Earlier this week, Duke won the national championship basketball game to cap off a successful season. By one measure, Duke was thus the most successful team in college basketball this year.
However, it is undisputed that Duke failed many times this year.
For starters, Duke ended the season 35-4 which means that Duke lost 10% of its games. Duke failed to win the regular season ACC conference championship and also failed to win the ACC tournament conference championship. The second week of January was a complete failure for Duke as they lost to both unranked North Carolina State and unranked Miami.
Duke’s season statistics also evidence less than perfection in several fundamental categories. For the year, Duke’s defense ranked 110th in points per game allowed; 53rd in rebounds per game; 134th in blocks per game; and 68th in steals per game. In short, there were countless teams that performed better than Duke in the above categories.
More generally Duke’s season witnessed several missed easy shots, numerous dumb fouls, and countless unforced turnovers.
So pronounced were Duke’s failures this past season that in January the team dismissed a key player because he “repeatedly struggled to meet the necessary obligations” expected of players in the program.
Despite Duke’s many failures this past season, the beauty of sports is that success is viewed holistically and not through a narrow segment of time, a discrete statistical category, the specifics of a certain possession, or the actions of just one player.
Yet the point of this post is to contemplate what would have happened to Duke this season if it was a business organization subject to various criminal or civil laws such as the Foreign Corrupt Practices Act.
The short answer is that Duke would have been prosecuted and criticized (by the DOJ and numerous FCPA commentators) for its complete lack of internal controls. The enforcement theories / comments would have been along the following lines. That Duke lost 10% of its games is evidence of ineffective internal controls; team that losses twice in one week to unranked teams does not have effective internal controls; given the key player’s dismissal, Duke surely failed to detect and prevent improper conduct.
After all, FCPA enforcement actions are often based on the enforcement agencies wearing rose-colored glasses and viewing a multinational business organization with thousands of employees through the prism of just a 1% fail rate, through the prism of just one business transaction, or through the prism of just an incredibly small group of employees.
An interesting clause in most corporate FCPA enforcement actions is that the company conducted a thorough review of its business operations in a number of jurisdictions other than the locus of the alleged FCPA violation. Yet, in most cases no other improper conduct is alleged in the enforcement action. This alone is suggestive of effective internal controls regardless of the discrete conduct alleged in the enforcement action.
The holistic view of internal controls is consistent with legal authority, legislative history and enforcement agency guidance.
The FCPA’s internal control provisions are specifically qualified through concepts of reasonableness.
Legislative history instructs that the internal controls provisions standard does not equate to an “unrealistic degree of exactitude or precision.”
The only judicial decision to substantively address the internal controls provisions states:
“It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs.”
And even the SEC has stated in internal controls guidance as follows.
“Inherent in this concept [of reasonableness] is a toleration of deviations from the absolute.”
“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.”
Sports analogies are often useful in other contexts.
The sports analogy in this post demonstrates just how wayward FCPA enforcement has become in many instances.