Friday Roundup
Another “foreign official” challenge is denied, the DOJ’s FCPA door continues to revolve, and one DOJ official is probably glad he is off the hot seat … it’s all here in the Friday roundup.
O’Shea “Foreign Official” Challenge Denied
The remaining “foreign official” challenge of 2011 (brought by John Joseph O’Shea in his case pending in the Southern District of Texas) has been denied. (See here for the previous post including links to the briefing on the issue). Without issuing a written decision, Judge Lynn Hughes (S.D. Tex.) denied O’Shea’s motion to dismiss the indictment based on O’Shea’s argument that employees of Comision Federal de Electricidad (“CFE”), a Mexican utility and the same entity that was at issue in the Lindsey Manufacturing “foreign official” challenge, are not “foreign officials” under the FCPA.
O’Shea’s “foreign official” challenge was the fifth such challenge in FCPA history and the second (Nguyen / Nexus Technologies being the other) to end without a written decision. The other three challenges Haiti Teleco related case (here), Lindsey Manufacturing (here) and Carson et al. (here) resulted in written decisions.
Revolving Door
Hank Walther, the former Assistant Chief of the DOJ’s FCPA Unit (and most recently the former Deputy Chief of the DOJ’s Health Care Fraud Unit) recently joined the law firm Jones Day as a partner. Walther joins a long-list of former DOJ FCPA enforcement attorneys who will now be providing FCPA defense and compliance services in the private sector. In a release (here) Greg Shumaker (Partner-In-Charge of Jones Day’s Washington office) said as follows. “Hank Walther brings a wealth of experience and insight from his years in government. The unique perspective he has gained from prosecuting hundreds of health care fraud and FCPA cases on behalf of the federal government will add tremendously to our Corporate Criminal Investigations Practice. We’re delighted he’s chosen Jones Day for his return to the private sector.”
I agree that Walther likely has unique insight and perspectives from his years of enforcing the FCPA. I also believe that DOJ enforcement attorneys who aggressively enforce a niche law have the potential ability to increase private-sector demand for their post-government services. That is why I continue to believe 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. For additional reading see this piece I co-authored.
Off The Hot Seat
Lisa Brennan (Main Justice) reports (here) that Greg Andres (a former Deputy Assistant Attorney General in the Fraud Section) is returning to the U.S. Attorneys Office – Eastern District of New York. In certain respects, during the past year, Andres was the DOJ’s voice on FCPA enforcement and reform issues. Andres testified on behalf of the DOJ at the November 2010 Senate FCPA hearing (see here and here for more) as well as the June 2011 House Hearing (see here for more).
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A good weekend to all.
Friday Roundup
The SEC’s annual whistleblower report, a new FCPA map, taking FCPA reform too far, confessions of an FCPA “Mendelhead,” is too much FCPA training a bad thing, and Nigeria’s sovereign wealth fund … it’s all here in the Friday roundup.
SEC Whistleblower Report
The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement.
Whatever your view, I noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Recently the SEC released (here) its annual report for FY2011. However as noted by the SEC, “because the Final Rules [implementing the whistleblower program] became effective August 12, 2011, only 7 weeks of whistleblower tip data is available for fiscal year 2011.”
Appendix A to the report lists by subject matter “the 334 whistleblower tips received from August 12, 2011 through September 30, 2011.” However, the SEC noted as follows. “Of course, the Commission also receive [Tips, Complaints, and Referrals (“TCRs”] from individuals who do not wish or are not eligible to be considered for an award under the whistleblower program. The data in this report is limited to those TCR’s that include the required whistleblower declaration and does not reflect all TCRs received by the Commission during the fiscal year.”
As the SEC notes “as a result of the relatively recent launch of the program and the small sample size, it is to early to identify any specific trends or conclusions from the data collected to data.”
In any event, a chart titled “Whistleblower Tips by Allegation Type” in the SEC report shows that 3.9% of the 334 tips involve the FCPA. The SEC report is also an informative read as to the SEC’s implementation of the whistleblower award program and how it processes whistleblower tips.
The SEC whistleblower report from FY2010 is here.
FCPA Map
The Mintz Group (an international investigative services firm that specializes in FCPA and integrity due-diligence that also assists corporate counsel and outside counsel with investigations related to potential or alleged FCPA violations) recently released here a dandy interactive map allowing users to scroll over countries and learn of FCPA violations in those countries, as well as industry specific FCPA data.
