A More Complete Picture Of Duross’s Tenure As DOJ FCPA Unit Chief
Yesterday’s post highlighted how Chuck Duross (the DOJ’s FCPA Unit Chief) became the latest in a long line of DOJ and SEC FCPA enforcement attorneys to leave government service for FCPA Inc. to provide defense and compliance services to business organizations subject to the enforcement climate they helped create. The concerns raised in the prior post were policy issues relevant to the typical career path of DOJ and SEC enforcement attorneys.
This post uses the news of Duross’s departure to highlight additional factual information concerning FCPA enforcement during his tenure. As FCPA Unit Chief, Duross was a public figure and one that publicly welcomed scrutiny and accountability. This post does nothing more than provide the public with additional facts and information concerning FCPA enforcement during Duross’s tenure beyond the press release issued by his future employer Morrison & Foerster (“MoFo”).
In this way, readers can analyze for themselves Duross’s tenure as FCPA Unit Chief – and more broadly – various policy issues relevant to DOJ FCPA enforcement including how the DOJ’s FCPA enforcement program is often publicly portrayed.
During his tenure as FCPA Unit Chief, I had the pleasure to meet Chuck several times. He was helpful to me in obtaining access to certain original source documents and we engaged several times over e-mail and a few times by phone. Moreover, I will forever be grateful to him for participating in an FCPA conference in March 2012 I helped organize at Ohio State University Moritz College of Law (at the time, the most comprehensive FCPA symposium ever held at a law school).
Throughout his tenure as FCPA Unit Chief, Duross appeared uneasy as to the public scrutiny associated with his position and the DOJ’s FCPA enforcement program more broadly. Earlier in his tenure, I chaired the World Bribery & Corruption Compliance Forum in London during which Duross stated (see here for the prior post) that he took the FCPA Unit Chief job with a bit of “trepidation” given that he had big shoes to fill (he made specific praise of prior FCPA Chiefs Peter Clark and Mark Mendelsohn) and given that each new case is followed more closely than the last. More recently, in September 2013, as noted in this prior post, Duross struck a similar theme when he stated that one of his biggest surprises upon becoming FCPA Unit chief was realizing how the unit “operates under a microscope” which highlighted, in his words, the need for his unit “to have its A game” at all times.
To his credit, Duross publicly welcomed scrutiny of the FCPA Unit. For instance, at the September 2013 event, Duross indicated that “we should be held accountable for what we do – good and bad.”
This post does just that as the MoFo press release announcing the hiring of Duross paints an incomplete picture of FCPA enforcement during his tenure as FCPA Unit Chief.
This post does not suggest or imply that everything that occured in connection with DOJ FCPA enforcement since April 2010 was the direct result of Duross’s decisions or conduct.
Yet, the same could be said regarding the FCPA statistics touted in the MoFo release. (“Under his leadership, the FCPA Unit resolved more than 40 corporate cases, which include about two-thirds of the top 25 biggest corporate resolutions ever. Those matters resulted in approximately $1.9 billion in monetary penalties and the conviction of more than two dozen business executives and money launderers.”) Many of these enforcement actions, including several of the largest ones from a settlement amount perspective, were on the DOJ’s docket long before Duross assumed leadership of the FCPA Unit in April 2010.
Perhaps the most notable event of Duross’s tenure as FCPA Unit was publication of the FCPA Guidance in November 2012.
However, far from a pro-active DOJ effort to “make FCPA enforcement more transparent and compliance with the statute more understandable to the business community” (as stated in the MoFo release), the timing of the Guidance appeared to be a DOJ attempt to forestall introduction of an actual FCPA reform bill.
