Friday Roundup
The U.S. intervenes, I disagree, I agree, and say what. It’s all here in the Friday roundup.
U.S. Intervenes in Wynn-Okada Dispute
Numerous prior posts (see here, here and here for instance) have highlighted the dispute between Wynn Resorts and its former board member Kazuo Okada. Earlier this week, Bloomberg reported as follows. “The U.S. asked to intervene in a lawsuit brought by Wynn Resorts Ltd., which accused Okada of making improper payments to Philippine gambling regulators. The Justice Department said in an April 8 filing in state court in Las Vegas that it doesn’t want the civil case to disrupt its criminal investigation into the same underlying allegations.” According to Bloomberg: “Okada’s lawyers have said they would probably oppose the request “in whole or in part,” according to the filing. Wynn Resorts won’t oppose its request, the Justice Department said.” For additional coverage, see here from the Las Vegas Review-Journal.
I Disagree
Earlier this week a reader of the FCPA Blog (see here) posed the following question. “One thing that has not gotten much discussion is the possibility that the apparent slowdown in FCPA enforcement may be due to the spike in declinations.”
Putting aside the big-picture and highly relevant issue of what is a declination (see here as well as other embedded posts on this issue), when addressing the issue of FCPA enforcement statistics, it is important to keep in mind (as highlighted in this prior post) the following.
Just three unique historical events (Iraq Oil for Food, Bonny Island, Nigeria conduct, and Panalpina-related issues) served as the foundation for 35% of all corporate FCPA enforcement actions between 2007-2011 and resulted in 55% of settlement amounts in corporate enforcement actions between 2007-2011. Adding just the 2008 Siemens enforcement action to the settlement amount calculation, results in just four unique historical events accounting for 77% of settlement amounts in corporate enforcement actions between 2007-2011.
Recognizing these events and how they impacted FCPA enforcement data is important to understanding why FCPA enforcement has declined in recent years.
Even though FCPA enforcement has declined in recent years, unique events giving rise to FCPA enforcement actions have remained relatively constant between 2007 and 2012. In 2007, corporate FCPA enforcement actions were the result of 15 unique events. In 2008, corporate FCPA enforcement actions were the result of 10 unique events. In 2009, corporate FCPA enforcement actions were the result of 11 unique events. In 2010, corporate FCPA enforcement actions were the result of 14 unique events. In 2011, corporate FCPA enforcement actions were the result of 16 unique events. In 2012, corporate FCPA enforcement actions were the result of 12 unique events.
I Agree
Dieter Juedes (who like me is a product of Sheboygan County, Wisconsin) recently published “Taming the FCPA Overreach Through an Adequate Procedures Defense” in the William & Mary Business Law Review. Among other things, the article “proposes specific statutory language that Congress could use in adopting such a defense and it establishes precise factors to be promulgated by the DOJ and SEC for determining whether a firm’s procedure would be deemed “adequate.”
Given my prior article “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I agree with the general thrust of Juedes’s article.
Say What?
I don’t quite understand the logic or rationale of this op-ed piece in the South China Morning Post by Robert Precht (director of Justice Labs Limited, a Hong Kong think tank).
Precht argues that “the efforts of some Western countries to enforce their own anti-bribery laws in China are more likely to produce false accusations and hinder democratic reform than reduce corruption.” He states as follows. “One of the unintended harms of enforcing the US anti-bribery law in China is that it may actually stifle efforts to end corruption. US journalists, human rights workers and university researchers play an important role in shining light on the darker recesses of Chinese politics. Preventing Americans from making gifts to Chinese to obtain information useful to promote democratic reform will hinder the disclosure role the Americans play.”
According to Precht, “the solution is simple.” He argues that “the US Congress should amend the law, providing that it will only be applied in countries that meet certain minimum requirements of democracy and will not be applied in authoritarian regimes such as China.”
Former Attorney General Alberto Gonzales Criticizes Various Aspects Of DOJ FCPA Enforcement
Yesterday at the Dow Jones / Wall Street Journal Global Compliance Symposium, former Attorney General Alberto Gonzales openly criticized various aspects of DOJ Foreign Corrupt Practices Act enforcement.
During a featured interview at the event with David Wessel of the Wall Street Journal, Gonzales said that the DOJ could “give more guidance and transparency” concerning issues relevant to an FCPA enforcement action. Gonzales mentioned the FCPA Guidance, but stated that it represents no change in policy and again reiterated that “more transparency” is important because he does not see actual reform of the FCPA statute coming from this Congress or this administration.
Gonzales “salute[d] the efforts of business groups” post-FCPA Guidance who have asked for additional clarification and guidance concerning the FCPA and FCPA enforcement (see here for the prior post) and said that the FCPA Guidance “does not end the need for additional discussion” regarding these topics and the enforcement approach of the agencies.
