A Focus On Facilitation Payments
This post is all about facilitation payments.
Congress was clear when it passed the FCPA that the statute was not intended to address such payments. For instance, the relevant House Report (H.R. Rep. No. 95-640 (1977)) stated as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt] payments and facilitating payments, sometimes called ‘grease payments,’ … For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by the bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While such payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are no necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
Originally, the FCPA contained an indirect facilitation payments exception through the definition of “foreign official” which excluded from that definition any employee of a foreign government “whose duties are essentially ministerial or clerical.” Among the FCPA’s 1988 amendments was taking this indirect facilitation payments exception from the definition of “foreign official” and establishing a direct, stand-alone facilitation payment exception currently found in the statute.
With that backdrop, two items to highlight. First, recent scholarship from an SEC enforcement attorney on facilitation payments. Second, a Q&A with a member of the Global Steering Team for the recently formed facilitation payment focused anti-corruption industry initiative, Committee to Address Facilitation Payments (C.A.F.P.)
Facilitation Payments Scholarship
Jon Jordan (Senior Investigations Counsel with the FCPA Unit of the SEC) recently published “The OECD’s Call For An End To “Corrosive’ Facilitation Payments And The International Focus On The Facilitation Payments Exception Under The Foreign Corrupt Practices Act” in the University of Pennsylvania Journal of Business Law (see here).
The article gives a basic outline of the FCPA and the facilitation payments exception and explores the history behind the exception. The article then discusses the U.S. pursuit of an international agreement prohibiting foreign bribery and the resulting OECD Anti-Bribery Convention. Next, the article focuses on international and domestic disdain over the issue of facilitation payments during the first decade of the Convention. Then, the article considers the recent OECD Recommendation calling on the prohibition of facilitation payments and the OECD’s recent criticisms of the U.S. with respect to its policies on facilitation payments. Jordan then gives his prediction that the facilitation payments exception will be eliminated and provides his recommendation that domestic companies prohibit the use of facilitation payments in the current global anti-bribery environment.
Jordan’s article is an informative read and this sentence from the article stood out to me. “[W]hile the FCPA contains several core provisions that will always withstand the test of time, the facilitation payments exception is out of date in this modern-day era of commerce and sensibility.”
Q&A With Mike Munro
The Committee to Address Facilitation Payments (C.A.F.P.) is a collection of global companies working together to address the potential future demand/risk of facilitation type payments in a thoughtful, proactive and appropriate manner. It recently released this document and below Mike Munro (Vice President, Associate General Counsel and Chief Compliance Officer, Transocean, and a member of the Global Steering Team for C.A.F.P.) responds to some questions.
Q: Congress chose to exempt facilitating payments from the reach of the FCPA’s anti-bribery provisions. Why then is there a need for CAFP to address facilitating payments?
A: Regardless of whether facilitation payments are allowed by anyone, I am not aware of any company that believes facilitation type payments are positive to business or economic development. All companies want to reduce the risk of potential facilitation payments and clearly the best way to do that is through collective action.
Q: Does CAFP support amending the FCPA to remove the facilitating payments exception?
A: C.A.F.P. is not an organization that would take that type of position. The types of legal changes we are interested in relate to how government processes can be clarified or improved (such as computer automation) to reduce risk or situations that potentially could involve facilitation payments.
Q: To best eliminate facilitating payments in many countries, cultural changes are necessary. Can a committee of multinational companies effectuate cultural change?
A: Cultural change could be helpful in some countries and situations to reduce the potential risk of facilitation type payments and therefore a significant focus of C.A.F.P. is to engage local people and companies in this effort.
Q: It would seem that the best forward-looking solution to reducing the demand for facilitating payments is to increase civil servant salaries in many foreign countries. Do you agree?
A: Increasing civil servants pay could potentially have a positive impact but how positive of an impact would be difficult to determine. Clearly if an individual’s pay is not sufficient to meet daily living requirements, most would agree that there is likely a higher probability of requests or demands, but as indicated above, other factors such as culture, individual integrity norms, etc. do have an impact.
Q: If increasing foreign civil service salaries is a good idea, how can it be accomplished?
A: If a decision was made that increasing civil servant salaries would be helpful, one of the ways to approach that would be to have key companies and industry groups in a particular country approach high level government officials to determine how best to effectuate such a change. The companies and industry groups could then help coordinate that effort with others in that country who have similar interests and views.
The FCPA At Thirty-Five And Its Impact On Global Business
If you live in the Midwest and have an interest in the Foreign Corrupt Practices Act, The Ohio State University Moritz College of Law is the place to be on Friday, March 16th.
I am pleased to have played a role along with Professor Daniel Chow (here – Ohio State) and the staff of the Ohio State Law Journal in organizing “The FCPA At Thirty-Five and Its Impact on Global Business.” The full-day symposium (see here and here for specifics) will convene top government officials, leading academics from both the U.S. and U.K., and experienced practitioners to discuss the many aspects of the Foreign Corrupt Practices Act.
