Category: Compliance

Johnson & Johnson’s “Enhanced Compliance Obligations”

Last month, Johnson & Johnson (J&J) settled an FCPA enforcement action focused on voluntary disclosed conduct in Greece, Poland, Romania involving various health care providers. See here for the prior post. [The enforcement action also involved conduct in connection with the U.N. Oil for Food Program in Iraq – conduct that was not voluntarily disclosed].

The enforcement action was resolved via a deferred prosecution agreement (DPA) and in the DPA (here) the DOJ specifically states as follows: “J&J had a pre-existing compliance and ethics program that was effective and the majority of problematic operations globally resulted from insufficient implementation of the J&J compliance and ethics program in acquired companies.” (emphasis added).

The J&J enforcement action is thus a rare instance of the DOJ finding a company’s pre-existing compliance and ethics program “effective” notwithstanding the fact that conduct allegedly violating the FCPA took place within the overall organization.

The J&J DPA contains the standard compliance metrics found in typical DPAs and non-prosecution agreements (Attachment C of the J&J DPA) that the company must abide by during the three year term of the DPA.

However, the DPA also contains (see Attachment D) “Enhanced Compliance Obligations” that J&J must abide by during the term of the DPA. These “enhanced compliance obligations” are unusual and surprising given the DOJ’s conclusion that J&J already generally had “effective” policies and procedures.

Even though the DPA states that J&J, as part of the voluntary disclosure and cooperation process, “conducted an extensive, global review of all of its operations to determine if there were problems elsewhere and […] reported on any area of concerns to the Department and the SEC,” the “enhanced compliance obligations” nevertheless require J&J to “conduct risk assessments of markets where J&J has government customers and/or other anticorruption compliance risks on a staggered, periodic basis.”

In what seems like a “full employment act” for some, the DPA requires J&J to “identify no less than five operating companies that are high risk for corruption because of their sector and location and […] conduct FCPA Audits of those operating companies at least once every three years.” According to the DPA, “FCPA Audits of other operating companies that pose corruption risk shall occur no less than once every five years.”

Pursuant to the DPA, “each FCPA Audit shall include” the following.

“a. On-site visits by an audit team comprised of qualified auditors who have received FCPA and anticorruption training;

b. Where appropriate, participation in the on-site visits by personnel from the compliance and legal functions;

c. Review of a statistically representative sample appropriately adjusted for the risks of the market, of contracts with and payments to individual health care providers;

d. Creation of action plans resulting from issues identified during audits; these action plans will be shared with appropriate senior management, including the Chief Compliance Officer, and will contain mandatory undertakings designed to enhance anticorruption compliance, repair process weaknesses, and deter violations; and

e. Where appropriate, feasible, and permissible under local law, review of the books and records of distributors which, in the view of the audit team, may present corruption risk.”

Such “enhanced compliance obligations” seem wholly inappropriate given the DOJ’s conclusion that J&J already had “effective” compliance policies and procedures and given that J&J, prior to resolving the enforcement action, already “conducted an extensive, global review of all of its operations to determine if there were problems elsewhere…”.

Remediation and effective compliance policies and procedures are good.

But if the “enhanced compliance obligations” found in the J&J DPA are a new norm, how long will corporate defendants tolerate being required by the government (under the risk of prosecution for failure to do so) to engage in fishing expeditions (when the company already went fishing) just for the sake of going fishing again?

No – The Consistent Answer In DOJ Responses to Senator Questions Regarding FCPA Reform

On November 30, 2010, the Senate Subcommittee on Crime and Drugs (chaired by then Senator Arlen Specter) held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here for the prior post).

Following the hearing, Senator Christopher Coons and Senator Amy Klobuchar submitted written questions to Greg Andres (DOJ) – one of the witnesses who testified at the hearing.

The DOJ responses are here.

As evident from the DOJ responses, certain of which are highlighted below, the consistent DOJ response to FCPA-related reform proposals is no.

Profiled below are DOJ’s substantive responses to Senator questions regarding mandatory debarment for egregious FCPA violators; a potential FCPA compliance defense; a potential FCPA amnesty program; whether businesses face FCPA uncertainty; whether clarification of the “foreign official” element is needed; and whether the statute’s corporate intent element needs revising.

Mandatory Debarment

Does the DOJ favor a “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery”?

No.

