Off-Target
As detailed in this prior post, in September the Open Society Foundation released “Busting Bribery: Sustaining the Global Momentum of the Foreign Corrupt Practices Act” (here). The white paper was in response to the October 2010 white paper “Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act” (here) released by the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce. Authored by David Kennedy (Professor of Law, Harvard Law School) and Dan Danielsen (Professor of Law, Northeastern University School of Law), Busting Bribery stated that “the Chamber proposes to change the [FCPA] in ways that would substantially undermine the possibility for successful enforcement of America’s anti-bribery commitments” and that the “Chamber’s proposed amendments would also set back decades of progress in the global struggle against corruption.”
As to a potential FCPA compliance defense, a defense that not only the Chamber supports, Kennedy and Danielsen (the “Authors”) stated as follows in the Executive Summary. “Often seen as the least concerning of the Chamber’s proposals, the creation of an affirmative defense of ‘compliance’ to FCPA corporate criminal liability is actually potentially very dangerous. Compliance is already taken into account at every stage in the investigation and resolution of FCPA violations. In 1988, Congress amended the FCPA to eliminate liability based on a company’s failure to eliminate bribery which it had ‘reason to know’ was taking place. A defense of ‘adequate’ or ‘good faith’ compliance makes no sense when, as under the current FCPA, 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. Creating a compliance defense to knowing and intentional violations of the FCPA would amount to eliminating criminal liability under the Act all together by permitting a ‘fig leaf’ compliance program to insulate companies from their knowing and intentional wrongdoing.” (emphasis in original).
In the substantive section of report, the Authors stated, among other things, as follows. “… [A]n affirmative defense of ‘adequate’ or ‘good faith’ compliance is fundamentally inconsistent with the FCPA’s very high standards for corporate criminal liability which require prosecutors to prove that a company’s prohibited acts be both ‘knowing’ and ‘corruptly’ undertaken with intent.” The Authors then state that “these standards of liability were summarized in the Congressional Report on the 1988 amendments to the Act” and quote a portion of the Congressional Conference Report on the 1988 amendments as follows. “Thus, the ‘knowing’ standard adopted covers both prohibited actions that taken with ‘actual knowledge‘ of intended results as well as other actions that, while failing short of what the law terms ‘positive knowledge,’ nevertheless evidence a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of violations of the Act.” (emphasis in original).
The Authors then continue as follows. “From these articulated and clearly-defined standards of corporate culpability under the FCPA, it becomes immediately apparent that an affirmative defense of ‘good faith’ or ‘adequate’ compliance is simply inappropriate. On the one hand, effective, ‘good faith’ compliance is logically incompatible with the requirement under the Act that violations be undertaken with ‘actual knowledge’ or a ‘conscious disregard or deliberate ignorance of known circumstances’ and the requisite ‘corrupt’ intent to induce a foreign official to misuse his official position to wrongfully obtain business or direct business to another. Any compliance program that knowingly permitted, facilitated, or consciously or deliberately turned a blind eye to corrupt, intentional violations of the FCPA must be either per se inadequate or not undertaken in good faith. On the other hand, the existence of a merely formal compliance program is irrelevant to the question of whether knowing, intentional and corrupt behavior took place. Creating a ‘compliance defense’ to knowing and intentional violations of the Act would amount to eliminating criminal liability under the Act all together by permitting a ‘fig leaf’ compliance program to insulate companies from having knowing and intentional wrong-doing.”
To use the Authors phrase of “immediately apparent,” what is immediately apparent upon reading Busting Bribery is how the Authors are off-target when it comes to the FCPA’s 1988 amendments as well as respondeat superior principles of corporate criminal liability.
In asserting that “Congress amended the FCPA to eliminate liability based on a company’s failure to eliminate bribery which it had ‘reason to know’ was taking place,” the Authors appear to assume that such was the general standard for corporate criminal liability prior to the 1988 amendments. It wasn’t.
The FCPA, as originally enacted, prohibited those subject to the law from, among other things, providing things of value to “any person, while knowing or having reason to know that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.” (emphasis added). The FCPA, as originally enacted, thus contained a third-party payment prohibition triggered by a broad “while knowing or having to reason to know” standard.
