President Carter Calls Out A Form Of Bribery
But for Jimmy Carter defeating Gerald Ford in the 1976 election, there might not have been a Foreign Corrupt Practices Act – at least when it was enacted or in the form we known it today. As highlighted in my article “The Story of the Foreign Corrupt Practices Act,” the Ford administration favored a disclosure approach to remedy the foreign corporate payments problem discovered in the mid-1970’s whereas the newly elected Carter administration (as well as certain key Congressional leaders) favored a criminalization approach.
The criminalization approach won out and in signing the FCPA in December 1977 President Carter stated:
“During my campaign for the Presidency, I repeatedly stressed the need for tough legislation to prohibit corporate bribery. [The Act] provides that necessary sanction. I share Congress’s 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 basic institutions.”
Last week at a public forum, President Carter called out a form of bribery.
According to this Washington Post report, President Carter stated as follows concerning unchecked political contributions in the U.S.
“It’s legal bribery of candidates. And that repayment may be in the form of an ambassadorship to someone who has raised three or four hundred thousand dollars to help a candidate get elected.”
When President Carter spoke out about a certain form of bribery approximately 35 years ago we listened and the FCPA was praised. How will we react to President Carter speaking out about another form of bribery?
Friday Roundup
Enforcement agency speeches, “foreign official” delay, and for reading stack. It’s all here in the Friday roundup.
Enforcement Agency Speeches
This prior post detailed comments by Mary Jo White prior to becoming SEC Chairman.
Last week, White spoke before the Investment Company Institute on the general topic of the SEC’s role in an increasingly global financial and regulatory system. She stated as follows (see here) concerning the SEC’s enforcement of the FCPA.
“Of course, misrepresentations and other unlawful actions travel in both directions across borders, which is another reason why our partnership with our regulatory counterparts abroad is so important. Among the most prominent concerns in this regard is bribery by U.S. companies overseas, which not only undermines international markets and governments but also simultaneously undermines the reporting and disclosure integrity of our own markets. Thus, strong and fair enforcement of the Foreign Corrupt Practices Act, which forbids U.S. companies from bribing foreign officials, has been and will continue to be a priority for us. Our first objective is to help companies avoid FCPA violations by educating them. And so our staff along with our colleagues at the Department of Justice recently published a comprehensive Guide to the FCPA to give clear guidance and clear up some myths. Of course, the other side of education is deterrence. Deterrence can mean strong enforcement actions with tough disgorgement and penalties. But it can also mean the tangible benefits that come with cooperation – as demonstrated by the Non-Prosecution Agreement with Ralph Lauren Corporation we announced in April. In this particular case, the corporation’s Argentine subsidiary paid bribes to government and customs officials to improperly secure the importation of their products into the country. The bribes occurred during a period when the U.S. parent company lacked meaningful anti-corruption compliance and control mechanisms over its foreign subsidiary. The misconduct came to light as a result of the company’s efforts to improve internal controls and compliance. And the company immediately reported the problem to the SEC and provided exceptional assistance to our investigation. Successful FCPA cases also increasingly require assistance from foreign law enforcement authorities. That is why we recently partnered with the DOJ and FBI in conducting a foreign bribery training program that provided intensive training to 130 foreign investigators and prosecutors from 30 countries, many on which the SEC staff relies for mutual legal assistance in FCPA cases.”
Yesterday, Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) spoke at the Minnesota Bar Association’s Annual International Business Law Institute. (See here). Suleiman offered “some views from the U.S. Department of Justice on the topic of anti-corruption enforcement” and “what the Justice Department is doing in the area of criminal enforcement to fight corruption at home and abroad.” He stated, in pertinent part, as follows.
“I think of our anti-corruption efforts as falling into three principal buckets: number one is criminal prosecution; number two is assisting foreign countries to build up their judicial, prosecutorial, and investigative institutions; and number three is the pursuit, through civil actions, of the proceeds of foreign official corruption. I will discuss each of these buckets in turn.
First and foremost, the Criminal Division is a litigating operation. We investigate and prosecute cases. Our corruption prosecutions are of two kinds: we prosecute corruption by domestic officials, and we prosecute foreign bribery offenses under the Foreign Corrupt Practices Act, or FCPA.”