The following chronology of events is relevant as highlighted in my article “Grading the FCPA Guidance.” After the November 2010 Senate FCPA hearing, FCPA reform gained steam. After the Senate hearing, Senator Amy Klobuchar (D-Minn.) asked the DOJ, ‘‘do you believe companies could comply with more certainty with the FCPA if they were provided with more generally applicable guidance from the Department in regards to situations covered by the FCPA that are not clear cut or fall into gray areas?’’ The DOJ response was that it “believes it provides clear guidance with respect to FCPA enforcement through a variety of means,’’ and it then listed the same general categories of information the OECD identified in 2002 as being deficient.” FCPA reform gained further steam as a result of the June 2011 House FCPA hearing which evidenced bipartisan support for certain aspects of FCPA reform. Against this backdrop, and only then, did Assistant Attorney General Lanny Breuer announce in November 2011 that the DOJ intended to issue FCPA Guidance in 2012. Those on Capital Hill who were inclined to introduce an FCPA reform bill said they would await DOJ’s FCPA guidance before introducing such a bill. It took a year for the DOJ and SEC to release the FCPA Guidance and its release was shortly after the November presidential election and during a lame duck Congress.
Regardless of the motivations of the DOJ (and SEC) in releasing the FCPA Guidance when they did, the related issue is the Guidance itself.
In the MoFo release, Paul Friedman, co-chair of the firm’s FCPA & Anti-Corruption Practice, calls the Guidance “groundbreaking” and “authoritative” and states that it “has proven invaluable to global companies and practitioners.” As noted in this prior post (summarizing nearly 50 law firm and practitioner views on the Guidance), the Guidance has been perceived much differently than portrayed in the MoFo release. For instance, Steven Tyrrell (the former chief of the DOJ fraud section) called the Guidance “more of a scrapbook of past DOJ and SEC successes than a guide book for companies who care about playing by the rules.”
Perhaps more to the point, Duross’s future law firm had a different take as to the Guidance it termed “groundbreaking” in its recent release. Indeed, MoFo previously called the Guidance “not groundbreaking.” In this November 2012 Client Alert, Friedman and others state, in pertinent part:
“the guidance is not a panacea for the difficult issues that global companies navigate on a daily basis …”
“the guidance does not deliver any of the fundamental reform that the business community has been seeking, likely setting the stage for further attempts to secure statutory reform from Congress”
“[as to “foreign official” issues discussed in the Guidance] it provides no meaningful relief from the fact-specific ambiguities presented in real life.”
“[as to the standard for corporate liability v. individual liability in the Guidance] what the regulators see as the difference between “willful” and “corrupt intent” goes unsaid.”
“The [FCPA Guidance] is not groundbreaking. There is no sign of the regulators retreating from their expansive views of liability under the FCPA.”
Guidance aside, Duross’s departure from the DOJ once again raises the broader point – how does the DOJ actually define success in its FCPA enforcement program? (For instance, see recent statements here and here from Acting Assistant Attorney General Mythili Raman “our stellar FCPA unit continues to go gangbusters” and “our recent string of successful prosecutions of corporate executives is worth highlighting.”)
While the DOJ has had “success” in exercising its leverage and securing large FCPA settlements against risk-averse corporations through resolution vehicles not subjected to any meaningful judicial scrutiny, when put to its burdens of proof in the context of an adversarial system, the DOJ has had substantially less success. In a legal system founded on the rule of law, this later form of success is more meaningful than the former.
For instance, as noted in this recent post, SEC Chairman Mary Jo White recently stated that trials are the “crown jewel of our system of justice” as they “create public accountability for both defendants and the government through the public airing of charges and evidence.” As White stated, “trials allow for more thoughtful and nuanced interpretations of the law in a way that settlements and summary judgments cannot.”
To his credit, Duross recognized the importance of trials in terms of the FCPA Unit’s overall legitimacy and credibility. As noted in this September 2010 post, Duross stated that the “ability to try lengthy and complex trials” is critical to the FCPA Unit’s success and that the Unit must continue to be willing to try cases and be put to its burden.
Duross’s FCPA Unit was put to its burden several times during his tenure and the results were often DOJ failures.