This standard was very quickly criticized by many because companies were “unsure about the degree of their responsibility for questionable payments made by their foreign agents in cases when the companies believe they have instituted reasonable safeguards.” (See GAO Report, “Impact of Foreign Corrupt Practices Act on U.S. Business” at pg. iv). U.S. Trade Representative William Brock candidly stated during a 1981 Senate FCPA hearing that “frankly, nobody knows what it means.” (See “Business Accounting and Foreign Trade Simplification Act,” Joint Hearings Before the Subcommittee on Securities and the Subcommittee on International Finance and Monetary Policy of the Committee on Banking, Housing, and Urban Affairs, United States Senate, 97th Congress, First Session at pg. 63).
The FCPA reform efforts that began in 1980 and culminated in FCPA amendments in 1988 had, as a core reform proposal, revising the “reason to know” standard relevant to third-party payments. Jonathan Rose (Assistant Attorney General) stated, in connection with a 1983 House FCPA hearing, that the FCPA’s then standard of liability for third-party payments was akin to a “simple negligence standard” and “is plainly inappropriate and inconsistent with the general approach of modern criminal law to state-of-mind requirements.” (See “The Foreign Trade Practices Act,” Hearings Before the Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs, House of Representatives, 98th Congress, First Session at pg. 118).
In 1987, the House Committee on Energy and Commerce stated, in reporting out an FCPA reform bill revising the third-party knowledge standards that the “reason to know standard under current law has been criticized as unclear” and that “some businesses interpret the standard as tantamount to “reason to suspect that an agent will pass on a bribe, or a negligence standard …”. (See Trade and International Economic Policy Reform Act of 1987, House Report 100-49 (April 6, 1987) at pg. 75). The House Report stated that “clearly such an interpretation was not intended by Congress …” and when the FCPA was ultimately amended in 1988, the relevant Conference Report, under the heading “Standard of Liability for Acts of Third Parties (Agents)” stated that the conferees intended to retain the “knowing” requirement for payments to third-parties, to delete the House bill’s reference to “reckless disregard” and to include concepts of “conscious disregard” or “willful blindness.” (See House Report No. 100-576 at 920 (1988) at pg. 919).
The third-party payment provisions were amended in 1988 (and remain the same today) to prohibit those subject to the law from providing things of value to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly, to any foreign official.” Knowledge was defined in the 1988 amendments, and still is today, as follows. “(A) A person’s state of mind is ‘knowing’ with respect to conduct, a circumstance, or a result if – (i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or (ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur. (B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such a circumstance does not exist.”
In other words, Busting Bribery constructs, as the primary foundation for opposing an FCPA compliance defense, a knowledge standard that was relevant only, and continues to be relevant only, to the FCPA’s third-party payment provisions. The FCPA, when enacted, and to this day, allows corporate criminal liability under respondeat superior principles when an employee acts within the scope of his or her duties intending to benefit, at least in part, the organization. Knowledge (however defined) of the employee’s conduct by the board, executive officers, or other high-ranking executives is not required and, at present, the organization’s pre-existing compliance policies and procedures are not relevant as a matter of law to the organization’s criminal liability.
For instance, the only time in the FCPA’s history that a corporate FCPA charge was presented to a jury was in the Lindsey Manufacturing case early this year. The relevant jury instruction (instruction 16 – entity responsibility – entity defendant – agency) stated as follows.
“To sustain the charge of conspiracy to violate the Foreign Corrupt Practices Act (“FCPA”) or violation of the FCPA against Lindsey Manufacturing Company, the government must prove the following propositions:
First, the offense charged was committed by one or more agents or employees of Lindsey Manufacturing Company; Second, in committing the offense, the agent or employee intended, at least in part, to benefit Lindsey Manufacturing Company; and Third, the acts by the agent or employee were committed within the authority or scope of his employment.
For an act to be within the authority of an agent or the scope of the employment of an employee, it must deal with a matter whose performance is generally entrusted to the agent or employee by Lindsey Manufacturing Company. It is not necessary that the particular act was itself authorized or directed by Lindsey Manufacturing Company. If an agent or an employee was acting within the authority or scope of his employment, Lindsey Manufacturing Company is not relieved of its responsibility because the act was illegal.” (emphasis added).”
