Category: Compliance Defense

Seeing The Light From The “Dark Ages”

During the panel session on DOJ non-prosecution and deferred prosecution agreements last week at the Corporate Crime Reporter sponsored conference in Washington, D.C., I shared my belief that it seems like DOJ is clearly troubled, with good reason, by traditional notions of corporate criminal liability.  (See here for the prior post when I said the same thing about Lanny Breuer’s NPA/DPA speech last September).  However, rather than seek substantive solutions to this issue, the DOJ defends an alternate reality (NPAs / DPAs) that are equally problematic.

After listening to fellow panelist Denis McInerney (DOJ, Deputy Assistant Attorney General) describe the goals of DOJ prosecution – among other things, to better promote compliance and to hold individuals accountable – I offered a solution in the Foreign Corrupt Practices Act context that could help the DOJ achieve these laudable goals.

Have a compliance defense and abolish NPAs and DPAs.

A compliance defense, along the lines I outlined in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” would not eliminate corporate criminal liability.  Far from it.  Rather, a compliance defense would only apply when, notwithstanding a company’s pre-existing compliance policies and procedures and its good-faith efforts to comply the law, a non-executive employee or agent acts contrary to those policies and procedures in violation of the law.

If a company did not have pre-existing compliance policies and procedures, it could not avail itself of a compliance defense.  Similarly, even if a company did have pre-existing compliance policies and procedures, the company could not avail itself of a compliance defense if executive officers or employees (a concept already used in the U.S. Sentencing Guidelines) were involved in the improper conduct.

If this were the framework governing corporate criminal liability, then NPAs and DPAs should be abolished and the DOJ would return to the historical choice of two options:  charge or do not charge.

At the conference, I stated my genuine belief that such a two-step reform would better incentive more robust corporate compliance, reduce improper conduct, and thus best advance the FCPA’s objectives of reducing bribery.  Such a two-step reform would also increase public confidence in FCPA enforcement actions and allow the DOJ to better allocate its limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engaged in the improper conduct.  (See the article for additional details).

In short, this two-step reform will better allow the DOJ to achieve many of the objectives McInerney articulated.

However, not surprisingly, McInerney’s response to my two-step reform was the comment that this would be like returning to the “dark ages.”

The question is why?

Presumably most countries have an incentive to better promote compliance and to hold individuals accountable for wrongdoing.  Does this mean that the following OECD Convention countries that have a compliance-like defense relevant to their FCPA-like laws are living in the “dark ages” – Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, Switzerland, and the United Kingdom.  (See here).

Are Stanley Sporkin (former Director of the SEC Division of Enforcement, among other positions), James Doty (current head of the PCAOB), and Andrew Weissmann (former Director of the Enron Task Force and current General Counsel of the FBI) all living in the “dark ages”?  All have supported compliance-like defenses or concepts relevant to the FCPA.  (See here, here, and here).

Are former Attorney Generals Michael Mukasey and Alberto Gonzales or other former high-ranking DOJ officials such as Larry Thompson living in the “dark ages”? (See here, here, and here).  Is former DOJ FCPA Unit chief Joseph Covington living in the “dark ages.”  (See here).

Or have all these individuals, and others who support an FCPA compliance defense, seen the light and it’s the DOJ who is living in the “dark ages”?

Friday Roundup

The U.S. intervenes, I disagree, I agree, and say what.  It’s all here in the Friday roundup.

U.S. Intervenes in Wynn-Okada Dispute

Numerous prior posts (see here, here and here for instance) have highlighted the dispute between Wynn Resorts and its former board member Kazuo Okada.  Earlier this week, Bloomberg reported as follows.  “The U.S. asked to intervene in a lawsuit brought by Wynn Resorts Ltd., which accused Okada of making improper payments to Philippine gambling regulators. The Justice Department said in an April 8 filing in state court in Las Vegas that it doesn’t want the civil case to disrupt its criminal investigation into the same underlying allegations.”  According to Bloomberg:  “Okada’s lawyers have said they would probably oppose the request “in whole or in part,” according to the filing. Wynn Resorts won’t oppose its request, the Justice Department said.”  For additional coverage, see here from the Las Vegas Review-Journal.

I Disagree

Earlier this week a reader of the FCPA Blog (see here) posed the following question.  “One thing  that has not gotten much discussion is the possibility that the apparent slowdown in FCPA enforcement may be due to the spike in declinations.”

Putting aside the big-picture and highly relevant issue of what is a declination (see here as well as other embedded posts on this issue), when addressing the issue of FCPA enforcement statistics, it is important to keep in mind (as highlighted in this prior post) the following.

