Potpourri
Neither Admit Nor Deny Headed to Second Circuit
It is not an FCPA enforcement action, but Judge Rakoff’s recent rejection of the SEC’s neither admit nor deny settlement policy in the Citigroup case (see here) is certainly relevant to the SEC’s enforcement of the FCPA. Yesterday, the SEC filed a notice of appeal in the Second Circuit. This will certainly be an issue to watch in the New Year as the SEC’s resolution policy (”hallowed by history, but not by reason” in the words of Judge Rakoff) goes before the Second Circuit. See here for Robert Khuzami’s (Director of the SEC Division of Enforcement) statement on the appeal and here for a recent speech delivered by Khuzami in which he talks, in part, on the SEC’s resolution policy. In yesterday’s statement, Khuzami said that the “new standard adopted by [Judge Rakoff] could in practical terms press the SEC to trial in many more instances ….”. Jesse Eisinger (ProPublica) asks here does the SEC have trialphobia?
SEC Launches FCPA Site
The SEC recently launched, apparently with little fanfare, a specific FCPA site – see here. The site contains a list (and in some cases a summary) of SEC FCPA enforcement actions from 1978 to the present, including (for most actions) links to original source documents. Kudos to the SEC for this FCPA specific site. The DOJ’s FCPA specific site is here. Both of these resources, along with others including two new resources mentioned below, can be found on the “Resource Center” pageof this site.
Big, Bold, and Bizarre
One thing academic publishing is not is fast. Those cite-checking parties and author revisions take time. In any event, before the calendar flips to 2012, I am pleased to share my recent article “Big, Bold, and Bizarre: The Foreign Corrupt Practice Act Enters A New Era” published by the University of Toledo Law Review. The article can be downloaded here and it is, for the most part, a review and analysis of 2010 FCPA enforcement actions and related developments (current as of January 15, 2011). For collectors of FCPA Year in Review pieces, my review and analysis of 2009 FCPA enforcement actions and related developments published by the Indiana Law Review can be downloaded here.
Decision Tree
In this first-of-its-kind FCPA/Travel Act “decision tree,” Perkins Coie Partner and former federal prosecutor T. Markus Funk provides in-house counsel and others in the anti-bribery space with a handy, practical analytical tool for walking through the standard range of foreign (and domestic) bribery issues that may come up. Markus, an FCPA practitioner and who serves as the National Co-Chair of the ABA’s Global Anti-Corruption Task Force, included not only the steps to FCPA liability, but he also integrated the Travel Act’s prohibitions into the comprehensive analysis. This is a very useful one-stop chart for anyone involved in FCPA issues or likely to encounter foreign bribery issues.
FCPA Database
Richard Cassin of FCPA Blog fame, along with his partners at Ethics360, recently launched the FCPA Database – see here. On his FCPA Blog (here) Cassin notes that the FCPA Database is “a unique suite of products designed to aid today’s compliance professionals.” The FCPA Database includes a searchable collection of current anti-corruption legislation from over 130 countries, information regarding anti-money-laundering laws, privacy laws, enforcement agencies, and a directory of more than 2,000 law firms, and about 1,000 law firm memos on anti-corruption enforcement and compliance. I’ve spent some time in the database and feel like the holidays have come a bit early as it is a useful research and learning tool.
Bourke Follow-Up
This previous post discussed the Second Circuit’s opinion this week in the Bourke matter. The post ended by noting that Bourke still had a motion for a new trial pending, but that it was unlikely Judge Scheindin (S.D.N.Y.) would grant that motion. The FCPA Blog reports here that Judge Scheindin denied the motion for a new trial.
New York City Bar Association Recommends Reassessment Of The FCPA – “While The Task Is Daunting And The Discomfort Of Admitting That The Current Approach Has Significant Flaws Is Unavoidable, That Does Not Mean That Action Should Not Be Taken”
Last Friday, the International Business Transactions Committee of the Association of the Bar of the City of New York released (here) a report titled “The FCPA and its Impact on International Business Transactions – Should Anything Be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?”
