“The Tide Of History Has Turned And Is Now On Our Side”
Employing much of the same lofty rhetoric former Assistant Attorney General Lanny Breuer frequently used to describe the DOJ’s Foreign Corrupt Practices Act enforcement efforts (see here for my prior article), Deputy Attorney General James Cole delivered this speech yesterday before an FCPA audience.
This post contains excerpts of Cole’s speech as well as certain commentary.
*****
As to the DOJ’s general fight against corruption, Cole stated:
“[C]orruption is no less harmful when it is perpetrated abroad. In many ways, the consequences of public corruption can be even more severe in developing countries. In the U.S., we have a long history of democratic and economic stability. In nascent democracies, however, public corruption can undermine the very existence of the types of democratic institutions that we take for granted. The fruits of corruption can help prop up autocratic and oppressive rulers. In emerging economies, corruption can stifle the economic development that would lift people out of poverty, improve infrastructure, and better people’s lives. And as the beneficiaries of the blessings of a stable democracy and a robust economy, we, as Americans, have an obligation to ensure that our corporations– and their officers, directors, and employees– are not undermining the promise of democracy and economic development in other parts of the world by paying bribes. But make no mistake, fighting public corruption abroad is also good for the U.S. at home. Just because we do not feel the repercussions of foreign corruption– the hospitals left unbuilt, the roads still unpaved, the medicine undelivered– as personally or as immediately as the citizens of those countries, it does not mean that corruption abroad does not affect us in real and tangible ways. In today’s global economy, the negative effects of corruption inevitably flow back to the United States. Corruption contributes to economic crises that destabilize the global financial system, opens borders for terrorists to cross, it raises the price of the goods we buy, and costs American jobs because American companies are denied the ability to compete in an open and fair marketplace. We all eventually suffer the negative impact of transnational corruption. Given that the stakes are so high, it should be no surprise that the Department of Justice is every bit as committed to fighting corruption abroad as it is to fighting corruption at home. […] [Using the FCPA, the Department helps ensure that U.S. companies and individuals, as well as foreign companies and individuals where appropriate, are held accountable when they pay bribes to foreign government officials in order to get business.”
As to the FCPA’s legislative history, Cole stated:
“[L]et us take a moment to consider the origins of the FCPA. The FCPA has its roots in one of the most notorious domestic corruption events in recent times: the Watergate scandal. Obviously,Watergate had a tremendous impact on our domestic politics and governmental institutions. But Congress realized that the problems uncovered during the Watergate investigation did not stop at our borders. Indeed, in the aftermath of Watergate, our colleagues at the SEC discovered that more than 400 U.S. companies had paid hundreds of millions of dollars in bribes to foreign government officials to secure business overseas. In enacting the FCPA, Congress recognized the harm that foreign bribery causes to both our domestic interests and foreign interests. Congress recognized that foreign bribery had tarnished the image of U.S. businesses, impaired public confidence in the financial integrity of U.S. companies, and had hampered the functioning of markets, resulting in market inefficiencies, market instability, sub-standard products and services, and an unfair playing field. Clearly, outlawing foreign bribery was the right thing to do. But that does not mean it was the easy thing to do. From the beginning, there was a vocal chorus of critics who claimed that taking a stand against foreign bribery would harm American businesses, put U.S. companies at a competitive disadvantage, and cost American jobs, because foreign bribery was “just how business is done overseas.” But that didn’t make paying bribes right, and it didn’t mean that we should tolerate it. As Americans, we have a long history of taking the right path, not the expedient one. And we expect more from ourselves–and our institutions– than pursuing the path of least resistance. And, frankly, throughout our history, that philosophy has proven to be right.”
For a more complete – and accurate – description of the FCPA’s legislative history, see “The Story of the Foreign Corrupt Practices Act.”
As to the “current fight against foreign bribery,” Cole stated:
“In the nearly 36 years since the passage of the FCPA, the modern world has begun to embrace our fight against foreign bribery and to follow our lead. From the 1999 OECD Anti-Bribery Convention to the 2005 UN Convention Against Corruption, from the Council of Europe’s Group of States Against Corruption to the Organization of American States’ Inter-American Convention Against Corruption,a common legal standard has emerged over the last 36 years that rejects the notion that bribery in international business transactions is lawful, much less inevitable. It is true that this common standard has emerged slowly, and that at times it has faced challenges, but the tide of history has turned and is now on our side.”
U.S. federal court judges of course live in the “modern world” and when the DOJ’s FCPA enforcement efforts have been subjected to judicial scrutiny, “embrace” is not one word that immediately comes to mind. See here for the article “What Percentage of DOJ FCPA Losses Is Acceptable?” The short version is as follows.
- “This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”
- The instances of misconduct were so varied and occurred over such a long period of time “that they add up to an unusual and extreme picture of a prosecution gone badly awry.”
- ‘‘The problem here is that the principal witness against [the FCPA defendant] . . . knows almost nothing.” […] [The DOJ] shouldn’t
indict people on stuff [they] can’t prove.”
As to enforcement statistics and resources, Cole stated:
“I am proud to say that the United States, and DOJ in particular, has played a leadership role in this global effort to combat transnational bribery. I have seen this firsthand in my nearly three years as Deputy Attorney General. Since I took office in January 2011, the Department has reached 27 corporate resolutions and publicly announced that 28 individuals have been charged with FCPA and FCPA-related violations. This is a remarkable record. Those corporate cases resulted in penalties of $785 million and there is more to come. These results are the product of the skill, hard work, and determination of our talented prosecutors in the Criminal Division’s FCPA Unit, working in tandem with federal prosecutors across the country at many of the 94 U.S. Attorney’s Offices. Working with our partners like the FBI, the Department of Homeland Security, the Department of Commerce, the SEC, and IRS-Criminal Investigations, we have made enforcement of the FCPA a priority. Together, we are pursuing more cases than ever before, and we are using allof the investigative tools available to us from subpoenas to search warrants, from body wires to wiretaps.”