Just three unique historical events (Iraq Oil for Food, Bonny Island, Nigeria conduct, and Panalpina-related issues) served as the foundation for 35% of all corporate FCPA enforcement actions between 2007-2011 and resulted in 55% of settlement amounts in corporate enforcement actions between 2007-2011.  Adding just the 2008 Siemens enforcement action to the settlement amount calculation, results in just four unique historical events accounting for 77% of settlement amounts in corporate enforcement actions between 2007-2011.

Recognizing these events and how they impacted FCPA enforcement data is important to understanding why FCPA enforcement has declined in recent years.

Even though FCPA enforcement has declined in recent years, unique events giving rise to FCPA enforcement actions have remained relatively constant between 2007 and 2012.  In 2007, corporate FCPA enforcement actions were the result of 15 unique events.  In 2008, corporate FCPA enforcement actions were the result of 10 unique events.  In 2009, corporate FCPA enforcement actions were the result of 11 unique events.  In 2010, corporate FCPA enforcement actions were the result of 14 unique events.  In 2011, corporate FCPA enforcement actions were the result of 16 unique events.  In 2012, corporate FCPA enforcement actions were the result of 12 unique events.

I Agree

Dieter Juedes (who like me is a product of Sheboygan County, Wisconsin) recently published “Taming the FCPA Overreach Through an Adequate Procedures Defense” in the William & Mary Business Law Review.  Among other things, the article “proposes specific statutory language that Congress could use in adopting such a defense and it establishes precise factors to be promulgated by the DOJ and SEC for determining whether a firm’s procedure would be deemed “adequate.”

Given my prior article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I agree with the general thrust of Juedes’s article.

Say What?

I don’t quite understand the logic or rationale of this op-ed piece in the South China Morning Post by Robert Precht (director of Justice Labs Limited, a Hong Kong think tank).

Precht argues that “the efforts of some Western countries to enforce their own anti-bribery laws in China are more likely to produce false accusations and hinder democratic reform than reduce corruption.”  He states as follows.  “One of the unintended harms of enforcing the US anti-bribery law in China is that it may actually stifle efforts to end corruption. US journalists, human rights workers and university researchers play an important role in shining light on the darker recesses of Chinese politics. Preventing Americans from making gifts to Chinese to obtain information useful to promote democratic reform will hinder the disclosure role the Americans play.”

According to Precht, “the solution is simple.”  He argues that “the US Congress should amend the law, providing that it will only be applied in countries that meet certain minimum requirements of democracy and will not be applied in authoritarian regimes such as China.”

Former Attorney General Alberto Gonzales Criticizes Various Aspects Of DOJ FCPA Enforcement

Yesterday at the Dow Jones / Wall Street Journal Global Compliance Symposium, former Attorney General Alberto Gonzales openly criticized various aspects of DOJ Foreign Corrupt Practices Act enforcement.

During a featured interview at the event with David Wessel of the Wall Street Journal, Gonzales said that the DOJ could “give more guidance and transparency” concerning issues relevant to an FCPA enforcement action.  Gonzales mentioned the FCPA Guidance, but stated that it represents no change in policy and again reiterated that “more transparency” is important because he does not see actual reform of the FCPA statute coming from this Congress or this administration.

Gonzales “salute[d] the efforts of business groups” post-FCPA Guidance who have asked for additional clarification and guidance concerning the FCPA and FCPA enforcement (see here for the prior post) and said that the FCPA Guidance “does not end the need for additional discussion” regarding these topics and the enforcement approach of the agencies.

Gonzales also had pointed criticisms for DOJ non-prosecution and deferred prosecution agreements.  Asked by Wessel whether the original motivations Congress had in passing the FCPA are being served by the current enforcement environment or whether the current enforcement environment has “lost sight of the [FCPA’s] end point” Gonzales said that it is “hard to tell quite frankly” because many FCPA enforcement actions are resolved via NPA and DPAs and that these resolution vehicles do not necessarily reflect instances of companies violating the FCPA, but rather companies feels compelled to agree to the agreements.

Equally problematic, Gonzales said as to NPAs and DPAs, is that enforcement actions resolved via these vehicles mean that “legitimate wrongdoing is not being prosecuted as it should.”  Gonzales said it is “easy, much easier quite frankly” for the DOJ to resolve FCPA inquiries with NPAs and DPAs, that such resolution vehicles have “less of a toll” on the DOJ’s budget and that such agreements “provide revenue” to the DOJ.  It is all “unfortunate” Gonzales stated.  [For additional reading on this issue, see my article “The Facade of FCPA Enforcement” and numerous prior posts – including here and here – concerning NPAs and DPAs].

Gonzales further observed that the DOJ appears more focused on FCPA enforcement numbers, how successful it is being, and the dollars it receives from FCPA enforcement actions, rather than achieving the “true objective [of the FCPA] which is to discourage bribery of foreign officials.”

