Top Menu

Navigation

House Hearing – Overview and Observations

By on June 14, 2011 in China, Compliance Defense, Congressional Activity, Declination Decisions, Enforcement Agency Policy, Enforcement Agency Speeches, Facilitating Payments, FCPA Reform, Foreign Official, Las Vegas Sands, Legislative History

Representative James Sensenbrenner (R-WI) today chaired a hearing of the House Judiciary Committee, Subcommittee on Crime, Terrorism, and Homeland Security titled “Foreign Corrupt Practices Act.” (See here for the video).

This post provides a chronological overview of the hearing as well as observations.

Compared to the Senate’s FCPA hearing in November 2010 (see here for the prior post) today’s hearing (approximately two hours) was much more contentious. For instance, during the hearing Chairman Sensenbrenner noted that FCPA enforcement has become a “considerable windfall for the federal government” and he concluded the hearing by telling Greg Andres (DOJ) that it “would behoove the DOJ to realize that the statute needs updating” and that those on the Committee will be drafting a reform bill.

The hearing focused on a wide range of issues and in many ways was similar to FCPA reform hearings in the 1980’s in that a common theme explored during the hearing was whether the current state of FCPA enforcement harms U.S. business.

There is clearly a push to introduce FCPA reform legislation and members of both parties appeared receptive (to at least certain) FCPA reform proposals most notably clarifying the FCPA’s definition of “foreign official” / “instrumentality” and exploring an FCPA compliance defense. In fact, John Conyers (D-MI), who appeared most supportive of the current state of FCPA enforcement, stated he would support such reform proposals. The DOJ supports neither of these proposals.

Other issues explored in the hearing included prosecutorial discretion and DOJ declination decisions – including a request that the DOJ provide further information as to its declination decisions.

What happens next is a good question.

It seems like an FCPA reform bill will soon be introduced and hearings as to the specifics of such a bill may occur. Whether such a bill can get out of committee for full consideration by the House, and whether similar bills will be introduced in the Senate, is the open question. Politically, any FCPA reform efforts are likely, because of the topic at issue, to attract substantial opposition – including opposition that is less than informed as to the actual issues.

It bears noting that the last time Congress enacted significant FCPA amendments, the process took eight years and the statute 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.

Opening Statement of Chairman Sensenbrenner

Sensenbrenner began by noting that when Congress passed the FCPA in 1977 the “world was a different place.” In response to slush funds and secret payments to foreign governments that adversely affected U.S. foreign policy, Congress passed the FCPA and the law “sent a strong signal.” (For an overview of the facts and circumstances motivating Congress to pass the FCPA – see here).

Sensenebrenner next observed that thirty-four years later, the world has turned upside down, China is a power, the nature of overseas business has changed, and many countries have some state-control over business.

Sensenbrenner noted that there has been a dramatic increase in FCPA prosecution and that last year approximately 1/2 of all DOJ criminal penalties were in FCPA cases (see here for the DOJ release) – a dynamic he called a “considerable windfall for the federal government.”

In touching upon themes similar to when Congress held substantive FCPA hearings in the mid-1980’s, Sensenbrenner placed the increase in FCPA enforcement in the context of the current economic downturn. Indeed a theme throughout the hearing was that the current state of FCPA enforcement may be harming U.S. business interests.

Sensenbrenner stated that “FCPA prosecutions should be effective and fair,” but also “predictable” so that the “rules of the road are clear” so that “business can start moving again.”

In closing his opening statement, Sensenbrenner stated that the Committee was well-suited to examine the impact of the FCPA and to ask hard questions – such as whether the FCPA was succeeding in its mission or hurting job creation.

Opening Statement of Ranking Member Scott

Robert Scott (D-VA) next made an opening statement. Scott summarized the reform proposals including providing greater clarity to the “foreign official” definition. As a potential compliance affirmative defense, Scott observed that companies are spending substantial sums – millions of dollars in some cases – on FCPA compliance – a result he indicated may often result in “overcompliance” because companies would rather be “safe than sorry.” Scott stated that “punishing those companies and individuals who are operating in good faith runs counter to the basic tenets of fairness and justice.” He also indicated that successor liability “runs counter” to a system of justice that should only punish the guilty party.

In closing, Scott said that effective enforcement of the FCPA is “crucial” and he applauded aggressive enforcement of the law. At the same time, Scott noted the necessity of periodically reviewing laws to make sure “they remain fair and just.”

Opening Statement of John Conyers

John Conyers (D-MI) also made an opening statement. After a few sentences about unemployment figures and the Obama administration, Conyers asked the following question: will somebody explain to me how 140 cases in 10 years is “overly aggressive prosecution.”

Conyers did indicate in his opening statement that he does support certain FCPA reform proposals. As to clarification of “foreign official,” Conyers said he can “support this one” because it can create a problem when those subject to the FCPA do not have a clear understanding of who a “foreign official” is. Conyers also said that he can support the addition of a compliance defenses so that companies can fight imposition of criminal liability if individual employees and agents circumvent compliance measures. Conyers did not support other FCPA reform proposals – such as limiting successor liability, limiting parent company liability for acts of foreign subsidiaries, and adding a wilful mens rea requirement for corporations.

Statement by Greg Andres

Greg Andres (Deputy Assistant Attorney General) next delivered an opening statement. His prepared statement can be found here.

Among other things, Andres noted that DOJ’s FCPA prosecutions involve “systemic long-standing bribery schemes” not the payment of single bribe payments of nominal sums.

Andres specifically cited the Daimler AG and Siemens FCPA prosecutions to support this point. However, the irony is that neither of these FCPA enforcement actions involved FCPA anti-bribery charges against the parent company or any related individual prosecutions.

As to a potential FCPA compliance defense, Andres stated that the DOJ already considers a company’s pre-existing compliance policies and procedures pursuant to the Federal Principles of Prosecution of Business Organizations (see here).

As to providing guidance, Andres noted that the DOJ’s goal “is not simply to prosecute FCPA cases” and that senior DOJ officials often speak publicly on the FCPA and highlight relevant considerations and practices companies should adopt. Andres also discussed the DOJ’s FCPA Opinion Procedure program (see here for more).

In closing, Andres stated that DOJ is proud of its enforcement record and that it looks forward to working with Congress.

Statement by Michael Mukasey

Former Attorney General and current Debevoise & Plimpton partner Michael Mukasey next delivered an opening statement on behalf of the U.S. Chamber of Commerce. See here for his prepared statement.

