A New Strategy For Preventing Bribery And Extortion In International Business Transactions
Today’s post is from Bruce Klaw (here), an Assistant Professor of Law at Keimyung University in South Korea. Klaw discusses his recent scholarship “A New Strategy for Preventing Bribery and Extortion in International Business Transactions” recently published in the Harvard Journal on Legislation (see here to download the article).
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I’d like to thank Professor Koehler for this opportunity to write about my article and more importantly, for running FCPA Professor, an invaluable resource for scholars and practitioners alike.
With that said, let me introduce my article with a bit of context, using two stories of FCPA violations in Mexico:
The first story involves Tyson de Mexico, a wholly-owned subsidiary of Tyson Foods, Inc., a U.S. issuer subject to the FCPA. From 1994 to 2006, Tyson de Mexico made approximately $350,000 worth of secret payments to veterinarians employed by the Mexican government to inspect Tyson’s facilities after those veterinarians expressly threatened to disrupt the operations of two of its chicken processing plants. When Tyson voluntarily disclosed the extorted payments to U.S. enforcement authorities, it was forced to pay $5.2 million in penalties as part of a non-prosecution agreement and settlement with the S.E.C. concluded in early 2011. (See here for the previous FCPA Professor post).
The second story involves Wal-Mart, which became the focus of significant FCPA attention when the New York Times broke a story in April about an alleged pattern of bribery of Mexican officials in order to facilitate the expansion of Wal-Mart’s business south of the border. (See here for the previous FCPA Professor post). The real kicker of the Wal-Mart story, however, was not the fact that bribes were paid to local officials in apparent violation of the FCPA, but rather that top level executives at Wal-Mart’s U.S. headquarters learned about the apparent misconduct through an internal investigation but effectively hushed it, choosing not to disclose the matter to U.S. enforcement officials until their hand was forced by The Times several years later.
The Tyson and Wal-Mart cases illustrate a number of the problems inherent within the FCPA that are identified within the article:
1) its one-sided focus on only the supply-side of bribery transactions (i.e., the payer) and not the corrupt government recipients who may solicit or demand them;
2) its failure to meaningfully account for the circumstances under which payments are made or legally distinguish between bribery and extortion; and
3) its paradoxical reliance on voluntary disclosure as the primary means of detection and corresponding penalization of companies that voluntarily disclose such payments.
As a result of these flaws and others identified within the article, the U.S. anti-corruption regime establishes a structure that all but encourages bribery and extortion in international business transactions to remain secret and pervasive. Many companies, including Wal-Mart, may well be making the choice to try to keep their payments to foreign officials secret rather than risk the almost certain negative consequences of disclosure.
This is what my article seeks to address.
In this piece, I argue that the focus of the U.S. anti-corruption strategy should be shifted from punishment to prevention. To accomplish this end, the article argues for a number of detailed and significant changes to the FCPA, which implemented together, should better serve the interests of justice and provide the appropriate incentive structure for substantially reducing international bribery and extortion.
Chief among the changes I propose is decriminalizing the act of giving bribes to foreign officials. Decriminalization is not only morally appropriate in some cases (i.e., when a company like Tyson makes a payment to a foreign official in response to an extortionate demand), but also is likely to prevent bribery in the long run. Decriminalization will help bring corruption out of the shadows, have a nominal impact on the number of bribes offered, and ultimately reduce the incidence of bribe solicitation and acceptance by foreign officials.
In place of criminalization, I argue Congress should focus on strengthening payment disclosure requirements. Congress should impose upon all companies subject to U.S. jurisdiction a strict requirement of mandatory disclosure of all bribe solicitations by foreign officials, and all payments to foreign intermediaries or foreign officials above a certain monetary threshold, similar to the requirement currently imposed on financial institutions to report suspicious activity.
Once disclosed and investigated, payments to foreign officials will tend to fall into two categories: willing and unwilling. The distinction rests on the presence or absence of express or implicit coercive extortion by a public official. By following the natural implications of such a distinction—that criminals should be punished and victims should be compensated—the law can incentivize the disclosure of corruption, enable the true victims of such corruption to take action against the wrongdoer, and facilitate restitution where appropriate.
