In a recent investor conference call, Darren Jamison (President, CEO & Director of California-based Capstone Turbine Corporation) was asked about the status of an Ecuador deal – described as a “large megawatt opportunity” for the company.
“That deal has been put on hold for now. There’s another wave of corruption that unfortunately hit the Ecuadorian government. We’re hopeful that once things settle down, new folks will be put in place that, that opportunity will come back. But right now, I’d say that, that opportunity is on hold. And I will say that Capstone takes Foreign Corrupt Practices Act, or FCPA, very seriously. And we do have a zero-tolerance policy. So we do get into areas where there is potential corruption or graft, we have to separate ourselves from those opportunities.”
The question is posed: does this represent an FCPA success or failure? Who wins from Capstone Turbine’s decision? Who loses?
Like many other laws, the Foreign Corrupt Practices Act has always had more of a “soft” enforcement impact than a “hard” enforcement impact. In other words, the FCPA will impact business operations (“soft” enforcement) even if the company is not the subject of an FCPA enforcement action or inquiry (“hard” enforcement).
It is often sound public policy for a company subject to the FCPA to make business decisions because of the threat of “hard” enforcement. Yet, more (and more aggressive) FCPA enforcement is not necessarily always an inherent good. More (and more aggressive) FCPA enforcement can actually result in net negatives.
Is Ecuador going to be a better place because a U.S. company, because of risk aversion, declines to pursue an opportunity in the country? Who is going to end up with that “large megawatt opportunity” in Ecuador?
As explored in this prior post, was it a net positive and inherently good when Hercules Offshore, because of FCPA risk aversion, abandoned a $92 million contract in Angola which, when disclosed, resulted in the company’s stock falling approximately 11%?
This prior post highlighted various examples that were perhaps just a coincidence or perhaps FCPA related.
- Cobalt pulled out of the project in Angola that was the focus of its FCPA scrutiny.
- Layne Christensen resolved an FCPA enforcement action concerning alleged business practices in a variety of African countries. The alleged conduct involved the company’s minerals division. After the enforcement action, the company disclosed that its Minerals Services division planned to exit its Africa business.
- During General Cable’s FCPA scrutiny for alleged business practices in a number of countries including Thailand the company disclosed that it completed the sale of its Thailand operations
- During its FCPA scrutiny for alleged improper hiring practices in China, JPMorgan withdrew from several financial deals.
A troubling aspect of the current FCPA enforcement climate is that the enforcement agencies seem to view retreat from a foreign country that presents FCPA risk as a good thing – perhaps even a “remedial measure.”
For instance, in the Ralph Lauren FCPA enforcement action based on alleged conduct in Argentina (see here for the prior post), under the heading “remedial measures” the DOJ noted that the company “ceased retail operations in Argentina and is in the process of formally winding down all operations there.”
Likewise, in the Bio-Rad FCPA enforcement action based in part on alleged conduct in Vietnam (see here for the prior post) one factor the DOJ noted as a basis for the NPA was the company “clos[ed] its Vietnam office after learning of improper payments by its Vietnam subsidiary.”
Similarly, in the Key Energy FCPA enforcement action based on alleged conduct in Mexico (see here for the prior post) the SEC’s order notes that “in April 2015, Key Energy announced that it was winding down its international business outside of North America, and intends to exit Mexico once its current contractual obligations to Pemex are complete [in October 2016].” Further, among the remedial efforts noted by the SEC was that Key Energy engaged in a “coordinated wind-down and exit of all markets outside of North America, and a commitment to exit Mexico by the end of 2016.”
Notwithstanding the DOJ/SEC applauding the above examples, the fight against bribery and corruption is not advanced when ethically sound companies that are generally viewed as selling the best products and services retreat from foreign markets.
Perhaps the many cheerleaders of more (and more aggressive) FCPA enforcement, regardless of enforcement theory, and regardless of resolution vehicle should stop and ponder this point in more detail.
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