A few years ago, Tom Firestone and I had a debate about certain aspects of the Foreign Extortion Prevention Act (“FEPA”) after he wrote an article proposing the criminalization of demand side bribery. (See here and here).
Now that FEPA has passed, we thought that it would be a good idea to discuss what its passage means and how it is likely to be implemented. Below are some key questions about FEPA and our respective answers.
Was FEPA even needed to fill a “legal gap”?
Tom: Yes. Without FEPA, prosecutors have to use other statutes, such as wire fraud and money laundering, which are designed for other offenses and are poorly suited to the prosecution of foreign bribery. A statute should fit the crime charged. Otherwise there is a (justified) risk of acquittal or reversal on appeal. Now, the US finally has a statute that is appropriately tailored to the crime. Moreover, the risk of prosecution for money laundering or fraud is too abstract to be used as an effective deterrent to bribe taking. Compare the effect of a company saying to a bribe demanding foreign official “If we pay you a bribe and you then engage in a subsequent transaction to hide the bribe payment in a bank account in someone’s else name, you could be prosecuted for money laundering” with the effect of saying “The US just passed a law criminalizing exactly what you are doing. You could get 15 years in a US prison just because you asked us.”
Mike: As long as political actors have existed, political actors have taken credit for filling a perceived legal gap by enacting new laws. However, it is an open question whether there was an actual, practical legal gap in prosecuting “foreign official” participants in a bribery scheme . For many years, the DOJ has been using other criminal statutes (most often money laundering laws) to criminally prosecute alleged “foreign official” participants in a bribery scheme. Indeed, in the weeks before and after FEPA passed, the DOJ brought two such actions. (See here). I also question whether the Congressional leaders who pushed for FEPA really understand how the FCPA is being enforced in the modern era. In any given year, the majority of FCPA enforcement actions tend to involve alleged “foreign officials” such as healthcare professionals, custom and licensing officials, or employees of alleged “state owned or state-controlled entities.” These category of actors (the alleged bribe seekers covered by FEPA) are a materially different category of actors compared to bona fide, traditional foreign government officials (the category of actors Congress had in mind in enacting the FCPA in 1977 and the category of actors Congress seemingly had in mind in enacting FEPA). For instance, in press releases following the enactment of FEPA, the word or phrase “foreign kleptocrat” was often
used by politicians. However, kleptocrat refers to a political actor who misuses office for personal gain. Do members of Congress realize that few modern FCPA enforcement actions involve such “bribe seekers.” If not, is the U.S. government really going to use its limited resources and “diplomatic capital” and bring criminal FEPA actions against a Chinese physician, a low-ranking Nigerian customs official, or a mid-level
employee of an Angolan oil and gas company? My guess is that the answer is no. If so, it will highlight a strange dynamic where the supply-side law (FCPA) is targeting certain conduct, but the demand-side law (FEPA) may not. If that is the case, will FEPA change the enforcement landscape at all? At the very least, FEPA requires the DOJ to report annually to Congress on its enforcement activity, the effectiveness of the law, and other issues. This will give interested observers the ability to monitor FEPA issues. Finally, as a policy matter, I am generally opposed to proposed new laws (which have long slumbered in Congress like FEPA had) being inserted into a massive piece of legislation that has little to do with the underlying issue. For instance, was enacted as Title LI, Sections 5101-5103, of the National Defense Authorization Act for Fiscal Year 2024’’.
FEPA is an amendment to 18 USC 201, the domestic bribery statute, rather than to the FCPA. Is this the right place for it?
Tom: Yes. It really is the international equivalent of domestic bribe receiving, so I think this is the right place. The FCPA is designed to apply to US publicly traded companies and putting it in the FCPA would have created a lot of problems relating to the exceptions and affirmative defenses that were designed with those companies in mind. So, although FEPA is in some ways the flip side of the FCPA, from a legislative perspective, I think it is more appropriately placed in that part of Title 18 covering bribe giving and bribe receiving.
Mike: Where a new law is “placed” is less important than what a new law “says.” Nevertheless, in an instance of foreign bribery involving two actors, it is odd for the supply-side law (the FCPA) to be in a different title of the U.S. code (title 15 and prosecuted by the DOJ or SEC or both) compared to the demand-side law (FEPA) (Title 18 and prosecuted only by the DOJ). More importantly, FCPA and FEPA have meaningful differences in terms of who is a “foreign official,” the purpose of the payment / demand, and affirmative defenses. As to the affirmative defenses, if it is legally relevant that the payment or offer of anything of value to a foreign official is lawful under the written laws or regulations of a foreign official’s country or was reasonable and bona fide and directly related to certain business purposes, should not a foreign official’s request or demand for something of value in those same circumstances be legally relevant?
Will DOJ really be able to enforce FEPA? Or is this more symbolic than real?
