Why Does George Soros Invest In So Many FCPA Violators?
George Soros is the chairman of Soros Fund Management LLC (See here). He is also the founder and chairman of Open Society Foundations. In September, Open Society Foundations published Busting Bribery (here). As noted in this prior post, Busting Bribery was intended to rebut the U.S. Chamber of Commerce’s FCPA amendment proposals (here).
Busting Bribery asserts as follows. “… [A]s interpreted and applied by the courts and the DOJ and the SEC, the applicable standards for criminal liability for both corporations and individuals under the FCPA require that the defendant knowingly engage in acts proscribed by the Act with the bad or wrongful purpose and intent that those acts would induce a foreign official to misuse his or her official position. Despite the Chamber’s claims to the contrary, these standards simply do not permit successful prosecution of innocent, mistaken or unknowing persons, whether corporations or individuals, under the FCPA.” Elsewhere, Busting Bribery asserts as follows. “Corporate criminal liability requires proof beyond a reasonable doubt that the company acted with actual knowledge and corrupt intent to influence a foreign government to gain an improper business advantage.”
In other words, Busting Bribery asserts that corporations that resolve FCPA enforcement actions have a “bad or wrongful purpose,” that current standards “simply do not permit successful prosecution of innocent, mistaken or unknowing persons” and that companies involved in an FCPA enforcement action are corrupt.
For the record, I don’t agree with Busting Bribery on this point, see here for a prior post detailing just how off target Busting Bribery is, or visit the FCPA 101 portion of this site specifically the topic “are companies that resolve FCPA enforcement actions ‘bad’ or ‘unethical’?” For purposes of this post however, this is besides the point, what matters is what the George Soros funded Open Society Foundations think about FCPA violators.
This raises the following question. If the Soros funded Open Society Foundations believe that all corporations involved in an FCPA enforcement action have a “bad or wrongful purpose,” that current standards “simply do not permit successful prosecution of innocent, mistaken or unknowing persons” and that companies involved in an FCPA enforcement action are corrupt, then why does Soros Fund Management LLC invest in so many FCPA violators or companies subject to FCPA scrutiny?
The Fund’s recent 13F filing (in a 13F filing institutional investment managers disclose fund holdings) indicates substantial investments in the following companies that have recently resolved FCPA enforcement actions or are otherwise the subject of current FCPA scrutiny: Alliance One International, El Paso, Flowserve, Halliburton, Hewlett-Packard, KBR, Motorola Solutions, Parker Drilling, Pfizer, Tidewater, Weatherford International, Tyco International, and Lyondellbasell Industries.
FCPA Reform Bill Introduced (But Not That One)
Those that have been following the FCPA reform debate over the past year have been anxiously awaiting introduction of an actual bill in Congress. Yesterday, Congressman Ed Perlmutter (D-CO) introduced a reform bill, but not that one.
The bill Perlmutter introduced (see here) is H.R. 3531, the “Foreign Business Bribery Prohibition Act of 2011.” As noted in this previous post, this development has been anticipated for some time and H.R. 3531 is substantively similar to H.R. 2152 that Perlmutter previously introduced in April 2009. See here and here for prior posts.
As drafted, H.R. 3531 would “authorize certain private rights of action under the [FCPA] for violations by foreign concerns that damage domestic business.” However, the bill would have limited application as it seeks to amend only the 78dd-3 prong of the FCPA. This prong of the FCPA is applicable to conduct by “persons other than issuers or domestic concerns” and has the most narrow jurisdictional scope – particularly after Judge Richard Leon’s ruling in the Africa Sting case (see here for the prior post).
H.R. 3531 provides as follows. Any “foreign concern” (defined to mean a person other than an “issuer” or a “domestic concern” under the FCPA) that violates the FCPA’s anti-bribery provisions “shall be liable” to any “issuer” or “domestic concern” or “other United States person” that is “damaged by the violation” of the FCPA’s anti-bribery provisions “for damages caused to such issuer, domestic concern, or other person by the violation.”
As to “proof of damages,” H.R. 3531 states that a plaintiff must allege and prove that “the defendant foreign concern violated” the anti-bribery provisions and that the violations “prevented the plaintiff from obtaining or retaining business for or with any person” and “assisted the foreign concern in obtaining or retaining such business.”
As to “measure of damages,” H.R. 3531 allows the “higher of the two following amounts” (1) “the total amount of the contract or agreement that the defendant gained in obtaining or retaining business by means of the violation” or (2) “the total amount of the contract or agreement that the plaintiff failed to gain because of the defendant’s obtaining or retaining business by means of the violation.” H.R. 3531 also allows from “treble damages” “togther with a reasonable attorney’s fee and costs.”
Because a “foreign concern” (as defined in H.R. 3531) can only violate the FCPA “while in the territory of the U.S.”, Perlmutter’s bill will have limited application. Moreover, even though the premable of the bill states that its purpose is to authorize certain private rights of action for violations by foreign concerns “that damage domestic businesses” given that any “issuer” can be a plaintiff, the bill would also authorize numerous foreign companies with shares traded on a U.S. Exchange to bring a private cause of action against a “foreign concern.”
