In early 2012, I published “Revisiting an FCPA Compliance Defense.” As far as I know, it is the most extensive article written specifically about an FCPA compliance defense, how an FCPA compliance defense is not a new or novel idea, and how an FCPA compliance defense can accomplish a host of policy objectives that can best advance the FCPA’s objective of reducing bribery.
While some (such as the Chamber of Commerce) are proposing a compliance defense as an affirmative defense, I am not proposing an affirmative defense. Rather, and as detailed in the article, I have proposed that compliance is best incorporated into the FCPA as an element of a bribery offense, the absence of which the DOJ (or SEC) must establish to charge a substantive bribery offense.
Some have called this proposal unprecedented and radical.
This is simply not true.
For starters, such a proposal is consistent with the FCPA-like laws of several other peer nations which, like the U.S., are parties to the OECD Convention. Just as importantly, the FCPA already has features that must be negated by the enforcement agencies to prove a violation of the FCPA’s anti-bribery provisions. As detailed in this prior post, in SEC v. Jackson et. al, the court ruled, in an issue of first impression, that the government must bear the burden of negating the FCPA’s facilitation payment exception.
As evidenced from the November 2010 Senate FCPA hearing and the June 2011 House FCPA hearing, based on member comments, there appeared to be bipartisian support for an FCPA compliance defense. As noted in the “Revisiting an FCPA Compliance Defense” article and here, a compliance defense is supported by a host of former U.S. attorney generals, and other former high-ranking DOJ officials including the former Chief of the DOJ’s FCPA Unit (here).
At every FCPA event I have attended over the past few years in which an informal straw poll or show of hands took place, an FCPA compliance defense enjoyed strong majority support.
Yet, there are those who remained unpersuaded that an FCPA compliance defense is wise.
In September, Thomas Fox (FCPA Compliance and Ethics Blog) published a roundtable of sorts on the merits of an FCPA compliance. My former colleague at Foley & Lardner, David Simon, supported an FCPA compliance defense, while Fox and William Athanas (Waller Lansden Dortch & Davis) rejected an FCPA compliance defense. Both Fox and Athanas rebutted the compliance defense as an affirmative defense, not a compliance defense as I have proposed.
Fox opined that a compliance defense “could seriously downgrade the effectiveness of anti-corruption programs” and the general thrust of his rebuttal was that a compliance defense would be “useless” because “corporations do not and will not go to trial in FCPA cases because it is not in their interest to do so. So if a corporation will not go to trial, a compliance defense has as much use as a trial lawyer afraid of the courtroom, in other words it is useless.” Fox stated that an FCPA compliance defense is “only useful if it is raised as an affirmative defense at trial” and rhetorically asked “do you want to be the first GC to got to trial … or do you want to settle and play it safe.” In conclusion, Fox stated, “at the end of the day, the compliance defense will not help a company because no company will go to trial and face a fraud finding from a jury … it is always better to settle and obtain certainty than to risk everything.”
Athanas opined that a compliance defense “would actually cause harm to those companies who take seriously the FCPA’s obligations and endeavor to ensure compliance with its mandates, making it more difficult for them to operate in this enforcement environment.” Like Fox, Athanas stated that a compliance defense is “unnecessary” because “the notion of enabling corporations to raise a defense at trials that will never occur is essentially meaningless.”
As noted in “Revisiting an FCPA Compliance Defense”:
“The present incentives [to adopt pro-active FCPA compliance policies and procedures] represent “baby carrots” [in that they merely lessen the impact of legal exposure] when what is needed to better incentivize more robust FCPA compliance are real “carrots” [that can reduce legal exposure]. An FCPA compliance defense is a real “carrot” that will better incentivize compliance across the business landscape. Organizations with existing FCPA compliance policies and procedures will be incentivized to make existing programs better. Likewise, organizations currently without stand-alone FCPA policies and procedures—and … statistics indicate there are many—will be incentivized to spend finite resources to implement FCPA compliance policies and procedures. By better incentivizing organizations to implement more robust FCPA policies and procedure, an FCPA compliance defense can reduce instances of improper conduct and thereby advance the FCPA’s objectives.”
