Perhaps The Executives Are Just Being Realistic
It has turned out to be a statistics filled week on this site. If you like statistics, Deloitte’s recent “Anti-Corruption Practices Survey 2011” (here) serves up a buffet of delightful morsels.
Deloitte “surveyed 276 executives to assess how companies are managing their efforts to prevent corrupt practices in their operations around the world and ensure compliance with legislative requirements.” The Survey found that approximately 90% of executives said their company had an anti-corruption policy that covered a wide range of potentially corrupt activities.
Even so, the Survey seems to portray, as its most meaningful statistic, that “only 29% of the 276 executives … were very confident their company’s anti-corruption program would prevent and detect corrupt activities.” According to the Survey, “this low level of confidence indicates that many companies may need to evaluate and upgrade their anti-corruption efforts.”
Perhaps. Or perhaps the 29% figure indicates the stark reality that not even gold standard FCPA compliance policies and procedures can prevent or detect all problematic payments. In other words, perhaps the 71% of executives who were not very confident their company’s anti-corruption program would prevent and detect corrupt activities are just being realistic. As even Assistant Attorney General Lanny Breuer noted earlier this year before a compliance audience – “There will always be rogue employees who decide to take matters into their own hands. They are a fact of life.” (See here). Or as the U.K. Ministry of Justice stated in its Bribery Act guidance (see here) “no policies or procedures are capable of detecting and preventing all bribery.”
The Survey findings on corruption risks also caught my eye. Executives were asked to cite “significant” corruption risks. Use of third parties (not surprisingly) was the top concern and “customs clearance and importation of goods” and “entertainment related to government business/relations” were the 2nd and 3rd highest concerns respectively. These findings confirm my own observations from participating in executive roundtable forums during which I am always struck that business leaders are most worried about issues Congress did not even have on its radar when it passed the FCPA – yet are worrisome issues given the DOJ’s enforcement positions.
For instance, the enacting Congress specifically excluded from the FCPA’s “foreign official” definition any employee of a foreign government “whose duties are essentially ministerial or clerical.” The relevant Senate Report states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.” Similarly, the relevant House Report states, in pertinent part, as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments. As a result, the committee has not attempted to reach such payments.”
Yet, as the Survey results suggest, executives are indeed significantly worried about such issues and compliance dollars are disproportionately spent on such issues.
Bribes, the reason Congress passed the FCPA in 1977, was identified as a “significant” risk by only 27% of Survey respondents.
Final statistic of note. On voluntary disclosure, the Survey states as follows.
“Executives were asked whether they thought that if an executive in their industry (not specifically in their own company) uncovered a significant violation of the company’s anti-corruption policy, they would report it to the SEC or the DOJ. Executives were divided on how they thought the typical executive in their industry would respond, with 36 percent saying it was very likely that an executive would report such a violation, 39 percent thinking it was somewhat likely, and 25 percent saying it was not likely. Only 27 percent saw significant benefits in self-reporting violations, while an additional 43 percent saw some benefits.”
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A good weekend to all.
Compliance Defense Legislative History
One of the reform proposals likely to make its way into a soon to be expected FCPA reform bill is a so-called compliance defense. As noted in this previous post, such a compliance defense would be similar to the adequate procedures defense in the new U.K. Bribery Act, and would make the FCPA consistent with the “FCPA-like” laws of several other countries that – like the U.S. and the U.K. – are signatories to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
In short, amending the FCPA to include a compliance defense is not a novel idea.
Nor is it, as I have referenced several times, a new idea. Several FCPA reform bills in the 1980’s (a period of sparse and measured FCPA enforcement compared to the current era) included a compliance defense and this post provides a summary of the legislative history relevant to the compliance defense.