The DOJ says that such “mandatory debarment would likely be counterproductive, as it would reduce the number of voluntary disclosures and concomitantly limit corporate remediation and the implementation of enhanced compliance programs.”

In a related question, the DOJ adds that “a mandatory conduct-based debarment for companies could well have a negative impact on the Government’s ability to investigate and prosecute transnational corruption effectively.” “Linking mandatory debarment to a criminal resolution would fundamentally alter the incentives of a contractor-company to reach an FCPA resolution because such a resolution would likely lead to the cessation of revenues for a government contractor – a virtual death knell for the contractor-company. Similarly, mandatory debarment would impinge negatively on prosecutorial discretion. If every criminal FCPA resolution were to carry with it mandatory debarment consequences, then prosecutors would lose the necessary flexibility to tailor an appropriate resolution given the facts and circumstances of each individual case.”

Boiled down to one sentence, the DOJ’s opposition to mandatory debarment for egregious FCPA violators seems to be this – it would lessen our FCPA caseload, it would make our jobs more difficult, and it would take away our flexibility and leverage.

This is hardly a convincing argument to the position I articulated at the Senate hearing (see here) that “egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender.”

As I noted in this previous post, H.R. 5366 (which passed the House in September 2010) is not the answer. However, the issue of mandatory debarment, in certain instances, remains a valid and legitimate issue notwithstanding the DOJ’s responses.

Compliance Defense

Does the DOJ favor exploring a “formal compliance defense” to the FCPA?

No.

The DOJ “opposes the adoption of a formal compliance defense.”

According to the DOJ, it “already considers a company’s compliance efforts in making appropriate prosecutorial decisions, and the United States Sentencing Guidelines also appropriately credits a company’s compliance efforts in any sentencing determination.” “Among other things” the DOJ states, “the creation of such a defense would transform criminal FCPA trials into a battle of experts over whether the company had established a sufficient compliance mechanism.” “Against this backdrop, companies may feel the need to implement a purely paper compliance program that could be defended by an ‘expert,’ even if the measures are not effective in stopping bribery.” “If the FCPA were amended to permit companies to hide behind such programs, it would erect an additional hurdle for prosecutors in what are already difficult and complex cases to prove.”

As readers likely know, the U.K. Bribery Act, set to go live on July 1st, contains a so-called adequate procedures defense and such a defense should be considered under the FCPA as well.

Amending the FCPA to include a compliance defense is not a new idea. In the mid-1980’s numerous FCPA reform bills included such a defense and provided that 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. In fact, an FCPA reform bill containing such a provision did pass the U.S. House.

A compliance defense is not about hiding behind “paper programs” as the DOJ asserts. Rather a so-called compliance defense, one that would be inapplicable in cases such as Siemens, it is about properly incentivizing corporate FCPA compliance and not putting 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, published, and trained on FCPA compliance policies and procedures.

Amnesty Program

Is the DOJ in favor of a so-called “amnesty program” as recently advocated by some?

No.

The DOJ says it “does not support the idea of an FCPA amnesty program.” Among other things, the DOJ says that “as the beneficiary of [several established sources of information such as voluntary disclosures] the Department does not presently face difficulty in identifying sources of information of FCPA criminal violations.” “Consequently, an amnesty program would provide protection for corporations who violate the law without providing accompanying meaningful benefits to law enforcement.” “Finally, consistent with the United States Sentencing Guidelines and the Department’s Principles of Federal Prosecution of Business Organizations, the Department already provides meaningful credit for voluntary self-disclosures, extraordinary cooperation, and substantial remediation by corporations where appropriate and deserved.”

Uncertainty?

Does the DOJ believe that “well-meaning businesses are faced with significant uncertainty as to their potential exposure to civil and criminal penalties under the FCPA?”

No.

The DOJ says that “it provides clear guidance to companies with respect to FCPA enforcement through a variety of means.” It lists the DOJ’s Lay Person Guide to the FCPA, various charging documents, plea agreements, non-prosecution and deferred prosecution agreements [see here for a recent guest post on prosecutorial common law] and the DOJ’s FCPA Opinion Procedure Releases.

The DOJ concludes its response by saying “in the end, a review of the Department’s FCPA enforcement actions makes clear that companies have never been charged for minor or incidental issues.” “By contrast, the Department’s prosecutions involved extensive and often widespread corruption over significant periods of time.”