So yes, while it is true that the corrupt intent element must be met in order to convict a company of an FCPA offense, that corrupt intent element can be satisfied by singular and isolated acts of any employee, even if their conduct is in violation of pre-existing company policies and procedures. However, you would not glean this significant point from Busting Bribery because the term respondeat superior (or general concept) does not even appear in the lengthy white paper.
An FCPA compliance defense would not, as the Authors suggest, create a wholesale corporate defense to “knowing and intentional violations of the FCPA.” If the board, executives, or other senior personnel were involved in the knowing and intentional conduct at issue, a company could not rely on the compliance defense. If an employee, at any level, engaged in knowing and intentional conduct in violating of the FCPA, a company could not rely on the compliance defense unless it had in place pre-existing compliance policies and procedures reasonably designed and implemented to prevent and detect, insofar as practicable, the conduct at issue.
The notion that creating a potential compliance defense “would amount to eliminating [corporate] criminal liability under the Act all together” is simply false and off-target, as is Busting Bribery’s misleading reference to the FCPA’s 1988 third party payment revisions to support its position.
Despite its obvious shortcomings, others are championing Busting Bribery’s compliance defense rebuttal. For instance, last week Citizens for Responsibility and Ethics in Washington (CREW) issued a release (here) touting the Authors’ work and praising Busting Bribery for “thoroughly debunk[ing] the Chamber’s arguments for amending the FCPA, finding them based on ‘myth.'” See CREW’s letters to both the House (here) and Senate (here).
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How did Aaron Murphy (Latham & Watkins), an FCPA practitioner and author of “Foreign Corrupt Practices Act: A Practical Resource for Managers and Executives” react to Busting Bribery? In this twitter feed he asked – “why are professors with no apparent experience actually investigating corruption used as experts?”
DOJ Declines To Get Specific In Declination Responses
During the June 14th House FCPA hearing (see here for the prior post) Representative Sandy Adams (R-FL) asked Greg Andres (DOJ) about the DOJ’s FCPA declination decisions and requested that the DOJ provide more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. [A declination decision in the FCPA context is generally viewed to mean that the DOJ learns of conduct that likely violates the FCPA, typically through a corporate voluntary disclosure, but in the exercise of its prosecutorial discretion the DOJ declines to prosecute or bring an enforcement action.]
Soon after the hearing, Representative Adams and Representative James Sensenbrenner (R-WI) sent Andres a letter and requested as follows. “Please provide to us information on cases that been brought to the attention of DOJ, but your agency decided, for one reason or another, not to investigate or pursue prosecution within in the last year along with the rationale for those decisions.”
In this August 3rd letter, Assistant Attorney General Ronald Welch begins with references to the DOJ’s Principles of Federal Prosecution of Business Organizations. Welch then responds as follows. “Pursuant to these guidelines, the Department has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters, and taking into account the available evidence. For example, during the previous two years, the Department of Justice declined matters in which some or all of the following circumstances existed: a corporation voluntarily and fully self-disclosed potential misconduct; corporate principles voluntarily engaged in interviews with the Department and provided truthful and complete information about their conduct; a parent corporation voluntarily and fully self-disclosed information to the Department regarding alleged conduct by subsidiaries;a parent company conducted extensive pre-acquisition due diligence of potentially liable subsidiaries, and engaged in significant remediation efforts in acquiring the relevant subsidiaries; a company provided information to the Department about the parent’s extensive compliance policies, procedures, and internal controls, which the parent had implemented at the relevant subsidiaries; a company agreed to a civil resolution with the Securities and Exchange Commission, while also demonstrating that a declination was appropriate for additional reasons; a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”
Welch concluded the letter by stating that the DOJ “cannot comment more specifically about FCPA matters where prosecution was declined” to “protect the privacy rights and other interests of the uncharged and other potentially interested parties.” Given that many declination decisions are assumed to be made after corporate voluntary disclosures, it is difficult to understand what privacy rights would be implicated by more specific answers.
I highlight above four of the circumstances DOJ identified because they undermine the DOJ’s staunch opposition to a potential FCPA compliance defense – a defense Andres (testifying on behalf of the DOJ at the June hearing) called “novel” and “risky.”
How is an FCPA compliance defense “novel” and “risky” when it would include factors the DOJ already considers in declining to bring FCPA enforcement actions? Would it not serve the public interest for such factors to be removed from the shadowy world of opaque DOJ decision making and codified in an open and transparent manner in an FCPA compliance defense?