In connection with my Carson “foreign official” declaration (here), I reviewed the FCPA’s entire legislative history. The first apparent reference to a compliance defense occurred on October 6, 1983 during a House Hearing of the Committee on Foreign Affairs, Subcommittee on International Economic Policy and Trade, that examined legislation to amend the FCPA. Testifying at the hearing was Arthur Matthews, a former SEC enforcement official, who was then a partner at Wilmer, Cutler and Pickering. Although the bill under consideration at the hearing, HR 2157, did not contain such a compliance defense, Matthews stated as follows. “I would also support some type of affirmative due diligence defense that a corporation would be able to prove to avoid criminal responsibility on a reckless disregard theory. Since 1933, in the Securities Act of 1933, there has been a due diligence defense for issuers and their officers and directors with respect to whether or not a registration statement is false. I think comparable language could be placed in the bill so that corporations would have an affirmative due diligence defense.” FCPA reform, along with Matthews’s suggestion of a compliance defense, fizzled for several years.
It appears that the first FCPA reform bill to include a compliance defense was H.R. 4708 introduced by Rep. Don Bonker (D-WA) on April 30, 1986. Titled the Export Enhancement Act of 1986 – Title IV of the Act contained the following.
“Due Diligence. – An issuer or domestic concern “may not be held vicariously liable, either civiallly or criminally, for a violation [of the FCPA’s anti-bribery provisions] by its employee, who is not an officer or director, if – (1) such issuer [or domestic concern] has established procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such employee, and (2) the officer and employee of the issuer [or domestic concern] with supervisory responsibility for the conduct of the employee used due diligence to prevent the commission of the offense by that employee. Such issuer [or domestic concern] shall have the burden of proving by a preponderance of the evidence that it meets the requirements set forth in paragraphs (1) and (2). The first sentence of this subsection shall be considered an affirmative defense to actions under [the anti-bribery provisions].”
The House Committee on Foreign Affairs favorably reported out H.R. 4708. See Report 99-580 – Export Enhancement Act of 1986. (May 6, 1986). The Report notes that if a “corporation has set up internal controls to avoid illicit payments or has otherwise acted to keep within the law, its ‘due diligence’ can be used as a defense against both civil and criminal liability in cases where its employees have nonetheless engaged in bribery.” Elsewhere, the Report states as follows. “A company may not be held vicariously liable if it can show that it has established procedures to prevents its employees from making bribes and that it supervisory employees had used ‘due diligence’ to prevent employees or third parties from making bribes.”
Several other bills containing FCPA reform provisions (such as H.R. 4800 introduced on May 9, 1986; H.R. 4830 introduced on May 5, 1986; and H.R. 2150 introduced on April 23, 1987) also contained such a compliance defense – although not all bills containing FCPA reform provisions did include a compliance defense.
The compliance defense was included in H.R. 3, Omnibus Trade and Competitivness Act of 1987, introduced on Jan. 6, 1987. H.R. 3 was favorably reported out by the House Committee on Energy and Commerce on April 6, 1987. The House Report noted as follows. “The bill also provides incentives for self-policing by business, by setting forth standards of due diligence to prevent and detect violations of the law by employee and agents.”
The House Report further stated as follows.
“Under current law, in appropriate circumstances, a firm may be held vicariously liable for violations of the FCPA by employees or agents. This is the proper result, because firms should be responsible for taking appropriate steps to prevent violations.”
“The lack of enforcement resources at the SEC and the Department of Justice make it clear that the enforcement agencies are able to detect and pursue only a small number of violations of the FCPA, as is true of violations of many other statutes. Consequently, enforcement agencies under this statute, as well as many other, must depend upon the deterrent effect of the law, and, more importantly, self-policing by responsible businesses.”
“The bill establishes in Section 701 a new, ‘due diligence’ defense for civil and criminal liability of issuers and domestic concerns for violations of the FCPA by employees and agents. It provides that if the issuer or domestic concern has established procedures for detecting violations, and if the officers and employees with supervisory responsibility for the employees or agent violating the law have exercised due diligence to prevent the violation, then no vicarious liability will apply. Of course, supervisory responsibility for the actions of a particular employee or agent may be exercised by many officials in an organization and can include, for example, the general supervisory authority of high level corporate officials. The requirements must be established by a preponderance of the evidence.”
