Category: Guest Posts

Charlie Monteith on U.K. Bribery Act Issues

In case you were sleeping last week …

The U.K. Bribery Act, originally scheduled to “go live” in Fall 2010 and then pushed back to April 2011, has been further delayed so that guidance on the Act can be developed. A week ago, the U.K. Ministry of Justice confirmed the delay and a spokesperson said: “We are working on the guidance to make it practical and comprehensive for business. We will come forward with further details in due course. When the guidance is published it will be followed by a three month notice period before implementation of the Act.”‪

What does Charlie Monteith, the former Head of Assurance at the SFO and currently counsel at White & Case in London, think about the delay.

He writes as follows:

“As the former Head of Legal Assurance at the SFO, and the lead drafter of the AG’s guidance on what constitutes the legal elements of the offences under the Bribery Act plus public interest factors for and against prosecution, as well as contributing to the drafting of the Ministry of Justice’s guidance on adequate procedures, I find it perplexing why neither were published at the end of January.

It is frankly difficult to see how there can be any changes now to an Act of Parliament that Parliament (albeit the last one) has approved. That would entail amending the Act and debating and approving the amendments through this Parliament for which there does not appear to be time in this current session due to end in the summer.”

Monteith recently published this piece in the Criminal Law Review.

In it, he notes, among other things as follows.

That the Bribery Act’s failure to prevent bribery offense “is a big stick, but with it comes an enormous carrot of a defence of having ‘adequate procedures’ designed to prevent bribery. (Unlike the FCPA). It may seem an odd thing for a prosecutor to say, but the defence is actually the most important aspect of the whole Act because it gives business the incentive to do something about preventing bribery.”

Other topics covered in Monteith’s article include: the SFO’s approach to enforcement, debarment, disgorgement, and sentencing issues under the Bribery Act.

Africa Sting Update

The Africa Sting case is surely one to watch in 2011.

Recently, certain defendants filed a motion (here) “for an evidentiary hearing requiring the testimony of Richard Bistrong and federal law enforcement agents responsible for managing him in connection with the investigation resulting in the indictment.” The defense claims that Bistrong (see here for a prior post) assured various defendants that the fake Gabon deal had been approved by the U.S. State Department, was not illegal, was not in violation of the FCPA, and that Bistrong “angrily admonished one Defendant who indicated that he was going to tell other defendants that his lawyer had advised that the Gabon deals might be illegal.”

The DOJ response brief is here. The DOJ says that the defense has “presented the Court with selective and misleading facts about this case” and that many of the defendants, wholly apart from the Gabon deal, were involved in paying bribes to foreign officials in other countries. Further, the DOJ argues, pretrial resolution of factual issues is not warranted.

So what does this all mean for the defendants’ entrapment defense?

As entrapment issues are a bit outside my strike zone, I once again go to the bullpen and call upon Dru Stevenson (here) a Professor of Law at South Texas College of Law.

In this guest post, Professor Stevenson analyzes the issues presented in the above briefs.

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“The defendants in the pending FCPA “Africa Sting” case have moved for a pretrial evidentiary hearing, insisting that the government has refused to produce – or perhaps destroyed – potentially exculpatory evidence in the case. The defendant’s allegations of Brady violations (failure to turn over evidence) are serious, but seems based on serious misunderstandings of federal entrapment law.

All of the items alleged to be missing relate to the FBI’s instructions to Bistrong, its undercover informant in the sting operation – a turncoat FCPA violator who offered to set up others as part of his “deal” with the government. The problem is that such information could not be exculpatory under the federal rules for the entrapment defense, which appears to be the defendants’ only theory of the case. Federal courts use only the “subjective test” for entrapment claims, a test that focuses exclusively on the defendant’s own predisposition to commit the crime, NOT the government’s conduct or intentions in the sting operation. It may strike us as upsetting to read about FBI handlers coaching their field operative on lying and deception of the potential felons, but this is legally immaterial for the entrapment defense, because it does not relate to the defendant’s predisposition to commit the crime. If the missing evidence is not “material evidence” for the defense, there is no Brady violation.

Surprisingly, the government’s response brief does not emphasize this issue, but focuses instead on the inappropriateness of a pre-trial hearing when the issues will get full airing at trial. This is probably true, but a court might feel there is no harm in allowing evidentiary hearings before trial, which is rather commonplace.

