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U.K. – Don’t Get Your Knickers In A Twist Regarding The Bribery Act Review

As highlighted in this recent roundup [1], the U.K. House of Lords announced [2] that it “appointed an ad hoc Select Committee to consider and report on the Bribery Act 2010.” The Chairman of the Committee stated: “now is the opportune time for post-legislative scrutiny.”

However, as noted in this article [3] “non-governmental organisations reacted with dismay to the review by the Lords committee, saying that it should not lead to any rolling back of the legislation.” (See also here [4]).

This post encourages those in the U.K. not to get their knickers in a twist. The post provides some historical context about the FCPA- namely that soon after the passage of the FCPA in 1977 the U.S. government undertook various reviews of the FCPA.

Almost as soon as the FCPA was passed in 1977 concerns were raised across a wide spectrum that the law was vague and ambiguous, and because of that, harmful to U.S. businesses seeking to compete in the global marketplace.  The early 1980’s saw much FCPA reform activity.  In 1980, the Carter administration (recall that President Carter signed the FCPA into law in 1977) sent a report to Congress prepared by the Secretary of Commerce and the U.S. Trade Representative titled “Report of the President on Export Promotion Functions and Potential Export Disincentives.” In pertinent part, the report stated:

“The [FCPA] is identified by businessmen and attorneys as one of the most significant export disincentives.  […]  The Act inhibits exporting because of uncertainty within the business community about the meaning and application of some of its key provisions.

“Uncertainty about the meaning of key provisions of the FCPA and how it will be applied is having a negative effect on U.S. exports.  Many of the businessmen and attorneys consulted expressed the view that this uncertainty has a far greater impact than the actual prohibition against bribery.  The problem described, in essence, is that what conduct is prohibited and what conduct is not prohibited under the Act is often unclear.  In order to avoid possible violations of the Act, attorneys often give such cautious guidance that their clients simply forego any transactions where the FCPA could possibly become an issue.”

“The effects of these uncertainties reportedly manifest themselves in various ways.  Consultations with the private sector revealed instances in which U.S. companies:

  • withdrew from joint ventures for fear they later could be held responsible for the acts of their foreign partners;
  • incurred substantial legal and investigative costs to check the backgrounds of their sales agents abroad;
  • were unable to obtain the services of effective sales agents;
  • lost contracts simply because of the time needed to investigate sales agents abroad and institute safeguards;
  • withdrew from existing markets; and
  • declined to enter new markets.

“Finally, companies point out that the extent to which companies have been successfully prosecuted under the FCPA does not define the extent of the disincentive.  Uncertainty can be a disincentive without any prosecutions and, moreover, exports are inhibited merely by the possibility of public charges and the adverse publicity surrounding them.  Even where a company is totally convinced that a court would find that it had not violated the FCPA, it nonetheless may forego the export opportunity for fear that an enforcement agency could publicly charge it with a violation of the Act.”

[5]

In 1981, the Government Accounting Office (“GAO”), the investigative arm of Congress, released a report titled “Impact of Foreign Corrupt Practices Act on U.S. Business.”

The report was based in part on a GAO questionnaire survey of 250 companies randomly selected from the Fortune 1000 list of the largest industrial firms in the U.S. and the questionnaire addressed the FCPA’s relationship to the following four areas: (1) corporate policies and/or codes of conduct; (2) corporate systems of accountability; (3) cost burdens, if any, incurred by management to comply with the FCPA; and (4) corporate opinions regarding the: (i) FCPA’s effect on U.S. corporate foreign sales; (ii) the clarity of the FCPA’s provisions; (iii) the potential effectiveness of an international anti-bribery agreement; and (iv) perceived effectiveness of the FCPA in reducing questionable payments.

The GAO found that while the FCPA “has brought about efforts to strengthen corporate codes of conduct and systems of internal accounting control,” corporations reported that “their efforts to comply with the [the FCPA] have resulted in costs that were greater than the benefits received” and that a substantial number of businesses “reported that they had lost oversees business as a result” of the FCPA.  The GAO report noted concerns that the FCPA’s anti-bribery provisions were “vague and ambiguous” and stated that while “unambiguous requirements may be impractical and could provide a roadmap for corporate bribery” companies operating in the global marketplace “should be subject to clear and consistent demands by the Government agencies for enforcing the act.”

Despite its widely-perceived deficiencies, reforming a law called the “Foreign Corrupt Practices Act” was a political hot potato simply because of the name of the law. Indeed reform proposals included changing the name of the law so that a substantive, issue-based discussion could take place free from pro-bribery vs. anti-bribery rhetoric. For instance, among the first FCPA reform bills introduced in 1980 was the “Business Accounting and Foreign Trade Simplification Act” which sought to change the name of the FCPA as well as other substantive changes. The preamble of the bill stated, in pertinent part, as follows.

“The principal objectives of the [FCPA] are desirable, beneficial, and important to our Nation as well as to our relationships with our trading partners, and these objectives should remain the central intent of the [FCPA];

“exporters should not be subject to unclear, conflicting, and potentially damaging demands by diverse United States agencies responsible for enforcement of the [FCPA];

“legal interpretations and general compliance and enforcement practices associated with the [FCPA] should be developed in accordance with considerations underlying foreign policy relations, international trade, export promotion, international monetary policy, and other related civil and criminal statutes;”

However, the mere discussion of FCPA reform was opposed by some who seemed to advance the simplistic – either you are against bribery or for bribery – position.  Despite this political atmosphere, certain Congressional leaders demonstrated courage to reform the FCPA into a better, more useable statute for business and the enforcement agencies alike.

For instance, in 1981 Senator Alfonse D’Amato opened Senate hearings on an FCPA reform bill by stating:

“The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its anti-bribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”

Senator John Chafee stated:

“Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”

During the hearing, Senator D’Amato also noted:

“The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.  […]  I think it is very important that in the committee’s work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. […] I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any ‘gray area’ by clearly spelling out the limits of the law.”

During the hearing, Senator John Heinz stated:

“There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”

As the U.S. Trade Representative stated:

Just because the FCPA spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’ That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. [… ] Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”

Indicative of the political challenges of reforming a law called the Foreign Corrupt Practices Act, FCPA reform took eight years and it is noteworthy how it occurred.  In 1988 the FCPA was amended, not through a stand-alone bill, but through Title V, Subtitle A, Part I of the Omnibus Trade and Competiveness Act of 1988 signed into law by President Ronald Reagan.

Principle changes to the FCPA in 1988 included: (i) amending the original “reason to know” standard applicable to third party liability; (ii) amending the FCPA to include certain affirmative defenses based on foreign law and reasonable and reasonable and bona fide expenditures; and (iii) amending the FCPA to include an express facilitating payment exception.  As to this later change, the FCPA’s original definition of “foreign official” contained an indirect facilitating payment exception by excluding from the definition of “foreign official” “any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”  The effect of the 1988 amendments was to remove this indirect exception from the definition of foreign official in favor of an express stand-alone exception for “routine governmental action.”

In 1998 the FCPA was further amended to incorporate certain aspects of the Organization for Economic Cooperation and Development (“OECD”) Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “OECD Convention”) signed by the U.S. and approximately thirty other countries in 1997.  Principle changes to the FCPA in 1998 included: (i) the creation of a new statutory provision applicable to certain foreign companies and foreign nationals; and (ii) expanded nationality jurisdiction as to U.S. companies and citizens by which the anti-bribery provisions can apply regardless of whether an improper payment scheme has a U.S. territorial nexus.

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