“Although ‘due diligence’ is a familiar concept under the Federal securities laws, the bill does not specifically define the term. It is intended that what would constitute ‘due dilgence’ would be factual determination by the trier of fact and would vary depending upon the particular circumstances of the transaction at issue. Due diligence might include many of the steps currently employed by firms seeking to comply with current law: regular training and updating of all levels of involved corporate personnel; independent investigation of the background and reputation of agents and other participants in the transaction; contract provisions obligating the parties not to violate the Act and voiding the contract if the Act if violated; a right to perform a full or partial audit of the books of agents or other transaction participants; disclosure of the existence and terms of agency relationships to the foreign government purchase; periodic compliance certifications by corporate personnel and participants; and independent opinions of local counsel that local law will not be violated by any part of the transaction.”
“The scope of due diligence may also vary according to the circumstances of the transaction. Many companies seeking to comply with current law, for example, have indicated that certain factors, such as those set forth below, may indicate the need to undertake additional inquiry on the part of corporate officials: any unusual proposal relating to the method of payment to any participants in the transaction, particularly through third countries or in currency; any known or suspected family relationships between any participants in the transaction and any foreign government official; refusal by any participants in the transaction to sign affidavits or make representations that they will not violate the FCPA; the size of the commission paid to the agent in relationship to the services performed; any known or suspected misrepresentations by the agent or others in connection with the proposed transaction; requests by any participant in the transaction that the company prepare false invoices or any other type of false documentation; and any negative information developed as part of the independent investigation into the activities and reputation of the agent or other participants in the transaction, including any information developed regarding the financial interests of any foreign government officials in any companies participating directly or indirectly in the transaction.”
“The size of the company and the resources available to it may also be considered in determining the scope of the due diligence steps. For example, many large multinational companies have the capacity to place corporate officials in foreign countries, while many smaller exporters must rely almost exclusively on foreign agents. In many cases, it may be impossible for an exporter to determine with absolute certainty that an agent will abide by the law. In meeting the defense under this section, it must be shown that reasonable steps were taken. It is perhaps most important that firms create an environment which fosters good business practice and compliance with the law. In this connection, employees and agents should be encouraged to comply with the law and to report factors that may indicate improper behavior.”
H.R. 3 passed the House and a different bill containing FCPA reform provisions passed the Senate. Conference Report 100-576 (April 20, 1987) Omnibus Trade and Competitiveness Act of 1988 stated as follows. “The House bill established a new ‘safe harbor’ defense for civil or criminal liability if issuers and domestic concerns for FCPA violations by their employees or agents. Under current law, under appropriate circumstances, a firm may be held vicariously liable for violations of the FCPA by its employees or agents. Under the House bill, a firm could not be held vicariously liable for such violations if it had established procedures ‘reasonably expected to prevent and detect’ any such violation, and the officer and employee with supervisory responsibility for the offending employee’s or agent’s conduct used ‘due diligence’ to prevent the violation.” The Conference Report notes that the Senate amendment contained no provision and that in conference the house receded to the Senate.
FCPA reform, which for most of the 1980’s was incorporated into omnibus export and trade bills, did not occur in 1987. FCPA reform was accomplished in 1988 when President Reagan signed H.R. 4848, the Omnibus Trade and Competitiveness Act of 1988. However the FCPA portion of H.R. 4848 (Title V, Subtitle A, Part I) did not contain a compliance defense.
A Focus On FCPA Reform
The FCPA was enacted in 1977, amended in 1988, and amended again in 1998.
It is widely expected that an FCPA reform bill will be introduced this month. Who will introduce the reform bill, what specific amendments will it seek, will hearings be held, will the reform bill succeed? All interesting issues to monitor.
Against the backdrop of expected FCPA reform, several articles have been written in recent weeks. In this Politico article, Assistant Attorney General Lanny Breuer stated, “I don’t really accept the fact that the FCPA is truly a burden on American business.” Several former DOJ officials (not to mention many others) disagree. One of the more vocal proponents of FCPA reform has been former U.S. Attorney General Michael Mukasey who testified at the June House hearing on behalf of the U.S. Chamber of Commerce. (See here for links to his prepared statement as well an overview of the hearing). In the Politico article, Mukasey states that “nobody is looking to slacken in cases involving real bribery of public officials.”
