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.
Judge Vacates SEC Rule Regarding Resource Extraction Disclosure Provisions
The day after Congress passed the massive Dodd-Frank Act in July 2010, I published this post regarding Section 1504 (“Disclosure of Payments by Resource Extraction Issuers”), a “miscellaneous” provision tucked into the bill at the last moment. I predicted that Section 1504 was sure to cause much angst and substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments. I noted that Section 1504 was akin to swatting a flay with a bazooka and that just because bribery and corruption are bad, does not mean that every attempt to curtail bribery and corruption is good or represents sound policy.
I further noted that in passing Section 1504, Congress(as if most members of Congress likely even knew that the miscellaneous provisions was tucked into the massive Dodd-Frank Act) was revisiting an issue sensibly put to rest many years ago in passing the FCPA.
The background is as follows.
The FCPA as enacted in 1977 contained (and still contains) an outright prohibition on improper payments to “foreign officials” to obtain or retain business (the anti-bribery provisions) as well as books and records and internal control provisions – but not disclosure provisions. The original versions of what became the “FCPA” (i.e. the “Foreign Payments Disclosure Act” and other similar bills) started out with disclosure provisions, including provisions requiring all U.S. companies to disclose all payments over $1,000 to any foreign agent or consultant and any and all other payments made in connection with foreign government business.
As to these disclosure provisions, many people, including most notably Senator Proxmire (D-WI – a Congressional leader on what would become the FCPA), were concerned that the disclosure obligations were too vague to enforce and would require the disclosure of thousands of payments that were perfectly legal and legitimate. Proxmire said during congressional hearings, “I would think they [the corporations subject to the disclosure requirements] would want some certainty. They want to know what they have to report and what they don’t have to report. They don’t want to guess and then find themselves in deep trouble because they guessed wrong.”
The final House Report on what would become the FCPA is even more clear. It states (when discussing the various disclosure provisions previously debated, but rejected): “Most disclosure proposals would require U.S. corporations doing business abroad to report all foreign payments including perfectly legal payments such as for promotional purposes and for sales commissions. A disclosure scheme, unlike outright prohibition, would require U.S. corporations to contend not only with an additional bureaucratic overlay but also with massive paperwork requirements.”
Back to Section 1504 of Dodd-Frank.
Numerous prior posts have highlighted the judicial challenge to the SEC rule implementing Section 1504. Yesterday U.S. District Court Judge John Bates vacated the SEC’s rule. (See here for the decision). The decision was not as to the merits of Section 1504, rather as to the SEC’s rule implementing Section 1504, and the decision is thus focused on administrative law specifics.
Regardless, I applaud the decision.
Feel good legislation that regulates an area that is already subject to criminal prohibitions while imposing significant compliance burdens on companies (the SEC itself estimated that the provision would cost U.S. public companies at least $1 billion in initial compliance costs and
$200 to $400 million in ongoing compliance costs) does not represent sound public policy.
For additional coverage of the decision, as well as links to other commentary, see here from Samuel Rubenfeld at Wall Street Journal Risk & Compliance Journal.
The U.K.’s Growing Pains
A recent post at thebriberyact.com highlighted a recent U.K. House of Lords select committee report (here) on small and medium size enterprises. The objective of the committee was “to consider the Government’s assistance and promotion of the export of products and services by Small and Medium Sized Enterprises and to make recommendations.”
A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”
Chapter 10 of the report states, in full, as follows (emphasis in original).
Introduction
10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”
10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”
10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”
10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”
10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”. LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”. Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.
Current Government action
10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue. Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”
10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.
10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”. We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.
10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.
To be sure, the report and its recommendation represent U.K. growing pains. But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.
As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.
There was much activity on this issue in the early 1980′s and among other things:
(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”
(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”
(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission […] recommended decriminalization of bribery; and
(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he “pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”
Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.
In short, the U.K’s growing pains are understandable and to be expected.
Looking Back On The Eckhardt Amendment
Yesterday’s post (here) highlighted the FCPA’s first mega-enforcement action involving multiple actors.
The story remained open as to George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company), and Luis Uriarte (the Latin American Regional Manager of Solar).
As noted in the prior post, soon after McLean and Uriarte (and several others) were indicted in October 1982, in November 1982 the DOJ also filed a criminal information against International Harvester (see here). The information was based on the same core set of allegations as in the October 1982 indictment and was based on the conduct of its employees McLean and Uriarte. International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement. (Notice the italics).
