Friday Roundup
Dear Attorney General Holder, U.K. developments not involving News Corp., and Halliburton updates its disclosure … it’s all here in the Friday roundup.
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Senators Klobuchar and Coons Write to Attorney General Holder On FCPA Guidance
As noted in this previous post, in November 2011, Senator Charles Grassley (R-IA) asked Attorney General Holder for detailed information about the DOJ’s promised upcoming FCPA guidance.
Earlier this week, Senators Amy Klobuchar (D-MN) and Chris Coons (D-DE) sent Attorney General Holder this letter regarding the DOJ’s forthcoming FCPA guidance. From my perspective, the most notable paragraph of the letter was as follows. “[I]t has become apparent that too many companies are devoting a disproportionate amount of resources to FCPA compliance and internal investigations. To be clear, it is both necessary and desirable that companies pay adequate attention to compliance efforts, and in certain cases, adequate anti-corruption initiatives may require a significant corporate committment. Over-compliance, however, can have a negative effect on product development, export promotion, and workforce expansion.”
I agree and devoted an entire section of “The Facade of FCPA Enforcement” (see here pages 997-1009) to why the facade of FCPA enforcement matters including the breeding of overcompliance and time-consuming internal investigations. See also here pages 8-9 of my Senate FCPA testimony.
In addition, Senator Klobuchar and Coons encouraged the DOJ “to seek out the participation of U.S. corporate stakeholders when formulating its guidance.” The Senators stated as follows. “Engagement with the stakeholder community ought to occur prior to the release of guidance. In the alternative, guidance should be issued in draft form and finalized after a comment period of sufficient length.”
U.K. Developments
Some recent U.K. developments that do not involve News Corp.
In this release, the U.K. Serious Fraud Office announced that Bruce Hall was charged with corruption offenses based on his alleged receipt of bribes while an employee of Aluminium Bahrain B.S.C. (“Alba”). The charges against Hall relate to previous SFO charges against Victor Dahdaleh, an agent for Alcoa, who allegedly made bribe payments to Alba – see here for the prior post. In recent years, the DOJ has likewise brought non-FCPA charges against bribe recipients. See here for instance.
In this release, the U.K. Serious Fraud Office announced charges against a fourth person in connection with the Innospec enforcement action. (See here for more on the corporate enforcement action). Miltos Papachristos, a former Regional Sales Director for the Asia Pacific Region for Innospec, was charged with “conspiracy to corrupt in that he gave or agreed to give corrupt payments to public officials and other agents of the Government of Indonesia as inducements to secure, or as rewards for having secured, contracts from the Government of Indonesia for the supply of Innospec Ltd products including Tetraethyl Lead.” For more on the other three individuals charged – see here.
Halliburton Updates Disclosure
Yesterday’s post (here) touched upon FCPA disclosures and how it seems like every week there is new disclosure to report.
Halliburton’s disclosure yesterday was not new, but it stated as follows. “We are conducting an internal investigation of certain areas of our operations in Angola, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation with the assistance of outside counsel and independent forensic accountants. During the third quarter of 2011, we met with the DOJ and the SEC to brief them on the status of our investigation and provided them documents. We are currently responding to a subpoena from the SEC regarding this matter and are producing all relevant documents. We understand that one of our employees has also received a subpoena from the SEC regarding this matter. We expect to continue to have discussions with the DOJ and the SEC, and we intend to continue to cooperate with their inquiries and requests as they investigate this matter. Because these investigations are at an early stage, we cannot predict their outcome or the consequences thereof.”
In 2009, Halliburton (and related entities) resolved a $579 million DOJ/SEC FCPA enforcement action concerning conduct at Bonny Island, Nigeria. (See here).
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A good weekend to all.
“We Are Going To Be Drafting A Bill,” But When Will It Be Introduced?
On June 14, 2011, the House Judiciary Committee (Subcommittee on Crime, Terrorism, and Homeland Security) held an FCPA hearing. (See here for the prior post, here for the hearing transcript). During the hearing, Chairman James Sensenbrenner (R-WI) firmly stated “we are going to be drafting a [FCPA reform] bill.”
The force in which the statement was made (as well as the general tone of the hearing) gave the impression that a reform bill would soon follow the hearing. However, over six months has passed and the much anticipated reform bill has not been introduced.
Reasons for the delay could be many. Some have speculated (see here) that the DOJ’s November announcement of FCPA guidance in 2012 (see here for the prior post) stalled the FCPA reform bill on the theory that Congress is willing to let the DOJ issue its guidance before introducing a reform bill.