As to the FCPA Guidance, Cole stated:
“Now, despite this impressive enforcement record, there is always room for improvement. Many thoughtful people — from the OECD lead examiners who conducted our Phase 3 examination, to the media, to many of you in this room — have provided valuable feedback on our efforts. Based on that feedback, we have made adjustments and come up with some new innovations. For example, at this very conference one year ago, we announced the publication of the Resource Guide to the U.S. Foreign Corrupt Practices Act. The Guide had its origins in suggestions made during the OECD Phase 3 examination. The lead examiners determined that the U.S. could do a better job in explaining the way that we understood the FCPA and our enforcement policies, and we, along with our SEC colleagues, committed to doing that. Along the way, we made sure to listen to and take into account your comments and concerns. We reached out to the business community, to civil society, to compliance professionals, and to the legal community. We heard your concerns, took to heart your suggestions, and incorporated many of them into the Guide. And, if the public reaction to the Guide is any indication, I think we did so fairly successfully.”
See here for what is believed to be the most extensive collection of commentary concerning the FCPA Guidance.
As to compliance, voluntary disclosure, and cooperation, Cole stated:
“But the Guide was not the end. We continue to engage with the business and legal communities, and continue to find ways to communicate with them about how we interpret the FCPA, what they can do to prevent violations, and what they should do if they discover that a violation has occurred. Believe me when I say that FCPA enforcement is not a game of “gotcha.” We prefer prevention to prosecution and we want companies to successfully recognize and resist demands for bribes and to comply with the law. But we understand that even the best compliance program will not prevent every violation of the FCPA. So when a violation does occur, we frankly expect you to tell us about it and cooperate in investigating it. And one of the questions we’ve repeatedly heard over the years is: “What is the benefit of voluntary disclosure and cooperation?” We fully understand that companies will act in their own best interest. So we have sought to incentivize companies with tangible benefits for their voluntary disclosure and cooperation– beyond the reductions already built into the Sentencing Guidelines. Such benefits have taken the form of declinations like that in the Morgan Stanley case [see here for the post “Stop Drinking the Kool-Aid” regarding Morgan Stanley’s so-called declination], resolutions short of a guilty plea like deferred prosecution agreements and non-prosecution agreements, and allowing companies to self-report their remediation efforts instead of being subject to the oversight of a corporate monitor. We have also, in appropriate cases, supported reduced penalties below those suggested by the Sentencing Guidelines. Because your role in the enforcement of the FCPA is vital to its success, I want to assure you that we are committed to demonstrating the benefits of your working cooperatively with us. But, this does not mean that we will blindly accept the conclusions of internal investigations. To the contrary, we will continue to actively pursue our own investigations in order to pressure test the results of your internal investigations and be able to identify those companies that are truly cooperating. It also does not mean that companies that claim to be cooperating, but that are, in fact, engaging in gamesmanship, will reap such benefits. Indeed, just as it is important to reward true voluntary disclosures and actual cooperation, it is critical that we hold companies accountable when they choose to conceal misconduct, obstruct investigations, and attempt to mislead investigators. For those companies, there will be serious consequences. Put simply, we want to work with you, and we will continue our efforts to provide tangible benefits to reward you for doing so. But we will also be unrelenting in holding you accountable if you choose not to do so. This is a two-way street, and you can be sure that your choices regarding cooperation, either way, will have real consequences.”
The Erosion Of Corporate Criminal Liability
A guest post today from David Uhlmann (University of Michigan Law School) regarding his article “Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability,” recently published by the Maryland Law Review.
Professor Uhlmann served for 17 years at the DOJ, the last seven as chief of the Environmental Crimes Section, where he was the top environmental crimes prosecutor in the country.
*****
Over the last two years, there has been significant media coverage of Securities and Exchange Commission settlements that contain no admissions of wrongdoing—sometimes referred to as “Neither Admit, Nor Deny” agreements—and the lack of criminal charges for the 2008 financial meltdown. Both are troubling developments given the role that Wall Street played in bringing about the Great Recession.
But there has been far less scrutiny of a disturbing shift in corporate prosecution policy that began in the Bush administration and has accelerated during the Obama administration: the increased use of deferred prosecution and non-prosecution agreements to address corporate wrongdoing. Under these agreements, corporations can avoid criminal charges if they pay large penalties to the government, improve their compliance programs, and cooperate in the investigation of individuals who engaged in wrongdoing. Yet plea agreements—the preferred approach prior to the last decade—offer the same benefits without making it appear that large corporations can buy their way out of criminal prosecution.
The recent announcement that SAC Capital Advisors will plead guilty to insider trading charges and pay a $1.2 billion criminal fine provides a stark contrast with the larger trend. From 2004 to 2012, the Justice Department entered 242 deferred prosecution and non-prosecution agreements with corporations, after entering just 26 in the preceding 12 years combined (half of which occurred from 2001 to 2004). The use of such agreements has become routine in the Justice Department’s Criminal Division, which now resolves most of its corporate criminal cases using what it calls “non-criminal alternatives” to prosecution. From 2010 to 2012, the Criminal Division entered more than twice as many deferred prosecution and non-prosecution agreements with corporations (46) as plea agreements (22).