The defendants advance two points in their brief that, if successful, would dramatically change the law of entrapment in the United States. First, there is a recurring theme throughout the brief that evidence of outright lying by the undercover operative in a sting operation is exculpatory. It is not. All entrapment claims involve sting operations; all sting operations involve some deception and lying to ensnare the defendant; and nearly all entrapment claims fail. Deceiving the defendant may reach a level where it negates the required mens rea for the crime – but this is a mistake of fact defense, a derivative defense that refutes an element of the crime charged, not entrapment, which is an affirmative defense. The defendants in this case do not appear to be raising a derivative defense related to the scienter requirement for FCPA – their case centers on claims of entrapment. Intentional deception is immaterial for the defendant’s predisposition, which is the issue at stake for entrapment in the federal system. Nor does it matter that the undercover operate gave false assurances that the proposed transaction was legal (which the defendants allege happened, and the government denies). This is presumably a common feature of sting operations as well – blithe reassurances that the deal is “completely legal” – just as it is a common feature of conspiracies and recruitment by real criminals, not just undercover agents. In the United States, ignorance of the law is no excuse. There is a seldom-used, and even more seldom-successful, defense of “entrapment by estoppel,” not at issue in this case, for instances where the defendant receives official assurances of legality directly from a government authority, such as an opinion letter from the Attorney General. Yet this would not apply to situations where the co-conspirator merely asserts that he “checked it out” or got “clearance” from the State Department.

A second innovation in the defendant’s brief, which would mark a sea change in entrapment law if successful, is the assertion that dismissal of the charges is an appropriate remedy for “entrapment as a matter of law.” There is no such thing as “entrapment as a matter of law” in the federal system – no Supreme Court cases have ever recognized an entrapment scenario that would need no adjudication or factual determinations. The Supreme Court has been very clear, in every entrapment case, that federal courts should use the “subjective test” for entrapment, which requires a full factual inquiry into the defendant’s predisposition to commit the crime. This is really a two-pronged innovation – one part focused on changing the test used, and the other focused on the procedural juncture for rendering a decision on such claims. “Entrapment as a matter of law” is really another name for the rival version of the entrapment test, usually called the “objective test” (which evaluates what the outrageousness of the government’s conduct rather than the defendant’s subjective predisposition) – a test that the Supreme Court has rejected every time it decided an entrapment case. Essentially, the defendants are asking the court to change the entrapment test used in the federal system from the subjective to the objective test, contrary to long-settled precedent. Further, positioning this decision within a Motion to Dismiss is particularly unprecedented, even for the objective test. Entrapment cases are heavily fact-specific under either test, because they all involve sting operations that included some inducement – and usually a fair amount of false reassurances and even badgering by the agents. Dismissal is generally a remedy for legal problems with the prosecution’s case, not factual problems. Again, it may be troubling to read of the FBI’s undercover operative lying, badgering, and bribing a defendant to commit a crime, but this is a matter for the jury to decide – and, from a policy standpoint, is no different from what would happen in a “true” criminal enterprise. In other words, a defendant who falls for halfhearted, unsupported reassurances by the undercover – or who succumbs to a monetary inducement or mild badgering – would presumably also fall for the same tactics by a criminal organizer.”

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For Professor Stevenson’s other guest posts on the Africa Sting case see here and here.

A Practical Resource For Managers and Executives

Aaron Murphy (Latham & Watkins – here) has published a new book – “The Foreign Corrupt Practices Act: A Practical Resource For Managers and Executives” (here).

In this Q&A exchange, Murphy describes his book and his motivations for writing it. He also answers a few questions about FCPA reform proposals and the U.K. Bribery Act.

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Having spent several years at a large law firm with an FCPA practice, I know how busy the practice can be. Where did you find the time to write such an extensive book?

I spend a lot of my life on airplanes and in hotel rooms.

This book is different from the treatises and manuals that are already out there. Why did you write this book, and in particular, this kind of book?

There are some good legal treatises and manuals. But they aren’t aimed at educating the managers and employees who can be on the receiving end of an FCPA investigation. My book is written for managers and others who are on-the-ground in foreign countries. I wanted to write an engaging book that changed the kinds of internal questions that get asked about expenses, agents, state-owned entities, and other issues.

The book grew out of the fact that I was having the same conversation with clients and their managers over and over again. It occurred to me that despite sitting through a couple of PowerPoint slides about the FCPA during a compliance training, the managers did not understand how and where bribery occurs.