As explored in this prior guest post, in the FCPA’s 1988 amendments, Congress directed the DOJ to consider providing formal guidance. However, in 1990 the DOJ declined to issue guidelines and stated as follows. “After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”

“Foreign Official”

Does the DOJ agree that statutory clarification of “foreign official” would help clarify to businesses which of their transactions could be subject to the FCPA?”

No.

The DOJ response begins as follows. “The term ‘foreign official’ has been defined in relevant case law and opinion releases. Some defense attorneys have attempted to argue that the definition of ‘foreign official’ does not extend to the employees of state-owned or state-controlled enterprises.”

For the record, I am not a “defense attorney.” See here for my declaration as to the legislative history on “foreign official.”

In a related question, the DOJ further stated that it “has provided significant guidance regarding the definition of ‘foreign official.'”

Intent

Should the FCPA be amended to “bring the intent standard for corporations in line with the current ‘willfulness” standard that applies to individuals?”

No.

The DOJ responded that it “does not believe that it is necessary or appropriate to amend the FCPA’s intent standard with respect to corporations.” “The Principles of Federal Prosecution of Business Organizations already governs the Department’s decisions regarding whether to charge corporations for federal crimes, including under the FCPA.” “Furthermore, the Department is not prosecuting FCPA matters where a corporation engaged in something less than willful criminal conduct.”

Robert Amaee on U.K. Bribery Act Guidance

Yesterday, in a much anticipated development, the United Kingdom Ministry of Justice released (here) its long awaited guidance (here) as to the U.K. Bribery Act – a delayed law now set to go live on July 1, 2011.

The U.K. Serious Fraud Office, the U.K. law enforcement agency tasked with enforcing the Bribery Act, also issued a release (here) and prosecuting guidance (here).

In this guest post, Robert Amaee (the former Head of Anti-Corruption and Proceeds of Crime Unit at the U.K. Serious Fraud Office and current counsel with Covington & Burling LLP in London – see here) provides insight and analysis of the U.K. developments.

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The Bribery Act: Countdown to Implementation

The UK Ministry of Justice yesterday published its long awaited Bribery Act 2010 (the “Bribery Act”) guidance entitled “Guidance about procedures which relevant commercial organisations can put in place to prevent persons associated with them from bribing (section 9 of the Bribery Act 2010).” This publication marks the official start of a ninety day countdown to the implementation of the Bribery Act which will now be brought into force on 1 July 2011.

Companies that already have reviewed and updated their anti-bribery and corruption procedures will be ahead of the game but will still need to study the new guidance to see what, if any, further amendments may be required. Those who have yet to complete the process of updating their procedures to ensure compliance no doubt will draw a modicum of comfort from the fact that they have a further ninety days in which to digest and absorb the guidance and implement the necessary policies and procedures.

The comments made by the Minister of Justice, Ken Clarke QC MP, and the guidance itself aim to reassure companies that the Bribery Act will be enforced with common sense and pragmatism.

The Minister of Justice ushered in the guidance by saying that “[t]he ultimate aim of [the Bribery Act] is to make life difficult for the minority of organizations responsible for corruption, not to burden the vast majority of decent and law-abiding businesses.”

That is a message that prosecutors at the UK Serious Fraud Office (“SFO”) — the organisation tasked with leading enforcement efforts under the Bribery Act — have espoused for some time. What is less clear is whether the guidance provides any tangible assistance on some of the Bribery Act’s thorniest issues such as the UK’s jurisdiction over non-UK registered companies, the extent of liability for the actions of third parties and the boundary between acceptable corporate hospitality and a prosecutable bribe, particularly when foreign officials are concerned.

Government Policy and the Section 7 Corporate Offence

The guidance, as expected, focuses on six high level principles which companies will need to familiarise themselves with and which are supported by 11 case studies. It also sets out the Government policy in relation to the section 7 corporate offence stating that “[t]he objective of the [Bribery] Act is not to bring the full force of the criminal law to bear upon well run commercial organisations that experience an isolated incident of bribery on their behalf” and recognises that “no bribery prevention regime will be capable of preventing bribery at all times.” This part of the guidance already has attracted criticism from some respected quarters. (See here).