Gonzales also had pointed criticisms for DOJ non-prosecution and deferred prosecution agreements. Asked by Wessel whether the original motivations Congress had in passing the FCPA are being served by the current enforcement environment or whether the current enforcement environment has “lost sight of the [FCPA’s] end point” Gonzales said that it is “hard to tell quite frankly” because many FCPA enforcement actions are resolved via NPA and DPAs and that these resolution vehicles do not necessarily reflect instances of companies violating the FCPA, but rather companies feels compelled to agree to the agreements.
Equally problematic, Gonzales said as to NPAs and DPAs, is that enforcement actions resolved via these vehicles mean that “legitimate wrongdoing is not being prosecuted as it should.” Gonzales said it is “easy, much easier quite frankly” for the DOJ to resolve FCPA inquiries with NPAs and DPAs, that such resolution vehicles have “less of a toll” on the DOJ’s budget and that such agreements “provide revenue” to the DOJ. It is all “unfortunate” Gonzales stated. [For additional reading on this issue, see my article “The Facade of FCPA Enforcement” and numerous prior posts – including here and here – concerning NPAs and DPAs].
Gonzales further observed that the DOJ appears more focused on FCPA enforcement numbers, how successful it is being, and the dollars it receives from FCPA enforcement actions, rather than achieving the “true objective [of the FCPA] which is to discourage bribery of foreign officials.”
Gonzales also joined the growing chorus of those who have called for the DOJ to release more specific information concerning its so-called declination decisions, and also spoke out in favor, as he has in the past (see here for the prior post) for “common-sense reform” such as compliance defense
So I ask the question yet again (see here for the prior post), – how many former high-ranking DOJ officials and/or former DOJ FCPA enforcement attorneys does it take before the current DOJ realizes that its FCPA enforcement policies and procedures are, in certain cases, broken?
There Is A Difference Between The FCPA And FCPA Enforcement
True story.
A friend was recently having lunch with his friend (let’s call this individual the “Person”). The Person is in a senior position at a high-profile U.S. government department. Discussion turned to the Foreign Corrupt Practices Act. Discussion then turned to this website. The Person said that he reads FCPA Professor, but joked that the website should be called “Anti-FCPA” Professor. This is a bit ironic given that the Person’s current employer was steadfastly against the FCPA ever becoming law. (See here for my article “The Story of the Foreign Corrupt Practices Act”).
While grateful to hear that my website is read at high levels, I was equally disappointed that the Person is misinformed as to my clear and often articulated positions.
So I use this post to once again articulate my positions and to further discuss what I see as a growing, yet troublesome, trend.
Since launching this website in July 2009, I have consistently stated (see here for the first instance) that “the FCPA is a fundamentally sound statute when enforced by DOJ/SEC in a way that is consistent with Congressional intent.” In my 2010 Senate FCPA testimony I again stated that “the FCPA is a fundamentally sound statute that was passed by Congress in 1977 for a specific reason.” In this post, I stated that “the FCPA is a fundamentally sound, but not perfect, statute.” In this Q&A, I stated as follows. “The FCPA is a fundamentally sound statute that was rightly passed by the U.S. Congress in 1977.” In this post, I stated as follows. “I firmly believe that the FCPA, if enforced consistent with its statutory terms and consistent with legislative intent, is a fundamentally sound statute.”
In fact, when others have suggested that the FCPA ought to be repealed (see here for a prior post), I said that this was taking FCPA reform too far and again said that the “FCPA is a fundamentally sound statute that was passed by Congress for a valid and legitimate reason.” Just last month, in this post regarding FCPA reform, I likewise stated that “the FCPA is a fundamentally sound statute.” Still in doubt as to my position on the FCPA? You can watch this October 2012 interview.
In short, the suggestion that I am anti-FCPA is just plain wrong.
That the FCPA is a fundamentally sound statute, does not mean that the FCPA could not be improved, and I have suggested limited FCPA reform through a compliance defense (see here for my article “Revisiting a FCPA Compliance Defense”) as well as other reforms (such as abolishing NPAs and DPAs) that would not require amending the law.
There is a difference however between the FCPA (as a law) and FCPA enforcement. Thus, while I have consistently stated that the FCPA is a fundamentally sound statute, I have likewise consistently stated that FCPA enforcement is not always fundamentally sound. Indeed, in my Senate testimony I stated as follows. “That the FCPA is a fundamentally sound statute does not mean that FCPA enforcement is always fundamentally sound.” I have made this same observation countless other times.
In short, to the misinformed Person (and to perhaps others), my FCPA positions are as follows.
The FCPA is a fundamentally sound statute that was rightfully passed by Congress in 1977 for legitimate and valid reasons. That the FCPA could be improved through limited reform, does not negate that the FCPA is a fundamentally sound statute. That the FCPA is a fundamentally sound statute does not mean that FCPA enforcement is always fundamentally sound and it is true that I have expressed criticisms as to how the DOJ and SEC enforce the FCPA, as well as other FCPA or related issues relevant in this era.