Again, this post does not suggest or imply that everything that occured with DOJ FCPA enforcement since April 2010 was the direct result of Duross’s decisions or conduct.
Nevertheless, it is a fact that the following things occurred while Duross headed the DOJ’s FCPA Unit.
The DOJ’s Africa Sting cases ended in February 2012 with Judge Richard Leon granting the DOJ’s motion for dismissal and stating as follows (see here for the prior post).
“This appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement. Unlike takedown day in Las Vegas, however, there will be no front page story in the New York Times or the Post for that matter tomorrow reflecting the government’s decision today to move to dismiss the charges against the remaining defendants in this case. Funny, isn’t it, what sells newspapers? The good news, however, is that for these defendants, agents, prosecutors, defense counsel and the court we can get on with our professional and personal lives without the constant strain and burden of three to four more eight-week trials hanging over our heads. I for one hope this very long, and I’m sure very expensive, ordeal will be a true learning experience for both the department and the FBI as they regroup to investigate and prosecute FCPA cases against individuals in the future. Two years ago, at the very outset of this case, I expressed more than my fair share of concerns on the record regarding the way this case has been charged and was being prosecuted. Later, during the two trials that I presided over, I specifically commented again on the record regarding the government’s very, very aggressive conspiracy theory that was pushing its already generous elasticity to its outer limits. Of course, in the second trial that elastic snapped in the absence of the necessary evidence to sustain it. In addition, in that same trial, I expressed on a number of occasions my concerns regarding the way this case had been investigated and was conducted especially vis-a-vis the handling of Mr. Bistrong. I even had an occasion, sadly, to chastise the government in a situation where the government’s handling of the discovery process constituted sharp practices that have no place in a federal courtroom. Notwithstanding all of this water over the dam, and there has been a lot of water, I’m happy to see and I applaud the department for having the wisdom and courage of its convictions to face up to the limitations of its case as revealed in the past 26 weeks of trial and the courage to do the right thing under the circumstances. Having served at the higher levels of the department, I know that that was not an easy decision. They never are, when so much has been invested, and the agents and the prosecutors are so convinced of the righteousness of their position. I for one however am confident this will be in the end a positive, if not painful, lesson that results in better prosecutions of individuals in the future under the FCPA. As for the defendants, I hope the healing process is a swift one and that they get back to their normal lives in the very near future. Finally, I would be remiss if I did not comment on the tireless and spirited effort by the defense counsel from all over the country who came here to try these very lengthy and complicated cases under difficult circumstances and some even pro bono. Their hard work and effective advocacy are a testament to how strong our criminal defense bar is nationwide. And so without further adieu I grant the government’s motion to dismiss. The defendants are excused.”
In a recent interview, Duross stated as follows regarding the Africa Sting case – “I still believe it was a better case than most people thought.” This is not how the jury foreman in one of the Africa Sting trials saw it. In this guest post, the jury foreman stated that ‘‘a number of jurors were troubled by the nature of the FBI sting operation’’ and stated that the underlying view of the jury was that ‘‘the defendants had acted in good faith and the FBI/DOJ in bad faith.”
The jury foreman concluded the FCPA Professor post as follows:
“The government has the option to try [the defendants on which the jury hung] again. As a taxpayer, I sincerely hope they will instead dismiss the charges. The evidence simply does not exist, even if they get their witnesses to behave better under cross, to convict. This is a case that makes one wish that a supermajority was sufficient to acquit. Prolonging this prosecution is a waste of government resources. At some point in the deliberations, I described this sting and prosecution as a quarterback sneak. Although I came to regret that analogy for the frequency with which it was recalled in the jury room, I think it apt. The FBI and DOJ designed a play to get the ball just across the goal line. Unfortunately, in the ensuing pileup, no camera angle shows the ball with clarity and it is anyone’s guess as to whether they scored.”