I’d be interviewing the manger of a company’s foreign operations in a high risk country and have a stack of documents to go through with him. I’d ask him a series of questions about some fairly run-of-the-mill issues – why certain dinners occurred with some government officials, what the thousand dollars of “miscellaneous” expenses on a hotel bill were for, whether the manager ever saw any of the holiday gifts he approved a large budget for – and it would often become clear to me that the manager had no idea that I was asking him about possible bribes. It had simply never occurred to him that there could be FCPA risks associated with any of these kinds of expenses. And those kinds of blind spots existed with managers who supposedly had received FCPA training.

Numerous times people have told me that they remember the FCPA training they had, but that they never thought the Act applied to the kinds of expenses I’m asking them about.

I tried to keep this book tethered to real-world situations. Theoretical discussions and policy debates are interesting and important – and there is some of that in the book – but it doesn’t really help a manager spot concrete issues. It doesn’t tell a manager what to watch out for. And that was the aim of this book.

I think there is plenty to debate about anticorruption enforcement generally, but whether you agree with the DOJ or the SEC’s position on something doesn’t really matter a whole lot when you’re trying to answer a question on a live issue, in real time. Can we make this payment or not? Should we use this agent, despite these rumors? Can I take this guy from a state-owned company out for a round of golf and dinner? Those are real questions. Hard, fact-specific questions that often need to be answered immediately. My goal was to make sure that managers understand that those are the questions they need to ask. Those are the questions they need to get some help answering. Theoretical debates don’t help a manager who is faced with a situation in the real world.

Do you think business personnel are surprised by the breadth of the FCPA, at least as it is interpreted and enforced by the DOJ and SEC?

Absolutely. Everyone thinks bribery is about suitcases full of money. Even though managers get trained and are told it’s much broader, they either don’t hear it, don’t believe it, or just think “Yeah, but it couldn’t happen in my organization.” They walk out of the training and it’s business as usual. Senior executives back at headquarters think everything is fine because their people have all been shown some slides with FCPA language. But there’s often a fundamental disconnect between the training and life on the ground in a company’s foreign operations.

I kept thinking there had to be a better way to help companies train their people on the front end, so I would quit having those conversations on the back end, after violations have already occurred.

I set out to write a book that was non-technical. A book that was practical. Something that takes managers – and I use that term loosely, meaning anyone who is in charge of other people – through all of the areas where FCPA issues typically come up and show them how they come up. I wanted something that gave managers a guided tour of the kinds of things FCPA practitioners see everyday.

What do you think is behind the inadequacy of much FCPA training?

I think it’s mostly a function of resources. I’m really sympathetic to in-house compliance personnel who are tasked with FCPA training. Usually, FCPA is just one of several areas they’re responsible for, and their organization is spread out over ten, twenty, fifty, or a hundred countries. It just becomes impossible for them to get out there and directly train all of their company’s employees. And, with constant turnover, acquisitions, mergers, it’s a never-ending task. New people are always joining a large organization. And FCPA training is just one of the things they have to do.

So you see the FCPA getting a few slides in a much larger PowerPoint that tries to cover insider trading, antitrust, OFAC and money laundering issues, regulatory issues, and all kinds of other stuff. Employees walk out with a glazed look on their faces and they haven’t really learned anything.

I wanted to help solve that problem. Here is something that companies can make required reading for all finance people and every manager over a certain level. Put it in their new hire package. Make them sign a certification that they’ve read and understood it, and put that in their personnel file. Then companies at least have documentation that the people charged with overseeing their business really were trained in detail. It hopefully gives companies some protection down the road if there is a problem, and, most importantly, it will educate employees about how the FCPA works and how FCPA compliance issues come up in the real world. If it does that, the book isn’t just insurance against future violations, it will actually result in compliance.

Plus, making the book required reading sets expectations and sends a serious message to management that this is an issue the company cares about.

In terms of FCPA compliance, one often hears about “tone at the top.” Is this just a buzzword or do you think it has real-world application?

I think it’s extremely important with an issue like bribery. Small shifts in attitudes can have huge consequences. I think just making off-hand jokes along the lines of “we all know how it is in Country X” sends a powerful message that low-level regulatory bribery is okay. Meaning, as long as we’re not talking about suitcases full of cash, it’s no big deal, no one is really going to get upset about it.

But regulatory issues can be huge. Just look at the recent Panalpina settlements.

At the end of the day, my mantra is this: Companies don’t pay bribes. People do. The best thing a company can do is to train its people by showing them how real world situations affect them. That’s what this book is about.