Taking FCPA Reform Too Far
Writing recently at the Cato Institute’s blog (see here), Walter Olson commented “the Foreign Corrupt Practices Act: clarification is not enough.” Olson stated as follows. “The Foreign Corrupt Practices Act, enacted in 1977 and the subject of a high-profile federal enforcement campaign in recent years, is a feel-good piece of overcriminalization that oversteps the proper bounds of federal lawmaking in at least four distinct ways, any of which should have prevented its passage. It is extraterritorial, purporting to punish overseas misdeeds which deprive no Americans of liberty or property and whose punishment is better left in the hands of authorities elsewhere. It is vicarious, inflicting massive liability on businesses and unknowing higher-ups over the actions of rogue local subsidiaries, salespeople and facilitators. It is punitive, menacing its targets with twenty-year prison terms and inflicting huge penalties over less-than-huge misbehavior. And finally, it is vague, leaving companies to guess at the proper line between tolerated payments (e.g., gratuities to speed up visa and license issuance in developing countries) and improper “bribes,” and even such basic questions as who counts as “official.” In the face of a mounting outcry from the business community, the Obama administration has now finally conceded that there is some validity to this last point, and Criminal Division chief Lanny Breuer says the Department of Justice will develop guidelines to provide greater clarity as to what it believes the law does and does not forbid. Better than nothing, but why not consider the case for wider reform or even repeal?”
Similarly, Scott Greenfield who runs the blog Simple Justice (see here) stated as follows. “At its core, the FCPA is our government’s way of pretending to be the mean old school marm, telling all the nasty children of the world how to behave. If it doesn’t appeal to the school marm’s sensibilities, then it’s a crime, and demands a hard smack across the knuckles. A very expensive hard smack. […] We may hate corporations, but we need them, and we need them to be productive around the globe. To tie them down because of vague, child-like notions of fairness that conflict with cultural norms everywhere else is just foolish and counterproductive. Surviving and competing in foreign cultures isn’t wrong, and it shouldn’t be a crime. The FCPA has got to go.”
I respectfully disagree. While I agree that the FCPA ought to be reformed in certain respects and while FCPA enforcement has become unhinged, I do believe, as I have stated on several occasions including in my November 2010 Senate testimony (here), that the FCPA is a fundamentally sound statute that was passed by Congress for a specific valid and legitimate reason.
Confessions Of An FCPA “Mendelhead”
In response to my recent “luncheon law” post (see here), Howard Sklar (who previously ran anti-corruption compliance for Hewlett-Packard Co.) wrote on his Open Air Blog (here) as follows. “I used to go to these conferences with the expressed purpose of ‘reading the DOJ tea leaves for this season.’ The ‘used to’ in that sentence is important, but we’ll get to that in a minute. Because ‘reading the tea leaves’ was a crucial part of my risk assessment process. That’s a pitiful state of affairs, but there you are. During that period, several years ago, there really wasn’t anywhere else to go. I would reach out to fellow in-house practitioners and benchmark all the time, and I’d follow Mark Mendelsohn around like a puppy looking for scraps. It was a little sad, really. I know I’m a bit of a geek, and I know Mark Mendelsohn ain’t the Grateful Dead. But there I was, an FCPA Mendelhead.”
Over-Training?
Greg Esslinger (Senior Managing Director at FTI Consulting) recently posted (here) an interesting article on the ABA’s Global Anti-Corruption Task Force website. Titled “Anti-Corruption Compliance: Are Employees Becoming ‘Over-Trained’?” Esslinger writes as follows. “In response [to this new era of enforcement], companies have begun to provide more and more accessible (read: web-based) anti-corruption and related regulatory training programs. Predictably, a panoply of vendors have surfaced offering state-of-the-art customizable online training modules, complete with scenarios, live actors, knowledge checks and certifications. Online compliance training has now become a cottage industry serving a wide array of organizations faced with the daunting task of communicating a Western regulatory concept to tens of thousands of employees across multiple languages, cultures and jurisdictions – again, under the watchful eye of various enforcement bodies.” In the piece, Esslinger asks “whether repeated online and other mass training will over time actually have the unintended effect of desensitizing employees to, rather than making them more aware and cautious of, bribery and other corrupt activity.”
Training occurs in a variety of legal and non-legal contexts and if anyone is aware of social-science / behavioral research relevant to an “over-training” phenomena please share.
