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The Impact Of The New FCPA Guidance On Reform Efforts

Today’s post is from former Attorney General Alberto R. Gonzales.


The Impact of the New FCPA Guidance on Reform Efforts

Hon. Alberto R. Gonzales, Counsel at Waller Lansden

As Professor Mike Koehler noted in his recent post, the DOJ previously declined to issue FCPA guidance on numerous occasions, despite specific recommendations from Congress and the  Organisation for Economic Co-Operation and Development.  That position changed after the U.S. Chamber of Commerce issued a position paper in October 2010 identifying perceived faults in the statute and enforcement of it and proposing certain recommendations for reform.  Under the title “Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act,” the Chamber advocated five specific reforms:

            • Adding a compliance defense;

            • Limiting a company’s liability for the prior actions of a company it has acquired;

            • Adding a “willfulness” requirement for corporate criminal liability;

            • Limiting a company’s liability for acts of a subsidiary; and

            • Better defining a “foreign official” under the statute.

In a speech approximately one year later, Assistant Attorney General Lanny Breuer specifically referenced the Chamber’s reform efforts, among those carried out by unnamed others.   While AAG Breuer expressed a willingness to “work[] with Congress on ways to improve our criminal laws” he also took pains “to be clear about one thing with respect to these proposals: we have no intention whatsoever of supporting reforms whose aim is to weaken the FCPA and make it a less effective tool for fighting foreign bribery.”  Later in the speech, he noted that the Department had recently taken “considered suggestions about FCPA enforcement into account,” referencing his personal involvement in discussions with industry representatives at a Department of Commerce sponsored roundtable.  He then spoke of the Department’s ongoing efforts to prepare what would become the guidance, suggesting that such discussions would serve to inform that process.

While AAG Breuer touted the Department’s consideration of industry viewpoints in preparing the guidance, it is less than clear whether the  efforts by reformers were causally, as opposed to merely temporally, related to the guidance’s formulation.  A skeptic might conclude that the Department fashioned the guidance solely in an effort to derail reform efforts, which were  beginning to gather  support in Congress.  One adopting that stance would view the guidance as less of a genuine attempt to increase transparency relating to the government’s enforcement approach or provide insight on how companies might structure suitably effective compliance programs, and more of a calculated bid to give the impression of compromising on reform efforts without actually conceding any ground.

While interesting to ponder, the question of whether the reform efforts triggered the guidance is far less important than the question of  its effect upon reform efforts.  That answer may depend on the responses to the following three questions:

1)  does the guidance constitute a concession on any of the reforms sought?

2)  if not, does the guidance refute, beyond all reasonable debate, the need for such reforms?

3)  regardless of whether the guidance forecloses the contentions advanced by reformers, does it effectively overcome the perceived need for reform?

Answering the first question is relatively easy: nothing in the guidance reflects agreement with or constitutes a concession regarding  proposed major reforms.  While the guidance extols the virtues of an effective compliance program and catalogues general principles regarding its construction and maintenance, it offers no indication that the government believes that existence of a compliance program – even one that is unquestionably robust – should automatically shield the company from FCPA liability as a matter of law.  (Any lingering uncertainty regarding the government’s position on this point was resolved when, during a panel discussion at the  American Conference Institute’s 2012 National Conference on the FCPA, AAG Breuer made clear Department’s wholesale rejection of the need for any such modification to the statute).  Similarly, the guidance details the underpinnings of the government’s views on parent-subsidiary liability and successor liability, but offers no indication of a perceived need for reform on either topic.  The guidance compiles a list of “non-exclusive factors to be considered” in evaluating whether an individual may fairly be deemed associated with a “department, agency or instrumentality” of a foreign government, but offers nothing to suggest that a formal definition is necessary in the statute.  Finally, the guidance dedicates a scant three paragraphs to the wilfulness issue, disregarding entirely  reformers’ claimed deficiency regarding corporate prosecutions, much less their proposed solutions.

Resolving the second inquiry is more difficult.  In some areas (particularly discussion of successor liability), the guidance makes a persuasive case against the need for reform simply by demonstrating the government’s commitment to a principled and logical approach.  But this is unlikely to tamp out all dispute on those issues, so it becomes necessary to take a more holistic approach to evaluation of the guidance.

