Because of how the DOJ and SEC have chosen to “enforce” the Foreign Corrupt Practices Act (that is largely through resolution vehicles that are not subject to any meaningful judicial scrutiny), the Supreme Court has never decided an FCPA case and, if this dynamic continues, likely will never decide an FCPA case.
Attempts were made in connection with the flawed 2014 U.S. v. Esquenazi “foreign official” decision (see here for my amicus brief urging the Supreme Court to accept the case including discussion of the above dynamic), but the Supreme Court ordinarily does not decide to hear a disputed legal issue after only one appellate court decision.
Given the above dynamics, the most FCPA observers can do is take note when the words “Foreign Corrupt Practices Act” are uttered in the Supreme Court and this occurred earlier this week during oral argument in SEC v. Kokesh, a non-FCPA case that is FCPA relevant because the issue before the Supreme Court is whether SEC disgorgement is subject to a five-year statute of limitations. (See prior posts here and here regarding the case and general issue as well as this FCPA Flash podcast in which Marc Bohn (Miller & Chevalier) discusses the case).
As highlighted in this prior post, in recent years disgorgement comprises approximately 90% of SEC recovery in corporate FCPA enforcement actions (and often times the disgorgement amount is related to conduct that is beyond a five year limitations period recognizing of course that in most corporate FCPA inquiries cooperation is the name of the game and companies frequently waive statute of limitation defenses or agree to toll the statute of limitations).
My 2010 article “The Facade of FCPA Enforcement” notes:
“The facade of FCPA enforcement is evident not only in connection with the FCPA’s substantive provisions, but also in the remedies the enforcement agencies typically pursue in an FCPA enforcement action. The FCPA contains specific penalty provisions for both violations of the anti-bribery and books and records and internal control provisions. Yet, during the current facade era of FCPA enforcement, there has been a dramatic shift away from the FCPA’s statutory penalties in nearly every enforcement action towards disgorgement …”.
It is this general issue (the lack of a specific statutory basis for disgorgement) that seemed most concerning to various Supreme Court justices during oral argument. As noted in the transcript, Justice Ginsberg stated:
“certainly disgorgement was not in the days of the common law what it is today. Yet the SEC has been asking for this kind of relief now for, what, over 30 years? Has there been any effort, any activity in Congress to make this clear, one way or another, whether disgorgement fits with forfeiture?”
Justice Alito noted:
“Well, this case puts us in a rather strange position, because we have to decide whether this is a penalty or a forfeiture. But in order to decide whether this thing is a penalty or a forfeiture, we need to understand what this thing is. And in order to understand what it is, it would certainly be helpful and maybe essential to know what the authority for it is. So how do we get out of that — out of that situation? How do we decide whether it is a penalty or a forfeiture without fully understanding what this form of this remedy or this, whatever it is, where it comes from and — and its exact nature?”
Justice Sotomayor asked:
“Could Congress pass a statute giving the SEC the authority to bring these actions for however long a period Congress chooses?”
Justice Kagan directed the following question to the SEC attorney and thereafter commented:
“Ms. Goldenberg …. has the SEC or has the Justice Department ever set down in writing what the guidelines are for how the SEC is going to use disgorgement and what’s going to happen to the monies collected?
I must say I find it unusual that the SEC has not given some guidance to its enforcement department or — or that the Department of Justice hasn’t become involved in some way; that — that everything is just sort of up to the particular person at the SEC who decides to bring such a case.
Chief Justice Roberts stated:
“One reason we have this problem is that the SEC devised this remedy or relied on this remedy without any support from Congress. If Congress had provided, here’s a disgorgement remedy, you would expect them, as they typically do, to say, here’s a statute of limitations that goes with it. And including, as your friend says, usually a statute of limitations and an accompanying statute of repose. Now, it was a concern — you know, Chief Justice Marshall said it was utterly repugnant to the genius of our laws to have a penalty remedy without limit. Those were the days when you could write something like that and it’s about a statute of limitations. It’s utterly repugnant. And it — the concern, it sees seems to me, is multiplied when it’s not only no limitation, but it’s something that the government kind of devised on its own. I mean, I think — doesn’t that cause concern?
But it does seem to me that we kind of have a special obligation to be concerned about how far back the government can go when it’s something that Congress did not address because it did not specify the remedy.”
The specific mention of the FCPA came in response to the following question from Chief Justice Roberts:
“Do you have any idea what percentage of time — how often a district court does direct that the disgorgement go to a victim as opposed to the government?”
Counsel for Kokesh stated:
“There — one of the amicus briefs, the American Investment Council, quotes numbers — and I haven’t personally checked their accuracy — of something like $800 million out of 6 billion. The 6 billion includes penalties, although by statute, penalties also have to go to victims. Again, I haven’t personally verified the accuracy of those numbers. But I think it’s quite pertinent, actually, that the biggest money disgorgements tend to be in these Foreign Corrupt Practices Act cases where the government gets often multi-hundred millions of dollars’ disgorgement on the gains derived from having bribed foreign officials. And those aren’t compensatory at all. Those — those moneys are just deposited in the treasury.”
During rebuttal counsel for Kokesh also stated:
“[U]nder Section 2462, the government was emphatic that it wants categorical rule: Disgorgement is always, 100 percent of the time, not a penalty or forfeiture under the statute. So even in — in these Foreign Corrupt Practices Act cases where billions of dollars go into the United States Treasury, and there’s no prospect of compensation to victims, the government says that’s disgorgement, and so that is not a penalty or forfeiture. And that will be the government’s position if it prevails in this case. And so I just don’t think that the government can define the remedy as sometimes compensatory, sometimes not compensatory, and avoid everything. And that’s the danger of allowing the government to bring implied remedies further back in time precisely because they are implied, which is essentially the government’s position. Because it’s an implied remedy, Congress never enacted expressly, so there’s no statute of limitations; therefore, it has more power to bring this remedy forever, and characterizing it in different ways depending on the litigation needs of the government.”
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