A Practical Resource For Managers and Executives
Aaron Murphy (Latham & Watkins – here) has published a new book – “The Foreign Corrupt Practices Act: A Practical Resource For Managers and Executives” (here).
In this Q&A exchange, Murphy describes his book and his motivations for writing it. He also answers a few questions about FCPA reform proposals and the U.K. Bribery Act.
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Having spent several years at a large law firm with an FCPA practice, I know how busy the practice can be. Where did you find the time to write such an extensive book?
I spend a lot of my life on airplanes and in hotel rooms.
This book is different from the treatises and manuals that are already out there. Why did you write this book, and in particular, this kind of book?
There are some good legal treatises and manuals. But they aren’t aimed at educating the managers and employees who can be on the receiving end of an FCPA investigation. My book is written for managers and others who are on-the-ground in foreign countries. I wanted to write an engaging book that changed the kinds of internal questions that get asked about expenses, agents, state-owned entities, and other issues.
The book grew out of the fact that I was having the same conversation with clients and their managers over and over again. It occurred to me that despite sitting through a couple of PowerPoint slides about the FCPA during a compliance training, the managers did not understand how and where bribery occurs.
I’d be interviewing the manger of a company’s foreign operations in a high risk country and have a stack of documents to go through with him. I’d ask him a series of questions about some fairly run-of-the-mill issues – why certain dinners occurred with some government officials, what the thousand dollars of “miscellaneous” expenses on a hotel bill were for, whether the manager ever saw any of the holiday gifts he approved a large budget for – and it would often become clear to me that the manager had no idea that I was asking him about possible bribes. It had simply never occurred to him that there could be FCPA risks associated with any of these kinds of expenses. And those kinds of blind spots existed with managers who supposedly had received FCPA training.
Numerous times people have told me that they remember the FCPA training they had, but that they never thought the Act applied to the kinds of expenses I’m asking them about.
I tried to keep this book tethered to real-world situations. Theoretical discussions and policy debates are interesting and important – and there is some of that in the book – but it doesn’t really help a manager spot concrete issues. It doesn’t tell a manager what to watch out for. And that was the aim of this book.
I think there is plenty to debate about anticorruption enforcement generally, but whether you agree with the DOJ or the SEC’s position on something doesn’t really matter a whole lot when you’re trying to answer a question on a live issue, in real time. Can we make this payment or not? Should we use this agent, despite these rumors? Can I take this guy from a state-owned company out for a round of golf and dinner? Those are real questions. Hard, fact-specific questions that often need to be answered immediately. My goal was to make sure that managers understand that those are the questions they need to ask. Those are the questions they need to get some help answering. Theoretical debates don’t help a manager who is faced with a situation in the real world.
Do you think business personnel are surprised by the breadth of the FCPA, at least as it is interpreted and enforced by the DOJ and SEC?
Absolutely. Everyone thinks bribery is about suitcases full of money. Even though managers get trained and are told it’s much broader, they either don’t hear it, don’t believe it, or just think “Yeah, but it couldn’t happen in my organization.” They walk out of the training and it’s business as usual. Senior executives back at headquarters think everything is fine because their people have all been shown some slides with FCPA language. But there’s often a fundamental disconnect between the training and life on the ground in a company’s foreign operations.
I kept thinking there had to be a better way to help companies train their people on the front end, so I would quit having those conversations on the back end, after violations have already occurred.
I set out to write a book that was non-technical. A book that was practical. Something that takes managers – and I use that term loosely, meaning anyone who is in charge of other people – through all of the areas where FCPA issues typically come up and show them how they come up. I wanted something that gave managers a guided tour of the kinds of things FCPA practitioners see everyday.
What do you think is behind the inadequacy of much FCPA training?
I think it’s mostly a function of resources. I’m really sympathetic to in-house compliance personnel who are tasked with FCPA training. Usually, FCPA is just one of several areas they’re responsible for, and their organization is spread out over ten, twenty, fifty, or a hundred countries. It just becomes impossible for them to get out there and directly train all of their company’s employees. And, with constant turnover, acquisitions, mergers, it’s a never-ending task. New people are always joining a large organization. And FCPA training is just one of the things they have to do.
