Opening Remarks – World Bribery & Corruption Compliance Forum
Greetings from London where I am pleased to be chairing the World Bribery & Corruption Compliance Forum.
For a copy of my opening remarks see here.
Stay tuned for additional coverage, including the keynote address by Dominic Grieve (QC MP, Attorney General – U.K.), a special address by Charles Duross (Chief – Fraud Section DOJ), a special address by Robert Amaee (Head of Anti-Corruption – U.K. Serious Fraud Office) and commentary from other SFO, SEC, and other officials.
My Two Cents On The FCPA’s Affirmative Defenses
Students looking for scholarship ideas, should consider the Foreign Corrupt Practices Act.
Why?
There is a good chance that publication of an article will generate coverage and discussion on the blogosphere and elsewhere.
Case in point is Kyle Sheahen’s “I’m Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act.” (see here).
For prior coverage of Sheahen’s article see here, here and here.
Sheahen’s article is about the FCPA’s two affirmative defenses – the so-called local law and promotional expense defenses.
Big picture, Sheahen terms these defenses as being “hollow,” “illusory,” and “useless in practice.”
For starters, I respectfully disagree with Sheahen’s statement that “business and businessmen accused of giving bribes to foreign officials have fared poorly in federal courts” as well as the implication that this somehow supports his thesis.
The three FCPA trials cited from 2009 – Frederick Bourke, William Jefferson, and Gerald and Patricia Greene were a mixed bag for the DOJ, not slam-dunk successes.
For starters, the jury found Jefferson not guilty of substantive FCPA anti-bribery violations (see here).
Sure, Bourke was found guilty by a jury of conspiracy to violate the FCPA and the Travel Act (as well as making false statements to the FBI) (see here), yet when the DOJ alleges that one is a key participant of a “massive bribery scheme” yet secures only a 366 day sentence (see here) from a judge who remarks that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both” – I struggle to put such a case in the decisive “win” category for the DOJ. Plus, Bourke’s case is currently on appeal (see here).
The Green case (see here) would seem to represent the cleanest win for the DOJ even though the sentencing judge expressed concerns whether the Green’s conduct caused any harm in sentencing the couple to six months in prison thereby rejecting the DOJ’s recommended ten year sentence. (See here).
Sheahen’s article was published before the Giffen Gaffe (see here). Giffen aggressively mounted a legal defense and, whether for legal, political or other reasons, the case that began with charges that Giffen made “more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan” ended with a one-paragraph superseding information charging a misdemeanor tax violation. Further, back in 2004, Giffen was successful in having FCPA-related criminal charges dismissed when the trial court judge (see here) concluded that the DOJ offered “the slenderest of reeds” to support the collateral criminal charge.
Going back in time …
George McLean won his FCPA case when the Fifth Circuit concluded, see 738 F.2d 655 (5th Cir. 1984) that the FCPA, as it then existed because of the subsequently repealed Eckhardt Amendment, barred prosecution.
Donald Castle and Darrell Lowry (two Canadian “foreign officials”) won their FCPA-related cases, see 741 F.Supp. 116 (N.D. Tex. 1990), when the court dismissed their criminal indictments. The DOJ asserted that even though the officials could not be prosecuted under the FCPA, they could be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. However, the court declined DOJ’s invitation to extend the reach of the FCPA through the application of the conspiracy statute to Castle and Lowry.
Richard Liebo was acquitted, following a three week jury trial, of several counts including nine counts of violating the FCPA’s anti-bribery provisions and one count of violating the FCPA’s accounting and record keeping provisions. See 923 F.2d 1308 (8th Cir. 1991). He was found guilty of one FCPA count concerning his company’s purchase of honeymoon airline tickets for the cousin and close friend of Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force. In connection with this conviction, the Eighth Circuit found that the district court “clearly abused its discretion in denying Liebo’s motion for a new trial” and remanded for a new trial.
Hans Bodmer didn’t fare too badly either in 2004 when Judge Shira Scheindlin (the same judge in the Bourke case) held that the portion of the criminal indictment “charging Bodmer with conspiracy to violate the FCPA contravenes the constitutional fair notice requirement, and the rule of lenity demands its dismissal.”
Of course, the DOJ has had its fair share of FCPA successes, but it remains a misperception that FCPA defendants have “fare[d] so badly” in FCPA trials as Sheahen, and others, have asserted.
Returning to the substance of Sheahen’s article, he discusses the October 2008 Bourke decision by Judge Scheindlin (see 582 F.Supp.2d 535) – a case of first impression on the FCPA’s local law defense.
Bourke argued that the FCPA’s local law affirmative defense was applicable because, under Azeri law even though the payments were illegal, he was relieved from criminal responsibility when he reported the payments at issue to the President of Azerbaijan.
Judge Scheindlin disagreed, drawing a hard line between payments – the focus of the FCPA’s local law affirmative defense in her mind – and the related issue of whether a person could not be prosecuted in the foreign country because a provision may relieve that person from criminal responsibility.
Judge Scheindlin concluded that “an individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law.”
I agree with Sheahen’s statement that Judge Scheindlin’s decision of first impression narrowed the FCPA’s local law defense “to the point of extinction.”
I would go a step further and argue that Judge Scheindlin’s decision would seem to violate the basic axiom that a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.
In other words, courts should not suppose that Congress intended to enact unnecessary statutes and there is a presumption against interpreting a statute in a way that renders it ineffective.
The local law affirmative defense was added to the FCPA in 1988 and we must presume that Congress intended to enact the affirmative defense for some reason.