McLean and Uriarte filed a motion to dismiss the indictment principally based on the so-called Eckhardt amendment that was then part of the FCPA. In June 1983, Judge George Cire (S.D. Tex.) granted the motion to dismiss the substantive FCPA charges against them, but not the conspiracy charge. The DOJ appealed the dismissal which lead to a Fifth Circuit opinion. Before summarizing Judge Cire’s decision, as well as the Fifth Circuit’s decision, this post provides background information on the so-called Eckhardt amendment.
*****
The Eckhardt amendment was named after Representative Robert Eckhardt (D-Tex). If you read my detailed history of the FCPA, “The Story of the Foreign Corrupt Practices Act,” you will learn that Eckhardt was a leader in the House as to what would become the FCPA. My article provided a detailed overview of the FCPA legislative history, yet at the same time to keep the article at a publishable limit, omitted certain side issues also found in the FCPA’s extensive legislative history.
One side issue that developed towards the later part of the FCPA’s legislative history as the basic contours of the law began to take shape, and an issue of great concern to Representative Eckhardt, was that individual corporate actors might be put at a disadvantage in defending themselves in an FCPA enforcement action.
Representative Eckhardt stated in an April 1977 hearing, in pertinent part, as follows.
“I don’t have any compunctions against making acts of foreign bribery illegal for the corporation. […] [T]he [corporate] defendant would always be able to marshal what evidence there was to contradict any contention that the company had anything to do with the bribery. With respect to that necessary element of the case without which a conviction could not be had, the defendant would be peculiarly in control of the evidence, both overseas evidence and domestic evidence. But this is not so with respect to the individual who is an agent of such issuer and who is being accused of an act overseas where the totality of the proof would be from activities overseas. Indeed, the corporations interest might even be in conflict with that of the agent. The corporation might desire to have Joe Bloke found to have intentionally engaged in bribery and to have been the sole moving agent, that is, the company never agreed to it and the quicker they can convict Joe Bloke, the better off the company is. It is relieved of responsibility and it has a sacrificial lamb in Rome and everybody forgets about the activity.”
[…]
“I don’t find any difficulty whatsoever with the corporation’s position as a defendant because indeed it has a very inside road to testimony and information. […] [I]t seems to me that there is a vast difference between the position of the individual defendant accused of having violated the act and the corporate defendant. Besides, the individual defendant can be clapped in jail and the corporation can’t be clapped in jail.”
In September 1977, Representative Eckhardt testified before a House committee and likewise stated, in pertinent part, regarding H.R. 3815 (a bill he introduced, which in compromise with S. 305, ultimately became the FCPA).
“[W]e were so concerned about the individual penalty as a means of making a scapegoat of an individual that we provided in our bill that unless the corporation were found to be guilty there could not be an individual penalty at all.”
In short, the FCPA originally contained the following introductory language as to the penalty provisions applicable to employes or agents of issuers of domestic concerns “whenever an [issuer or domestic concern] is found to have violated [the FCPA’s anti-bribery provisions] …”.
*****
Back to McLean and Uriarte’s challenge.
In granting the motion to dismiss the substantive FCPA charges against them, Judge Cire noted that the defendants’ employer, International Harvester, pleaded guilty to conspiracy and not to a substantive FCPA offense. Judge Cire reasoned that “conspiracy and the related substantive offense which is the object of the conspiracy are separate and distinct crimes.”
Accordingly, Judge Cire concluded as follows. “Since International Harvester plead guilty to conspiracy and not to a substantive FCPA violation, it has not been found to have violated the FCPA. The Eckhardt amendment protects employees like McLean and Uriarte from prosecution under the FCPA when their employer has not been found to have violated the FCPA.” (See here for Judge Cire’s Memorandum and Order).
The DOJ appealed Judge Cire’s order and presented three arguments on appeal: (1) that the FCPA does not require the employer be convicted of an FCPA violation, only that it be established in the employee’s trial that the employer violated the FCPA; (2) that McLean, as an individual, may be charged with aiding and abetting FCPA violations; and (3) that International Harvester’s conviction of conspiracy was sufficient.
The Fifth Circuit began its decision (here) as follows.
“We are presented for the first time with the question of whether the FCPA permits the prosecution of an employee for a substantive offense under the Act if his employer has not and cannot be convicted of similarly violating the FCPA.”