So you see the FCPA getting a few slides in a much larger PowerPoint that tries to cover insider trading, antitrust, OFAC and money laundering issues, regulatory issues, and all kinds of other stuff. Employees walk out with a glazed look on their faces and they haven’t really learned anything.
I wanted to help solve that problem. Here is something that companies can make required reading for all finance people and every manager over a certain level. Put it in their new hire package. Make them sign a certification that they’ve read and understood it, and put that in their personnel file. Then companies at least have documentation that the people charged with overseeing their business really were trained in detail. It hopefully gives companies some protection down the road if there is a problem, and, most importantly, it will educate employees about how the FCPA works and how FCPA compliance issues come up in the real world. If it does that, the book isn’t just insurance against future violations, it will actually result in compliance.
Plus, making the book required reading sets expectations and sends a serious message to management that this is an issue the company cares about.
In terms of FCPA compliance, one often hears about “tone at the top.” Is this just a buzzword or do you think it has real-world application?
I think it’s extremely important with an issue like bribery. Small shifts in attitudes can have huge consequences. I think just making off-hand jokes along the lines of “we all know how it is in Country X” sends a powerful message that low-level regulatory bribery is okay. Meaning, as long as we’re not talking about suitcases full of cash, it’s no big deal, no one is really going to get upset about it.
But regulatory issues can be huge. Just look at the recent Panalpina settlements.
At the end of the day, my mantra is this: Companies don’t pay bribes. People do. The best thing a company can do is to train its people by showing them how real world situations affect them. That’s what this book is about.
There is a lot of talk these days about FCPA reform. What are your thoughts on this issue?
Well, it makes for good controversy, but I always say that no politician ever got elected by saying it was time to get soft on crime. Certainly not a pro-corruption platform. So I think there’s very little chance of any overhaul that is going to make compliance easier on companies. That said, there may well be some chance for clarifying legislation.
Everyone out there lobbying for reform needs to be very careful what they wish for. Corruption is a topic that makes for good headlines and politicians love good headlines. It’s not hard to imagine a politician who doesn’t care too much about the FCPA trying to do away with facilitating payments, or press for more severe jail time, just to make a name for themselves. So as I see it, there’s a risk that any reform process could get hijacked, and we could end up with a statute that looks more like the UK Bribery Act. Although that might not be a bad thing if US companies could get a very solid and clear adequate procedures defense out of it.
Although, as you know because you were there at the recent Senate hearings, the DOJ’s current position is that it’s not interested in what it views as a compliance amnesty program. I suspect we’re stuck where we are for the time being. Although the forthcoming enforcement of the UK Bribery Act will keep things interesting.
If the DOJ is enforcing, in many cases, a statute in a way that Congress did not intend, why is this a political issue? Can any legislative reform proposal address this structural issue?
These things are always ultimately political. There’s no question that DOJ has an aggressive interpretation of certain FCPA provisions. Whether DOJ is transcending Congressional intent or not is no different from any other problem of interpretation. The difference in the FCPA context, as you have raised in your work, is that there is only limited judicial oversight of those interpretations because so few of these matters ever get litigated. And while that point is well-taken, many courts might well interpret the FCPA the same way DOJ interprets it. So my view is that whether we take issue with DOJ’s interpretation or court interpretations, the solution always becomes a political issue. Congress is aware of the DOJ’s view and can take steps to modify or clarify the statute if it disagrees with that view, the same as it can and often does when it dislikes court interpretations of any other statute.
Now, whether any Congressional solution would result in anything better than what we currently have is anyone’s guess.
Do you think the UK Bribery Act is going to be a real game-changer? A lot of people are talking about the lack of a facilitating payments exception. Do you think the landscape is going to be very different once the Bribery Act comes into force?
I actually think that the biggest effect that it’s going to have is that it’s going to force large British companies that may not have focused on corruption issues before to finally have to focus on them. But for most multinationals – many of whom will be subject to both the FCPA and the Bribery Act – I think the landscape stays largely unchanged. The biggest deal for them is going to be getting an adequate compliance program in place.
