Category: Guest Posts

Negotiating Bribery: Toward Increased Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under The Foreign Corrupt Practices Act

A guest post today from Peter Reilly (Associate Professor, Texas A&M University School of Law).  Professor Reilly, a negotiations expert, discusses his article “Negotiating Bribery: Toward Increased Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under the Foreign Corrupt Practices Act,” forthcoming in the Hastings Business Law Journal.

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I would like to thank Mike Koehler for the opportunity to contribute to this ongoing conversation about the FCPA.

In the context of FCPA matters, the use of DPAs and NPAs is not guaranteed; rather, they are awarded to defendants through elaborate negotiations with the Department of Justice. These negotiations present an opportunity for accused parties to agree to clean up their respective acts, usually by (1) adopting or enhancing internal anti-corruption programs; (2) carrying out self-policing audits and investigations; and (3) voluntarily disclosing compliance issues and information to federal authorities.  In addition to agreeing to implement various rules, policies, and procedures to prevent bribery from taking place, the accused parties oftentimes agree to pay hefty monetary fines.  In exchange, the Justice Department agrees to hold off (perhaps forever) on prosecution.  Ultimately, if all aspects of the negotiated agreement are successfully carried out, the initially-accused party can move forward without fear of further legal consequences on the matter.

But here is the problem:  This ultimate negotiation between prosecutor and accused can sometimes be unfair to the point where any “bargaining” taking place is merely illusory.  This is because in many instances, the government has too much power, too much leverage, and too much discretion in presenting, negotiating, and implementing DPAs and NPAs.  Given its enormous leverage in the negotiation, DOJ can oftentimes negotiate quite favorable prosecution agreements, whose terms can include large financial penalties, significant internal business reforms, and cooperation in pursuing the company’s individually culpable directors, executives, managers, and/or employees.  This cooperation can include the company admitting liability, identifying wrongdoers within the organization, and sometimes even waiving work-product protection and attorney-client privilege pursuant to internal documents and internal investigations.

Moreover, while DOJ has complete discretion on whether or not to offer accused parties an NPA or a DPA, the consequences of not being offered one or the other can be devastating to a company.  Due to negative collateral consequences surrounding corporate prosecutions, accused companies tend to yield to whatever demands are made by DOJ during the negotiation.  This helps explain why, in the last twenty years, only a handful of companies have decided to go to trial in an FCPA case.[1] And while federal prosecutors enjoy wide, largely non-reviewable discretion regarding which corporate entities to target and what crimes to allege, the most effective way for any criminal justice system to test such prosecutorial discretion and to rein in overly-aggressive prosecutors—namely, the trial by jury[2]—is, for the most part, not being utilized to resolve FCPA cases.  Given that corporations cannot run the risk of going to trial, they essentially do not have a Best Alternative To a Negotiated Agreement (or “BATNA”)[3] in their negotiations with DOJ; in other words, they have little choice but to accept whatever terms are offered through the form of a DPA or NPA.

Professors Robert Mnookin and Lewis Kornhauser taught us in their seminal article, “Bargaining in the Shadow of the Law: The Case of Divorce,” that parties do not bargain “in a vacuum” and that two essential ingredients of power within the context of legal negotiations include:  (1) the option of going to trial should the negotiation fail to achieve agreement; and (2) knowledge of what the likely outcome would be, in accordance with legal precedent, should one ultimately choose to go to trial.  And yet, corporations facing FCPA charges lack both of these essential ingredients of power:  (1) as pointed out previously, going to trial would be so damaging to the company that it has little choice but to accept whatever terms are offered through the form of a DPA or NPA; and (2) because so few FCPA cases have gone to trial, it is very difficult for companies to accurately predict what the outcome at trial would likely be if they decide to pursue that avenue.  The end result is that the balance of power in the context of FCPA pre-trial negotiations is weighted significantly in favor of the government.

My article explores in depth the various factors that contribute to less-than-optimal transparency, consistency, and fairness in pre-trial bargaining under the Foreign Corrupt Practices Act, and it concludes with recommendations to strengthen the current system and make it more fair, including:

– DOJ should release to the public carefully redacted information regarding all FCPA declination decisions.

