DOJ Declines To Get Specific In Declination Responses
During the June 14th House FCPA hearing (see here for the prior post) Representative Sandy Adams (R-FL) asked Greg Andres (DOJ) about the DOJ’s FCPA declination decisions and requested that the DOJ provide more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. [A declination decision in the FCPA context is generally viewed to mean that the DOJ learns of conduct that likely violates the FCPA, typically through a corporate voluntary disclosure, but in the exercise of its prosecutorial discretion the DOJ declines to prosecute or bring an enforcement action.]
Soon after the hearing, Representative Adams and Representative James Sensenbrenner (R-WI) sent Andres a letter and requested as follows. “Please provide to us information on cases that been brought to the attention of DOJ, but your agency decided, for one reason or another, not to investigate or pursue prosecution within in the last year along with the rationale for those decisions.”
In this August 3rd letter, Assistant Attorney General Ronald Welch begins with references to the DOJ’s Principles of Federal Prosecution of Business Organizations. Welch then responds as follows. “Pursuant to these guidelines, the Department has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters, and taking into account the available evidence. For example, during the previous two years, the Department of Justice declined matters in which some or all of the following circumstances existed: a corporation voluntarily and fully self-disclosed potential misconduct; corporate principles voluntarily engaged in interviews with the Department and provided truthful and complete information about their conduct; a parent corporation voluntarily and fully self-disclosed information to the Department regarding alleged conduct by subsidiaries;a parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries, and engaged in significant remediation efforts in acquiring the relevant subsidiaries; a company provided information to the Department about the parent’s extensive compliance policies, procedures, and internal controls, which the parent had implemented at the relevant subsidiaries; a company agreed to a civil resolution with the Securities and Exchange Commission, while also demonstrating that a declination was appropriate for additional reasons; a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”
Welch concluded the letter by stating that the DOJ “cannot comment more specifically about FCPA matters where prosecution was declined” to “protect the privacy rights and other interests of the uncharged and other potentially interested parties.” Given that many declination decisions are assumed to be made after corporate voluntary disclosures, it is difficult to understand what privacy rights would be implicated by more specific answers.
I highlight above four of the circumstances DOJ identified because they undermine the DOJ’s staunch opposition to a potential FCPA compliance defense – a defense Andres (testifying on behalf of the DOJ at the June hearing) called “novel” and “risky.”
How is an FCPA compliance defense “novel” and “risky” when it would include factors the DOJ already considers in declining to bring FCPA enforcement actions? Would it not serve the public interest for such factors to be removed from the shadowy world of opaque DOJ decision making and codified in an open and transparent manner in an FCPA compliance defense?
Many have called for more transparency in DOJ declination decisions. In this guest post, Homer Moyer, a dean of the FCPA bar, called for “internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.” In this previous post, I proposed that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases. In a 2010 Q&A with Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.” Even William Stuckwisch (current DOJ-FCPA) wondered aloud in this video (at the six minute mark) whether DOJ declination decisions should be made public.
Given the opportunity to demonstrate to Congress, the business community, the FCPA bar, and others that it runs a consistent, principles-based, transparent FCPA enforcement program, the DOJ in its responses once again “circled the wagons.”
For additional analysis of DOJ declination decisions, see this prior post.
Mr. Alderman Goes to Washington
[I am pleased to share that FCPA Professor is one of the nominated blogs for the Top 25 Business Law Blogs of 2011 contest sponsored by LexisNexis. LexisNexis invites comments on the nominated blogs so that the field can be narrowed to the Top 25. The link to submit comments is here. To submit a comment, you must register, but registration is free and does not result in any sales contacts. The comment box is at the very bottom of the page and the comment period ends on October 25th.
Since launching FCPA Professor in July 2009, and continuing with the upgrade of the site in July 2001, my mission has remained the same: to inject a much needed scholarly voice into FCPA and related issues; to explore the more analytical “why” questions increasingly present in this current era of aggressive enforcement; and to foster a forum for critical analysis and discussion of the FCPA and related topics among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons. I hope you value the content and resources found on FCPA Professor and I thank you for your consideration.]