The underlying ways in which bribery occurs inside of companies will remain the same. The controls and procedures that can address bribery will also remain the same. At the margins, there are some obvious differences between the FCPA and the Bribery Act, but the conduct they cover is mostly identical.
A lot of people have been talking about the different treatment of facilitating payments. I don’t think that’s nearly as big of a deal as the other main difference, which is the criminalization of private conduct. The UK statute explicitly looks to whether a relevant function of an employee’s job has been performed improperly as a result of a payment or gift. Who defines what the proper performance of an employee’s job is? The employer, of course.
So has the UK Bribery Act essentially transformed employee manuals and company policy manuals into de facto statutes? Improperly perform your job in violation of your company policy and you’ve committed a crime under British law? I see a potentially serious problem there. After all, many companies have policies that prohibit their employees from giving or receiving gifts from people with whom they do business. Do they need to think more carefully about what they put in those policies in light of what the UK Bribery Act does with them?
Examining Enforcement of the FCPA
It was a honor to participate in yesterday’s hearing “Examining Enforcement of the FCPA” before the Senate Subcommittee on Crime and Drugs chaired by Senator Specter.
See here for C-SPAN coverage of the hearing.
See here for the prepared statement of Greg Andres (DOJ).
See here for my prepared statement.
See here for Andrew Weissmann’s prepared statement.
See here for Michael Volkov’s prepared statement.
Guiding Words
FCPA reform proposals circulating on what seems like a weekly basis.
Claims that the FCPA is bad for business.
Questions about how the FCPA enforcement agencies resolve matters.
In some circles these valid and legitimate questions or calls for reform are being met with claims that some want to weaken the FCPA and pave the way for corporations to go on a bribery binge.
Within days of the U.S. Chamber of Commerce sponsored piece (here – I will do a separate post on this in the near future) various commentators assailed mere discussion of reforming the FCPA as being pro-bribery.
For instance, Keith Olbermann began his October 27th MSNBC Countdown program as follows: “The plot to buy America. U.S. Chamber of Commerce job one: It wants the Congress it thinks it‘s going to buy to roll back enforcement of the anti-bribery Foreign Corrupt Practices Act.” Later in the program Olbermann noted: “The Chamber of Commerce—the U.S. Chamber of Commerce, the biggest secret right-wing ad buyer, today released a report calling for weakening the FCPA. What the hell‘s that? The Foreign Corrupt Practices Act, which punishes American businesses for bribing officials overseas. Quote, “Unfortunately for the business community, an active FCPA enforcement environment appears likely to continue.” The chamber wants to make it easier for American companies to do business with corrupt officials, even, quote, “in countries where many companies are state owned, e.g., China.” Later in the program, Olbermann stated as follows: “I mentioned the U.S. Chamber of Commerce and this call on the new Congress to make it easier for rich Americans to bribe officials overseas and then get away with it if they‘re caught—which seems to sort of represent part of the American spirit, in a bizarre way.”
It is unfortunate that any discussion of examining and perhaps reforming the FCPA, or more importantly FCPA enforcement, is met in some circles with naive and reactionary claims of being “pro-bribery.”
In many ways, we are back to the 1980’s.
In 1980, Congress set about amending the FCPA. The FCPA, at that time: contained a broad “reason to know” knowledge standard as to indirect payments to “foreign officials;” no affirmative defenses; and no express facilitating payment exception.
It took Congress eight years to wrestle with the issues and the FCPA was finally amended in 1988.
In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill “provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”
In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: “We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”
During the hearing, Senator Chafee further stated as follows: “Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”
During Senate hearings, Senator D’Amato noted as follows: “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”
Senator D’Amato further stated as follows. “I think it is very important that in the committee’s work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any ‘gray area’ by clearly spelling out the limits of the law.”
During Senate hearings, Senator John Heinz stated as follows. “… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”
During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: “Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption.”
The interesting thing about these representative comments is that they occurred during an era when the FCPA was, for all practical purposes, not even enforced!
As noted in yesterday’s post, we are, in the words of Assistant Attorney General Breuer, in a new era of FCPA enforcement.