Nigeria Sovereign Wealth Fund
With certain companies reportedly under the FCPA microscope for dealings with sovereign wealth funds (see here for a prior post), its hard not to have the FCPA radars go off when reading this recent article by Azam Ahmed in the New York Times concerning Nigeria’s new sovereign wealth fund. The article states as follows. “In an effort to preserve and increase its oil revenue, the country recently established a so-called sovereign wealth fund, following the path of many resource-rich countries. Now, Wall Street titans like Goldman Sachs, Morgan Stanley and JPMorgan Chase are courting top government officials, aiming to grab a piece of a portfolio that could eventually be worth tens of billions of dollars.” The article further states as follows. “To grab a piece of the lucrative business, big banks and asset managers have tirelessly cultivated relationships with governments worldwide and added teams dedicated to sovereign wealth funds. In recent months, bankers, lawyers and consultants flew to the Nigerian capital of Abuja to pitch officials on their services. The government chose JPMorgan Chase as one of its advisers on the structuring of the fund.”
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A good weekend to all.
Addressing The “Luncheon Law” Nature Of The FCPA
A lawyer once used the phrase “luncheon law” in a conversation with me to describe the FCPA. What did this person mean? That the FCPA contains many vague and ambiguous terms, that there is little FCPA caselaw, and that the enforcement agencies offer little official guidance (as noted in this prior post the DOJ has promised FCPA guidance in 2012). The lawyer observed that in order to learn about the FCPA and FCPA enforcement one has to attend the luncheons during which the enforcement agency officials speak.
The lawyer had a point and the “luncheon law” nature of the FCPA needs to be addressed.
If you have not heard or experienced it yourself, there is a very active FCPA “conference circuit” at which enforcement agency officials (DOJ and SEC) frequently speak. Few of these events are free and open to public. Rather if you want to attend, you will have to pay hundreds, if not a few thousand, dollars. Perhaps if Assistant Attorney General Lanny Breuer is speaking at the FCPA event, you will see a transcript of the remarks, but otherwise generally you will not.
Therein lies the problem and various people have shared with me how this “luncheon law” aspect of the FCPA … well … drives them crazy and makes their jobs advising clients more difficult. In their words, the FCPA has become an area of law where “did you hear this” or “were you there” matters more than anything else.
I was reminded of the “luncheon law” aspect of the FCPA yesterday when an FCPA practitioner e-mailed me asking whether I had seen a transcript of Charles Duross’s (Chief DOJ FCPA Unit) remarks at the recent ACI FCPA Conference in Washington (see here). I had not, but absent a transcript, the practitioner was looking for any reporting of Duross’s comments. Thankfully, I was able to send the practitioner this write up from the FCPAmericas blog and I encourage you to read it as well.
But here is the problem. Should one really have to pay ($2,000+ dollars, the published rate of the ACI conference, not to mention travel expenses) to hear public servants speak about the most important law governing international business transactions?
FCPA events with government speakers happen so often that it is very difficult for the public to assess whether the enforcement agencies are speaking with one voice, whether one enforcement official is contradicting another, and whether the agencies speak with any uniform consistency against the backdrop of often inconsistent enforcement results.
What are some public policy issues raised by the “luncheon law” aspect of the FCPA? For starters, I urge readers to consider, at a minimum, the following questions. Should public servants be allowed to speak at private conferences and events that charge thousands of dollars to attend? Should public servants be used as pawns by corporate conference organizers to boost attendance and thus revenue? Should the enforcement agencies release all speeches, comments and remarks, including answers to questions posed by the audience? Do small to medium size enterprises have the resources to attend such events?
Recently on his Open Air Blog (see here), Howard Sklar used the term “crime” (jokingly) in referring to the lack of attendance at the ABA’s 4th Annual FCPA Institute in which Duross and Charles Cain (SEC – FCPA) spoke. Sklar said, “seriously, what a panel … it covered self-disclosure calculus, the effect of Dodd-Frank, due diligence, and other excellent topics, we even got a couple of pieces of wisdom about declinations.” Sklar ended his post as follows. “I’m not going to tell you what Charles Cain identified as two important elements of a program that influences him toward declining to prosecute. Or what Chuck Duross said about it. You should have been here.”