I would also like to highlight in this post what I see as a growing, yet troublesome, trend.
There seems to be a trend (and one advanced by many, including civil society organizations and monitoring groups) that more FCPA enforcement is an inherent good regardless of investigative devices, theories of liability, resolution methods, or outcomes. I reject that trend and consider it troubling.
Broad Coalition Of Business Groups Seek Real FCPA Reform
At the FCPA Guidance press conference last November (see here), Assistant Attorney General Lanny Breuer wisely noted that the Guidance was not “complete closure” to various concerns regarding the Foreign Corrupt Practices Act and he stated that the DOJ “welcomes” continued discussions regarding FCPA reform.
And why should non-binding enforcement agency Guidance be the end to FCPA reform discussions? As Breuer and then SEC enforcement chief Robert Khuzami both acknowledged during the press conference, the Guidance “does not represent a change in policy.”
And why should Wal-Mart’s potential FCPA scrutiny (one of approximately 100 companies currently the subject of FCPA scrutiny) which involves FCPA issues as a condiment to a bigger corporate governance sandwich be the end to FCPA reform discussions? (See here for the prior post).
As I noted in my article “Grading the Foreign Corrupt Practices Act Guidance” while there were certain FCPA reform measures, such as abolishing NPAs and DPAs, as I have urged, that the enforcement agencies could have accomplished through a change in policy in the Guidance, other FCPA reform measures, like amending the statute to include a compliance defense, can be accomplished only through congressional action and presidential signature.
This post last month detailed the Manhattan Institute’s post-Guidance call for FCPA reform, and this recent post highlighted various post-Guidance FCPA reform scholarship from a practitioner and an academic.
Earlier this week, the Chamber of Commerce and a broad coalition of business groups (such as the American Bankers Association, the American Gaming Association, the American Insurance Association, the Generic Pharmaceutical Association, the National Association of Manufacturers, the National Foreign Trade Council, the Financial Services Roundtable, and the Poultry Federation) sent this letter to the DOJ and SEC “to identify several areas of continuing concern for businesses seeking in good faith to comply with the FCPA.”
The letter addressed the following sections: compliance programs and voluntary disclosure, foreign official / instrumentality, parent-subsidiary liability issues, successor liability issues, mens rea for corporate criminal liability and declinations.
As to compliance programs, the letter states, in pertinent part, as follows.
“Even if a company had in place a state-of-the-art compliance program that was well-designed to prevent FCPA violations and that was aggressively enforced, it remains exposed to liability if the program is circumvented by even one employee. The [Guidance] offers little assurance that the company’s pre-existing, strong compliance program will be given sufficient weight in the charging decisions of the Department and the SEC. Such assurance should be provided through legislative reform of the FCPA to add an affirmative defense that would permit a company, if charged with an anti-bribery violation, to rebut the imposition of criminal liability if the individuals responsible for the violation circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations and implemented with appropriate vigor.”
As to declinations, the letter states,in pertinent part, as follows.
“We do not share the view expressed by some in the Department and SEC that because the agencies do not routinely provide information on declinations in other types of cases, FCPA cases should not be treated any differently. The FCPA is exceptional in that: (i) it is over 30 years old, not a brand new law; (ii) it is very aggressively enforced, in terms of the number of pending investigations initiated each year and in the massive fines and penalties that are sometimes imposed; and (iii) it lacks a material body of case law through which it can be interpreted by the business community. Other statutes, including ones targeting financial fraud, antitrust violations and money laundering, have been extensively construed by the courts. As the Department and SEC recognize in the [Guidance] it is the courts and not the agencies that have the final say. However, until such time as a significant body of case law is developed, we encourage and would welcome regular release of anonymized information on declinations.”
“[A] decision not to bring a case where the evidence of a violation simply is lacking should not be considered a “declination.” We remain concerned that the Department and the SEC may be defining “declination” to include both circumstances. In order to provide useful guidance and positive incentives to companies seeking to comply with the FCPA, the Department and the SEC should continue to provide information – on an anonymized basis – regarding matters in which the agencies found sufficient evidence of an FCPA violation but nevertheless declined to pursue prosecution or enforcement action on the basis of other circumstances, such as the company’s voluntary disclosure, cooperation and remedial measures.”
Regarding the two issues discussed above, it is simply wrong and closed-minded to view these issues as “Chamber” issues when the reality is that many people for many years have been saying the same thing. (See my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (which details the pro-compliance defense positions of many former high-ranking DOJ officials among others) and my “Grading the Foreign Corrupt Practices Act Guidance” article for a discussion of declination issues.