Among the participants will be Carter Stewart (U.S. Attorney for the S.D. of Ohio), Charles Duross (Deputy Chief, FCPA Unit, DOJ), Larry Thompson (former Deputy Attorney General, DOJ; former general counsel of PepsiCo; and currently Professor of Law at the University of Georgia School of Law), and Philip Urofsky (former Assistant Chief of the DOJ Fraud Section and currently at Shearman & Sterling).
The FCPA did not appear out of thin air. As with most new laws, specific facts and policy reasons motivated Congress to enact the FCPA. I will tell the story of the FCPA’s enactment and the discussion will detail the deficiencies in then existing law that motivated Congress to seek legislative remedies to the foreign payments problem; the competing public policy arguments relevant to the foreign payments problem; and the two competing legislative responses to the foreign payments problem and how the political process unfolded.
Symposium panels will include the following: The FCPA and Government, Is the FCPA Effective, The FCPA’s Impact on Global Business, and The FCPA and International Civil Society.
Professor Peter Henning (here – Professor of Law at Wayne State University School of Law, previously an enforcement attorney in the DOJ’s Fraud Section (as well as at the SEC) and writer of the White Collar Crime Watch (here) at the New York Times) will give a keynote address.
To register for the event see here.
Complying With The Foreign Corrupt Practices Act: A Practical Primer
[A new job has been posted to the Jobs Board – see here. Both job seekers and organizations seeking to hire individuals with FCPA or related experience will benefit from a wide selection of job listings, so please spread the word and send the job link to your HR department and professional contacts]
This “new era” of FCPA enforcement has resulted in many things. From my perspective, one of the best things it has resulted in is increased attention of the FCPA and FCPA compliance among academics and students.
The ABA Criminal Justice Section’s Global Anti-Corruption Task Force (here) recently published “Complying With the Foreign Corrupt Practices Act: A Practical Primer” (here). The report is authored by University of Chicago Law Students Salen Churi, David Finkelstein, Joe Mueller; University of Chicago Law School faculty Dean David Zarfes, Michael Bloom, and Sean Kramer; and Corporate Lab participants John Frank and Michel Gahard (both of Microsoft). The University of Chicago Corporate Lab (see here) objective is “to provide students with ‘real-world’ experience and context, to prepare them to become well-rounded legal practitioners with sound legal and business judgment, and to provide them with opportunities to work on cutting-edge projects with multinational companies.”
Among other things, the purpose of “Complying With the Foreign Corrupt Practices Act: A Practical Primer” is to provide “a framework for developing effective [FCPA] compliance programs.” As the report notes, “[t]he available guidance from the government on how to comply with the FCPA’s requirements and prohibitions is extremely limited” and “the guidance that the government has made available is vague, disjointed, and sparse.”
The report contains a comprehensive overview of the “purposes of a compliance program,” the “facets of a compliance program,” “sources of guidance in crafting a compliance program” and various “metrics for an effective compliance program.” However, contrary to the apparent suggestion in the report, the comprehensive FCPA best practices policies and procedures identified do not “protect companies from exposure to [FCPA] liability.”
This big-picture issue was presumably beyond the scope of the report, but it is the issue I addressed in my recent scholarship “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (see here – forthcoming Wisconsin Law Review). The comprehensive FCPA policies and procedures thoroughly discussed in the University of Chicago report should matter, as a matter of law (not merely in the opaque, inconsistent and unpredictable world of DOJ decision making), when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA.
*****
Qualcomm is a company with a long list of awards and recognition (see here) such as a Fortune “most admired company” and a Barron’s “most respected company.” Although the specific facts of Qualcomm’s disclosure are not yet known, on perhaps a related note to the topics discussed above, the company disclosed yesterday in its 10-Q filing (here) as follows. “On January 27, 2012, the Company learned that the U.S. Attorney’s Office for the Southern District of California/DOJ has begun a preliminary investigation regarding the Company’s compliance with the Foreign Corrupt Practices Act (FCPA), a topic about which the SEC is also inquiring. The Company believes that it is in compliance with the requirements of the FCPA and will continue to cooperate with both agencies.”
Year In Reviews
If your idea of a fantastic Friday is reading additional FCPA Year in Review pieces, you are in luck!
My recent piece published in the White Collar Crime Report (see here to download) starts as follows. “For most of the Foreign Corrupt Practices Act’s history, key decisions concerning its enforcement and direction were made behind closed doors around conference room tables in Washington, D.C. While many enforcement decisions and procedures remain opaque, 2011 witnessed the most intense year of public scrutiny in the FCPA’s history.” The article, in addition to providing a brief overview of the 2011 enforcement year, details the scrutiny the FCPA was subjected to in the past year. This scrutiny reveals that as the FCPA nears its 35th year, basic legal and policy questions remain as to the purpose, scope, and effectiveness of the law.”