Many have called for more transparency in DOJ declination decisions. In this guest post, Homer Moyer, a dean of the FCPA bar, called for “internal DOJ guidance that voluntarily disclosed matters must normally be resolved by the Department within 90 days after completion of an internal investigation; that agencies should make public their calculations of credit for voluntary disclosure and coordination; and that the Department will publish sanitized summaries of its declinations.” In this previous post, I proposed that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases. In a 2010 Q&A with Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: “The Justice Department could publicize cases anonymously that it has not brought because of the company’s actions.” Even William Stuckwisch (current DOJ-FCPA) wondered aloud in this video (at the six minute mark) whether DOJ declination decisions should be made public.
Given the opportunity to demonstrate to Congress, the business community, the FCPA bar, and others that it runs a consistent, principles-based, transparent FCPA enforcement program, the DOJ in its responses once again “circled the wagons.”
For additional analysis of DOJ declination decisions, see this prior post.
Siemens And An FCPA Compliance Defense
The title of this post may induce a Gary Coleman moment – as in “whatcha talkin bout” (see here). No, I am not talking about that Siemens case – the 2008 FCPA enforcement action, the largest in FCPA history from a fine and penalty perspective, in which the DOJ and SEC alleged that Siemens engaged in a pattern of bribery “unprecedented in scale and geographic reach” and that for much of its operations around the world “bribery was nothing less than standard operating procedure.”
Should the FCPA be amended to include a compliance defense, such a defense would clearly be inapplicable to the 2008 Siemens matter given allegations that Siemens had, at one time, a “corporate culture in which bribery was tolerated and even rewarded at the highest levels of the company.” As detailed in my responses (here) to Senator Specter’s questions at the November 2010 FCPA hearing, according to the DOJ, “compliance, legal, internal, audit, and corporate finance departments were a significant focus of the investigation and were discovered to be areas of the company that played a significant role in the violations”
Since the 2008 FCPA enforcement action (and indeed even before the ink was dry on the settlement documents), Siemens has undergone a substantial compliance transformation. As noted in the DOJ’s sentencing memorandum (here), settlement of the matter contained, among other things, the following terms: “implementation of rigorous compliance enhancements, including periodic testing of same, with a recognition that Siemens has already implemented substantial compliance changes over the course of the investigation; and retention of an independent monitor, who will, over a four-year term, conduct a review of the compliance code, Siemens’ internal controls and related issues, and will prepare periodic reports on his reviews.”
A specific section of DOJ’s sentencing memorandum is titled “Remediation Efforts” and stated, in pertinent part, as follows. “Siemens also overhauled and greatly expanded its compliance organization, which now totals more than 500 full time compliance personnel worldwide. Control and accountability for all compliance matters is vested in a Chief Compliance Officer, who, in turn, reports directly to the General Counsel and the Chief Executive Officer. Siemens has also reorganized its Audit Department, which is headed by a newly appointed Chief Audit Officer who reports directly to Siemens’ Audit Committee. To ensure that auditing personnel throughout the company are competent, the Chief Audit Officer required that every member of his 450 person staff reapply for their jobs. Siemens also has enacted a series of new anti-corruption compliance policies, including a new anti-corruption handbook, sophisticated web-based tools for due diligence and compliance matters, a confidential communications channel for employees to report irregular business practices, and a corporate disciplinary committee to impose appropriate disciplinary measures for substantiated misconduct. Siemens has organized a working group devoted to fully implementing the new compliance initiatives, which consists of employees from Siemens’ Corporate Finance and Corporate Compliance departments, and professionals from PricewaterhouseCoopers (“PwC”). This working group developed a step-by-step guide on the new compliance program and improved financial controls known as the “Anti-Corruption Toolkit.” The Anti-Corruption Toolkit and its accompanying guide contain clear steps and timelier requirements of local management in the various Siemens entities to ensure full implementation of the global anti-corruption program and enhanced controls. Over 150 people, including 75 PwC professionals, provided support in implementing the Anti-Corruption Toolkit at 162 Siemens entities, and dedicated support teams spent six weeks on the ground at 56 of those entities deemed to be “higher risk,” assisting management in those locations with all aspects of the implementation. The total external cost to Siemens for the PwC remediation efforts has exceeded $150 million.”
