Uneven Justice: A Critical Look at FCPA Enforcement
The week starts with a guest post from Michael Volkov.
Volkov (here) is a partner at Mayer Brown LLP. His practice focuses on white collar defenses, FCPA enforcement and compliance, and litigation. The views expressed in this article are his own and do not represent those of his law firm, Mayer Brown LLP. He can be reached at mvolkov@mayerbrown.com.
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UNEVEN JUSTICE: A CRITICAL LOOK AT FCPA ENFORCEMENT
By Michael Volkov
The United States is a nation of laws: badly written and randomly enforced. ~Frank Zappa
Much has been written about the overall fairness of the Justice Department’s and the Securities and Exchange Commission’s aggressive FCPA enforcement program. Some have argued that DOJ and SEC have engaged in uneven justice: corporations plead to non-FCPA offenses, pay big fines, and continue business as usual. Others argue that DOJ has failed to prosecute individual executives and officers, or to ensure that corporations are debarred or suspended from continuing to sell to the federal government.
As a former federal prosecutor with nearly 20 years experience in the criminal justice system, I can assure you that some of the criticisms are accurate but some completely miss the mark. Last year, the Senate Judiciary Committee examined the controversy surrounding FCPA enforcement, and this year the House Judiciary Committee is planning to look at the issue.
DOJ is proud of its enforcement program. And rightly so – they have resuscitated a program which was dormant for years which now collects over one half of all criminal fines imposed each year in the United States. That is an impressive record.
Aside from the fundamental deficiencies inherent in DOJ’s voluntary disclosure process, DOJ claims that it gives adequate credit for corporate compliance programs, early cooperation and full disclosure. In response some suggest that plea agreements which are designed to protect companies from debarment and include pleas to non-FCPA charges are unfair. Part of that point is correct; the other part is flat out wrong.
Our criminal justice system operates day-to-day based on plea agreements. In the federal system, over 90 percent of federal cases are resolved through plea agreements. As part of that process, charge-bargaining is a critical component. DOJ’s decision to permit corporations, or typically country-specific subsidiaries to plead guilty to a non-FCPA offense, is in keeping with this long tradition. The underlying conduct as described in the plea agreement is known to all – the company engaged in systematic and widespread bribery. Nothing more, nothing less. To extrapolate from such a plea that DOJ is not enforcing the law is misguided and ignores the realities of the plea bargaining process.
On the other hand, DOJ’s willingness to forego debarment and/or suspension is certainly an issue that needs to be examined. As Professor Koehler testified at the Senate Judiciary Committee, BAE was awarded a government contract on the same day it plead guilty to a non-FCPA offense but paid a criminal fine over $400 million. That is certainly uneven justice, and Senators and policymakers should have taken note of this ironic enforcement twist.
Senator Specter and others have criticized the Justice Department for failing to include individual corporate executives and officers in its enforcement actions. The Justice Department’s Antitrust Division has a much better record on this score – corporations and individuals are prosecuted in criminal antitrust cases with equal vigor and results. Why has DOJ shied away from linking corporate cooperation to requiring cooperation against individual executives and officers at the offending company?
If the goal of DOJ’s enforcement program is corporate compliance, then the enforcement program needs to be recalibrated. Deterrence is an admirable objective and will certainly increase compliance, but DOJ has more tools available to it to encourage and promote cooperation. DOJ’s antitrust amnesty/leniency is an example of a program which has been incredibly successful on the enforcement and the compliance ends. While there are certainly problems with the application of a cartel-focused (multi-actor) model to FCPA cases, there are lessons which can be learned from the amnesty/leniency program.
We all aspire to equal justice and we all admire the image of justice that is blind as the hallmark of our judicial system. But right now what is needed is for justice to listen so that it operates with fairness and equal justice for all.
No – The Consistent Answer In DOJ Responses to Senator Questions Regarding FCPA Reform
On November 30, 2010, the Senate Subcommittee on Crime and Drugs (chaired by then Senator Arlen Specter) held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.” (See here for the prior post).
Following the hearing, Senator Christopher Coons and Senator Amy Klobuchar submitted written questions to Greg Andres (DOJ) – one of the witnesses who testified at the hearing.