While the enforcement agencies have received near universal praise for their efforts in compiling the guidance, there has been almost equal uniformity in the belief that the guidance fails to break any new substantive legal ground.  If one accepts that as true (and the recent public pronouncements by FCPA enforcers in the wake of the guidance have not suggested they disagree), it would seem difficult to suggest that the need for the substantive reforms sought has been alleviated.  If nothing has changed in the way the government interprets and enforces the statute, how can previous calls for reform be deemed answered?

Nevertheless, the sheer bulk of the guidance – 120 pages, 418 footnotes – constitutes an imposing presence.  In addition to its size, the guidance’s substance further undercuts the case for reform.  The guidance represents an expansive defense of the legitimacy of the government’s FCPA enforcement methodology, operating to tether positions previously staked out to particular authorities.  Although a good number of those “authorities” are simply prior enforcement actions brought, and pronouncements made by the government itself, the guidance nevertheless creates a compelling impression that the FCPA is enforced in a straightforward and consistent fashion.

It is this impression which informs and is likely to resolve the third question.  The guidance itself emphasizes that many areas of FCPA enforcement are subject to multi-factor tests and not bright line rules.  However,  the guidance represents perhaps the most detailed articulation by the government of any area of criminal law enforcement.  Regardless of whether it actually resolves (or even addresses) the specific reforms proposed by the Chamber and others, the guidance’s issuance effectively refutes the notion – implicit in the reform efforts – that FCPA enforcement is a black box which leaves exposed even those companies who undertake sincere efforts to comply with the statute’s mandates.  Whether under the principles of the fair warning doctrine or otherwise, advancing the notion post-guidance that those subject to the FCPA lack meaningful notice about the types of conduct than can and will be prosecuted would seem challenging at best.  It will likely take some systemic pattern of enforcement at odds with the guidance’s pronouncements, or sufficiently egregious anecdotal evidence, to overcome the image that the guidance fosters.

As noted previously by Professor Koehler, those advocating FCPA reforms already face the task overcoming the suggestion that they are “soft on bribery” (or worse, supportive of it) and are in fact seeking to weaken the government’s ability to deter and prosecute such conduct.  The guidance’s issuance steepens the climb for reformers, because it has created the perception of removing the element of uncertainty upon which much of the reformers’ claims of unfairness were premised.  While the guidance can hardly be deemed a death knell for FCPA reform efforts, it certainly delays and likely hinders those endeavors.

The Guidance As A Useful Measuring Stick For Future Enforcement Agency Activity

Now that the enforcement agencies have issued Foreign Corrupt Practices Act guidance, it can serve as a useful measuring stick for future enforcement agency activity.  Principal Deputy Chief of the DOJ Fraud Section Jeffrey Knox recently stated (see here) that the legal community can have confidence that the enforcement agencies will act consistently with the Guidance.

Many will be watching and in this regard several Guidance statements are noteworthy particularly because certain past FCPA enforcement actions, in whole or in part, have seemingly run counter to the statements.

Below is a list of ten meaningful statements in the Guidance as to future enforcement agency accountability.

“[T]he FCPA does not cover every type of bribe paid around the world for every purpose …” (Pg. 14)

“The corrupt intent requirement [of the FCPA] protects companies that engage in the ordinary and legitimate promotion of their business while targeting conduct that seeks to improperly induce officials into misusing their positions.” (Pg. 15)

“[A]s a practical matter, an entity is unlikely to qualify as an instrumentality [of a foreign government and its employees as “foreign officials”] if a government does not own or control a majority of its shares.” (Pg. 21)

“Successor liability does not […] create liability where none existed before. For example, if an issuer were to acquire a foreign company that was not previously subject to the FCPA’s jurisdiction, the mere acquisition of that foreign company would not retroactively create FCPA liability for the acquiring issuer.” (Pg. 28)

“The ‘in reasonable detail’ qualification [of the FCPA’s books and records provisions] was adopted by Congress ‘in light of the concern that such a standard, if unqualified, might connote a degree of exactitude and precision which is unrealistic.’ […] The term ‘reasonable detail’ is defined in the statute as the level of detail that would ‘satisfy prudent officials in the conduct of their own affairs.’ Thus, as Congress noted when it adopted this definition, ‘[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant factors, including the costs of compliance.'” (Pg. 39)