Former Deputy Attorney General George Terwilliger, who also testified at the June hearing, is in favor of reforming the FCPA as well. Terwilliger recently penned a client alert (here) titled “Can the FCPA Be Good for Business?” Placing FCPA reform in the context of current economic conditions, Terwilliger stated as follows. “Those responsible for making and enforcing our laws are in a position to adopt laws and policies that can help foster, rather than inhibit, business growth. At the heart of that analysis, asking whether broad-ranging laws like the FCPA are functioning as an impediment to a restored economy is worthwhile.” Terwilliger adds that “because of its global impact on the expansion of U.S. businesses abroad, it is worth looking specifically at the FCPA as a case study for worthwhile reform initiatives.”
Continuing a theme he discussed during the June hearing, Terwilliger writes as follows. “One of the surest methods for US businesses to expand globally is through the acquisition of existing foreign companies. In many emerging markets, most acquisition targets are beyond the purview of the FCPA and thus unlikely to employ anti-corruption compliance policies. But these companies have become attractive targets because of their position in growth markets. Those markets are also noted as typically more corrupt than other, more established markets subject to closer scrutiny by governments. Preacquisition due diligence, looking specifically at indicia of potential FCPA compliance issues, can be an asset to decision making. But in most circumstances, the opportunity for the kind of in-depth examination that is likely to reveal potential FCPA compliance issues is quite limited. As a result, any acquisition abroad, and particularly those in emerging markets, can carry a ticking time bomb of FCPA compliance issues. I have advocated in congressional testimony that Congress amend the statute to provide a period of repose under the FCPA following an acquisition. The idea is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days. At its most elemental level, this procedure would serve the fundamental objectives of the FCPA, which are to root out and eliminate corruption in the global marketplace. That it may also tip the balance toward overseas expansion by reducing the risk of hidden FCPA liability is good for business and good for the US economy.”
Terwilliger’s acquisition period of repose concept has merit, however it would seem that such a concept could easily be embedded within a compliance defense rather than a separate FCPA amendment.
Other recent articles regarding FCPA reform include here from David Hilzenrath at the Washington Post and here from Dan Froomkin at the Huffington Post. Froomkin’s article is lengthy and contains views on both sides of the issues including those of Harvard Law Professor David Kennedy who correctly notes that the FCPA has “led to a quite remarkable network of measures across the world.” However, coverage regarding other OECD member countries that have adopted FCPA-like measures lacks any mention (as noted in this prior post) that many of those countries have embedded compliance-like defenses in their domestic laws. In addition, coverage regarding the U.K. Bribery Act also lacks any mention of the Act’s adequate procedures defense, a defense that undermines the foolish rhetoric that the Act is somehow the “FCPA on steroids.”
Terwilliger concludes his alert by rightly putting part of burden for FCPA reform on U.S. business. He states as follows. “US businesses can help themselves by advocating for reform of the FCPA’s terms and its enforcement. Until such reforms gain momentum, these companies will have to be prepared to face greater FCPA risk than is necessary as part of the price of moving businesses forward and bringing sustained growth to US companies and the economy—which is so dependent on them for job creation and expansion.”
However, what business or industry sector is going to step up to the plate and advocate for FCPA reform? The atmosphere is just too toxic to do so. Indeed, Froomkin begins his piece by noting that the U.S. Chamber is “taking on something as seemingly unassailable as an anti-bribery law.”
And therein lies the problem.
So I leave you with some guiding words from some of the major players the last time Congress undertook substantial FCPA reform in the 1980’s.
“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, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.” “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.” (Senator Alfonse D’Amato – 1981).
“We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.” “Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.” (Senator John Chafee – 1981).
“… 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, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, 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?” (Senator John Heinz – 1981).
And my personal favorite.
“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’ That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years. After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond. Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.” (Honorable William Brock – U.S. Trade Representatives – 1983).
It will be an interesting Fall. Feel free to make your voice heard on FCPA reform issues on this site. E-mail me at mjkoehle@butler.edu.
Declinations
James Tillen (here) and Marc Bohn (here) of Miller Chevalier recently published (here) a dandy article about declinations. Titled “Declinations During the FCPA Boom,” the article chronicles the “less publicized trend that has paralleled” the increase in FCPA enforcement actions and that is “decisions by the U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) to conclude formal and informal investigations into potential violations of the FCPA without bringing enforcement actions.” Although the authors note that “it is difficult to know how frequently they occur” Tillen and Bohn “partially corroborated” – using SEC filings and other public records – DOJ’s claims that there were a record number of declinations in 2010.