The DOJ responses are here.
As evident from the DOJ responses, certain of which are highlighted below, the consistent DOJ response to FCPA-related reform proposals is no.
Profiled below are DOJ’s substantive responses to Senator questions regarding mandatory debarment for egregious FCPA violators; a potential FCPA compliance defense; a potential FCPA amnesty program; whether businesses face FCPA uncertainty; whether clarification of the “foreign official” element is needed; and whether the statute’s corporate intent element needs revising.
Mandatory Debarment
Does the DOJ favor a “mandatory, conduct-based, debarment remedy for companies that engage in egregious bribery”?
No.
The DOJ says that such “mandatory debarment would likely be counterproductive, as it would reduce the number of voluntary disclosures and concomitantly limit corporate remediation and the implementation of enhanced compliance programs.”
In a related question, the DOJ adds that “a mandatory conduct-based debarment for companies could well have a negative impact on the Government’s ability to investigate and prosecute transnational corruption effectively.” “Linking mandatory debarment to a criminal resolution would fundamentally alter the incentives of a contractor-company to reach an FCPA resolution because such a resolution would likely lead to the cessation of revenues for a government contractor – a virtual death knell for the contractor-company. Similarly, mandatory debarment would impinge negatively on prosecutorial discretion. If every criminal FCPA resolution were to carry with it mandatory debarment consequences, then prosecutors would lose the necessary flexibility to tailor an appropriate resolution given the facts and circumstances of each individual case.”
Boiled down to one sentence, the DOJ’s opposition to mandatory debarment for egregious FCPA violators seems to be this – it would lessen our FCPA caseload, it would make our jobs more difficult, and it would take away our flexibility and leverage.
This is hardly a convincing argument to the position I articulated at the Senate hearing (see here) that “egregious instances of corporate bribery that legitimately satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation should be followed with debarment proceedings against the offender.”
As I noted in this previous post, H.R. 5366 (which passed the House in September 2010) is not the answer. However, the issue of mandatory debarment, in certain instances, remains a valid and legitimate issue notwithstanding the DOJ’s responses.
Compliance Defense
Does the DOJ favor exploring a “formal compliance defense” to the FCPA?
No.
The DOJ “opposes the adoption of a formal compliance defense.”
According to the DOJ, it “already considers a company’s compliance efforts in making appropriate prosecutorial decisions, and the United States Sentencing Guidelines also appropriately credits a company’s compliance efforts in any sentencing determination.” “Among other things” the DOJ states, “the creation of such a defense would transform criminal FCPA trials into a battle of experts over whether the company had established a sufficient compliance mechanism.” “Against this backdrop, companies may feel the need to implement a purely paper compliance program that could be defended by an ‘expert,’ even if the measures are not effective in stopping bribery.” “If the FCPA were amended to permit companies to hide behind such programs, it would erect an additional hurdle for prosecutors in what are already difficult and complex cases to prove.”
As readers likely know, the U.K. Bribery Act, set to go live on July 1st, contains a so-called adequate procedures defense and such a defense should be considered under the FCPA as well.
Amending the FCPA to include a compliance defense is not a new idea. In the mid-1980’s numerous FCPA reform bills included such a defense and provided that a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents. In fact, an FCPA reform bill containing such a provision did pass the U.S. House.
A compliance defense is not about hiding behind “paper programs” as the DOJ asserts. Rather a so-called compliance defense, one that would be inapplicable in cases such as Siemens, it is about properly incentivizing corporate FCPA compliance and not putting a company at risk of FCPA scrutiny, costly FCPA internal investigations, and the growing collateral consequences of FCPA inquiries should a non-executive employee engage in conduct contrary to a company’s pre-existing, published, and trained on FCPA compliance policies and procedures.
Amnesty Program
Is the DOJ in favor of a so-called “amnesty program” as recently advocated by some?
No.