Nor are these small cases involving technical violations of the law. The Justice Department agreed to a deferred prosecution with HSBC even though the bank was involved in nearly a trillion dollars of money laundering, much of it from drug trafficking. The Justice Department entered a non-prosecution agreement in the Upper Big Branch Mining disaster even though 29 miners died, and the Labor Department found that Massey, the company that owned the mine, committed over 300 violations of federal mine safety laws and kept a double-set of books to hide its misconduct from safety inspectors.
The failure to prosecute corporations like HSBC and Massey sends the wrong message about how our society views corporate misconduct and sows doubts about the Justice Department’s commitment to address corporate crime. The Justice Department would never allow individuals who committed such serious crimes to escape prosecution. So why the double-standard for corporate defendants? Why has the Obama administration continued the questionable corporate crime policies of the Bush administration?
The Justice Department has offered shifting rationales for its embrace of deferred prosecution and non-prosecution agreements, from preventing collateral consequences, such as the demise of Arthur Anderson after the Enron debacle, to rewarding corporations for cooperation, including attorney-client privilege waivers. Those justifications have been debunked. Arthur Anderson was the exceptional case, because it could not survive as an accounting firm after its conviction for accounting fraud. In 2008, after heated protests from the defense bar, the Department beat a hasty retreat from requesting privilege waivers. The Justice Department now argues that it needs a middle ground between criminal prosecution and declination of charges. But the Department already has the middle ground of civil enforcement for the antitrust, environmental, fraud, securities, and tax violations involved in most corporate crime.
With no consistent or compelling justification for the Justice Department’s approach, it is hard to escape the conclusion that the Justice Department is ambivalent about the role of corporate criminal prosecution and therefore too willing to offer non-criminal alternatives to corporate defendants that it would never allow to individual defendants. Perhaps the Department believes, as some of my colleagues in academia assert, that corporate prosecution serves no purpose because companies cannot go to jail. Yet those views ignore the role of the criminal law in making clear what conduct is not acceptable in our society, as well as the stigmatizing effect that rightly accompanies a criminal conviction for a company.
In my recent article, Deferred Prosecution and Non-Prosecution Agreements and the Erosion of Corporate Criminal Liability, I argue that the widespread use of deferred prosecution and non-prosecution agreements erodes corporate criminal liability and undermines the rule of law. I assert that such agreements limit the punitive and deterrent value of the government’s law enforcement efforts and extinguish the societal condemnation that should accompany criminal prosecution. I side with those within the Justice Department who have resisted the trend toward deferred prosecution and non-prosecution of corporate crime and agree with critics who claim that the Department may lack sufficient policies to ensure that abuse of power does not occur in negotiating such agreements.
Prosecutors can and should be expected to make principled decisions about whether a particular violation warrants criminal prosecution. If the law and the facts justify prosecution, charges should be brought; they should not be sacrificed to non-criminal alternatives that lack the punitive, deterrent, and expressive value of criminal charges. On the other hand, if prosecution is not justified, the matter should be declined; companies should not be threatened with prosecution to secure a large, financial settlement.
Deferred prosecution and non-prosecution agreements, if they occur at all, should be limited to relatively minor cases where civil or administrative enforcement options are not available or the exceptional case where innocent third parties would suffer significant harm as a result of criminal prosecution. Non-criminal alternatives should never be allowed in egregious cases like HSBC or the Upper Big Branch mining disaster—or countless other major cases where criminal charges were dropped.
The Justice Department should amend its corporate prosecution policies to limit the use of deferred prosecution and non-prosecution agreements. By developing such guidelines, the Justice Department will ensure a principled and consistent approach to the prosecution of corporations, uphold the rule of law, and restore confidence in its efforts to combat the harmful effects of corporate crime.
DOJ’s Centralized FCPA Enforcement Policy
Yesterday’s post highlighted a 1979 speech by the DOJ’s Assistant Attorney General outlining the DOJ’s FCPA enforcement priorities. (See here). In the speech, the Assistant Attorney General talked about DOJ’s centralized FCPA enforcement policy and stated as follows.
“To maintain consistency in enforcement policy and to keep close liaison with the Department of State, SEC, and foreign law enforcement agencies, we have concluded that enforcement responsibility under the Act should be substantially centralized. Unlike other law enforcement areas where primary responsibility for prosecution rests with 94 different U.S. Attorneys around the country, most prosecutions under the Foreign Corrupt Practices Act for payment activities will be supervised by the Multinational Fraud Branch in the Criminal Division in Washington.”
The speech also referenced improper payments leading to the downfall of foreign governments and the foreign policy implications of such payments. Indeed, as told in my article “The Story of the Foreign Corrupt Practices Act,” what primarily motivated Congress to enact the Foreign Corrupt Practices Act was payments to foreign government officials such as the Prime Minister of Japan, the President of Korea, the President of Gabon, and Italian political parties. Congress really didn’t care (at least enough to legislate) about the many other questionable payments it learned of during its multi-year investigation and deliberation of the foreign corporate payments problem in the mid-1970’s. We know this because Congress excluded from the original definition of “foreign official” government employees whose duties were ministerial or clerical.
In 1982, Richard Shine (Chief of the DOJ’s Multinational Fraud Branch, the name then given to the DOJ’s FCPA Unit) likewise spoke of the DOJ’s centralized enforcement policy and stated as follows (see here for the prior post).