If that is the reason for delay of the FCPA reform bill, DOJ guidance is unlikely to quiet the growing chorus advocating for FCPA reform. As I observed in this prior post, DOJ’s promise of FCPA guidance in 2012 will not cure many of the issues that are being debated during this new era of FCPA enforcement. DOJ’s guidance is likely to be little more than a compilation in one document of information that is already in the public domain for those who know where to look. Moreover, what the FCPA needs is not guidance, but limited structural reforms (such as a compliance defense) as well as a change in DOJ policy (such as elimination of non-prosecution and deferred prosecution agreements).
Whenever an FCPA reform bill is introduced, and whatever its specifics provisions, FCPA reform in 2012 is far from a sure thing. The topic is a political hot potato, particularly during an election season, and history instructs that substantive FCPA reform can drag on for many years.
When It Wants To, Congress Knows How To Speak
The FCPA defines “foreign official” as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof …”. One of the arguments in the “foreign official” challenges is that “where Congress wants to define ‘instrumentality’ to include state-owned enterprises, it knows how to do so.” (See pg. 30 of the Carson brief summarized in this previous post).
My “foreign official” declaration (see here) notes as follows. “There is no express statement or information in the FCPA’s legislative history describing the ‘any department, agency, or instrumentality’ portion of the “foreign official” definition. Further, there is no express statement or information in the FCPA’s legislative history to support the DOJ’s expansive legal interpretation that alleged SOEs are ‘instrumentalities’ (or ‘departments’ or ‘agencies’) of a foreign government and that employees of SOEs are therefore ‘foreign officials’ under the FCPA’s anti-bribery provisions. However, there are several statements, events, and information in the FCPA’s legislative history that demonstrate that Congress did not intend the ‘foreign official’ definition to include employees of SOEs. […] During its multi-year investigation of foreign corporate payments that preceded enactment of the FCPA, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. Indeed, in certain of the competing bills introduced in Congress to address foreign corporate payments, the definition of ‘foreign government”’ expressly included SOEs. These bills were introduced in both the Senate and the House during both the 94th (1975-76) and 95th (1977-78) Congresses. […] However, despite being aware of SOEs, despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, and despite being provided a more precise way to describe SOEs, Congress chose not to include such definitions or concepts in S. 305, the bill that ultimately became the FCPA in December 1977.”
As noted in the Carson brief, in the Foreign Sovereign Immunities Act (passed a year before the FCPA), the term “agency or instrumentality of a foreign state means any entity which is an organ of a foreign state or political subdivision thereof, or a majority of whose shares or other ownership interest is owned by a foreign state or political subdivision.” In short, Congress knew how to embed SOE concepts in the FSIA when it wanted to.
Similarly, as noted in the Carson brief, Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (which became law in 201o) and imposes requirements on certain resource extraction issues to, among other things, disclose information regarding payments made to “foreign governments” for the purpose of the commercial development of oil, natural gas or minerals, defines “foreign government” to “include [] a department, agency, or instrumentality of a foreign government or a company owned by a foreign government.” In short, Congress knew how to embed SOE concepts in Dodd-Frank when it wanted to.
A bill introduced by Rep. Chris Smith last week further demonstrates that when Congress wants to, it knows how to embed SOE concepts into legislation. The bill, “The Global Online Freedom Act” seeks to “prevent U.S. businesses from cooperating with repressive governments in transforming the Internet into a tool of censorship and surveillance …”. The bill defines “foreign official” to mean (i) any officer or employee of a foreign government or of any department; and (ii) any person acting in an official capacity for or on behalf of, or acting under color of law with the knowledge of, any such government or such department, agency, state-owned enterprise, or instrumentality.” Further, the bill defines “state-owned enterprise” as follows – “a commercial entity in which a foreign government owns or controls, directly or indirectly, more than 50 percent of the outstanding capital stock or other beneficial interest in such commercial entity.”
For the Carson and Lindsey “foreign official” decisions see here and here. Recently the Lindsey convictions were vacated based on prosecutorial misconduct (see here), the Carson case remains pending.
The “Overseas Contractor Reform Act” … It’s Still Impotent
Another week, another FCPA reform bill (and again, no it’s not that bill). See here for last week’s post.
Representative Peter Welch (D-VT) once again demonstrated that he has very little understanding of how the Foreign Corrupt Practices Act is actually enforced, or if he does, that he is more interested in creating the illusion that he is addressing an issue. See here for the press release.
As reported by Samuel Rubenfeld on the Wall Street Journal Corruption Currents page (see here), yesterday Welch introduced the “Overseas Contractor Reform Act.” The bill (here) is a revised version of the impotent legislation Welch previously introduced in May 2010 – see this prior post, a bill that unanimously passed the House in September 2010 – see this prior post.
The bill Welch introduced yesterday, along with Representative Jason Chaffetz (R-Utah), states that “it is the policy of the United States Government that no Government contracts or grants should be awarded to individuals or companies who violate the FCPA after the date of the enactment of this Act.”