WilmerHale’s recent Year in Review (here) states as follows. “The most notable development of 2011 is the record level of trials and related litigation, with guilty verdicts returned in the Haiti Teleco cases, a mistrial declared in the trial of the first group of SHOT Show Sting defendants, and the convictions returned in the Lindsey Manufacturing case being vacated and the indictments dismissed as a result of the court’s conclusion that the government had engaged in prosecutorial misconduct.”
Debevoise & Plimpton’s recent Year in Review (here) states as follows. “The adage that ‘things that cannot go on forever will not’ frames an essential theme for analysis of FCPA enforcement in 2011. As the DOJ and SEC turned their sights on a raft of cases against individuals, the monetary recoveries by the U.S. enforcement agencies in 2011 declined significantly from the nearly $1.8 billion recovered in 2010. But in-house counsel and corporate compliance departments would be wise not to take from this singular statistic the message that FCPA enforcement is on the wane. Aside from the fallacy of drawing from one year’s decline in recoveries the conclusion that the government has lost some, or even any, of its ability to extract concessions from errant companies, it is necessary to gauge the effectiveness of the U.S. government’s programs by focusing on the specifics of individual and corporate prosecutions, the less visible ways the enforcement program exerts pressure on companies to upgrade compliance, the effects of new anti-corruption programs overseas and the U.S. effort to foster enforcement by and cooperate with other nations, and, perhaps most important, the pipeline of cases yet to be filed by regulators in the United States.”
Squire Sander’s in-depth Year in Review digest is here.
*****
A good weekend to all.
Revisiting A Foreign Corrupt Practices Act Compliance Defense
I am pleased to share (see here to download) my recent scholarship “Revisiting A Foreign Corrupt Practices Act Compliance Defense” (Wisconsin Law Review, Forthcoming).
The abstract is as follows.
“[N]o compliance program can ever prevent all criminal activity by a corporation’s employees.” (U.S. Attorneys Manual, Title 9, Chapter 9-28.800 – see here)
“There will always be rogue employees who decide to take matters into their own hands. They are a fact of life.” (Assistant Attorney General Lanny Breuer (Jan. 26, 2011) – see here).
The focus of this article is how best to address this “fact of life” in the context of the Foreign Corrupt Practices Act (“FCPA”). This article asserts that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments. This article argues in favor of an FCPA compliance defense meaning that a company’s pre-existing compliance policies and procedures, and its good faith efforts to comply with the FCPA, should be relevant as a matter of law when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA. This article further argues that a compliance defense is best incorporated into the FCPA as an element of a bribery offense, the absence of which the DOJ must establish to charge a substantive bribery offense.
Part I of this article contains a case study to demonstrate the type of conduct that would be covered by an FCPA compliance defense. Contrary to the claims of some, an FCPA compliance defense would not eliminate corporate criminal liability under the FCPA or reward “fig leaf” or “purely paper” compliance programs. A compliance defense would not apply to corrupt business organizations, activity engaged in or condoned by executive officers, or activity by any employee if it occurred in the absence of pre-existing compliance policies and procedures.
Part II of this article places an FCPA compliance defense in the context of the broader issue of corporate criminal liability and acknowledges the work of other scholars and commentators who have called for a general compliance defense to corporate criminal liability. This section channels that work into the specific context of the FCPA and argues that the unique aspects and challenges of complying with the FCPA in the global marketplace warrant a specific FCPA compliance defense.
Part III of this article highlights that an FCPA compliance defense is not a new idea or a novel idea. This section contains an overview of the FCPA legislative history of a compliance defense, most notably the compliance defense passed by the House of Representatives in the 1980’s. The justification and rationale for a compliance defense then pales in comparison to now as most U.S. companies engage in international business during an era of aggressive FCPA enforcement. This section also demonstrates that several countries, like the U.S. that are signatories to the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the “OECD Convention”), have a compliance-like defense in their domestic laws.
Against this backdrop, Part IV of this article details the DOJ’s institutional opposition to an FCPA compliance defense, yet argues that the DOJ already recognizes a de facto FCPA compliance defense albeit in opaque, inconsistent and unpredictable ways. Thus, an FCPA compliance defense accomplishes, among other things, the policy goal of removing factors relevant to corporate criminal liability from the opaque, inconsistent, and unpredictable world of DOJ decision making towards a more transparent, consistent, and predictable model best accomplished through a compliance defense amendment to the FCPA. This section concludes by highlighting the growing chorus of former DOJ officials who support an FCPA compliance defense and argues that the DOJ’s current opposition to a compliance defense seems grounded less in principle than an attempt to protect its lucrative FCPA enforcement program.
Part V of this article concludes by highlighting certain policy objectives advanced by an FCPA compliance defense. This section argues that an FCPA compliance defense will better incentivize more robust corporate compliance, reduce improper conduct, and thus best advance the FCPA’s objective of reducing bribery. An FCPA compliance defense will also increase public confidence in FCPA enforcement actions and allow the DOJ to better allocate its limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engaged in the improper conduct.