The DOJ says it “does not support the idea of an FCPA amnesty program.” Among other things, the DOJ says that “as the beneficiary of [several established sources of information such as voluntary disclosures] the Department does not presently face difficulty in identifying sources of information of FCPA criminal violations.” “Consequently, an amnesty program would provide protection for corporations who violate the law without providing accompanying meaningful benefits to law enforcement.” “Finally, consistent with the United States Sentencing Guidelines and the Department’s Principles of Federal Prosecution of Business Organizations, the Department already provides meaningful credit for voluntary self-disclosures, extraordinary cooperation, and substantial remediation by corporations where appropriate and deserved.”
Uncertainty?
Does the DOJ believe that “well-meaning businesses are faced with significant uncertainty as to their potential exposure to civil and criminal penalties under the FCPA?”
No.
The DOJ says that “it provides clear guidance to companies with respect to FCPA enforcement through a variety of means.” It lists the DOJ’s Lay Person Guide to the FCPA, various charging documents, plea agreements, non-prosecution and deferred prosecution agreements [see here for a recent guest post on prosecutorial common law] and the DOJ’s FCPA Opinion Procedure Releases.
The DOJ concludes its response by saying “in the end, a review of the Department’s FCPA enforcement actions makes clear that companies have never been charged for minor or incidental issues.” “By contrast, the Department’s prosecutions involved extensive and often widespread corruption over significant periods of time.”
As explored in this prior guest post, in the FCPA’s 1988 amendments, Congress directed the DOJ to consider providing formal guidance. However, in 1990 the DOJ declined to issue guidelines and stated as follows. “After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”
“Foreign Official”
Does the DOJ agree that statutory clarification of “foreign official” would help clarify to businesses which of their transactions could be subject to the FCPA?”
No.
The DOJ response begins as follows. “The term ‘foreign official’ has been defined in relevant case law and opinion releases. Some defense attorneys have attempted to argue that the definition of ‘foreign official’ does not extend to the employees of state-owned or state-controlled enterprises.”
For the record, I am not a “defense attorney.” See here for my declaration as to the legislative history on “foreign official.”
In a related question, the DOJ further stated that it “has provided significant guidance regarding the definition of ‘foreign official.'”
Intent
Should the FCPA be amended to “bring the intent standard for corporations in line with the current ‘willfulness” standard that applies to individuals?”
No.
The DOJ responded that it “does not believe that it is necessary or appropriate to amend the FCPA’s intent standard with respect to corporations.” “The Principles of Federal Prosecution of Business Organizations already governs the Department’s decisions regarding whether to charge corporations for federal crimes, including under the FCPA.” “Furthermore, the Department is not prosecuting FCPA matters where a corporation engaged in something less than willful criminal conduct.”
On Point
Two recent Q&A interviews in Law360 with leading white-collar practitioners caught my eye.
George Terwilliger (here) is a partner in the Washington D.C. office of White & Case and global head of the firm’s White Collar Practice Group. Terwilliger is a former U.S. Attorney, Deputy Attorney General and Acting Attorney General.
In a recent interview with Law360, Terwilliger was asked “what aspects of law in your practice area are in need of reform, and why?”
Terwilliger responsed as follows: “I represent many companies who get caught up in the ever-widening net of federal criminal offenses arising from ordinary business activity that runs afoul of government regulatory requirements or dictates. In many such cases, and as in most cases, there is room for reasonable disagreement on the application of relevant legal standards to the salient facts. But because of the collateral consequences of drawn-out investigations and/or of conviction after trial, few if any companies have the opportunity to adjudicate such reasonable disputes before a judge or jury. Consequently, prosecutors, who are entirely appropriately zealous advocates for their side of the case, also become judge and jury in determining an appropriate resolution of the matter. In a system where rule of law is determined by adversarial process, this state of affairs results in an imbalance that is not healthy for the cause of justice.”
Stephen Jonas (here) is a partner in the Boston office of WilmerHale and chairman of the firm’s Investigations and Criminal Litigation Practice Group. He is also a former state prosecutor.
In a recent interview with Law360, Jonas was similarly asked “what aspects of law in your practice are in need of reform, and why?”