There is a lot of talk these days about FCPA reform. What are your thoughts on this issue?

Well, it makes for good controversy, but I always say that no politician ever got elected by saying it was time to get soft on crime. Certainly not a pro-corruption platform. So I think there’s very little chance of any overhaul that is going to make compliance easier on companies. That said, there may well be some chance for clarifying legislation.

Everyone out there lobbying for reform needs to be very careful what they wish for. Corruption is a topic that makes for good headlines and politicians love good headlines. It’s not hard to imagine a politician who doesn’t care too much about the FCPA trying to do away with facilitating payments, or press for more severe jail time, just to make a name for themselves. So as I see it, there’s a risk that any reform process could get hijacked, and we could end up with a statute that looks more like the UK Bribery Act. Although that might not be a bad thing if US companies could get a very solid and clear adequate procedures defense out of it.

Although, as you know because you were there at the recent Senate hearings, the DOJ’s current position is that it’s not interested in what it views as a compliance amnesty program. I suspect we’re stuck where we are for the time being. Although the forthcoming enforcement of the UK Bribery Act will keep things interesting.

If the DOJ is enforcing, in many cases, a statute in a way that Congress did not intend, why is this a political issue? Can any legislative reform proposal address this structural issue?

These things are always ultimately political. There’s no question that DOJ has an aggressive interpretation of certain FCPA provisions. Whether DOJ is transcending Congressional intent or not is no different from any other problem of interpretation. The difference in the FCPA context, as you have raised in your work, is that there is only limited judicial oversight of those interpretations because so few of these matters ever get litigated. And while that point is well-taken, many courts might well interpret the FCPA the same way DOJ interprets it. So my view is that whether we take issue with DOJ’s interpretation or court interpretations, the solution always becomes a political issue. Congress is aware of the DOJ’s view and can take steps to modify or clarify the statute if it disagrees with that view, the same as it can and often does when it dislikes court interpretations of any other statute.

Now, whether any Congressional solution would result in anything better than what we currently have is anyone’s guess.

Do you think the UK Bribery Act is going to be a real game-changer? A lot of people are talking about the lack of a facilitating payments exception. Do you think the landscape is going to be very different once the Bribery Act comes into force?

I actually think that the biggest effect that it’s going to have is that it’s going to force large British companies that may not have focused on corruption issues before to finally have to focus on them. But for most multinationals – many of whom will be subject to both the FCPA and the Bribery Act – I think the landscape stays largely unchanged. The biggest deal for them is going to be getting an adequate compliance program in place.

The underlying ways in which bribery occurs inside of companies will remain the same. The controls and procedures that can address bribery will also remain the same. At the margins, there are some obvious differences between the FCPA and the Bribery Act, but the conduct they cover is mostly identical.

A lot of people have been talking about the different treatment of facilitating payments. I don’t think that’s nearly as big of a deal as the other main difference, which is the criminalization of private conduct. The UK statute explicitly looks to whether a relevant function of an employee’s job has been performed improperly as a result of a payment or gift. Who defines what the proper performance of an employee’s job is? The employer, of course.

So has the UK Bribery Act essentially transformed employee manuals and company policy manuals into de facto statutes? Improperly perform your job in violation of your company policy and you’ve committed a crime under British law? I see a potentially serious problem there. After all, many companies have policies that prohibit their employees from giving or receiving gifts from people with whom they do business. Do they need to think more carefully about what they put in those policies in light of what the UK Bribery Act does with them?

The Giffen Gaffe – The Final Chapter

The original 2003 indictment (here) charged James Giffen with “making 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.”

Giffen’s defense?

Partly that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House. The DOJ did not dispute the fact that Giffen had frequent contacts with senior U.S. intelligence officials or that he used his ties within the Kazakh government to assist the United States. With the court’s approval, Giffen sought discovery from the government to support such a public authority defense and much of the delay in the case was due to the government’s resistance to such discovery and who was entitled to see such discovery.

In August, the case took a mysterious turn when Giffen agreed to plead guilty (here) to a one-paragraph superseding indictment charging a misdemeanor tax violation.

The case ended Friday in a Manhattan court room.

U.S. District Court Judge William Pauley called Giffen a Cold War hero, imposed no jail time, and stated that the case should never had been brought in the first place.

It’s the Giffen Gaffe, the biggest blunder in the history of the FCPA.