[…]
“[W]e have an incredibly strong team of prosecutors who focus exclusively on enforcing the FCPA. Depending upon how familiar you are with FCPA enforcement, you may know that the Criminal Division is the entity in the United States with primary responsibility for criminal enforcement of the Act. 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. The Securities and Exchange Commission, which is a few blocks up the street from us, has primary responsibility for the Act’s civil enforcement.”
“Foreign bribery enforcement has for a long time been an important aspect of U.S. policy. The FCPA was enacted roughly 35 years ago, around the same time that our Public Integrity Section was created to focus on public corruption prosecutions, and it was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, but it took more than 20 years for the Act to become a strong enforcement tool. And, over the past several years, the Justice Department has substantially increased its enforcement of the Act.”
“One important aspect of our FCPA enforcement involves, of course, our corporate resolutions. We have collected billions of dollars in criminal fines and penalties to resolve FCPA investigations against companies doing business abroad, including BizJet International Sales and Support Inc., a Lufthansa subsidiary; Alcatel-Lucent; Johnson & Johnson; and many others.”
“But another, critically important aspect of our enforcement regime involves holding individuals responsible for FCPA offenses. There is no greater deterrent to corporate crime than the prospect of prison time. As many have recognized, if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business. In the past four years, the Criminal Division’s FCPA Unit has obtained over three dozen criminal convictions of individuals, including of people who have been sentenced to as many as 15 years in prison.”
“We are as active today in this area as we have ever been. In the past month alone, we have announced charges against several key defendants in ongoing, active FCPA investigations. In mid-April, in a case that we are prosecuting with the U.S. Attorney’s Office in Manhattan, we secured the arrest of a defendant in connection with an alleged bribery scheme to secure mining rights in the Republic of Guinea. In a separate case, which we are prosecuting with the U.S. Attorney’s Office in Connecticut, we also secured the arrest last month of a defendant in connection with an alleged bribery scheme to secure power contracts in Indonesia. And just two days ago, together with the U.S. Attorney’s Office in Manhattan, we announced charges against two broker-dealer employees and a senior Venezuelan banking official for engaging in a multi-million dollar bribery scheme.”
[…]
“Finally, I want to tell you about a relatively new Justice Department initiative. About three-and-a-half years ago, Attorney General Holder gave a speech in Qatar, at which he pledged to increase the United States’ commitment to recovering foreign corruption proceeds. Since that time, the Criminal Division has led the charge in developing what we refer to as the Kleptocracy Asset Recovery Initiative.”
“The initiative’s purpose is to identify the proceeds of foreign official corruption – in other words, the spoils – forfeit them through civil actions, and, to the extent possible, repatriate the forfeited funds for the benefit of the people harmed. In most criminal prosecutions, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Often, however, it may be impractical or impossible to bring a criminal prosecution against a particular person – because that person is immune from prosecution, for example, beyond our jurisdiction, or otherwise unavailable. In these circumstances, we have begun bringing civil forfeiture actions to recover the stolen property.”
“We have brought several Kleptocracy cases in the past couple of years, and forfeited millions of dollars in corrupt proceeds. The most high-profile of our Kleptocracy cases to date involves two civil actions we have brought against approximately $70 million in assets allegedly belonging to a government minister in Equatorial Guinea who is also the son of that country’s president. According to court papers, despite an official government salary of less than $100,000 per year, this minister amassed wealth of over $100 million. Among the items we are seeking to forfeit are nearly $2 million worth of Michael Jackson memorabilia (including the white glove), a Gulfstream G-V jet worth $38.5 million, and a $30 million house in Malibu. These are hard, and hard-fought, cases, but we believe strongly that foreign officials who amass wealth through corruption should not be permitted to use the United States as a haven for their ill-gotten gains.”
“Foreign Official” Delay
Oral argument in the “foreign official” challenge pending in the 11th Circuit – originally scheduled for later this month, has been postponed until the week of October 7th.
This is a historic appeal in that it will be the first instance in which a circuit court directly confronts the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA (see here for a prior post, including embedded links).
Scrutiny Alerts
For more on Barclay’s scrutiny, on both sides of the Atlantic, see this recent article in Middle East Monitor concerning the bank’s relationship with the Abu Dhabi government, including Sheikh Mansour, the deputy prime minister of the United Arab Emirates.