“Because of the obvious sensitivity both from a national security point of view and a foreign policy point of view, the Department has administered the enforcement of this statute quite differently than the enforcement of most of the provisions of Title 18 of the United States Code. Administration of the enforcement effort has been highly centralized. Generally, FCPA cases, by the terms of the United States Attorney’s Manual, are not investigated and prosecuted by the ninety-four United States Attorney’s Offices around the country. They are primarily investigated and prosecuted by the Multinational Fraud Branch in the Criminal Division at the Justice Department. Among other reasons, that is being done to make sure that there is a nationally uniform enforcement policy. Moreover, virtually any step that is taken in the investigative process, even more than in the post-indictment process, has potentially significant foreign policy and national security implications.”
The point is this.
As reflected in the above speeches, there was a time when the DOJ recognized Congressional intent in enacting the FCPA and based on this recognition the DOJ wisely implemented a centralized enforcement policy.
After all, did the country really want an Assistant U.S. Attorney in Seattle, Miami, you name it, bringing an enforcement action concerning payments to foreign government officials that could cause the downfall of a foreign government and raise a host of foreign policy and national security issues?
Centralized FCPA enforcement is still the DOJ’s policy and the U.S. Attorneys Manual states as follows.
“No investigation or prosecution of cases involving alleged violations of the [FCPA] shall be instituted without the express authorization of the Criminal Division. Any information relating to a possible violation of the FCPA should be brought immediately to the attention of the Fraud Section of the Criminal Division. Even when such information is developed during the course of an apparently unrelated investigation, the Fraud Section should be notified immediately. […] The investigation and prosecution of particular allegations of violations of the FCPA will raise complex enforcement problems abroad as well as difficult issues of jurisdiction and statutory construction. For example, part of the investigation may involve interviewing witnesses in foreign countries concerning their activities with high-level foreign government officials. In addition, relevant accounts maintained in United States banks and subject to subpoena may be directly or beneficially owned by senior foreign government officials. For these reasons, the need for centralized supervision of investigations and prosecutions under the FCPA is compelling.”
According to the DOJ’s website, this Attorneys Manual excerpt is from 2000 and even then the DOJ still recognized that its FCPA enforcement efforts were targeted at high-level government officials and other senior foreign government officials.
Things have obviously changed with the DOJ’s FCPA enforcement program.
Most enforcement actions in this new era involve alleged payments to state-owned or state-controlled enterprises with many attributes of private commercial enterprises, employees of various foreign health care systems such as physicians, or actions based on payments to ministerial or clerical officials concerning mundane foreign licenses, permits or customs issues.
Can it truly be said that these enforcement actions concern payments that could lead to the downfall of foreign governments or payments that have “significant foreign policy and national security implications”?
Tracing the history of the DOJ’s centralized FCPA enforcement policy and its original policy justifications actually speaks volumes to how FCPA enforcement has changed in this new era.
There is another point to be made as well concerning DOJ’s centralized FCPA enforcement policy.
It is a special policy.
As noted in this recent post, before recently leaving the DOJ for FCPA Inc., then DOJ Deputy Chief of Staff for the Criminal Division Daniel Suleiman rightly noted as follows. “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”
Likewise, former DOJ Assistant Chief for FCPA Enforcement Billy Jacobson also rightly observed (see here for the prior post) as follows.
“The FCPA has been recognized and treated as different by the U.S. government since its passage in 1977. […] [The FCPA] is one of just a few, select statutes to be prosecuted centrally from one DOJ office. The over-whelming majority of federal criminal statutes may be brought by each of the country’s U.S. Attorney’s Offices, but FCPA actions may be brought only by the Fraud Section of the Criminal Division within Main Justice.”
What this special DOJ FCPA policy means is that FCPA enforcement is highly centralized and, from a supervisory and discretionary standpoint, very few individuals control FCPA enforcement. Because of the DOJ resolution vehicles typically used to resolve FCPA enforcement actions, these few individuals largely “enforce” the FCPA behind closed doors in Washington D.C. often without any meaningful judicial scrutiny and in the general absence of case law of precedent setting the parameters of the FCPA.
The DOJ’s special policy warrants another special policy.
And that is, as I have long suggested, a prohibition on DOJ FCPA enforcement attorneys with supervisory and discretionary authority from providing FCPA defense or compliance services for five years upon leaving government service.
A DOJ Blast From The Past
It was November 1979 and the Foreign Corrupt Practices Act was nearly two-years old. Philip Heyman was the DOJ Assistant Attorney General and he gave a speech outlining the DOJ’s FCPA enforcement priorities. Below is an excerpted copy of his speech. (The full speech was published by the American Banker on Nov. 21, 1979).
*****
“Two English writers several centuries ago took widely different views of bribery. John Gay told us, with a worldly wink, in 1738: ‘Corruption’s not of modern date; it hath been tried in every state.’
Shakespeare agreed the practice was antique, but took a harsher line. Brutus says to Cassius in Julius Caesar: ‘Shall we now contaminate our fingers with base bribes. . .? I had rather be a dog, and bay the moon.’
Two years ago, Congress voted with Shakespeare and decided to keep American business out of the doghouse. The passage of the Foreign Corrupt Practices Act was a signal event. It represented Congress’ determination that competition in overseas markets should be based on the merits — on price and product quality — rather than on questionable payments to foreign political leaders. Its operative principle, if I may quote Shakespeare again, is that ‘corruption wins not more than honesty.’
The Act passed almost unanimously. In a curious reversal of the usual process, most of the open dissent on how to deal with foreign payments has been percolating to the surface since the passage of the Act, rather than in the debate before.