Today’s post is from Steve LeVine who was present in Judge Pauley’s courtroom on Friday. LeVine writes “The Oil and The Glory” For Foreign Policy (here) and the below is reprinted with his permission.

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James Giffen, the oil dealmaker at the center of what was once the largest foreign bribery case in U.S. history, is officially a free man.

The 69-year-old former oil adviser to Kazakhstan’s president, accused of diverting $78 million from oil companies to the Kazakh government, waited out more than a dozen federal prosecutors and sat through some two dozen court appearances and five trial dates over the course of seven years. Today, the effort paid off. Three months after prosecutors announced a stunning capitulation, dropping all foreign bribery, money laundering, and fraud charges against Giffen in exchange for a guilty plea on a misdemeanor tax charge, U.S. District Judge William Pauley ordered no prison time and no fines in sentencing proceedings at a Manhattan courthouse.

In handing down the non-sentence, Pauley seemingly validated the argument to which Giffen’s lawyers had clung since 2003: that whatever crimes Giffen had allegedly committed occurred while he was a highly valued foreign asset of the American intelligence. “Suffice it to say, Mr. Giffen was a significant source of information to the U.S. government and a conduit of secret information from the Soviet Union during the Cold War,” Pauley said today.

Giffen may have been lesser-known than the other businessmen-cum-criminal-defendants of recent decades, but he was equally colorful, a swaggering, coarse-talking, heavy-drinking womanizer and a charismatic fixture on the Caspian Sea. He arrived in Kazakhstan in 1992, but the trajectory that ultimately landed him there began in 1969, when he started traveling to Moscow as an aide to a Connecticut metals trader. Giffen worked his way up to become a major player in a U.S-Soviet business association with top-level political ties in both Washington and Moscow. When the Soviet Union collapsed in 1991, business in Russia dried up, and Giffen moved on to Kazakhstan, which was quickly becoming one of the hottest oil plays on the planet.

Giffen managed to ingratiate himself with a man he called The Boss: Kazakh President Nursultan Nazarbayev. He became Nazarbayev’s chief oil negotiator and, prosecutors alleged, his personal banker. While honchoing some of the era’s biggest oil deals, he also diverted some $78 million in payments made to Kazakhstan by now-dead companies like Mobil, Amoco, and Texaco into Swiss and other bank accounts that he set up in the name of Nazarbayev, other senior Kazakh officials, and their relatives, prosecutors alleged. (U.S. diplomats said that Nazarbayev, an unindicted co-conspirator in the case, so dreaded being tarnished by a Giffen conviction that both he and his envoys pleaded repeatedly for the George W. Bush Administration to order the case dropped.)

The case seemed open and shut, since the prosecutors presented a detailed paper trail — provided by a Swiss magistrate — of Giffen slicing payments into tiny discrete pieces for transfer into secret Swiss bank accounts, rather than shifting them as a whole, a classic method of money laundering. Even at their most voluble and expansive in court, Giffen’s lawyers made no attempt openly to dispute the prosecution’s facts. They simply kept repeating that, whatever Giffen may have done, he was taking orders from the Kazakh government — a sovereign state entitled to its own ideas of legality — and otherwise serving the patriotic interests of the Central Intelligence Agency.

It was an audacious defense that many thought verged on the preposterous. For one thing, CIA officers of the era deny that Giffen was anything of the sort — he walked into CIA headquarters on his own volition and talked to agency officers about Kazakhstan, they said, but that was very different from being a trusted asset on an informal assignment. In short, they asserted, Giffen was simply another dude talking.

The CIA, however, appears to have refused to hand over many — if any — documents sought by the defense. Judge Pauley had ruled that such documents were obligatory if Giffen were to have access to his rights to adequately defend himself. So the prosecution was left with having to drop the charges.

In his sentencing remarks, Pauley said that he had had access to classified documents that no one else in the courtroom had seen, and that they largely validated Giffen’s claims. “He was one of the only Americans with sustained access to” high levels of government in the region, Pauley said. “These relationships, built up over a lifetime, were lost the day of his arrest. This ordeal must end. How does Mr. Giffen reclaim his reputation? This court begins by acknowledging his service.”

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For additional coverage see here (David Glovin – Bloomberg) and here (Larry Neumeister – AP).

For Giffen’s contribution to FCPA case law (see here).

The FCPA and Potential Reforms

Last week’s U.S. Chamber of Commerce Annual Legal Reform Summit included a panel titled: “Navigating a Global Marketplace — Foreign Corrupt Practices Act and Potential Reforms.”