In the case of truthfully disclosed unwilling payments to foreign officials, such payers should be entitled to restitution and granted safe harbor to insulate them not only from U.S. enforcement action, but also from private civil litigation, the threat of which currently impedes disclosure.
Bribes made willingly, on the other hand, should be publicly disclosed so that foreign governments may prosecute and take other action to rescind tainted contracts. Likewise, upon disclosure and after the creation of a limited private right of action under the FCPA (for which I also argue in the article), competitors harmed by such unfair business practices may take action against those willing payers to recover their damages. After all, why should the U.S. government devote its resources to prosecuting bribe-givers when business competitors and foreign governments stand ready and willing, in most cases, to police violators at a fraction of the cost to U.S. taxpayers?
Finally, I argue that to address the demand-side of bribery, Congress should expand extraterritorial U.S. jurisdiction under the FCPA to prosecute foreign officials who solicit or demand unwilling payments if foreign governments are unwilling or unable to do so.
By addressing the problems and implementing the prescriptions I have laid out in the article, it is hoped that the occurrence of bribery and extortion in international business transactions may be substantially reduced.
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As highlighted in various previous posts, discussed in my “foreign official” declaration (here), and will be discussed in greater detail in my forthcoming scholarship “The Story of the Foreign Corrupt Practices Act” (Ohio State Law Journal), addressing the foreign corporate payments problem discovered in the mid-1970’s via a disclosure approach (vs. the current criminalization approach) was favored by the Ford administration. President Ford’s point person on the issue was Elliot Richardson (Secretary of Commerce) who, in a letter to Senator William Proxmire, summarized the work of the Ford Task Force as follows. “The Task Force has concluded that the criminalization approach would represent little more than a policy assertion, for the enforcement of such a law would be very difficult if not impossible. […] The criminal approach would represent poor public policy. […] At the same time, the Task Force perceived several very positive attributes of systematic disclosure.”
President Ford stated as follows. “The reporting requirement covers a broad range of payments relative to government transactions as well as political contributions and payments made directly to foreign public officials. By requiring reporting of all significant payments, whether proper or improper, made in connection with business with foreign government, the legislation will avoid the difficult problems of definition and proof that arise in the context of enforcement of legislation that seeks to deal specifically with bribery and extortion abroad.”
The disclosure regime was rejected by Congressional leaders. A Senate Report stated as follows. “The Committee concluded that an outright prohibition would be at least as feasible to enforce as any meaningful disclosure requirement. […] Clearly, in order to enforce such a disclosure requirement and apply sanctions for failure to file reports, it would be necessary to prove that the undisclosed payment was actually made, and that it was made with an improper purpose. Thus, the same evidence necessary to prove a violation of a direct prohibition would have to be marshalled in order to enforce a disclosure statute. Accordingly, the Committee concluded that a disclosure approach has at least the same enforcement problems inherent in the direct prohibition approach and none of its advantages.”
Jimmy Carter (who favored a criminalization approach over a disclosure approach) defeated Ford in the 1976 election and the rest is history.
A Law Much Broader Than Its Name Suggests
The Foreign Corrupt Practices Act is a law much broader than its name suggests. Many FCPA enforcement actions are not foreign in nature and many do not involve allegations of corruption. In the words of the late Gary Coleman – “whatcha talkin bout” (see here).
What I am talking about is the FCPA’s books and records and internal control provisions.
During Congressional investigation, deliberation and consideration of the foreign corporate payments problem in the mid-1970’s, Congress was surprised to learn that existing corporate record-keeping and internal control provisions were deficient to fully capture the domestic and foreign corporate payments that surfaced. The following exchange between Senator Proxmire, Roderick Hills (Chairman, SEC) and Stanley Sporkin (Director of Enforcement, SEC) during a 1976 hearing is instructive.
Senator Proxmire: “[Y]ou stress the fact that … the corporate abuses were accompanied by false or inadequate corporate books and records and that most of the cases involved illegal or improper domestic and foreign payments. Does such falsification of corporate books and records constitute a violation of SEC’s laws or regulations and do they constitute criminal violations?
