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The Best Answer, In Many Cases, To The DOJ’s “Root Cause” Analysis Question


In its recent “FCPA Corporate Enforcement Policy” the DOJ stated, under the heading “Timely and Appropriate Remediation in FCPA Matters” that various items will be “required for a company to receive full credit for timely and appropriate remediation.” The first item listed was “demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes.”

This post highlights the best answer, in many cases, to this root cause question.

The true root cause analysis of any Foreign Corrupt Practices Act enforcement action is understanding why a company employee or company third party was interacting with an alleged “foreign official” in the first place.

As highlighted numerous times on these pages, this root cause analysis is fairly straightforward.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

Thus, the true root cause analysis of the Avon and NuSkin Enterprises enforcement actions were that direct selling of certain products was prohibited under Chinese law and thus the companies needed a government issued license.

The true root cause analysis in the ABInBev enforcement action? Easy. As stated in the SEC’s enforcement action: “sale of beer in India is predominately regulated by individual states” and “an instrumentality of the government … purchases beer directly from brewers and sells beer directly to private retailers” and in another state, “an instrumentality of the government … controls both wholesale and retail beer sales, purchasing beer from brewers and selling to consumers through [government] retail outlets.”

The true root cause analysis in the Halliburton enforcement action and several others in Angola. Even easier. Local content requirements.

Numerous other examples could also be cited, but in short, the true root cause analysis of many FCPA enforcement actions are issues beyond the control of business organizations and a reduction in bribery will not be achieved without a reduction in trade barriers and distortions.

Even though this is the best, most obvious answer to the root cause question in many cases, my hunch is that the DOJ will not take kindly to this answer.

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