The guidance deals with the section 1 offences of bribing another person but the most noteworthy commentary relates to the section 6 offence (Bribery of foreign public officials). This section highlights the fact that bribery of a foreign public official could be prosecuted under the section 1 offence but that evidential difficulties in proving that a bribe was paid to a foreign public official with the intention to induce him or her to perform his or her role “improperly”, something the guidance calls “a mischief”, means that prosecutors would seek to rely on the section 6 offence which needs no such proof. The guidance goes on to make a number of assertions in relation to the interpretation of section 6 which bear closer scrutiny. The guidance says “…it is not the Government’s intention to criminalise behaviour where no such mischief occurs…” In other words it appears that the guidance may be advocating that the concept of “improper performance” be read into section 6. What is clear is that Parliament did not include any such wording in section 6 in clear contrast to section 1.

Corporate Hospitality and other Business Expenditure

In addressing the topic of corporate hospitality and other business expenditures, the guidance adopts what can only be described as a permissive tone. It codifies the comments that the Minister of Justice has made over the last few weeks and states that “[b]ona fide hospitality and promotional, or other business expenditure which seeks to improve the image of a commercial organisation, better to present products and services, or establish cordial relations, is recognised as an established and important part of doing business and it is not the intention of the Act to criminalise such behaviour” and goes on to endorse “reasonable” and “proportionate” hospitality and business expenditure.

In determining what is reasonable and proportionate, the guidance proposes taking into account “all of the surrounding circumstances” which include matters such as “the type and level of advantage offered, the manner and form in which the advantage is provide, and the level of influence the particular foreign public official has over awarding business”. It states that “the more lavish the hospitality or the higher the expenditure in relation to travel, accommodation or other similar business expenditure provided to a foreign public official, then, generally, the greater the inference that it is intended to influence the official to grant business or a business advantage in return.”

Much of this is elementary and already part of the mantra of compliance departments but the guidance goes further and appears to give the green light to certain interactions with foreign public officials which would, today, be closely and critically scrutinised by those responsible for compliance. As an example, the guidance envisages that the provision of flights, airport to hotel transfers, hotel accommodation, “fine dining” and tickets to an event for a foreign public official and his or her spouse are “unlikely to raise the necessary inference” to engage section 6 and therefore unlikely to violate the Act so long as there is a business rational for the trip.

A Question of Jurisdiction

The guidance makes it clear that “the courts will be the final arbiter as to whether an organisation ‘carries on a business’ in the UK taking into account of the particular facts in individual cases” and sets out the “Government’s intention” in relation to the phrase “carries on a business, or part of a business in the United Kingdom.” The thrust of the approach appears to be a reliance on a “common sense approach.”

In cases where there may be dispute, the guidance again defers to the courts as the final arbiter but says that “… the Government anticipates that applying a common sense approach would mean that organisations that do not have a demonstrable business presence in the United Kingdom would not be caught.” That much is uncontroversial but what follows has elicited a great deal of comment. The guidance states that “[t]he Government would not expect, for example, the mere fact that a company’s securities have been admitted to the UK Listing Authority’s Official list and therefore admitted to trading on the London Stock Exchange, in itself, to qualify that company as carrying on a business or part of a business in the UK and therefore falling within the definition of a ‘relevant commercial organisation’ for the purposes of section 7.” This commentary has been welcomed in some quarters but has been criticised by some as undermining the concept of a level playing field. (See here).

In the vast majority of cases, it will be clear whether a company is or is not carrying on a business or part of a business in the UK. There will, however, be cases where there is room for debate. If, for example, a non-UK registered company sets up a joint venture with a UK company and the joint venture is not registered in the UK, is the non-UK registered company carrying on a business or part of a business in the UK? What if the non-UK registered company then seconds an employee to work at the UK partner’s offices in London looking after the joint venture – is the non-UK registered company carrying on a business or part of a business in the UK? What if it sends 5 employees? Those are the type of intricacies that need to be worked through by company advisors and in the worst case prosecutors and the courts.

Associated Persons

When considering the potential liability imposed on a company by virtue of its supply chains or its involvement in a joint venture, the guidance introduces the concept of “the level of control”– a concept that does not appear in the Bribery Act — as one of the “relevant circumstances” that would be taken into account when seeking to determine if the person creating liability can be deemed to be an “associated person” i.e. someone who is performing services for or on behalf of a company that falls within the UK’s jurisdiction. The guidance states that “[t]he question of adequacy of bribery prevention procedures will depend in the final analysis on the facts of each case, including matters such as the level of control over the activities of the associated person and the degree of risk that requires mitigation.”