Hills: I can’t say in all cases.
Sporkin: There is no provision that prohibits just what you stated.
Sporkin: There is no provision that provides, with respect to the kinds of companies we are talking about, that that could be a violation of law.
Senator Proxmire: Well, then, it would seem to me that maybe we ought to consider, as the legislative body for our Government, making it a violation of the law.”
Although the SEC wanted no part in enforcing what would become the FCPA’s anti-bribery provisions, the SEC insisted that any legislation directly addressing foreign corporate payments be supplemented by books and records and internal control provisions. Chairman Hills stated as follows. “I admit that [the provisions make] for dull reading, but these proposals will provide the teeth to assure that problems of this nature are brought to appropriate levels of corporate management and recorded in a manner that makes it far easier for us to discover them.”
Even with the enforcement agencies aggressive and broad theories regarding the FCPA’s anti-bribery provisions, the provisions nevertheless are (as a matter of law) narrowed by elements such as “foreign official” and “obtain or retain business.”
Not so, with the FCPA’s books and records and internal control provisions. They are among the most generic substantive legal provisions one can find and state as follows.
Issuers shall –
(A) make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer [the books and records provisions]; and
(B) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that – (i) transactions are executed in accordance with management’s general or specific authorization; (ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences [the internal control provisions].”
As evident from these provisions, enforcement actions can result where the conduct at issue is not foreign and in the absence of corruption allegations.
Case in point are two recent FCPA enforcement actions that you likely never heard about because they are what I have called “non-FCPA FCPA enforcement.”
Recently, the U.S. Attorneys Office (E.D.N.Y.) announced (here) a criminal complaint against FalconStor Software, Inc. alleging that the company conspired to pay more than $300,000 in bribes to executives of J.P. Morgan Chase Bank, N.A. to obtain over $12 million in electronic storage licencing contracts. FalconStor was also charged with conspiring to falsify its corporate books and records to cover up the bribery scheme. According to the DOJ, “the bribes, including the grants of the stock options and restricted shares, were recognized in FalconStor’s books and records, but were falsely recorded as “compensation to an advisor” or as “employment bonuses.” The SEC also brought an action against FalconStar (see here) charging, among other things, violations of the FCPA’s books and records and internal control provisions. In its complaint (here) the SEC alleged, among other things, that the grants of restricted stock and options to various recipients in the bribe scheme were inaccurately characterized on the company’s books and records as consultant or advisor payments for bona fide services, when in fact no bona fide services were provided. The SEC also alleged that several of the expenses were disguised as compensation expenses on the company’s books and records and that other expenses of many of the bribes were reflected on books and records as sales promotion expenses and entertainment expenses.
Another instance of a recent FCPA enforcement action you likely heard little about was against Gold Standard Mining Corp. and certain of its executives. As noted in this SEC release, the SEC alleged that, between 2009 and 2011, Gold Standard filed numerous reports about its purported Russian gold mining operations that were materially false and misleading in various respects. Among other things, Gold Standard represented that it had acquired a Russian gold mining company known as Ross Zoloto Co., Ltd. (“Ross Zoloto”), but did not inform investors that it had agreed to allow the prior owner of Ross Zoloto to keep profits from existing operations or of issues surrounding Russian government registration or approval of the business combination. Among other things, in the complaint (here) SEC alleged as follows. “Gold Standard failed to devise and maintain a system of internal accounting controls. For example, Gold Standard did not have a means to verify the amount of gold produced; it did not have a means to determine the costs of producing the gold that was sold; it did not maintain records of inventory; it did not have independent access to Ross Zoloto’s bank statements and transactions; and it did not have a method for accessing the Russian accounting system used by Ross Zoloto or to close the books quarterly and create trial balances. It did not have copies of accounting policies or methods used to create the Russian accounting records to enable any U.S. accountants it retained to be able to convert the Russian accounting records accurately into financial statements in conformance with GAAP. As the chief executive officer of Gold Standard, Zachos knowingly or recklessly failed to implement a system of internal controls at Gold Standard…”.