The notion that this “real carrot” as opposed to the present “baby carrot” will “seriously downgrade the effectiveness of anti-corruption programs” – in the words of Fox – or “actually cause harm” to companies – in the words of Athanas – are unpersuasive for the same reason it is unpersuasive to say that the greater incentive a parent provides a child to clean her room will result in fewer clean rooms or that the greater incentive a teacher provides a student to do well on an exam will result in worse exam scores.
The notion that an FCPA compliance defense is “useless” or “meaningless” because it could only be invoked at trial is a red herring because it does not address the merits of a compliance defense, but is rather a general comment as to the current state of government enforcement dynamics. The implication is that reforming any law enforced by the DOJ or SEC is “usless” and “meaningless” because corporations are risk averse, and because of this risk aversion, legal elements that must be proven at trial will not matter.
On a related note, in opposing a compliance defense, Fox also raised the point that if a company under FCPA scrutiny raises “compliance defense” issues it might agitate a DOJ prosecutor and make the “DOJ even more aggressive in negotiations.” If the FCPA were to be amended to include a compliance defense, and if company under FCPA scrutiny would in good faith raise this legal issue but risk agitating a DOJ prosecutor, gosh – we have more fundamental problems concerning our criminal justice system that just one statute – the FCPA – could possibly address.
More fundamentally, opposing an FCPA compliance defense for the reason that it is “useless” or “meaningless” because it could only be invoked at trial improperly views a compliance defense only through the narrow prism of hard enforcement, wholly ignoring the soft enforcement effect of an FCPA compliance defense.
As distinguished from “hard” enforcement of a law by enforcement agencies, “soft” enforcement generally refers to a law’s ability to facilitate self-policing and compliance to a greater degree than can be accomplished through “hard” enforcement alone. In passing the FCPA, Congress anticipated that the “criminalization of foreign corporate bribery will to a significant extent act as a self-enforcing preventative mechanism.” Likewise since the FCPA’s earliest days, the DOJ has recognized that the “most efficient means of implementing the FCPA is voluntary compliance by the American business community.”
This voluntary compliance can be better achieved by increasing the incentives to comply – a fundamental logic recently recognized by a host of SEC officials – see here, here and here.
My two-fold FCPA reform proposal (a compliance defense coupled with abolishing NPA and DPAs) – see here for a prior post – will result in the following enforcement landscape.
If a payment is made in violation of the FCPA’s anti-bribery provisions within a business organization, two issues will be relevant.
First, if the payment was made, authorized or condoned by a director or executive officer, the business organization will not be able to avail itself of an FCPA compliance defense. Second, if the payment was made by any employee or agent in the absence of pre-existing FCPA compliance policies consistent with the best practices, the business organization will not be able to avail itself of an FCPA compliance defense. In these scenarios involving corrupt directors or executive officers or business organizations without a commitment to FCPA compliance, the enforcement agencies will have two choices: do not prosecute or prosecute the business organization for violating the FCPA. This is a just and reasonable result and the third option of an NPA or DPA is not needed in such a scenario. As even the DOJ has acknowledged and empirical research has demonstrated, it is extremely unlikely that actual criminal prosecution of such a business organization will result in its demise.
Conversely, if the payment at issue is made by a non-executive employee or agent contrary to the business organization’s pre-existing FCPA compliance policies, the organization will be able to avail itself of an FCPA compliance. Thus, as a matter of law, no FCPA prosecution of the organization will be able to proceed. This too is a just and reasonable result and aligns FCPA enforcement with enforcement regimes in several other peer countries.
The above FCPA reforms will take courage, both by Congress in amending the FCPA and by the enforcement agencies in abolishing the resolution vehicles they created. The reform proposals may indeed result in less hard FCPA enforcement actions as certain business organizations will be able to avail itself of the compliance defense and as enforcement agencies are once again mindful of their burdens of proof in prosecuting alleged FCPA violations.
However, more FCPA enforcement is not necessarily an inherent good and ought not be the singular goal of the FCPA. The goal ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, best advances the FCPA’s objective of reducing bribery, increases transparency and better aligns FCPA enforcement with rule of law principles.
The above FCPA reforms will accomplish these goals as well as increase public confidence in FCPA enforcement. The proposals will also allow the enforcement agencies to better allocate limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engage in the improper conduct.
The FCPA has witnessed courageous moments before and a courageous moment is once again presented.