Jonas responded, in pertinent part as follows. “One area greatly in need of reform, in my view, is the investigation of alleged health care fraud. This is an area in which the government regularly secures enormous settlements, starting in the tens of millions of dollars, and now exponentially expanding to the billions of dollars. Virtually every pharmaceutical company has now been subjected to one or more of these investigations and the results are predictable — enormous monetary contributions to the federal government. I find it hard to believe that wrongdoing is so rampant in this industry that every company has at least several hundred million dollars worth of it. The more likely answer is that these settlements often have far more to do with the leverage the government enjoys than the merits of what the company did or didn’t do. In order to stay in business, pharmaceutical and medical device companies must be able to sell products that can be paid for by Medicaid and Medicare. But a conviction for a health care offense would result in exclusion of the companies from federal health insurance and essentially a death sentence for their business. So they cannot afford to fight even the most debatable of charges. One of the results is that novel legal theories and sketchy evidence will never be tested in a court of law and negotiated settlements (under threat of exclusion) serve as “precedent” for the next case. That is a system badly in need of reform.”
One statement is generic, the other relates to health fraud, but both are directly on point when it comes to Foreign Corrupt Practices Act enforcement. (See here for my recent Facade of FCPA Enforcement piece in which I make several similar arguments in terms of FCPA enforcement).
With the pharma industry sweep currently in full force, Jonas’s comments, I suspect, will be even more “on point” in the coming months as numerous pharma and other health care related companies are expected to reach, what will no doubt be, multi-million FCPA settlements that will likely be resolved via resolution vehicles subject to little or no judicial scrutiny. The government will bring in millions, the news will dominate the headlines for a few days, and then the question will be asked – did the conduct at issue even violate the FCPA?
Richard Cassin at the FCPA Blog recently highlighted a “corporate investigations list” (see here). It listed 72 companies “known to be the subject of an ongoing and unresolved FCPA-related investigation.”
Similar to Jonas, I find it hard to believe that wrongdoing is so rampant that seemingly every major company has at some time run become the subject of FCPA scrutiny or run afoul of the FCPA.
There is a much bigger picture relevant to this new era of FCPA enforcement and it is this new era that is in need of urgent reform.
My own two cents, which I will elaborate on in the future, is that the answer to the problem of enforcement agencies enforcing (in many cases) the FCPA contrary to the intent of Congress and based on dubious legal theories is largely not to amend the FCPA – this will solve very little. The more fundamental question remains – how to rein in the enforcement agencies and to force judicial scrutiny of FCPA enforcement actions?
James Doty and FCPA Reform
The SEC recently appointed James Doty to be the new chairman of the Public Company Accounting Oversight Board. (See here).
Before FCPA reform was the thing to talk about, Doty was talking about FCPA reform.
Doty’s recent appointment caused me to re-read his 2007 article (here) “Toward a Reg. FCPA: A Modest Proposal for Change in Administering the Foreign Corrupt Practices Act.”
Most troubling, Doty writes, are: (i) trends in the imposition of civil liability on a parent issuer for acts of a subsidiary’s employee or agent in the absence of active complicity of the parent, and in some cases where the actions of employees and agents contravene established, company wide policies; (ii) prosecution on aggressive legal theories extending beyond traditional bribery (which underscore the need for prospective regulatory clarification of permitted activities), and (iii) the expansive criminalization of vicarious liability under a vague statute, in some cases where there is not certainty that a bribe has been offered or paid by the corporation.”
The issue as Doty saw it, “is whether our law enforcement agencies should be left to devise their own, case-by-case interpretation of the FCPA, without the rigor of greater regulatory clarity and the benefits of more consistent administrative interpretation.”
How did we get this point even in 2007?
Doty notes that the “current state of affairs reflects the confluence of a number of enforcement developments. Among other things: (i) the SEC is increasingly pursuing substantive bribery charges against the corporate parent, in addition to focusing, as usual, on enforcement of the books and records and internal controls provisions of the FCPA; (ii) non-litigated settlement orders are aggressively expanding the range of conduct subject to the statute; (iii) DPAs, which have been used in this context only since 2004, have become virtually commonplace; (iv) linkage of FCPA charges to other Exchange Act charges is becoming more aggressive.”