Such instances of non-FCPA FCPA enforcement actions as noted above (and numerous other examples could be cited as well) raise the question – do companies view the FCPA books and records and internal control provisions holistically or through the narrow window of foreign operations and anti-bribery risk assessment? Do companies with a low FCPA bribery risk profile nevertheless provide training and adequate compliance resources to purely domestic FCPA books and records and internal control issues? If not, why not? Is too much focus in the FCPA space devoted to foreign corrupt practices and not enough focus on the more generic books and records and internal control provisions?
After all, the FCPA is a law much broader than its name suggests.
Richard Shine’s 1982 Lecture – “Enforcement Of The FCPA By The Department Of Justice”
Before Charles Duross, Mark Mendelsohn and others headed the DOJ’s FCPA unit, there was Richard Shine. The year was 1982 and Shine was Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice (the name given to the DOJ’s then de facto FCPA Unit). Shine gave a lecture titled “Enforcement of the FCPA by the Department of Justice” at Syracuse University that was published by the Syracuse Journal of International Law & Commerce – see 9 Syr. J. Int’l L. & Com. 283 (1982).
Three things stand out from Shine’s lecture.
First, the lecture is populated with references to the FCPA’s legislative history. On one level, this is not surprising given that in 1982 the DOJ was likely still finding its way as to the FCPA and its enforcement and it is logical that the legislative history which evidences Congressional intent would be a guide.
Yet the passage of time should make the FCPA’s legislative history and the Congressional intent it represents no less relevant today.
Second, under the heading “Enforcement Policies of the Justice Department,” Shine’s lecture evidences DOJ’s recognition and understanding of the primary foreign policy motivation Congress had in enacting the FCPA and how FCPA inquiries focused on the conduct of foreign governments and thus presented national security issues. Shine stated as follows. “Because of the obvious sensitivity both from a national security point of view and a foreign policy point of view, the Department has administered the enforcement of this statute quite differently than the enforcement of most of the provisions of Title 18 of the United States Code. Administration of the enforcement effort has been highly centralized. Generally, FCPA cases, by the terms of the United States Attorney’s Manual, are not investigated and prosecuted by the ninety-four United States Attorney’s Offices around the country. They are primarily investigated and prosecuted by the Multinational Fraud Branch in the Criminal Division at the Justice Department. Among other reasons, that is being done to make sure that there is a nationally uniform enforcement policy. Moreover, virtually any step that is taken in the investigative process, even more than in the post-indictment process, has potentially significant foreign policy and national security implications.” In speaking of “Investigative Procedures,” Shine stated as follows. “When an informant or an insider tells us that there is a bribe in process or that a bribe of a foreign government official has already occurred, we do not immediately notify the foreign government. As you can well imagine, if we started to communicate to a foreign government every unsupported and uncorroborated allegation of bribery of its officials, there would be worldwide foreign relations turmoil …”. Only after we have concluded, as a result of our initial investigation, that indeed there is a significant reason to believe a bribe was paid or offered to a foreign government official, do we notify the foreign government.”
With numerous FCPA enforcement actions in this new era based on alleged payments to alleged state-owned or state-controlled enterprises with many attributes of private commercial enterprises and with numerous FCPA enforcement actions also based on foreign licenses, customs, and certification issues, can it truly be said that in this new era most FCPA enforcement actions present “significant foreign policy and national security implications.” If the answer is no, what does it say about these numerous enforcement actions?
Third, Shine discusses the identity of the foreign official allegedly bribed. Shine stated as follows. “In our public pleadings, whether we are bringing an indictment or filing a civil complaint, generally we will not agree to withhold the identity of the foreign country or of the foreign official.”
As highlighted in this recent post concerning the SEC’s response to the Jackson and Ruehlen motion to dismiss, the SEC argues that “the name, title or exact position of the official need not be pleaded or proved” and the DOJ has likewise argued the same in other actions.
