My article “A Common Language to Remedy Distorted FCPA Enforcement Statistics” (click here to download) was recently published in the Rutgers Law Review.
The article discusses how various FCPA Inc. participants have adopted creative and haphazard counting methods that infect the quality and reliability of FCPA enforcement and related statistics of interest to many in the legal and business communities. The article also highlights how the lack of an FCPA common language has several negative effects including the quality of FCPA lawyering, the quality of empirical FCPA research, and the quality of FCPA reporting by the media.
The article concludes by proposing a FCPA common language that can improve the quality and reliability of FCPA statistics and thus allow a more cogent conversation to take place regarding FCPA issues.
I elaborate on various issues discussed in the article in a Q&A recently published in Bloomberg BNA’s White Collar Crime Report – “How a Common Language for the FCPA Would Help all Participants” (May 13, 2016).
The Q&A is set forth below.
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BLOOMBERG BNA: You coined the phrase FCPA Inc. What is FCPA Inc.?
Mike Koehler: I began using this term in 2010 as short-hand way to describe a vibrant, niche industry consisting of numerous market participants including law firms, accounting firms, consulting firms, etc., providing FCPA services or products. Certain people view FCPA Inc. as a derogatory term, but it was not intended to be. Regardless of what one thinks about the FCPA, FCPA enforcement and FCPA compliance, it is a fact that this niche industry is a multi-billion dollar industry. Since coining this term, several others have used it as well, including the Wall Street Journal, which published a lead article titled ‘‘FCPA Inc. and the Business of Bribery’’—the precise title of my presentation I sent to the WSJ journalists who borrowed the title without attribution.
BLOOMBERG BNA: You have also advocated for a ‘‘common language’’ to gauge the number of enforcement actions. What is a common language?
Koehler: A common language, a lingua franca if you will, binds an entire profession and facilitates effective and efficient communication and understanding of topics. Many specific professions or pursuits (such as skilled trades, healthcare, sports, religion, politics, etc.) have a common language and indeed it is a sign of a mature industry. FCPA Inc. is a mature industry, and thus in need of a common language as to the most basic issue of ‘‘what is an FCPA enforcement action.’’
BLOOMBERG BNA: Why is it important to have a common language?
Koehler: The FCPA is arguably the most important U.S. law governing business transactions in the global marketplace. The DOJ and SEC have specific FCPA units and both have declared FCPA enforcement to be among their top law enforcement priorities. Yet many FCPA conversations are muddied, including what should be the basic question of ‘‘what is an FCPA enforcement action,’’ because of the lack of a common language. A common language regarding this issue is simply a means of effectively communicating so that everyone in the same niche industry is on the same page regarding the number of FCPA enforcement actions.
BLOOMBERG BNA: Why hasn’t a common language developed on its own?
Koehler: One potential reason is practical, the other potential reason is likely to be viewed by some as provocative.
As to the practical, while the FCPA has been around since 1977, FCPA Inc. as a niche industry has really only developed in the past 10 years or so. In short, the emergence of FCPA Inc. was rapid and anytime something develops very quickly, some basic issues often get overlooked.
As to the provocative, let’s face it, FCPA Inc. participants often have a business motivation in making FCPA enforcement appear more robust than it actually is. One way to make FCPA enforcement appear more robust is to adopt creative counting methods in measuring the level of FCPA enforcement activity. Highlighting the business incentives FCPA Inc. participants may have in measuring FCPA enforcement is likely to be viewed by some as provocative. However, it is no more provocative than highlighting the business incentives the oil industry has in suggesting that car owners change their oil every 3000 miles (even though the owner’s manual for the vehicle suggests otherwise) or the business incentives the radar detection industry has in presenting speeding statistics. In short, recognizing the business incentives FCPA Inc. participants may have in measuring FCPA enforcement is important to having an informed and sophisticated understanding of FCPA enforcement statistics as well as the urgent need for a common FCPA language.
BLOOMBERG BNA: What is the biggest problem from not having a common language?
Koehler: There are numerous negative effects of a lack of a common language regarding the basic issue of what is an FCPA enforcement action. For starters, the lack of a common language on this issue impacts nearly every imaginable FCPA enforcement statistic of interest to the business community in navigating this ‘‘new era of FCPA enforcement.’’ In the article, I call it the denominator problem and it impacts statistics as varied as what country has been the location of the most FCPA enforcement actions, how many FCPA enforcement actions are resolved via NPAs or DPAs, what is the average FCPA settlement amount and many, many more statistics.