Doty states as follows. “Aggressive enforcement, based on an expansive interpretation of a vague statute, a little-used DOJ opinion process, and the temptation perhaps to assume that more draconian criminal enforcement is better, have all led to a lack of predictability in law enforcement and, in the author’s view, some incorrect application of the standards. […] Consistency and predictability are not matters of grace granted to corporate citizens at the government’s pleasure; the government owes consistency and predictability to public corporations that are attempting to accomplish complex tasks in difficult foreign venues, and to management and directors who want to know the ‘how-to-do-it’ of compliance in these circumstances.” (emphasis in original).
Stating that “vagueness and ambiguity are the DNA of the FCPA,” Doty “does not advocate repeal or weakened enforcement of the FCPA,” but states that “support for the policies of the FCPA does not require turning a deaf ear to warnings about the increased costs associated with current enforcement practices under the statute.”
Absent reform, Doty writes, “there is a policy vacuum in which law is developed on an ad hoc basis by Assistant U.S. Attorneys and by the Staff of the SEC and DOJ as they respond to the exigencies of particular factual situations.”
Doty’s 2007 reform proposal?
So-called Regulation FCPA – a permissive filing regime whereby, in pertinent part, an issuer “would benefit from a regulatory presumption of compliance” and thus “protect itself, its senior management and its board of directors from vicarious, general corporate liability” in the FCPA context.
As Doty writes, “for a company to avail itself of the benefits of Reg. FCPA, it would be required to establish an FCPA Compliance Program designed to prevent and detect, insofar as practicable, any violations. The company would also be required to certify that it has, to the best knowledge and belief of its certifying officers, reasonably discharged the duties and obligations under the program, and that the company is not aware of continuing, unremedied violations.”
Doty states, that “as with any regulatory safe harbor, the claimant would have the burden of demonstrating compliance with the conditions” and that “upon satisfying these conditions, the company would be presumed not to have violated the statute” a presumption that “could be rebutted by a preponderance of the evidence.”
Doty’s proposal of course, would not completely solve the FCPA enforcement problems he identifies. For starters, so-called Reg. FCPA would only apply to issuers. Yet Doty’s proposal does bear many similarities to a so-called “adequate procedures defense” embodied in the U.K. Bribery Act and an FCPA reform proposal currently under consideration here in the U.S.
Although Doty’s new PCAOB job functions are not FCPA specific, when a high-ranking SEC official was previously critical of key aspects of FCPA enforcement, and when those criticisms remain even more valid today, well, I think we should all take notice.
Interesting, Significant and Bold
Last week I had the pleasure of participating in Securities Docket’s Year in Review webcast (see here for viewing – the FCPA portion begins at about 51 minutes).
For those of you who missed the event, below are my thoughts on four significant events from 2010, three interesting events from 2010, and two bold predictions for 2011.
The FCPA in 2010 was interesting, significant, and bold all at once. Among other things, it was a year in which Assistant Attorney General Lanny Breuer declared a “new era of FCPA enforcement.” (see here).
Significant Events
The Foreign Corrupt Practices Act
If anyone out there still believes that the FCPA is a law that only applies to U.S. companies, you clearly have been living under a rock.
2010 was the year of non-U.S. companies resolving FCPA exposure.
BAE (here)(I am hesitant to call this matter an FCPA enforcement action because it wasn’t, but everyone seems to be doing so), Daimler (here), Technip (here), Eni/Snamprogetti (here), ABB (here), Panalpina (here), and most recently Alcatel-Lucent (more in a future post).
It has been reported that approximately 90% of 2010 FCPA fines and penalties were paid by foreign companies.
I expect this trend to continue – albeit perhaps not at the level seen in 2010. The 4th member of the JV involved in Bonny Island bribery – JGC of Japan – has yet to settle, certain of the medical device and pharma companies that have disclosed FCPA issues are non-U.S. companies, and an emerging trend I see is an increased focus on China-based issuers. For instance, last year, 25% of the IPOs were China based issuers and last month, Rino International (see here) disclosed an FCPA inquiry, the first time I believe a China-based issuer has been the focus of an FCPA inquiry.
