Former Attorney General John Ashcroft On Corporate Governance And The FCPA

Ashcroft delivered his comments on the expanding application of the Foreign Corrupt Practices Act by providing a perspective of how corporate governance has been impacted by the statute’s continued growth.  He noted the arena of modern corporate behavior has been altered as it relates to issues of risk assessment in light of a company’s global activities.  According to Ashcroft, the significance of this issue in light of the globalized economy and how companies learn to change their corporate culture to avoid potential liability, is highlighted by the enforcement action of the German company Siemens. “Intrinsically,” Ashcroft noted, “when businesses enter into relationships with government, they are subjecting themselves to potential liability.”  In a corruption case that spanned several years and across the company’s structure, world-wide settlements resulted in about 1.6 billion US dollars, with the company spending an additional $1 billion to fix their internal corporate culture so that such criminality would not take place again.Ashcroft noted that the Siemens case highlights not just the example of how corporate corruption can be a very costly liability, but also how entrenched a corporate culture can be and how difficult it might be to change.  In fact, he noted that Siemens’ past criminality and the resulting attempts to alter its internal systems that detect corruption has resulted in a new corporate culture, but that it remains difficult for any company to build and sustain a corporate culture of integrity, especially when the scale of business is so large and spans across many continents in a globalized economy.Ashcroft then discussed several “corporate governance risk factors” as they relate to instituting a culture of integrity and compliance with the FCPA.   These risk factors include the scale and size of the business in which companies operate, exertion of control over a corporation’s activities and people that exist on the ‘periphery’, the FCPA’s legal requirement that there be at least “congregate knowledge,” and the fact that ignorance is not a defense to violation of the FCPA.  Because of the nature of a “globalized economy,” Ashcroft said that “the scales on which corporations now operate have changed” to such an extent that corporations must pay special attention to the activities taking place, not necessarily at the center of their operations, but at the “periphery,” or “extremities of their operations.”  Because of the risk of corruption occurring so far from the center, it has become essential for compliance purposes that corporations put into place the necessary systems and protocols that can help “self-regulate” corruption at the peripheries.

Related to this, Ashcroft noted that there is another issue as to scope in that transnational business for corporations involves not just direct employees of a company, but also contractors, subcontractors, and “indirect employees” that are more difficult to exert direct control over.  Because corporations are “increasingly held accountable for their actions by indirect employees,” he explained, this additional risk factor also requires corporate governance attention in exerting as much “control as possible” over all employees, especially those at the periphery.

Ashcroft also highlighted the legal requirement of knowledge as being an additional risk factor in that as the law has developed what has been found to be required is not just knowledge of an individual, but “congregate” knowledge, whereby if it can be proven that there is institutional knowledge throughout the corporation as to wrong-doing, then this would be sufficient to satisfy this element of the crime.  Additionally, Ashcroft mentioned that corporations must acknowledge and integrate into their cultures the idea that ignorance is not a defense to FCPA liability.  Together, these risk factors present opportunities for corporations to improve their corporate governance as it relates to confronting corruption.

Ashcroft concluded his comments with a discussion of principles of which corporations should be considering when it comes to effective corporate governance as related to fighting corruption.  Specifically, compliance with the FCPA should take on a model of anticipatory, sustainable, and profitable compliance.  In other words, corporate governance must look to where the law is heading and be a step ahead of what is required.  Compliance should also help sustain a company’s operations over time, as well as provide avenues of working within the boundaries of the law, but overlap with strategies that provide for a corporation’s profitability so it can compete in the global economy.  Moving towards such a model of corporate governance by taking the above risk factors into consideration will require certain structures within a corporate culture that aim to train employees, provide detection systems for anomalous behavior, and institute strategies for remedying wrong-doing.  It is in the corporation’s interest for compliance to be a regular part of the corporate culture, but also that fair enforcement of the FCPA help guide corporations in the right direction so that the US can maintain its position as an economy that continues to be the “best allocator of capital” in the world.

Although Ashcroft’s remarks were not as provocative as the title of his speech might have suggested, his discussion of the intersection of corporate governance and the FCPA is a valuable message for companies doing business in global markets.  Ashcroft is currently chairman of the Ashcroft Group (see here) which specializes in strategic consulting for corporations worldwide in the areas of national security, corporate governance, litigation strategy, crisis management, regulatory advice and entrepreneurial ventures.