This prior post summarizing the recent Ralph Lauren enforcement action noted that there was no allegation or suggestion that Ralph Lauren Corporation (RLC”) was aware of, or participated in, the alleged improper conduct. The same could be said of many FCPA enforcement actions against a parent company – resolved via a non-prosecution and deferred prosecution agreement – based on foreign subsidiary conduct.
Respondeat superior corporate criminal liability is broad, but not this broad. Absent an “alter ego” / “piercing the veil” analysis, legal liability of any kind does not ordinary hop, skip, and jump around a multinational enterprise as the DOJ or SEC see fit.
In this prior post, I collected RLC enforcement action commentary hits and misses. Contrary to many, I found nothing to trumpet in the RLC enforcement action, but much to lament.
There has been another “hit” when it comes to RLC enforcement action commentary, and this one is a home run.
It comes from former DOJ Assistant Chief of the Fraud Section Philip Urofsky (currently a partner at Shearman & Sterling). Urofksy has always been one of the best, most insightful, FCPA commentators. His writings were cited in my article the “Facade of FCPA Enforcement,” his critiques of DOJ enforcement theories (such as jurisdictional issues and obtain or retain business) have frequently been highlighted on these pages – see here for instance.
In short, when Urofsky writes, given his prior experience and insight, we really ought to read and take notice.
His latest is “The Ralph Lauren FCPA Case: Are There Any Limits to Parent Corporation Liability?” recently published in Bloomberg BNA’s Securities Law Daily.
Urofsky and his co-author state, in pertinent part, as follows.
“The facts of the case … point to the steady entrenchment of a more ominous prosecution theory: an approach that appears to approximate strict criminal and civil liability of parent corporations for their subsidiaries’ corrupt acts. Although this disregard of corporate structures has been hinted at in previous SEC matters – and the theoretical underpinnings discussed in last year’s DOJ/SEC Resource Guide – the RLC case puts both agencies firmly in the camp of this aggressive and unprecedented expansion of corporate liability.”
“This approach, however, fails to honor the corporate form and the black-letter rule that to ‘pierce the corporate veil’ the government and other litigants must show that the parent operated the subsidiary as an alter ego, and itself paid no attention to the corporate form. Moreover, it is contrary to the language of the [FCPA’s] original history.”
In conclusion, the article states as follows.
“It is disquieting [that in the RLC case] the DOJ appears to have jumped on the charge-the-parent bandwagon, bringing a bribery case against a parent without alleging any involvement by the parent in those violations. One can only speculate that it did so because it had no jurisdiction over the foreign subsidiary itself, given that it also did not allege any act by the subsidiary in U.S. territory. However, as always, the maxim that bad facts make bad law applies, and evidentiary weaknesses cannot excuse the distortion of the statute’s previously clear and reasonable allocation of responsibility.”
I can write about the “facade of FCPA enforcement,” legislative history, how many FCPA enforcement actions seemingly violate basic black-letter principles and the like until the cows come home.
But hopefully more people will finally pay attention to this new era of FCPA enforcement when someone like Urofsky uses terms like “disquieting” “jump on the bandwagon” and “distortion of the statute.”