Mukasey began by noting that no one favors bribery and that while the FCPA indeed does have merit, “more than 30 years of experience” with the law demonstrates that it can be improved.

His testimony focused on two of the Chamber’s FCPA reform proposals: clarifying the definition of “foreign official” and “instrumentality” and amending the FCPA to include a compliance defense.

As to the later, Mukasey observed that statutory guidance can be found in Title VII of the Civil Rights Act which provides for something akin to a compliance defense. Mukasey stated that “dozens, if not hundreds of cases are resolved under this compliance defense” and that the defense reduces discrimination by encouraging employers to have robust compliance systems.

As to “foreign official,” Mukasey referenced the recent judicial opinions on this issue (see here and here for the prior posts), yet noted that the judges did very little to clarify the limits of the “foreign official” issue other than say that whether an employee of an alleged state-owned or state-controlled enterprise could constitute a “foreign official” varied depending on the circumstances. Mukasey stated that leaving this issue in the hands of a jury in a criminal trial makes it “impossible” for companies to determine in advance who is a “foreign official” thereby increasing uncertainty and barriers to U.S. business. According to Mukasey, “majority ownership is the most plausible threshold” for whether a state-owned or state-controlled enterprise constitutes a foreign government “instrumentality.”

Statement by George Terwilliger

George Terwilliger (White & Case) next delivered an opening statement. See here for his prepared statement.

Terwilliger opened by stating that he favors “fair enforcement of sensible corruption statutes” and that “leveling the playing field” is essential. He noted that the DOJ and SEC are “realizing their enforcement goal of driving companies into far greater compliance,” but also noted the less desirable effects of stepped-up enforcement. He spoke of the “hidden effect” of foregone business opportunities because of FCPA enforcement concerns and noted that the current state of enforcement may hurt job creation.

According to Terwilliger, the “hidden costs” of FCPA enforcement are the result of uncertainty and that companies sometimes forego deals, take a pass on certain projects and withdraw from other projects – not because such companies are necessarily risk averse – but because of the risk-reward ratio in this current FCPA enforcement environment.

Terwilliger proposed a further FCPA reform proposal related to successor liability and that is a statutory safe harbor provision during which an acquiring company could be shielded from FCPA liability for a defined time period post-closing. During this post-closing period, the acquiring company would undertake a thorough review of the target’s business operations and have the opportunity to self-disclose any FCPA issues to the enforcement authorities.

Statement by Shana-Tara Regon

Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers) next testified. See here for her prepared statement.

She observed that given the general lack of judicial scrutiny over FCPA enforcement, the FCPA says whatever essentially the DOJ says it means and that the FCPA has, in many instances, become a strict liability statute “in ways that those who created the FCPA could never have envisoned.”

Regon stated that NACDL does not advocate bribery and similarly stated that advocating for reform is not akin to advocating for bribery. Her testimony was focused on two reform proposals – clarifying the definition of “foreign official” and strengthening the mens rea requirement for corporate offenses. She stated that the FCPA is “emblematic of the general problem of overcriminalization” and that FCPA enforcement has several “unintended consequences” including over-compliance.

During the hearing, Global Financial Integrity (see here for yesterday’s post) tweeted as follos: ” This group of witnesses is such a sham. All three non-DOJ witnesses spewing disingenuous pro-#bribery #AmChamb talking points #FCPAHearing.” (See here).

Chairman Sensenbrenner reserved his questions for the end and next called on various Representatives present.

Q&A Session

Tom Marino (R-PA) asked Andres (DOJ) about the DOJ’s top enforcement obstacle.

Andres stated that because FCPA violations focus on conduct abroad, the DOJ often needs to rely on MLAT requests which can take longer. He noted that the DOJ is in favor of extending the FCPA’s statute of limitations given that it generally takes a long time to investigate FCPA cases. Andres further stated that while there is much discussion as to the increase in FCPA enforcement, this discussion often “fails to recognize the size and magnitude of the problem.”

Robert Scott (D-VA) next asked Mukasey whether the compliance defense proposed was a total defense or an affirmative defense. Mukasey stated that the proposal was for an affirmative defense and that where there is a proved violation of the FCPA, the question should then become whether the company had a compliance mechanism in place reasonable designed to detect and prevent the conduct. Mukasey noted that this issue may be an “uphill climb” for a company, but that the FCPA ought to at least allow a company to pursue such a defense.

Scott next asked Mukasey about the mens rea reform proposal for corporate liability. Mukasey seemed to be advocating a corporate liability standard similar to the (soon to be old) U.K. standard and the current Canada law standard when he stated that a company should only be held liable if someone in a “policy making position” was involved in or condoned the improper activity.

Scott next asked Andres (DOJ) the general question of whether any de minimis cases have ever been brought by the DOJ. Andres stated “no,” the DOJ has never prosecuted “cup of coffee, lunch, taxi-ride type of cases” and he further stated that because of the FCPA’s corrupt intent element and the affirmative defense for reasonable and bona fide business expenditures, it is an open question as to whether such facts even violate the statute.

Even so, Andres stated that the DOJ is opposed to creating a de minimis exception to the FCPA because small, recurring payments can amount to significant bribery. He stated that the amount of the bribe is not the relevant consideration, rather the intent of the bribe is and that all bribery is inappropriate. Andres said that all the talk of taxi-ride payments and meals being in violation of the FCPA “is not reflected in our enforcement actions.”

Taxi-cabs were a recurring issue throughout the hearing. Mukasey stated, in response to a question, that the taxi-cab example is real and that when “nervous counsel” found out that a company may have paid a “foreign official’s” taxi-cab fare, the company disclosed the conduct to the DOJ and the DOJ requested that the company investigate its entire relationship with the “foreign official.” Mukasey stated that this investigation cost the company approximately $200,000, no violation was found, and that the company could have used this money for something more beneficial than conducting in investigation as to these facts.

Louie Gohmert (R-TX) next stated that those subject to the FCPA “ought to have a clear enough line” so that people don’t have to think “is it or isn’t it a bribe” to make this payment. Gohmert said that Congress can define bribery so that companies “can have a clear line” so that a company does not have to spend $200,000 to figure out whehther paying for a cab is an FCPA violation. Gohmert then made an interesting observing that the FCPA allows a “young prosecutor” or an “FBI agent seeking to make a name for himself” the opportunity to pursue all sorts of enforcement actions and that enforcement then ends up being more aggressive than it should be.