Elsewhere, the DOJ sentencing memorandum, as to third parties, stated as follows. “Siemens also significantly enhanced its review and approval procedures for business consultants, in light of the past problems. The new state-of-the-art system requires any employee who wishes to engage a business consultant to enter detailed information into an interactive computer system, which assesses the risk of the engagement and directs the request to the appropriate supervisors for review and approval. Siemens has also increased corporate-level control over company funds and has centralized and reduced the number of company bank accounts and outgoing payments to third parties.”
In summary, the DOJ stated that “the reorganization and remediation efforts of Siemens have been extraordinary and have set a high standard for multi-national companies to follow.”
More recently, as of May 2011, according to Siemens compliance: (i) approximately 600 employees work full time in a single compliance organization managed by a Chief Compliance Officer (of this number approximately 80 work at Siemens corporate headquarters with the rest deployed evenly around various sectors/divisions and regional companies); (ii) 300,000 employees world-wide have received compliance training, including 100,000 employees who received face-to-face multi-hour courses; (iii) all new compliance officers worldwide are required to take an intensive four-day course; (iv) approximately 5,500 top managers worldwide have compliance metrics as one aspect of their compensation; and (v) approximately 55 high-risk entities and approximately 105 business unit were required to implement over 100 compliance systems controls.
The 2008 judgement against Siemens (here) imposes a five year probation period during which Siemens shall not commit any further crimes and the additional probation term that Siemens is to comply with the compliance and ethics program set forth in its plea agreement.
In short, there is likely no other company in the world today that has devoted as many corporate resources, with the assistance of industry experts, to compliance than Siemens. On the flip side, there is likely no other company in the world today that faces as many negative consequences should its compliance efforts fail than Siemens.
Against this backdrop, over the summer media reports suggested “alleged corruption by three company managers working in Kuwait” who allegedly “made payments to high-ranking individuals” in Kuwait’s Energy and Water Ministry. (See here). According to the reports, German authorities began investigating the conduct after receiving information from Siemens itself.
In other words, notwithstanding 600 full time Siemens compliance personnel, an Anti-Corruption Toolkit designed by industry leaders, over 100 compliance systems controls in high-risk jurisdictions, someone in Siemens organization may have made payments in violation of its pre-existing compliance policies and procedures and in violation of the FCPA.
Presumably, Siemens – should it be prosecuted – would get credit for its committment to compliance and pre-existing policies and procedures pursuant to the DOJ’s Prosecution of Business Organizations. In addition, should Siemens be prosecuted it would presumably receive credit for the same under the advisory U.S. Sentencing Guidelines. As the enforcement agencies have frequently stated in connection with FCPA reform – we already take compliance into account!
However, are these “baby carrots” a sufficient return on Siemens compliance investment? Do these “baby carrots” sufficiently recognize Siemens committment to compliance? Or should Siemens compliance efforts be recognized as a matter of law as would be the case if the FCPA was amended to include a compliance defense?
SEC Chairman Schapiro’s FCPA Responses
As noted in this prior post, on June 30th, Senator Mike Crapo (R-ID) sent SEC Chairman Mary Schapiro a letter requesting answers to a number of FCPA related questions. In this September 23rd letter, SEC Chairman Schapiro responds.
Chairman Schapiro begins as follows. “Contuined strong enforcement of the FCPA sends the message that American companies operating abroad will not pay bribes as a ‘cost of doing business.’ The deterrence message of the Commission’s FCPA enforcement program incentivizes companies to self-assess and update their compliance and internal controls – all of which benefits companies’ operations overall and provides greater transparency to investors. While I certainly appreciate and share your concerns about the costs of FCPA compliance in certain circumstances, I believe that the risks to investors and costs to companies posed by outdated or weak FCPA compliance measures are equally significant.”
Compliance Defense?
As to a potential FCPA compliance defense, Chairman Schapiro began by stating a common enforcement agency response … we already consider compliance. She stated as follows. “The Commission, in deciding whether to approve the filing of an FCPA enforcement action against a public company, already considers as one mitigating factor whether the company’s compliance program was reasonably designed and operated in a manner to detect and prevent FCPA violations.” “Similarly,” Chairman Schapiro stated, “companies facing FCPA inquiries can obtain credit for cooperation under the Commission’s new Cooperative Initiative, in which cooperation is defined to include, among other factors, having reasonable internal controls and compliance measures.” Given the above, Chairman Schapiro states that “it seems unnecessary – and even counterproductive – to recognize a formal affirmative defense for having such a program, given that there are at least three significant costs associated with such a defense.”