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I first learned of Shine’s lecture and published article this past March when Duross participated in “The FCPA at Thirty-Five and Its Impact on Global Business” symposium at The Ohio State University Moritz College of Law (see here for the prior post). Duross referenced the article in stating that the DOJ’s FCPA enforcement practices and policies have been consistent over time and that even though the FCPA is approaching its 35th year, not much has changed in terms of DOJ practices and policies. To be sure, Duross is correct in part. Yet, as the above excerpts from Shine’s 1982 lecture demonstrate, when viewed in the context of the FCPA’s new era, there are some things that have changed.
“It Would Be Unwise, As Well As Unfair, Simply To Write Off Bribery Abroad To Corporate Lust – It Is A Symbol Of Far Deeper Issues That Really Involve Amercia’s Role In The World”
Another day is spent in the past – see here for yesterday’s post as well.
Buried deep in the FCPA’s legislative history is a dandy article by Milton Gwirtzman published by the New York Times Magazine in October 1975. At this time, Congress was in the early stages of investigating what it called the foreign corporate payments problem. As noted in this 2011 obituary, Gwirtzman was a “Washington lawyer and political consultant who was best known as a confidant to John, Robert and Edward Kennedy.”
Gwirtzman observed, “this has not been an easy year for American business” and that “some of the country’s flagship corporations – Exxon, Lockheed, Northrop, Gulf, United Brands – have admitted funneling massive amounts of cash to officials of foreign governments and hiding the transactions from their shareholders and directors.”
Gwirtzman observed that the revelations brought to light business practices that have “existed at least since the 1600’s when the British East India Company won duty-free treatment for its exports by giving Mogul rulers ‘rare treasures,’ including paintings, carvings and ‘costly objects made of copper, brass and stone.” Yet Gwirtzman equally observed that “in the United States, this traditional way of doing business abroad has become food for scandal because of the new climate of openness and honesty that former Vice President Agnew ruefully but accurately called in his resignation speech the ‘post-Watergate morality.'”
Gwirtzman then observed that “all of this presents the American businessman operating abroad with a seemingly cruel dilemma. If he keeps paying foreign officials, he runs afoul of the post-Watergate morality in all its fury. If he is prevented from making these payments, either by law or by the chilling effect of disclosure, he risks the loss of important sales and investment opportunities to foreign competitors, who can apparently continue to pass bribes without embarrassment.”
Gwirtzman then states as follows. “If corporate bribery abroad has offended the post-Watergate morality, the companies implicated have nevertheless taken a greater share of the blame than they deserve. Bribery abroad is not exactly the corruption of innocents. Several of the incidents spotlighted by the Senate hearings smack more of protection and extortion than of simple bribery. In the most outrageous case, the chairman of the ruling party in South Korea threatened to close the $300 million operating plant of Gulf Oil in that country unless the company made a donation of $10 million to his party’s presidential campaign. Gulf’s chairman, Bob Dorsey, was able to shave the demand down from $10 million, which he considered ‘not in the interests of the company’ to $3 million, which he said was. The reasons multinational must do business amid a profusion of outstretched hands go deep into the history and structure of the lands in which they operate. In much of Asia and Africa, the market economy as we know it, in which the sale of goods and services is governed by price and quality competition, never has existed. What has developed in its stead are intricate tribal and oligarchic arrangements of social connections, family relations and reciprocal obligations, lubricated by name forms of tribute, including currency. […] In most developing countries, civil-service salaries are deliberately low – the average Indian bureaucrat makes $1,650 a year – on the assumption that people will supplement their salaries by asking for money where they can find it. Where political instability is the rule, the tenure of high officials is always uncertain and often short. Bribes provide a form of retirement fund. It is considered far more patriotic to take money from rich foreign corporations than out of one’s own country.”