– FCPA Opinion Procedure Releases should have greater precedential value.

– The U.S. Congress should thoroughly investigate, in as non-partisan a manner as possible, the advantages and disadvantages of passing an FCPA compliance defense.

– Judicial supervision of the NPA and DPA negotiation processes should be mandated.

– Judicial review of NPAs and DPAs after they are drafted but before they are signed should be mandated.

– Judicial review regarding the issue of NPA and DPA breaches should be mandated.

Even if one disagrees with my recommendations or sees legislative, judicial, or political roadblocks to their adoption or implementation, my hope is that the article points out to readers that real and significant power imbalances exist when DOJ employs DPAs and NPAs to address FCPA enforcement matters.  This is not fair or just to the party sitting on the “accused” side of the negotiation table, and something should be done to address that unfairness

Checking In Down Under

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery).  Wyld is the Australia Expert for FCPA Professor.

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There have been a number of recent developments in Australia in relation to the risks associated with foreign bribery and corruption.

The Lessons for Australian Business – Why Proactive Ethical Compliance is Important

The recently published Ernst & Young “Asia-Pacific Fraud Survey Report Series 2013” makes some important findings from its survey results which will resonate within boardrooms:

• weak systems and controls are exposing companies in the Region to significant risks;
• slower growth is putting management under pressure to take short cuts;
• fraudulent practices are on the increase; and
• there is a disconnect between compliance policies in place and how they are applied in practice.

The recent developments will impact on Australian businesses operating offshore. They highlight the key lesson for all companies and executives with business operations in high risk countries – you must proactively recognise and address potential corruption risks at all levels of your business operations consistent with all Australian and local laws and you must instil a real sense of ethical behaviour throughout your organisation. If you fail to do this, you will be exposed to potentially severe consequences for the company and for individual directors, executives and officers involved in any questionable conduct.

These developments include:

• an increased focus concerning the lack of obvious enforcement activity in Australia;
• the role of Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) in investigating foreign bribery;
• internal governance issues and offshore commercial behaviour of Australian business highlighted by the Reserve Bank of Australia and Securency and the Leighton Holdings investigations;

Australia’s Regulatory Performance on Foreign Bribery

Over the last few weeks, the media spotlight has turned to examine the conduct of ASIC and the Australian Federal Police (AFP) in investigating foreign bribery and corruption. The issues raised in the media include:

• ASIC’s role in corruption investigations and what it ought to be doing; and
• the political push to inquire into the existing regulatory regime and whether, for example, one coordinating regulatory agency should be created and properly funded and resourced to investigate foreign bribery.

The existing regime in Australia has been criticised by the OECD and others over recent years. Foreign bribery and corruption invariably involve complex international inquiries, formal requests for mutual legal assistance that can take many months to complete and negotiations with foreign agencies and governments to gain the local support critical to undertake a proper investigation. In addition, while ASIC usually waits to undertake its civil investigation until a criminal investigation has been completed before undertaking its civil investigation, there is something to be said for the US approach where the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) conduct parallel investigations and invariably commence parallel prosecutions (usually involving a corporate settlement) even though the criminal hearing takes precedence. These joint prosecutions and ensuing corporate settlements may be in part explained by the severe US fines regime imposed on any company that actively defends a criminal prosecution and loses – the fines may be escalated to a point that the convicted company is unable to pay and is insolvent.

There is considerable merit in Australia reviewing how foreign bribery and corruption investigations are undertaken, how they are properly resourced and funded and the internal procedures that can allow civil and criminal investigations to run concurrently, recognising that a criminal trial ought to take precedence over a civil proceeding even one seeking the imposition of civil penalties. Some independent politicians have called for a substance review of how Australia investigates foreign bribery. This is an important issue that needs to be considered aside from any party-political notions of how business should be regulated.

The Role of ASIC v the AFP in Foreign Bribery Investigations

On 11 October 2013, Mr Greg Medcraft, the Chairman of ASIC gave a speech to the AmCham Business Leaders Lunch and responded directly to the considerable press criticism of ASIC’s handling of foreign bribery matters (which he described as “ill-informed”).