“Like the ‘reasonable detail’ requirement in the books and records provision, the [FCPA’s internal control provisions] defines ‘reasonable assurances’ as ‘such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.’ The Act does not specify a particular set of controls that companies are required to implement. Rather, the internal controls provisions gives companies the flexibility to develop and maintain a system of controls that is appropriate to their particular needs and circumstances.” (Pg. 40)

“Companies may not be able to exercise the same level of control over a minority-owned subsidiary or affiliate as they do over a majority or wholly owned entity. Therefore, if a parent company owns less than 50% of a subsidiary or affiliate, the parent is only required to use its best efforts to cause the minority-owned subsidiary or affiliate to devise and maintain a system of internal accounting controls consistent with the issuer’s own obligations under the FCPA.” (Pg. 43)

“The [DOJ’s] Principles of Federal Prosecution provide that prosecutors should recommend or commence federal prosecution if the putative defendant’s conduct constitutes a federal offense and the admissible evidence will probably be sufficient to obtain and sustain a conviction …”. (Pg. 52)

“[U.S. Sentencing Guidelines] reflect the recognition that a company’s failure to prevent every single violation does not necessarily mean that a particular company’s compliance program was not generally effective.  DOJ and SEC understand that ‘no compliance program can ever prevent all criminal activity by a corporation’s employees,’ and they do not hold companies to a standard of perfection.” (Pg. 56)

“Under the Alternative Fines Act … courts may impose significantly higher fines than those provided by the FCPA – up to twice the benefit that the defendant sought to obtain by making the corrupt payment, as long as the facts supporting the increased fines are included in the indictment and either proved to the jury beyond a reasonable doubt or admitted in a guilty plea proceeding.” (Pg. 68 citing Southern Union v. United States, 132 S.Ct. 2344 (2012))

The Guidance And Declinations

Much of the buzz surrounding the Guidance concerns six anonymized examples of matters DOJ and SEC declined to pursue, including a discussion of the facts DOJ and SEC considered when choosing to decline the particular matters.  However, contrary to the buzz, this is not first time, nor most detailed instance, of the DOJ publicly disclosing it FCPA “declination” decisions.

In 1983 in the context of FCPA reform hearings, a House Committee wanted to better understand and access the DOJ’s FCPA enforcement program.  To this end, it requested a variety of information from the DOJ, including its closed FCPA cases.  The DOJ responded with “summaries of all closed investigations of alleged FCPA violations” and its response detailed 83 investigations summarized over 18 pages.

In reading the summaries, it is interesting to note that several instances concern conduct that would very likely be the basis of an FCPA enforcement action in this current era.  It is further interesting to observe from the summaries something old-fashioned on display. That is the DOJ being mindful of the evidentiary burdens it would be put to in bringing an action (either in persuading a grand jury to indict or ultimately prevailing at trial).   For most of the FCPA’s history, the DOJ had two choices when faced with conduct that might implicate the FCPA: prosecute or do not prosecute.  In this era, the DOJ has created and championed a system with a third option – non-prosecution and deferred prosecution agreements. Since introduced to the FCPA context in 2004, this third option is one of the more obvious reasons for the increase in FCPA enforcement.

More recently, the DOJ provided information concerning its FCPA “declination” decisions in follow-up answers to questions asked at the June 2011 House FCPA hearing.  (See here for the prior post).  The information DOJ provided to Congress then is substantively similar to the “declination” information included in Guidance.

Aside from not being as revolutionary as observers may think, the Guidance “declination” examples raise more questions than answers.  For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated.  For instance, Example 1 at most indicates that a company received competitor bid information from a third party with connections to a foreign government and discovered various FCPA red flags during an internal investigation.  Example 4 at most indicates that a customs agent engaged by a company’s foreign subsidiary made small bribe payments without any discussion of whether the company or its foreign subsidiary possessed the requisite knowledge under the FCPA’s third-party payment provisions.  Example 5 at most indicates that a company, in connection with its acquisition of a foreign company, learned of potential improper payments without any discussion of whether the foreign company was subject to the FCPA’s jurisdiction.  (For additional reading on this quality of the examples, see this recent Guidance alert authored by WilmerHale – specifically pgs. 8-9).