Chairman Schapiro then identifies the following three issues.
“First, the reasonableness of a compliance program is best measured not by how it exists on paper, but by how it operates in practice. Consequently, the ease with which an employee was able to circumvent anti-corruption controls is some evidence – not sufficient evidence, but some evidence – that internal controls were insufficient. The Commission would not want to be foreclosed from bringing FCPA charges under those circumstances, since holding companies accountable for weak internal controls incentivizes companies to create a robust FCPA compliance environment.”
“Second, providing an affirmative defense for reasonably designed compliance programs could allow companies to retain ill-gotten gains. A company could engage in bribery or other corrupt behavior, obtain a benefit from such conduct (i.e. securing lucrative contracts), and yet not disgorge its ill-gotten gains. Enabling companies to retain proceeds generated from the payment of bribes would disincentivize those companies from adopting rigorous anti-corruption programs.”
“Third, sanctioning corrupt behavior sends a strong message of general deterrence to all similarly situated companies that there is a high financial and reputational cost to be paid if they bribe foreign officials. There is often no substitute for the deterrent impact of financial and reputational sanctions, which prevent improper behavior from becoming ingrained as just another ‘cost of doing business.’ That deterrence message likely would be diluted if such an affirmative defense was adopted.”
“Foreign Official”?
According to Chairman Schapiro, the FCPA “sufficiently defines the term foreign official.” She stated as follows. “Given the various forms of government found around the world, it would be impractical to articulate each of the myriad of ways that one could use to identify a foreign official in particular countries or cultures. In addition, Commission and Department of Justice enforcement actions also provide guidance on the meaning of ‘foreign official’ in various contexts. Finally, companies with a strong compliance culture have policies prohibiting all bribery in order to send a clear corporate message that such practices are not condoned.”
SEC Guidance?
“Both the Commission and the Department of Justice have numerous mechanisms for providing guidance on FCPA matters. Perhaps the most important guidance comes from the enforcement actions that are brought by the Commission and the Department of Justice. The Commission uses it pleadings and accompanying public news releases to highlight and reinforce the key elements of each case. Additionally, senior staff in the Division of Enforcement speak regularly at industry conferences and provide guidance on the FCPA program. “
For a prior post on “prosecutorial common law” – see here.
As relevant to Chairman Schapiro’s “guidance” response, readers may be interested in my “Facade of FCPA Enforcement” article (here) in which I discuss the frequency in which FCPA enforcement actions are resolved based on uninformative, bare-bones statements of facts or allegations or conclusory legal statements; the increasing trend of FCPA enforcement actions resolved based on untested and dubious legal theories, as well as enforcement theories seemingly in direct conflict with FCPA’s statutory provisions; and the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties.
In short, the notion that settled SEC civil complaints or administrative orders (or now SEC NPAs or DPAs or DOJ NPAs or DPAs for that matter) provide meaningful guidance or should serve as FCPA caselaw is absurd. In my Facade article, I detail cases in which the SEC admits that the terms of an SEC settlement “do not necessarily reflect the triumph of one party’s position over the other.” I also highlight statements from former SEC Commissioner and current Standford law professor Joseph Grundfest that, among other things, SEC complaints “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances …”. In the words of Professor Grundfest, the “natural result” of settling an SEC enforcement action “is a one-sided record in which the Commission asserts its version of the facts and the law, and the settling defendants commit not to challenge that rendition.”
On the same general topic, albeit in the DOJ FCPA context, see this recent piece from Michael Volkov “The FCPA & Voluntary Disclosure An Engimatic Threat to Due Process” (“the Justice Department has started to cite as precedent its own decisions respecting the outer reaches of the law”).
Strict Parent Company Liability for Foreign Subsidiary Actions?