Two Tiers of Justice
Under basic rule of law principles, the law is to be equally and consistently applied to all subject to the law, regardless of how big or small the company is and regardless of what type of company is involved.
In a troubling trend, two tiers of justice have emerged from FCPA enforcement.
If the company is a large multinational company, the company will end up paying large fine, but chances are the company will not be charged with FCPA anti-bribery violations.
For instance, the DOJ’s allegations against BAE (see here) included that the company provided various benefits – through U.S. payment mechanisms – to influence Saudi officials through and through other conduct that clearly had a U.S. nexus. Yet, BAE, one of the world’s largest defense contractors, was not charged with any FCPA anti-bribery violation.
Daimler, according to the DOJ (see here), had a corporate culture that tolerated and/or encouraged bribery and its numerous bribery schemes involved various high-ranking executives. Yet, Daimler, was not charged with any FCPA anti-bribery violations.
It’s bribery yet no bribery, and it contributes to what I’ve called the façade of FCPA enforcement (see here).
While certain companies in certain industries appear immune from FCPA anti-bribery charges, in other instances, instances generally involving small companies such as Nexus Technologies (here) or Lindsey Manufacturing (here), the DOJ seems to come out with guns a blazing and criminally indicts the company for violating the FCPA. One can legitimately ask what did these companies do that BAE, Daimler, and some other companies didn’t do?
The two tiers of justice is also present when it comes to individual enforcement actions. As was highlighted in the recent Senate hearing, one odd aspect of the most high-profile, egregious instances of corporate bribery is that, for the most part, no individuals are charged. Yet in cases that can only be called minor in comparison, Nexus Technologies, Lindsey Manufacturing and the Haiti Teleco cases come to mind, the DOJ again seems to come out with guns a blazing and criminally indicts multiple individuals.
Companies that commit bribery on a major scale, involving hundreds of millions dollars, are still able to secure multi-million dollar U.S. government contracts (see here and here). On the other hand, individuals like Charles Jumet are sent to prison for nearly 7 years for making a $200,000 payment to secure a lighthouse and buoy contract and conspiring to violate the same law that major companies are apparently immune from violating. (See here).
DOJ officials frequently talk about the rule of law (here), and the importance of consistency and transparency in charging decisions (here), but these examples raise the issue of whether such principles are followed when it comes to FCPA enforcement.
Is the Facilitating Payments Exception Meaningless?
When Congress passed the FCPA in 1977 and amended it in 1988 it clearly understood and accepted that the statute was not going to cover every conceivable unethical payment made in transacting overseas business. (See here). The legislative history is clear on this point and that is why the FCPA contains an express exception for so-called facilitating or grease payments.
Yet one can legitimately ask whether this exception intended by Congress has any meaning.
In November, a group of companies collectively paid approximately $235 million to settle FCPA enforcement actions principally involving import permits for oil rigs, other customs and duty payments to Nigerian officials, and payments to expedite shipment of product in Nigeria and some other jurisdictions. (See here for a summary of the CustomsGate enforcement actions).
It seems a bit silly when several major companies settle an FCPA enforcement action for this amount of money to ask the question – did the conduct at issue even violate the FCPA, but this question should be asked in connection with the CustomsGate enforcement actions. It is also a question that can legitimately be asked as to several other recent FCPA enforcement actions that involve permits, licenses, certifications and other administrative tasks that have nothing to do with obtaining or retaining government contracts.
The issue as I see it is not whether such payments are ethical, but whether such payments violate the narrow anti-bribery provisions Congress intended and whether, once again, the DOJ and the SEC are actually enforcing the FCPA as Congress intended or whether the FCPA has morphed into a broader corporate ethics statute.
If the FCPA should become a broader corporate ethics statute, let Congress make that decision – not the DOJ or the SEC.
Emergence of a Plaintiff’s Bar
The FCPA, it has been held by some courts, does not contain a private right of action – yet there are other legal avenues available to plaintiffs to hold companies that violate the FCPA accountable. (See here).