Part of this new era should be a renewed effort to examine the FCPA and more importantly FCPA enforcement.
The above comments from the 1980’s should serve as useful guiding words.
The FCPA and Potential Reforms
Last week’s U.S. Chamber of Commerce Annual Legal Reform Summit included a panel titled: “Navigating a Global Marketplace — Foreign Corrupt Practices Act and Potential Reforms.”
Amanda Ulrich (here), an associate in the New York office of Debevoise & Plimpton, LLP, provides a summary in this guest post.
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The recent expansion of FCPA enforcement and new FCPA-related bounty provisions in the Dodd Frank Act had audience members thoroughly engaged as an impressive assembly of speakers from the public and private sectors gathered to discuss these issues at the United States Chamber of Commerce’s Annual Legal Reform Summit last week.
Michael B. Mukasey, former Attorney General of the United States and current partner at Debevoise & Plimpton LLP, introduced and moderated a panel that also included John S. Darden, former Assistant Chief of the Fraud Section of the Department of Justice (“DOJ”) and currently a partner at Patton Boggs, LLP, Cheryl J. Scarboro, Chief of the FCPA Unit within the Division of Enforcement at the U.S. Securities and Exchange Commission (“SEC”), George J. Terwilliger III, former DOJ Deputy Attorney General and currently global head of the White Collar Practice Group of White & Case LLP, and Andrew Weissmann, former Chief of the Criminal Division of the U.S. Attorney’s Office for the Eastern District of New York and Co-Chair of the White Collar Practice at Jenner & Block LLP. The audience was treated to a vigorous debate on FCPA enforcement between representatives of the private sector who called for more clarity and predictability in enforcement, and individuals arguing the federal government’s perspective, looking to level the playing field for business through increased enforcement and increased cooperation among foreign and domestic agencies.
The discussion opened with remarks by Judge Mukasey, who commented that the rapid expansion of FCPA enforcement in the United States since 2004 has brought increased anxiety to companies, which are concerned about competitive disadvantages in the global business environment. Judge Mukasey suggested, however, that this anxiety should be tempered by the fact that 34 countries have signed on to the Organization of Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Transactions. He noted further that although the United States remains in the forefront of enforcement, with the UK’s Anti-Bribery Bill coming into effect next year, there is a global trend towards more vigorous enforcement of anti-bribery laws.
Expanding Views on Jurisdiction have led to Global Enforcement by the DOJ
Mr. Darden presented the DOJ’s perspective on the expansion of FCPA enforcement, and explained that, since 2005, the DOJ’s Fraud Section has concluded more than 40 criminal FCPA matters and collected over $2 billion in criminal fines. He noted that the six largest FCPA investigations have been resolved in the past 22 months, that more than 75 individuals have been criminally charged with FCPA violations since 2005, and that more than 45 of those individual prosecutions have taken place in the past two years. These statistics dwarf those of the first thirty years of FCPA enforcement.
According to Mr. Darden, the recent surge in enforcement is the result of an expanding view of jurisdiction by the government, as applied to both corporations and individuals. For corporations, the FCPA applies not only to U.S. corporations and foreign companies whose shares are traded on U.S. exchanges and regulated by the SEC, but also individuals and companies that take any action in the United States in furtherance of a bribery scheme. As a result of a more expansive jurisdictional reach, Mr. Darden argued that the idea that U.S. companies are disadvantaged by stringent FCPA provisions has been turned on its head; he noted that five of the six largest FCPA actions have involved foreign corporations.
Mr. Darden pointed out that the expanding fight against bribery has extended beyond the scope of the FCPA itself. Although the FCPA punishes only the payor (as opposed to the Federal Anti-Kick Back Law, which punishes both the payor and the payee), at least two FCPA-related cases in the last few months have involved charges against foreign officials under other statutes.
SEC stepping up enforcement, increasing cooperation with other agencies, but approaching remedies with more flexibility
Ms. Scarboro described the FCPA program at the SEC, where, she noted, FCPA enforcement has been a high priority for quite some time. In 2010 alone, with several cases still ongoing, the SEC has settled with 11 corporations and 7 individuals, recovering over $400 million in disgorgement and civil penalties.
