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Let’s All Take A Deep Breath When It Comes To FCPA Enforcement In The Trump Administration

take a deep breath

Sure FCPA Professor published this post (as it has at various other points during Donald Trump’s campaign for President) hours after it became clear that Trump was the President-Elect.

The post did not offer any predictions of FCPA enforcement in a Trump administration, but rather concluded with the same conclusion the post has had since 2012 when it was first published. That being, Trump likely conflated the issues – as many commentators have – between the FCPA (the law) and how the FCPA is enforced. (For more on this dynamic, see this prior post).

In the past few days, there have been certain predictions about FCPA enforcement in a Trump administration.

For instance, this post from a self-described “hawk” when it comes to FCPA enforcement articulated a number of “depressing thoughts” about FCPA enforcement and related issues in a Trump administration. (Keep in mind that the author of the post has previously stated on more than one occasion (see here and here) that more judicial scrutiny of FCPA enforcement theories “means a greater risk of an adverse appellate decision (or even a Supreme Court decision) on the FCPA’s meaning, with potentially devastating effects on the DOJ and SEC’s FCPA enforcement efforts.”).

In any event, the best treatment for depression or anxiety is not to engage in speculative “what if” thinking. As I told the Wall Street Journal, I think the most prudent answer at this point to the question of FCPA enforcement in a Trump administration is not to speculate but to wait and see who the Attorney General and SEC Commissioners and SEC Chair are going to be during the Trump administration. While we await these developments, we can at least focus on some facts that are relevant to the future of FCPA enforcement.

For starters, it is important to put Trump’s 2012 statement that the FCPA is a “horrible law and it should be changed” in the proper context. The mid-May 2012 comment came at the height of public awareness of Wal-Mart’s FCPA scrutiny – scrutiny focused on alleged payments in Mexico to obtain various licenses and permits. Indeed, Trump’s comments (the video is here go the approximate 14 minute mark) were made in the context of a discussion about Wal-Mart’s scrutiny. The Story of the FCPA documents how Congress did not intend to capture such payments in enacting the FCPA’s anti-bribery provisions and as highlighted in the article “FCPA Enforcement As Seen Through Wal-Mart’s Potential Exposure” the government has an overall losing record when put to its burden of proof concerning payments outside the context of foreign government procurement.

Talk about an interesting story within a story. The most high-profile instance of pending FCPA scrutiny involves Wal-Mart (see here for the latest including that government “officials are working to wrap up an agreement with Wal-Mart before a new administration takes over in January”) and Trump is less than 70 days away from becoming the President.

Switching gears, even though the FCPA is an important law and a declared high-priority of both the existing DOJ and SEC, it’s highly unlikely that a President Trump is going to take a keen interest in FCPA enforcement given the numerous other issues on his plate and the other significant demands of the office. But even if a President Trump does take a keen interest in the FCPA, it should be an unobjectionable statement that a President Trump, because of his real-world business experience including in multiple foreign countries, knows more about the FCPA than any other person who has ever occupied the Oval Office. I would think all in the anti-corruption space could agree that real-world experience is an important asset for anyone with the potential to impact FCPA enforcement and related issues.

Moreover, the apparent fact that businessman Trump has navigated the global marketplace for many years without running afoul of the FCPA should be comforting to anyone who believes that Trump’s 2012 statement showed actual contempt for the FCPA. (On this point, during the campaign I was contacted by media who were digging into Trump’s foreign business dealings for potential FCPA issues).

Next, a key fact relevant to the issue of FCPA enforcement in a Trump administration.

In any given year, approximately 50% of corporate FCPA enforcement actions (which then sometimes spawn individual enforcement actions, related corporate enforcement actions, or industry sweeps) originate with corporate voluntary disclosures. To say that the U.S. government “enforces” the FCPA in these instances is a bit odd compared to the more accurate statement that the U.S. government “processes” voluntary disclosures in these instances.

In certain respects, the multi-billion dollar FCPA Inc. industry controls how much FCPA enforcement there is.

To think that FCPA Inc. is going to stop making voluntary disclosures (disclosures that feed the industry) on January 20, 2017 is fanciful. There are too many people making lots of money based on the current FCPA enforcement environment for FCPA enforcement to experience a sudden and dramatic change. In short, voluntary disclosures will still likely fill up a significant portion of the FCPA pipeline after January 20, 2017. If you believe that FCPA enforcement will decline in a Trump administration then you presumably must think that the DOJ and the SEC will start refusing to “process” these corporate voluntary disclosures.