Gohmert next asked Andres (DOJ) as follows: why should a company be prosecuted if a company has a compliance program set up according to the standards set forth in Chapter 8 of the U.S. Sentencing Guidelines (see here). Gohmert stated that if a company has done everything it can do, it seems like a strict liability standard if the company is prosecuted because of the act of an employee acting contrary to the company’s policy. Andres stated that the DOJ “does not prosecute companies based on the acts of a single, rogue employee.”

Rather, Andres stated that the DOJ looks at how pervasive was the conduct or whether the conduct involved a high-ranking employee. Andres specifically stated that the DOJ opposes consideration of an FCPA compliance defense. He stated that DOJ already seriously considers compliance programs in its charging decisions, along with other factors such as cooperation and voluntary disclosure.

Andres called a potential compliance defense “novel” and one that is not “well-defined.” He said that such a defense could lead to “paper compliance.” He also referenced the U.K. Bribery Act (which does contain such a compliance defense) yet stated that this defense is not yet in effect and thus there is no precedent to analyze to see whether such a defense is effective.

Given that the DOJ frequently takes FCPA enforcement position that are “novel,” are not “well-defined,” and are not supported by precedent, Andres response on this issue was less than convincing.

In closing, Andres stated that an FCPA compliance defense could “create a loophole” and allow for some bribery to occur. He called such a potential defense “novel and risky” and said that the “time is not right to consider it.”

The floor next returned to John Conyers (D-MI). He stated that ignorance of the law is no excuse and wondered why in the case of bribery does there need to be a de minimis rule. He stated that “corporations have more lawyers than anybody else” and “why do they need to know” how low the bribery threshold should be. He said that “they don’t deserve to know that.”

Conyers also conducted the most contentious Q&A exchange of the hearing with Regon. Conyers asked – “give me some examples of overcriminalization of the FCPA.” He repeatedly interrupted Regon and asked “just give me some examples” “give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization.” Conyers stated, “only 140 cases have been brought in 10 years -that averages 14 cases a year – is that overcriminalization to you?” Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occured.

Ted Poe (R-TX) next launched into a criticism of China. He said that “China, through its government, follows a systematic philosophy of corruption” and that China will “do anything in the world to get their way” including stealing from the U.S. and paying bribes. He suggested that “any means necessary” is the Chinese way to get business. “We on the other hand,” Poe stated, “believe in the rule of law.” Poe stated that the “Chinese are effective in their philosophy” and he observed that he just returned from Iraq where he learned that Chinese companies are going to rebuild Iraqi’s oil system and that he suspected money changed hands in order to get this business.

Poe, a former prosecutor, next said that it “disturbs” him when we give DOJ prosecutors too much discretion. Poe said that he was not advocating loosening the standards, but he did prefer “absolute certainty” about what is a violation of the FCPA as “opposed to too much discretion” by the DOJ on what something means and whether it is a bribe.

Judy Chu (D-CA) next asked Andres a series of questions allowing him to further articulate how the DOJ takes into consideration a company’s compliance program and how compliance expectations are stated in public documents such as Chapter 8 of the Sentencing Guidlines and the OECD Guidelines. (See here). Andres further stated that there are situations where the DOJ does not pursue an enforcement action because of a variety of factors, including a company’s pre-existing compliance program, even if these instances are not made public because the DOJ does not issue a press release. Asked by Chu for reasons why FCPA enforcement has expanded, Andres stated that the “problem is as big as it has ever been” and that “at least one reason” for the increase in enforcement is the result of SOX whereby companies have an obligation to test its internal controls – tests that often uncover FCPA issues that are then often disclosed to the DOJ.

Hank Johnson (D-GA) next asked Regon about prosecutorial discretion and whether it is fair to say that the “looser the law the more prosecutorial discretion and the narrower the law the less prosecutorial discretion.” Regon stated that if the DOJ means what it says (i.e. that it targets only explicit instances of bribery and that it does not prosecute based on the actions of rogue employees), then the DOJ should not mind less prosecutorial discretion. Johnson next launched into an unusual statement about illegal crime (blue-collar crime) and legal crime (white collar crime in the sense that prosecutions of white collar crime tend to be less vigorous). Johnson said he was bothered by the fact there has not been much prosecutorial activity as to white collar crime, he said this “seems kind of fishy” and that some “folks are getting off the hook for legal crime.”

Sandra Adams (R-FL) next asked Andres whether the DOJ has a definition of “foreign official” or “instrumentality.” Andres said, in addition to the statute, there are now several decisions by district courts that further “amplified” the definition of foreign official. Andres stated that DOJ does not support a change to the definition of “foreign official” or “instrumentality.”

Adams next Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.”

I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure decisions. Given that most declination decisions would seem to follow disclosure by a company of FCPA scrutiny (in its SEC filings), Andres’s rationale for not making declination decisions public is less than convincing.

Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion.

Adams next asked Andres whether the DOJ is defining what the law means. Andres said that “everyone of these cases is negotiated with experienced defense counsel” and that counsel has “ample opportunity” to address any issues concerning the DOJ’s enforcement.

Mukasey then answered that while resolved FCPA enforcement actions make for interesting case studies, such resolutions are not binding in other cases.

Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.

Shelia Jackson Lee (D-TX) next asked Andres how many attorneys and staff are assigned to FCPA enforcement. He stated that the DOJ’s FCPA unit, includes a core unit in D.C. of 15 to 20 enforcement attorneys and that assistance in trials is given by local prosecutors. Jackson Lee asked “is this an excessive amount” and Andres said “certaintly not in light of the size and magnitude of the bribery problem … it is significant.” Jackson Lee next received a tutorial from Andres as to the FCPA’s jurisdiction over foreign companies.

Ben Quayle (R-AZ) next asked a question very much based on current events and that is the scrutiny of the Macau gaming industry. [Las Vegas Sands recently disclosed that it received subpoenas concerning its conduct in Macau]. Andres stated that it was not appropriate for him to comment on any ongoing investigations.

Quayle next asked Andres whethr General Motors would be considered a U.S. government “instrumentality.” Andres said that in addressing this issue, the DOJ considers government ownership or investment as only one factor. Other factors include characterization of the entity under foreign law, the purpose of the entity, and that under these factors General Motors would likely not qualify as a U.S. government “instrumentality.” Quayle next asked whether it is relevant if the government has communications with the company’s board and the government has the ability to control or influence the entity (a presumed reference to GM’s relationship with the U.S. government). Andres again stated that control and ownership is but one factor and he specifically referenced the recent Lindsey prosecution where the Mexican entity at issue was specifically addressed in the country’s constitution.