The report explores the FCPA and FCPA enforcement, in part, from an economic perspective and states as follows. “Companies that are subject to the FCPA—including all U.S. companies and non-U.S. companies that have equity securities listed on a U.S. exchange—have become increasingly wary of purchasing businesses that have not operated under the Act for fear of acquiring very costly liabilities. Similarly, companies that are not subject to the FCPA express substantial reservations about engaging in transactions that would bring them under the Act’s jurisdiction, including listing their equity securities on a U.S. exchange through an IPO or capital raising transaction or by acquiring a U.S. company in a stock-for-stock merger or exchange offer. The effects of the FCPA on transactions are manifested principally in (1) transaction costs (e.g., increased due diligence efforts), (2) post-transaction integration costs (e.g., adding appropriate FCPA compliance procedures to an acquired company or across a company that was not previously subject to the FCPA), (3) the increased risk of exposure to an enforcement action and related costs (e.g., internal investigations and fines) and (4) as a result of the foregoing and other effects of the FCPA, the nonpursuit or abandonment of transactions that otherwise would have been completed. These FCPA-driven costs and considerations put companies covered by the FCPA (mostly U.S. companies and large, mature European companies) in a distinctively different regulatory position as compared to their non-covered competitors. In our experience, and in particular, recently, this asymmetry in regulation has had significant direct and indirect effects on companies subject to the FCPA as well as knock-on effects on the U.S. markets more generally.”
Noting the rise in FCPA enforcement, including fine and penalty amounts, the report states as follows. “These developments raise various questions: Why has the FCPA become an increasingly important factor in international transactions? What effect is the FCPA having on the various participants in the international transactions arena, including governments, companies subject to the FCPA and companies not subject to the FCPA? What changes, if any, should be made to the U.S. approach to combating foreign corruption? This paper explores these questions and concludes with the findings that (1) the United States has pursued, and is currently pursuing, a virtually stand-alone approach to deterring foreign corruption (at least in terms of enforcement activity and the significance of fines and other sanctions), (2) this approach places significant costs on companies that are subject to the FCPA as compared to their competitors that are not—i.e., there is a significant asymmetry in regulation and enforcement—and (3) if these circumstances are unlikely to change (e.g., through a substantial portion of other relevant countries adopting similar enforcement postures), the United States should reevaluate its approach to the problem of foreign corruption.”
The report explores “three elements to the current approach to FCPA enforcement that are helpful in understanding the costs, risks and other constraints that the FCPA places on U.S. regulated companies vis-a-vis their non-U.S. regulated competitors: (1) the U.S. enforcement agencies’ expansive reading of the scope of the FCPA (both in terms of conduct and jurisdiction), (2) the limited checks on FCPA enforcement (whether judicial or otherwise) and (3) the massive size of the potential direct costs (e.g., fines, sanctions and defense and compliance costs) and indirect costs (e.g., reputational effects and “debarment” from current or future government business) of avoiding or defending an actual or threatened enforcement action.”
A section of the report explores the “asymmetric approach to enforcement” (between the U.S. and other countries) on both private and public actors by using game theory and the “prisoner’s dilemma.” For example, the report states that “if multiple countries ‘agree’ to craft and enforce anti-corruption statutes and some countries make it clear that they will enforce the laws zealously (‘the enforcers’), there are significant incentives for other countries (the ‘non-enforcers’) not to implement or not to enforce their anti-corruption laws.” Such an analysis, according to the report, invites a fundamental question – “why does the United States, almost alone, impose the costs of being an ‘enforcer’ on U.S. firms and the non-U.S. firms that choose to register their securities in the U.S.?”
As to changes to the FCPA, the report details the U.S. Chamber’s FCPA reform proposals as articulated by former Attorney General Michael Mukasey in Congressional testimony and states that Mukasey’s suggestions “would be very beneficial, but they may not go far enough” because “the limited amount of judicial oversight or other checks on enforcement or any mechanism for ensuring a convergence of international enforcement efforts would continue to be problematic.”
The report ends with a section titled “a call for analysis and action.” The section “is not offered in praise of a ‘lighter touch’ on bribery” nor does the section “advocate any specific policy proposal.” Rather the section states as follows. “(1) the competitive landscape of the 21st century global economy warrants the reevaluation of the United States’ strategy in fighting foreign corruption, (2) the current anti-bribery regime—which tends to place disproportionate burdens on U.S. regulated companies in international transactions and incentivizes other countries to take a “lighter touch” —is causing lasting harm to the competitiveness of U.S. regulated companies and the U.S. capital markets and (3) even putting aside the disproportionate costs borne by U.S. regulated companies, the continued unilateral and zealous enforcement of the FCPA by the United States may not be the most effective means to combat corruption globally—in fact, in some circumstances it may exacerbate the problem of overseas corruption.”
