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The Fallacy That The FCPA Was “Dormant” For Decades

Wrong

There is a common narrative in certain circles that the FCPA was dormant for its first 20-25 years. Five minutes of simple research provides the following examples.

The FCPA was passed in 1977 but “the statute effectively lay dormant for years.”

For over two decades the FCPA rested mostly dormant.”

First enacted in 1977 in a wave of post-Watergate anti-corruption sentiment, the FCPA had laid dormant and relatively forgotten until the early 2000s …

Most recently, a guest post on the FCPA Blog states: “[The FCPA] lay nearly dormant for pretty much a quarter of a century before it was picked up, dusted off and used by prosecutors.

Granted enforcement of the FCPA from its enactment until circa 2004 was generally less than enforcement since 2004 (for obvious practical reasons discussed at the end of this post). However, the narrative that the FCPA was dormant for nearly 20-25 years is a fallacy as highlighted in this post.

Try telling the following approximate 40 business organizations charged with FCPA violations between 1978 and 2003 that the FCPA was dormant.

  • Katy Industries
  • Page Airways
  • Kenny International
  • International Systems & Controls
  • Tesoro Petroleum
  • International Harvester
  • Crawford Enterprises
  • Ruston Gas Turbines
  • C.E. Miller Corp.
  • Sam P. Wallace Inc.
  • Applied Process Products Overseas
  • W.S. Kirkpatrick Inc.
  • Silicon Contractors
  • Ashland Oil
  • Goodyear International
  • Young & Rubicam
  • Napco International
  • Harris Corp.
  • F.G. Mason Engineering
  • Eagle Bus Manufacturing
  • General Electric
  • Lockheed Corp.
  • Vitusa Corp.
  • Montedison
  • Triton Energy
  • Control Systems Specialist
  • Saybolt
  • Metcalf & Eddy
  • International Materials Solutions
  • IBM
  • UNC / Lear Services
  • Syncor
  • Chiquita Brands International
  • Baker Hughes
  • KPMG Siddharta
  • American Rice
  • BellSouth
  • American Bank Holographics, Inc

More importantly, try telling the following approximate 80 individuals charged with FCPA violations between 1978 and 2003 that the FCPA was dormant. Their real lives, real careers, real reputations, and real pocketbooks were changed because of the supposedly dormant FCPA.

  • Finbar Kenny
  • Charles Miller
  • Donald Crawford
  • William Hall
  • Mario Gonzalez
  • Ricardo Beltran
  • Andres Garcia
  • George McLean (see here and here for a Q&A with McLean)
  • Luis Uriarte
  • Al Eyster
  • James Smith
  • Alfonso Rodriguez
  • Harry Carpenter
  • Arthur Klein
  • Thomas Spangenberg
  • Steven McKenna
  • Richard Liebo
  • Robert Gurin
  • Joaquin Pou
  • Jose Guasch
  • John Blondek
  • Vernon Tull
  • John Iacobucci
  • Ronald Schultz
  • George Morton
  • Danny Herzberg
  • Suleiman Nassar
  • Allen Love
  • David Mead
  • Frerik Pluimers
  • Darrold Crites
  • Thomas Qualey
  • David Kay
  • Joshua Cantor
  • Daniel Rothrock
  • Richard Halford
  • Albert Reitz
  • Robert King
  • Pablo Hernandez
  • Herbert Tannenbaum
  • Douglas Murphy
  • Ramendra Basu
  • Gautam Sengupta
  • Richard Pitchford
  • James Giffen
  • Hans Bodmer
  • Clayton Lewis
  • Thomas Farrell
  • Robert Thomson
  • James Reilly
  • James Wilmot
  • Gerald Wilmot
  • Douglas Juston
  • Ross Chapin
  • James Lawler
  • Richard Olney
  • Wallace Carroll
  • Melvan Jacobs
  • J. Thomas Kenneally
  • Herman Frietsch
  • Raymond Hofker
  • Albert Angulo
  • Harlan Stein
  • Robert Buckner
  • Orin Atikins
  • Phillip Keever
  • Richard McAdoo
  • David Gore
  • Robert Puetz
  • William McClure
  • Robert Murphy
  • Eric Mattson
  • James Harris
  • Sonny Harsono
  • Lawrence Theriot
  • Joshua Cantor
  • Joseph Schwartz
  • Joel Malebranche
  • Allen Sturdivant

Granted enforcement of the FCPA from its enactment until circa 2004 was generally less than enforcement since 2004. However, there are obvious practical reasons for this.