Samuel Rubenfeld (Wall Street Journal Risk & Compliance Journal) has the latest (here) regarding BSG Resources Ltd. a Guernsey-based company in the news after Frederic Cilins, a French citizen associated with the company, was recently arrested and accused of attempting to obstruct an ongoing investigation into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea. (See here for the prior post). As noted in the WSJ article, BSG recently released this detailed statement concerning its conduct in Guinea.
Reading Stack
Several articles of interest to pass along from last week’s Corporate Crime Reporter conference. This article details comments made by Denis McInerney (DOJ Criminal Division Deputy Assistant Attorney General) regarding non-prosecution and deferred prosecution agreements. This article details comments made by McInerney concerning my suggested two-step reform plan (see here for the prior post) and also details McInerney’s response to my question concerning the definition of a declination. Articles here and here concern corporate monitors.
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Over the years, Bloomberg’s David Glovin has written some excellent articles concerning Viktor Kozney, Frederic Bourke, et al. With Bourke soon to report to prison, Glovin pens another great article here.
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This prior post discussed the NY Times recent “With Bags of Cash, CIA Seeks Influence in Afghanistan” story and how the story put our stark double standards in the headlines once again. More recently, the NY Times reports (here) as follows. “[Afghan President] Karzai said he had called a meeting […] with the CIA’s Kabul station chief. “I told him because of all these rumors in the media, please do not cut all this money, because we really need it,” he said. “We want to continue this sort of assistance, and he promised that they are not going to cut this money.” For more on the situation, including the views of others, see here from Alison Frankel’s On the Case column.
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See here from Josh Goodman (an attorney at the Federal Trade Commission) titled “The Anti-Corruption and Antitrust Connection.”
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A good weekend to all.
We Really Ought To Pause And Reflect
As noted in this prior post, in October 2010 Judge Jackson Kiser (W.D. Va.) sentenced Bobby Elkin Jr. Elkin (the former Country Manager for tobacco company Dimon International Kyrgyzstan) pleaded guilty to a one count criminal information charging conspiracy to violate the FCPA. (See here for the prior post). Like many federal court judges before him and after him, Judge Kiser did not see the FCPA conduct at issue in the black and white terms the DOJ often portrays, but rather saw shades of gray. In rejecting the DOJ’s requested 38 month sentence, Kiser sentenced Elkin to probation. According to media reports, Judge Kiser stated that the CIA routinely bribes Afghan warlords, but the CIA’s conduct is not illegal and that this “sort of goes to the morality of the situation.”
Yes it does and it took this recent New York Times story “With Bags of Cash, CIA Seeks Influence in Afghanistan” to put our stark double standards in the headlines once again. (See this tag for numerous double standard posts). The NY article states, in pertinent part, as follows.
“For more than a decade, wads of American dollars packed into suitcases, backpacks and, on occasion, plastic shopping bags have been dropped off every month or so at the offices of Afghanistan’s president — courtesy of the Central Intelligence Agency. All told, tens of millions of dollars have flowed from the C.I.A. to the office of President Hamid Karzai, according to current and former advisers to the Afghan leader. […] The C.I.A., which declined to comment for this article, has long been known to support some relatives and close aides of Mr. Karzai. But the new accounts of off-the-books cash delivered directly to his office show payments on a vaster scale, and with a far greater impact on everyday governing. […] The cash does not appear to be subject to the oversight and restrictions placed on official American aid to the country or even the C.I.A.’s formal assistance programs, like financing Afghan intelligence agencies. […]”
For additional coverage, see videos here and here from NBC and CNN.
As noted in my recent article, in this new era of FCPA enforcement those subject to the FCPA have been frequently reminded that ‘‘we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.’’ We have been told that “robust FCPA enforcement has become part of the fabric of the Justice Department” and that its “global anti-corruption mission has seeped into the Criminal Division.” We have been told by the DOJ that FCPA enforcement is “our way of ensuring not only that the Justice Department is on the right side of history, but also that it has a hand in advancing that history.”
The conduct at issue in the NY Times article of course goes above the DOJ, but what to think of our “unique position to spread the gospel of anti-corruption” after the NY Times article?