Facilitation Payments

In the run up to the publication of the guidance, there had been some suggestion that there may an attempt to ‘soften’ the approach to facilitation payments. This is not at all the case. While the Government has recognised the problems faced by commercial organisations in some parts of the world and in certain sectors, the guidance reiterates that there are no exemptions in the Act and sets out the OECD position that facilitation payments are corrosive and that exemptions create artificial distinctions that are “difficult to enforce, undermine corporate anti-bribery procedures, confuse anti-bribery communication with employees and other associated person, perpetuate an existing ‘culture’ of bribery and have the potential to be abused.” In circumstances where an individual has no alternative but to make a facilitation payment in order to “protect against loss of life, limb or liberty”, the guidance states that “the common law defence of duress is very likely to be available”. It stresses that it is a matter for prosecutorial discretion whether to prosecute an offence and defers to the Joint Prosecution Guidance when it comes to the “prosecution of facilitation payments.”

Conclusion

Companies will of course be pleased to have more guidance and will look to draw as much comfort as they can from the more ‘permissive’ tone of the MoJ guidance but global companies will not be looking at their UK exposure in isolation and will certainly not be rushing to relax their anti-bribery and corruption policies and procedures. It is not much comfort for a company to avoid prosecution in the UK for interactions with foreign government officials for example but to be in violation of their industry codes of conduct or be called to account in a US court for that same conduct. Global companies will continue to be mindful of their global exposure.

A Practical Resource For Managers and Executives

Aaron Murphy (Latham & Watkins – here) has published a new book – “The Foreign Corrupt Practices Act: A Practical Resource For Managers and Executives” (here).

In this Q&A exchange, Murphy describes his book and his motivations for writing it. He also answers a few questions about FCPA reform proposals and the U.K. Bribery Act.

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Having spent several years at a large law firm with an FCPA practice, I know how busy the practice can be. Where did you find the time to write such an extensive book?

I spend a lot of my life on airplanes and in hotel rooms.

This book is different from the treatises and manuals that are already out there. Why did you write this book, and in particular, this kind of book?

There are some good legal treatises and manuals. But they aren’t aimed at educating the managers and employees who can be on the receiving end of an FCPA investigation. My book is written for managers and others who are on-the-ground in foreign countries. I wanted to write an engaging book that changed the kinds of internal questions that get asked about expenses, agents, state-owned entities, and other issues.

The book grew out of the fact that I was having the same conversation with clients and their managers over and over again. It occurred to me that despite sitting through a couple of PowerPoint slides about the FCPA during a compliance training, the managers did not understand how and where bribery occurs.

I’d be interviewing the manger of a company’s foreign operations in a high risk country and have a stack of documents to go through with him. I’d ask him a series of questions about some fairly run-of-the-mill issues – why certain dinners occurred with some government officials, what the thousand dollars of “miscellaneous” expenses on a hotel bill were for, whether the manager ever saw any of the holiday gifts he approved a large budget for – and it would often become clear to me that the manager had no idea that I was asking him about possible bribes. It had simply never occurred to him that there could be FCPA risks associated with any of these kinds of expenses. And those kinds of blind spots existed with managers who supposedly had received FCPA training.

Numerous times people have told me that they remember the FCPA training they had, but that they never thought the Act applied to the kinds of expenses I’m asking them about.

I tried to keep this book tethered to real-world situations. Theoretical discussions and policy debates are interesting and important – and there is some of that in the book – but it doesn’t really help a manager spot concrete issues. It doesn’t tell a manager what to watch out for. And that was the aim of this book.

I think there is plenty to debate about anticorruption enforcement generally, but whether you agree with the DOJ or the SEC’s position on something doesn’t really matter a whole lot when you’re trying to answer a question on a live issue, in real time. Can we make this payment or not? Should we use this agent, despite these rumors? Can I take this guy from a state-owned company out for a round of golf and dinner? Those are real questions. Hard, fact-specific questions that often need to be answered immediately. My goal was to make sure that managers understand that those are the questions they need to ask. Those are the questions they need to get some help answering. Theoretical debates don’t help a manager who is faced with a situation in the real world.

Do you think business personnel are surprised by the breadth of the FCPA, at least as it is interpreted and enforced by the DOJ and SEC?