More International Business

The FCPA is a law most logically implicated when doing business in international markets. In the FCPA’s modern era, business organizations (large and small and across a variety of industry sectors) are doing more business in international markets than ever before.

More Companies and Individuals Subject to the FCPA

Another practical reason for the general increase in FCPA enforcement in the modern era is that more companies and individuals are subject to the FCPA than ever before.  Foreign companies with shares listed on U.S. exchanges are subject to the  books and records and internal controls provisions as well as the anti-bribery provisions to the extent a bribery scheme has a U.S. nexus.  When the FCPA was passed in 1977 and for many years thereafter, few foreign companies had shares listed on a U.S. exchange, but in the FCPA’s modern era approximately 1,000 foreign companies have shares listed on U.S. exchanges.  Indeed, most of the top FCPA enforcement actions in terms of settlement amounts have been against foreign companies.

In addition, in 1998 the FCPA was amended resulting in certain other foreign companies and foreign nationals becoming subject to the FCPA’s anti-bribery provisions to the extent a bribery scheme has a U.S. nexus.  Enforcement agencies have invoked this newest prong of the FCPA in bringing enforcement actions against, among others, companies from Korea, Germany, Japan, Switzerland, Russia and China, as well as citizens of Japan, the United Kingdom, and Israel.

More Resolution Vehicles

For most of the FCPA’s history the DOJ had two choices when faced with conduct that might implicate the FCPA: prosecute or do not prosecute. (See here for a podcast with former FCPA Chief Joseph Covington).  In this new era, the additional options of NPAs and DPAs (and even more recently declinations with disgorgement) dominate FCPA enforcement and use of these alternative resolution vehicles is one of the more obvious reasons for the general upward trend in FCPA enforcement.  For instance, the former chief of the DOJ’s FCPA unit stated that if the DOJ did not have the option of resolving FCPA enforcement actions with NPAs or DPAs the DOJ “would certainly bring fewer cases.” Likewise, the OECD Report stated that “it seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.”

Sarbanes Oxley

The passage of Sarbanes Oxley (“SOX”) in 2002 is also one of the practical reasons for the increase in FCPA enforcement.  Enacted in the aftermath of several corporate financial scandals, Section 404 of SOX (“Management of Assessment of Internal Controls”) requires issuers to assess and report on the effectiveness of its internal controls over financial reporting. Among other things, the SOX requirement caused issuers to more actively assess internal controls across its business operations particularly in foreign subsidiaries because such books and records are consolidated with the issuers for purposes of financial reporting. Such assessments have resulted in questionable payments or transactions being reported to corporate headquarters and SOX was specifically cited by the DOJ as one of the reasons for the increase in FCPA enforcement.  During a 2010 Senate FCPA hearing, a DOJ representative stated:

“We are getting a significant number of disclosures from corporations about their own criminal conduct.  I think that, in part, relates to the passage of Sarbanes-Oxley legislation, which encourages corporations to review their own books and records.”

Similarly, during a 2011 House FCPA hearing, the same DOJ representative stated:

“At least one likely cause for this increase in cases is disclosures by companies consistent with their obligations under the Sarbanes-Oxley Act, which requires senior corporate officers to certify the accuracy of their financial statements.  This has led to more companies discovering FCPA violations and making the decision to disclose them to the SEC and DOJ.”

Context

In analyzing the general increase in enforcement in the modern era, context is also important. For instance, just two relatively newly invented enforcement theories have yielded approximately 30 corporate enforcement actions. Those two theories are the notion that individuals associated with certain foreign healthcare systems, such as physicians, are “foreign officials” and the notion that providing internships or jobs to family members of alleged “foreign officials” equates to bribery.

Moreover, the following context is also important.

Just a few unique historical events had a significant impact on FCPA enforcement statistics between 2007 and 2011.  The events were: (i) publication in 2005 of the so-called Volcker Report on the United Nations Iraq Oil for Food Program which served as a ready-made list of enforcement actions; (ii) in 2003, a former top official at French oil and gas company Technip shared information with French investigators concerning a $6 billion dollar project at Bonny Island, Nigeria; and (iii) several oil and gas companies utilized the services of Panalpina.

The combined effect of just these three unique historical events resulted in 26 corporate enforcement actions (35% of all corporate enforcement actions and 55% of the settlement amounts during the time period 2007-2011).

Other Factors

Other factors that have contributed to increased FCPA enforcement include foreign law enforcement cooperation, changes in technology and increased monitoring and reporting of business conduct by non-governmental organizations, civil society, and the media.

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