Mr Medcraft described ASIC’s role in investigating foreign bribery as follows:

• ASIC’s strategic priorities are to focus on ensuring there is a fair and efficient financial market with confident and informed investors (enforcement gets no mention as a strategic priority);
• ASIC has limited resources and will target its action primarily against listed companies where wrongdoing affects a wide range of mum and dad investors;
• the AFP is responsible for investigating and prosecuting foreign bribery as a crime under the Criminal Code;
• ASIC will liaise with the AFP and while noting foreign bribery investigations are invariably long, complex and expensive, absent exceptional circumstances or the risk of a limitation time bar arising, ASIC will defer any civil action until the completion of any criminal investigation and/or prosecution; and
• it is primarily the responsibility of directors and executives to exercise what ASIC describes as the appropriate level of scepticism (to avoid a charge of wilful blindness) and to ensure systems and controls reflect sound corporate governance in order to ensure they comply with their statutory duties.

What can be concluded from this approach: hardly the US SEC approach of “bold and unrelenting” enforcement espoused by the new SEC Chairman in a recent speech. At the heart of this speech is confirmation that while ASIC will look at egregious conduct involving foreign bribery (maybe something on the scale of AWB), as to the rest, it is too hard, complex and expensive to allocate ASIC’s limited resources to it. Over to the AFP!

Current Corruption Investigations – Cultures of Compliance or Non-Compliance

The governance issues surrounding the foreign bribery allegations in the media involving the Reserve Bank banknote printing interests and Leighton Holdings’ offshore operations have a number of common themes, whatever the individual merits are of specific allegations. The themes are these:

• the apparent limited investigation by ASIC into the conduct of senior company officers;
• the role and resourcing available to the AFP to investigate allegations of complex commercial corruption;
• the apparent payment of significant fees to overseas intermediaries in countries where there is a recognised high risk of corruption;
• whether internal company records were or were not disclosed to regulators; and
• the treatment of internal whistleblowers.

As an example, the media have reported that a former executive of the RBA company that printed its polymer bank notes is said to have provided a statement to the AFP that accuses a current senior Reserve Bank executive of “directing him never to use email, fax or hard copies to provide information about the company’s allegedly corrupt overseas activities” (Australian Financial Review 1 October 2013).

Whatever the merits of the individual allegations, these events raise serious issues for all companies, boards of directors, institutional investors and shareholders. They go to the heart of how companies actually perform and their professed culture of compliance.

What does all this mean?

It is fundamental to sound ethical business that a corporation must believe in its own integrity and act consistently with that belief. It requires an absolute commitment pervading a company over many years from the top to the bottom. If a corporate structure suggests an absent or disinterested parent, directors and executives being less than diligent and with management, only focused on the bottom-line profit and potential self interest (bonuses and salary benefits on hitting sales KPIs) (Chanticleer: Bribery scandal a question of culture, Australian Financial Review 9 October 2013), the words of Commissioner Cole resonate as to why this sort of conduct occurs (in the context of AWB):

The answer is a closed culture of superiority and impregnability, of dominance and self-importance. Legislation cannot destroy such a culture or create a satisfactory one. That is the task of boards and management of companies. The starting point is an ethical basis. At AWB the Board and management failed to create, instil or maintain a culture of ethical dealing.

These investigations and the Securency prosecutions have some little while to go and developments will be monitored.

Oral Arguments Heard In Historic “Foreign Official” Challenge

Last Friday in Miami, the 11th Circuit Court of Appeals heard oral argument in U.S. v. Joel Esquenazi & Carlos Rodriguez.  (See here for the audio recording of the arguments).  The issues on appeal did not just relate to the FCPA’s “foreign official” element, but as to this important element, the appeal is a historic occasion – the first time in FCPA history when an appellate court has the opportunity to weigh in on the prominent enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA.

The defense relied, in part, on my foreign official declaration previously used in other cases and as previously disclosed in prior posts I have served as a pro-bono expert to the defense in this case.  For additional background reading on the case (in chronological order), as well as links to the underlying briefs, see here, here, here, here, here, here, and here.