The DOJ’s enforcement action against Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee ended in December 2011 with Judge Howard Matz dismissing the indictment after finding numerous instances of prosecutorial misconduct and stating as follows (see here for the prior post).
“[The instances of misconduct were so varied and occurred over such a long time] that they add up to an unusual and extreme picture of a prosecution gone badly awry. […] The Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s order, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.”
“Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully . . . [. . .] The financial costs of the investigation and trial were immense, but the emotional drubbing [Lindsey and Lee] absorbed was even worse. As for [Lindsey Manufacturing], the very survival of that small, once highly respected enterprise has been placed in jeopardy.”
The DOJ’s enforcement action against John O’Shea ended in January 2012 when Judge Lynn Hughes granted O’Shea’s motion for acquittal after the DOJ’s case, a case which Duross personally tried (see here). Judge Hughes stated as follows.
“The problem here is that the principal witness against Mr. O’Shea … knows almost nothing.”
“The government should have been prepared before they brought the charges to the Grand Jury. […] You shouldn’t indict people on stuff you can’t prove.”
As FCPA Unit Chief, Duross was a public figure and one that publicly welcomed scrutiny and accountability. This post provides the public with additional facts and information concerning FCPA enforcement during Duross’s tenure as FCPA Unit Chief so that readers can analyze for themselves Duross’s tenure, as well as more broadly, various policy issues relevant to DOJ FCPA enforcement.
In a recent interview, Duross stated as follows concerning his tenure as FCPA Unit Chief – “I think I had a great run.”
You can decide for yourself.
The Guidance One Year Later
One year ago today, the DOJ and SEC released FCPA Guidance. (See here for the Guidance and here for the Guidance press conference).
To say that the Guidance was long-awaited is an understatement.
In 1988, Congress encouraged the DOJ to issue FCPA guidance, but the DOJ concluded that “no guidelines are necessary.” In 2002, the OECD – in the context of its Phase 2 report of U.S. enforcement efforts of the OECD Anti-Bribery Convention – encouraged U.S. enforcement agencies to issue guidance. No dice. Again, in 2010 the OECD – this time in the context of its Phase 3 report of U.S. enforcement efforts of the OECD Convention – encouraged U.S. enforcement agencies to issue guidance. Again, no dice. It was only after the FCPA reform movement was picking up steam in mid to late 2011 when the DOJ declared that FCPA guidance would be coming. It took a year to actually release the Guidance and its release in November 2012 soon after the presidential election and during a lame duck Congress at least raises an inference that the Guidance and its timing was in part political.
Everyone, (or so it seemed) made their Guidance opinions known. (See this prior post which collects dozens of opinions from law firms, individuals, and others regarding the Guidance). The consensus was that the Guidance offered little in terms of actual new substance and that FCPA reform remains a viable issue.
My own thoughts were captured in this article “Grading the Foreign Corrupt Practices Act Guidance.” Among other things, the article discussed how the Guidance was an advocacy piece and not a well-balanced portrayal of the FCPA as it is replete with selective information, half-truths, and, worse, information that is demonstratively false. Indeed, as highlighted in this prior post, in the Guidance the enforcement agencies literally rewrote the statute!
In the Guidance, and in connection with its release, the enforcement agencies actually made some sensible statements (see here for the prior post) such as:
- the enforcement agencies are “focused on bribes of consequence – ones that have a fundamentally corrosive effect on the way companies do business abroad.”
- enforcement efforts are focused on “payments of real and substantial value that clearly represent an unambiguous intent to bribe a foreign official to obtain or retain business”
- enforcement agencies are “interested in companies spending compliance dollars in the most sensible way” and that the Guidance can help companies as to where they can “minimize investment and where they can maximize it.”
Indeed one of the more useful aspects of the Guidance is that it can be used as a measuring stick for future enforcement activity (see here for the prior post).