Richard Alderman is the Director of United Kingdom Serious Fraud Office, an agency (here) similar to the U.S. Department of Justice and the primary U.K. enforcer of the Bribery Act (as well as the country’s prior bribery laws). Last week, Alderman gave three speeches in Washington and this post contains excerpts from those speeches. In his remarks Alderman touched upon the following topics: SFO resources, current workload and enforcement priorities; differences between how the UK and US investigate and prosecute bribery actions; WikiLeaks and the Arab Spring; the demand side of bribery; individual prosecutions under the Bribery Act; adequate procedures under the Bribery Act (“let me emphasize this is a complete defense, it is not a matter of mitigation”) and the SFO’s active engagement approach; and merger and acquisition issues (“society benefits if an ethical corporation takes over and sorts out a corporation that has corruption problems”).
Trace Forum 2011 (here)
“I shall talk a little later about the Bribery Act but let me tell you first a little more about what the SFO has been doing in order to justify the recognition of the UK as an active enforcer. We are a comparatively small office and we devote a considerable amount of that resource to dealing with anti-corruption. We have about 80 frontline staff dealing with anti-corruption with a resource for this of some $7.5 million. Our resource in the SFO is also a flexible one and we can move additional resource into anti-corruption from other areas depending upon workload. Currently, our anti-corruption workload is dominated by pre-Bribery Act cases. That is likely to remain for some time. We have about 50 corruption cases (whether involving the public sector or private sector) under formal investigation or prosecution and, of course, a number of additional ones that we are looking at to see whether we should open an investigation. Although these figures may look low in terms of the figures of some other authorities, it is important to understand quite what they mean. All of these cases are actually large complex anti-corruption investigations reaching across many countries and many individuals and companies. Under our system, we have to conduct every investigation to the standards required by our Criminal Justice System and with the possibility of a contested trial before Judge and Jury very much in mind. This means that each case is very resource intensive because we have to ensure that all evidence is obtained in the appropriate way and is admissible in court. The resource that goes into these cases is very great and is the source of great concern to me. “
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“Another feature of our cases that you do not have [in the U.S.] is the ability of those under investigation and indeed other parties such as non-governmental organisations to challenge anything that the SFO does. We saw that, for instance, in the BAE case where the decision to terminate the Saudi investigation was challenged by two non-governmental organisations. Any interested party (and that is construed very widely) can go to court and require the SFO to give an explanation to the satisfaction of the court about what we are doing. We need to show that our actions are lawful and proportionate. It is a very important discipline in my jurisdiction and we are at all times very conscious of this.”
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“There are some particularly important issues under [the Bribery Act] for an audience based in the US. Let me talk first about the extended reach of the Bribery Act to foreign corporations that carry on business in the UK. We have received lots of questions about this and about the meaning of those very simple words “carrying on business in the UK. I know that there is the potential for much litigation on this issue. Nevertheless, I tell corporations that it will be very unwise of them to try to rely upon a very technical interpretation of the Bribery Act in order to persuade themselves that it is safe to carry on using bribery. I have said that they might be in for a very unpleasant surprise in a number of years time when our Supreme Court gives its views on this test. I say to corporations that the only safe way of doing business is not to use bribery.”
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The Bribery Act has a new offence aimed at senior officers of corporations who consent to or connive in bribery. I know that there are many who are worried about this offence, particularly if they happen to be Directors or Non-Executive Directors based in the UK and where their companies are high risk. You may find, for example, that some London executive or non-executive directors may be worried about their exposure if US corporations are found to have been involved in corruption. We are actively looking for cases where we can apply this provision. Society expects senior members of a corporation to be responsible for ensuring that there is a true ethical culture. They have a key responsibility here. My view is that if they find that their efforts to do this meet with resistance or no success then they should consider resigning and telling us about their concerns. Expressing doubts about the company’s culture but remaining a highly paid officer would not be sensible because this would seem to be a model case of conniving in bribery for the purposes of the legislation.”
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“Some cases may involve corruption under the old law. You will not be surprised, for example, to hear that we looking through Wikileaks and the other information becoming available as a result of the Arab Spring in order to see what corporations have been doing over a period of years. We are going to be very interested in the sorts of deals that are going to come to light and I am sure that this will be a fruitful source of work for us. The message from me is that if corporations are worrying about this, then they ought to come and talk to us now rather than wait for the dawn raid.”