Tom: There will definitely be some challenges in enforcing it. Foreign governments will be reluctant to provide DOJ with evidence of bribe taking by their own officials and the US does not have extradition treaties with many countries in which these cases will arise. On the other hand, DOJ should develop a lot of information about the bribe takers through self-disclosures by companies in FCPA investigations. Even if the defendants can’t be extradited from their home countries, a US indictment will prevent them from travelling internationally and if they do travel internationally, they may be arrested in a country with which we do have an extradition treaty and then sent to the US. Also, the fact of a US indictment will put pressure on foreign countries to bring domestic prosecutions against their own corrupt officials. It will also provide a basis for sanctions against foreign government officials. So even if we don’t see a lot of criminal prosecutions in the US, the statute should still have a strong deterrent and punitive effect.
Mike: This question reminds me of the FCPA’s legislative history – particularly in 1976 when President Ford established a “Task Force on Questionable Corporate Payments Abroad” which ultimately concluded that the “criminalization approach” (which was the legislative response ultimately adopted as opposed to a disclosure approach) “would represent little more than a policy assertion, for the enforcement of such a law would be very difficult it not impossible.” Related to this question about FEPA is the flip-side – is the FCPA more symbolic or real? In the FCPA’s modern era, there tends to be 10-15 corporate enforcement actions per year. However, every U.S. business organization (public or private), every foreign issuer (approximately 1,000), and theoretically every business in the world assuming there is a U.S. nexus (generally speaking) in connection with a bribery scheme are subject to the FCPA. Query whether a high percentage of future FEPA actions will simply be placed on court dockets with little practical expectation of an actual prosecution or through so-called “speaking indictments” which generally “tell a story.” In both situations, the DOJ will still be able to issue its press release and score “political” points, but has anything actually happened? This dynamic also happens in FCPA enforcement as many FCPA enforcement actions against individuals have slumbered and there has been no meaningful docket activity in years. (See here).
Won’t FEPA cases harm US diplomatic relations?
Tom: The US has already taken strong legal actions against many foreign government officials. In 1989, we invaded Panama to arrest Manuel Noriega and bring him to trial in Miami. In 2020, we indicted Nicolas Maduro and his Minister of Defense. We have sanctioned Russian President Putin and Foreign Minister Lavrov. The list goes on and on. So in light of this history, I don’t think that indicting, say, a Deputy Minister of Transportation for extorting a bribe from a US company will do much marginal damage to US foreign relations. In fact, it should be viewed with more legitimacy than sanctions designations which, unlike a criminal indictment, don’t have to go through a grand jury process.
Mike: Your answer assumes that FEPA enforcement actions will be against bona fide traditional foreign government officials – even though the majority of modern FCPA enforcement actions involve a materially different category of “bribe” recipient. Relevant to this question is also the historical issue that when Congress was debating the so-called “foreign corporate payments” problem in the mid- 1970’s leading up to the enactment of the FCPA, the State Department and the Defense Department were both strongly opposed to the FCPA. Also relevant to the question posed is that the FCPA already has a national security exemption and it’s a matter of public record that the CIA has – throughout the FCPA – had classified relationships with U.S. corporations relevant to FCPA issues. (See here).
The statute is called the Foreign Extortion Prevention Act? Can it really prevent extortion? Or is that word just in there for optics?
Tom: If companies use it properly, it should prevent extortion. I have seen companies use the FCPA to resist bribe demands by explaining that they can be prosecuted in the US. Now they can say “We can get charged and so can you. You’ll never be able to travel internationally again and if you do, you might get arrested and sent to the US for trial.” Companies should add a component on FEPA to their standard anti-corruption trainings for employees on FEPA and how to use it to resist bribe demands. The US government should also do all it can to get the word out internationally about FEPA as this might deter some bribe demands.