Gonzales also joined the growing chorus of those who have called for the DOJ to release more specific information concerning its so-called declination decisions, and also spoke out in favor, as he has in the past (see here for the prior post) for “common-sense reform” such as compliance defense

So I ask the question yet again (see here for the prior post), – how many former high-ranking DOJ officials and/or former DOJ FCPA enforcement attorneys does it take before the current DOJ realizes that its FCPA enforcement policies and procedures are, in certain cases, broken?

A Positive Correlation

Previous posts (see here, here and here) have posed the question several times.

Why do Foreign Corrupt Practices Act violations occur?

Do companies subject to the FCPA do business in foreign markets: (i) intent on engaging in bribery as a business strategy and without a committment to FCPA compliance; or (ii) with a committment to FCPA compliance, yet subject to difficult business conditions?

To be sure, there have been some instances, as reflected in FCPA enforcement actions, where bribery was used as a business strategy and approved of and condoned by high-level corporate executives.  However, the latter is the more common reason for FCPA enforcement actions and related scrutiny.

Indeed, as Joseph Covington (a former DOJ FCPA Unit Chief) commented in this prior guest post, he has “rarely seen American companies affirmatively offering bribes in the first instance.”  Rather, Covington observed that companies doing business in international markets are “reacting to a world not of their making” and that “as the world shrinks companies who seek to do the right thing can’t help but confront corrupt officials – as customers, regulator and adjudicators – and confront them often.”

This point is evident in reviewing the World Bank’s Ease of Doing Business Rankings and then comparing the results to Transparency International’s Corruption Perceptions Index.

The “ease of doing business index” ranks countries based on factors such as the ease of starting a business, obtaining permits and otherwise dealing with regulatory officials.  The “corruption perceptions index” ranks countries based on the perceived levels of public sector corruption. You don’t have to be trained in sophisticated statistical methods (which I am not) to see a positive correlation between the two rankings.  That is, the lower the regulatory burdens imposed on business, the less corrupt the country is perceived to be.  The greater the regulatory burdens imposed on business, the more corrupt the country is perceived to be.

Regulatory burdens (ranging from customs procedures, licensing and certification requirements, foreign government procurement policies, etc.) create bureaucracy, bureaucracy creates interactions with foreign officials, and the more interactions with foreign officials the greater the FCPA risk will be.

In short, in addition to the forced business relationships that many companies are required to endure while doing business in a foreign country, companies are often funneled into an arbitrary world of low-paying civil servants who administer entrenched bureaucracies which create the conditions for harassment bribes to flourish.

In “Revisiting a Foreign Corrupt Practices Act Compliance Defense” I argued that the U.S. ought to recognize this simple fact of doing business in many international markets.

Well, in fact, the U.S. Congress did recognize this fact when it passed the FCPA.  Congress exempted so-called “grease” or “facilitation” payments from the reach of the FCPA (first through the definition of “foreign official” and then in 1988 through a stand-alone facilitation payment exception) and otherwise included an obtain or retain business element in the FCPA’s anti-bribery provisions. (See my article “The Story of the Foreign Corrupt Practices Act” for a detailed overview of the legislative history).

I argued in “Revisiting an FCPA Compliance Defense” that, so long as the enforcement agencies refuse to recognize congressional intent in enacting the FCPA, that such congressional intent is best advanced through an FCPA compliance defense in which a company can assert, as a matter of law, that its pre-existing FCPA policies and procedures sought to prevent such payments in foreign markets.  As detailed in the article, this is not the only reason I, and many others, support an FCPA compliance defense, but it is clearly an important reason.

*****

The below chart has two segments.  The left segment lists the countries at the top of the “ease of doing business index” and a country’s associated “corruption perceptions index” score.  The right segment lists the countries at the bottom of the “ease of doing business index” and a country’s associated “corruption perceptions index” score.

Broad Coalition Of Business Groups Seek Real FCPA Reform

At the FCPA Guidance press conference last November (see here), Assistant Attorney General Lanny Breuer wisely noted that the Guidance was not “complete closure” to various concerns regarding the Foreign Corrupt Practices Act and he stated that the DOJ “welcomes” continued discussions regarding FCPA reform.

And why should non-binding enforcement agency Guidance be the end to FCPA reform discussions?  As Breuer and then SEC enforcement chief Robert Khuzami both acknowledged during the press conference, the Guidance “does not represent a change in policy.”

And why should Wal-Mart’s potential FCPA scrutiny (one of approximately 100 companies currently the subject of FCPA scrutiny) which involves FCPA issues as a condiment to a bigger corporate governance sandwich be the end to FCPA reform discussions?  (See here for the prior post).