Quayle next asked Terwilliger whether he has any knowledge of companies conceding markets to foreign competitors because of the FCPA. Terwilliger stated that “conceding markets” may be a bit strong, but that American companies have become much more circumspect in dealing with foreign business opportunities because of FCPA enforcement. In particular, Terwilliger said that companies may bypass “smaller opportunities” (that might become bigger opportunities) because of the FCPA in that the cost-benefit analysis and FCPA compliance are too much to worry about.

Chairman Sensenbrenner was the last person to ask questions and he began his time by stating as follows. There is “no question in my mind that we have to bring this law up to date.” “No one is in favor of bribery, but there has to be more certainty.” Sensenbrenner said he was “a bit befuddled” by Conyer’s statement that corporations don’t deserve to know what bribery is and he stated that “everyone has a right to know what is illegal.”

Sensenbrenner’s only question (a long one at that as he basically summarized the Chamber’s FCPA reform proposals) was directed to Regon and Andres. Regon focused mostly on the corporate mens rea issue and stated that her organization is supportive of “anything Congress does” to clarify the FCPA. Tara Regon failed to see the rationale for not providing greater clarity as to the FCPA and noted that “we have many bribery statutes on the books, and some of those are written tightly and work well.”

Sensenbrenner then asked Andres – which of Regon’s suggestions do you agree with and Andres said “I don’t agree with any of them.” For instance, Andres said with the definition of “foreign official” that “one thing you need to take into consideration is that the statute covers the whole world” and that what might constitute a “foreign official” in China may be different than what constitutes a “foreign official” in Brazil or France.

Sensenbrenner grasped onto this issue and noted that this part of the uncertainty that people are complaining about.

Andres followed with two points. First, that if there is concern, companies subject to the FCPA can ask for a DOJ opinion. This only seemed to enrange Sensenbrenner further as he stated “come on, China is a communist country – they are not going to tell you what the government involvement is” in a company “they don’t have the type of disclosure we have.”

Andres second point was that the FCPA makes illegal paying a bribe and that if companies aren’t paying bribes they have nothing to fear.

Sensenbrenner then seemed to pose a question at the end of the hearing as to whether the DOJ would support an FCPA amendment that simply makee bribery (all bribery) illegal (perhaps akin to the UK Bribery Act). Sensenbrenner did not pause for Andres to respond and he (Sensenbrenner) concluded the hearing by saying “it would behoove the DOJ to realize that the statute needs updating.” Andres said that the DOJ is “more than willing to work with Congress” to which Sensenbrenner said “see you later we will be drafting a bill.”

Sensenbrenner then commented that if Andres were the general counsel of a corporation advising the CEO and everyone else, he would likely be advising the company in the “most narrow way” and “exercising the greatest amount of caution.” “As a result,” Sensenbrenner stated, legitimate business activity is not pursued and U.S. companies are put in a significant disadvantage compared to foreign companies.

Sensenbrenner then told Andres – “get the message sir and tell that to the AG.”

House Hearing – Pregame

By on June 14, 2011 in Compliance Defense, Congressional Activity, Enforcement Agency Speeches, FCPA Reform, FCPA Scholarship, Foreign Official, Travel and Entertainment, U.K. Bribery Act

Yesterday, Global Financial Integrity (“GFI”) and The Task Force on Financial Integrity and Economic Development issued identical press releases (here and here) regarding today’s House Judiciary subcommittee hearing on the FCPA (see here).

The releases, titled “Foreign Corrupt Practices Act Under Attack” portray today’s hearing as a U.S. Chamber of Commerce sponsored event and states as follows. “Among other things, the hearing will specifically consider amendments proposed to the act by the U.S. Chamber Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, which FCPA-proponents charge will significantly weaken the anti-corruption legislation and undermine efforts to tackle corruption and illicit financial practices abroad. The Chamber’s proposed changes would seriously undermine one of the most important anti-corruption statues we have on the books. […] This is a blatant attempt by the business lobby to limit accountability and reduce a company’s risk of prosecution for paying bribes. It is a real threat to global efforts to stamp out corruption and foster economic development.”

GFI legislative affairs director and legal affairs council Heather Lowe states as follows. “With the exception of [the DOJ witness – Greg Andres], the witness lineup represents commercial interests. There is no witness on the panel representing those who are working to fight corruption without a commercial interest or government policy driving their testimony. Members of Congress need to have an opportunity to hear those voices as well.”

Attached to the releases are two documents.

The first document is titled “Concerns About the U.S. Chamber Institute of Legal Reform’s Proposals for Amending the FCPA.” (For a copy of the Chamber’s reform proposals – see here).

The document addresses five topics: (i) limiting liability of a parent company for acts of its subsidiaries; (ii) defining “foreign official”; (iii) allowing companies with compliance programs to escape liability (compliance as an affirmative defense); (iv) limiting the liability of a successor company for the prior acts of a company that has merged into it or that it has acquired; and (v) adding a “willfulness” requirement for corporate criminal liability.

As to “foreign official,” the document states as follows. “The U.S. Chamber is promoting the creation of a definition of “foreign official” so that companies have greater legal certainty. Greater certainty of what? Greater certainty of who they are permitted to bribe and who they are not permitted to bribe.”

In all due respect, this is a naive statement.

As I noted in this article, because of the enforcement agencies’ current interpretation of “foreign official,” those subject to the FCPA are spending significant time and money investigating the ownership structure of foreign customers and potential customers for any trace of foreign government ownership or control. Such a costly investigation, often involving lawyers and other investigative firms, is not motivated by the company’s desire to make improper payments to the foreign customer or potential customer to obtain or retain business should the investigation reveal no foreign government ownership or control. Rather, the costly investigation is often motivated for the simple reason that the company wants to treat these foreign customers the same as it treats its other customers. That means hosting such customers at corporate events in which some fun may take place (e.g., golf) or inviting such customers to an industry trade show—events that often take place in tourist locations. Companies fear providing such “things of value” to a “foreign official” (under the enforcement agencies’ interpretation) even though the company is legitimately and legally providing the exact same thing to its non- “foreign official” customers or potential customers. It is highly questionable whether Congress foresaw company lawyers being involved in the simple decision of whether to invite a particular customer to the company’s golf outing or trade show.

As to a potential compliance defense, the document states as follows. “If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?”

Again, an unsophisticated statement.

For instance, the U.K. Bribery Act Guidance (here) states as follows. “The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organizations that experience an isolated incident of bribery on their behalf.”

