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Deputy Attorney General Rosenstein Delivers Yet Another FCPA Speech … With Rebuttal Points

rosenstein

Yet another Foreign Corrupt Practices Act speech by Deputy Attorney General Rod Rosenstein.

(See here, here, here, here and here for other recent speeches).

This post excerpts the speech and provides various rebuttal points using actual facts.

Rosenstein began his speech talking about general issues and stated:

“If we fail to enforce the rules, corrupt businesses will enjoy and profit from a competitive advantage. Rules that are not enforced can be worse than no rules at all, because honest people follow them anyway, giving corrupt people a cost-free competitive advantage.

A desire to promote morality is reason enough in itself to prevent corruption, but there is also a pragmatic benefit.

The forecasting models that I learned in business school rely on hypothetical “efficient markets” that benefit customers because prices reflect all relevant information. But corrupt markets are never efficient. Corruption does not only cause the good guys to lose business opportunities. Corruption produces excess profits for wrongdoers, at the expense of consumers. It raises prices and reduces innovation.

[…]

Criminal prosecutions are part of the solution. Criminal cases reveal illegal schemes to the public and may cost corrupt officials their jobs. But every system remains vulnerable to people who pursue their own personal interests. So the key to promoting a culture of integrity is to build structures that resist corruption, and not just to hope for honorable employees.

[…]

Businesses that bribe officials by offering personal benefits in return for the favorable exercise of government power undermine legitimate businesses and cheat citizens. It sets off a race-to-the-bottom and leads to increased prices, substandard products and services, and reduced investment.”

Regarding the FCPA and subsequent developments, Rosenstein stated:

“Before the enactment of the Foreign Corrupt Practices Act in 1977, paying bribes was an ordinary aspect of doing business overseas. Corruption was rife in many parts of the world.  Some European countries allowed companies to deduct bribes on their corporate tax returns as business expenses.

Congress passed the FCPA law with bipartisan support, and the marketplace adapted to America’s effort to establish and enforce anti-bribery laws.

Two decades later, the Organization for Economic Co-operation and Development adopted an Anti-Bribery Convention, establishing legal standards to prohibit bribery of public officials in international business transactions. The United States was one of the first signatories.  Our leadership encouraged other major world powers to commit to doing business with integrity.”

Regarding individual prosecutions, Rosenstein stated:

“While pursuit of criminal and civil remedies against corporations is important, we should always focus on the individuals responsible for misconduct. Cases against corporate entities allow us to recover fraudulent proceeds, reimburse victims, and deter future wrongdoing. But the deterrent impact on the individual people responsible for wrongdoing is sometimes attenuated in corporate prosecutions. The most effective deterrent to corporate criminal misconduct is identifying the people who commit crimes and sending them to prison.”

The above is all fine and dandy, but the fact of the matter is that approximately 80% of DOJ corporate prosecutions in the modern era of FCPA enforcement lack any related FCPA prosecutions of company employees. For instance, in 2018 7 of the 8 corporate DOJ enforcement actions have not resulted, at present, in related DOJ FCPA charges against company employees.

Rosenstein next stated:

“Critics who describe our policy changes as going soft on corporate crime completely miss the point. The goal of criminal enforcement should not be to pursue a small number of cases and set a new record each year for the largest check extracted from shareholders. Enforcement should not be like a random lightning strike. When there is a low risk of detection and enforcement against the company, and a minimal risk of punishing individuals, that does not deter corporate officers from pursuing their own personal profit though criminal activity. We aim to incentivize companies to report crimes, disgorge illegal proceeds, take remedial actions, and identify accountable officials so we can prosecute them – and do it all promptly. That will result in less corporate crime in the future.”

For a DOJ official to use the word “prompt” in any FCPA enforcement speech is just plain absurd. As highlighted in this recent post, FCPA scrutiny lasts on average over 4 years.

Rosenstein next stated:

“In FCPA cases, we incentivize exemplary corporate conduct. If companies self-report violations, cooperate with investigations, and remediate harm, we reward them with a presumption that we will decline to pursue the company with criminal charges. Instead, we focus our limited resources on individuals, and on companies that fail to take compliance obligations seriously.”

In reference to the DOJ’s FCPA Corporate Enforcement Policy, a business organization can do all the DOJ wants it to do, but there is still a requirement of disgorgement. This is not a “reward” it is an FCPA enforcement action. Moreover, in the 12 matters the DOJ has self-identified as “declinations” 11 matters have not resulted in any criminal prosecution of company employees for FCPA violations.

As he has done in the past, Rosenstein next nicely articulated the policy rationale for an FCPA compliance defense.

“Before I conclude, I want to talk about the importance of compliance programs, because law enforcement agencies achieve deterrence only indirectly. We prosecute criminal wrongdoing after it occurs. But a company with a robust compliance program can prevent corruption and eliminate the need for enforcement.

Most American companies take seriously their obligation to avoid illegal business practices.  They want to do the right thing. They need our help to protect them from devious competitors that seek unfair advantages by breaking the law.

To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement, and to resolve any liability expeditiously.

Corporate America should regard law enforcement as an ally. In turn, the government should provide incentives for companies to engage in ethical behavior and to assist in federal investigations. Law enforcement efforts are most effective when we build bridges with law-abiding businesses.

The government should provide incentives for companies to engage in ethical corporate behavior. That means notifying law enforcement about wrongdoing, cooperating with government investigations, remedying past misconduct, and preventing future misconduct by implementing a robust compliance program.

The safest communities are self-policing. They do not rely on continual government enforcement.

We should encourage and support the development of self-policing mechanisms for corporate crime. Law enforcement agencies should give the greatest consideration to companies that establish effective compliance programs in advance, because it frees our agents and prosecutors to focus on people who commit more serious financial crimes or pose other threats to America. The fact that some misconduct occurs shows that a program was not foolproof, but that does not necessarily mean that it was worthless. We can make objective assessments about whether programs were implemented in good faith.

In all cases, compliance mitigates risk, making companies more valuable and less likely to encounter unanticipated costs from protracted investigations and penalties. When a company establishes a culture of integrity, it creates value. Compliance is an investment. Ethical, law-abiding companies attract better investors, employees, and customers. People want to do business with companies that are honest and reliable.”

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