Ms. Scarboro reminded the audience that the SEC has reorganized its efforts and now has a dedicated unit focused exclusively on combating foreign bribery. She said that the division has become smarter, more proactive, and more internally coordinated; the unit has also increased the SEC’s coordination with the DOJ. In addition, there have been more coordinated efforts with investigative authorities in other countries, including in connection with the Siemens investigation and this year’s Innospec case. Ms. Scarboro said that the SEC and the DOJ have been at the forefront of enforcing this country’s OECD obligations and have begun encouraging and engaging international counterparts in the pursuit of anti-bribery enforcement.
Ms. Scarboro emphasized that the SEC will continue to pursue disgorgement of profits in its FCPA investigations, and also explained that the SEC has begun to focus on industry-wide corruption, taking individual instances of bribery and investigating whether patterns emerge within a given industry. The SEC has stepped up its pursuit of individuals, she said, viewing enforcement against individuals as a better deterrent than enforcing sanctions against a company.
The SEC has pursued a more flexible approach to remedies in its investigations. To encourage cooperation by businesses under scrutiny by federal agencies, Ms. Scarboro explained, the SEC has begun pursuing deferred prosecution and cooperation agreements with companies that voluntarily report and cooperate with the SEC. She said that the SEC fashions relief on a case-by-case basis, given that the facts and circumstances of each case, as well as the level of cooperation, differ significantly, and the SEC considers a broad range of factors in determining the relief in each case.
Calls for Reform from the Private Sector
Andrew Weissman has written critically about the statute in the past, and recently released an article, sponsored by the U.S. Chamber of Commerce’s Institute for Legal Reform, calling for specific reforms to the statute. Mr. Weissmann expressed concern that, because the vast majority of FCPA-related cases against corporations, like those involving allegations of other criminal law violations, are settled without trial, the DOJ and the SEC serve as the judge and jury; thus, there is no meaningful way to question their interpretation of the FCPA’s grey areas.
Mr. Weissman’s second major stated concern was that, due to the lack of clarity in enforcement, companies are less likely to pursue business opportunities in countries seen as highly corrupt, such as China, where the risks of running afoul of the FCPA are high. The potential for FCPA enforcement hangs over such business ventures, and Mr. Weissman characterized this as a tax on companies looking to do business abroad.
Mr. Weissman encouraged the United States to adopt a provision similar to one contained in the UK’s Anti-Bribery Bill, which, when it becomes effective in April 2011, will provide a defense to enforcement actions for companies that devote “adequate” resources to creating and enforcing anti-bribery procedures. Mr. Weissman suggested that the British statute recognizes the limitations of what a corporation can do about the actions of its individual employees.
Mr. Weissman also called for more clarity with respect to what constitutes an “instrumentality” of a foreign government, light-heartedly suggesting that almost everyone in China is an instrumentality of the government. Mr. Weissman fears that, without more clarity, a business would not know whether it could take someone employed at General Motors out to dinner (as the U.S. government is now a shareholder). Similar arguments might apply to hospitality provided to an employee of Bloomberg (as New York Mayor Michael Bloomberg owns 85% of that company), or a Professor at Columbia (a school that receives public grants).
Judge Mukasey noted that the United States has a facilitation payment exception that the UK statute does not have, but Mr. Weissman described the facilitation payment exception as very narrow, and limited to grease payments that expedite inevitable occurrences. Judge Mukasey characterized this exception as applying to payments that help a company to “move up the list” toward an approval it would obtain in any event as opposed to helping a company “get on the list.” Mr. Weissman also noted that there is no de-minimis exception in the FCPA, putting companies at risk of FCPA violations even for very minor favors or transactions.
Although the new UK statute goes beyond the FCPA in some ways – including its extension to commercial bribery – Mr. Weissmann believes that the availability of the “adequate procedures” defense makes that statute more reasonable than the FCPA.
The intent standard applied in FCPA enforcement actions also concerns Mr. Weissman. For individual prosecutions under the FCPA, he explained, the intent standard is “willfulness,” which is considerably more stringent than the “knowing” standard applied to corporations. The “knowing” standard, Mr. Weissman argued, makes doing business in certain countries very risky, as the act in furtherance of the bribery needs to be only an intentional act, that is, not one that is a mistake.