Since the Guidance, there have been eight corporate FCPA enforcement actions. Several of these enforcement actions – Ralph Lauren, Phillips, Stryker, and Allianz – raise the issue of whether the enforcement agencies are indeed acting consistent with their own Guidance, let alone the FCPA statue itself.
In short, a year has passed since the Guidance and not much has changed.
It would seem that the only thing that has changed is that the principal spokespersons / authors of the Guidance are now part of FCPA Inc. (See here, here and here).
FCPA Guidance Rewrites The FCPA
Readers have likely read the FCPA Guidance by now, if not multiple times.
The Guidance contains an appendix that includes, among other things, the text of the Foreign Corrupt Practices Act. In the Guidance, the enforcement agencies have rewritten the text of the FCPA and this post highlights a statutory construction error that even a first year law student would be expected to understand and recognize.
Set forth below is the text of the FCPA regarding the “obtain or retain business” element.
“anything of value to
any foreign official for purposes of
(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or
(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,
in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;
Set forth below is how the text of the FCPA is portrayed in the FCPA Guidance.
“anything of value to
any foreign official for purposes of
(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or
(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;
On one hand, the obvious error and rewriting of the FCPA in the Guidance could be attributed to scrivener’s error. After all, both the DOJ’s FCPA website and the SEC’s FCPA website contain accurate versions of the FCPA.
On the other hand, scrivener’s error seems unlikely given the substance of the Guidance and that it appears the DOJ and SEC have always wanted an FCPA statute that doesn’t exist.
As I highlight in my article “Grading the FCPA Guidance,” the most disturbing portion of the Guidance concerns the ‘‘obtain or retain business’’ element of the FCPA. The Guidance asserts that ‘‘in 1998, the FCPA was amended to conform to the requirements of the [OECD] Anti-Bribery Convention,’’ and ‘‘these amendments expanded the FCPA’s scope to include payments made to secure ‘‘any improper advantage.’’
The notion that the FCPA’s 1998 amendments conformed the FCPA to the OECD Convention and expanded the FCPA’s scope to include payments made to secure ‘‘any improper advantage’’ is demonstratively false.
Indeed, the DOJ’s position on this specific issue was rejected by both the trial court and the appellate court in United States v. Kay, a case involving payments to Haitian “foreign officials” for the purpose of reducing customs duties and sales taxes a company owed the Haitian government.
The trial court decision stated:
“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”
Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate likewise court stated as follows concerning the FCPA’s 1998 amendments:
“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’
Others have pointed out this key statutory difference as well, including Philip Urofsky, a former DOJ Assistant Chief of the Fraud Section. Writing after the 2010 CustomsGate cases involving use of Panalpina (see here for the prior post), Urofsky stated (here) as follows.
“When criminal liability is at issue … it is important that the borders of the statute be carefully limned. Unfortunately, the government’s pleadings in the Panalpina cases do more to blur than clarify the limits of the law. For example, in some cases, the DOJ did not even plead the language of the FCPA but used instead that of the OECD Convention. For example, in Pride International, the conspiracy count alleged that the payments in question were ‘to make corrupt payments to a Mexico government official in order to obtain or retain business and to obtain other favorable treatment.’ Similarly, in the Noble NPA, the DOJ stated that the FCPA was intended to prohibit bribes ‘for the purpose of obtaining or retaining business or securing any improper advantage.’ In each case, the italicized language is simply not a part of the statutory element.”
The enforcement agencies state that the Guidance sets forth “what the law is” and has claimed that the document took nearly a year to draft.
Thus, the above statutory construction error is troubling, yet telling at the same time.
Friday Roundup
Survey says, an editorial, I’ll second that, and spot-on. It’s all here in the Friday roundup.
Survey Says
The recently issued Kroll / Compliance Week Anti-Bribery and Corruption Benchmarking Report was based on responses from “nearly 300 executives” and “participants hailed from all manner of industry.”
Survey findings of note.