The dissenting voices should be heard out, because there is an element of truth on their side. These dissenters tell us that, just as international relations is an area in which conventional rules of law do not always operate, international trade is also an unusual arena. Almost every company and entrepreneur in modern-day America accepts that bribery of domestic officials is not an allowable tactic. But international trade is said to pose different problems.
For shorthand, the problems might be dubbed ‘economic extortion’ and ‘keeping up with the Joneses.’ Imagine a foreign official in charge of contract evaluation who announces that a 10% commission must be paid to his brother to assure favorable consideration. A company might well feel tempted. No matter how much faith it has in its product, it can’t tell whether the evaluation will be on the merits, or on its willingness to make the payment. What is a company to do about a monopsonist who won’t buy without a kickback?
A second problem is how to keep up with foreign competitors who are not governed by an antibribery statute. An American company seeking a foreign contract may fear that its non-Americans rivals are indulging in corrupt payments and feel pressure to keep up with the Joneses. Congress can’t legislate rules of behavior for most non-American companies and, the dissenters would tell us, it’s unfair to put a one-sided burden on American companies.
Production Threatened
As well as looking at the burden on individual companies, one should consider the overall economic cost, we are told. On the economic side of the scale is the adage that ‘the business of America is business.’ Any disincentive to American exports is an economic cost and can inhibit production, increase unemployment, and worsen our balance of payments, weakening the dollar and fueling inflation. In the context of foreign corrupt payments, surely one interest to be balanced is the need to strengthen the domestic economy by promoting exports.
These voices of dissent have been late in emerging. Even now they don’t venture to openly advocate a repeal of the Foreign Corrupt Practices Act. I have sometimes had a suspicion that the desire for so-called ‘guidelines’ has included a wistful hope that the Act would be cut away quietly through interpretation. But even those asking for guidelines haven’t dared to openly oppose the Act.
The reason for the hanging back is that the foreign corrupt payments issue has another side to it, the side that Congress and this Administration chose. And there is no way to make light of the interests on this side of the scale. First, what is one to make of companies that use corrupt payments in a foreign market where all other competitors are American? The pre-Act Lockheed case was this kind of situation. Corrupt practices were committed by Lockheed in Japan in an attempt to win a contract for wide-bodied jets against two other American manufacturers. In such a market there is no one-sided burden from a law that requires competition on the merits. To the contrary, without such a law, each time any American company makes an illicit payment there is created a one-sided incentive for its American competitors to follow suit, in a race to the bottom. Bribery in such a situation does not win trade for America; it simply carves up the market among domestic rivals. And what is one to say of corrupt practices where a foreign country is making a conscientious attempt to enforce its anticorruption laws and where, so far as one knows, foreign competitors have been acting with restraint?
Economic Extortion
Then too, consider how easy it is to claim ‘economic extortion’ as an excuse for a bribe. Any seller can say that his bribe was the foreign buyer’s idea and that otherwise he would have been excluded from selling in that market. For this reason, among others, Congress concluded that problems of so-called economic extortion should not be a valid defense to bribery. As the Senate Banking Committee concluded, ‘At some point the U.S. company would make a conscious decision whether or not to pay a bribe. That the payment may have been first proposed by the recipient rather than the U.S. company does not alter the corrupt purpose on the part of the person saying the bribe.’ So-called economic extortion is too easy a cover story for voluntary bribers.
Consider also that each time a bribe is paid by an American company, it makes it easier for economic extortion to occur. A foreign official may reason that if one American corporation is willing to come forward with a corrupt payment, then surely most can be made to pay. In such circumstances, it is not surprising that Congress thought the best solution was to cut the problem off at the source and simply forbid such payments.
The antibribery side of the balance also gains strength from the importance of stability in our foreign relations. If an American company bribe is exposed in foreign newspapers, it may cause the downfall of that government. The rise and fall of foreign governments is a matter too serious for private determination. The foreign policy repercussions of overseas bribery are by themselves reason enough to ban the practice.
There is, also, a matter of mortality and of national honor. Bribery of our officials by foreign companies is something we take extremely seriously; the Koreagate investigation is proof of that. Congress has decided that corruption of foreign officials by American companies is an equally serious matter. Foreign countries have as much right as we do to aspire to honest government. And our effectiveness in seeking a multilateral treaty to ban overseas bribery by any country depends at least in part on the lead we take in showing that such practices are unworthy of a Free World competitor.
Those who argue an antibribery statute involves an economic cost to the U.S. may or may not be right. We have only impressionistic evidence. But the Senate Banking Committee heard testimony from then-Secretary of the Treasury Michael Blumenthal, and former Under-secretary of State George Ball, that in their best judgement overseas bribery was an unnecessary weakness.
Mr. Ball concluded that without corrupt practices, ‘for a limited time span some American countries might lose certain business opportunities,’ but noted ‘the example of a number of our most successful enterprises that rigorously reject such practices yet still do enormous business all over the world.’ Secretary Blumenthal testified that ‘paying bribes. . .is simply not necessary for the successful conduct of business here or overseas.”
“Ethically Repugnant”
Within our governmental system, it is the legislative branch which is responsible for striking the major balance among competing interests. With the passage of the Foreign Corrupt Practices Act, Congress struck that balance and did so with virtual unanimity. Congress determined that the United States should assume a position of moral leadership in the world; that bribery was harmful to U.S. foreign policy interests; and that any short-run economic cost was worth tolerating for the good health of our political and economic system. It was a balance the President adopted at the time he signed the Foreign Corrupt Practices Act. President Carter said: ‘I share Congress’ belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our business institutions.’