The below guest post is from Paul Calli (Carlton Fields) who was present in the courtroom for the oral arguments.  The 11th Circuit does not post audio recordings of oral arguments.  When such a recording or transcript becomes available, it will be posted.

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The panel consisted of Eleventh Circuit Judges Beverly B. Martin and Adalberto Jordan and Sixth Circuit Senior Judge Richard F. Suhrheinrich.  The argument was a homecoming of sorts for Judge Jordan, a favorite son and Judge adored by all who appear before him and who served as an Assistant United States Attorney and United States District Court Judge in the Southern District of Florida.  I understand that this was his first oral argument back in Miami since he ascended to the Court of Appeals.

What I endeavor to do in this post is not engage in an analysis of where things might come out in an ultimate decision by the 11th Circuit, but to provide a recap of the arguments for those who could not attend the hearing but are following this case closely.

T. Markus Funk (Perkins Coie) argued on behalf of Joel Esquenazi and David Simon (Foley & Lardner) argued the FCPA foreign official / instrumentality issue on behalf of Carlos Rodriguez.  (Pamela Johnston (Foley & Larder) argued the money laundering and wire fraud issues which were more generalized issues of criminal law (including a plain error analysis) that did not really implicate FCPA issues, are not issues of first impression, and with which the panel seemed less interested).

The courtroom was filled to capacity and unfortunately I was relegated to the attorney overflow room, which was also packed, to listen to the oral argument.

All members of the panel peppered the lawyers to varying degrees with questions primarily focused on defining “instrumentality” generally and in jury instructions.  As reflected below, Judge Jordan and Senior Judge Suhrheinreich were relentless on this issue and despite the best efforts of the three lawyers arguing the FCPA issues, remained seemingly unsettled with either side’s position or definition.

I missed the beginning of Funk’s argument due to delay entering the courthouse, but when I picked up he was hammering the jury instructions in this regard, referring to the jury instructions in the case as “exceptional” and observing that “they went beyond what the government wanted.”  He deemed the jury instructions the “…greatest flaw and most unfair thing in the case….”  Funk stayed true to his brief, in arguing that the “instrumentality” must perform a “governmental function” and thus the rubber meets the road in his view, on what constitutes a “governmental function.”

Funk was effective in trying to focus the panel on the flaws in the government’s definition of instrumentality as overly broad, while at the same time promoting his position that the definition should hinge on whether the entity performs “traditional government functions.”  He pounded his view of the government’s definition as so overly broad as to render any entity merely owned or controlled to some degree by the government, an instrumentality regardless of what function it discharged.

Funk drew a compelling analogy to demonstrate the flaw in the government’s definition of “instrumentality” as applied to Haiti Teleco by suggesting that since his law firm collects federal income tax from his salary and pays it to the Department of the Treasury, under the government’s definition of instrumentality, his law firm qualifies a state entity.   Others in the room apparently felt different than me.  The panel began to warm up with Judge Jordan asking several questions regarding Funk’s framing of the definitional issue.

David Simon stepped into a hot panel and he was ready to go.  He picked up nicely where Funk left off, attacking “the jury instructions as error which requires reversal.”  Simon proposed that to qualify as an entity of the government, it needs to be part of/a “unit of government.”  Senior Judge Suhrheinrich stopped him early with this question – “unit of government:  what does that mean?  Ownership?”  Simon unequivocally answered in the negative and when Judge Suhrheinrich shot back, “why?”, Simon responded that ownership merely makes it an “asset” of the government.  At which point Judge Suhrheinrich drew some laughter by stating that if it looks or quacks “like a duck, it’s a duck.”  But he got serious and asked if national parks are just an asset.  Simon was teed up on the hot seat and impressed me.  He seemed quick and well prepared.  He responded in the negative again, and indicated that parks are created by statute and are “not merely a commercial entity that happens to be owned by a government.”

Judge Jordan stated generally that in other countries a state owned enterprise may be or have a commercial function … “so how do you make the distinction?  You can just tell it or you just know it?” ( I wondered if anyone else in attendance was reminded of Justice Stewart’s famous statement “I know it when I see it” in Jacobellis…).  But then Judge Jordan really defined the issues:  “We can’t give that in a jury instruction.”  Simon shot back – “nor can we give the one given in this case,” and he certainly stimulated questions from the bench.