“[N]o bribery prevention regime will be capable of preventing bribery at all times.”

“[A] commercial organization will have a full defense if it can show that despite a particular case of bribery, it nevertheless had adequate procedures in place to prevent persons associated with it from bribing.”

Similarly, in a 1981 FCPA speech (to be profiled in a future post) the SEC Chairman noted as follows. “The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”

Elsewhere in the speech, the SEC Chairman stated as follows. “If a violation was committed by a low level employee, without the knowledge of top management, with an adequate system of internal control, and with appropriate corrective action taken by the issuer, we do not believe that any action against the company would be called for.”

This speech was given during the same general time frame when Congress was last seriously considering substantial FCPA reform in the 1980’s. Numerous FCPA reform bills included a specific defense which stated a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents. An FCPA reform bill containing such a provision did pass the U.S. House.

In my forthcoming scholarship, “Revisiting an FCPA Compliance Defense” (to be presented at the Wisconsin Law Review symposium – see here), I argue that amending the FCPA to include a compliance defense (a defense found in the “FCPA-like” laws of other nations) will best incentivize corporate FCPA compliance and not put a company at risk of FCPA scrutiny, costly FCPA internal investigations, and the growing collateral consequences of FCPA inquiries should a non-executive employee engage in conduct contrary to a company’s pre-existing FCPA compliance policies and procedures and compliance culture.

The second document attached to the GFI releases is titled “The Foreign Corrupt Practices Act in Context.” The 2 page document ends with the following in red caps. “WE HAVE SHOWN THE WORLD THAT THE U.S. IS SERIOUS ABOUT COMBATING BRIBERY, AND THE WORLD IS FOLLOWING OUR LEAD. WEAKENING THE FCPA NOW WILL SEND A MESSAGE TO THE WORLD THAT THE U.S. IS SOFT ON CORRUPTION AND OUR COMPANIES ARE DEEP POCKETS FOR BRIBE-SEEKERS. THE U.S. SHOULD FOCUS ON ENCOURAGING WORLDWIDE ENFORCEMENT, NOT CRIPPLING A STATUTE THAT HAS BEEN THE MODEL FOR INTERNATIONAL ANTI-BRIBERY LEGISLATION.”

Enjoy today’s hearing.

Assessing the Power of the SEC to Impose Monetary Penalties In Administrative Proceedings Charging Violations of the FCPA

By on June 13, 2011 in Ball Corporation, Dodd-Frank, Enforcement Agency Policy, Guest Posts, SEC

Foley & Lardner attorneys Kenneth Winer (here) and Manda Sertich (here) contribute this guest post regarding a little-noticed provision in Dodd-Frank and its impact on SEC FCPA enforcement.

*****

Assessing the Power of the SEC to Impose Monetary Penalties In Administrative Proceedings Charging Violations of the FCPA

The SEC recently imposed a civil penalty in an administrative proceeding involving payments to foreign government officials. In In the Matter of Ball Corporation, Exchange Act Rel. No. 64123, AAER No. 3255 (Mar. 24, 2011)(here), the SEC charged that Ball Corporation’s Argentinean subsidiary offered and paid at least ten bribes, totaling at least $106,749, to Argentinean government employees for favorable import/export treatment and mischaracterized the nature of the payments in the subsidiary’s books and records. In settling its administrative enforcement action against Ball Corporation on March 24 of this year, the SEC imposed a civil penalty of $300,000.00. [In a number of administrative proceedings, the Commission has ordered disgorgement and pre-judgment interest in addition to cease-and-desist orders in FCPA administrative proceedings, without additional civil penalties. See In the Matter of Avery Dennison Corporation, Exchange Act Rel. No. 60393, AAER No. 3021 at 6 (July 28, 2009); In the Matter of Westinghouse Air Brake Technologies Corp., Exchange Act Rel. No. 57333, AAER No. 2785 at 7 (Feb. 14, 2008), In the Matter of Electronic Data Systems Corp., Exchange Act Rel. No. 56519, AAER No. 2725 at 9 (Sept. 25, 2007)].

Until 2004, the SEC’s authority to impose monetary penalties in administrative proceedings was limited to regulated entities (brokerage firms, investment advisers and investment companies) and to persons who were associated with regulated entities. In 2010, as part of the Dodd-Frank Wall Street Reform Act, Congress granted the SEC broad authority to impose civil monetary penalties in administrative proceedings. Section 929P of Dodd-Frank amended the Securities Exchange Act to permit the imposition of civil monetary penalties in administrative proceedings in which the SEC staff seeks the issuance of a cease-and-desist order. Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, 124 Stat. 1376 (2010).

Law360 recently published an article analyzing the implications of Congress’s recent grant to the SEC of a broad power to impose civil monetary penalties in administrative proceedings stemming from the Dodd- Frank Act. Kenneth Winer & Laura Kwaterski, Assessing SEC Power in Administrative Proceedings (SecuritiesLaw360 Mar. 24, 2011). In this post, we discuss the implications this power poses for FCPA cases.

While the SEC’s interest in imposing monetary penalties in administrative proceedings is obvious given the rapid and inexpensive nature of such proceedings compared to federal district court trials, administrative proceedings risk incorrect factual and legal decisions against respondents because respondents do not have the same safeguards present in SEC administrative proceedings as in federal court. The three bases for this concern outlined in the Law360 article also apply in the FCPA context: (1) the limited discovery available to a respondent in an administrative proceeding; (2) the expedited pace of the administrative proceeding; and (3) the fact that the initial decision of the administrative law judge who presided at the hearing is subject to de novo review by the Commission.

With respect to the first basis for concern, in SEC administrative proceedings, the parties – except in rare circumstances – cannot depose witnesses. The inability to depose witnesses has only a limited adverse impact on the ability of the SEC to obtain incriminating evidence. The Staff can obtain incriminating evidence by using its investigative powers and the information- sharing arrangements that the SEC and DOJ have with law enforcement agencies across the globe. Although a respondent, like the SEC, can ask a witness to submit voluntarily to an interview, the typical respondent has far less leverage than the SEC to persuade a witness to agree voluntarily to an interview, especially given the SEC’s subpoena power and its ability to intimidate witnesses with its enforcement powers.

This concern may be particularly troublesome in FCPA cases, where potential key witnesses are often located in other countries, with little or no incentive to appear in an SEC administrative proceeding. Because the rules of evidence do not govern administrative proceedings, the SEC will be able to introduce statements of witnesses whom the respondent has had no opportunity to cross examine.