Our country has pretentions of national honor, which have been enacted into law and which no one is prepared to renounce. Any who believe that the Executive Branch might ‘wink’ at violations of the law are misguided. The President has made this very clear to us and to Congress. Any who believe the Foreign Corrupt Practices Act can be scuttled quietly, administratively, do not realize that such hypocrisy would be the most damaging vice.
But there is a legitimate role for the Department of Justice in giving advice about its enforcement intentions under the Act. The interpretive questions arising under the Act depend on subtle judgments of fact and law. We’re dealing with a new Act, where no one has much enforcement experience. It is an Act that presents questions there has never been occasion to address in domestic bribery law — for instance, which officials fall outside the Act because their duties are ‘essentially ministerial’ and whether a foreign corporation becomes a ‘government instrumentality’ when only a minority of shares is owned by the foreign government. And there is a national economic interest in avoiding unnecessary uncertainty that could deter acceptable export practices. President Carter noted in his export policy statement of a year ago the hope that ‘American business will not forego legitimate export opportunities because of uncertainty about the application of this statute,’ and asked the department to provide some form of guidance to the business community.
[…]
Enforcement Priorities
Let me discuss a second form of guidance. In his export policy statement, President Carter asked the Department to provide some information about what are called ‘enforcement priorities in regard to foreign corrupt practices. I should first make crystal clear what that phrase means. An enforcement priority simply says what type of cases we will generally consider the most urgent and egregious, which efforts deserve highest targeting. An enforcement priority does not say what cases we will decline to prosecute; or case-by-case review procedure is the way to ask that. Every nonpriority violation is still fully open to investigation and prosecution.
Enforcement priorities come into play in deciding when to open an investigation, and deciding what, if any, enforcement action is warranted. The Act provides us with a continuum of weapons, including civil injunctive actions, criminal prosecution of a business entity, and, the most serious of all, criminal prosecution of individuals. Where we are presented with a serious violation, this last sanction will be considered appropriate.
We will regard a violation as extremely egregious if any bribes are used in a market where the other competitors turn out to be American. Equally serious is any bribe in a market where, though there are non-American competitors, the only companies indulging in corrupt practices turn out to be American. We intend to be vigorous in pursuing these cases, so that American companies obeying the law are not disadvantaged by wayward cousins.
We intend also to give high priority to situations where a foreign government is making an effort to clean up the competitive arena. In any instance where a foreign government is attempting to prosecute a corrupt official who has received payments from American companies, we will make every effort to coordinate with them and to prosecute the payer of the bribe. We will try also to exchange useful information and encourage cooperation by American witnesses to assist the prosecution of the corrupt official. We currently have executive agreements for mutual assistance in criminal matters with 25 nations, which provide for conditional exchanges of information about specified companies between the cooperating prosecutors. We anticipate that the number of countries with which we have such agreements will continue to grow.
The level of the official being bribed is another factor in choosing priority cases. We will act most swiftly and harshly where a foreign cabinet officer or other official of high rank is involved. The size of a payment and the size of the economic transaction which the payment affects are also of interest. A $1 million bribe to win a $20 million contract will, you can imagine, be closely scrutinized for suitability as a criminal case. Note that amounts which some might view as modest in the United States can be very substantial sums in developing countries.
If a senior management official is involved in a violation, either actively or passively, the chance of criminal prosecution again increases both for the company and individuals. A violation by a lower-level employee will also be high priority where the company has been less than diligent in monitoring employee activities. Pro forma adoption of an antibribery policy will not insulate top management and the company from intense investigation and prosecution if serious controls are lacking. Conversely, where a company has been making good faith efforts to monitor its employees, that will be relevant in our decision how to proceed.
Of course the major criterion for choosing among cases will always in the end be the strength of the available evidence and the chances for obtaining additional needed evidence. By this I mean only to reinforce my note in the beginning that so-called nonpriority cases are still fully open to prosecution. Whenever we have strong evidence of deliberate or persistent violations of the Act, a prosecution can and should be expected.
Finally, let me say a few words about process. To maintain consistency in enforcement policy and to keep close liaison with the Department of State, SEC, and foreign law enforcement agencies, we have concluded that enforcement responsibility under the Act should be substantially centralized. Unlike other law enforcement areas where primary responsibility for prosecution rests with 94 different U.S. Attorneys around the country, most prosecutions under the Foreign Corrupt Practices Act for payment activities will be supervised by the Multinational Fraud Branch in the Criminal Division in Washington.
[…]
The most efficient means of implementing the Foreign Corrupt Practices Act is voluntary compliance by the American business community. I am convinced that the great majority of American businesses are making every effort to assure that their officers, employees and agents do not violate the Act. The new review procedure should assist companies in good faith compliance efforts and maximize the ability of U.S. companies to make use of legitimate export practices.
Compliance with the new Act may not be costless for the United States. But living up to one’s principles rarely is. The principle behind the Act is basic to our society — that competition should be on the merits. In the long run, the Foreign Corrupt Practices Act and the joint effort of business and government to end corruption in international trade will be an achievement of which our country can be proud.”
A Different Perspective on Breuer’s New Position
The goal of FCPA Professor, as reflected in the Mission Statement, is to foster a forum for critical analysis and discussion of the FCPA (and related topics) among a broad audience, including those who disagree with me on certain issues.
This post last week highlighted former Assistant Attorney General Lanny Breuer’s new job and another recent post highlighted my recent article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement.”
Today’s post is from Thomas Fox who runs the FCPA Compliance and Ethics Blog. After Fox’s perspective, I offer a few concluding remarks.