Anti-Corruption Summit 2011 (here)
“What we have been doing is to encourage corporations to work together and with us and other authorities in order to try to work on the underlying problem. I have been very impressed by what a number of corporations have been doing. They come to me to tell me what they are doing because they are slightly nervous that the SFO will pick this up and may even start making enquiries or investigate. This is not what we want to do. If there is a genuine attempt being made to solve the problem of corruption then I want to let the corporations get on with that so far as possible and indeed to provide any help that I can in the SFO. We have had a number of discussions of this nature. I do not underestimate the difficulties here and the constraints. It appears to me though to be absolutely the right thing to do. This is because in my view one of the likely issues in the coming years is not going to be what we do about the supply side of bribery, but what happens about the demand side of bribery. It is an issue that I am concerned about in the SFO and one where I want us to contribute.”
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“The Bribery Act creates a new offence at the corporate level of failing to prevent bribery. The defence to this is that there are adequate procedures to prevent that bribery. Let me emphasise that this is a complete defence. It is not a matter of mitigation. If an act of bribery occurs somewhere in your worldwide corporation and you had adequate procedures, then no criminal offence has been committed. This is something that has been reassuring to corporations. Of course what this means is that there has been great interest in the meaning of adequate procedures. The guidance from our Ministry of Justice sets out the UK Government’s approach to this in considerable and to my mind, helpful detail. Let me though give you a flavour of what you might expect if you came to us to talk about your adequate procedures. I should add here that many corporations do that. You may find this surprising but we do have a regular succession of corporations coming to the SFO to seek our views on their procedures and what they are doing. We stress that we can give no guarantee and certainly no certificate to the effect that their procedures are adequate but we are able to give them helpful advice. The feedback we get is that these are positive and pragmatic discussions. Some of the themes you will hear from us will be these. First, what is the approach of the most senior management in the corporation? They set the lead. Employees of corporations are very shrewd. They know what really matters to top management. They will know if something matters or does not matter. We will want to know therefore what top management is doing in order to ensure that the importance of good ethical business is known to every member of that company. We hear for example of contracts that corporations do not enter into because they could be secured only by corruption. This is a good practical example of the importance placed upon anti-corruption. There are others as well. We also want to know about risk assessment. This is something that corporations ought to be doing anyway but my own perception is that this has been intensified because of the Bribery Act. How do you assess the risks in your corporation? Is this simply a paper and routine exercise or is it genuine? It certainly ought to be genuine because this could bring down your corporation if you get it wrong and overlook some key risk. We will want therefore to talk through your risk assessment process. We shall of course be particularly interested if you find you have a considerable problem about something that was not flagged up in the risk assessment. This may or may not mean that the risk assessment process was flawed. We want to know what you are doing about this and indeed how you are developing the risk assessment process in future. We will offer any thoughts we have about any risks you should be thinking about but are not. What we will also want to be sure about is this. Please take it from me that simply handing us a large pile of documents with lots of boxes ticked on checklists will not be enough to satisfy us that you have adequate procedures. That is a paper exercise. It is part of what is needed but only part. We shall want to know what lies behind this and what the real issues are. Personally, I believe we are not alone in wanting to know this. When we are talking about corruption with all the reputational issues that are involved here, senior management should actually be asking exactly the same questions that the SFO will be asking in this respect. I have mentioned that corporations come and talk to us about all of these issues. Please feel free to contact us if you would find this helpful in order to talk through what you are doing. It is not a threatening process and please do not worry that if you came to us and expressed a few doubts about whether your procedures are adequate that you would find yourself on the wrong end of a prosecution before you left the SFO building. This simply does not happen. The object of these discussions is to be constructive and supportive. I hope you will find that if you approach us.”