Common causes of action include derivative claims against officers and directors, securities fraud claims by investors, RICO claims, unfair competition claims and antitrust claims such as last year when one of Innospec’s competitors sued it in Virginia state court in connection with its recently settled FCPA enforcement action. (See here).
Such causes of action have been pursued before 2010, but 2010 witnessed an explosion in such claims and so-called investigations by plaintiff firms representing investors.
The most noteworthy example is what I called the feeding frenzy surrounding SciClone Pharamaceutials. (See here). Last August, the company simply made an FCPA disclosure – that it was contacted by the SEC and the DOJ in connection with the government’s pharma industry sweep. The company’s stock dropped about 30%. Within weeks about a dozen plaintiff firms announced “investigations” and/or filed securities fraud cases – never mind the company’s stock price regained all that value within about a month.
When a company’s FCPA violations are found to be condoned or encouraged by the board or officers, such plaintiff causes of action would seem to be warranted.
However, these types of FCPA violations are rare – the more typical situation is where, because of respondeant superior, a company faces FCPA exposure because of the actions of a single or small group of employees whose conduct was in violation of the company’s FCPA policies and procedures. In these typical situations, I question what value these so-called “investigations” by plaintiff firms have or what purpose these derivative or securities fraud claims serve.
Interesting Events
Giffen Enforcement Action
When an enforcement action begins with allegations (here) that James Giffen made more than $78 million in unlawful payments to two senior Kazakhstan officials in connection with oil transactions for major American oil companies and abruptly ends with a one-paragraph superceding information (here) charging a misdemeanor tax violation and the company he worked for settling an FCPA enforcement action focused solely on two snowmobiles (here) – I call that interesting.
Even more interesting is that part of Giffen’s defense was that his actions were taken with the knowledge and support of the CIA, the National Security Council, the Department of State and the White House. (See here for a prior post).
A few years ago George Clooney and Matt Damon starred in Syriana (here) a movie about the FCPA.
The Giffen enforcement action presents a superb Hollywood script – it is the most mysterious conclusion to an FCPA enforcement action ever – made even more interesting given that the presiding judge called Giffen a cold war hero and stated that the case should never have been brought in the first place. (See here for the prior post).
Africa Sting Cases
In January 2010, the DOJ arrested 22 defendants – most while attending a gun show in Las Vegas – in connection with a major undercover sting operation in which the government, utilizing an individual who had already pleaded guilty to separate FCPA violations, assisted the government in manufacturing a case involving a fake foreign official from Gabon. (See here, here and here for prior posts).
The defendants (see here) are principally owners or employees of small gun and weapons companies.
I would put this case in the interesting category.
Contrary to media reports and even DOJ statements, it is not the first time undercover tactics were used in connection with an FCPA investigation (see here), but the magnitude and breadth of the tactics were indeed unprecedented.
This case is far from over and the remaining defendants are sure to raise entrapment, among other legal issues, and this will be an interesting case to follow in 2011.
The Africa Sting case has draw the attention of an industry that probably had never thought much about FCPA compliance. Thus, regardless of the ultimate outcome of the case, it has likely resulted in an industry and small enterprises thinking more proactively about FCPA compliance and risk assessment.
Greater Scrutiny and Why Questions
2010 also saw greater scrutiny and why questions about the FCPA, FCPA enforcement and what I have called FCPA Inc.
For the time time in nearly a decade, Congress held hearings (see here) on the FCPA in which some basic why questions were asked.
The U.S. Chamber sponsored a paper (here) titled “Restoring Balance – Proposed Amendments to the FCPA” that was widely covered and, in some circles, railed.
Several members of Congress are legitimately scratching their heads as to why companies that settle fraud, bribery and corruption cases continue to secure lucrative U.S. government contracts and the House passed a bill (here) that seeks to debar companies found to be in violation of the FCPA from receiving U.S. government contracts. Problem is, because of the façade of FCPA enforcement (see here), it will be an impotent bill.
In May 2010, Congressman Towns, chairman of the House Committee on Oversight and Government Reform, sent a letter to Attorney General Holder expressing concern that settlements of civil and criminal cases, including FCPA cases, by the DOJ are being used as a shield to foreclose other appropriate remedies such as suspension and debarment. (See here for the prior post).