*****
A Different Perspective on Breuer’s New Position
Thomas Fox
Last week there was much a-buzz in the FCPA world and, indeed, the greater legal community about the move of former Assistant Attorney General, Department of Justice (DOJ) Criminal Division, Lanny Breuer to the law firm Covington & Burling LLP. Several commentators raised questions about Breuer’s move in light of his work as the former No. 2 at the DOJ. The first of these concerns fall into the category of the “revolving door” issue, the second is a more focused criticism.
The Revolving Door
Dennis Kelleher, a former partner at Skadden Arps in Washington, D.C., and current president of the public interest group Better Markets, Inc., was quoted in a Corporate Crime Reporter article titled “Lanny Breuer Back to Covington” that “nothing is more corrosive to the American people’s trust in government than the revolving door where too many officials turn their so-called public service into multi-million dollar riches unimaginable to most Americans.” Further, Kelleher said that “This blatant cashing-in is destroying faith in government and government officials.” Lastly, Keller said that “Lanny Breuer’s spinning through it is only the latest example: “partner at big DC law firm representing corporate clients before the Department, then becomes a senior official at the Department making decisions whether or not to prosecute those same or similar corporate clients, then leaves to go back to private practice representing those same or similar corporate clients with legal issues before, bingo, the Department of Justice”.
Multi-million dollar salaries are not only unimaginable to most Americans; they are also unimaginable to most lawyers. From my experience, the only lawyers who command such earnings are: (1) plaintiff’s lawyers who work on a contingency and receive a percentage of any settlement or judgment as their fee or (2) lawyers who are very, very good at what they do and clients are willing to pay a very high rate for their services because these lawyers are very, very good at what they do. I believe that Breuer falls into category 2.
Breuer had quite a career before he became the No. 2 at the DOJ. Indeed his bio on the Covington and Burling website has the following information.
Prior to his service at the Justice Department, Mr. Breuer co-chaired the firm’s White Collar Defense and Investigations Practice Group. Over nearly 20 years in private practice, Mr. Breuer maintained a wide-ranging practice that included white-collar criminal and complex civil litigation, internal corporate investigations, congressional investigations, and antitrust cartel proceedings.
Representative Matters
- Represented the Special Litigation Committee of the Hewlett Packard Board of Directors.
- Represented the former Minister of Atomic Energy for Russian Presidents Yeltsin and Putin in a case alleging theft of tens of millions of dollars.
- Represented many major corporations before Congress, including a leading Internet company in a hearing concerning its foreign business activities, major pharmaceutical companies targeted in oversight investigations, the Los Alamos National Laboratory in a national security investigation, and a large Wall Street firm in the Enron hearings.
- Represented leading telecommunications investors in a billion-dollar False Claims Act lawsuit.
- Represented former National Security Advisor Samuel Berger in an investigation of documents at the National Archives.
In addition to the above, Breuer was Special Counsel to President Clinton (1997-1999), where he represented President Clinton and the White House staff in the presidential impeachment hearings and trial, independent counsel investigations, a Justice Department task force investigation, and numerous congressional oversight investigations. Breuer was also an Assistant District Attorney in Manhattan from 1985-1989. In other words, Breuer had quite a bit of experience in government and representing companies before the government before he went back to the DOJ in 2009.
What about the claim that Breuer went back to the DOJ, where he worked for four years so he could ‘cash in’ by going back to private practice? Public service is just that – public service. I am reasonably certain that Breuer did not go back into government service for the salary he received at the DOJ. I think his record demonstrates that he is one of the lawyers committed to serving our country in government. To say that anyone would put up with four years of taking all the shots that Breuer took during his tenure at the DOJ, both from Congress and from others, so he could cash in seems to me to be a little far-fetched. From my perspective, to criticize him for leaving and going back to his former firm does not hold merit.
With regards to one of the issues raised by Kelleher regarding whether a partner in a law firm who represents “corporate clients before the Department, then becomes a senior official at the Department making decisions whether or not to prosecute those same or similar corporate clients”, I do not believe that Breuer made any decisions “not to prosecute those same…corporate clients” while he was at the DOJ. Simply put, he would have been conflicted out. What about “similar corporate clients”? That seems to me to stretch the point way too far.
As to his new work in the private sector, what about another question posed by Kelleher, “Isn’t much of his new multi-million dollar pay package due to the high level connections, high-profile and intimate knowledge of the Department of Justice he gained while doing his ‘public service’ at the Department?”
Breuer himself appears to have answered that question directly in an interview with the Wall Street Journal (WSJ) Law Blog, which quoted him as saying, “Certainly, if I’m not ethically barred,” he told Law Blog. “I would certainly represent clients and anticipate representing clients in all different sectors, and I think that’s the majesty of our system.” But the Law Blog noted that, “Under federal ethics rules, Mr. Breuer has to abstain from matters that he was involved in while at the department, and he can’t approach Justice Department officials on behalf of clients during his “cooling off” period.” This means that he cannot work for Covington on any case he handled at the DOJ and must wait two years before facing off with the agency.
What about clients? If I am a corporation under a serious federal investigation, who do I want advice from? I want advice from someone who knows the ropes. Breuer obviously understands the law from a prosecutor’s perspective and that is of great value to a client. In fact, understanding how a prosecutor thinks and will react is one of the most important pieces of information that a client can have because it provides information on how to respond. Breuer was involved with far more than FCPA cases, and, while I do not know all of them, the one that sticks in my mind was when he had to postpone his talk at the 2012 ACI FCPA conference in Washington to attend the announcement of the US government settlement with BP over the Macondo oil spill. Not only did he have a lot on his plate at the DOJ, he has far-ranging experience in a large number of federal matters.