Anomalies Resulting from Increased Enforcement
Mr. Terwilliger began his discussion of anomalies in increased enforcement by noting that U.S. companies are devoted to free market principles, and that corrupt markets are not free – a principle sufficient to justify anti-bribery enforcement but not necessarily sufficient to justify uneven enforcement.
Mr. Terwilliger outlined problems with what he described as the great leverage held by the DOJ and the SEC in FCPA enforcement: few trials (almost no trials involving corporate defendants) and no body of jurisprudence governing the field, which results in no real opportunity for corporations to contest the government’s decision to pursue an FCPA enforcement action.
Although prosecutors stress the benefits of self-reporting and internal investigations, Mr. Terwilliger expressed an ongoing concern of many corporations that plaintiff’s lawyers representing shareholders and sometimes competitors have begun to latch on to those self-reports in pursuing litigation against companies who report bribery activities.
Similarly, Mr. Terwilliger explained that, in his view, the new bounty provisions of the Dodd Frank Act, which provide for recoveries of up to 30% of settlements with the SEC in excess of $1 million, misalign incentives that are crucial for successful self-reporting. The best source for self policing bribery issues are a company’s employees, and as such, companies are now required to rely on people who have financial incentive to go directly to the government to report these issues. Mr. Terwilliger said he viewed this as a major concern given that a company’s willingness to self-report is often a consideration in the remedies pursued by government agencies.
Incentives for Self-Reporting
Mr. Terwilliger argued that the incentives for companies faced with potential FCPA violations are also skewed in the self-reporting context. The better the procedures to detect bribery, the more likely the company will be to uncover bribery and face the decision of whether or not to self-report. Rather than being rewarded for voluntarily rooting out bribery problems, companies are often faced with costly punishment, an anomaly that weighs heavily in the board room when determining whether to self-report. Mr. Terwilliger called for the creation of a presumption of non-criminal disposition and reduced penalties for companies voluntarily reporting FCPA violations. Judge Mukasey added that such an approach could help lawyers in advising their clients on FCPA compliance policies.
Mr. Darden responded that the DOJ would see this as an unnecessary step, because the program is working well without such a “carrot.” Characterizing Mr. Terwilliger’s suggestion as amnesty and comparing it to the anti-trust division’s amnesty program, Mr. Darden said that the DOJ does not need companies to come forward and voluntarily report, whereas the anti-trust division’s amnesty policy is justified by the fact that it is impossible to investigate a cartel without one member of that cartel coming forward. Mr. Darden said that additional carrots are not needed in anti-bribery enforcement, as companies have shown that there is enough incentive to come forward.
Mr. Terwilliger argued that, in his experience with certain long-running voluntary FCPA investigations, it would have been impossible for the DOJ to gather the same evidence as was gathered in a voluntary investigation, and said that the anti-trust program is a very good analogy to the DOJ’s program. He also noted that he was not discussing amnesty, but rather a reduced penalty that would give the company better incentives to self-report.
Mr. Darden and Ms. Scarboro both stated that only about one-third of FCPA investigations are voluntarily reported to the DOJ or the SEC, but the proportion of cases that are resolved with cooperation of the companies being investigated is much higher than one-third, and in those cases that cooperation factors significantly into the remedies the agencies seek.
Ms. Scarboro noted that the U.S. Sentencing Guidelines, which the DOJ uses (and courts apply) in assessing fines for FCPA violations, provide for downward departures, and the availability of non-prosecution agreements gives the DOJ added flexibility. While other enforcement models, like the UK’s, provide for the negotiation of remedies prior to the investigation, the U.S. model gives federal agencies discretion to account for a variety of facts and circumstances after an investigation to assess the proper penalty. The SEC, for example, in determining whether to bring an action against a corporation, considers the corporation’s cooperation in the investigation and its remediation efforts in determining what remedies the SEC will seek, if any.
