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The U.K.’s Growing Pains

A recent post at highlighted a recent U.K. House of Lords select committee report (here) on small and medium size enterprises.  The objective of the committee was “to consider the Government’s assistance and promotion of the export of products and services by Small and Medium Sized Enterprises and to make recommendations.”

A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”

Chapter 10 of the report states, in full, as follows (emphasis in original).


10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”

10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”

10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”

10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”

10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”.  LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”.  Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.

Current Government action

10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue.  Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”

10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.

10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”.  We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.

10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.

To be sure, the report and its recommendation represent U.K. growing pains.  But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.

As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.

There was much activity on this issue in the early 1980′s and among other things:

(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”

(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”

(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission […] recommended decriminalization of bribery; and

(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he “pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”

Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.

In short, the U.K’s growing pains are understandable and to be expected.

News Corp Hires Mendelsohn … And More On The Revolving Door

The Wall Street Journal (here) reports that “News Corp. has hired Mark Mendelsohn, a partner in the Washington, D.C. office of Paul, Weiss, Rifkind, Wharton & Garrison LLP.”

From 2005 to 2010, Mendelsohn (here) was Deputy Chief of the DOJ Fraud Section and “was responsible for overseeing all DOJ investigations and prosecutions under the FCPA.” As such, Mendelsohn is widely viewed as the architect of this new era of FCPA enforcement. The WSJ previously noted (here) that “it has been up to the Justice Department – and specifically to Mr. Mendelsohn – to interpret [the “particularly vague” FCPA]” during its era of resurgence. As Dionne Searcey of the WSJ recently noted (here) Mendelsohn “presided over an across-the-board crackdown on corporate corruption abroad, levying record-breaking fines and prosecuting executives for bribery.”

How Mendelsohn (and those he supervised while at the DOJ) interpreted the FCPA was often aggressive, new, and novel. Indeed, in this interview with “The Boardroom Channel” Mendelsohn was asked about the increase in FCPA enforcement actions and candidly stated that “what’s really changed is not so much the legislation, but the enforcement and approach to enforcement by U.S. authorities.”

Prior posts (here and here) discussed News Corp.’s potential FCPA exposure given the London police officer payments at issue and how the conduct fits within the type of FCPA enforcement frequently pursued by the DOJ during this era of the FCPA’s resurgence. Mendelsohn’s DOJ FCPA unit did not invent FCPA enforcement actions involving payments to “foreign officials” to secure general business advantages (as opposed to foreign government contracts as were traditionally pursued), but these type of actions soared under his leadership. Thus, Mendelsohn’s News Corp. representation may now put him face-to-face with the same aggressive enforcement theories he championed while at the DOJ.

Nathan Vardi (who wrote a feature Forbes article (here) in 2010 titled the “Bribery Racket”) wrote yesterday at Forbes (here) “it will be interesting to see how Mendelsohn handles his new assignment.”

Seperately, Bloomberg reported (here) that News Corp’s independent directors have hired Mary Jo White and Michael Mukasey of the law firm Debevoise & Plimpton. While at the DOJ, White participated in FCPA prosecutions and Mukasey (the former Attorney General) recently testified on behalf of the U.S. Chamber of Commerce during the FCPA hearing last month in the House. See here for a summary of his testimony and the hearing.


Mendelsohn’s 2010 departure from the DOJ’s FCPA unit to a private practice career was part of a clear trend of FCPA enforcement attorneys enforcing the law one day and then providing FCPA defense services the next.

In the latest example (see here, here and here for other recent examples), Paul Weiss announced recently (see here) that Bruce Searby, the prosecutor in the DOJ’s successful of Gerald and Patricia Green will be joining the firm’s Washington D.C. office. Mendelsohn stated in the release that the “growing intolerance of corruption … is leading to increasing scrutiny of organizations’ business activities and a greater focus on compliance and prevention” and that Searby’s addition will enable Paul Weiss “to help our clients better navigate the regulatory environment, conduct internal reviews, and, where necessary, respond to inquiries from U.S. and foreign authorities.” Paul Weiss chair Brad Karp noted that “the demand for top-tier legal advice on complying with domestic and foreign anti-corruption legislation has never been greater.”