As I noted in my article “Grading the Foreign Corrupt Practices Act Guidance” while there were certain FCPA reform measures, such as abolishing NPAs and DPAs, as I have urged, that the enforcement agencies could have accomplished through a change in policy in the Guidance, other FCPA reform measures, like amending the statute to include a compliance defense, can be accomplished only through congressional action and presidential signature.

This post last month detailed the Manhattan Institute’s post-Guidance call for FCPA reform, and this recent post highlighted various post-Guidance FCPA reform scholarship from a practitioner and an academic.

Earlier this week, the Chamber of Commerce and a broad coalition of business groups (such as the American Bankers Association, the American Gaming Association, the American Insurance Association, the Generic Pharmaceutical Association, the National Association of Manufacturers, the National Foreign Trade Council, the Financial Services Roundtable, and the Poultry Federation) sent this letter to the DOJ and SEC “to identify several areas of continuing concern for businesses seeking in good faith to comply with the FCPA.”

The letter addressed the following sections:  compliance programs and voluntary disclosure, foreign official / instrumentality, parent-subsidiary liability issues, successor liability issues, mens rea for corporate criminal liability and declinations.

As to compliance programs, the letter states, in pertinent part, as follows.

“Even if a company had in place a state-of-the-art compliance program that was well-designed to prevent FCPA violations and that was aggressively enforced, it remains exposed to liability if the program is circumvented by even one employee. The [Guidance] offers little assurance that the company’s pre-existing, strong compliance program will be given sufficient weight in the charging decisions of the Department and the SEC. Such assurance should be provided through legislative reform of the FCPA to add an affirmative defense that would permit a company, if charged with an anti-bribery violation, to rebut the imposition of criminal liability if the individuals responsible for the violation circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations and implemented with appropriate vigor.”

As to declinations, the letter states,in pertinent part, as follows.

“We do not share the view expressed by some in the Department and SEC that because the agencies do not routinely provide information on declinations in other types of cases, FCPA cases should not be treated any differently. The FCPA is exceptional in that: (i) it is over 30 years old, not a brand new law; (ii) it is very aggressively enforced, in terms of the number of pending investigations initiated each year and in the massive fines and penalties that are sometimes imposed; and (iii) it lacks a material body of case law through which it can be interpreted by the business community. Other statutes, including ones targeting financial fraud, antitrust violations and money laundering, have been extensively construed by the courts. As the Department and SEC recognize in the [Guidance] it is the courts and not the agencies that have the final say. However, until such time as a significant body of case law is developed, we encourage and would welcome regular release of anonymized information on declinations.”

“[A] decision not to bring a case where the evidence of a violation simply is lacking should not be considered a “declination.”  We remain concerned that the Department and the SEC may be defining “declination” to include both circumstances. In order to provide useful guidance and positive incentives to companies seeking to comply with the FCPA, the Department and the SEC should continue to provide information – on an anonymized basis – regarding matters in which the agencies found sufficient evidence of an FCPA violation but nevertheless declined to pursue prosecution or enforcement action on the basis of other circumstances, such as the company’s voluntary disclosure, cooperation and remedial measures.”

Regarding the two issues discussed above, it is simply wrong and closed-minded to view these issues as “Chamber” issues when the reality is that many people for many years have been saying the same thing.  (See my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (which details the pro-compliance defense positions of many former high-ranking DOJ officials among others) and my “Grading the Foreign Corrupt Practices Act Guidance” article for a discussion of declination issues.

As the letter this week by a broad-coalition of business groups indicates, FCPA reform discussion is not dead, nor should it be.  A compliance defense is not a race to the bottom, it is a race to the top.  (See here for the prior post).  Abolishing NPAs and DPAs, and thereby reconstructing a system of checks and balances to FCPA enforcement, is consistent with the rule of law.  So too is increasing transparency in government decision-making.

During the FCPA reform debate in the 1980’s, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA by stating as follows. “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 antibribery and accounting provisions, is the best approach …”.

During Senate hearings, Senator John Heinz stated as follows. “… 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 […], 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?”

The FCPA Guidance issued last November was not the result of a policy debate as to whether the current FCPA and its enforcement is the best approach.  In fact, if you analyze, in chronological order, enforcement agency statements and positions (see pages 1-2 of my “Grading the Foreign Corrupt Practices Act Guidance” article) there is a credible argument to be made that one of the purposes of the Guidance was to prevent such a policy debate from going forward.

The FCPA is a fundamentally sound statute and I stated as such in my November 2010 Senate testimony.  But how many truly believe that the FCPA is a perfect statute or that its enforcement is best accomplishing the objectives of punishing improper payments and deterring future improper payments?

These are worthy objectives to pursue.  For this reason, it is good that FCPA reform discussions continue in the hopes that a substantive policy debate can result.