Absolutely. Everyone thinks bribery is about suitcases full of money. Even though managers get trained and are told it’s much broader, they either don’t hear it, don’t believe it, or just think “Yeah, but it couldn’t happen in my organization.” They walk out of the training and it’s business as usual. Senior executives back at headquarters think everything is fine because their people have all been shown some slides with FCPA language. But there’s often a fundamental disconnect between the training and life on the ground in a company’s foreign operations.

I kept thinking there had to be a better way to help companies train their people on the front end, so I would quit having those conversations on the back end, after violations have already occurred.

I set out to write a book that was non-technical. A book that was practical. Something that takes managers – and I use that term loosely, meaning anyone who is in charge of other people – through all of the areas where FCPA issues typically come up and show them how they come up. I wanted something that gave managers a guided tour of the kinds of things FCPA practitioners see everyday.

What do you think is behind the inadequacy of much FCPA training?

I think it’s mostly a function of resources. I’m really sympathetic to in-house compliance personnel who are tasked with FCPA training. Usually, FCPA is just one of several areas they’re responsible for, and their organization is spread out over ten, twenty, fifty, or a hundred countries. It just becomes impossible for them to get out there and directly train all of their company’s employees. And, with constant turnover, acquisitions, mergers, it’s a never-ending task. New people are always joining a large organization. And FCPA training is just one of the things they have to do.

So you see the FCPA getting a few slides in a much larger PowerPoint that tries to cover insider trading, antitrust, OFAC and money laundering issues, regulatory issues, and all kinds of other stuff. Employees walk out with a glazed look on their faces and they haven’t really learned anything.

I wanted to help solve that problem. Here is something that companies can make required reading for all finance people and every manager over a certain level. Put it in their new hire package. Make them sign a certification that they’ve read and understood it, and put that in their personnel file. Then companies at least have documentation that the people charged with overseeing their business really were trained in detail. It hopefully gives companies some protection down the road if there is a problem, and, most importantly, it will educate employees about how the FCPA works and how FCPA compliance issues come up in the real world. If it does that, the book isn’t just insurance against future violations, it will actually result in compliance.

Plus, making the book required reading sets expectations and sends a serious message to management that this is an issue the company cares about.

In terms of FCPA compliance, one often hears about “tone at the top.” Is this just a buzzword or do you think it has real-world application?

I think it’s extremely important with an issue like bribery. Small shifts in attitudes can have huge consequences. I think just making off-hand jokes along the lines of “we all know how it is in Country X” sends a powerful message that low-level regulatory bribery is okay. Meaning, as long as we’re not talking about suitcases full of cash, it’s no big deal, no one is really going to get upset about it.

But regulatory issues can be huge. Just look at the recent Panalpina settlements.

At the end of the day, my mantra is this: Companies don’t pay bribes. People do. The best thing a company can do is to train its people by showing them how real world situations affect them. That’s what this book is about.

There is a lot of talk these days about FCPA reform. What are your thoughts on this issue?

Well, it makes for good controversy, but I always say that no politician ever got elected by saying it was time to get soft on crime. Certainly not a pro-corruption platform. So I think there’s very little chance of any overhaul that is going to make compliance easier on companies. That said, there may well be some chance for clarifying legislation.

Everyone out there lobbying for reform needs to be very careful what they wish for. Corruption is a topic that makes for good headlines and politicians love good headlines. It’s not hard to imagine a politician who doesn’t care too much about the FCPA trying to do away with facilitating payments, or press for more severe jail time, just to make a name for themselves. So as I see it, there’s a risk that any reform process could get hijacked, and we could end up with a statute that looks more like the UK Bribery Act. Although that might not be a bad thing if US companies could get a very solid and clear adequate procedures defense out of it.

Although, as you know because you were there at the recent Senate hearings, the DOJ’s current position is that it’s not interested in what it views as a compliance amnesty program. I suspect we’re stuck where we are for the time being. Although the forthcoming enforcement of the UK Bribery Act will keep things interesting.

If the DOJ is enforcing, in many cases, a statute in a way that Congress did not intend, why is this a political issue? Can any legislative reform proposal address this structural issue?

