In October 2010, the Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, released (see here) “Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act.” It was not the first time FCPA reform ideas were proposed, but the white paper certainly did elevate the issues. In November 2010 (see here for the prior post), the Senate held a hearing “Examining Enforcement of the Foreign Corrupt Practices Act” during which certain reform proposals were discussed. In June 2011, (see here for the prior post) the House held a hearing “Foreign Corrupt Practices Act” that mostly focused on FCPA reform.
Last Friday, Open Society Foundations, a foundation founded by George Soros that works to “build vibrant and tolerant democracies whose governments are accountable to their citizens” (see here), released “Busting Bribery: Sustaining the Global Momentum of the Foreign Corrupt Practices Act” (see here). Authored by David Kennedy (Professor of Law, Harvard Law School – see here) and Dan Danielsen (Professor of Law, Northeastern University School of Law – see here), the white paper is a direct response to the Chamber’s Restoring Balance piece.
A future post will discuss certain of the rebuttal points raised in Busting Bribery, but this post summarizes the rebuttal points in Busting Bribery.
According to the authors, “the Chamber proposes to change the Act in ways that would substantially undermine the possibility for successful enforcement of America’s anti-bribery commitments” and the “Chamber’s proposed amendments would also set back decades of progress in the global struggle against corruption.” Busting Bribery states that “FCPA prosecutorial overreach by the Department of Justice is a myth” and that the “Chamber’s proposals “would needlessly hamstring what has been a judicious and increasingly effective use of prosecutorial discretion to encourage compliance and isolate the most egregious violations.”
As to the Chamber’s FCPA reform proposals, Busting Bribery states, in summary, as follows.
“Often seen as the least concerning of the Chamber’s proposals, the creation of an affirmative defense of “compliance” to FCPA corporate criminal liability is actually potentially very dangerous. Compliance is already taken into account at every stage in the investigation and resolution of FCPA violations. In 1988, Congress amended the FCPA to eliminate liability based on a company’s failure to eliminate bribery which it had “reason to know” was taking place. A defense of “adequate” or “good faith” compliance makes no sense when, as under the current FCPA, corporate criminal liability requires proof beyond a reasonable doubt that the company acted with actual knowledge and corrupt intent to influence a foreign government to gain an improper business advantage. Creating a compliance defense to knowing and intentional violations of the FCPA would amount to eliminating criminal liability under the Act all together by permitting a “fig leaf” compliance program to insulate companies from their knowing and intentional wrongdoing.” (emphasis in original).
“Eliminating successor corporate criminal liability for an acquiror for violations undertaken prior to acquisition by an acquiree would result in perverse incentives to avoid investigation of past FCPA violations by potential acquirees. Such a failure to investigate, while seeming to reduce acquisition costs in the short run, would likely expose the acquiring company to substantial unknown business risks and future enforcement where bribery remains undiscovered and therefore unaddressed. Even if rarely imposed, the potential for successor liability remains important to prevent companies from escaping from liability through restructuring while preserving appropriate incentives for monitoring and compliance in the context of acquisitions.” (emphasis in original).
“The Chamber asserts that it is necessary to add a “wilfullness” requirement to the mens rea standards for corporate criminal liability because of an alleged inequity with the standard applied for individual criminal liability. In fact, as interpreted and applied by the courts and the DOJ and the SEC, the applicable standards for criminal liability for both individuals and corporations are effectively equivalent. The Chamber’s intent appears to be to substantially reduce the scope of activity proscribed by the FCPA by absolving corporations of criminal responsibility for long-standing, pervasive, knowing and intentionally unlawful acts if they did not also have specific knowledge that their conduct was violating the FCPA. Seen in this light, the Chamber’s proposal looks much more like a license to commit pervasive and intentional bribery than a modest attempt to eliminate the risk of prosecutorial over-reach.” (emphasis in original).
“The Chamber’s proposed elimination of civil liability under the FCPA for the corrupt activities of subsidiaries would offer a formal escape route from enforcement by elevating corporate form over substantive knowledge and intent while eliminating a significant incentive for parent companies to undertake appropriate oversight of the corrupt activity of their subsidiaries. Congress has long recognized that parent companies frequently engage in foreign bribery through the use of subsidiaries and that eliminating the risk of liability would encourage a head-in-the-sand management style of conscious disregard and deliberate ignorance to facilitate corrupt activity abroad. The Chamber’s arguments about the potential risk of prosecutorial over-reach are purely speculative. Eliminating the risk of civil liability, however, would substantially decrease the incentives for parent company to oversee FCPA compliance by their foreign subsidiaries and the effectiveness of the FCPA as a limit on corrupt corporate activity abroad.” (emphasis in original).
“The Chamber’s effort to turn back the clock is most striking in the proposal to narrow the definition of “foreign official” at a time when the global trend is the other way—toward criminalizing bribery of both public officials and private actors. The Chamber’s proposed “clarifications” would seriously compromise the purposes of the FCPA to prevent intentional bribery in a world which organizes public authority in a wide variety of ways. Because the contours of public control over commercial life vary greatly in different contexts, legislative clarification would be destined to be both over and under inclusive. This is precisely the type of issue best left to sound administrative management and judicial review.” (emphasis in original).
In conclusion, Busting Bribery asserts that “the FCPA is working as Congress intended and new legislation is neither necessary nor advisable.”
