Guiding Words
FCPA reform proposals circulating on what seems like a weekly basis.
Claims that the FCPA is bad for business.
Questions about how the FCPA enforcement agencies resolve matters.
In some circles these valid and legitimate questions or calls for reform are being met with claims that some want to weaken the FCPA and pave the way for corporations to go on a bribery binge.
Within days of the U.S. Chamber of Commerce sponsored piece (here – I will do a separate post on this in the near future) various commentators assailed mere discussion of reforming the FCPA as being pro-bribery.
For instance, Keith Olbermann began his October 27th MSNBC Countdown program as follows: “The plot to buy America. U.S. Chamber of Commerce job one: It wants the Congress it thinks it‘s going to buy to roll back enforcement of the anti-bribery Foreign Corrupt Practices Act.” Later in the program Olbermann noted: “The Chamber of Commerce—the U.S. Chamber of Commerce, the biggest secret right-wing ad buyer, today released a report calling for weakening the FCPA. What the hell‘s that? The Foreign Corrupt Practices Act, which punishes American businesses for bribing officials overseas. Quote, “Unfortunately for the business community, an active FCPA enforcement environment appears likely to continue.” The chamber wants to make it easier for American companies to do business with corrupt officials, even, quote, “in countries where many companies are state owned, e.g., China.” Later in the program, Olbermann stated as follows: “I mentioned the U.S. Chamber of Commerce and this call on the new Congress to make it easier for rich Americans to bribe officials overseas and then get away with it if they‘re caught—which seems to sort of represent part of the American spirit, in a bizarre way.”
It is unfortunate that any discussion of examining and perhaps reforming the FCPA, or more importantly FCPA enforcement, is met in some circles with naive and reactionary claims of being “pro-bribery.”
In many ways, we are back to the 1980’s.
In 1980, Congress set about amending the FCPA. The FCPA, at that time: contained a broad “reason to know” knowledge standard as to indirect payments to “foreign officials;” no affirmative defenses; and no express facilitating payment exception.
It took Congress eight years to wrestle with the issues and the FCPA was finally amended in 1988.
In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill “provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”
In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: “We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”
During the hearing, Senator Chafee further stated as follows: “Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”
During Senate hearings, Senator D’Amato noted as follows: “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”
Senator D’Amato further stated as follows. “I think it is very important that in the committee’s work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any ‘gray area’ by clearly spelling out the limits of the law.”
During Senate hearings, Senator John Heinz stated as follows. “… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”
During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: “Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption.”
The interesting thing about these representative comments is that they occurred during an era when the FCPA was, for all practical purposes, not even enforced!
As noted in yesterday’s post, we are, in the words of Assistant Attorney General Breuer, in a new era of FCPA enforcement.
Part of this new era should be a renewed effort to examine the FCPA and more importantly FCPA enforcement.
The above comments from the 1980’s should serve as useful guiding words.
Congressmen Dingell Bungles the FCPA
Politicians often make curious comments. Including when an election is near.
Case in point, Congressman John Dingell who finds himself in a closer than expected election (See yesterday’s Wall Street Journal “Veteran Congressman Feels Heat.”)
Yesterday, Dingell released a letter (here) to John Krafcik, President and CEO of Hyundai Motor America Corporation challenging statements Krafcik recently made in which Krafcik “implied Hyundai is more American than U.S. based automobile companies.”
Dingell’s letter states “[a]s a member of Congress who represents thousands of American workers in the U.S. automobile industry, I find this implication curious and, quite frankly, misleading.”
Want to know what I find curious, and quite frankly, misleading?
How Dingell (a lawyer) seems to understand very little about the Foreign Corrupt Practices Act.
In his letter Dingell asks Krafcik two FCPA related questions.
The first – “[g]iven your comments about Hyundai’s being more American than U.S.-based automakers […] will Hyundai publicly commit to complying with all applicable parts of U.S. statute, including the Foreign Corrupt Practices Act (FCPA)?”