I agree and that is why I believe it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited when leaving the government from providing FCPA defense or compliance services for a five-year time period. For additional reading see this piece I co-authored.

Others have also recently brought attention to the public policy concerns of the revolving door. In this recent article in Forbes, Harvey Silvergate profiles a non-FCPA DOJ departure to the private sector and how the former DOJ prosecutor is now on the other side of cases the individual “so zealously prosecuted” during his DOJ career. As to the numerous DOJ departures, Silvergate writes as follows. “From an outside perspective, [such moves seem] like a zero-consequence decision: corporations now have lawyers who understand the federal prosecutorial machinery and, importantly, maintain their relationships with former colleagues remaining in government service. And, of course, the federal government will easily enough be able to find replacements among the many eager law school graduates seeking these plum positions. Everybody wins, right? Everybody, that is, except for the justice system as a whole. Underlying the revolving door is a pernicious underbelly of overzealous and often unfair prosecutions, juked conviction stats, and a culture of plea-bargaining that is spiraling out of control, all in order to bring down some of the biggies in the business world. In short, the revolving door is facilitated by a federal criminal justice system geared more for making prosecutors’ reputations on the scalps of private sector companies and executives, than for achieving true justice.” Silvergate correctly concludes by stating that “revolving door between the Department of Justice and white shoe law firms is a phenomenon that deserves more attention by the press and other elements of civil society…”.


On July 12th, the Government Accountability Office (“GAO” – the investigative arm of Congress) released a report (here) titled “Existing [SEC] Post-Employment Controls Could Be Further Strengthened.” As to the SEC’s revolving door, the GAO states that it conducted its study because “this practice raises questions about the potential impact on SEC’s ability to effectively carry out its mission, including the potential for undue influence by former SEC employees on SEC matters or cases.”

On the same day the GAO released its report, the law firm Labaton Sucharow announced (here) that Jordan Thomas (a former Senior SEC attorney who “played a leadership role in the development and implementation of the SEC’s [new] Whistleblower Program”) joined the firm to “launch its Whistleblower Representation Practice.” According to the firm’s release, “Labaton Sucharow is the first and only law firm to recruit a senior SEC attorney to lead a national whistleblower practice focused exclusively on representing individuals who report violations of the federal securities laws.”

A Look Back in Time

Literally, Time Magazine that is.

In connection with my work in progress on the FCPA’s legislative / early history, the below articles from Time’s searchable archives caught my eye. (See here).


In November 1979, Time carried a piece (here) about the DOJ’s new program to offer advice on the FCPA – what has come to be called the FCPA Opinion Procedure Release. The article contains this quote from Stanley Sporkin, the SEC’s then Enforcement Chief: “We do not have guidelines for rapists, muggers and embezzlers, and I do not think we need guidelines for corporations who want to bribe foreign officials.” Fast forward 30-some years and Sporkin is still on the FCPA scene. It was recently reported (here) that Sporkin is assisting former FBI Director Louis Freeh as the monitor in the Daimler enforcement action. Among the monitor’s duties is “review[ing] and evaluat[ing] the effectiveness of Daimler’s internal controls, record-keeping, and existing or new financial reporting policies and procedures as they relate to Daimler’s compliance with the books and records, interal accounting controls and anti-bribery provisions of the FCPA, and other applicable anti-corrption laws.” (See here Appendix D).


Almost as soon as the FCPA was passed, concerns were raised that the law was harmful to U.S. business. There was much activity on this issue in the early 1980’s as evidenced in this article from October 1980, this article from March 1981, this article from March 1981 as well, and this article from June 1981.