The authors note as follows. “Even where we have been able to confirm a declination, there are usually significant unanswered questions as companies, in most instances, do not state the basis for the declinations they have received and often provide only limited information about the conduct that was investigated. Thus, it is often unclear why a government investigation has closed without enforcement. It could be that no violations were found to have occurred, that no basis for jurisdiction existed, that enforcement authorities elected to do nothing in deference to a foreign investigation, or that the declination itself represents a benefit in recognition of a company’s voluntary self disclosure, remediation and/or cooperation.”
Tillen and Bohn also found as follows. “Although divining the specific rationale of the DOJ and SEC in individual cases like these can be challenging, the vast majority of known declinations are nevertheless in response to conduct that companies have voluntarily self disclosed. Nineteen of the twenty five declinations we identified (or 76 percent) involved self disclosures. It is clear that, as general matter based on known declinations, a company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not.”
Tillen and Bohn’s article is an excellent contribution to this emerging issue of importance to the FCPA debate. Yet the biggest unknown variable in my estimation – and one that is directly relevant to their conclusion that a “company that self disclosed potential FCPA violations is significantly more likely to secure a declination than a company that does not” – is the triggering mechanism causing the company to disclose in the first place – an issue that really boils down to risk tolerance.
For instance, if Company A discloses conduct that counsel advises is only 30% likely to trigger an enforcement action (because of the lack of solid evidence, applicability of the FCPA’s exception or affirmative defenses, etc.); Company B discloses conduct that counsel advises is 60% likely to trigger an enforcement action; and Company C discloses conduct that counsel advises is 90% likely to trigger an enforcement action – in all of these situations the company voluntarily disclosed given their risk tolerance, yet the declination vs. enforcement action decision will likely be based on other factors. In other words, not all voluntarily discloses are created equal making an analysis difficult.
Readers may recall that DOJ declinations were a topic covered during the June FCPA hearing in the House. See here for the prior post. During the hearing, Sandra Adams (R-FL) asked DOJ representative Greg Andres several pointed questions about DOJ declination decisions and whether such decisions are published or transparent. Andres stated that this is a difficult area for the government because the DOJ does not want to “penalize a company or individual investigated by not prosecuted.” Adams asked – in the last year, how many instances of FCPA conduct have been disclosed to the DOJ where no enforcement action resulted. Andres did not offer any specific number, but retreated to the FCPA Opinion Procedure and noted that if a company ever has a question about the FCPA, it has the ability to ask the DOJ and the DOJ is obligated to give an opinion. Before her time expired, Adams requested that the DOJ provide the Committee with more detail as to its declination decisions, including the DOJ’s reasons and rationale for why enforcement actions did not result. Chairman Sensenbrenner then followed up and said DOJ’s responses will be made part of hearing record.
I’ve argued before (see here for the prior post) that the DOJ should publish its declination decisions in a manner similar to its FCPA Opinion Procedure releases.
Bribery Is Not A First Amendment Issue, But News Corp’s Potential FCPA Liability Does Shine A Needed Light On The FCPA’s Current Era
[On July 20th, the Wall Street Journal published an Op-Ed (here) by David Rifkin and Lee Casey concerning the FCPA implications of the News Corporation scandal titled “Payments and News-Gathering: The New First Amendment Threat.” I drafted and submitted to the WSJ a piece that, in part responded to certain of the FCPA assertions made by Rivkin and Casey, and in other respects sought to further inform the public discussion concerning News Corporation’s potential FCPA exposure and more broadly the current era of FCPA enforcement. The WSJ declined to publish the piece and it thus appears below – modified slightly to conform to the typical postings on this site]
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One aspect of the growing News Corporation scandal concerns the Foreign Corrupt Practices Act (“FCPA”) given the allegations that News Corporation employees and agents may have provided cash or other things of value to London police officers to obtain non-public information that better allowed News Corporation entities to publish stories and thus sell more newspapers.
Based on these allegations and revelations, calls by certain U.S. senators for an FCPA investigation of News Corporation find firm support given how the Department of Justice and the Securities and Exchange Commission have aggressively interpreted the FCPA during the past decade of its resurgence. (See here for a prior post).