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“I want finally in this overview of what is happening, to talk about mergers and acquisitions. I know how important this subject is. Some time ago we said publicly in the SFO that we were prepared to assist corporations that were in the process of carrying out a merger or acquisition and discovered problems during the course of due diligence. We made this willingness clear about two years ago although I have to say that there was little take up at that stage. That seems to be changing now. I have been struck in recent months by the fact that a number of corporations have been to see us about some sensitive potential acquisitions where they are identifying some real issues about corruption during the course of due diligence. Ultimately, the decision about an acquisition is a commercial one and will involve an analysis of risk and reputation as well as many other issues. The corporation and its advisors though want to try to manage the regulatory risk so far as possible by seeking views from the SFO. We have been ready to engage in this. What we do is to talk to the corporation and its advisors about what they are finding and what they propose to do about it if the acquisition takes place. It is quite clear to me as a result of the discussions that a negative response from the SFO is sufficiently important to put the acquisition in jeopardy. On the other hand, a positive view from us on the basis of what the corporation intends to do could enable the acquisition to go ahead. My view on this, simply stated, is that society benefits if an ethical corporation takes over and sorts out a corporation that has corruption problems. It is something I am keen for the SFO to promote, so far as we legitimately can.
Risk Advisory Dinner (here)
“What we are trying to do with private sector corporations is to work on some real initiatives in particular countries and even particular areas such as ports in order to try to find ways of curbing the demand for these payments. This is not just a question of simply saying “no”; it is also a question of seeing what is the underlying problem (for example, public officials are not paid by the state and so are forced to demand bribes) and what can be done about these underlying causes. It is also a question of how we deal with governments and other authorities about these issues.”
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“I have said publicly that a high priority for us will be to find a foreign corporation with a UK business presence that has got involved in corruption in another country and has undermined a good ethical UK corporation. Those corporations have been within the SFO’s reach since July 1st as a result of the new Bribery Act. An English jury will take the view that there is a very clear UK public interest in bringing such corporations to a criminal court. It is a high priority for us.”
Siemens And An FCPA Compliance Defense
The title of this post may induce a Gary Coleman moment – as in “whatcha talkin bout” (see here). No, I am not talking about that Siemens case – the 2008 FCPA enforcement action, the largest in FCPA history from a fine and penalty perspective, in which the DOJ and SEC alleged that Siemens engaged in a pattern of bribery “unprecedented in scale and geographic reach” and that for much of its operations around the world “bribery was nothing less than standard operating procedure.”
Should the FCPA be amended to include a compliance defense, such a defense would clearly be inapplicable to the 2008 Siemens matter given allegations that Siemens had, at one time, a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.” As detailed in my responses (here) to Senator Specter’s questions at the November 2010 FCPA hearing, according to the DOJ, “compliance, legal, internal, audit, and corporate finance departments were a significant focus of the investigation and were discovered to be areas of the company that played a significant role in the violations”
Since the 2008 FCPA enforcement action (and indeed even before the ink was dry on the settlement documents), Siemens has undergone a substantial compliance transformation. As noted in the DOJ’s sentencing memorandum (here), settlement of the matter contained, among other things, the following terms: “implementation of rigorous compliance enhancements, including periodic testing of same, with a recognition that Siemens has already implemented substantial compliance changes over the course of the investigation; and retention of an independent monitor, who will, over a four-year term, conduct a review of the compliance code, Siemens’ internal controls and related issues, and will prepare periodic reports on his reviews.”
A specific section of DOJ’s sentencing memorandum is titled “Remediation Efforts” and stated, in pertinent part, as follows. “Siemens also overhauled and greatly expanded its compliance organization, which now totals more than 500 full time compliance personnel worldwide. Control and accountability for all compliance matters is vested in a Chief Compliance Officer, who, in turn, reports directly to the General Counsel and the Chief Executive Officer. Siemens has also reorganized its Audit Department, which is headed by a newly appointed Chief Audit Officer who reports directly to Siemens’ Audit Committee. To ensure that auditing personnel throughout the company are competent, the Chief Audit Officer required that every member of his 450 person staff reapply for their jobs. Siemens also has enacted a series of new anti-corruption compliance policies, including a new anti-corruption handbook, sophisticated web-based tools for due diligence and compliance matters, a confidential communications channel for employees to report irregular business practices, and a corporate disciplinary committee to impose appropriate disciplinary measures for substantiated misconduct. Siemens has organized a working group devoted to fully implementing the new compliance initiatives, which consists of employees from Siemens’ Corporate Finance and Corporate Compliance departments, and professionals from PricewaterhouseCoopers (“PwC”). This working group developed a step-by-step guide on the new compliance program and improved financial controls known as the “Anti-Corruption Toolkit.” The Anti-Corruption Toolkit and its accompanying guide contain clear steps and timelier requirements of local management in the various Siemens entities to ensure full implementation of the global anti-corruption program and enhanced controls. Over 150 people, including 75 PwC professionals, provided support in implementing the Anti-Corruption Toolkit at 162 Siemens entities, and dedicated support teams spent six weeks on the ground at 56 of those entities deemed to be “higher risk,” assisting management in those locations with all aspects of the implementation. The total external cost to Siemens for the PwC remediation efforts has exceeded $150 million.”