Newsflash – Hyundai Motor America Corporation, a subsidiary of Hyundai Motor Co. of Korea, is a Florida corporation (see here) headquartered in Fountain Valley, California. In other words, it is a “domestic concern” under the FCPA and subject to the FCPA. Given this, I don’t see why Hyundai would be the least bit hesitant to publicly commit to complying with a law it is subject to.
The second – “[w]ith respect to compliance with the FCPA, will Hyundai publicly commit to halting sales or the manufacture of its vehicles in Iran?”
Newsflash – the FCPA is silent as to doing business in any particular country or doing business with a foreign government directly. The FCPA’s anti-bribery provisions generally prohibit the offering or payment of “anything of value” to a “foreign official” to “obtain or retain business.” In sum, Dingell’s second question may perhaps raise a valid concern, and the question, as he phrased it, may perhaps raise issues under other U.S. laws – just not the FCPA.
House Passes Impotent Debarment Bill
The façade of Foreign Corrupt Practices Act (FCPA) enforcement is so deep that the House of Representatives recently passed legislation that will fail to accomplish its stated purpose – to debar corporations committing FCPA violations from federal government contracts.
On September 15th, the House, by a unanimous 409-0 vote, passed H.R. 5366 (“Overseas Contractor Reform Act”) (see here). The Act generally provides that a corporation “found to be in violation of the [FCPA’s anti-bribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such a violation.”
The Act’s key trigger term for debarment – “found to be in violation” of the FCPA’s anti-bribery provisions – is a trigger that is not reached in nearly every FCPA enforcement action because of the façade of FCPA enforcement. Thus, the Act represents impotent legislation.
Nearly every FCPA enforcement action against a corporation is resolved through a non-prosecution agreement (“NPA”) or a deferred prosecution agreement (“DPA”). In an NPA, such as the recent NPAs against UTStarcom, Inc. (here) and Helmerich & Payne, Inc. (here), criminal charges are not filed in court. Rather, the “charges” are resolved via a private letter agreement that is subject to no judicial scrutiny. In a DPA, such as the recent DPAs against Technip S.A. (here) and Snamprogretti Netherlands BV (here), criminal charges are technically filed in court, but those charges are never prosecuted if the company adheres to compliance undertakings set forth in the DPA. Because of the prevalence of NPAs or DPAs in the FCPA context, a corporation entering into such an agreement with the Department of Justice (“DOJ”) is never “found to be in violation” of the FCPA’s anti-bribery provisions.
The Act will be even more impotent given the frequency by which the DOJ resolves clear instances of corporate bribery without charging FCPA anti-bribery violations. Three recent examples highlight this troubling feature of the façade of FCPA enforcement. In March 2010, the DOJ alleged that Daimler AG (“Daimler”) “engaged in a long-standing practice of paying bribes” to foreign officials in at least 22 countries. Despite these allegations, the DOJ resolved the matter against Daimler without charging FCPA anti-bribery violations (see here). In February 2010, the DOJ alleged that BAE Systems Plc (“BAE”) “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. Despite these allegations, the DOJ resolved the matter against BAE without charging FCPA anti-bribery violations (see here). In December 2008, the DOJ alleged that Siemens AG engaged in pattern of bribery “unprecedented in scale and geographic reach” and that the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” Despite these allegations, the DOJ resolved the matter against Siemens without charging FCPA anti-bribery violations (see here).
Numerous other examples could also be cited and because of how FCPA violations are typically resolved by the DOJ, the Act’s debarment provisions will only be triggered in the rarest of instances.
Yet this salient fact was presumably not understood by Representatives who unanimously voted for the Act and championed it as common sense, effective legislation. Who can blame the Representatives for not understanding the full effects of the façade of FCPA enforcement? Most Representatives probably assumed that the DOJ prosecutes companies that commit FCPA anti-bribery violations with FCPA anti-bribery charges in a transparent manner subject to judicial oversight and scrutiny. Yet in this current façade of FCPA enforcement era nothing can be taken for granted.