The Fifth Circuit began its decision as follows.
“Our task in interpreting the FCPA ‘is to construe the language so as to give effect to the intent of Congress. To do so, we look primarily to the language of the statute and secondarily to its legislative history, which includes the ‘purpose the original enactment served, the discussion of statutory meaning in committee reports, the effect of amendments-whether accepted or rejected-and the remarks in debate preceding passage.”
[See this recent post highlighting the importance of the FCPA’s legislative history]
The Fifth Circuit then reviewed the “found to have violated” language of the Eckhardt amendment and stated as follows.
“Hearings were conducted on the precurser to the final version of the Eckhardt Amendment in April of 1977 by the subcommittee of the House Interstate and Foreign Commerce Committee. The subcommittee examined two proposed bills: (1) H.R. 3815, introduced by Congressman Bob Eckhardt, which imposed as a prerequisite to the conviction of an employee a showing of violation of the Act by the issuer or domestic concern, and (2) H.R. 1602 which had no such requirement. At the hearing, Congressman Eckhardt, the subcommittee chairman, in discussing H.R. 3815 [… stated as follows].
“Indeed, the corporations [sic] interest might even be in conflict with that of the agent. The corporation might desire to have Joe Bloke found to have intentionally engaged in bribery and to have been the sole moving agent, that is, the company never agreed to it and the quicker they can convict Joe Bloke, the better off the company is. It is relieved of responsibility and it has a sacrificial lamb in Rome and everybody forgets about the activity.”
The Fifth Circuit then stated as follows.
“Congressman Eckhardt pointed out the dependence of the agent on the corporation for an adequate defense since the corporation, due to its superior resources, would be in a much better position than the employer to defend against accusations of wrongdoing in a foreign country. He articulated concern over legislation that would require the agent alone to bear the burden of refuting allegations of FCPA violations. He was also troubled about giving the uncharged corporate employer incentive to both disavow knowledge of the agent’s activity and to let the agent bear all responsibility for the wrongdoing. This problem was avoided […] because what would become the Eckhardt Amendment ‘would require the government … to prove in the first instance that the issuer had violated the section, because that is the condition precedent to the holding of any agent responsible.”
After reviewing other aspects of the FCPA’s legislative history, the Fifth Circuit concluded that “both the language of the Act and its legislative history reveal a clear intent to impose criminal sanctions against the employee who acts at the behest of and for the benefit of his employer only where his employer has been convicted of similar FCPA violations.”
The Fifth Circuit then stated as follows.
“We hold that in order to convict an employee under the FCPA for acts committed for the benefit of his employer, the government must first convict the employer. Because the government failed to convict Harvester and under the plea agreement will be unable to indict Harvester and try it with McLean, the Act bars McLean’s prosecution.”
In so holding, the court observed that “it is well-settled that a conspiracy to commit an offense and the commission of a substantive offense are separate and distinct crimes.”
Uriarte was subsequently charged in a one-count superseding information and pleaded guilty to “accessory after the fact” in violation of 18 USC 3. He was placed on probation for one year. (See here).
As for McLean, contrary to what the FCPA Blog stated in this prior post, the Fifth Circuit’s decision did not end the DOJ’s case against McLean in that the decision only addressed the substantive FCPA charges against him that were dismissed by the trial court. The Fifth Circuit decision did not address the conspiracy charge against McLean.
As to the conspiracy charge, McLean proceeded to trial and was found not guilty by the jury.
*****
Stung by its McLean defeat, the DOJ sought to repeal the Eckhardt Amendment. In a September 1986 FCPA reform hearing in the Senate, John Keeney (Deputy Assistant Attorney General, Criminal Division) submitted a written statement, which read in pertinent part, as follows.
“The Department also wishes to highlight a serious law enforcement problem in both the existing law and in [a Senate bill to amend the FCPA], with respect to the prohibition against convicting an employee (and, in the present FCPA, an agent) of an issuer or domestic concern unless the domestic concern itself is ‘found to have violated’ the Act. The purpose of this provision, known in the present FCPA as the Eckhardt Amendment, was to prevent a company from labeling an employee as a renegade, thereby making him a scapegoat for the company’s criminal acts, and forcing him to bear alone the full economic burden of defending the criminal charges as well as the potential criminal sanctions. This goal, unfortunately, has not been met. There is nothing to prevent a company from pleading guilty to a FCPA violation thereby forcing the employee or agent to defend by himself. Situations similar to this have occurred in the cases brought thus far.”