Next, as discussed in the Law360 article, in 2003 the Commission adopted a rule mandating that administrative proceedings must be completed at the ALJ level within 120 days, 210 days or 300 days. Additionally, SEC rules provide that the ALJs and the Commission shall “strongly disfavor” requests for extensions unless the moving party makes a strong showing that denial of the request would substantially prejudice his or her case. See 17 C.F.R. § 201.161(b)(1). At least as to individuals, the requirement of expedited administrative proceedings is also particularly worrisome when considered in the framework of the normal course of FCPA cases. The record developed in FCPA investigations often is extensive. It often will be unreasonable to expect an individual to prepare an appropriate defense in less than four months, especially when witnesses are likely to be scattered across the globe.

A third basis for concern identified in the Law360 article, de novo review by a commission, applies fully to the FCPA context. Both respondents and the public often have trouble understanding how it is fair and appropriate for the very commission that authorizes the institution of an enforcement proceeding to be able to overrule the factual findings of the ALJ who presided at the hearing, and this is no different with respect to FCPA enforcement proceedings.

The broad grant of the power to impose monetary penalties in administrative proceedings is especially significant in the context of the FCPA for at least two reasons. First, the SEC’s enforcement of the FCPA has been characterized by aggressive interpretations of the statute that have not been tested in the courts. In a civil action, a defendant could test such interpretations through motion practice. In administrative proceedings, however, a respondent’s ability to file motions testing aggressive legal theories is very limited. See, e.g., In the Matter of John P. Flannery and James D. Hopkins, Order on Motions for Leave to File Motions for Summary Disposition, Administrative Proceeding File No. 3-14081 (Jan. 10, 2001). In addition, a respondent will only be able to obtain judicial review of the SEC’s aggressive interpretation by appealing to the Court of Appeals the final decision that the Commission issues upon review of the initial decision of the administrative law judge who presided over the administrative proceeding.

Second, the SEC has sought substantial monetary penalties in settling enforcement actions involving the FCPA. For example, in 2007 the SEC filed a settled enforcement action charging Baker Hughes Incorporated with violations of the FCPA. Baker Hughes agreed to pay a civil penalty of $10 million for violating a 2001 Commission cease-and-desist Order prohibiting violations of the books and records and internal controls provisions of the FCPA, in addition to a payment of $23 million in disgorgement and prejudgment interest. SEC v. Baker Hughes Incorporated and Roy Fearnley, Civil Action No. H-07-1408, United States District Court for the Southern District of Texas (Houston Division) (EW) (Filed April 26, 2007). In 2010, the SEC filed a settled civil action against ABB, Ltd., in which it charged the company with bribing Mexican government officials to secure business with state-owned utilities companies and Iraqi government officials to obtain contracts under the U.N. Oil-for-Food Program. Pursuant to this settlement, ABB Ltd. was ordered to pay $16.51 million in civil penalties, in addition to nearly $23 million in disgorgement and prejudgment interest.

Individuals have also paid substantial civil penalties in settling such enforcement actions. Most recently, in January of this year, the SEC settled an enforcement action with Innospec’s former CEO, Paul Jennings, based on allegations that Jennings played a “key role” in Innospec’s bribery activities in Iraq and Indonesia. The executive was ordered to pay a $100,000 civil penalty, in addition to disgorging $116,092 and paying prejudgment interest in the amount of $12,945. SEC v. Paul W. Jennings, 1:11-CV-00144 (D.D.C. filed Jan. 24, 2011). In 2006, the Senior Vice President of Sales and marketing for Invision was ordered to pay a $65,000 civil penalty based on allegations that he aided and abetted InVision’s failure to establish adequate internal controls to prevent the company from violating the FCPA and that he indirectly caused the falsification of the company’s books and records. SEC v. David M. Pillor, Case No. C-06-4906-WHA (N.D. Cal. filed Aug. 15, 2006). Also in 2006, three senior employees of ABB Ltd. were ordered to pay civil monetary penalties ranging from $40,000 to $50,000 for violating the anti-bribery provisions of the FCPA and the books and records and internal accounting control provisions of Exchange Act Section. (One employee was also ordered to pay $64, 675 in disgorgement and prejudgment interest.) SEC v. John Samson, John G. A. Munro, Ian N. Campbell, and John H. Whelan, Civil Action No. 06 CV 01217(D.D.C. filed July 5, 2006).

In addition to increasing the risk that innocent parties will mistakenly be found to have violated the FCPA, the broad power Congress granted the SEC to impose civil monetary penalties in administrative proceeding adds additional pressure on individuals and entities to settle with the SEC even though they have not violated the law. Before seeking larger civil penalties in the FCPA context, the Commission therefore should consider whether the efficiency it gains by bringing enforcement actions administratively warrants the risk that the innocent will wrongly be found liable and the credibility that the Commission risks losing by aggressively exercising this broad grant of power.

Friday Roundup

By on June 10, 2011 in Carson, Congressional Activity, Deferred Prosecution Agreements, FCPA Reform, FCPA Trials, Foreign Official, Goldman Sachs, India, Legislative History, Libya, Non-Prosecution Agreement

Another FCPA hearing on Capital Hill next week, news regarding Goldmann Sachs, questioning the use of NPAs and DPAs, an informative read regarding India, and something for your “foreign official” file.

Its all here in the Friday roundup.

House Hearing

Next Tuesday, June 14th, the Subcommittee on Crime, Terrorism and Homeland Security of the House Judiciary Committee will hold a hearing titled “Foreign Corrupt Practices Act.” According to this report by Christopher Matthews of Main Justice the hearing is expected to focus on the following issues: successor liability, a potential compliance defense, “foreign official,” and corporate mens rea issues.

The witness list for the hearing is as follows (see here).

Hon. Michael Mukasey (Former Attorney General, Partner, Debevoise & Plimpton LLP – see here); Mr. Greg Andres (Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice); Mr. George Terwilliger (Partner, White & Case LLP – see here); and Ms. Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers – see here).

Predictably, some are blasting the very existence of the hearing. For instance, Political Correction, a project of Media Matters Action Network (a self-described progressive research and information center dedicated to analyzing and correcting conservative misinformation in the U.S. media), describes the hearing here as “Rep. Lamar Smith’s Fight to Make Bribery Easier For Big Business.”

The House hearing follows a November 30th Senate hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” See here for a prior post.

This post, prior to the 2010 hearing provided some guiding words, and if those were not enough, how about this statement from William Brock, U.S. Trade Representative, on April 18, 1983 during a hearing before the House Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs.