At this point Judge Martin asked: “isn’t that what juries do?,”  meaning apply the facts to the law.  Simon responded that the defendants’ approach to the definitional issues was a “much cleaner and easier” undertaking, generally taking the position that it would present a workable paradigm for the jury to in fact apply the facts to the law, and not be forced – or allowed – to speculate.

Judge Suhrheinrich took the baton from Judge Martin and pressed, stating “I’ve been practicing law for 50 years and I’m not sure a jury would understand because I don’t.”  Simon suggested it was an easy call – is it a municipality, is it created by statute, is it in the constitution…

Judge Suhreinrich wasn’t letting him off the hook: “Well in the case of a foreign government, do we go to their constitution ?  Or do we look to how the entity functions?  Do we have to go to the constitutions and statutes of that country?  Because those constitutions may be difficult, different or murky?”

My thought was doesn’t that question expose the flaw in the FCPA on “instrumentality?”  Apparently I wasn’t alone.  Simon responded “these questions invite a constitutional problem in criminal cases.”

Judge Jordan jumped in – “ what about a state created entity providing commercial services – like the U.S. Olympic Committee?”  Simon, not missing a beat, stated – “that does not qualify.  It needs to be a “unit of government.”  I thought I heard Judge Suhrheinrich grumble…

Simon drew the analogy between government employees – when the government shuts down, the employees are furloughed.  “That is one indicator of an instrumentality of government.”

Judge Martin jumped in by observing the language “…department, agency or instrumentality…” and stating “you focus on the first two.  What’s an example of instrumentality, that’s not a department or agency?”  Simon responded – “the FDIC” and cited to the Edison case.  Whether she expected it or was satisfied is unclear, but Judge Martin asked no follow-up and Simon’s argument ended.

Kirby A. Heller from the Appellate Section of DOJ in Washington argued for the government.  Heller countered that the defendants’ definition of instrumentality was too narrow in that isolating the crux of the definition to performance of a “government function” disregards other factors the government deems sufficiently indicative of being an instrumentality of government.

Ms. Heller was probably less than two minutes into her presentation when Judge Martin tossed a softball:  “Give me a one sentence definition of instrumentality.  What is it?”  Long pause, some stumbling, followed by “dominion and control over the entity.”  Judge Suhrheinrich asked, “what’s the government function though?”  As to Haiti Teleco, Heller responded that Haiti Teleco had a  “monopoly on phone service and just because that’s a commercial service, does not mean it can’t be an instrumentality.  In Haiti, they obviously define it by the fact that the government took over, profits flowed to the government, and the government would have to cover if costs needed to be advanced and Teleco could not do so.  The government of Haiti seized this as a foreign instrumentality.”

Judge Jordan pursued one logical extension/problem with Heller’s point:  “Isn’t notice a problem?  If you are letting juries analyze and decide these issues, don’t you run into vagueness problems?”  Heller replied “Maybe.  But not on the facts of this case.  We’re talking bribes!  Everyone knew it was illegal and was on notice!”

Judge Jordan pressed.  “But there is a fair amount of criminal conduct not covered by the U.S. Code.  To give a bribe does not mean you are on notice that you are committing a federal criminal offense in violation of the FCPA  because it is not clear if it’s a state-owned entity.”  Heller didn’t deviate from her position and in the process, failed to respond to the point Judge Jordan was making.  Heller:  “This was not a marginal, fringe case in which vagueness would be implicated.  Not even close.  Everyone knew bribes and grease payments were flowing…”

Judge Jordan asked if a plurality ownership would satisfy the government’s definition.  “Possibly,” replied Heller.  “That’s not a good answer,”  Jordan responded.  “What about 25% ownership?  15% ?  10% ?”  Heller stood her ground – “yes, that would satisfy our definition.”  Judge Jordan asked “How far does the control principle go?  We don’t have the luxury of not worrying about writing a definition ….”

Heller admitted having a problem answering that question, and that it is not simply and ownership issue.  She went on to call the General Motors example in the defense brief “absurd,” saying the government would not consider that an instrumentality.