Is the U.S. truly on the “right side of history”?
During this era of FCPA enforcement, enforcement actions frequently include allegations of corporate payments to “foreign officials” for such items as wine, watches, cameras, kitchen appliances, business suits, television sets, laptops, tea sets and office furniture. Last week’s Ralph Lauren enforcement action (here) included allegations related to perfume, dresses and handbags.
This conduct pales in relation to the conduct described in the NY Times article and is made even more egregious given that FCPA enforcement actions invariably involve use of private shareholder/owner funds, whereas the campaign of bribery in Afghan is using public funds.
One of the best statements found in the FCPA’s extensive legislative history (see here for my article “The Story of the Foreign Corrupt Practices Act”) was from Theodore Sorensen. Sorensen’s career included several notable accomplishments and, as President Kennedy’s speechwriter, he had a way with words.
As to the basic issue of defining bribery, Sorensen observed as follows: [T]here will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence. […] Reasonable men and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions.”
Sorensen’s insight was spot-on when made approximately 35 years ago and still holds true today.
The recent NY Times article concerning government sanctioned bribery using public funds really ought to cause us to pause and reflect on much in the bribery and corruption space.
Friday Roundup
The SEC files an amended complaint, Judge Leon strikes again, a provocative press release, a focus on lobbying and for the reading stack. It’s all here in the Friday roundup.
SEC Files Amended Complaint in Jackson / Ruehlen Matter
As highlighted in this prior post, this past December Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (here) in SEC v. Mark Jackson and James Ruehlen. In short, Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint. As explained in the prior post, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the FCPA’s facilitation payments exception.
Last week, the SEC filed its amended complaint (here). The most noticeable difference in the amended complaint, based on my brief review of the 58 page document, appears to be several allegations regarding Nigerian law, including the Customs & Excise Management Act.
Judge Leon Strikes Again
This prior post generally discussed Judge Richard Leon’s rejection of the SEC v. IBM FCPA settlement, a case that still lingers on the docket.
As noted in this Main Justice story and this Wall Street Journal story, Judge Leon has struck again. According to the reports, yesterday Judge Leon conducted a scheduled hearing in SEC – Tyco FCPA case in chambers, much to the dismay of media assembled in open court.
As noted in this prior post, in September 2012, the DOJ and SEC announced an FCPA enforcement against Tyco International Ltd. and a subsidiary company. Total fines and penalties in the enforcement action were approximately $26.8 million (approximately $13.7 million in the DOJ enforcement action and approximately $13.1 million in the SEC enforcement action). As noted in this SEC release, Tyco consented to a final judgment that orders the company to pay approximately $10.5 million in disgorgement and approximately $2.6 million in prejudgment interest. Tyco also agreed to be permanently enjoined from violating the FCPA.
Although both the IBM and Tyco enforcement actions involve the SEC’s neither admit nor deny settlement language, this would not seem to be the key thread between these two enforcement actions that is drawing the ire of Judge Leon. Rather as explained in this post summarizing the IBM enforcement action and this post highlighting various notable features of the Tyco action, both companies are repeat FCPA violators. In resolving the “original” FCPA enforcement actions – IBM in 2000 and Tyco in 2006 – both companies agreed to permanent injunctions prohibiting future FCPA violations.
This prior post titled “Meaningless Settlement Language” detailed Judge Jed Rakoff’s discussion of so-called “obey the law” injunctions in SEC v. Citigroup and this prior guest post discussed an Eleventh Circuit decision last year vacating a SEC “obey the law” injunction.
A Provocative Press Release
The law firm Bienert, Miller & Katzman (“BMK”) represented Paul Cosgrove (a former executive of Control Components Inc.) in the so-called Carson enforcement actions. The Carson action involved a notable “foreign official” challenge and as highlighted in previous posts here, here, and here, after Judge Selna issued a pro-defendant jury instruction, the DOJ soon thereafter offered the remaining defendants (Stuart Carson, Hong Carson, David Edmonds, and Cosgrove) plea agreements which the defendants accepted. As to those plea agreements, I ended each post by saying – the conclusions are yours to reach. In Fall 2012, the defendants were sentenced as follows: S. Carson (four months in prison), H. Carson (three years probation), Edmonds (four months in prison) and Cosgrove (15 months of home detention). See this prior post regarding Carson sentencing issues.