The lack of an FCPA common language also negatively impacts the quality of FCPA lawyering (because various FCPA statistics are frequently used by FCPA lawyers in negotiating settlements or communicating the clients), the quality of FCPA media reporting, and the quality of empirical FCPA research.
Regarding FCPA media reporting, I think people need to understand, to the extent they haven’t already, that many media outlets active in the FCPA space such as the Wall Street Journal and Thomson Reuters also have a vested business interest in making FCPA enforcement appear more robust than it actually is. Why? Because these organizations have for-profit risk and compliance divisions that sell FCPA and related compliance products and services to the business community.
BLOOMBERG BNA: Does a lack of court cases contribute to the failure of the FCPA community in adopting a common language?
Koehler: While the general lack of judicial scrutiny of most FCPA enforcement actions is of concern for a wide variety of reasons, I don’t see this issue impacting the common language because the common language seeks to measure the number of FCPA enforcement actions regardless of whether those enforcement action are subjected to meaningful judicial scrutiny or not. For instance, the FCPA enforcement action against Joel Esquenazi and Carlos Rodriguez was one ‘‘core’’ enforcement action regardless of whether the Eleventh Circuit issued its ‘‘foreign official’’ decision in 2014.
BLOOMBERG BNA: Can you explain/boil down the core approach?
Koehler: The common language proposed in the article adopts the ‘‘core approach’’ to tracking FCPA enforcement actions. Before turning to the specifics, recognize that the ‘‘core approach’’ is a mainstream approach to tracking enforcement statistics in other areas of law as well as an approach endorsed by the DOJ. The proposed common language consists of three conjunctive factors.
The first factor in determining whether an enforcement action is an FCPA enforcement action is the most basic. An FCPA enforcement action is an instance in which an enforcement agency (whether the DOJ or the SEC) charges or references that the FCPA (whether its anti-bribery, books and records, or internal controls provisions) has been violated. While this seems like a basic statement, as highlighted in the article, many FCPA Inc. participants include the BAE enforcement action in FCPA enforcement statistics even though the action did not involve any actual FCPA charges. In short, if FCPA enforcement statistics are to mean anything, such statistics should only include enforcement actions that charge or reference FCPA violations.
The second factor in determining whether an enforcement action is an FCPA enforcement action relates to the basic fact that the FCPA is a law much broader than its name suggests because of the generic books and records and internal controls provisions. In other words, FCPA books and records and internal controls violations do not always involve allegations of foreign conduct and/or bribery (actions referred to in the article as ‘‘non-FCPA FCPA enforcement actions’’). While FCPA Inc. participants are generally consistent in not including such actions in FCPA enforcement statistics, the practice can vary and, thus, warrants consideration of the second factor: If an enforcement agency (whether the DOJ or the SEC) charges or references only violations of the FCPA books and records and/or internal controls provisions, the enforcement action is an FCPA enforcement action only to the extent the action is categorized as such by either the DOJ or the SEC on its FCPA websites.
The third factor in determining whether an enforcement action is an FCPA enforcement action is the most important, as it adopts a specific counting method—the ‘‘core’’ approach. The core approach focuses on unique conduct at issue regardless of whether the conduct involves a DOJ or SEC enforcement action or both; regardless of whether a corporate enforcement action involves a parent company, a subsidiary, or both; and regardless of whether the DOJ and/or the SEC bring any related individual enforcement actions against company employees based on the same corporate conduct.
The ‘‘core’’ approach is not impacted (like the many creative counting methods are) by the dual and often overlapping nature of FCPA enforcement, the creative ways in which the DOJ often resolves corporate enforcement actions, or individual enforcement actions that may be brought that directly relate to corporate enforcement actions.
The article concludes by highlighting—using only a small portion of recent FCPA enforcement actions— that the difference between the ‘‘core’’ approach and various creative counting methods is 71 enforcement actions—a massive, massive difference.
In conclusion, there are several legal and policy issues regarding the FCPA that are understandably complex. However, the basic issue of ‘‘what is an FCPA enforcement’’ should not be complex, but has become complex only because of the creative counting methods adopted by many FCPA Inc. participants.