Amanda Ulrich (here), an associate in the New York office of Debevoise & Plimpton, LLP, provides a summary in this guest post.

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The recent expansion of FCPA enforcement and new FCPA-related bounty provisions in the Dodd Frank Act had audience members thoroughly engaged as an impressive assembly of speakers from the public and private sectors gathered to discuss these issues at the United States Chamber of Commerce’s Annual Legal Reform Summit last week.

Michael B. Mukasey, former Attorney General of the United States and current partner at Debevoise & Plimpton LLP, introduced and moderated a panel that also included John S. Darden, former Assistant Chief of the Fraud Section of the Department of Justice (“DOJ”) and currently a partner at Patton Boggs, LLP, Cheryl J. Scarboro, Chief of the FCPA Unit within the Division of Enforcement at the U.S. Securities and Exchange Commission (“SEC”), George J. Terwilliger III, former DOJ Deputy Attorney General and currently global head of the White Collar Practice Group of White & Case LLP, and Andrew Weissmann, former Chief of the Criminal Division of the U.S. Attorney’s Office for the Eastern District of New York and Co-Chair of the White Collar Practice at Jenner & Block LLP. The audience was treated to a vigorous debate on FCPA enforcement between representatives of the private sector who called for more clarity and predictability in enforcement, and individuals arguing the federal government’s perspective, looking to level the playing field for business through increased enforcement and increased cooperation among foreign and domestic agencies.

The discussion opened with remarks by Judge Mukasey, who commented that the rapid expansion of FCPA enforcement in the United States since 2004 has brought increased anxiety to companies, which are concerned about competitive disadvantages in the global business environment. Judge Mukasey suggested, however, that this anxiety should be tempered by the fact that 34 countries have signed on to the Organization of Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Transactions. He noted further that although the United States remains in the forefront of enforcement, with the UK’s Anti-Bribery Bill coming into effect next year, there is a global trend towards more vigorous enforcement of anti-bribery laws.

Expanding Views on Jurisdiction have led to Global Enforcement by the DOJ

Mr. Darden presented the DOJ’s perspective on the expansion of FCPA enforcement, and explained that, since 2005, the DOJ’s Fraud Section has concluded more than 40 criminal FCPA matters and collected over $2 billion in criminal fines. He noted that the six largest FCPA investigations have been resolved in the past 22 months, that more than 75 individuals have been criminally charged with FCPA violations since 2005, and that more than 45 of those individual prosecutions have taken place in the past two years. These statistics dwarf those of the first thirty years of FCPA enforcement.

According to Mr. Darden, the recent surge in enforcement is the result of an expanding view of jurisdiction by the government, as applied to both corporations and individuals. For corporations, the FCPA applies not only to U.S. corporations and foreign companies whose shares are traded on U.S. exchanges and regulated by the SEC, but also individuals and companies that take any action in the United States in furtherance of a bribery scheme. As a result of a more expansive jurisdictional reach, Mr. Darden argued that the idea that U.S. companies are disadvantaged by stringent FCPA provisions has been turned on its head; he noted that five of the six largest FCPA actions have involved foreign corporations.

Mr. Darden pointed out that the expanding fight against bribery has extended beyond the scope of the FCPA itself. Although the FCPA punishes only the payor (as opposed to the Federal Anti-Kick Back Law, which punishes both the payor and the payee), at least two FCPA-related cases in the last few months have involved charges against foreign officials under other statutes.

SEC stepping up enforcement, increasing cooperation with other agencies, but approaching remedies with more flexibility

Ms. Scarboro described the FCPA program at the SEC, where, she noted, FCPA enforcement has been a high priority for quite some time. In 2010 alone, with several cases still ongoing, the SEC has settled with 11 corporations and 7 individuals, recovering over $400 million in disgorgement and civil penalties.

Ms. Scarboro reminded the audience that the SEC has reorganized its efforts and now has a dedicated unit focused exclusively on combating foreign bribery. She said that the division has become smarter, more proactive, and more internally coordinated; the unit has also increased the SEC’s coordination with the DOJ. In addition, there have been more coordinated efforts with investigative authorities in other countries, including in connection with the Siemens investigation and this year’s Innospec case. Ms. Scarboro said that the SEC and the DOJ have been at the forefront of enforcing this country’s OECD obligations and have begun encouraging and engaging international counterparts in the pursuit of anti-bribery enforcement.