Judge Jordan then went all temporal:  “ so you’ve got to look at how long the government has been in the market/entity?”  Heller started to say “ permanent or temporary is …,”  but Judge Jordan cut her off: “ so if they acted [the defendants] a week after the entity was seized, would that be difficult for the government to prove?”  Heller unfortunately could only say “I believe we could defend it on a rule 29.”  Judge Jordan would have none of it:  “No, no:  would you charge it?”

Judge Jordan asked “What if the government barely gets in and then there is a bribe?”  Heller responded that she would look at other factors, like control, profits, board of director appointments and if those all reflected government control then yes, the government definition fits.  She spent a few minutes discussing the 1998 amendment as “clear evidence” that the FCPA statute was meant to apply to foreign officials like those at Teleco.

Funk’s rebuttal was strong.  He challenged the panel to try to think of an entity that would not qualify under the government’s definition if it was owned or controlled by the government, regardless of its function.  He looped back to the jury instructions and stated that the government’s definition at oral argument was not what was given in the jury instruction.

Funk spent a minute or so on the Brady issue and the dueling declarations of Haitian Prime Minister Jean Max Bellerive.  Judge Martin asked how he could meet a Brady analysis since the initial declaration was obtained by a co-defendant and thus was not suppressed by the government.  Funk did real well here.  He said it is not the declaration but the content memorialized in it and “the answer to your question lies in the second Bellarive declaration the U.S. government obtained”  which indicates “at least circumstantially that the U.S. government knew or should have known” that the by-laws were recently changed and the resultant problems with its expert’s testimony at trial.”

Simon again played off of Funk well, hitting on his rebuttal the irrefutable private ownership of Teleco and the subsequent murky ownership issues, noting the government’s own expert witness testified generally that “we don’t really know how the government came to own…maybe it was from debt…”  “There is a level of confusion on the issue that should give us all pause.”

Judge Suhrheinrich ended by asking if the argument is not that the statute is vague?  Simon responded “No, we choose our definition – a unit of government.”

How is the court going to formulate “the” definition of instrumentality, when the statute contains no definition, and there is as much ambiguity as reflected by the court’s questions?

[Paul Calli represented Patrick Joseph, a co-defendant in the Haiti Teleco case, after the government unsealed the indictment against him.   Calli presented the Department of Justice with the first declaration from Haitian Prime Minister Jean Max Bellerive, in which Bellerive represented that Haiti Teleco “…had never been and until now is not a state enterprise.  Since its formation to date, it has and remains a Company under common law.”  After Calli  provided the declaration, Joseph hired another lawyer.   A review of the docket reflects that upon this lawyer entering the case, Calli withdrew virtually immediately from representing Joseph and that the other lawyer’s motion for admission pro hac vice into the United States District Court for the Southern District of Florida was denied. According to media reports, Joseph was then represented by a local Miami attorney and struck a cooperation deal.  Media reports reflect that days after a local Miami paper leaked Joseph’s cooperation with U.S. authorities, his father, a former president of Haiti’s central bank under former Haitian President Jean-Bertrand Aristide, was shot and killed in the Haitian capital, Port-au-Prince.  Joseph was subsequently sentenced to a year and a day in federal prison.]

Yes As To A Certain Type Of Compliance Defense

Today’s post is from Marcia Narine (St. Thomas University School of Law).

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First, I would like to thank Mike Koehler for the opportunity to add to the debate about an affirmative defense for a corporate compliance program. Although I am now an academic, I write from the perspective as a former compliance officer and deputy general counsel, and as a current consultant to a boutique law firm that advises multinationals, startups and suppliers grappling with the Foreign Corrupt Practices Act on a daily basis. I vote “yes” for the defense, but not for compliance programs that would currently be considered “effective” under the Federal Sentencing Guidelines.

I believe that the current system provides a disincentive for optimal investment in compliance. It is no surprise to me that only 30-40% of SEC cases and less than 50% of DOJ cases come from voluntary disclosures, as was reported by the FCPA Professor here last week. Why voluntarily disclose wrongdoing by a rogue employee when doing the right thing may still subject your firm to fines, penalties, shareholder derivative suits, possible debarment, and potential loss of licenses?