“Was the FCPA Guidance any help? Nearly 53 percent rated the guidance as “a good read, but it didn’t tell me anything new.” Another 23.5 percent deemed it very helpful, 18.8 percent didn’t know, and 4.6 percent said the guidance actually left them more confused.”
Regarding third parties:
- “The average respondent reports that his/her company conducts business with more than 3,500 third parties”
- “Most companies (79 percent) will drop a potential third party even upon rumor of bribery without any hard proof”
- “47 percent of all respondents said they conduct no anti-corruption training with their third parties at all”
Financial Times Editorial on Bribery Act
I was pleased to speak to the Financial Times in connection with its recent Bribery Act editorial. It stated in full as follows.
Government Needs to Clarify Application of Bribery Act
Britain was once considered a laggard in the international battle against corruption. The Bribery Act, which came into force in 2011, was the first overhaul of anti-corruption laws in almost a century. Two years on, the government wants to review it. This is sensible, as new legislation can have unintended consequences. But any review should not result in a weaker law. That would only allow greater scope for graft.
The government is responding to complaints from small and medium-sized businesses that the costs of compliance are too high. In particular, they are worried about the ban on facilitation payments, small amounts paid to officials to expedite services such as visas or customs checks. Businesses argue that Britain holds its companies to a higher standard than other countries – particularly the US, where such payments are not banned. They say this puts them at a disadvantage.
These concerns are understandable, but exaggerated. Facilitation payments have always been illegal in the UK. Yet conflicting signals from the authorities have sown confusion. Moreover, the absence of case law leaves companies in the dark as to how the law will be applied and what defence is valid. This has created a climate in which companies easily fall prey to firms peddling overly-prescriptive and costly advice on compliance.
More can and should be done to clarify the circumstances under which a company will be pursued. This will help to counter the scaremongering that has led some businesses to pass up export opportunities. To be fair, the guidelines already allow some flexibility for smaller businesses. They are not expected to use the same procedures as big multinationals. When choosing an agent to open a new market, for example, it might be sufficient to verify business references, conduct an internet search and refer to the local chamber of commerce or UK embassy, as long as the anti-corruption policy is widely enough disseminated. The government’s duty is to ensure resources are sufficient to meet such requests.
Authorities must also be consistent. Businesses will not respond to demands that breaches be reported if they fear they will be prosecuted for any and all transgressions.
British companies have other competitive advantages to win business with than bribery. Graft is an evil that blights developing economies and the companies which resort to it. The Bribery Act does not need changing. It just needs supporting.
I’ll Second That
Earlier this week in a Wall Street Journal editorial titled “Mum’s the Word About SEC Defeats” Russ Ryan (Partner, King & Spalding and former Assistant Director of the SEC Enforcement Division) stated as follows. “Like other federal agencies, the SEC has long been good at publicizing its initial accusations of wrongdoing – which is fair enough – but not so good at letting the public know when those accusations turn out to be unfounded or an overreach.” As Ryan rightly noted, in this internet age, “SEC publicity is permanent and widely dispersed. The regulator’s accusations can persist indefinitely among the top search-engine results for the names of those accused.”
I’ll second that and have previousy written about the same dynamics Ryan highlights under the heading “Writer’s Cramp at the DOJ.” See prior posts here and here.
Spot On
Colleen Conry (Ropes Gray) stated as follows in a recent Law360 interview.
Q: What aspects of your practice area are in need of reform and why?
A: The government’s attempts to hold foreign companies accountable for having compliance programs that are on par with those we see at companies that are headquartered in the United States are challenging. Foreign companies often lack notice of that expectation and as a result suffer the consequences. Over time, I hope the government will at least consider as one factor the compliance standards that are the norm in the country in which the foreign entity operates.
*****
A good weekend to all.
Does The DOJ Really Believe That A Significant Percentage Of Issuers Are Engaged In Criminal Acts?
The DOJ has stated that non-prosecution and deferred prosecution agreements “benefit the public and industries by providing guidance on what constitutes improper conduct.” (See here).