H.R. 3531 has been referred to the Committee on Energy and Commerce and the Committee on the Judiciary.
In The Words of John Keeney
Long-time DOJ attorney John “Jack” Keeney recently died. See here for the Washington Post article.
Keeney (as Deputy Attorney General, Criminal Division) testified during Congressional FCPA reform hearings in the mid-1980’s. For instance, on June 10, 1986, Keeney testified at a Joint Hearing Before the Subcommittee on International Finance and Monetary Policy and the Subcommittee on Banking, Housing, and Urban Affairs. The hearing focused on S. 430, a bill to amend and clarify the FCPA. (An interesting aside, so toxic was the political environment to amend a law called the “Foreign Corrupt Practices Act” that several reform bills sought to change the name of the FCPA – S. 430 was titled the “Business Accounting and Foreign Trade Simplification Act”).
In his prepared statement, Keeney presented the “views of the Department of Justice” on S. 430. Kenney stated as follows. “The Department supports S. 430 and its objective of removing unnecessary impediments to foreign trade …”. As noted in this previous post, one of the major items of reform in the 1980’s was revising the FCPA’s third-party provision which, as enacted, was triggered by a broad “while knowing or having to reason to know” standard.
Keeney supported removal of the “reason to know” standard. He stated as follows. “The Justice Department is sensitive to the unnecessary problems that the American business community has encountered in its attempts to interpret and apply the ‘reason to know’ standard. We also know it is difficult to define exactly what constitutes ‘reason to know.’ For that reason, the policy of the Department has been to prosecute only those cases where the evidence of awareness – whether direct or circumstantial – was so clear as to constitute actual knowledge of the bribe scheme. This policy would not be changed by abolishing the ‘reason to know’ standard in favor of a more objective standard and would improve the clarity of the Act.”
One provision of S. 430 would have required the DOJ to issue binding opinions with respect to the criminal provisions of the FCPA. Keeney did not support such a provision “since its general purpose is presently being met by the existing Foreign Corrupt Practices Act Review Procedure.”
As to the provision in S. 430 that gave the Attorney General authority to issue guidelines “concerning both the type of conduct which constitutes compliance with the criminal provisions of the Act as well as general precautionary procedures which businesses may voluntarily use to ensure compliance,” Keeney stated as follows. “From a commercial as well as an enforcement point of view, the Department does not believe that issuing guidelines or precautionary procedures would be advisable. Accordingly, we do not feel that this provision is necessary. The Department has determined that such guidelines are impractical for several reasons. No matter how carefully crafted, guidelines would have the effect of unnecessarily restricting business transactions and possibly placing American businesses at a disadvantage with their foreign competitors. Moreover, the Department cannot place simple dollar limits on bribe or gratuties and then apply these limits uniformly. Reasonable business practices differ significantly from industry to industry as well as from country to country. As a matter of policy, the Department cannot publicly ignore a small but otherwise corrupt transaction any more than it can place dollar limitations on the actions prosecutable under the mail or wire fraud statutes. If the Department promulgates guidelines, due process requires that these guidelines govern any position the Department later takes in any criminal action. While arguably helpful to businesses, such guidelines are not really necessary. Under the FCPA Review Procedure , a specific factual situation may be resolved without binding the Department in a case involving a somewhat different factual situation. The Department believes the [Review Procedure] is the least restrictive and most useful process for resolving any instance of perceived ambiguity in the interpretation of the FCPA and should be used in place of guidelines.”
When the FCPA was amended in 1988, Congress did indeed request that the Attorney General issue guidelines, however as noted in this prior post, the DOJ decided not to issue such guidelines.
Following the hearing, Senator D’Amato asked Keeney various questions for the record as to DOJ’s FCPA Review Procedure – such as “has it been used very frequently, how many times since the procedure was put in place?” In pertinent part, Keeney responded as follows. “The Review Procedure has resulted in 18 Department opinions since its inception. On various other occasions, applications for review have been submitted but subsequently withdrawn. [See here for a prior post regarding the FCPA “Mulligan Rule”]. In addition, the Criminal Division of the Department has received frequent telephone inquiries about the Procedure which are not followed by any written request.”
John Keeney may no longer be with us, but the issues he discussed in 1986 (DOJ FCPA guidance and questions surrounding the DOJ’s FCPA Opinion Procedure Program) remain issues today.
Support For FCPA Reform In An Unlikely Place
If one were to list the industries likely in favor of FCPA reform, the top of the list would likely include oil and gas, pharmaceutical, telecommunication, defense, and poultry.
Poultry? That’s right. In this November 1o, 2011 letter to U.S. Senator Mark Pryor (D-Ark) the Arkansas Poultry Growers Association advocates in favor of FCPA reform. The copy quality of the letter is poor and below is what the letter appears to say.
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Senator Pryor:
We were pleased to read media accounts of your press conference last Friday in Little Rock when you touted agriculture and reducing burdensome regulation as primary components of your job package as well as helping the U.S. regain some economic footing. Those words ring true to anyone in agriculture, such as us.