The article is an attempt to clear up the muddy conversational waters on this issue by proposing a common language for what is an FCPA enforcement so that a more cogent conversation can take place regarding FCPA issues.
BLOOMBERG BNA: Why hasn’t FCPA Inc. adopted this on its own? Wouldn’t this help a firm’s clients? What if a client sees a competing law firm’s client alert with dramatically different figures?
Koehler: As highlighted in the article, certain FCPA Inc. participants have adopted the common language ‘‘core’’ approach proposed in the article, but most have not. The reason I think is largely attributable to the reasons discussed above. Moreover, until this article was written, no one was drawing attention to the creative and haphazard counting methods used by many FCPA Inc. participants.
I agree with the thrust of your question that it would be embarrassing for a law firm to be presented with dramatically different FCPA enforcement statistics by a client or potential client. Yet that is the risk one takes when embellishing statistics for business reasons.
Thus, I hope this article can effectuate change on the most basic issue of ‘‘what is an FCPA enforcement action.’’
BLOOMBERG BNA: Would a common language help all actors in the FCPA arena, more specifically FCPA Inc. as it would be allowed to offer more specific, targeted services?
Koehler: Most certainly a common language would be valuable to a variety of actors and that was part of my motivation in writing the article and drawing attention to this issue. As you note, there are a variety of actors in the ‘‘FCPA arena.’’ Whether you are a DOJ or SEC enforcement attorney, an attorney in private practice, an in-house counsel or compliance professional, a civil society participant, or an academic conducting FCPArelated research, all actors could benefit by a common language as to the most basic issue of ‘‘what is an FCPA enforcement action.’’ To restate a theme of the article, the lack of a common language on this issue impacts nearly every imaginable FCPA enforcement statistic of interest to many.
Again, certain FCPA Inc. participants have adopted the common language ‘‘core’’ approach proposed in the article and whether these firms are industry leaders, well I will let others opine on that issue.
BLOOMBERG BNA: Would the best common language adopt talking points from the DOJ and SEC?
Koehler: As pointed out in the article, DOJ officials have already publicly endorsed the common language ‘‘core’’ approach. Moreover, the DOJ and SEC’s FCPA website are a form of a ‘‘talking point’’ I guess and readers can go to those sites to see how the enforcement agencies themselves categorize FCPA enforcement actions.
BLOOMBERG BNA: It seems logical that a firm that adopts a common language with DOJ/SEC talking points would be better situated to settle cases with these enforcement agencies.
Koehler: I guess this depends on the statistic that one is seeking to rely upon in making whatever point they want to make to the DOJ/SEC. As highlighted above, the number of FCPA enforcement actions is the denominator in numerous FCPA statistics. The lack of a common language allows the denominator to fluctuate resulting in vastly different statistics. As highlighted above, one negative impact of the lack of a common language is it impacts the quality of FCPA lawyering. In short, yes I agree that the quality of FCPA lawyering could be improved through a common language as to the basic issue of ‘‘what is an FCPA enforcement action.’’
BLOOMBERG BNA: How will the DOJ’s pilot program or the Yates Memo affect the adoption of a common language?
Koehler: These are policy documents that address a variety of issues but do not address the specific issue of ‘‘what is an FCPA enforcement action.’’ Thus I do not see any direct impact. To the extent the pilot program and/or the Yates Memo results in more or fewer FCPA enforcement actions, it would be relevant because a common language is all about measuring the number of FCPA enforcement actions.
BLOOMBERG BNA: If the DOJ or SEC doesn’t call something an enforcement action, how can FCPA Inc. call it one?
Koehler: Great question—obviously—and this highlights the problem. You would have to ask an FCPA Inc. participant that uses creative counting methods for the answer. Again, FCPA Inc. participants often have business motivations in presenting FCPA enforcement statistics.
BLOOMBERG BNA: Is there any issue regarding a lawyer’s duty to a client (being truthful and candid) that could necessitate a common language?
Koehler: You are correct that as a matter of professional responsibility lawyers have a duty of candor to clients. I will let others decide whether many of the creative counting methods employed by FCPA Inc. participants violate any professional responsibility duties lawyers may have. Relevant to this issue, and as highlighted in the article, what makes many of these creative counting methods troubling is that the creative counting methodology is not even disclosed.