I disagree. One’s ability to learn a public servant’s view of the law they enforce should not depend on where one lives or one’s budget. Yet because of the “luncheon law” nature of the FCPA this is often the case.
So long as this “luncheon law” aspect of the FCPA continues, consider doing a public service and taking detailed notes anytime an FCPA enforcement official speaks. I have in the past posted such summaries and would be happy to do so in the future.
New SEC FCPA Unit Chief
Since the June departure of Cheryl Scarboro from the SEC (see here for the prior post), the SEC’s FCPA Unit has been without a Chief. No longer, as yesterday the SEC announced (here) that Kara Brockmeyer has been named the new Chief of the FCPA Unit. According to the release, the bulk of Brockmeyer’s FCPA experience has been in the Bonny Island Bribery cases – see here for previous posts.
Robert Khuzami, Director of the SEC’s Division of Enforcement stated as follows. “Enforcement of the FCPA remains a high priority for the Division, and adding Kara’s talent to the exceptional ability and dedication of the members of the Foreign Corrupt Practices Act Unit will further enhance our anti-corruption program.”
What does the SEC FCPA Unit Chief do? See here for the prior post and job description.
The Demand Side Of Bribery
This new era of FCPA enforcement has resulted in many things, including an increase in quality legal scholarship devoted to the FCPA and related topics.
Case in point, Joseph Yockey’s recently released scholarship “Solicitation, Extortion, and the FCPA” (see here for the download). Yockey (here – Associate Professor at the University of Iowa College of Law) provides the following abstract.
“The U.S. Foreign Corrupt Practices Act (FCPA) prohibits firms from paying bribes to foreign officials to obtain or retain business. It is one of the most significant and feared statutes for companies operating abroad. FCPA enforcement has never been higher and nine-figure monetary penalties are not uncommon. This makes the implementation of robust FCPA compliance programs of paramount importance. Unfortunately, regardless of whether they have compliance measures in place, many firms report that they face bribe requests and extortionate threats from foreign public officials on a daily basis. The implications of these demand-side pressures have gone largely unexplored in the FCPA context. This Article helps fill that gap. First, I describe the nature and frequency of bribe solicitation and extortion to illustrate the scope of the problem and the costs it imposes on firms and other market participants. I then argue that current FCPA enforcement policy in cases of solicitation and extortion raises several unique corporate governance and compliance challenges, and ultimately poses a risk of overdeterrence. Though these concerns can be partially addressed through enhanced statutory guidance, I conclude by urging regulators to shift some of their focus from bribe-paying firms in order to directly target bribe-seeking public officials. Confronting the market for bribe demands in this way will help reduce corruption in general while also allowing employees and agents to spend less time worrying about how to respond to bribe requests and more time on legitimate, value-enhancing transactions.”
Yockey’s article also nicely touches upon other topics as the below excerpts demonstrate.
“As regulators continue to push the boundaries of statutory interpretation firms, find it difficult to predict ex ante whether conduct that appears permissible under the FCPA‟s terms will later expose them to sanction (or the threat of sanction). Left unchecked, this hinders efforts to design monitoring programs that will prevent illegal payments without also deterring employees from pursuing legitimate transactions or engaging in socially desirable risk-taking.”
“Several factors explain the recent resurgence in FCPA enforcement. […] A more cynical explanation for the government‟s focus on the FCPA is based on the “revolving door” between government and private sector employment. The rise in FCPA enforcement has produced a cottage industry of FCPA experts, including lawyers, accountants, and consultants at prestigious firms, which DOJ and SEC personnel often join after leaving their federal jobs for considerably higher compensation.”
“Another factor adding to the compliance challenges faced by firms concerns the way in which the DOJ and SEC have recently interpreted and applied several of the FCPA’s key provisions. Regulators have become more expansive in their interpretation of the FCPA anti-bribery provisions and considerably narrower in their assessment of the statute’s exceptions and defenses. Much of the trouble in this regard comes because the government’s authority under the FCPA is not as broad as the recent resurgence in enforcement activity might suggest.”
“Whether there is truly an unfair balance of power between regulators and corporate defendants [given the prevalence in which FCPA enforcement actions are resolved via non-prosecution or deferred prosecution agreements] is outside the scope of this paper. What appears undeniable, however, is that an absence of judicial review on key aspects of the FCPA makes it considerably more difficult for firms to design compliance programs that efficiently separate lawful but aggressive competitive activity from conduct that clearly violates the statute.”