Gwirtzman then observes as follows. “The responsibility for present practices must also be shared by our Government, which not only encouraged investment in countries whose ethical standards differ from ours, but also in many respects set the pattern for the graft under censure today. American intelligence agencies have regularly dealt in bribery and payoffs wherever they seemed to be useful tools in strengthening America influence abroad and frustrating the designs of Communist nations. Bribes have been used not just to acquire useful information, but to restore the Shah to power in Iran, to purchase votes in international organizations against Cuba, and to ‘destabilize’ the Allende Government in Chile. We shall probably never know how many of the electoral campaigns of pro-West political parties were financed by secret contributions from the CIA. The important thing here is that these have been accepted tactics for more than a generation. The rapid acceleration of American private investment in foreign lands, which began in the mid-nineteen-sixties, was seen by our foreign policy makers as a welcome opportunity. If U.S. firms could build a nation’s infrastructure, supply its consumer goods and hire a portion of its workers, the greater the likelihood the nation would be bound to ours by the safest and strongest of ties, economic self-interest. As a result, our Government wrote the foreign investment laws of several developing countries and urged our multinationals to make use of them. New programs were established to insure foreign investment against the risks of war and expropriation. Embassy personnel were ordered to scout out export possibilities for American firms, which were published in Commerce Business Daily, the Government’s daily list of business opportunities.”
Gwirtzman the stated as follows. “For all these reasons, it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust. It is a symbol of far deeper issues that really involve America’s role in the world.”
For instance, Gwirtzman noted as follows. “Since our multinational companies, like Government agencies, are important instruments of our nation’s global power, it is argued they should not be hobbled by home-bred notions of business morality. After all, if such firms were government-owned, as many of their foreign competitors are, their managers would be servants of the state and presumably have the same license as intelligence agents to pass bribes for the good of the country. And is there really a distinction in this regard between state-owned companies and firms like Northrop and Lockheed, whose customers are governments and whose products give our policies their clout?”
Is Gwirtzman right? Is it unwise and unfair simply to write off certain FCPA enforcement actions as evidence of corporate lust? Are certain FCPA enforcement actions a symbol of far deeper issues that really involve America’s role in the world?
As to the issues Gwirtzman raises, the following recent events come to mind. This prior post regarding the James Giffen case, this prior post regarding the sentencing of Bobby Elkins, and this prior post regarding sentencing in the Nguyen enforcement action.
Chamber of Commerce Statement On Foreign Corporate Payments – 1977
[I will be participating in this program today in Washington D.C. sponsored by The American Bar Association Criminal Justice Section and the ABA Center for Continuing Legal Education in cooperation with Dorsey & Whitney & LLP, and Pepper Hamilton, LLP. The program is from 12:00 – 1:30 (eastern) and can also be attended online and via telephone. Titled “The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate?” the program will include panelists from the DOJ, SEC, and OECD, Stanley Sporkin, and noted FCPA practitioners.].
The views of the Chamber of Commerce on FCPA reform are well known. See here for the Chamber sponsored white paper “Restoring Balance”, here for Andrew Weissman’s testimony (on behalf of the Chamber) at the November 2010 Senate FCPA hearing, and here for Michael Mukasey’s testimony (on behalf of the Chamber) at the June 2011 House FCPA hearing.
This post highlights the views of the Chamber in 1977 as Congress was in the midst of considering legislation to address the various foreign corporate payments Congress learned of during the mid-1970’s.
By way of background, one of the first issues faced by Congress was whether new legislation was needed to address the foreign corporate payments or whether existing law was sufficient. As to new legislation, various bills were introduced in Congress between 1975 and 1977 to address the foreign corporate payments. See here for my “foreign official” declaration which provides a chronology as to the legislative efforts. Two main competing legislative approaches soon emerged: (i) a criminalization approach as to certain foreign payments; and (ii) a disclosure approach as to a broader category of foreign payments. The Ford administration endorsed a disclosure approach, but various key legislators endorsed a criminalization approach, as did the Carter administration which took office in January 1977.
In the spring of 1977, the Chamber submitted substantively identical statements to the Senate Committee on Banking, Housing and Urban Affairs and the House Committee on Interstate and Foreign Commerce in connection with hearings as to pending bills.
Drafted by J. Jefferson Staats (Staff Associate, Chamber of Commerce) the statement reads as follows.