These things are always ultimately political. There’s no question that DOJ has an aggressive interpretation of certain FCPA provisions. Whether DOJ is transcending Congressional intent or not is no different from any other problem of interpretation. The difference in the FCPA context, as you have raised in your work, is that there is only limited judicial oversight of those interpretations because so few of these matters ever get litigated. And while that point is well-taken, many courts might well interpret the FCPA the same way DOJ interprets it. So my view is that whether we take issue with DOJ’s interpretation or court interpretations, the solution always becomes a political issue. Congress is aware of the DOJ’s view and can take steps to modify or clarify the statute if it disagrees with that view, the same as it can and often does when it dislikes court interpretations of any other statute.

Now, whether any Congressional solution would result in anything better than what we currently have is anyone’s guess.

Do you think the UK Bribery Act is going to be a real game-changer? A lot of people are talking about the lack of a facilitating payments exception. Do you think the landscape is going to be very different once the Bribery Act comes into force?

I actually think that the biggest effect that it’s going to have is that it’s going to force large British companies that may not have focused on corruption issues before to finally have to focus on them. But for most multinationals – many of whom will be subject to both the FCPA and the Bribery Act – I think the landscape stays largely unchanged. The biggest deal for them is going to be getting an adequate compliance program in place.

The underlying ways in which bribery occurs inside of companies will remain the same. The controls and procedures that can address bribery will also remain the same. At the margins, there are some obvious differences between the FCPA and the Bribery Act, but the conduct they cover is mostly identical.

A lot of people have been talking about the different treatment of facilitating payments. I don’t think that’s nearly as big of a deal as the other main difference, which is the criminalization of private conduct. The UK statute explicitly looks to whether a relevant function of an employee’s job has been performed improperly as a result of a payment or gift. Who defines what the proper performance of an employee’s job is? The employer, of course.

So has the UK Bribery Act essentially transformed employee manuals and company policy manuals into de facto statutes? Improperly perform your job in violation of your company policy and you’ve committed a crime under British law? I see a potentially serious problem there. After all, many companies have policies that prohibit their employees from giving or receiving gifts from people with whom they do business. Do they need to think more carefully about what they put in those policies in light of what the UK Bribery Act does with them?

“We Are In a New Era of FCPA Enforcement; and We Are Here to Stay”

These were the words of Assistant Attorney General Lanny Breuer yesterday at ACI’s signature FCPA conference (see here).

This post contains excerpts of Breuer’s speech (see here) and contains my comments in italics.

Breuer’s speech begins as follows:

“… I’m proud to say that our FCPA enforcement is stronger than it’s ever been – and getting stronger. To give you just one metric, in the past year, we’ve imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion.

I am aware that, for some of you, as we have become more aggressive, you have become more worried.

On one hand, I want to tell you this afternoon that you are right to be more concerned. As our track record over the last year makes clear, we are in a new era of FCPA enforcement; and we are here to stay. On the other hand, I want to impress upon you that you should not wait in worry for us to come knocking on your door. There are many steps that you can be taking that would put your organization in a better position for the day we do come knocking, or that could prevent us from coming at all.

Perhaps it’s no surprise that in the last 19 months, as we’ve stepped up our FCPA investigations and prosecutions, there are some who have stepped up their criticism of the Act itself. No doubt, some of the criticisms and suggestions out there are worth debating, and you should know that we do take serious commentary into account. For example, I am aware that some practitioners and others would like to see, in the FCPA area, an amnesty program similar to the one that exists in the realm of antitrust. Although I think there are significant differences between foreign bribery and antitrust violations, I can at least tell you that we listen to considered suggestions of this kind.

I am also aware, however, of much less thoughtful commentary. For example, there are some who have suggested recently that FCPA enforcement is “bad for business.” To me, this is a little like saying that our public corruption prosecutions are “bad for government.” It’s exactly upside down. As Attorney General Holder explained to an audience earlier this year, bribery in international business transactions weakens economic development; it undermines confidence in the marketplace; and it distorts competition.”

I agree, we are in a new era of FCPA enforcement. See here for my recent piece “The Foreign Corrupt Practices Act in the Ultimate Year of its Decade of Resurgence.”

The facade of FCPA enforcement is not just a business issue, it is a rule of law issue, and having a discussion about the facade of FCPA enforcement is a valid and legitimate discussion to be having.