Chairman Schapiro’s response states in full as follows. “A U.S. parent company may be liable under the FCPA for bribes paid by its foreign subsidiary in certain circumstances, such as where the parent company had knowledge of the foreign subsidiary’s bribery or where the subsidiary acted as the parent’s agent. ‘Knowledge’ under the FCPA’s anti-bribery provisions encompasses actual knowledge, conscious disregard of, or willful blindness to the subsidiary’s illicit activities. In addition, under agency law, an agent’s knowledge can be imputed to the principal (parent). Accordingly, in the absence of the requisite evidence, the Commission does not charge a U.S. parent company with a violation of the FCPA’s anti-bribery provisions in connection with the foreign subsidiary’s actions. In addition, the Commission may, based on its analysis of the particular facts and circumstances of some cases, charge the foreign subsidiary directly with violation of the FCPA’s anti-bribery provisions while separately charging the parent company with violations of the books and records and internal control provisions of the FCPA. This is because the public company parent typically is responsible for the accuracy of the books and records of its overall operations, including those of its controlled foreign subsidiaries. While the FCPA’s books and records and internal controls provisions do not contain a ‘knowledge’ requirement, the Commission exercises its discretion and flexibility in charging these provisions.”
For previous posts on the issue of strict liability see here and here.
Double-Dip Penalties?
Chairman Schapiro stated as follows. “The Commission and Department of Justice do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the Department of Justice obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the Department of Justice obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
However, DOJ penalties are calculated by reference to the advisory U.S. Sentencing Guidelines where an important factor in determining the ultimate penalty amount is value of the benefit received by the company from the conduct at issue.
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For your viewing pleasure here – an October 5th rountable program sponsored by the Heritage Foundation on corruption, economic growth, and freedom.
For the calendars of Indianapolis area readers see here. A luncheon address – “Compliance in a New Era of FCPA Enforcement” I am giving next Tuesday (Oct. 11th) to the World Trade Club of Indiana. The event, sponsored by Butler University College of Business, begins at 11:30 at the downtown law offices of Baker & Daniels.
Former DOJ FCPA Chief Supports FCPA Compliance Defense
Before the Department of Justice had a specific Foreign Corrupt Practices Act Unit, it had the Multinational Fraud Branch. Joseph Covington (here – currently with Jenner & Block) joined the Branch in 1977 and served as Chief of the Multinational Fraud Branch from 1982 to 1985. Recently, I contacted the former DOJ FCPA Chief and posed the following question regarding a potential FCPA compliance defense. Covington’s response is set forth below with his permission.
Do You Support Creation of an FCPA Compliance Defense?
“Based on my experience as Chief of the FCPA unit up to 1985 and in my 25 plus years of private practice, I support the concept of an adequate compliance program defense to FCPA liability for corporate defendants. Such a defense would recognize and promote good corporate citizenship, and do nothing for corrupt companies. And from my perspective as a former prosecutor in the field, enforcement of those who engage in corruption would likely be enhanced.
In my almost 40 years of experience, I have rarely seen American companies affirmatively offering bribes in the first instance; rather they are typically reacting to a world not of their making. It is a fact that corruption in government remains endemic worldwide and that is not likely to change. As the world shrinks companies who seek to do the right thing can’t help but confront corrupt officials – as customers, regulators, and adjudicators – and confront them often.
The problem with current laws and enforcement policies is that they do not adequately reward companies for sincere (and expensive) efforts to stop the unwanted misbehavior of their employees. Indeed, under US law, the compliant corporation, try as they might, remains vicariously liable for the acts of any employee. With no possibility of avoiding liability, companies find themselves facing substantial criminal fines. Under current DOJ practice, the most that such a company can expect is a discount – some would say only a modest discount – from the criminal penalty as calculated under the federal Sentencing Guidelines. With the risks attendant to taking a case to trial, with no real ability to contest liability, too much power and discretion ends up in the hands of the government.
In this context, providing an adequate compliance program defense to FCPA liability would be manifestly reasonable. Companies that seek only to be good corporate citizens would have an opportunity to demonstrate not only to DOJ, but also to a federal district court, that they had in fact done everything reasonably required, and that despite that fact an errant employee avoided company policy and violated the law. Affording this type of defense to corporate liability would recognize and reward strong compliance programs; provide a powerful incentive for companies to develop and enforce such programs; may encourage more companies to come forward with voluntary disclosures; and yet still enable prosecution of the culpable individuals. It is time to stop punishing our good corporate citizens and start going after the guilty-both corrupt corporate employees and corrupt foreign officials. “