Mike: As long as political actors have existed, political actors have included aspirational or unrealistic terms or concepts in enacted laws. The same was true with the FCPA. In fact, Congressional leaders stated – in enacting the FCPA that it “would end corporate bribery” and that the goal of the law was “the elimination of foreign bribery.” This obviously has not happened and with each passing decade of the FCPA there is more – not less – enforcement. Your response about FEPA being used to perhaps resist bribe demands was the same general response some people had 45+ years ago when the FCPA was enacted. Although Congress sought to address the “foreign corporate payments” problem from a variety of angles, two main competing legislative responses soon emerged. The Ford administration (in office during the early FCPA legislative history) favored a disclosure approach as to a broad category of payments; however, key congressional leaders, as well as the Carter administration (which took office in January 1977) favored a criminalization approach as a narrow category of payments. Despite significant minority concern, the FCPA adopted a criminalization approach as it was viewed as more effective in deterring improper payments and less burdensome on business. During a 1976 hearing in Congress, J.T. Smith (General Counsel, Department of Commerce) stated as follows in advocating the Ford administration position: “[T]he existence of the criminal prosecution would be of some value to an American businessman in resisting improper requests for payments abroad. I don’t believe, however, that it would have as much value as the disclosure requirements, for the following reasons. A would-be foreign extorter who asks for $50,000 to do something of importance to the American company, on the one hand would be told, “I can’t give you that money because if I do I might have to go to jail,” and the extorter says, “That is your problem, bud, but there is no way, your law can reach me.” If you have a disclosure provision and the American businessman says, “If I give you that money, I am going to have to report the payment to the Department of Commerce, possibly to the SEC, and it will therefore be in the public record, and your name will be in the public record.” If we are right that every other country in the world, virtually every other country, has laws against public bribery and extortion, then it is our guess that the extorter will be substantially deterred. We believe that a combination of sunlight and encouragement of other nations to enforce their own laws represents a much more effective way to end corrupt payments than does direct, unilateral criminalization by this country of actions taking place in foreign jurisdictions. We urge the Congress not to substitute tokenism for real action to deal with the questionable payments problem. The danger in such tokenism is that it will create complacency. Congress will wash its hands of an important problem without having taken meaningful, enforceable action.” Your response also uses the “b” word – “bribery” several times, but this all depends on what the “b” word means. In the FCPA’s modern era, the “b” word is often used to describe a Chinese physician who is treated to “golf in the morning and beer drinking the evening,” a SOE employee who requests an internship for a family member, an alleged “foreign official” who receives a ticket to a sporting or entertainment event. Do I believe FEPA is going to stop such alleged “foreign officials” from going golfing, having drinks, asking for internships for family members, or requesting sports tickets? I highly doubt it – but this is what a meaningful amount of modern FCPA enforcement actions are addressing.
FEPA treats companies that pay bribes as the victims of extortion rather than willing bribe payers. Isn’t there a risk that FEPA will undermine FCPA enforcement and actually set back US efforts to combat corruption internationally?
Tom: I don’t think so. Bribery and extortion can definitely coexist in one case. If a police officer threatens to arrest a drug dealer and shut down his operations if he doesn’t pay and the drug dealer pays and essentially buys immunity from prosecution, is that extortion or bribery? Of course, it’s both at the same time. Companies that commit FCPA can and should still be prosecuted even if the foreign official committed extortion. Prior to FEPA, law enforcement focused only on the supply side. Now we should see them focusing on both the supply and demand sides.
Mike: When Congress passed the FCPA in 1977, it was well known that in certain instances that the companies were victims of extortion. For instance, during a Congressional hearing the following exchange took place between Representative Stephen Solarz and SEC Commissioner Phillip Loomis. “MR. SOLARZ. . . . I want to pursue one other matter here. I suppose it is related to this. You make the point that your disclosure requirements are designed to protect the interest of the stockholders of these corporations. Isn’t it conceivable you can have situations abroad where the executive officers of an American corporation in effect are put in a position by the officials of a foreign government where the interests of the corporation, and thereby the interests of the stockholders, become perhaps dependent upon the willingness of the officials of that corporation to engage in what we would know and term as bribery? . . . . MR. LOOMIS. That is a very good point. MR. SOLARZ. . . . For instance, what do you think the officials of an American corporation should do if they are doing business abroad and an individual in a position of authority in that country says to them in effect: “Unless you are prepared to pay me such-and-such, your installations will be nationalized or they will be taxed excessively,” or what-have-you, and where the officer of the American corporation comes to a reasonable conclusion that in the absence of his willingness to make such a payment that his corporation will suffer from significant and substantial financial losses? I don’t know that that is inconceivable. MR. LOOMIS. It is certainly not inconceivable. MR. SOLARZ. It has probably happened. Now, we are concerned about the interests of American stockholders, and one way to secure that interest is through disclosure. Is there another way to secure their interest through paying these bribes, or do you think that regardless of those considerations there are countervailing considerations which militate against it? MR. LOOMIS. It is because of that kind of problem which you very carefully described and which we have been wrestling with that this is a difficult area for us. In that type of situation, do you say to the company that they have got to disclose that they made this payment, when, if they do disclose it, that may cause all these adverse consequences to occur? It is not easy. MR. SOLARZ. Sort of defensive bribery. MR. LOOMIS. Yes. Extortion, we call it.” In other words, it was widely known and accepted that in certain situations that U.S. companies were the victims of extortion by certain bona fide traditional foreign government officials. It is for this reason, among others, that Congress passed a limited statute with specific elements in enacting the FCPA. Congress knew and accepted – in passing the FCPA – that it would only capture a narrow category of payments. This concept flows into modern FCPA enforcement as well. For instance, in a recent DOJ opinion procedure release, the DOJ opined – in stating that it would not bring an enforcement action – that a company was the victim of extortion. The DOJ specifically stated: “Situations involving extortion or duress will not give rise to FCPA liability because a payment made in response to true extortionate demands under imminent threat of physical harm cannot be said to have been made with corrupt intent or for the purpose of obtaining or retaining business.” (See here). What FEPA now does – because it is much more expansive than the FCPA – is apparently send the policy message that the U.S. is now (45+ years later) interested in a much broader range of conduct. In this regard, the FCPA and FEPA send much different policy messages.