“The Chamber condemns the payment, solicitation or extortion of bribes, payoffs or kickbacks, and supports the disclosure of such acts and the prosecution of violations of national laws. The Chamber has long endorsed the highest standards of professional conduct of American business people operating in the United States or overseas. The overwhelming majority of U.S. firms operating abroad conduct their activities in accordance with the legal requirements of host countries and refrain from unlawful intervention in the domestic affairs of host countries. The recent controversy surrounding questionable payments has resulted in much confusion concerning the commercial propriety of commissions and fees related to business transactions. Commission or fees paid on sales, or for services rendered, are part of conducting business world-wide. They are generally determined by the market place and, in and of themselves, are entirely legitimate.
The Chamber believes that disclosure has proved to be an effective deterrent against the offering or solicitation of various forms of questionable payments. U.S. securities law already requires public disclosure of material payments. This reporting requirement, embodied in the Securities and Exchange Commission’s ‘Voluntary Disclosure Program,’ has prompted voluntary disclosures by many corporations over the last two years. This voluntary disclosure approach, taken with existing SEC rule-making authority and the SEC’s recommended stock exchange listing requirements, should adequately respond to public, corporate and investor-related concerns. It is important to note, as well, that misrepresentations to the Internal Revenue Service of certain payments may constitute violations of the Internal Revenue Code.
The Chamber, therefore, is not convinced that new legislation is needed to confront the problems caused by questionable overseas business payments. (emphasis in original).”
In the statement, the Chamber opposed the criminal payment provisions included in certain bills under consideration. The statement reads as follows.
“The National Chamber is particularly troubled by [the criminalization approach] for the following reasons:
(1) The criminalization of questionable overseas business payments would contribute little to deterring such payments beyond that which is already accomplished by existing securities, tax and criminal law. Aspects of the payments problem which cannot be directly remedied by existing domestic law, such as the conduct of foreign government officials, also cannot be directly met by [the various bills]. The inherent limits of domestic law in dealing with all facets of the payments problem can only be overcome through the negotiation and implementation of bilateral, or preferably multilateral, agreements.
(2) Legislation which would impose criminal penalties for making questionable business payments would be very difficult to adminster and enforce. [The various bills] attempt to compensate for poor or reluctant enforcement by some foreign governments of their own laws by, in effect, doing it for them. In order to prosecute successfully under these provisions, much evidence located outside of the United States would be required. U.S. prosecutors investigating the activities of foreign government officials will be totally dependent on the foreign government for sufficient information. Conversely, the accused could easily be prejudiced by an inability to obtain production of documentary evidence or attendance of witnesses located outside the jurisdiction of U.S. courts.
(3) [The various bills] coud lead to conflicts between the United States and foreign government. Decisions taken at any point in the development and prosecution of a case could involve the United States in sensitive diplomatic problems. The use by the Government or a defendant of certain evidence could cause embarassment to a foreign government and create foreign policy problems for the United States stemming from our ‘meddling’ in another country’s internal affairs, even though such revelations should have come about through effective enforcement of domestic laws in the host country.”
Under the hearing “Multilateral Efforts” the statement states as follows.
“In has become apparent that a substantial number of questionable payments on the part of multinational firms are the result of demands from officials of, and others purporting to represent, governments in some countries. Such demands are frequently made in a context in which the company’s refusal to comply may result in extreme economic penalties. The Chamber is encouraged that the private sectors and governments of some countries have expressed interest in multilateral efforts to eliminate all such improper practices by businesses and by governments.
The conclusion of a multilateral agreement among the largest possible number of industrialized and developing countries could establish standards of ethical and equitable conduct of international business, provide that these same standards would apply to all businesses, create pressures or impose obligations on governments to vigorously enforce relevant domestic law, and establish a mechanism to resolve the diplomatic, commercial and legal problems associated with such problems. The Chamber endorses the efforts of the U.S. Government to bring about a treaty in this area under the auspices of the United Nations Economic and Social Council (ECOSOC).” (emphasis in original).
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The above post is further to my forthcoming article, “The Story of the Foreign Corrupt Practices Act” to be published in the Ohio State Law Journal.