As I wrote here, the burden for corporations attempting to avoid deferred or nonprosecution agreements altogether should be high. I would require the prosecutor to rebut the affirmative defense posed by the firm, which would provide evidence that:

(1)      it has implemented a state of the art program approved and overseen by the board or a designated board committee, which receives comprehensive updates at least twice yearly on the program from the compliance officer;

(2)      elevated the compliance officer to report directly to the board or a designated committee and make the officer terminable only by the board (a suggestion rejected in the 2010 amendments to the Guidelines and which could eliminate potential conflicts when the general counsel does not want to disclose to the government but the compliance officer does);

(3)      clearly communicated the corporation’s intent to comply with the law and appropriate penalties for prohibited acts to employees, suppliers, agents, and partners;

(4)      has developed and provided position-specific training on legal and ethical obligations for employees and board members annually (at a minimum), which is revised as the law changes;

(5)      meets or exceeds industry standards and norms related to compliance and ethics;

(6)      provides the appropriate training and policies to agents, joint venture partners and others who can subject it to liability, requires them by contract to comply, receives annual compliance certifications, and audits their compliance with the same rigor as they audit their own processes;

(7)      has consistently applied anti-retaliation policies for whistleblowers, including terminating those who engage in retaliation;

(8)      is not a habitual recidivist, meaning that the company may have had rogue employees in the past but has endeavored to learn from the compliance failure rather than continuing the same conduct;

(9)      has voluntarily reported wrongdoing to authorities when appropriate;

(10)   is periodically audited and benchmarked by an independent third party that does not provide any other consulting or professional services to it or have any actual or perceived conflicts of interest (such as providing legal advice or external auditing for Sarbanes-Oxley or other purposes) and/or is pre-certified by the appropriate US government agency; and

(11)   has made modifications if necessary to the compliance program based upon the results of the audit.

The external compliance audit or pre-certification process should benchmark the company compared to peer companies and the general corporate population, reviewing, at a minimum, the following factors:

(1)     The corporate culture and tone at the top and throughout the organization. The higher up the level of the wrongdoer, the higher the burden for the company.

(2)     Incentive programs and compensation plans at all levels of the organization that encourage legal, ethical behavior. Companies that have financial incentives in place that either encourage unlawful or unethical behavior through goals that are impossible to reach or that fail to penalize bad conduct would fail this critical prong, which would disqualify them from using the defense.

(3)     Promotional practices and whether compliance and ethical behavior are considered prior to such decisions.

(4)     Adequacy, timeliness and comprehensiveness of training initiatives and the level of employee engagement and understanding of their compliance responsibilities (both position-specific and general).

(5)     The effectiveness of the anti-retaliation programs.

(6)     The effectiveness and usage rate of the anonymous reporting mechanisms.

(7)     The process by which complaints are investigated, including an audit of a random sampling of investigations for thoroughness.

(8)     The adequacy of the resources for the compliance function including continuing external education, appropriate salary and sufficient personnel commensurate with the size of the organization and the nature of the risks for that organization and that industry and

(9)     The level of board engagement and understanding of the compliance priorities of the company based upon the risks related to its business, geography, employee base and incentive structures.

My criteria –which make more sense after reading the longer article– incorporate research about behavioral economics, executive compensation, and best practices from around the world, and would likely disqualify Wal-Mart Mexico and a number of high profile companies that are alleged to have engaged in bribery.  It would also add a tool to the arsenal of beleaguered compliance officers who need ammunition every year around budget time. Most important, this defense would level the playing field between corporations and prosecutors, would provide the proper incentives for companies to prevent, detect and disclose criminal activity, and would allow both the private and public sector to allocate their resources more productively.

What’s On Your Mind?

In this month’s installment of the monthly feature, I reached out to academic colleagues who write in the Foreign Corrupt Practices Act space and posed the question – “what’s on your mind.”  Set forth below are the responses.

Joseph Yockey (Iowa)

The current state of anti-corruption compliance calls to mind classic Dickens: it’s the best of times, it’s the worst of times.