Switching from the “analytical to the proactive,” the report discusses ways in which the U.S. could address the enforcement asymmetry. Specifically, the report states that “the United States could intensify the regulatory scrutiny of firms not currently subject to the FCPA through various means, including (1) convincing a substantial number of key countries to enact and enforce regimes that are as rigorous and punitive as the FCPA, or (2) unilaterally expanding U.S. jurisdiction to cover as many companies as practicable.” However, the report states that these options are either difficult, not practicable or not possible.
“Alternatively,” the report states that “the United States could take steps to reduce the regulatory costs for firms currently subject to the FCPA without undermining any of the Act’s fundamental objectives. For example, the U.S.
could decide to (1) dial back the scope of FCPA enforcement with respect to companies and focus more on individuals engaged in foreign corruption, (2) encourage other countries to do the same and (3) agree with other countries to cooperate on international matters such as information sharing, investigations, and extradition.” Yet, the report acknowledges the “political difficulties” as to these alternatives.
The report then states as follows. “While the task is daunting and the discomfort of admitting that the current approach has significant flaws is unavoidable, that does not mean that action should not be taken. Any such action should begin with an assessment of the current circumstances and a recognition that, in today’s global economy, meaningful international alignment of the world’s leading economic powers is a necessary condition for combating foreign bribery.”
The report concludes as follows. “While accepting and fully embracing the ultimate policy goal of the FCPA—the prevention of corruption worldwide—the purpose of this article is to call for an assessment of (1) the ability of the United States to achieve that goal unilaterally and (2) the direct and indirect costs of continuing such an effort. This paper has identified several factors, including the incentives of the various participants and the decrease in the relative importance of the U.S.-regulated companies in the international marketplace, that strongly and clearly suggest that the United States cannot continue to do it alone. The costs of pursuing such an approach are substantial and, in certain cases, irreversible and, consequently, a realignment of the U.S. position in the global anti-bribery enforcement regime is necessary.”
Globalized Corporate Prosecutions
Brandon Garrett (Professor of Law at the University of Virginia School of Law – here) has released a preliminary draft of an article scheduled to be published in the Virginia Law Review in December. The article (here) is titled, “Globalized Corporate Prosecutions” and the abstract is as follows.
“In the past, domestic prosecutions of foreign corporations were not noteworthy. This has changed dramatically. Federal prosecutors now advertise a muscular approach targeting major foreign firms and even entire industries. High-profile prosecutions of foreign firms have shaken the international business community. Not only is the approach federal prosecutors have taken novel, but corporate criminal liability is itself a form of American Exceptionalism, and few other countries hold corporations broadly criminally accountable. To study U.S. prosecutions of foreign firms, I assembled a database of publicly reported corporate guilty plea agreements from the past decade. I analyzed U.S. Sentencing Commission data archives on federal corporate prosecutions and also data concerning federal deferred and non-prosecution agreements with corporations. Not only are large foreign firms prosecuted with some frequency, but they typically plead guilty and are convicted. In this Article, I develop how foreign corporate convictions have become common in distinct substantive criminal areas, but the trends and types of foreign corporate prosecutions share important features in common. The prosecutions are concentrated in crimes prosecuted by Main Justice, and international treaties and cooperation agreements have facilitated extraterritorial prosecutions. Larger and public foreign firms are prosecuted, and the typical resolution involves not only higher than average fines, but also a guilty plea and not pre-indictment leniency. I argue that due to their new prominence, we should consider foreign corporation prosecutions as a group so that we can better evaluate and define the emerging prosecution approach.”
While not specific to the FCPA, Garrett’s data demonstrates that FCPA enforcement constitutes a large percentage of enforcement actions against foreign companies. (To learn more about recent FCPA enforcement actions against foreign companies visit the Foreign Issuer tab under the Search feature of this site). As previously highlighted on these pages (see here and here for instance), many of these enforcement actions are based on broad and novel jurisdictional theories. Accordingly, Garrett’s general observation (“foreign corporate prosecutions raise unexplored issues regarding scope of prosecutorial discretion, jurisdiction, and judicial review”) is particularly pertinent to FCPA enforcement actions against foreign companies.
FCPA enforcement actions against foreign companies are not expected to wane any time soon. If anything, they are likely to increase and I predict the increase will slowly shift away from Europe-based companies to China-based companies as more list on U.S. exchanges and otherwise do business outside of China’s borders – including in several corruption prone regions.
Garret’s existing database of NPAs and DPAs (here) is already a valuable resource and his new corporate plea database is expected to be as well.
