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The Perils Of FCPA Misperception

misguided

I recently came across the 2018 Perils of Misperception by Ipsos – an analysis of misperceptions which “examines why people around the world are so wrong about basic facts about their population and covers everything from our guesses at levels of violence, the sex lives of young people, climate change, immigrant numbers, overcrowding in prisons and much more …”.

There was no coverage about the Foreign Corrupt Practices Act, but there easily could have been as this post highlights various FCPA misperceptions.

Prior to the FCPA, bribery among U.S. companies was rampant

Not true. As highlighted in this prior post, even though certain problematic corporate foreign payments were unearthed in the mid-1970s, the notion that foreign bribery by U.S. companies was rampant prior to the FCPA is a false narrative. Indeed, extensive efforts were made during the legislative process to place the conduct in the proper context.

For instance, Gerald Parksy (Assistant Secretary for International Affairs, Department of the Treasury) stated during a 1976 House hearing as follows:

“Although I do not wish to minimize the seriousness of the problem, the situation can be put in the proper light by noting that the approximately 200 firms [the subject of questionable payment inquiries] come from a total of more than 9,000 that regularly file with the Commission. . . . Only a relatively few firms appear to have engaged in making questionable payments abroad. The vast bulk of our firms conduct their businesses ethically and completely in accord with the laws of the United States. We should not let the activities of a minority of U.S. firms operating abroad cast doubts on the nature or conduct of U.S. business generally.”

Even as to the companies implicated in the questionable conduct, the SEC Report noted that “[t]he conduct reported varies significantly, and the companies included can by no means universally be characterized as wrongdoers.” In a June 1975 speech included in the legislative record, SEC Chairman Raymond Garrett stated as follows:

“All improper foreign payments, of course, are not big bribes. Many of them are small and in the foreign community where made possibly not really regarded as improper at all. If the local plant manager in a foreign country has to slip a weekly mordita of modest amount to the postman in order to get regular mail deliveries, or to the customs inspector, the fire inspector or the tax collector, is that something for us to get excited about? In our public statements, individual members of the Commission have said no, at least where these payments conform to custom and usage. Similar payments, at the local level, anyway, are not unknown in the United States. That is certainly my current view, even though there is some difficulty in formulating the rationale for the distinctions implied.”

Likewise, SEC Chairman Hills stated during a House hearing as follows:

“It is, of course, important . . . to make distinctions among these companies. It is quite true that in some cases the payments were cynically and arrogantly made by top corporate officials who knew they were acting contrary to existing laws and regulations and without the authority of their board of directors. Indeed, many went to great lengths to conceal their conduct from the outside auditors, outside directors, and of course, the shareholders. But it is equally true that in a very large number of cases, the sums of money that have been involved are relatively small and were made by persons at a much lower level of management who went to great pains to conceal their own activities from their superiors. Unfortunately, the distinctions between these different types of corporate misconduct have not been made sufficiently clear to the public.”

FCPA enforcement was dormant for its first two decades

As highlighted in this prior post, between 1978 and 2003 approximately 40 business organizations resolved FCPA enforcement actions and during the same time period approximately 80 individuals were charged with FCPA violations.

Try telling these real companies and real individuals (whose real lives, real careers, real reputations, and real pocketbooks were impacted) that the FCPA was dormant.

The FCPA is a clear statute 

Several FCPA commentators (ironically – the source of many FCPA misperceptions) object to the notion that the FCPA is ambiguous or that resort to legislative history is important.  A Forbes article titled “Top 5 Misconceptions About The FCPA” set out to “clear up a few misconceptions about the FCPA.”  Number one on the list of misconceptions was that ‘the FCPA is a vague statute.”  The FCPA Blog has long maintained (see here and here for example) that FCPA lawyers say that the law is “complicated, technically challenging, obscure, poorly drafted and badly organized” but warns,” don’t believe it. There’s no evidence in the record that judges or juries have any trouble understanding the FCPA.”

However, there is abundant ”evidence in the record” that the FCPA is an ambiguous statute and/or that the FCPA’s legislative history is important. This post summarizes the many other instances in which federal court judges have found various provisions of the FCPA to be ambiguous and/or have consulted the FCPA’s legislative history. (See also here).

The DOJ and SEC bring lots of individual enforcement actions

The focus on individual accountability has long been part of the DOJ and SEC’s FCPA rhetoric. However, facts are facts.

As highlighted in this prior post, since 2006 approximately 80% of SEC corporate enforcement actions have lacked any related individual charges against company employees. Moreover, approximately 50% of SEC individual FCPA enforcement actions during this same time period have been clustered around a small number of core actions.

As highlighted in this prior post, since 2006 approximately 80% of DOJ corporate enforcement actions have lacked any related individual charges against company employees. Moreover, approximately 50% of DOJ individual FCPA enforcement actions during the same time period have been clustered around a small number of core actions.

Business organizations benefit from voluntary disclosure

In short, there is simply no way of accurately assessing this because absent voluntary disclosure there likely would never have been any FCPA enforcement action to begin with. (See here for an extended discussion of this topic).

Moreover, in a typical instance of FCPA scrutiny (which often arises from a corporate voluntary disclosure) the biggest financial hit to the company (often times 3, 5, or even 10 times higher than settlement amount) is pre-enforcement action professional fees and expenses. Thus, simply looking at perhaps a 25% (or more) reduction in settlement amount because of a voluntary disclosure is an incomplete analysis due to the FCPA’s many other ripples (including pre-enforcement action professional fees and expenses).

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