Elsewhere, the DOJ sentencing memorandum, as to third parties, stated as follows. “Siemens also significantly enhanced its review and approval procedures for business consultants, in light of the past problems. The new state-of-the-art system requires any employee who wishes to engage a business consultant to enter detailed information into an interactive computer system, which assesses the risk of the engagement and directs the request to the appropriate supervisors for review and approval. Siemens has also increased corporate-level control over company funds and has centralized and reduced the number of company bank accounts and outgoing payments to third parties.”
In summary, the DOJ stated that “the reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow.”
More recently, as of May 2011, according to Siemens compliance: (i) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately 80 work at Siemens corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (ii) 300,000 employees world-wide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (iii) all new compliance officers worldwide are required to take an intensive four-day course; (iv) approximately 5,500 top managers worldwide have compliance metrics as one aspect of their compensation; and (v) approximately 55 high-risk entities and approximately 105 business unit were required to implement over 100 compliance systems controls.
The 2008 judgement against Siemens (here) imposes a five year probation period during which Siemens shall not commit any further crimes and the additional probation term that Siemens is to comply with the compliance and ethics program set forth in its plea agreement.
In short, there is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens. On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.
Against this backdrop, over the summer media reports suggested “alleged corruption by three company managers working in Kuwait” who allegedly “made payments to high-ranking individuals” in Kuwait’s Energy and Water Ministry. (See here). According to the reports, German authorities began investigating the conduct after receiving information from Siemens itself.
In other words, notwithstanding 600 full time Siemens compliance personnel, an Anti-Corruption Toolkit designed by industry leaders, over 100 compliance systems controls in high-risk jurisdictions, someone in Siemens organization may have made payments in violation of its pre-existing compliance policies and procedures and in violation of the FCPA.
Presumably, Siemens – should it be prosecuted – would get credit for its committment to compliance and pre-existing policies and procedures pursuant to the DOJ’s Prosecution of Business Organizations. In addition, should Siemens be prosecuted it would presumably receive credit for the same under the advisory U.S. Sentencing Guidelines. As the enforcement agencies have frequently stated in connection with FCPA reform – we already take compliance into account!
However, are these “baby carrots” a sufficient return on Siemens compliance investment? Do these “baby carrots” sufficiently recognize Siemens committment to compliance? Or should Siemens compliance efforts be recognized as a matter of law as would be the case if the FCPA was amended to include a compliance defense?
SEC Chairman Schapiro’s FCPA Responses
As noted in this prior post, on June 30th, Senator Mike Crapo (R-ID) sent SEC Chairman Mary Schapiro a letter requesting answers to a number of FCPA related questions. In this September 23rd letter, SEC Chairman Schapiro responds.
Chairman Schapiro begins as follows. “Contuined strong enforcement of the FCPA sends the message that American companies operating abroad will not pay bribes as a ‘cost of doing business.’ The deterrence message of the Commission’s FCPA enforcement program incentivizes companies to self-assess and update their compliance and internal controls – all of which benefits companies’ operations overall and provides greater transparency to investors. While I certainly appreciate and share your concerns about the costs of FCPA compliance in certain circumstances, I believe that the risks to investors and costs to companies posed by outdated or weak FCPA compliance measures are equally significant.”
Compliance Defense?
As to a potential FCPA compliance defense, Chairman Schapiro began by stating a common enforcement agency response … we already consider compliance. She stated as follows. “The Commission, in deciding whether to approve the filing of an FCPA enforcement action against a public company, already considers as one mitigating factor whether the company’s compliance program was reasonably designed and operated in a manner to detect and prevent FCPA violations.” “Similarly,” Chairman Schapiro stated, “companies facing FCPA inquiries can obtain credit for cooperation under the Commission’s new Cooperative Initiative, in which cooperation is defined to include, among other factors, having reasonable internal controls and compliance measures.” Given the above, Chairman Schapiro states that “it seems unnecessary – and even counterproductive – to recognize a formal affirmative defense for having such a program, given that there are at least three significant costs associated with such a defense.”