These articles detail, among other things: (i) that the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department.” (ii) that the GAO released a report in 1981 (see here for a prior post) detailing how the FCPA “is riddled with complicating ambiguities and shortcomings” including the key “foreign official” element; and (iii) that President Reagan’s “transition team on the workings of the Securities and Exchange Commission […] has recommended decriminalization of bribery.”

At to this last point, Time notes:

“Such a stance by the Administration toward foreign bribery would itself cause problems. By failing to enforce the act as written, the Administration not only would leave the legislation’s ambiguities unresolved, but would show a disrespect for the law, which is itself corrupting. Since the U.S. has adopted a moral position with regard to foreign bribery, neither the Administration nor Congress can now afford to let the subject wither away without compromising its principles in the process.”


In response to Forbes recent FCPA article (see here), the Wall Street Journal Law Blog asked (see here) “is the FCPA just a full employment act for the private bar.” Such a question as it relates to the FCPA is not new. This March 1981 Time piece notes that the FCPA was “dubbed by one Wall Street wag” as the “Accountants’ Full Employment Act of 1977.”

The 1981 GAO Report

The year was 1981.

The FCPA was a mere infant – approximately 3.5 years old. Those living with it were concerned with its ambiguities and complying with it.

In March 1981, the “investigative arm” of Congress, the Government Accountability Office (GAO) released a report, “Impact of Foreign Corrupt Practices Act on U.S. Business.” (See here and here).

The report was based, in part, on a GAO questionnaire survey of 250 companies randomly selected from the Fortune 1000 list of the largest industrial firms in the U.S.

The questionnaire addressed the FCPA’s relationship to the following four areas: (1) corporate policies and/or codes of conduct, (2) corporate systems of accountability, (3) cost burdens, if any, incurred by management to comply with the act, and (4) corporate opinions regarding the (i) acts effect on U.S. corporate foreign sales, (ii) the clarity of the act’s provisions, (iii) the potential effectiveness of an international antibribery agreement, and (iv) perceived effectiveness of the act in reducing questionable payments.

The GAO also discussed the FCPA’s impact with leading public accounting firms, professional accounting and auditing organizations, professional legal associations and business and public interest groups. In addition, the GAO discussed enforcement of the FCPA with DOJ and SEC officials and examined documentation relating to enforcement activities. Also interviewed by the GAO were officials from the Overseas Private Investment Corporation, Department of Commerce, Treasury, and State.

The GAO report covers all the topics listed above. However, this post relates to the clarity of the FCPA’s provisions.

Chapter 4 of the Report is titled “Issues Surrounding the Act’s Antibribery Provisions.”

The chapter begins by noting that there is “confusion over what constitutes compliance with the act’s antibribery provisions.”

The report notes that “corporate and governmental officials have criticized the anti-bribery provisions as being ambiguous about what constitutes compliance.”

The ambiguities include confusion or uncertainty about a host of issues, including the “definition of ‘foreign official.””

At the time, the term “foreign official” specifically excluded any employee whose duties are essentially ministerial or clerical.” This exclusion was eliminated in the 1988 amendments to the FCPA. Otherwise the definition of “foreign official” the GAO report found to be ambiguous is same today – “any officer or employee of a foreign government or one of its departments, agencies or instrumentalties.” [Note -the public international organization prong was added in 1998].

The report notes:

“This definition has been criticized as unclear. Lawyers we contacted questioned whether employees of public corporations, such as national airlines or nationalized companies, are considered foreign officials. Similar questions have surfaced in countries – particularly developing countries – where there are small and frequently closely related groups, including both business and government relationships as well as families. Individuals within these groups frequently move between the private and public sectors, often without a clear distinction.”

The report then discusses the DOJ’s guidance program and begins by noting that “President Carter expressed concern over the potential effect of the act’s alleged ambiguities in September 1978 – only 9 months after its passage.” “To reduce this uncertainty, he directed the Department of Justice to give the business community guidance concerning its enforcement intentions under the act.”

The report notes that in March 1980, the DOJ implemented its “long awaited guidance program” but that the “program has yet to effectively address the ambiguities, and it is doubtful it will.”