Moreover, in all of the declination examples in the Guidance, the factors motivating the “declination” decision – such as voluntary disclosure and cooperation, effective remedial measures, small improper payments – can often be found in many instances in which FCPA enforcement actions were brought.

The discussion of so-called “declinations” in the Guidance raises once again the pressing question of how the enforcement agencies actually define a “declination.”  To my knowledge, the DOJ has never offered a definition, but perhaps in an effort to portray a fair and balanced FCPA enforcement program, the DOJ appears to be advocating an expansive definition.  However, in the criminal context the term “declination” should be reserved for instances in which the DOJ concludes that it can prove beyond a reasonable doubt all the necessary elements of a cause of action, yet decides not to pursue the action.

With this definition, many of the Guidance “declination” examples are like a police officer “declining” to issue a speeding ticket in instances in which the driver was not speeding.  This is not a “declination”-  it is what the law commands – and such reasoning applies in the FCPA context as well.

What If?

What if, instead of issuing guidance in 2012, the DOJ would have issued guidance in 1988 after Congress, as part of the FCPA’s 1988 amendments, encouraged the DOJ to issue such guidance?

For instance, a relevant House Report stated as follows.  “In order to enhance compliance with the provisions of the FCPA [the FCPA amendment] establishes a procedure for the [DOJ] to issue guidance describing examples of activities that would or would not conform with the [DOJ’s] present enforcement policy regarding FCPA violations.”

The Sixth Circuit noted that the 1998 amendments “clearly evince[d] a preference for compliance in lieu of prosecution; however, in response to Congress’s suggestion, the DOJ determined in 1990 that “no guidelines are necessary.”  (See here and here for prior posts).

What if, instead of issuing guidance in 2012, the enforcement agencies would have issued guidance in 2002 after the OECD, in its Phase 2 Report of the U.S., encouraged the U.S. to issue such guidance?

In pertinent part, the OECD Report stated as follows.  “Despite the abundance of articles and commentaries on [the FCPA], there is only limited amount of authoritative or official guidance available on compliance with the twenty five-year statute.  […]  Much of the authority or guidance regarding the Act comes from speeches from DOJ and SEC officials, DOJ opinions, DOJ and SEC complaints, settlements that have been filed, and informal discussions of issues between companies’ counsel and the DOJ or the SEC.  […]  The status of these various sources of information is however not always clear:  there could be merit in regrouping and consolidating them in a single guidance document.”

The OECD Phase 2 Report concluded on this issue as follows.  “In the view of the lead examiners, the time has come to explore the need for further forms of guidance, mainly to assist new players […] on the international scene, and to provide a valuable risk management tool to guide companies through some of the pitfalls which might arise in structuring international transactions involving potential exposures.”

What if, instead of issuing FCPA guidance in 2012, the enforcement agencies would have issued guidance in 2010 after the OECD, this time in its October 2010 Phase 3 Report of the U.S., stated as follows.  “The evaluators recommend that the United States consider consolidating and summarizing [all relevant sources of FCPA information] to ensure easy accessibility, especially for [companies] which face limited resources.”

Despite Congress suggesting FCPA guidance in 1988, and repeated OECD recommendations for guidance in 2002 and 2010, the DOJ refused to issue guidance.

For instance, in the aftermath of a November 30, 2010 Senate FCPA hearing, Senator Amy Klobuchar asked the DOJ the following post-hearing question.  “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’ area.”   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. (See here).

Although the enforcement agencies state in the Guidance that its issuance was “in part, a response to [the OECD’s] Phase 3 recommendations” the DOJ’s above response after the OECD Phase 3 recommendations calls into question the genuineness of this motivation.

Another likely motive for issuing the Guidance was the desire of the enforcement agencies to forestall introduction of an actual FCPA reform bill.