As the letter this week by a broad-coalition of business groups indicates, FCPA reform discussion is not dead, nor should it be. A compliance defense is not a race to the bottom, it is a race to the top. (See here for the prior post). Abolishing NPAs and DPAs, and thereby reconstructing a system of checks and balances to FCPA enforcement, is consistent with the rule of law. So too is increasing transparency in government decision-making.
During the FCPA reform debate in the 1980’s, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA by stating as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach …”.
During Senate hearings, Senator John Heinz stated as follows. “… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act […], we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”
The FCPA Guidance issued last November was not the result of a policy debate as to whether the current FCPA and its enforcement is the best approach. In fact, if you analyze, in chronological order, enforcement agency statements and positions (see pages 1-2 of my “Grading the Foreign Corrupt Practices Act Guidance” article) there is a credible argument to be made that one of the purposes of the Guidance was to prevent such a policy debate from going forward.
The FCPA is a fundamentally sound statute and I stated as such in my November 2010 Senate testimony. But how many truly believe that the FCPA is a perfect statute or that its enforcement is best accomplishing the objectives of punishing improper payments and deterring future improper payments?
These are worthy objectives to pursue. For this reason, it is good that FCPA reform discussions continue in the hopes that a substantive policy debate can result.
FCPA Reform Related Scholarship
Three articles of interest regarding various aspects of FCPA reform to pass along.
Choosing Governance In The FCPA Reform Debate
Joseph Yockey (University of Iowa College of Law) recently published the above article in the Journal of Corporation Law.
The abstract is as follows.
“The recent rise in enforcement under the U.S. Foreign Corrupt Practices Act (FCPA) has led to a vigorous debate about the need for reform. Critics say the statute is overenforced and harms shareholders. Regulators disagree and argue in favor of the status quo. This Article examines both sides of the FCPA reform debate and finds them wanting on several levels. First, a variety of factors suggest that critics’ fears of overenforcement are often exaggerated. That said, proponents of existing enforcement efforts who believe that nothing needs to change are also mistaken. Instead of overenforcement, there is a risk that the FCPA is being underenforced. Instead of encouraging firms to develop anticipatory and sustainable compliance programs, current enforcement policy incentivizes a focus on static programs that are incapable of addressing the dynamic risk of corruption. Finally, the present regulatory model fails to adequately address how gaps in international anti-corruption enforcement pose unique compliance challenges on the domestic front.
This Article seeks win-win solutions to these problems by recommending a shift of focus toward regulatory strategies designed around principles of collaboration and experimentation that fall within the category of “new governance.” Through a governance-based approach to regulation, firms are expected to better institutionalize context-specific compliance tools developed in consultation with the state and other actors. This approach — when ongoing and initiated outside the context of a specific enforcement action — ought to produce more effective and efficient self-regulation and fewer instances of bribery. The public−private learning process envisioned by new governance should also enhance the United States’ efforts to promote international anti-corruption norms and help level the playing field for American firms.”
Yockey’s other recent FCPA scholarship includes: FCPA Settlement, Internal Strife, and the ‘Culture of Compliance’ (Wisconsin Law Review) and Solicitation, Extortion and the FCPA (Notre Dame Law Review). Yockey was previously an attorney at Sidley Austin LLP in Chicago.
The New Era of FCPA Enforcement: Moving Towards a New Era of Compliance
Thomas Gorman (Dorsey & Whitney) and William McGrath recently published the above article in Securities Regulation Law Journal.
The abstract is as follows.
“The DOJ and the SEC are aggressively enforcing the FCPA in what has come to be called the New Era of FCPA enforcement. Those efforts are reflected by expansive interpretations of the statute, the increasing use of industry sweeps, spiraling costs to settle corporate cases and a focus on individuals, coupled with demands for longer prison sentences. This has spawned increasing demands for amendments to the statutes. Congress has considered the question but not acted. Enforcement officials could spur compliance by amending their prosecution guidelines to include items such as a compliance defense but have not. Yet business organizations and their employees remain at risk. To avoid or at least mitigate liability, business organizations need to step-up and implement reasonable compliance systems and begin a new era of compliance.”
Gorman is a former SEC enforcement attorney and author of the site SEC Actions.
Nathaniel Garrett, a student at the University of Cincinnati College of Law, recently published the above article in the University of Cincinnati Law Review.
The abstract is as follows.
“In the wake of the 2008 financial collapse, Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). Included within Dodd–Frank is a whistleblower provision that some businesses believe has gone too far. While Dodd–Frank’s reach is substantial, the whistleblower provision actually fails to go far enough as applied to the Foreign Corrupt Practices Act (FCPA). There are numerous statutory roadblocks and administrative hindrances that will prevent Dodd–Frank’s whistleblower provision from assisting in the enforcement of the FCPA. The solution I argue in this Comment is for Congress to amend the FCPA to include a qui tam provision, modeled after that found in the False Claims Act.”