In concluding Chapter 4 of the Report, the GAO notes:

“the act is an expression of congressional policy, and rigorously defined and completely unambiguous requirements may be impractical and could provide a roadmap for corporate bribery. On other hand, companies, whether registered with SEC or domestic concerns under Department of Justice jurisdiction, should be subject to clear and consistent demands by the Government agencies responsible for enforcing the act.”

An option the GAO recommends is that “the Justice Department, SEC, and other interested agencies […] offer legislative proposals which would amend the act to more explicitly define the antibribery provisions and [such an amendment] could cover concepts such as the definition of “foreign official.”

GAO notes “because of the importance of the act and the questions and concerns about the antibribery provisions, close congressional oversight is needed.”

Not surprsingly, both DOJ and SEC disagreed with the GAO’s findings. In its responses, the agencies attack, not the substance of the findings, but the GAO’s methodology.

The GAO report states:

“Both SEC and Justice disagree with our recommendations that they develop alternative ways to address the antibribery provisions. They contend that our statistics suggest that ambiguities in the act are not a sigifnicaint problem.”

In 1981, the investigative arm of Congress found, based on extensive study, that the FCPA’s “foreign official” element was ambiguous.

Here we are some thirty years later having the same discussion.

[Here is another interesting nugget. In June 1981, John Fedders was named to be the SEC’s Director of Enforcement, replacing Stanley Sporkin who left to become general counsel at the CIA. During a news conference, Fedders “pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.” See Owen Ullmann, “Corporate Lawyer Gets SEC Enforcement Post,” Associated Press, June 29, 1981.]

NPAs, DPAs, and the FCPA

Too many acronyms? For the uninitiated, this post is about non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs) in the context of the Foreign Corrupt Practices Act (FCPA).

The Government Accountability Office (GAO) recently released a report (here) regarding DOJ’s use of NPAs/DPAs. The report follows a prior GAO report on the use of corporate monitors in NPAs/DPAs (see here for the prior post).

The recent GAO report is not FCPA specific, although it does mention the FCPA as being one area where NPAs and DPAs are frequently utilized, and as readers well know, most FCPA enforcement actions against companies are resolved through DPAs or NPAs (see here for the UTStarcom, Inc. NPA, here for the Helmerich & Payne NPA etc.).

Thus, the GAO report is very much “on-point.”

While the report talks about other issues, this post will focus on judicial review of NPAs / DPAs – or more accurately the lack of judicial review.

GAO identified 152 NPAs/DPAs that DOJ prosecutors negotiated between 1993 (when the first two were signed) and September 2009.

Because NPAs are not filed with a court, there is absolutely no judicial review of NPAs. Thus, there is no independent review of whether factual evidence actually exists to support the essential elements of the crime “alleged” or whether valid and legitimate defenses exist. Thus, GAO had nothing to analyze in terms of judicial review of NPAs.

DPAs though are filed with a court, and as stated in the report, “the Speedy Trial Act grants a court the authority to approve the deferral of a prosecution pursuant to a written agreement between the government and the defendant.” (See 18 USC 3161(h)(2)).

“To assess what role the courts have played in the DPA process,” GAO “obtained written responses to structured interview questions from 12 of the 14 judges who had overseen DPAs in federal courts.”

The judicial responses were anonymous and safeguards were put in place to protect the confidentiality of the judges’ answers.

What did the responses reveal?

According to the GAO, “judges reported they were generally not involved” in the DPA process.

Specifcally, the GAO found that:

“Nine of the 12 judges stated that they did not hold a hearing to review the DPA or its terms, while the 3 remaining judges held hearings. One of these judges did so in the context of a plea hearing. Another judge held a hearing to arraign the company; at which time, the company and DOJ informed the judge to enter into a DPA. The judge then had a second hearing to approve the DPA. The third judge conducted a hearing to arraign the company and verify that the company’s decision to enter into the DPA was informed and voluntary. Ten of the 12 judges reported that they relayed their decision approving the DPA through a written order. One judge relayed the decisions orally at a hearing, and one judge did both.”