In a January 17th press release (here), BMK stated as follows.
“BMK and counsel for three other defendants … conducted a worldwide investigation and developed evidence suggesting the government’s evidence was incomplete, the court documents indicate. Ultimately, most companies bought CCI valves because they were the best in the world (not because of bribes); most of the supposed “public officials” denied receiving any bribes; and, in most cases, the alleged improper payments were never actually made, according to court records.
Further, through an aggressive litigation and motion strategy, counsel were able to obtain jury instructions that highlighted the government’s heavy burden of proof at trial. For example, the trial court agreed with defense counsel that the government was obligated to prove defendants’ knew they were dealing with “foreign officials,” something that would have been extremely difficult for the government to prove. The supposed bribery recipients worked for companies that appeared to operate like private companies in the United States, making it very unlikely that the defendants realized they were dealing with “government officials.”
BMK and other defense counsel raised several other issues that brought the government’s ability to obtain a conviction, or defend an appeal, into serious doubt. These motions called into question whether the alleged bribe recipients were even “public officials” as intended by the FCPA; whether the Travel Act even applied to the case; and, whether defendants were entitled to millions of pages of documents that had been withheld from them by CCI, their former employer. Each of these issues likely would have been decided for the first time on an appeal in this case.”
[Full disclosure – I was an engaged expert in the Carson cases, filed a “foreign official” declaration in connection with the motion to dismiss, and was disclosed as a testifying expert for the trial]
Lobbying
In my double-standard series (here), I have highlighted various aspects of lobbying here in the U.S. The beginning of the recent opinion in U.S. v. Ring (D.C. Circuit) is an interesting read. In pertinent part, it states as follows (internal citations omitted).
“Lobbying has been integral to the American political system since its very inception. […] As some have put it more cynically, lobbyists have besieged the U.S. government for as long as it has had lobbies.” […] By 2008, the year Ring was indicted, corporations, unions, and other organizations employed more than 14,000 registered Washington lobbyists and spent more than $3 billion lobbying Congress and federal agencies. […]
The interaction between lobbyists and public officials produces important benefits for our representative form of government. Lobbyists serve as a line of communication between citizens and their representatives, safeguard minority interests, and help ensure that elected officials have the information necessary to evaluate proposed legislation. Indeed, Senator Robert Byrd once suggested that Congress “could not adequately consider [its] workload without them.” […]
In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts. Such practices have a long and storied history of use—and misuse. During the very First Congress, Pennsylvania Senator William Maclay complained that “New York merchants employed ‘treats, dinners, attentions’ to delay passage of a tariff bill.” […] Sixty years later, lobbyists working to pass a bill that would benefit munitions magnate Samuel Colt “stage[d] lavish entertainments for wavering senators.” […] Then, in the 1870s, congressmen came to rely on railroad lobbyists for free travel. […]. Indeed, one railroad tycoon complained that he was “averag[ing] six letters per day from Senators and Members of Congress asking for passes over the road.”
Reading Stack
Some dandy articles/essays to pass along regarding the FCPA books and records provisions, victim issues and criminal procedure.
FCPA Books and Records Provisions
Michael Schachter (Willkie Farr & Gallagher and a former Assistant United States Attorney in the Southern District of New York, where he focused on criminal prosecution of securities fraud and was a member of the Securities and Commodities Fraud Task Force) recently authored an article concerning the FCPA’s books and records provisions. Titled “Defending an FCPA Books and Records Violation” and published in the New York Law Journal, the article begins as follows.
“In recent years, the books and records provisions of the [FCPA] have taken on new life, as both the [DOJ and SEC] have announced their intention to bring more charges, especially against individuals, for violation of this section of the FCPA. A review of recent enforcement actions reveals that the Justice Department and the SEC consider the books and records requirement violated whenever corrupt payments are made to a foreign official and recorded in a corporation’s books as anything other than a ‘bribe,’ including, but not limited to, such things as commissions, social payments, or after sales service fees. This article proposes that the books and records provision is, in fact, narrower than the Justice Department and the SEC interpretations suggest, and argues that both agencies may be using the provision to punish behavior falling outside the FCPA’s reach.”