It was widely assumed by Congress in 1977 (when the FCPA was enacted), and by the Congress that amended the FCPA in 1988 to include the local law defense as well, that no nation’s written law permitted bribery of its officials.
Yet, given Judge Scheindlin’s narrow construction of the local law defense, the decision would appear to render the local-law defense (a statutory term that must have some meaning) inoperative, superfluous and insignificant.
As to the promotional expense defense, I would respectfully disagree with Sheahen’s apparent conclusion that the defense is meaningless just because it has never been successfully invoked by an FCPA defendant at trial.
Because of the “carrots” and “sticks” the DOJ and SEC possess in an FCPA enforcement action, and because of the resolution vehicles typically offered to FCPA defendants to resolve an FCPA enforcement action (such as non and deferred prosecution agreements) there is much about the FCPA that has never been subjected to judicial scrutiny.
That does not mean however that an element or defense not successfully invoked at trial renders that element or defense meaningless or hallow.
Indeed, Sheahen discusses the FCPA Opinion Procedure Release process. Through this mechanism, those subject to the FCPA have gained degrees of comfort from DOJ “no enforcement” opinions that are based on the promotional expense defense.
Although the Opinion Procedure Releases are not precedent, countless others in the legal, business, and compliance communities find comfort in these releases, as well as the statute itself, when analyzing real-world conduct for potential FCPA exposure.
FCPA enforcement is in need of many fixes and indeed the Opinion Procedure Release process is likely not the best way for the DOJ to make its enforcement positions known.
However, these structural flaws in FCPA enforcement, coupled with the typical ways in which FCPA enforcement actions are resolved, necessarily leads to the conclusion that the FCPA’s affirmative defenses are “hollow,” “illusory,” and “useless in practice.”
*****
I provided Sheahen with my draft post so that he could respond and here is what he said.
“Professor Koehler,
Thank you for your thorough analysis. Although DOJ’s trial record in FCPA prosecutions is not a clean sheet, the government has still been substantively successful in almost every FCPA case that has gone to trial. Further, the fact remains that no FCPA defendant has successfully invoked either the local law or the promotional expenses defense in an FCPA enforcement action.
Also, while I agree that the promotional expenses defense provides some guidelines for compliance with the FCPA, neither it nor the local law defense provide a meaningful defense to an enforcement action. Accordingly, Congress must take action to ensure that individual and corporate defendants have the actual ability to raise the affirmative defenses contemplated by the statutory scheme.
Thanks again and all the best,
Kyle Sheahen
sheahen2010@lawnet.ucla.edu
China, China and More China
China.
It is a country often talked about on these pages.
Not surprising given the extent to which companies subject to the FCPA have flocked to this growth market in recent years.
Not surprising given that most companies operating in China do so through joint ventures or third parties. Even if a company does business in China through a subsidiary, oversight and control of the subsidiary’s employees and agents is often difficult.
Not surprising given the number of Chinese “foreign officials” because the enforcement agencies deem all employees of state-owned or state-controlled enterprises to be “foreign officials.” [On this issue, an in-house attorney recently shared with me that during training sessions the attorney tells company employees that there are 1.3 billion “foreign officials” that could be the recipient of a bribe in China. A bit of an exaggeration, but no doubt you get the point.]
I’ve written about China specific issues, including this guest post for the China Law Blog and more extensively here “The Unique Foreign Corrupt Practices Act Challenges of Doing Business in China.”
With many FCPA enforcement inquiries focused on China and with no expected slowdown in China business activity, China issues remain at the forefront of much of what is covered on these pages.
Against this backdrop, two recent practitioner pieces caught my eye.
The first piece (here) is titled “FCPA Compliance in China and the Gifts and Hospitality Challenge” and is authored by Gibson, Dunn & Crutcher attorneys Joseph Warin, Michael Diamant and Jill M. Pfenning.
Below is a short summary of the article.
“This Article discusses the anti-corruption enforcement trends confronting business practices in China, addresses the legal risks posed by the Chinese gift and hospitality culture, and presents suggestions for structuring corporate anti-corruption compliance programs to mitigate these risks. To contextualize law enforcement’s current focus on bribery and other economic crime in China, Part I provides an introduction to the country’s pervasive corruption climate, with a brief summary of recent enforcement actions by both Chinese and U.S. authorities. Turning to the problem of business courtesies, Part II provides background on the unique Chinese gift-giving culture and briefly discusses the FCPA, exploring within the statute’s anti-bribery framework the issue of business courtesy expenditures. Finally, Part III gives advice on how to tailor the gifts and hospitality component of an organization’s compliance program to address this risk in China.”
The second piece (here) is titled “The Chinese Puzzle Box: the Conundrum of
Distinguishing a Permissible Gift from an Illegal Bribe” and is authored by Paul, Hastings, Janofsky & Walker attorneys Leslie Ligorner and Barbara Tsai.
Of particular interest is the section on Chinese state-owned entities and China corruption laws. Among other things, the article notes that many SOE employees “behave like private players in commercial playing fields and not in the manner traditionally associated with the behavior of government officials” and that China law “does not specifically include employees of SOEs within the definition of public officials.”
Also catching my eye was this recent Businessweek piece by Dexter Roberts titled “The Higher Costs of Bribery in China.”
Some China reading material to keep you occupied until the next China-related post.
A Look Back at 2009
For my review and analysis of the 2009 FCPA enforcement year, as well as the road ahead, please see here.