An additional fact relevant to analyzing FCPA enforcement in a Trump administration is to analyze historical FCPA enforcement under the Bush and Obama administrations. Indeed, to best analyze where FCPA enforcement may be headed, we first need to understand FCPA enforcement in the past.

FCPA enforcement began to increase circa 2004/2005 in the second Bush administration, not because of terrorism and/or national security issues as some commentators continue to push, but because of two basic, practical issues (in addition to the obvious facts that the FCPA was expanded in late 1998 and the general increase in international business over the past 15 years).

2004 was the year in which the DOJ brought alternative resolution vehicles (NPAs/DPAs) to the FCPA context and it doesn’t take a rocket scientist to figure out that the more options there are in resolving instances of FCPA scrutiny the more FCPA enforcement there is likely to be. In the words of the OECD “it seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record.” (To learn more about how NPAs and NPAs impacted FCPA enforcement including numerous statistics, see the article “Measuring the Impact of NPAs and DPAs on FCPA Enforcement“).

Around the same time, Section 404 of Sarbanes Oxley went live which required issuers to asses and report (through executive officer certifications) on the effectiveness of internal controls over financial reporting. In both the 2010 Senate FCPA hearing and the 2011 House FCPA hearing the same DOJ representative was asked about reasons for the increase in FCPA enforcement and in both hearings the DOJ representative stated that Sarbanes-Oxley has resulted in a “significant” number of FCPA disclosures which then led to FCPA enforcement actions.

During the later part of the Bush administration and the entire Obama administration, there were approximately 10-15 corporate enforcement actions per year on average. (See here for the statistics). Indeed, the average number of corporate FCPA enforcement action during the Obama administration has been 14.

But even this figure is significantly impacted by 2010 enforcement in which 8 enforcement actions were all announced on the same day and involved the same core allegation: various oil and gas companies utilizing the services of freight-forwarder Panalpina. The record-breaking 2016 FCPA enforcement year (with still 1.5 months left) is also an outlier as several instances of scrutiny long in the FCPA pipeline burst onto the scene. In short, the median number of corporate enforcement actions per year in the Obama administration has been approximately 12.

Moreover, yearly FCPA enforcement statistics have been impacted by unique factors. For instance, as highlighted in this post, between 2007 and 2011 FCPA enforcement was significantly impacted by just three specific, unique issues: (i) publication in 2005 of the so-called Volcker Report on the United Nations Iraq Oil for Food Program which served as a ready-made list of enforcement actions; (ii) in 2003 Georges Krammer, a former top official at Technip, shared information with French investigators concerning a $6 billion dollar project at Bonny Island, Nigeria; and (iii) several oil and gas companies utilized the services of Panalpina.

As highlighted in the prior post: issue (i) yielded 14 corporate enforcement actions (approximately 20% of the total during the time period); issue (ii) yielded approximately 40% of the corporate settlement amounts during the time period; and issue (iii) yielded 8 enforcement actions all announced on the same day and resulted in 2010 being the high-water mark of FCPA enforcement in the Obama administration except for this year.

In short, when contemplating FCPA enforcement during a Trump administration, one needs a proper perspective of FCPA enforcement in prior administrations and what impacted enforcement in prior administrations.

In analyzing FCPA enforcement statistics, it is also important to understand how many FCPA Inc. participants have adopted creative and haphazard counting methods that make FCPA enforcement appear more vibrant than it actually is. (See here for the article which exposes these creative and haphazard counting methods).

Last, but certainly not least, when contemplating FCPA issues in a Trump administration is the issue of FCPA reform. Here again, some facts are needed.

While some civil society groups took issue with the Senate and House even holding FCPA hearings, there appeared to be bipartisan support for certain aspects of FCPA reform.

I had the privilege to testify at the November 2010 Senate FCPA hearing (see here for the hearing transcript and here for the video). What surprised me most about the hearing is the extent to which Senator Amy Klobuchar (D-MN) and Senator Christopher Coons (D-DE) appeared most enthusiastic about certain aspects of FCPA reform. Likewise, in the more contentious House FCPA hearing, even Representative John Conyers (D-MI) stated he would support certain FCPA reform proposals. (See here for the prior post and here for the hearing transcript).

In short, if a Trump presidency has you depressed or anxious about FCPA enforcement, take a deep breath, don’t engage in “what if” thinking, but rather focus on the facts highlighted in this post.

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