Ms. Scarboro emphasized that the SEC will continue to pursue disgorgement of profits in its FCPA investigations, and also explained that the SEC has begun to focus on industry-wide corruption, taking individual instances of bribery and investigating whether patterns emerge within a given industry. The SEC has stepped up its pursuit of individuals, she said, viewing enforcement against individuals as a better deterrent than enforcing sanctions against a company.

The SEC has pursued a more flexible approach to remedies in its investigations. To encourage cooperation by businesses under scrutiny by federal agencies, Ms. Scarboro explained, the SEC has begun pursuing deferred prosecution and cooperation agreements with companies that voluntarily report and cooperate with the SEC. She said that the SEC fashions relief on a case-by-case basis, given that the facts and circumstances of each case, as well as the level of cooperation, differ significantly, and the SEC considers a broad range of factors in determining the relief in each case.

Calls for Reform from the Private Sector

Andrew Weissman has written critically about the statute in the past, and recently released an article, sponsored by the U.S. Chamber of Commerce’s Institute for Legal Reform, calling for specific reforms to the statute. Mr. Weissmann expressed concern that, because the vast majority of FCPA-related cases against corporations, like those involving allegations of other criminal law violations, are settled without trial, the DOJ and the SEC serve as the judge and jury; thus, there is no meaningful way to question their interpretation of the FCPA’s grey areas.

Mr. Weissman’s second major stated concern was that, due to the lack of clarity in enforcement, companies are less likely to pursue business opportunities in countries seen as highly corrupt, such as China, where the risks of running afoul of the FCPA are high. The potential for FCPA enforcement hangs over such business ventures, and Mr. Weissman characterized this as a tax on companies looking to do business abroad.

Mr. Weissman encouraged the United States to adopt a provision similar to one contained in the UK’s Anti-Bribery Bill, which, when it becomes effective in April 2011, will provide a defense to enforcement actions for companies that devote “adequate” resources to creating and enforcing anti-bribery procedures. Mr. Weissman suggested that the British statute recognizes the limitations of what a corporation can do about the actions of its individual employees.

Mr. Weissman also called for more clarity with respect to what constitutes an “instrumentality” of a foreign government, light-heartedly suggesting that almost everyone in China is an instrumentality of the government. Mr. Weissman fears that, without more clarity, a business would not know whether it could take someone employed at General Motors out to dinner (as the U.S. government is now a shareholder). Similar arguments might apply to hospitality provided to an employee of Bloomberg (as New York Mayor Michael Bloomberg owns 85% of that company), or a Professor at Columbia (a school that receives public grants).

Judge Mukasey noted that the United States has a facilitation payment exception that the UK statute does not have, but Mr. Weissman described the facilitation payment exception as very narrow, and limited to grease payments that expedite inevitable occurrences. Judge Mukasey characterized this exception as applying to payments that help a company to “move up the list” toward an approval it would obtain in any event as opposed to helping a company “get on the list.” Mr. Weissman also noted that there is no de-minimis exception in the FCPA, putting companies at risk of FCPA violations even for very minor favors or transactions.

Although the new UK statute goes beyond the FCPA in some ways – including its extension to commercial bribery – Mr. Weissmann believes that the availability of the “adequate procedures” defense makes that statute more reasonable than the FCPA.

The intent standard applied in FCPA enforcement actions also concerns Mr. Weissman. For individual prosecutions under the FCPA, he explained, the intent standard is “willfulness,” which is considerably more stringent than the “knowing” standard applied to corporations. The “knowing” standard, Mr. Weissman argued, makes doing business in certain countries very risky, as the act in furtherance of the bribery needs to be only an intentional act, that is, not one that is a mistake.

Anomalies Resulting from Increased Enforcement

Mr. Terwilliger began his discussion of anomalies in increased enforcement by noting that U.S. companies are devoted to free market principles, and that corrupt markets are not free – a principle sufficient to justify anti-bribery enforcement but not necessarily sufficient to justify uneven enforcement.

Mr. Terwilliger outlined problems with what he described as the great leverage held by the DOJ and the SEC in FCPA enforcement: few trials (almost no trials involving corporate defendants) and no body of jurisprudence governing the field, which results in no real opportunity for corporations to contest the government’s decision to pursue an FCPA enforcement action.