With that in mind, consider the recent Total enforcement action (see here for the prior post). The DOJ alleged, in support of criminal FCPA internal controls violations, as follows.
“Total: (a) failed to implement adequate anti-bribery compliance policies and procedures; (b) failed to maintain an adequate system for the selection and approval of consultants; (c) failed to conduct adequate audits of payments to purported consultants; (d) failed to establish a sufficiently empowered and competent corporate compliance office; (e) failed to take reasonable steps to ensure the company’s compliance and ethics program was followed; (f) failed to evaluate regularly the effectiveness of the company’s compliance and ethics program; (g) failed to provide appropriate incentives to perform in accordance with the compliance and ethics program; (h) concealed the consulting agreements’ true nature and true participants; (i) performed no due diligence concerning the named or unnamed parties to these agreements; and (j) lacked controls sufficient to provide reasonable assurances that the consulting agreements complied with applicable laws.”
If the DOJ believes that each of the above constitutes a criminal violation of the internal controls provisions, then a significant percentage of issuers are engaged in criminal acts.
Survey after survey indicates that a significant percentage of companies, including issuer’s subject to the FCPA’s internal controls provisions, fail to maintain an adequate system for selection and approval of consultants, fail to conduct audits of payments to consultants, fail to conduct due diligence of third-parties, and fail to regularly evaluate the effectiveness of its compliance and ethics program.
For instance, the recently issued Kroll / Compliance Week Anti-Bribery and Corruption Benchmarking Report found “that 47 percent of all respondents say they conduct no anti-corruption training with their third parties” and “of the remainder who do train their third parties on anti-corruption, only 30 percent of that group believe their efforts are effective.”
Likewise, as noted in this recent post, according to a recent survey “only 30% of all survey respondents say their companies always conduct a risk review of existing business relationships and ties to agents in foreign countries.”
Further, as noted in this prior post, a survey found as follows. “Despite the significant risks and specified demands of regulators [as to third parties], our survey suggests that the corporate response to mitigating third-party risks is still inadequate. Many companies are failing to adopt even the most basic controls to manage their third-party relationships.” “Effective third-party management does not end at the performance of due diligence. Third parties also should be monitored on an ongoing basis, including regular compliance assessments and audits. It is therefore worrying that only 45% of respondents identified audit rights or regular audits of the third party as a process in place to monitor the relationship.”
Indeed, as even the DOJ and SEC recognized in the November 2012 FCPA guidance, “64% of general counsel whose companies are subject to the FCPA say there is room for improvement in their FCPA training and compliance programs.” (See here for the prior post).
The DOJ’s allegations in the Total enforcement action are all the more alarming given that the time period relevant to the conduct at issue was between 1995 to 2004. Is the DOJ suggesting that nearly every issuer during this time period was engaged in criminal acts given that issuers during that time period likely failed to engage in all of the compliance practices identified in the Total enforcement action?
Perhaps the Total enforcement action is the product of vague and sloppy pleading. Because there is little chance that the DOJ will ever have to prove its allegations, this tends to happen in many FCPA enforcement actions. Yet, if the DOJ truly believes that all of the above generic allegations in the Total enforcement action represent issuer criminal violations, then the DOJ is suggesting that a significant percentage of issuers are engaged in criminal acts.
If so, this is troubling.
In my article “Grading the Foreign Corrupt Practices Act Guidance” and in this prior post, I detailed how DOJ officials stated that the legal community can have confidence that the enforcement agencies will act consistently with the Guidance. I then observed that the FCPA Guidance can serve as a useful measuring stick for future enforcement agency activity and detailed various statements in the Guidance that can serve this purpose.
Certain statements concerned the FCPA’s book and records and internal controls provisions, including that the FCPA “does not specify a particular set of controls that companies are required to implement” and that the concept of reasonableness (a key statutory element) “of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.”