Ms. Scarboro noted that, in many cases, the level of cooperation is sufficient that the SEC will not initiate a full investigation. Those cases are generally not publicized in order to avoid unwanted publicity or embarrassment for the cooperating companies. Mr. Darden echoed that sentiment, and said that, while some companies affirmatively publicize their avoidance of FCPA charges, in many cases when the DOJ determines not to pursue charges, companies do not want the publicity of the DOJ’s decision not to prosecute or investigate, because that publicity could give rise to the need to issue a new 8-K.
During a Q&A period, Mr. Darden stated that the Federal Prosecution Principles, which were supposed to add clarity, have in some cases raised more questions than answers. In an attempt to give more clarity, especially in the area of compliance, the Prosecution Principles fail to give guidance about the type of cases the DOJ seeks to pursue. For example, the DOJ cares less about a company with some far flung employee who did not “get the memo” on the company’s anti-bribery compliance policy, than it does about a higher level corporate employee generating phony documents. Mr. Darden said that the failure to distinguish these schemes is a weakness in the Federal Prosecution Principles and is driving a need for more clarity.
Conclusion
Although the private sector has called for reform, the federal agencies responsible for FCPA enforcement have signaled no reversal of the trend of increased enforcement of the FCPA against companies and individuals at home and abroad.
Digi’s Disappearing Act … And A Proposal
SEC filings are carefully crafted, tightly worded documents created by in-house specialists and often vetted by outside professionals. In short, precise words matter in SEC filings.
In a July 22nd 8-K filing (here), Digi International Inc. provided an update on its previously disclosed FCPA internal investigation including this statement: “[t]he investigation also identified certain books and records and related internal controls issues under the FCPA.” (emphasis added).
Given the above wording, it would seem reasonable to conclude that the company (with the assistance and input from outside counsel) identified conduct that implicated the FCPA. Why else would the disclosure contain the clause “under the FCPA”?
Fast forward to August 2nd when the company issued a press release (here) stating, in reference to the July 22nd 8-K and the investigation, that: “Digi has now received confirmation through discussions with representatives of the DOJ and the SEC that they will not be initiating any enforcement proceedings against Digi.”
That’s quite the disappearing act. And a quick one at that.
As noted in a prior post (here) Digi is “the leading supplier of multifunction communication devices to the U.S. Federal Government.”
FCPA enforcement (or lack of enforcement in this case) is already largely an opaque process and Digi’s curious disappearing act serves as another example for why transparency and accountability in FCPA enforcement is needed.
So here is my proposal to shed more light on the DOJ and SEC’s enforcement of the FCPA.
In instances such as Digi (i.e. when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC and when the DOJ and the SEC decline enforcement) require the DOJ and the SEC to publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.
Here is why I think the proposal makes sense and is in the public interest.
For starters, the DOJ and the SEC are already wildly enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both agencies are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ or SEC speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at both agencies when it comes to the FCPA.
Further, both the DOJ and the SEC have the resources to accomplish this task. Both agencies have touted the increased FCPA resources in their respective offices and the new personnel hired to focus on the FCPA. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable.
Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release (see here) a process the DOJ frequently urges those subject to the FCPA to utilize.
Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has 30 days to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA.
The DOJ’s opinions are publicly released (see here for the most recent one) and the FCPA bar and the rest of FCPA Inc. study these opinions in great detail in advising clients largely because of the general lack of substantive FCPA case law.
If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct
Such agency opinions would seem to be more valuable to those subject to the FCPA than the already useful FCPA Opinion Procedure Releases. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.
Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.
(For more on the important voluntary disclosure decision and the role of FCPA counsel see here.)
Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advises clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA. Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.
A final reason in support of the proposal is that it would give companies such as Digi a benefit by contributing to the mix of public information about the FCPA.
In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent millions investigating and disclosing conduct that the DOJ and the SEC did not conclude violated the FCPA.
However, if the enforcement agencies were required to publicly justify their declination decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies declination decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ and the SEC’s enforcement conclusions.
Transparency, accountability, useful guidance, a return on investment.
All would be accomplished by requiring the enforcement agencies to publicly justify a declination decision in the limited instances where no enforcement action follows a voluntary disclosure.