“While the Eckhardt provision falls short of fulfilling its purpose, it also makes it more difficult to prosecute certain classes of individuals regardless of the quantum of evidence as to their guilt or that of their employers. In the only reported opinion on this issue, an appellate court construed Eckhardt to mean that a company must be convicted of a FCPA violation rather than merely be ‘found to have violated’ the act.”
“In that case, a company entered a pre-indictment guilty plea to conspiracy to violate the FCPA rather than to a substantive violation of the Act. The conspiracy plea was permitted because of the serious financial condition of the company and the real possibility that the imposition of a substantial fine would force it into bankruptcy. Two company employees were indicted for multiple FCPA violations as well as for conspiracy to violate the FCPA. The government offered to present proof beyond a reasonable doubt that the company had violated the FCPA and suggested that the Court instruct the jury to make the required Eckhardt finding prior to considering the guilt or innocence of the employees. The Court rejected these alternatives and dismissed the FCPA charges. In our view, this construction of the statute does not comport with the intention of Congress in enacting the Eckhardt language.”
“A similar problem exists where a company, over the objection of the United States, enters a plea of nolo contendere to FCPA violations. In that situation, a court could enter a judgment of conviction against the company for FCPA violations without necessarily making a finding as to guilt for purposes of the statute. Arguably, the United States might be prevented from prosecuting an employee or an agent of that company following such a conviction. Such an argument has recently been made by a fugitive defendant who, as agent for a domestic concern, acted as the conduit for transmitting in excess of 10 million dollars in bribes to two foreign officials on behalf of the company which pleaded no contest to 48 FCPA charges. Given the current state of the law, the eventual resolution of this issue is not completely free from doubt. What is clear is that there is no justification for allowing conduct of this sort to go unpunished.”
“Should the Subcommittee wish to retain the language of Eckhardt, the Department would suggest that it clarify what is meant by “found to have violated.” Alternatively, the Subcommittee might wish to substitute some other language which more clearly sets out the intent of Congress. If the Subcommittee wishes to insure that the goals of Eckhardt are met, we suggest adding language requiring a company to indemnify an employee’s attorney’s fees unless it can be shown that the employee was clearly was operating as a renegade or without the company’s knowledge. The Department is willing to work with the Subcommittee to clarify the Eckhardt provisions.”
A relevant House Conference Report in April 1987 (Rep. 100-576) as to a bill to amend the FCPA stated, in pertinent part, as follows.
“Anti-bribery Provision – House Repeal of Eckhardt Amendment
House bill. The House bill repealed the so-called Eckhardt amendment to the FCPA by deleting the lead-in clause of present law, which reads “whenever an issuer/domestic concern is found to have violated …”. The deleted language had the effect of providing that employees or agents could not be prosecuted for FCPA violations unless the domestic concern or issuer, whichever the case may be, had been found to have violated the Act.
Senate amendment. The Senate amendment contained no comparable provision.
Conference agreement. The Senate receded to the House.
When the FCPA was finally amended in 1988, among its changes, was repeal of the so-called Eckhardt amendment.
Broad Coalition Of Business Groups Seek Real FCPA Reform
At the FCPA Guidance press conference last November (see here), Assistant Attorney General Lanny Breuer wisely noted that the Guidance was not “complete closure” to various concerns regarding the Foreign Corrupt Practices Act and he stated that the DOJ “welcomes” continued discussions regarding FCPA reform.
And why should non-binding enforcement agency Guidance be the end to FCPA reform discussions? As Breuer and then SEC enforcement chief Robert Khuzami both acknowledged during the press conference, the Guidance “does not represent a change in policy.”
And why should Wal-Mart’s potential FCPA scrutiny (one of approximately 100 companies currently the subject of FCPA scrutiny) which involves FCPA issues as a condiment to a bigger corporate governance sandwich be the end to FCPA reform discussions? (See here for the prior post).
As I noted in my article “Grading the Foreign Corrupt Practices Act Guidance” while there were certain FCPA reform measures, such as abolishing NPAs and DPAs, as I have urged, that the enforcement agencies could have accomplished through a change in policy in the Guidance, other FCPA reform measures, like amending the statute to include a compliance defense, can be accomplished only through congressional action and presidential signature.