“No-Charged Bribery Disgorgement”
The most recent issue of Debevoise & Plimpton’s always stellar FCPA Update contains an interesting article titled “Do FCPA Remedies Follow FCPA Wrongs? ‘Disgorgement’ in Internal Controls and Books and Records Case.” See here. The article chronicles the “growing trend” in which the SEC “has obtained hefty FCPA-related settlements including company obligations to ‘disgorge’ various amounts” even though the corporate defendant is not charged with an FCPA anti-bribery violation.
Indeed, it is a growing trend. In my 2010 SEC FCPA Enforcement Year in Review post (here), I calculated that 96% of SEC FCPA enforcement settlement amounts in 2010 consisted of disgorgement and prejudgment interest (including in cases where the SEC does not charge an FCPA anti-bribery violation).
The Debevoise author group (which includes Paul Berger (here) a former Associate Director of the SEC Division of Enforcement) concludes that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” The authors note that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”
In pointed language, the author groups concludes as follows. “Given the bedrock principle that a court’s equitable power to order such disgorgement goes only as far as the scope of the violation, it is difficult to determine how a court could lawfully allow disgorgement of profits for uncharged violations without the remedy crossing line into ‘punishment’ for the violations actually charged. Although settling companies that willingly accept disgorgement as a remedy in such cases may have important strategic interests at stake – e.g., avoiding primary anti-bribery charges – even these companies (as well as the SEC) must consider that the federal courts may at some point step in and forbid such settlements as beyond ‘the bounds of fairness, reasonableness, and adequacy.’ Similarly, although stipulated SEC civil cease and desist orders do not require judicial approval for their entry, the same result could occur if, and when, the agency seeks judicially to enforce the requirements of a jurisdictionally-flawed order in one of the ‘no charged bribery disgorgement’ cases. At some point, in any event, Congress may well determine that the practice of seeking ‘disgorgements’ in cases in which there is no jurisdictionally-cognizable bribery charged by the SEC is an inappropriate use of the agency’s authority. In light of these serious legal issues, the Commission itself may wish to re-examine its settlement practices in this arena.”
For additional reading on this topic, see my article “The Facade of FCPA Enforcement” (here) – specifically the section titled “Disgorge What?” (pages 981-984).
Declinations
James Tillen (here) and Marc Bohn (here) of Miller Chevalier recently published (here) a dandy article about declinations. Titled “Declinations During the FCPA Boom,” the article chronicles the “less publicized trend that has paralleled” the increase in FCPA enforcement actions and that is “decisions by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to conclude formal and informal investigations into potential violations of the FCPA without bringing enforcement actions.” Although the authors note that “it is difficult to know how frequently they occur” Tillen and Bohn “partially corroborated” – using SEC filings and other public records – DOJ’s claims that there were a record number of declinations in 2010.
The authors note as follows. “Even where we have been able to confirm a declination, there are usually significant unanswered questions as companies, in most instances, do not state the basis for the declinations they have received and often provide only limited information about the conduct that was investigated. Thus, it is often unclear why a government investigation has closed without enforcement. It could be that no violations were found to have occurred, that no basis for jurisdiction existed, that enforcement authorities elected to do nothing in deference to a foreign investigation, or that the declination itself represents a benefit in recognition of a company’s voluntary self disclosure, remediation and/or cooperation.”
Tillen and Bohn also found as follows. “Although divining the specific rationale of the DOJ and SEC in individual cases like these can be challenging, the vast majority of known declinations are nevertheless in response to conduct that companies have voluntarily self disclosed. Nineteen of the twenty five declinations we identified (or 76 percent) involved self disclosures. It is clear that, as general matter based on known declinations, a company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not.”
Tillen and Bohn’s article is an excellent contribution to this emerging issue of importance to the FCPA debate. Yet the biggest unknown variable in my estimation – and one that is directly relevant to their conclusion that a “company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not” – is the triggering mechanism causing the company to disclose in the first place – an issue that really boils down to risk tolerance.
For instance, if Company A discloses conduct that counsel advises is only 30% likely to trigger an enforcement action (because of the lack of solid evidence, applicability of the FCPA’s exception or affirmative defenses, etc.); Company B discloses conduct that counsel advises is 60% likely to trigger an enforcement action; and Company C discloses conduct that counsel advises is 90% likely to trigger an enforcement action – in all of these situations the company voluntarily disclosed given their risk tolerance, yet the declination vs. enforcement action decision will likely be based on other factors. In other words, not all voluntarily discloses are created equal making an analysis difficult.
Readers may recall that DOJ declinations were a topic covered during the June FCPA hearing in the House. See here for the prior post. During the hearing, Sandra Adams (R-FL) asked DOJ representative Greg Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.” Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion. Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.
I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.