As much as the success of U.S. agriculture depends on exports to foreign market, it is critical that you understand what an impediment the Foreign Corrupt Practices Act has become to this end. The FCPA was passed over 30 years ago yet has not had meaningful legislative amendments since. Meanwhile, the global economy has and continues to rapidly change. Clearly the FCPA has not kept up, it is now archaic, and most troubling the administration of this Act is now left to un-elected federal bureaucrats.
Unfortunately these government attorneys use their interpretation to carry out significant decisions, some of which have resulted in fines and even criminal charges against U.S. interests. Arkansas agriculture needs clarity on the FCPA and we shouldn’t have to wait any longer for that to occur. It is true the Administration can make changes to this that would help, but the fact is it hasn’t, nor did the last Administration. We respectfully urge you to carry this matter forward in the U.S. Senate and lead the way to clarify consistency in the implementation of the FCPA.
By reforming the FCPA as soon as possible you will be taking proactive steps perfectly aligned with the tenants you presented in your jobs program. We hope we can count on you to do just that, and without waiting on the Administration or anyone else to perform this responsibility.
Thank you in advance.
Roy Casares (Fayetteville, Ar.) Guy Pavey (Springdale, Ar.), James Pepples (Springdale, AR).
[Incidentally, Springdale, Ar. is home to Tyson Foods. As detailed in this prior post, in February 2011, Tyson resolved an FCPA enforcement action]
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That’s democracy in action and more companies, trade groups, etc. ought to make their voice heard on FCPA reform issues.
Senator Grassley Seeks Guidance As To DOJ’s Upcoming FCPA Guidance
As detailed in this prior post, on November 8th Assistant Attorney General Lanny Breuer announced before an FCPA audience that in 2012 the DOJ hopes to “release detailed new guidance on the [FCPA’s] criminal and civil enforcement provisions.”
As previously reported by Christopher Matthews on the Wall Street Journal’s Corruption Currents page, Senator Charles Grassley (R-IA) recently sent (see here) U.S. Attorney General Eric Holder a number of questions for the record related to Holder’s recent testimony before the Senate Judiciary Committee – see here. Included in the questions are several about the DOJ’s upcoming FCPA guidance. The FCPA portion of Senator Grassley’s questions are excerpted below.
“Foreign Corrupt Practices Act Guidance
Assistant Attorney General Lanny Breuer recently announced in a public speech that the Department is preparing, “detailed new guidance on the [Foreign Corrupt Practice Act’s] criminal and civil enforcement provisions” to be released next year. At a hearing on the FCPA back in November 2010 [see here for more], many Senators expressed their concerns with the Department’s enforcement of the statute. Specifically, members raised concerns with the fact that the law includes broad language that is not well defined, and that a lack of clear guidance from the Department in the form of advisory opinions has created an air of uncertainty in how U.S. corporations do business abroad. I welcome this call for new guidance to help ensure that businesses that want to do the right thing, know what the right thing is in the eyes of the Justice Department.
(a) When will the guidance be published?
(b) What form will the guidance take and what steps will be taken to ensure that it is implemented nationally and uniformly? Will the guidance be incorporated into in the U.S. Attorneys’ Manual?
(c) Does the Department intend to solicit the views of interested outside parties as it prepares the guidance, particularly the regulated business community? If so, how?
(d) Who at the Department will be primarily responsible for drafting the guidance?
(e) What will be the Securities and Exchange Commission’s (SEC) role in formulating the guidance? Will the SEC be bound by the guidance? Will the Department enter into a Memorandum of Understanding with the SEC regarding the guidance?
(f) AAG Breuer’s remarks indicate that the guidance address the FCPA’s “enforcement provisions.” Will the guidance offer only the Department’s interpretation of the Act’s enforcement provisions or will the guidance set forth the Department’s enforcement policies? i. Will the guidance include the Department’s interpretations of ambiguous statutory terms such as “foreign official” and “government instrumentality”? ii. Will the guidance clarify when a company may be held liable for the actions of an independent subsidiary? iii. Will the guidance clarify the extent to which one company may be held liable the pre-acquisition or pre-merger conduct of another? iv. Will the guidance include an enforcement safe harbor for gifts and hospitality of a de minimis value provided to foreign officials?
(g) Other Department guidelines, including the Corporate Charging Guidelines, indicate that they may not be relied up on by defendants and do not limit the Department’s litigation prerogatives. Will the same be true of the forthcoming FCPA guidance, or will defendants be able to rely upon this guidance in litigation?”
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In other FCPA-related Capital Hill news, Congressman Mike Pompeo (R-KS) wants to know why Wichita based Hawker-Beechcraft lost out to Embraer in the U.S. Air Force Light Air Support competition. See here. As detailed in this prior post, Embraer recently disclosed an FCPA investigation. In this recent letter to Secretary of Defense Leon Panetta, Pompeo voiced his concern and last week Pompeo reacted as follows to news that Hawker-Beechcraft lost out to Embraer. ““It is vitally important for the Pentagon to clarify this matter, especially in light of allegations that Hawker’s main competitor in the LAS competition, Embraer, is being investigated for violations of the Foreign Corrupt Practices Act.”