Hail To The Chief
Today is Presidents’ Day.
This post highlights the role of Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton in enactment and subsequent development of the FCPA. My article “The Story of the Foreign Corrupt Practices Act” also contains a detailed overview of the roles of the Ford and Carter administrations.
Ford
After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a “Memorandum Establishing the Task Force on Questionable Corporate Payments Abroad” (see here).
The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime. The Ford Administration favored the former and in June 1976, Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here). As noted in the remarks, Ford directed the task force “to prepare legislation that would require corporate disclosure of all payments made with the intention of influencing foreign government officials.”
Certain bills were introduced in Congress consistent with Ford’s vision and in August 1976 Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).
Neither Ford’s proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.
Carter
Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress. When Congress reconvened in January 1977 after the election, the movement to adopt a criminalization regime soon picked up speed again.
Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.
On December 20, 1977, President Carter signed S. 305 into law – see here for his signing statement.
Reagan
As noted in this previous post, President Reagan’s administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration, numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that while the FCPA had addressed a serious problem, the statute created much uncertainty and was, in the minds of many, unworkable.
Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced – either as stand alone bills or specific titles to omnibus trade and export bills – that sought to amend the FCPA. This legislative process took eight years.
In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan’s signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.
Clinton
In November 1998, President Clinton signed S. 2375, the “International Anti-Bribery and Fair Competition Act of 1998.” Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA – “any person” not an issuer or domestic concern to the extent such person’s bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.
See here for President Clinton’s signing statement.
The FCPA reform debate is not as vibrant as it was a year ago, but reform remains a viable issue. See prior posts here and here for recent commentary.
Will President Obama play a role in FCPA history?
The FCPA As An Ambiguous Statute And The Importance Of Legislative History
Several FCPA commentators object to the notion that the Foreign Corrupt Practices Act is ambiguous.
Writing recently at Forbes (see here for the article titled “Top 5 Misconceptions About The FCPA”), Howard Sklar set out to “clear up a few misconceptions about the FCPA.” Number one on his list of misconceptions was that ‘the FCPA is a vague statute.” Writing on his FCPA Blog, Richard Cassin has long maintained (see here and here for the more recent iteration) that FCPA lawyers say that the law is “complicated, technically challenging, obscure, poorly drafted and badly organized.” Cassin however warned as follows. “But don’t believe it. There’s no evidence in the record that judges or juries have any trouble understanding the FCPA.”
The above protestations and observations are just plain wrong. There is abundant “evidence in the record” that the FCPA is an ambiguous statute. Don’t take my word, read FCPA case law
In fact, last week Judge Richard Sullivan (S.D.N.Y.) concluded what several other federal court judges before him have previously concluded – that the FCPA is an ambiguous statute. (See here for the prior post discussing Judge Sullivan’s opinion in SEC v. Straub, including his conclusion that the jurisdictional element of an FCPA anti-bribery violation is ambiguous).
This post summarizes the many instances in which federal court judges have found various provisions of the FCPA to be ambiguous.
In U.S. v. Kay, 200 F.Supp.2d 681 (S.D. Tex. 2002), Judge David Hittner concluded that the FCPA’s “obtain or retain business” element was ambiguous and he thus turned to an analysis of the legislative history. On appeal, the Fifth Circuit (see 359 F.3d 738 (5th Cir. 2004)) likewise stated as follows prior to an extensive review of the FCPA’s legislative history.
“[T]he district court concluded that the FCPA’s language is ambiguous, and proceeded to review the statute’s legislative history. We agree with the court’s finding of ambiguity for several reasons. Perhaps our most significant statutory construction problem results from the failure of the language of the FCPA to give a clear indication of the exact scope of the business nexus element; that is, the proximity of the required nexus between, on the one hand, the anticipated results of the foreign official’s bargained-for action or inaction, and, on the other hand, the assistance provided by or expected from those results in helping the briber to obtain or retain business. Stated differently, how attenuated can the linkage be between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?”
In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Court stated as follows. “It is difficult to determine the meaning of the word “corruptly” simply by reading it in context. We therefore look outside the text of the statute to determine its intended meaning. […] (“Legislative history and other tools of interpretation may be relied upon only if the terms of the statute are ambiguous.”
In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Shira Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.” Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history. Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer as follows. “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.”
In U.S. v. Kozeny, 493 F.Supp.2d 693 (S.D.N.Y. 2007), Judge Scheindlin stated as follows concerning the statute of limitations applicable to FCPA criminal violations. “I find that [18 U.S.C. § 3282] is ambiguous, and turn to its legislative history for guidance on its proper interpretation.”
In U.S. v. Jensen, 532 F.Supp.2d 1187 (N.D. Cal. 2008), Judge Charles Breyer stated as follows regarding § 78m(b)(5) which makes “knowing” violations of the FCPA books and records and internal control provisions a crime. “Because the plain language of § 78m(b)(5) is not unambiguous, the Court turns to legislative history.”