Chairman Schapiro then identifies the following three issues.
“First, the reasonableness of a compliance program is best measured not by how it exists on paper, but by how it operates in practice. Consequently, the ease with which an employee was able to circumvent anti-corruption controls is some evidence – not sufficient evidence, but some evidence – that internal controls were insufficient. The Commission would not want to be foreclosed from bringing FCPA charges under those circumstances, since holding companies accountable for weak internal controls incentivizes companies to create a robust FCPA compliance environment.”
“Second, providing an affirmative defense for reasonably designed compliance programs could allow companies to retain ill-gotten gains. A company could engage in bribery or other corrupt behavior, obtain a benefit from such conduct (i.e. securing lucrative contracts), and yet not disgorge its ill-gotten gains. Enabling companies to retain proceeds generated from the payment of bribes would disincentivize those companies from adopting rigorous anti-corruption programs.”
“Third, sanctioning corrupt behavior sends a strong message of general deterrence to all similarly situated companies that there is a high financial and reputational cost to be paid if they bribe foreign officials. There is often no substitute for the deterrent impact of financial and reputational sanctions, which prevent improper behavior from becoming ingrained as just another ‘cost of doing business.’ That deterrence message likely would be diluted if such an affirmative defense was adopted.”
“Foreign Official”?
According to Chairman Schapiro, the FCPA “sufficiently defines the term foreign official.” She stated as follows. “Given the various forms of government found around the world, it would be impractical to articulate each of the myriad of ways that one could use to identify a foreign official in particular countries or cultures. In addition, Commission and Department of Justice enforcement actions also provide guidance on the meaning of ‘foreign official’ in various contexts. Finally, companies with a strong compliance culture have policies prohibiting all bribery in order to send a clear corporate message that such practices are not condoned.”
SEC Guidance?
“Both the Commission and the Department of Justice have numerous mechanisms for providing guidance on FCPA matters. Perhaps the most important guidance comes from the enforcement actions that are brought by the Commission and the Department of Justice. The Commission uses it pleadings and accompanying public news releases to highlight and reinforce the key elements of each case. Additionally, senior staff in the Division of Enforcement speak regularly at industry conferences and provide guidance on the FCPA program. “
For a prior post on “prosecutorial common law” – see here.
As relevant to Chairman Schapiro’s “guidance” response, readers may be interested in my “Facade of FCPA Enforcement” article (here) in which I discuss the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones statements of facts or allegations or conclusory legal statements; the increasing trend of FCPA enforcement actions resolved based on untested and dubious legal theories, as well as enforcement theories seemingly in direct conflict with FCPA’s statutory provisions; and the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties.
In short, the notion that settled SEC civil complaints or administrative orders (or now SEC NPAs or DPAs or DOJ NPAs or DPAs for that matter) provide meaningful guidance or should serve as FCPA caselaw is absurd. In my Facade article, I detail cases in which the SEC admits that the terms of an SEC settlement “do not necessarily reflect the triumph of one party’s position over the other.” I also highlight statements from former SEC Commissioner and current Standford law professor Joseph Grundfest that, among other things, SEC complaints “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances …”. In the words of Professor Grundfest, the “natural result” of settling an SEC enforcement action “is a one-sided record in which the Commission asserts its version of the facts and the law, and the settling defendants commit not to challenge that rendition.”
On the same general topic, albeit in the DOJ FCPA context, see this recent piece from Michael Volkov “The FCPA & Voluntary Disclosure An Engimatic Threat to Due Process” (“the Justice Department has started to cite as precedent its own decisions respecting the outer reaches of the law”).
Strict Parent Company Liability for Foreign Subsidiary Actions?