“Mr. Chairman, no one minimizes the complexity of the issue before you today. Just because the Foreign Corrupt Practices Act 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. Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years. After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond. Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”

Well said.

Goldman Inquiry

Yesterday, the Wall Street Journal reported – “Eyes on Goldman-Libya Dealings” – that the SEC is “examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya’s sovereign wealth fund.” The inquiry appears to be focused on a “$50 million fee Goldman initially agreed to pay [but one that was never paid to] the Libyan sovereign-wealth fund as part of a proposal … to help the fund recoup losses.”

A Goldman spokesman is quoted as follows. “We are confident that nothing we did or proposed was or could have been a breach of any rule or regulation. We retained outside counsel, as is our normal practice for any transaction to ensure that we were compliant with all applicable rules.”

Can the FCPA be implicated by payments never made?

Yes. The anti-bribery provisions prohibit “an offer, payment, promise to pay, or authorization of payment …”.

What about payments to foreign governments?

No. The anti-bribery provisions only apply to offers, payments, promises of payment, or authorizations of payments to “foreign officials.”

However, according to the WSJ article the inquiry appears to focus on whether the contemplated payment would have been passed on to an outside adviser firm “run at the time by the son-in-law of the head of Libya’s state-owned oil company.”

For more on the Goldman inquiry, see here from Ashby Jones (WSJ Law Blog) and here from Samuel Rubenfeld (WSJ Corruption Currents).

NPAs / DPAs

Non-prosecution and deferred prosecution agreements ought to be abolished. I’ve argued here and in other places that these agreements have traded one negative externality of white collar prosecution (the much over-hyped Arthur Anderson effect) for a host of others, including the alarming lack of any meaningful judicial scrutiny to ensure that NPAs and DPAs are truly based on facts and appropriate legal theories to support the charges “alleged.”

Mark Mendelsohn, the former head of the DOJ’s FCPA unit during its era of resurgence, stated in a September 2010 interview with Corporate Crime Reporter, that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”

Asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” Mendelsohn stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”

Add W. Neil Eggleston, a former DOJ enforcement attorney currently a partner at Debevoise (here), to the growing list of former DOJ enforcement attorneys critical of these alternative resolution vehicles.

In this recent interview with Corporate Crime Reporter, Eggleston stated as follows. “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”

Well said.

India

If India is a country of concern or focus of yours, you will want to check out the most recent quarterly newsletter of the India Committee of the ABA Section of International Law. (See here).

Guest editor James Parkinson of BuckleySandler (here) provides the following articles, among others, in the newsletter: one devoted to the FCPA risks of doing business in India; another devoted to India’s demand-side statute – the Prevention of Corruption Act; another focused on reducing corruption risks in India through compliance programs; and another calling for India to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

“Foreign Official”

And finally, because your “foreign official” file would be incomplete without it, here is a transcript of the May 9th oral argument in the Carson “foreign official” challenge. See here and here for previous posts.

*****

A good weekend to all.

Significant dd-3 Development in Africa Sting Case

By on June 9, 2011 in Africa Sting, FCPA Jurisprudence, FCPA Trials, Foreign Nationals, Jurisdiction

When listing reasons why FCPA enforcement has increased, the 78dd-3 prong of the FCPA’s anti-bribery provisions should be on the list.

The FCPA, since its inception in 1977, always applied to “issuers” and “domestic concerns”, but the 1998 amendments added a third prong providing jurisdiction as to “persons other than issuers or domestic concerns.”

As to this class of persons, the FCPA provides the following jurisdictional requirement: “while in the territory of the United States, corruptly to make use of the mails or any means or instrumentality of interstate commerce or to do any other act in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value …”. (emphasis added).

Several recent FCPA enforcement actions have been based on the dd-3 prong of the statute including the actions against the Daimler subsidiaries (see here, here, and here); SSI International Far East (see here); and others.

In the Daimler actions, the jurisdictional statements in the charging documents are as follows. “wire transfers … sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Russian government officials;” “payments to third party agents, including shell companies established in the United States knowing that such payments would be passed on in whole or in part to Russian government officials;” ” “wire transfers … sent from Daimler accounts in Germany to financial institutions in the United States and elsewhere, via international and interstate wires, in furtherance of corrupt payments to Chinese government officials;” and “enter[ing] into sham consulting contracts with shell companies incorporated in Delaware and Wyoming for the purpose of making improper payments to Croatian government officials.”

In SSI, the jurisdictional statement in the charging document is as follows. SSI ” transmitted requests to the United States for approval and wire transfer of funds for payment to managers of Schnitzer Steel’s customers in South Korea and China in connection with sales of scrap metal to those customers. Accordingly, defendant SSI acted within the territorial jurisdiction of the United States.”

In my recent Q&A with Homer Moyer (here) he stated as follow: “To be sure, in enforcing the FCPA, the government tries to overreach from time to time — exercising anti-bribery jurisdiction over foreign subsidiaries and aggressive applications of dd-3 jurisdictional on the grounds that some step in the process took place “in the territory of the United States” come to mind as occasional examples. When enforcement agencies overreach, they should be challenged.”

Yet, as with most things FCPA related, these aggressive jurisdictional theories have generally escaped judicial scrutiny.

Until now.

In what is believed to be the first judicial ruling on the jurisdictional prong of the dd-3 prong of the FCPA, earlier this week, Judge Richard Leon (presiding judge in the Africa Sting cases) granted defendant Pankesh Patel’s Rule 29 acquittal motion at the end of the DOJ’s as to an FCPA substantive charge premised on his sending a DHL package – containing a purchase agreement in furtherance of the alleged corrupt scheme – from the U.K. to the U.S.

Pankesh Patel is among the first group of four defendants currently on trial and he is described in the indictment as follows. “[A] citizen of the United Kingdom and […] a “person” other than an issuer or a domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1). Patel was the Managing Director of Company A, a United Kingdom company that acted as a sales agent for companies in the law enforcement and military products industries. As a company that maintained its place of business in the United Kingdom, Company A was a “person” other than an issuer or domestic concern as that term was defined in the FCPA. 15 U.S.C. § 78dd-3(f)(1).”

Among the charges against Patel was Count 3 – that Patel violated the FCPA’s anti-bribery provisions by sending, on October 13, 2009, a DHL package from the U.K. to Washington D.C. “containing one original copy of the purchase agreements for the corrupt Phase Two deal.”