On one hand, there continue to be exciting compliance developments in the private sector. This includes everything from the emergence of new technologies, like automated customs systems that cut out corrupt middlemen, to new corporate governance strategies, like the appointment of FCPA-specific compliance officers. I’m confident that these strategies aren’t just window dressing. They already seem to be making compliance easier and rates of bribery lower.

On the other hand, though, there’s a nagging sense that something is missing. The downside of relying on private innovation in compliance is that it is just that: private. Unlike the FCPA’s early days, when public-private collaboration was seen as vital to shaping anti-corruption policy, today the state’s focus remains largely set on enforcement. Enforcement is important, but the FCPA is ultimately meant to play a protective role. It is meant to level the global playing field and combat the social harms of corruption.

When understood in this way, it becomes clear that federal anti-corruption efforts need to go beyond enforcement to include cooperation with the many well-meaning firms that are already making important progress in the area of compliance. Part of this cooperation might include talking with market actors about the challenges they face on the ground so that enforcement efforts can evolve to fit the dynamic environments in which these firms often operate. It might also include taking a broader view of the supply and demand sides of bribery by stepping up efforts to collaborate with foreign officials and NGOs to find ways to reduce the overall frequency of bribe demands.

In any case, my research will continue to expand on my belief that federal authorities must do much more than wield a big enforcement stick. They must commit to getting their hands dirty to root out the systemic causes of corruption at home and abroad. They must commit to meaningfully help firms craft compliance programs that are responsive rather than reactionary. They must fully embrace the fact that the FCPA serves both a punitive and a protective function.

Until they do, I fear the FCPA will continue to bear the patina of a failed regulatory experiment.

Dean Paul McGreal (Dayton)

Just before writing this post, I submitted a course proposal to teach my Corporate Compliance and Ethics elective again in Spring 2014.  So, naturally, my mind is occupied by thoughts of leniency or amnesty for business organizations that have an effective compliance and ethics program.  Unlike the UK Bribery Act 2010, the United States Foreign Corrupt Practices Act does not provide an affirmative defense for an effective compliance and ethics program.  An organization facing FCPA charges, then, can only benefit from its compliance and ethics program in other ways.

First, an organization could receive leniency, up to and including declination, for an effective compliance and ethics program.  Of course, this option is a matter of prosecutorial discretion, leaving it to the government’s judgment whether the organization did everything it could to prevent the bribery, and so was the victim of a rogue employee.  Making matters worse, it is difficult to determine when such leniency has occurred, what effect the organization’s compliance and ethics program had in particular cases, or what aspects of the program merited the leniency.  Practitioners must sift press releases, deferred and non-prosecution agreements, and luncheon speeches to infer guidance.  This murky state of affairs does not adequately arm compliance and ethics officers to do their best for their organizations.

Second, an organization could receive credit under the organizational sentencing guidelines for an effective compliance and ethics program.  This only happens, however, if an organization is convicted and sentenced, and the court reduces the culpability score on that basis.  This lucky organization will still be fined, and the conviction itself will likely harm the organization’s reputation and ability to do business.  This route is largely academic, though, as organizations almost uniformly settle FCPA cases.

Third, creative defendants can resuscitate an argument for judicial recognition of a compliance defense.  Several years ago, a litigant argued that federal criminal vicarious liability is properly interpreted to include such a defense.  The Second Circuit rejected this position, and the argument has not been asserted recently.

In the end, a compliance defense must await congressional action.  This issue, however, is not on the current legislative agenda, leaving organizations without that additional incentive for the foreseeable future.

Juliet Sorensen (Northwestern)

The Fifth Conference of States Parties to the United Nations Convention Against Corruption will take place in Panama City in November. With more than 150 signatories, the UNCAC aims to further anti-corruption efforts by requiring criminalization, asset forfeiture, mutual legal assistance and technical training in areas related to corruption and graft. However, the UNCAC is only as strong as its signatories. How many signatories have implemented laws required by the UNCAC? How many of those are enforcing those laws? Meaningful compliance with the provisions of the UNCAC is but one important topic that should be addressed in Panama City in November.