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For-Profit Public Enforcement

Bucket full of money

An article by Margaret Lemos (Duke University School of Law) and Max Minzner (University of New Mexico School of Law) titled For-Profit Public Enforcement in the Harvard Law Review recently caught my eye.  The article does not concern – or even mention – the Foreign Corrupt Practices Act, but the issues discussed in the article are nevertheless FCPA relevant.


Because it seems the metric by which DOJ FCPA prosecutors judge themselves is by the quantity of enforcement actions brought and not necessarily the quality of those enforcement actions.

For instance, as highlighted in this previous post, when the DOJ’s Assistant Chief of the Criminal Division left the DOJ, the FCPA talking point in the DOJ press release was as follows.

“The Criminal Division has also substantially increased enforcement of the Foreign Corrupt Practices Act (FCPA), convicting three dozen individuals for FCPA-related offenses – a record number – and entering into more than 40 corporate resolutions involving eight of the top 10 largest FCPA penalties in history.”

There was no mention in the DOJ’s press release of the several instances during the individual’s tenure at DOJ in which the DOJ was put to its burden of proof in FCPA enforcement actions and lost.

Likewise, as highlighted here and here, when the DOJ’s FCPA Unit Chief left the DOJ, the main talking point seemed to be as follows.

“Under his leadership, the FCPA Unit resolved more than 40 corporate cases, which include about two-thirds of the top 25 biggest corporate resolutions ever. Those matters resulted in approximately $1.9 billion in monetary penalties and the conviction of more than two dozen business executives and money launderers.”

Again there was no mention in the relevant press releases of the several instances during the individual’s tenure at DOJ in which the DOJ was put to its burden of proof in FCPA enforcement actions and lost.

That FCPA enforcement may be a convenient cash cow for the government was an issue specifically addressed in this prior post. The post profiled various statements to this effect, several from former DOJ and SEC officials, including the following quote from a former Assistant Chief of DOJ FCPA enforcement: “[t]he government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.”

In short, the issues discussed in “For-Profit Public Enforcement” may have certain parallels to FCPA enforcement.

The article abstract is as follows.

“This Article investigates an important yet undertheorized phenomenon: financial incentives in public enforcement. Each year, public enforcers assess billions of dollars in penalties and other financial sanctions for violations of state and federal law. Why? If the awards in question were the result of private lawsuits, the answer would be obvious. We expect that private enforcers — the victims of law violations and their fee-seeking attorneys — will attempt to maximize financial recoveries. Record recoveries come as no surprise in private class actions, for example. But dollar signs are harder to explain in the context of public enforcement. Unlike private attorneys who are paid a percentage of the recovery, public enforcers are paid by salary. They have no direct financial stake in successful enforcement efforts. We assume that public enforcers pursue financial awards only for their deterrent value, not for the benefits that such recoveries can bring the enforcement agency itself.

Or do they? Contrary to the conventional wisdom on the division between public and private enforcement, this Article argues that public enforcers often seek large monetary awards for self-interested reasons divorced from the public interest in deterrence. The incentives are strongest when enforcement agencies are permitted to retain all or some of the proceeds of enforcement — an institutional arrangement that is common at the state level and beginning to crop up in federal law. Yet even when public enforcers must turn over their winnings to the general treasury, they may have reputational incentives to focus their efforts on measurable units like dollars earned. Financially motivated public enforcers are likely to behave more like private enforcers than is commonly appreciated: they will undertake more enforcement actions, focus on maximizing financial recoveries rather than securing injunctive relief, and compete with other would-be enforcers for lucrative cases. Those effects will often be undesirable, particularly in circumstances where the risk of overenforcement is high. But financial incentives might provide a valuable spur to action for agencies that currently are performing well below optimal levels. Policymakers recognize as much when they seek to boost private enforcement by promising prevailing plaintiffs supracompensatory damages. We show that financial incentives can serve a similar purpose in the public sphere, offering policymakers an additional tool for calibrating the level of public enforcement.”

In other respects, the article talks about:

“Law enforcement is a big business.”

“[A]gencies seeking to build reputations as effective enforcers will tend to emphasize easily measurable accomplishments rather than more amorphous forms of success.”

“[F]inancial recoveries purport to convey information about the size or importance of the agency’s enforcement program.”

“[H]igh recoveries (either in a single case or in the aggregate) can make an enforcement program appear effective. An agency that is trying to cultivate a reputation as an effective enforcer may therefore find special value in financial awards.”

“[E]nforcement lawyers can be subdivided into two categories: career attorneys seeking a long-term career in the public sector and non-career attorneys who plan for the private sector after a short period of time.”

“Individual [enforcement] attorneys may seek to develop a public reputation for effective enforcement, and emphasizing monetary awards is a straightforward way to do this.  Just as [enforcement] agencies focus on financial rewards because they are easy to measure and easy to compare, individual lawyers may do the same because other measures of their competence are difficult to evaluate.  In other words, agency attorneys may believe that the best sort of ‘winning’ record is one that begins with a dollar sign and ends with a long series of zeroes.  A reputation for strong enforcement is initially valuable internally, but when the lawyer leaves the public sector, it is also useful for attracting clients.”

“[T]here is reason to believe that a strong enforcement program will lead to more job-creation in private firms that defend against the relevant government actions. […] The more robust the enforcement program, the more lucrative are the job prospects for former enforcement attorneys.”

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