Perhaps those who championed the Act were aware of its impotence yet voted for it because the costs of voting against it were too great a few months before an election. Representative Peter Welch (D-VT) sponsored the Act in response to an occurrence that is merely tangential to the FCPA – the conduct of Xe Services (formerly known as Blackwater Worldwide) following the 2007 shooting in Nissour Square Iraq that left 17 dead. (See here, here and here). It is clear from the floor statements of various Representatives (see here) that Blackwater’s conduct, and a desire to rein in military contractors, motivated passage of the Act.
Whatever the motivations for unanimous House passage of the Act, because of the façade of FCPA enforcement, the Act is impotent in addressing the conduct it seeks to address. The Act now moves to the Senate Committee on Homeland Security and Governmental Affairs. If the Senate is serious about imposing a debarment penalty on those who commit FCPA anti-bribery violations, a penalty deserving of serious consideration to best effectuate deterrence, the Senate first needs to understand the façade of FCPA enforcement and draft a bill that can actually accomplish its stated purpose.
Friday Roundup
The former DOJ top cop speaks, Senator Feingold joins the debarment discussion, anything is possible, and a House Resolution focused on BP … it’s all here in the Friday roundup.
Mendelsohn Interview
During the period of the FCPA’s resurgence, Mark Mendelsohn was the public face and voice on FCPA issues at the Department of Justice. In April, he announced his departure and now maintains an FCPA private practice at Paul Weiss. (See here and here for more).
See here for Mendeloshn’s recent interview with The Metropolitan Corporate Counsel as he reflects back on his DOJ tenure and other issues.
Senator Feingold Joins The Debarment Discussion
Earlier this week Senator Russ Feingold (D-WI) testified before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts (see here). The hearing was on the topic of “Protecting the Public Interest: Understanding the Threat of Agency Capture.” He began his testimony by stating that a better job needs to be done to ensure that there are no significant conflicts of interest or other inappropriate ties between regulators and the corporations they purport to regulate.”
He then stated:
“I want to raise a concern that a new, more subtle type of agency capture is beginning to emerge as a result of our increasing reliance on government contractors. The Council of the Inspectors General on Integrity and Efficiency recently reported that the total number of suspensions and debarments in FY 2008 was half the total from five years ago, and that suspensions and debarments had been steadily decreasing over the last five years. This is a disturbing statistic, especially when you consider that the number of contract fraud, Foreign Corrupt Practices Act, and other corruption investigations involving contractors is on the rise.”
For more on debarment issues, including an FCPA debarment bill pending in the House see here and here and here.
Is It Possible?
Is it possible to spend $3.2 million on “professional costs” associated with an internal investigation “limited in size and scope” to a branch office that represents approximately one-half of one percent of the company’s annual consolidated revenues?
Apparently it is.
In January I ran this post about Team Inc. and its voluntary disclosure of less than $50,000 in potentially improper payments in its Trinidad branch.
Earlier this week, when disclosing its financial results, the company stated as follows:
“The results of the FCPA investigation were communicated to the SEC and Department of Justice in May 2010 and the Company is awaiting their response. The results of the independent investigation support management’s belief that any possible violations of the FCPA were limited in size and scope. The total professional costs associated with the investigation were approximately $3.2 million.” (emphasis added).
Exhibit A for how even isolated instances of improper conduct under the FCPA in a branch office can be very expensive or Exhibit A for just how out of whack professional costs associated with an FCPA internal investigation and disclosure have become?
It’s your conclusion to make.
BP House Resolution
This recent post discussed Senator Charles Schumer’s (D-NY) request that the Department of Justice investigate BP for FCPA violations.
On July 30, House Resolution 1597 was introduced. Sponsored by Representative Daniel Maffei (D-NY) and co-sponsored by Representatives Christopher Lee (R-NY) and Michael McMahon (D-NY) the resolution (see here) encourages the United Kingdom to “investigate British Petroleum (BP) for foreign corrupt practices.”
The reason?
The same as offered by Senator Schumer – that BP attempted to influence the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans.
