new case law.”

Unquestionably, there is marvelous deterrent value when the SEC makes clear that it aggressively pursues FCPA violators. Prosecutors also find good value in high profile prosecutions, since this accelerates their passage through the SEC’s revolving door to much more lucrative private practice.

A closing note of warning. As outrageous as it may seem, the SEC’s jurisdictional and enforcement philosophy is comparatively good news. On Friday, July 1, the former Head of the Unit, Cheryl Scarboro, is likely to start at Simpson Thacher. That is also the date the U.K. Bribery Act comes into force. The Bribery Act actually does purport to give British prosecutors statutory authority to pursue bribery anywhere on the planet Earth. Stay tuned!

Powered by WordPress. Designed by WooThemes