Chairman Schapiro’s response states in full as follows. “A U.S. parent company may be liable under the FCPA for bribes paid by its foreign subsidiary in certain circumstances, such as where the parent company had knowledge of the foreign subsidiary’s bribery or where the subsidiary acted as the parent’s agent. ‘Knowledge’ under the FCPA’s anti-bribery provisions encompasses actual knowledge, conscious disregard of, or willful blindness to the subsidiary’s illicit activities. In addition, under agency law, an agent’s knowledge can be imputed to the principal (parent). Accordingly, in the absence of the requisite evidence, the Commission does not charge a U.S. parent company with a violation of the FCPA’s anti-bribery provisions in connection with the foreign subsidiary’s actions. In addition, the Commission may, based on its analysis of the particular facts and circumstances of some cases, charge the foreign subsidiary directly with violation of the FCPA’s anti-bribery provisions while separately charging the parent company with violations of the books and records and internal control provisions of the FCPA. This is because the public company parent typically is responsible for the accuracy of the books and records of its overall operations, including those of its controlled foreign subsidiaries. While the FCPA’s books and records and internal controls provisions do not contain a ‘knowledge’ requirement, the Commission exercises its discretion and flexibility in charging these provisions.”
For previous posts on the issue of strict liability see here and here.
Double-Dip Penalties?
Chairman Schapiro stated as follows. “The Commission and Department of Justice do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the Department of Justice obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the Department of Justice obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
However, DOJ penalties are calculated by reference to the advisory U.S. Sentencing Guidelines where an important factor in determining the ultimate penalty amount is value of the benefit received by the company from the conduct at issue.
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For your viewing pleasure here – an October 5th rountable program sponsored by the Heritage Foundation on corruption, economic growth, and freedom.
For the calendars of Indianapolis area readers see here. A luncheon address – “Compliance in a New Era of FCPA Enforcement” I am giving next Tuesday (Oct. 11th) to the World Trade Club of Indiana. The event, sponsored by Butler University College of Business, begins at 11:30 at the downtown law offices of Baker & Daniels.
Former DOJ FCPA Chief Supports FCPA Compliance Defense
Before the Department of Justice had a specific Foreign Corrupt Practices Act Unit, it had the Multinational Fraud Branch. Joseph Covington (here – currently with Jenner & Block) joined the Branch in 1977 and served as Chief of the Multinational Fraud Branch from 1982 to 1985. Recently, I contacted the former DOJ FCPA Chief and posed the following question regarding a potential FCPA compliance defense. Covington’s response is set forth below with his permission.
Do You Support Creation of an FCPA Compliance Defense?
“Based on my experience as Chief of the FCPA unit up to 1985 and in my 25 plus years of private practice, I support the concept of an adequate compliance program defense to FCPA liability for corporate defendants. Such a defense would recognize and promote good corporate citizenship, and do nothing for corrupt companies. And from my perspective as a former prosecutor in the field, enforcement of those who engage in corruption would likely be enhanced.
In my almost 40 years of experience, I have rarely seen American companies affirmatively offering bribes in the first instance; rather they are typically reacting to a world not of their making. It is a fact that corruption in government remains endemic worldwide and that is not likely to change. As the world shrinks companies who seek to do the right thing can’t help but confront corrupt officials – as customers, regulators, and adjudicators – and confront them often.
The problem with current laws and enforcement policies is that they do not adequately reward companies for sincere (and expensive) efforts to stop the unwanted misbehavior of their employees. Indeed, under US law, the compliant corporation, try as they might, remains vicariously liable for the acts of any employee. With no possibility of avoiding liability, companies find themselves facing substantial criminal fines. Under current DOJ practice, the most that such a company can expect is a discount – some would say only a modest discount – from the criminal penalty as calculated under the federal Sentencing Guidelines. With the risks attendant to taking a case to trial, with no real ability to contest liability, too much power and discretion ends up in the hands of the government.
In this context, providing an adequate compliance program defense to FCPA liability would be manifestly reasonable. Companies that seek only to be good corporate citizens would have an opportunity to demonstrate not only to DOJ, but also to a federal district court, that they had in fact done everything reasonably required, and that despite that fact an errant employee avoided company policy and violated the law. Affording this type of defense to corporate liability would recognize and reward strong compliance programs; provide a powerful incentive for companies to develop and enforce such programs; may encourage more companies to come forward with voluntary disclosures; and yet still enable prosecution of the culpable individuals. It is time to stop punishing our good corporate citizens and start going after the guilty-both corrupt corporate employees and corrupt foreign officials. “