This is a sound policy statement. As I discussed in my November 2010 Senate testimony (here) a debarment penalty for egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation represents sound public policy.
However, the problem with the bill, as with the previous bill, is its trigger for debarment – “any person found to be in violation of the [FCPA – defined to include only the FCPA’s antibribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after the judgment finding such person to be in violation becomes final.”
As silly as it may sound, in this “new era” of FCPA enforcement or this “facade era” of FCPA enforcement if you prefer (see here) few companies are actually ever “found to be in violation of the FCPA.”
The reason is because of how the DOJ is allowed to enforce the FCPA and it is two-fold. First, most corporate FCPA enforcement actions are resolved through a non-prosecution agreement (NPA) or deferred prosecution agreement (DPA). These resolution vehicles do not result in findings of FCPA violations or judgments of FCPA violations. Second, debarment under the bill is triggered only for violations of the FCPA’s anti-bribery provisions. In the most egregious cases of corporate bribery the DOJ rarely charges FCPA anti-bribery offenses, but rather FCPA books and records or internal controls violations or other non-FCPA offenses (see Siemens, Daimler, BAE, etc.). Why? For the stated reason (see here) of avoiding debarment considerations – both in the U.S. and elsewhere.
Thus, Welch’s new bill again represents impotent legislation despite the fact that there was extensive commentary and analysis of the previous bill’s shortcomings for the above reasons.
While substantively similar to the prior bill, the bill introduced yesterday is different in the following ways: the new bill contains a less restrictive definition of “person,” the new bill defines FCPA to include all three prongs of the statute (78dd-1, 78dd-2, and 78dd-3) and, most important, the new bill has an “exemption for self-reported violations” which specifically states “upon a determination by the head of a Federal agency that a person has reported a violation of the [FCPA] voluntarily to the Federal Government, the head of the agency may exempt the person from the applicability of this Act.”
As noted in this prior post, the DOJ is opposed to “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery.”
FCPA Reform Bill Introduced (But Not That One)
Those that have been following the FCPA reform debate over the past year have been anxiously awaiting introduction of an actual bill in Congress. Yesterday, Congressman Ed Perlmutter (D-CO) introduced a reform bill, but not that one.
The bill Perlmutter introduced (see here) is H.R. 3531, the “Foreign Business Bribery Prohibition Act of 2011.” As noted in this previous post, this development has been anticipated for some time and H.R. 3531 is substantively similar to H.R. 2152 that Perlmutter previously introduced in April 2009. See here and here for prior posts.
As drafted, H.R. 3531 would “authorize certain private rights of action under the [FCPA] for violations by foreign concerns that damage domestic business.” However, the bill would have limited application as it seeks to amend only the 78dd-3 prong of the FCPA. This prong of the FCPA is applicable to conduct by “persons other than issuers or domestic concerns” and has the most narrow jurisdictional scope – particularly after Judge Richard Leon’s ruling in the Africa Sting case (see here for the prior post).
H.R. 3531 provides as follows. Any “foreign concern” (defined to mean a person other than an “issuer” or a “domestic concern” under the FCPA) that violates the FCPA’s anti-bribery provisions “shall be liable” to any “issuer” or “domestic concern” or “other United States person” that is “damaged by the violation” of the FCPA’s anti-bribery provisions “for damages caused to such issuer, domestic concern, or other person by the violation.”
As to “proof of damages,” H.R. 3531 states that a plaintiff must allege and prove that “the defendant foreign concern violated” the anti-bribery provisions and that the violations “prevented the plaintiff from obtaining or retaining business for or with any person” and “assisted the foreign concern in obtaining or retaining such business.”
As to “measure of damages,” H.R. 3531 allows the “higher of the two following amounts” (1) “the total amount of the contract or agreement that the defendant gained in obtaining or retaining business by means of the violation” or (2) “the total amount of the contract or agreement that the plaintiff failed to gain because of the defendant’s obtaining or retaining business by means of the violation.” H.R. 3531 also allows from “treble damages” “togther with a reasonable attorney’s fee and costs.”
Because a “foreign concern” (as defined in H.R. 3531) can only violate the FCPA “while in the territory of the U.S.”, Perlmutter’s bill will have limited application. Moreover, even though the premable of the bill states that its purpose is to authorize certain private rights of action for violations by foreign concerns “that damage domestic businesses” given that any “issuer” can be a plaintiff, the bill would also authorize numerous foreign companies with shares traded on a U.S. Exchange to bring a private cause of action against a “foreign concern.”
H.R. 3531 has been referred to the Committee on Energy and Commerce and the Committee on the Judiciary.