The resolution states, in part:
“Whereas the Scottish courts released al-Megrahi from prison on August 20, 2009, under the understanding that he was suffering from terminal prostate cancer;
Whereas the Scottish authorities have never clarified why al-Megrahi could not receive humane treatment while still in captivity;
Whereas al-Megrahi seems to have well outlived his original diagnosis;
Whereas it is very troubling that al-Megrahi received a hero’s welcome to his home country of Libya;
Whereas British Petroleum (BP) admitted on July 15, 2010, that a delayed prisoner-transfer between Britain and Libya ‘could have a negative impact’ on BP’s oil negotiations;
Whereas there are allegations that BP inappropriately attempted to affect the Scottish Government’s decision and possibly even the doctor’s diagnosis; and
Whereas al-Megrahi’s release sends an incredibly offensive message to the families that lost loved ones on Pan Am Flight 103: Now, therefore, be it
Resolved, That the House of Representatives encourages the United Kingdom to investigate British Petroleum (BP) for foreign corrupt practices.”
As I asked in my original post – following Schumer’s (and now Maffei’s) lead will a British politician request that the U.K. Serious Fraud Office or the U.S. government investigate a U.S. company because it lobbied its own government officials in connection with a business purpose?
*****
A good weekend to all.
FCPA Debarment Bill Takes Step Forward … Related Bill Also Introduced
Last week, the House Committee on Oversight and Government Reform “favorably forwarded several pieces of good government legislation” to the House of Representatives. (see here).
One bill taking the next step is H.R. 5366 – the “Overseas Contractor Reform Act.”
As I discussed in this May post when H.R. 5366 was introduced, the bill states that “any person found to be in violation of the Foreign Corrupt Practices Act of 1977 shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such violation.”
In the prior post (here) I noted that the bill is a step in the right direction, but pointed out several shortcomings and said that the bill, if enacted, could become a “toothless tiger” because it assumes all FCPA enforcement actions are resolved through judicial proceedings and it assumes all FCPA enforcement actions are resolved with charges that actually fit the facts.
As noted in this release from the bill’s sponsor, Representative Peter Welch (D-VT), the bill was drafted “in response to an ongoing investigation into whether Xe Services – formerly known as Blackwater Worldwide – bribed Iraqi officials following a 2007 Baghdad shooting that left 17 Iraqis dead.” (See here for more).
Yet if enacted the bill could, if drafted with an understanding of how FCPA actions are resolved, have far-reaching implications as several major government suppliers have recently resolved FCPA enforcement actions (whether anti-bribery or books or records and internal controls) or are currently under investigation for potential FCPA violations.
For video footage of H.R. 5366’s passage by the House Committee (see here – the first video).
*****
H.R. 5366 is not the only FCPA-related bill to keep on your radar screen.
On July 22nd, Representative Raymond Green (D-TX) (here) introduced H.R. 5837 (see here).
The bill states that an “Executive Agency” “may not enter into a contract for the procurement of goods or services with any person or entity unless that person or entity has certified that the person or entity, and each of its officers, employees, and agents, have not violated [the FCPA’s anti-bribery provisions] or any comparable law of any other country.” Further, under the bill, an “Executive Agency” “may not allow any contractor awarded a contract by the agency to enter into a subcontract (at any tier) under the contract with any person or entity that has not made the certification …”
My critique of this well-intentioned bill is the same as H.R. 5366.
Most FCPA enforcement actions are settled through non-prosecution or deferred prosecution agreements. Thus, if a company settles an FCPA enforcement through such a vehicle, the company likely will not be found to have “violated” the FCPA making H.R. 5837 a “toothless tiger.”
Further, the bill assumes that facts implicating the FCPA’s anti-bribery provisions are actually resolved with FCPA anti-bribery charges. As demonstrated by the all too frequent “bribery, yet no bribery” FCPA enforcement actions, that is simply not the case as companies are frequently allowed to settle egregious instances of bribery without being charged with anti-bribery violations.
So great is the facade of FCPA enforcement in many cases that H.R. 5366 and H.R. 5837, if enacted as currently drafted, are unlikely to have any effect.