This post last month detailed the Manhattan Institute’s post-Guidance call for FCPA reform, and this recent post highlighted various post-Guidance FCPA reform scholarship from a practitioner and an academic.
Earlier this week, the Chamber of Commerce and a broad coalition of business groups (such as the American Bankers Association, the American Gaming Association, the American Insurance Association, the Generic Pharmaceutical Association, the National Association of Manufacturers, the National Foreign Trade Council, the Financial Services Roundtable, and the Poultry Federation) sent this letter to the DOJ and SEC “to identify several areas of continuing concern for businesses seeking in good faith to comply with the FCPA.”
The letter addressed the following sections: compliance programs and voluntary disclosure, foreign official / instrumentality, parent-subsidiary liability issues, successor liability issues, mens rea for corporate criminal liability and declinations.
As to compliance programs, the letter states, in pertinent part, as follows.
“Even if a company had in place a state-of-the-art compliance program that was well-designed to prevent FCPA violations and that was aggressively enforced, it remains exposed to liability if the program is circumvented by even one employee. The [Guidance] offers little assurance that the company’s pre-existing, strong compliance program will be given sufficient weight in the charging decisions of the Department and the SEC. Such assurance should be provided through legislative reform of the FCPA to add an affirmative defense that would permit a company, if charged with an anti-bribery violation, to rebut the imposition of criminal liability if the individuals responsible for the violation circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations and implemented with appropriate vigor.”
As to declinations, the letter states,in pertinent part, as follows.
“We do not share the view expressed by some in the Department and SEC that because the agencies do not routinely provide information on declinations in other types of cases, FCPA cases should not be treated any differently. The FCPA is exceptional in that: (i) it is over 30 years old, not a brand new law; (ii) it is very aggressively enforced, in terms of the number of pending investigations initiated each year and in the massive fines and penalties that are sometimes imposed; and (iii) it lacks a material body of case law through which it can be interpreted by the business community. Other statutes, including ones targeting financial fraud, antitrust violations and money laundering, have been extensively construed by the courts. As the Department and SEC recognize in the [Guidance] it is the courts and not the agencies that have the final say. However, until such time as a significant body of case law is developed, we encourage and would welcome regular release of anonymized information on declinations.”
“[A] decision not to bring a case where the evidence of a violation simply is lacking should not be considered a “declination.” We remain concerned that the Department and the SEC may be defining “declination” to include both circumstances. In order to provide useful guidance and positive incentives to companies seeking to comply with the FCPA, the Department and the SEC should continue to provide information – on an anonymized basis – regarding matters in which the agencies found sufficient evidence of an FCPA violation but nevertheless declined to pursue prosecution or enforcement action on the basis of other circumstances, such as the company’s voluntary disclosure, cooperation and remedial measures.”
Regarding the two issues discussed above, it is simply wrong and closed-minded to view these issues as “Chamber” issues when the reality is that many people for many years have been saying the same thing. (See my “Revisiting a Foreign Corrupt Practices Act Compliance Defense” article (which details the pro-compliance defense positions of many former high-ranking DOJ officials among others) and my “Grading the Foreign Corrupt Practices Act Guidance” article for a discussion of declination issues.
As the letter this week by a broad-coalition of business groups indicates, FCPA reform discussion is not dead, nor should it be. A compliance defense is not a race to the bottom, it is a race to the top. (See here for the prior post). Abolishing NPAs and DPAs, and thereby reconstructing a system of checks and balances to FCPA enforcement, is consistent with the rule of law. So too is increasing transparency in government decision-making.
During the FCPA reform debate in the 1980’s, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA by stating as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach …”.
During Senate hearings, Senator John Heinz stated as follows. “… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act […], we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”
The FCPA Guidance issued last November was not the result of a policy debate as to whether the current FCPA and its enforcement is the best approach. In fact, if you analyze, in chronological order, enforcement agency statements and positions (see pages 1-2 of my “Grading the Foreign Corrupt Practices Act Guidance” article) there is a credible argument to be made that one of the purposes of the Guidance was to prevent such a policy debate from going forward.
The FCPA is a fundamentally sound statute and I stated as such in my November 2010 Senate testimony. But how many truly believe that the FCPA is a perfect statute or that its enforcement is best accomplishing the objectives of punishing improper payments and deterring future improper payments?
These are worthy objectives to pursue. For this reason, it is good that FCPA reform discussions continue in the hopes that a substantive policy debate can result.