From FCPA Enforcement to FCPA Defense
The FCPA Professor, in a post titled “Former Assistant Attorney General Lanny Breuer Joins FCPA Inc.”, had a more focused criticism that he has consistently articulated, with the following statement. “Breuer’s departure from the DOJ to a private law firm is just the latest example of a high-profile FCPA enforcement attorney joining a law firm to provide FCPA defense services.” The Professor said:
“That Breuer (and other former DOJ FCPA enforcement attorneys who also moved to private practice) played a supervisory role as a DOJ enforcement attorney in helping create the current FCPA enforcement landscape and in setting the “priorities” and the “benchmarks” is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period.”
This is a more focused criticism. The Professor believes that DOJ lawyers who set FCPA “priorities” and “benchmarks” should be barred for a period of at least five years from providing FCPA compliance or defense services. While I believe that many of the arguments I made in the above Kelleher critique apply to this criticism, I also disagree with the Professor for a couple of other reasons.
First there were many, many voices in the DOJ and Securities and Exchange Commission (SEC) who set priorities and benchmarks for FCPA enforcement while they were in government service. I do not believe that there is anyone person who sets them, the best example of the benchmarks is the DOJ/SEC FCPA Guidance, which I understand was reviewed by several other government departments in addition to the DOJ and SEC.
Nevertheless to say that benchmarks are set, at least in the form of best practices, fails to acknowledge that best practices can evolve. The clearest example of this is the time frames set for post-acquisition integration of a FCPA compliance program by an acquiring company of an acquired entity. In April 2011, the Johnson & Johnson (J&J) Deferred Prosecution Agreement (DPA) had such time frames in its ‘Enhanced Compliance Obligations’. By 2012, these times frames had become minimum best practices. Another example is last year’s Opinion Release 12-01, which found that under certain circumstances, a royal family member is not a foreign government official for FCPA purposes. There are many such situations which make clear that best practices evolve. So even if Breuer had some hand in creating such benchmarks when he was at the DOJ, I do not think that should preclude him from representing clients going forward.
How about ‘priorities’? I have to assume this means priorities in FCPA enforcement. If so this would seem to suggest that Breuer either (1) ramped up FCPA enforcement so that he could get clients from this newly enforcement law or (2) directed enforcement at certain industries or sectors so that he could represent them. As to point 1, I think that, notwithstanding the DOJ’s Press Release on Breuer’s departure that “At the Justice Department, Mr. Breuer increased enforcement of the FCPA, overseeing more than 40 corporate resolutions and eight of the top 10 largest penalties in U.S. history”; these cases were long in the pipeline before Breuer arrived. While I do not know the reason that FCPA enforcement ramped up, it did so long before Breuer arrived at the DOJ. What about direction at certain industries? Here again the way enforcement operates would seem to belie this claim. Most of the FCPA enforcement directed at the energy industry was a result of Panalpina and its related cases. Pharmaceutical cases seem to follow J&J. The aerospace industry has all come after the BAE settlement. To borrow a line from the book and movie “All the President’s Men”, the point is that the DOJ (and SEC) seem to ‘follow the money’.
As you may have ascertained by now, I do not believe that there is a problem in Lanny Breuer going from the DOJ back to his old firm of Covington & Burling. Is $4 million per year salary a huge salary, of course it is. But he has the experience to merit it if clients will pay his hourly rate and for his new duties as Vice Chair of the law firm.
*****
Fox’s post of course demonstrates that Breuer has a plethora of legal skills and experience beyond the FCPA. Thus, my suggested prohibition would not have a material impact on his future career prospects.
Nor would my suggested prohibition affect many people. Here, it is important to recognize the highly centralized nature of FCPA enforcement – per the U.S. attorney manual.
9-47.110 Policy Concerning Criminal Investigations and Prosecutions of the Foreign Corrupt Practices Act states, in pertinent part, as follows.
“No investigation or prosecution of cases involving alleged violations of the antibribery provisions of the Foreign Corrupt Practices Act (FCPA) or of related violations of the FCPA’s record keeping provisions shall be instituted without the express authorization of the Criminal Division. Any information relating to a possible violation of the FCPA should be brought immediately to the attention of the Fraud Section of the Criminal Division. Even when such information is developed during the course of an apparently unrelated investigation, the Fraud Section should be notified immediately.”
Billy Jacobson (former assistant chief of DOJ FCPA enforcement) said it best in this article.
“[T]he FCPA has been recognized and treated as different by the U.S. government since its passage in 1977. […] [The FCPA] is one of just a few, select statutes to be prosecuted centrally from one DOJ office. The over-whelming majority of federal criminal statutes may be brought by each of the country’s U.S. Attorney’s Offices, but FCPA actions may be brought only by the Fraud Section of the Criminal Division within Main Justice.”
In short, per DOJ policy, from a supervisory and discretionary standpoint, very few people control FCPA enforcement. These people largely “enforce” the FCPA behind closed doors in Washington, D.C. via non-prosecution and deferred prosecution agreements in the general absence of judicial scrutiny. This highly-centralized enforcement behind closed doors in the general absence of judical scrutiny further takes place without much caselaw of precedent setting the parameters (something which of course can not be said about many other laws the DOJ enforces such as antitrust, securities fraud, etc.)
It is these unique attributes (most of which are the DOJ’s own making) of FCPA enforcement that warrants special rules. A prohibition on DOJ (or SEC) FCPA enforcement attorneys with supervisory and discretionary authority from providing FCPA defense or compliance services for five years upon leaving government service is a special rule, but one that is in the public interest.