As to this issue, the following background is relevant.  After the November 2010 Senate FCPA hearing, FCPA reform gained steam heading into a June 2011 House hearing.  The House hearing evidenced bi-partisan support for certain aspects of FCPA reform and at the conclusion of the hearing Chair James Sensenbrenner stated that “we will be drafting [an FCPA reform] bill.  (See here).  Against this backdrop, in November 2011, Assistant Attorney General Lanny Breuer announced that in 2012 the DOJ intended to issue FCPA guidance.  (See here).

Those on Capitol Hill who were inclined to introduce an FCPA reform bill said that they would await DOJ’s FCPA guidance before introducing such a bill.  (See here).   That the Guidance was issued very soon after the November presidential election, during a lame duck Congress, would seem to advance, in addition to the above information, the notion that issuance and the timing of the Guidance was in part political.

Regardless of the enforcement agencies’ motivations in issuing the Guidance when they did, it is telling that it took over a year – from the time of Breuer’s announcement –  to issue the Guidance.  After all, both the DOJ and SEC have specific FCPA units and both enforcement agencies have indicated, in various ways and in various settings, that the FCPA is a clear and unambiguous statute.

The point is this.

While the Guidance is a useful resource guide as it collects in one document the positions and policies of the enforcement agencies, and for this the agencies deserve credit and a pat on the back, the pat on the back could have and should have occurred a long time ago.

Those who closely follow the FCPA are left to wonder what if the Guidance was issued two years, ten years, or twenty-four years ago?

Friday Leftovers

Once I started, it was hard to stop.  This previous post linked to and provided brief excerpts from law firm client alerts 48 hours after release of the Foreign Corrupt Practices Act guidance by the DOJ and SEC.  (See here).   I updated the post throughout the week and it now contains links and excerpts to approximately 40 law firm alerts.  If nothing else, the release of the FCPA guidance was news and demonstrates once again the existence of a vibrant and competitive FCPA industry.  The clear consensus – among those who have publicly stated a position on the guidance – is the same as noted last week – the guidance offers little in terms of actual new substance and FCPA reform issues remain.

Several posts next week will explore various aspects of the guidance.


As many in FCPA Inc. know, the release of the guidance occurred one day before a major industry event in Washington D.C.  It was at this event last year that Assistant Attorney General Lanny Breuer announced the DOJ’s intention to issue guidance in 2012.  (See here for the prior post).

Breuer once again spoke at the event and in his speech he largely carried forward the empty rhetoric from his other recent FCPA speech.  (See here for the previous post).  Breuer even used religious allegory in describing the DOJ’s FCPA enforcement program when he stated as follows.  “[W]e in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.”

Below are additional excerpts from his speech.

“As a result of our efforts over the past three-and-a-half years, robust FCPA enforcement has become part of the fabric of the Justice Department:  Our global anti-corruption mission has seeped into the Criminal Division’s core.  And there is no turning back.  The FCPA is now a reality that companies know they must live with and adjust to; and this nation is better off for it.”

“We are focused on bribes of consequence – ones that have a fundamentally corrosive effect on the way companies do business abroad.”

In his speech, Breuer also gave props to the FCPA blogosphere when he stated as follows.  “I’ve heard that there are even several blogs that keep track of each one of our cases, which I think is terrific.”  It is terrific to fact-check FCPA enforcement agency speeches and to hold public officials accountable in enforcing a high-profile law.


Speaking of the FCPA blogosphere (broadly speaking), several covered the industry event at which Breuer spoke.

See here from the Corporate Crime Reporter (focusing on DOJ and SEC declinations).

See here from Morrison & Foerster (a general discussion of DOJ and SEC comments).

See here from Howard Sklar at his Open Air Blog (apparently taking credit for the fact that the FCPA has always contained a corrupt intent element).

See here from Matteson Ellis at his FCPAmericas Blog (general discussion of issues).


Breuer (along with other FCPA notables) also recently spoke at a Federalist Society event in Washington, D.C .  See here for the writeup by Main Justice (an on-line news agency).  For more on the event, see here from Law360.


The DOJ’s FCPA website (here) has always contained a list of its FCPA Opinion Procedure Releases.  Recently, the site was updated to provide a useful subject-matter index of the releases (here) as well as summaries (here).

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