In all of the above examples, given the ambiguity in the FCPA, courts resorted to legislative history to construe the statute. This is why the FCPA’s legislative history remains vital and important. (See here for my article “The Story of the Foreign Corrupt Practices Act” and here for my “foreign official” declaration detailing the FCPA’s legislative history relevant to this element).
In addition to the above examples, FCPA legislative history was also consulted in construing statutory terms in the following cases.
U.S. v. Blondek (N.D. Tex – June 1990) (Judge Sanders consulting legislative history in concluding that “foreign officials” can not be charged with conspiracy to violate the FCPA).
SEC v. Jackson (S.D.N.Y. – Dec. 2012) (Judge Keith Ellison consulting legislative history regarding: the need to identify the “foreign official,” the facilitation payments exception, and the corrupt intent element).
U.S. v. Kozeny, 582 F.Supp.2d 535 (S.D.N.Y. 2008), Judge Scheindlin consulting legislative history regarding the local law affirmative defense.
The above referenced Forbes article began as follows. “Bad information is often worse than no information. There is a tremendous amount of noise in the discussion around FCPA. Not only noise, but anti-signal. That is, not just bad information, but information that is contrary to fact.”
Spot-on.
Reading Assignment
The semester has started and thus giving reading assignments is a daily task of mine.
So here is one for you.
On its recently revamped FCPA website (here), the SEC recently posted (here) the May 1976 “Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments and Practices.”
The 1976 Report is an important piece of FCPA legislative history and is discussed at length in both my article “The Story of the Foreign Corrupt Practices Act” (here) and my “foreign official” declaration (here) that has been used in the recent “foreign official” challenges, including the pending 11th Circuit appeal.
You should read the 1976 SEC Report.
The document best demonstrates that during Congress’s multi-year investigation of the foreign corporate payments problem, Congress learned of a wide range of foreign corporate payments to a variety of recipients for a variety of reasons. Congress could have legislated as to the wide range of foreign corporate payments discovered and documented in, among other sources in the legislative history, the 1976 SEC Report. Indeed, certain of the bills introduced during the legislative process captured a wide range of foreign corporate payments. Yet in passing the FCPA’s anti-bribery provisions, Congress intended to capture only a narrow range of foreign corporate payments.
In short, reading the 1976 SEC report will increase one’s understanding and appreciation of the narrow range of foreign corporate payments Congress intended to capture by the FCPA’s anti-bribery provisions and how the FCPA is a limited statute.
35 Years Ago Today …
Happy 35th birthday to our favorite statute, the Foreign Corrupt Practices Act.
Thirty-five years ago today, President Jimmy Carter signed S. 305. President Carter’s signing statement stated in full as follows
“I am pleased to sign into law S. 305, the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977. During my campaign for the Presidency, I repeatedly stressed the need for tough legislation to prohibit corporate bribery. S. 305 provides that necessary sanction. I share Congress’s belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our basic institutions. This law makes corrupt payments to foreign officials illegal under United States law. It requires publicly held corporations to keep accurate books and records and establish accounting controls to prevent the use of ‘off-the-books’ devices, which have been used to disguise corporate bribes in the past. The law also requires more extensive disclosure of ownership of stocks registered with the [SEC]. These efforts, however, can only be fully successful in combating bribery and extortion if other countries and business itself take comparable action. Therefore, I hope progress will continue in the United Nations toward the negotiation of a treaty on illicit payments. I am also encouraged by the International Chamber of Commerce’s new Code of Ethical Business Practices.”
S. 305, of course, did not fall out of the sky onto President Carter’s desk thirty-five years ago today. Rather, S. 305 was the result of more than two years of Congressional investigation, deliberation, and consideration.
If the FCPA is your cup of tea, as it is mine, you owe it to yourself to read the most extensive piece ever written about the FCPA’s history. See here for my recently published scholarship “The Story of the Foreign Corrupt Practices Act.” The Article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.
The Story Of The Foreign Corrupt Practices Act
Thirty-five years ago this month, the Foreign Corrupt Practices Act became law. In connection with this anniversary, I am pleased to share my scholarship “The Story of the Foreign Corrupt Practices Act” recently published in the Ohio State Law Journal. For a short video introduction to the article and issues, see here courtesy of Levick Communications.
“The Story of the Foreign Corrupt Practices Act” is the most extensive piece ever written about the FCPA’s history and it tells the FCPA’s story through original voices of actual participants who shaped the law.
The abstract of the article is as follows.
In the mid-1970s, Congress journeyed into uncharted territory. After more than two years of investigation, deliberation, and consideration, what emerged in 1977 was the Foreign Corrupt Practices Act, a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign markets. This Article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law. As the FCPA approaches thirty-five years old, and as enforcement enters a new era, the FCPA’s story remains important and relevant to government agencies charged with enforcing the law, those subject to the law, and policy makers contemplating reform.