The GAO also interviewed DOJ officials about the role courts should play in the DPA process. Not one DOJ prosecutor who spoke to the GAO on this issue described any advantage to having a greater court role in reviewing DPAs. The report notes that “[a]ccording to DOJ officials, DOJ does not have a position on whether greater judicial involvement in the DPA process creates separation of powers issues; however, DOJ believes that judicial involvement in the NPA process would create concerns related to the separation of powers because no judicial review is involved for NPAs, as they typically do not involve court filings.”

It is clear from the above judicial responses (however limited they may be) that judges are routinely rubber-stamping DPAs without inquiring whether factual evidence actually exists to support the essential elements of the crime “alleged” or whether valid and legitimate defenses exist.

Why would a company agree to enter into an NPA/DPA if factual evidence did not exist to support the essential elements of the crime “alleged” or if valid and legitimate defenses did exist?

Quite simply, negotiating an NPA/DPA with the DOJ behind closed doors is easier, more cost effective, and provides more certainty to a company than mounting a defense based on the facts and the law.

Moreover, when a company agrees to resolve a potential criminal matter through a privately-negotiated NPA/DPA, it is a sign of cooperation and an acknowledgment of wrongdoing – both key factors the DOJ will consider when deciding how to resolve the matter and on what terms. See here for the DOJ’s Princplies of Federal Prosecution of Business Entities, here for the U.S. Sentencing Guidelines.

Why does this all matter, particularly in the FCPA context?

For the simple reason that law should not develop through privately negotiated agreements that are subject to little or no judicial review.

Yet that is exactly what is occuring in the FCPA context.

It is common knowledge within the FCPA bar and compliance community that FCPA NPAs/DPAs (and I will throw in settled SEC civil complaints as well) represent de facto case law and fill a void that exists because of the general lack of substantive FCPA case law, including case law to support many current enforcement theories.

Even worse, DOJ urges lawyers and companies to look to NPAs/DPAs as evidence of improper conduct and to act accordingly.

For instance, the GAO report includes a DOJ letter which explains, in DOJ’s view, why NPAs/DPAs “are beneficial.” Included in the DOJ’s response is this:

“DPAs and NPAs benefit the public and industries by providing guidance on what constitutes improper conduct.”

Wait a minute.

Is DOJ seriously suggesting that NPAs/DPAs evidence improper conduct?

While that may be true in some situations, the fact of the matter is that many NPAs/DPAs are agreed to by companies only after private negotiations with the DOJ. These negotiations covers a wide range of topics – from the facts which will be alleged in the NPA/DPA, to the actual charges alleged, to the form of the resolution.

Rather than evidence improper conduct, these NPAs/DPAs (and settled SEC civil complaints) in the FCPA context represent nothing more, in most instances, than a prviately negotiated agreement subject to no judicial review executed under circumstances in which one of the signatories wields a massive and sharp stick.

What would happen if an FCPA NPA/DPA (or settled SEC civil complaint) were actually subjected to judicial review?

How would a judge react to the uninformative, bare-bones nature of these privately negotiated agreements?

What legal authority would the enforcement agencies cite to support the assertion that employees of state-owned or state-controlled entities are “foreign officials” under the FCPA?

What would the enforcement agencies’ arguments be as to why the numerous post-Kay enforcement actions concerning foreign licenses, permits, applications etc. fit within the equivocal ruling in that case, but not the facilitating payment exception to the FCPA (an exception debated and passed by Congress)?

These are just some of the many unanswered FCPA questions which currently exist and these questions are the direct result of an area of law largely developing through privately negotiated agreements subject to little or no judicial scrutiny.

If the above is disconcerting to you, just wait, it is about to get worse as the SEC has announced (see here) plans to also utilize NPAs/DPAs in its enforcement of the securities laws – including the FCPA.

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