Spot on. See prior posts here and here. See here for a word cloud of the FCPA’s books and records and internal control provisions.
Corporate Employer’s As Victims
The title of Professor Peter Henning’s recent White Collar Crime Watch post in the New York Times DealBook was “How Can Companies Sue Defendants in Insider Trading Cases?” The post concerned the Mandatory Victims Restitution Act and Professor Henning writes that it “has been interpreted to allow companies that incur costs in cooperating with the government to seek repayment of their expenses from defendants” and the “statute requires a court to order the reimbursement to victims of ‘other expenses incurred during participation in the investigation or prosecution of the offense.'”
The parallels to a company incurring expenses in connection with FCPA investigations based on employee conduct is obvious.
Yet, Professor Henning writes as follows.
“[T]he crucial word in the Mandatory Victims Restitution Act is “incurred,” and there isn’t a consensus among federal courts over what expenses are covered. Companies want it to include all costs related to any part of the case, including dealing with the S.E.C. even though it can only pursue a civil enforcement case. Defendants take a much narrower view, arguing that mandatory restitution covers only expenses arising as direct result of the criminal prosecution by the Justice Department.
Ham Sandwich Nation
Glenn Reynolds (University of Tennessee College of Law) recently published an essay titled “Ham Sandwich Nation: Due Process When Everything is a Crime” (see here to download). The essay does not mention the FCPA, yet it is very much applicable to the FCPA. In just the past year, approximately 25 individuals criminally indicted by the DOJ have put the DOJ to its burden of proof and ultimately prevailed. Ham Sandwich Nation would also seem applicable given the extensive use of NPAs and DPAs in the FCPA context. The thesis of the essay is spot on. Reynolds write as follows.
“Though people suspected of a crime have extensive due process rights in dealing with the police, and people charged with a crime have even more extensive due process rights in courts, the actual decision whether or not to charge a person with a crime is almost completely unconstrained. Yet, because of overcharging and plea bargains, that decision is probably the single most important event in the chain of criminal procedure.”
Year In Review
The Year in Review version of Debevoise & Plimpton’s always informative and comprehensive FCPA Update is here. Among the many topics discussed in the FCPA Update is the notion that many FCPA enforcement actions are based on very old conduct and the following observation. “Targets of enforcement actions also run the risk that regulators – whether consciously or not – apply current expectations of appropriate compliance measures and effective internal controls mechanisms when evaluating the adequacy of procedures that existed at times when less rigorous standards may have commonly been considered acceptable.” For my similar previous observation, see this prior post.
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A good weekend to all.
Friday Roundup
The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering. It’s all here in the Friday roundup.
Double Standard
A pharmaceutical company faces pending government restraints that could negatively affect its business. The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee. Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials. The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs. The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.
Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.
But wait.
The government officials were not “foreign officials” – they were U.S. government officials!
See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.
Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.
But why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA. Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?
As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”
For numerous prior posts concerning the double standard, see here.
A Rocky Mountain Rakoff
We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy. For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here – focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.
In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme. The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.
Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff. In a January 17th order, Judge Kane stated as follows.
“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”
Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup. As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.
Interesting Tidbits
Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.
“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery. They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them. This is not inappropriate. Companies are regulated, subject to laws and answerable to shareholders. The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement. Abacha. Suharto. Marcos. Duvalier. It’s a longstanding tradition, still thriving in many countries today. US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon. While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable. […] The simple reality is that there are just some things that companies can’t do about corruption.”
Spot-on.
Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history. See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.
As to those deeper issues, an issue I frequently write about is why do FCPA violations occur? Do companies subject to the law have bribery as a business strategy? Or do companies subject to the law encounter difficult and opaque business conditions abroad? To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.
For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.
“Got a call the other day from an American company wanting to sell its food products into China. And fast. The problem this company is facing is that one cannot “just” sell food into China immediately. To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ. The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”
Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies. For this reason, I found this recent Sidley & Austin alert interesting. It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”
Save the Date
D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review. Titled “Bribes Without Borders: The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA. I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law. Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address. The symposium is free, but registration is requested.
Just in Case
Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”
You can now head into the weekend confident in your knowledge of the U.K.’s position.
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A good weekend to all.