And in Spring 2010, Forbes ran a front-page story titled “The Bribery Racket,” an article, notwithstanding some of its flamboyant language, raised several valid and legitimate questions and issues when it comes to FCPA enforcement. (See here for the prior post).
This scrutiny in 2010 raised valid and legitimate public policy questions that hopefully will be picked up on in 2011.
Bold Predictions
After a year in which (1) the largest individual prosecutions involved a fake “foreign official” (2) the most egregious cases of corporate bribery were prosecuted without FCPA anti-bribery charges; and (3) a signature case abruptly ended with a misdeamenor tax violation and a corporate prosecution involving two snowmobiles, I wonder what bold will look like in 2011.
Here are two bold predictions for 2011.
The Dodd-Frank Whistleblower Provisions Will Have a Negligible Impact on FCPA Enforcement
My (what seems) contrarian thoughts are the same as when I first made this post in July.
Enforcement of the U.K. Bribery Act Will Be Disciplined and Measured
The U.K. Bribery Act, already delayed, and with implementation slated for April 2011, has been the subject of much discussion and much over-hype in my opinion.
It has been called the FCPA “on steroids” (here) and if one subscribes to the industry marketing material, you might be left with the impression that the end of the world is near.
True, the Bribery Act is broader than the FCPA. For starters, it is an all-purpose bribery and corruption statute and addresses bribery and corruption in the private sector – not just bribery to “foreign officials” like the FCPA.
True, the Bribery Act has potentially a very broad reach – so does the FCPA.
True, the Bribery Act has no exception for facilitating payments – the FCPA does – although as highlighted above, query whether this exception means anything.
However, the Bribery Act has the “adequate procedures” defense – something the FCPA does not have – but query whether it should.
Thus, while the Bribery Act is indeed more broad than the FCPA, because of this defense, it is at the same time more narrow than the FCPA.
Public statements by U.K. officials suggest that this adequate procedures defense is a meaningful defense. For instance, in September at the World Corruption and Compliance Forum, an event I chaired in London, the U.K. Attorney General (Dominic Grieve) stated (see here) that “any company small or large” that puts into place a system of adequate procedures “has nothing to fear” when an employee or agent “goes off the rails” and makes a bribe payment. Attorney Grieve said that a company should have nothing to fear if it is “walking the walk, and talking the talk” when a rogue employee makes an improper payment. On the other hand, Attorney Grieve stated that that “those who don’t heed the warnings and don’t take the necessary steps have something to fear.” Richard Alderman, the Director of the U.K. Serious Fraud Office, stated in October (see here) as follows. “I have heard some people say that this offence is one of strict liability. I do not agree. No offence will have been committed if there were adequate procedures. I have also heard people say that the fact of bribery might mean that there were inadequate procedures by definition and so the defence can never be made out. Again, I do not agree. In the real world there may be occasional lapses despite adequate procedures rigorously enforced. The issue ultimately for the Judge and jury (and for the SFO in deciding on a prosecution) will be – were those procedures adequate?” As to the adequate procedures defense, Vivian Robinson (General Counsel of the Serious Fraud Office) said in an October webcast (here) that because of the defense “there is every reason to be optimistic that we won’t get as a result of the Act and this particular section a huge expanse in the number of prosecutions of corporates.”
As demonstrated by the Innospec matter (see here), the U.K. courts are playing, and rightfully so, a much greater role than U.S. courts in reviewing bribery and corruption cases. I’ve been told that even if the SFO prosecutes a corporate bribery case with an NPA or DPA, the U.K. courts will still play a meaningful oversight role – a role that is unfortunately not true here in the U.S.
In sum, I don’t see how companies already subject to the FCPA and already thinking about compliance in a pro-active manner, have much to worry about when it comes to the U.K. Bribery Act because of the adequate procedures defense.
I will be surprised if U.K. enforcement of the Bribery Act reaches the level of U.S. enforcement of the FCPA and I will be surprised if the U.K. Bribery Act develops outside of the judicial system as has generally been true with U.S. enforcement of the FCPA.