At the close of the DOJ’s case earlier this week, Patel’s attorney, Eric Bruce (Kobre & Kim LLP – see here) moved, as did the other defendants as to other charges, pursuant to Rule 29 for a judgement of acquittal.

Judge Leon did not request briefing as to the Rule 29 motions and his decision and reasoning was not reduced to writing – thus what follows are quotes from the hearing transcript.

As to Count 3, Bruce stated that the DOJ “charged Mr. Patel in Count 3 with something that cannot be a crime under U.S. law. And here’s what I mean by that. As we saw in the FCPA statute with which he’s charged, 78dd-3, because he’s a U.K. citizen, operating a U.K. company, he’s not a domestic concern under the statute, he can only be liable under the FCPA statute for conduct “while in the territory of the United States.” And that’s required by statute. That’s their sort of jurisdictional hook on him. And what they’ve done in Count 3, if you look at the language, if you go back to the indictment, Your Honor –.”

At this point, the following exchange occurred.

“Judge Leon: Sending it DHL?

Bruce: Yeah from London. So in Count 3 it says on the face of the indictment, DHL from the United Kingdom to Washington, D.C., containing one original copy of the purchase agreement for the corrupt phase 2 deal. So literally they’ve charged him with being in London and dropping a DHL package in the mail as a substantive FCPA violation, while the statute very clearly requires that he can only be liable for something while in the territory of the United States.”

Joey Lipton, on behalf of the DOJ, then stated as follow. “And under the FCPA, as long as he’s taking an act as someone who’s not a domestic concern, as Mr. Patel is a U.K. citizen, he falls under section 78dd-3, which Mr. Bruce said. He actually has to do less than a U.S. citizen really, because a U.S. citizen has to make use of the mails or interstate commerce. And Mr. Patel just has to take an act, any act, while he’s in the United States. Doesn’t have to be an illegal act, doesn’t have to be anything related to the deal going forward. He has to take any act in the United States, which he clearly does. First of all, he flies over from the U.K. to the United States, which we established through his travel records. And then he meets with the fictitious official and receives a purchase agreement. He then later takes that purchase agreement and sends it back. So the deal’s not done at that point, contrary to what Mr. Bruce said. But he’s already taken the act, he’s here in the United States, he sends it. With regard to Count 3 — and you don’t have to prove all of the elements of the offense while he’s in the United States. Doesn’t have to be counts or elements 1 through 6 of the FCPA while he actually travels here and does all that stuff. He just has to take an act while he’s in the United States. He did take an act. In Count 3 he then sends back the purchase agreement that he gets from the official, from Mahmadou, and he’s able — and that falls under the FCPA because he’s already taken an act here when he’s done that. So that independently can be its own act. It doesn’t have to be that each substantive count is an act while he’s in the United States, as long as he takes an act while he’s here. So his burden actually as a U.K. citizen is even less than what the other defendants have to do in terms of using the mail or traveling and the like.”

The following exchange then occurred between Lipton and Judge Leon.

“Judge Leon: Help me understand why it doesn’t have to be an act while in the territory of the United States for Count 3, whereas Count 2 [a substantive FCPA offense against Patel based on his attendance at a Washington D.C. meeting to discuss the allegedly corrupt deal], sounds like you admit that that’s the case in Count 2. In Count 3, I think your rationale is since he’s already taken one act within the United States, the subsequent act of mailing doesn’t have to be within the United States, right?

Lipton: Correct, Judge.

Judge Leon: All right. So what’s the rationale for that? Why doesn’t the second act have to be within the United States too? I’m not sure I understand that.

Lipton: Well, as long as he takes an act here, then we’re allowed to charge him with other acts, like a mailing or a travel that goes to the FCPA substantive offense. So it doesn’t have to be that each individual act is the one act while he’s in the United States that he’s taking. As long as he’s taking one act, he can have multiple substantive violations for other acts he’s taking as long as —

Judge Leon: Outside the United States?

Lipton: Outside the United States. Correct, Judge.

Judge Leon: Has the Supreme Court said that?

Lipton: Judge, no.

Judge Leon: Has the D.C. Circuit said that?

Lipton: No.

Judge Leon: How about the 2nd Circuit, where you used to prosecute?

Lipton: Judge, there’s not a lot of case law on the FCPA, as Your Honor I think is well aware.

Judge Leon: So is this a novel interpretation you want me to take?

Lipton: I don’t know if it’s a novel interpretation. I think it’s an interpretation that’s grounded in the law that’s out there.

Judge Leon: Is it grounded in the legislative record?

Lipton: We can go back and we can get Your Honor more particulars about the legislative history if Your Honor wants that.

Judge Leon: I would think the more cautious, conservative interpretation would be that each act has to be while in the territory of the United States, wouldn’t it?

Lipton: Well, Judge, if you read the statute, the way that I understand it and the way it’s been interpreted is that you just have to take an act. And if he’s traveling or if he’s mailing something from outside that comes into the United States, that that on its own would be sufficient. And I also believe Mr. Patel’s charged with an aiding and abetting theory as well, so, I haven’t fleshed that out, but there may be an argument to be made that even less has to be done on an aiding and abetting theory. Also, there’s a Pinkerton theory, which if he knows as a conspirator that acts are being taken by his codefendants or himself in furtherance of the conspiracy, then anything that’s reasonably foreseeable can also be an act, a substantive count. But, Your Honor, I can go back and we can get more details and particulars. Frankly, I don’t have the case law or the legislative history to the extent that that’s going to be helpful. That goes to that point.”

In reply, Bruce stated as follows. “I heard Mr. Lipton say that Mr. Patel only has to do an act in the United States, it doesn’t even have to be illegal. If that’s the government’s position, I’m happy to take that to the D.C. Circuit if there’s a conviction on these points. That is absurd, with all due respect to Mr. Lipton. The statute plainly requires, Your Honor, that while in the territory of the United States he has to corruptly make use of the mails or any means or instrumentality of interstate commerce or do any act in furtherance of an offer, payment, promise to pay or authorization. It’s clear as day.”

After a recess, Judge Leon dismissed Count 3 against Patel.

Judge Leon also dismissed Count 8 (a substantive FCPA violation charge) as to defendant Lee Allen Tolleson; and dismissed Count 10 (money laundering) as to all four defendants. In all other respects, Judge Leon denied the Rule 29 motion.

Judge Leon’s ruling is a significant FCPA development as many FCPA charges (as demonstrated by the above cases) are based on similar “novel” jurisdictional theories under the dd-3 prong of the FCPA.

Powered by WordPress. Designed by WooThemes