Although prosecutors stress the benefits of self-reporting and internal investigations, Mr. Terwilliger expressed an ongoing concern of many corporations that plaintiff’s lawyers representing shareholders and sometimes competitors have begun to latch on to those self-reports in pursuing litigation against companies who report bribery activities.

Similarly, Mr. Terwilliger explained that, in his view, the new bounty provisions of the Dodd Frank Act, which provide for recoveries of up to 30% of settlements with the SEC in excess of $1 million, misalign incentives that are crucial for successful self-reporting. The best source for self policing bribery issues are a company’s employees, and as such, companies are now required to rely on people who have financial incentive to go directly to the government to report these issues. Mr. Terwilliger said he viewed this as a major concern given that a company’s willingness to self-report is often a consideration in the remedies pursued by government agencies.

Incentives for Self-Reporting

Mr. Terwilliger argued that the incentives for companies faced with potential FCPA violations are also skewed in the self-reporting context. The better the procedures to detect bribery, the more likely the company will be to uncover bribery and face the decision of whether or not to self-report. Rather than being rewarded for voluntarily rooting out bribery problems, companies are often faced with costly punishment, an anomaly that weighs heavily in the board room when determining whether to self-report. Mr. Terwilliger called for the creation of a presumption of non-criminal disposition and reduced penalties for companies voluntarily reporting FCPA violations. Judge Mukasey added that such an approach could help lawyers in advising their clients on FCPA compliance policies.

Mr. Darden responded that the DOJ would see this as an unnecessary step, because the program is working well without such a “carrot.” Characterizing Mr. Terwilliger’s suggestion as amnesty and comparing it to the anti-trust division’s amnesty program, Mr. Darden said that the DOJ does not need companies to come forward and voluntarily report, whereas the anti-trust division’s amnesty policy is justified by the fact that it is impossible to investigate a cartel without one member of that cartel coming forward. Mr. Darden said that additional carrots are not needed in anti-bribery enforcement, as companies have shown that there is enough incentive to come forward.

Mr. Terwilliger argued that, in his experience with certain long-running voluntary FCPA investigations, it would have been impossible for the DOJ to gather the same evidence as was gathered in a voluntary investigation, and said that the anti-trust program is a very good analogy to the DOJ’s program. He also noted that he was not discussing amnesty, but rather a reduced penalty that would give the company better incentives to self-report.

Mr. Darden and Ms. Scarboro both stated that only about one-third of FCPA investigations are voluntarily reported to the DOJ or the SEC, but the proportion of cases that are resolved with cooperation of the companies being investigated is much higher than one-third, and in those cases that cooperation factors significantly into the remedies the agencies seek.

Ms. Scarboro noted that the U.S. Sentencing Guidelines, which the DOJ uses (and courts apply) in assessing fines for FCPA violations, provide for downward departures, and the availability of non-prosecution agreements gives the DOJ added flexibility. While other enforcement models, like the UK’s, provide for the negotiation of remedies prior to the investigation, the U.S. model gives federal agencies discretion to account for a variety of facts and circumstances after an investigation to assess the proper penalty. The SEC, for example, in determining whether to bring an action against a corporation, considers the corporation’s cooperation in the investigation and its remediation efforts in determining what remedies the SEC will seek, if any.

Ms. Scarboro noted that, in many cases, the level of cooperation is sufficient that the SEC will not initiate a full investigation. Those cases are generally not publicized in order to avoid unwanted publicity or embarrassment for the cooperating companies. Mr. Darden echoed that sentiment, and said that, while some companies affirmatively publicize their avoidance of FCPA charges, in many cases when the DOJ determines not to pursue charges, companies do not want the publicity of the DOJ’s decision not to prosecute or investigate, because that publicity could give rise to the need to issue a new 8-K.

During a Q&A period, Mr. Darden stated that the Federal Prosecution Principles, which were supposed to add clarity, have in some cases raised more questions than answers. In an attempt to give more clarity, especially in the area of compliance, the Prosecution Principles fail to give guidance about the type of cases the DOJ seeks to pursue. For example, the DOJ cares less about a company with some far flung employee who did not “get the memo” on the company’s anti-bribery compliance policy, than it does about a higher level corporate employee generating phony documents. Mr. Darden said that the failure to distinguish these schemes is a weakness in the Federal Prosecution Principles and is driving a need for more clarity.

Conclusion

Although the private sector has called for reform, the federal agencies responsible for FCPA enforcement have signaled no reversal of the trend of increased enforcement of the FCPA against companies and individuals at home and abroad.