Breuer continues:

“So let me be perfectly clear about the Justice Department’s views on that topic: FCPA enforcement is not bad for business; it is, instead, vital to ensuring the integrity of our markets. Our FCPA enforcement program serves not only to hold accountable those who corrupt foreign officials, but in doing so it also serves to make the international business climate more transparent and fair for everyone. FCPA enforcement both roots out foreign corruption and deters it from taking hold in the first place.”

The government’s FCPA enforcement program “holds accountable those who corrupt foreign officials?” If accountability means the company pays an eye-popping multi-million dollar fine, then yes there is accountability – even if the fine paid, in most instances, is less than the amount of the bribes paid and less than the amount of business allegedly obtained or retained because of the bribe payments.

Where is the accountability when the same government agency (the FBI) that assisted in the investigation of BAE’s improper conduct awards a $40 million dollar contract to the company? See here for the prior post.

Breuer continues:

“… the United States, through its FCPA enforcement efforts, leads by example; and other countries are following. For instance, the United Kingdom passed a landmark anti-bribery law earlier this year, sending a clear message to the British business community that the U.K will not tolerate bribery in international commerce.”

True, the U.S. government’s enforcement of the FCPA is held up as a model for other nations. That’s precisely why the facade of FCPA enforcement matters. Because other nations are modeling enforcement of their own anti-bribery laws on U.S. enforcement of the FCPA.

For more see this prior post “As We Say, Not Necessarily As We Do.”

Breuer then mentions the recent OECD and states that “while the OECD had some constructive suggestions, it strongly commended us for our exemplary enforcement actions – and for the extraordinary commitment of the United States to combating bribery.”

As I noted in this previous post, quantity of enforcement does not always mean quality of enforcement.

Lost in the coverage of the OECD report is the salient fact that while loudly praising the U.S. for its “high level” of enforcement, the OECD quitely criticizes and questions many of the policies and enforcement theories which yield the “high level” of enforcement. For instance, the OECD Report notes that the FCPA’s language “does not specifically convey” that cases concerning “an operating license or permit to operate a business, or a reduction in tax or import duty” are in violation of the statute. Yet, many FCPA enforcement actions are based on this theory – such as the entire line of Panalpina related enforcement actions earlier this month (see here). Further, the OECD Report notes that “due to an absence of explicit language in the definition of foreign official” it is an open question whether employees of so-called state-owned or state controlled enterprises are “foreign officials” under the FCPA. Yet, numerous FCPA enforcement actions are based on this theory.

Breuer’s speech ends as follows:

“In a climate in which FCPA enforcement matters; in which the United States is pursuing foreign bribery vigorously, both here and abroad; and in which the government stands ready to reward sincere cooperation, what should you and your clients be doing? Let me offer you three suggestions.

First, take a hard look at your organization’s FCPA compliance practices. It is never too early to undertake such a review. You will rest easier if you satisfy yourselves that your company is behaving responsibly and in full compliance with the law. Or, if you discover problems before we do, and then work to fix them, you will receive a benefit for having done so.

Second, if your compliance program is lacking, strengthen it. This includes finding ways to tighten internal controls and encouraging a culture of compliance. The OECD’s recently adopted “Good Practice Guidance on Internal Controls, Ethics, and Compliance” is an excellent place to start. Establishing a top-notch compliance program will not only help to prevent misconduct from occurring, but it will also improve your position with us in any eventual investigation.

Finally, voluntarily disclose wrongdoing if you discover it. As a former defense lawyer, I understand that the question of whether to self-report is a difficult one. But I can assure you that if you do not voluntarily disclose your organization’s conduct, and we discover it on our own, or through a competitor or a customer of yours, the result will not be the same. Of course, voluntary disclosure is not the only factor we consider in deciding how to resolve a particular case. We take into account all the factors set forth in the Principles of Federal Prosecution of Business Organizations, and we consider the particular facts and circumstances of each individual case. But there is no doubt that a company that comes forward on its own will see a more favorable resolution than one that doesn’t.

Foreign bribery has a severe, negative impact on international democratic institutions, the worldwide marketplace, and American businesses. The Justice Department is firmly committed to investigating and prosecuting foreign bribery wherever it occurs – because rooting out foreign bribery matters. It matters for the health of democratic institutions across the globe and it matters for the strength of international commerce. At the same time, we are also determined to reward responsible behavior. If you are equally committed to conducting business transparently and free of foreign corruption, we can be strong partners in this fight. I hope you will join us in the months and years ahead.”