Yet, recently in a WSJ Op-Ed, David Rivkin (here) and Lee Casey (here), commenting on the FCPA implications of the News Corporation scandal, made the senseless assertion that the First Amendment makes an FCPA inquiry of News Corporation “inappropriate” because the “the FCPA was certainly not intended to police news-gathering .”.
In passing the FCPA in 1977, Congress clearly demonstrated a capability of creating certain exceptions. For instance, the FCPA has always contained a limited national security exception for conduct engaged in pursuant to a specific, written directive of the head of any Federal department or agency pursuant to Presidential authority to issue such directives. However, having analyzed the FCPA’s entire legislative history (including thousands of pages of Congressional hearing transcripts, Congressional floor statements, texts of competing bills, and Executive agency documents and statements – see here for more) I can say that there is no basis to suggest that Congress sought to exclude the media industry from the FCPA’s prohibitions.
Nor should the media industry be excluded from FCPA scrutiny if its news gathering methods include paying bribes to “foreign officials” to obtain information. Few would suggest that the media industry would be excluded from criminal liability if its news gathering methods include assault and battery of sources to obtain information. The same logic and reasoning applies when news gathering is facilitated through the payment of bribes.
Even though Rivkin and Casey are off-base with their First Amendment assertion, they do correctly state that “since the late 1990’s […] the Securities and Exchange Commission and the U.S. Department of Justice have begun applying the law ever more broadly – to conduct that has little connection to obtaining government contracts or other government benefits, such as product approvals, permits or licenses.” Likewise, a recent WSJ editorial (here) also correctly stated that the FCPA “has historically been enforced against companies attempting to obtain or retain government business” but that “U.S. officials have been attempting to extend their enforcement to include any payments that have nothing to do with foreign government procurement.”
The intense media coverage of New Corporation’s potential FCPA exposure has succeeded in raising two distinct, yet equally important questions, as to the FCPA’s current era of enforcement. The first question is whether – given the DOJ and SEC’s current enforcement theories – the London police officer payments can expose News Corporation to FCPA liability. That answer is yes and the First Amendment, for the reasons stated above, is not relevant to this question. The second question is whether Congress intended the FCPA to apply to the numerous FCPA enforcement actions (actions typically resolved through non-prosecution and deferred prosecution agreements and thus subject to little or no judicial scrutiny) in this new era that have nothing to do with obtaining or retaining foreign government contracts.
This is a valid and legitimate question and the same question could also be asked as to many other current FCPA enforcement theories. For instance, in the FCPA’s decade of resurgence, a significant percentage of FCPA enforcement actions do not involve foreign government officials. Rather, the “foreign officials” at issue are alleged employees of state-owned or state-controlled enterprises (such as procurement managers and project engineers) and thus employees of alleged “instrumentalities” of a foreign government. This common enforcement agency position, even as to commercial enterprises in which a foreign state holds merely a minority interest, is the functional and substantive equivalent of alleging that General Motors and American International Group are “instrumentalities” of the U.S. government and that all GM and AIG employees are therefore U.S. “officials.” The enforcement agencies frequently assert this position even though there is no express statement or information in the FCPA’s extensive legislative history to support the position.
In “The Façade of FCPA Enforcement” recently published by the Georgetown Journal of International Law (see here) and in my other writings I have extensively profiled how the FCPA has frequently come to mean whatever the enforcement agencies say it means and how the FCPA has morphed into an all-purpose corporate ethics statute. The issue is not whether payments to London police officers to obtain information or to employees of commercial enterprises with a dint of foreign government ownership are ethical – few would suggest they are. Rather the issue is whether such payments are what Congress intended to regulate when it passed the FCPA. If Congress desires an all-purpose corporate ethics statute vs. a limited foreign bribery statute that is a decision for Congress to make – not for the enforcement agencies to make via its charging decisions that are largely insulated from judicial scrutiny.
News Corporation’s potential FCPA exposure based on current DOJ and SEC enforcement theories has succeeded in focusing greater attention on this new era of FCPA enforcement and that is a good thing and in the public interest for this dialogue to continue.