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Over-Criminalization And FCPA Reform Return To Capital Hill

Over-criminalization was a topic discussed at the June 2011 House FCPA hearing.  (See here for the prior post).

The topic (as well as FCPA reform) returned to Capital Hill earlier this month.

The House Committee on the Judiciary, Over-Criminalization Task Force, recently held a hearing titled “Defining the Problem and Scope of Over-Criminalization and Over-Federalization.”

In his written testimony, under the heading “Poor Legislative Draftsmanship,” Steven Benjamin (President, National Association of Criminal Defense Lawyers) stated as follows.

“Consider, for example, the Foreign Corrupt Practices Act (FCPA) and the risk it poses for legitimate businesses and the people who work for them. The purpose of the FCPA—to deter and redress bribery and corruption worldwide—is laudable, but its overly broad language has created an enforcement climate where the statute means whatever the government says it means. Despite its more than 30-year history, published judicial decisions interpreting the FCPA are sparse, because enforcement has largely focused on corporations unwilling to undertake the life-or-death risk inherent in the defense of a felony criminal case. Further evidence of this point came last fall when, after significant pressure, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) issued a 120-page guide on the government’s interpretation of the FCPA.  While this guidance is certainly helpful to companies and individuals seeking to comply with the current enforcement regimes, the manual sets forth untested legal theories. Because the statutory language does not provide all of the answers to the questions that its broad language permits, the enforcers of the law are left to ‘fill in the blanks.’ And because the document is not legally binding, it affords no reliable protection from prosecution even if a regulated person or entity acts in accordance with the Government’s enforcement guidance. Such a state of affairs is not only bad for business and economic certainty, it is fundamentally unfair and in direct conflict with our constitutional principles of fair notice and due process.”

[For additional reading on the above dynamics, see my 2010 article “The Facade of FCPA Enforcement” and my 2010 Senate FCPA testimony]

In his written testimony, under the heading “Recommendations for Reform”, George Terwilliger (Morgan Lewis and a former DOJ Deputy Attorney General) stated as follows.

“Congress should consider long-overdue reforms to the FCPA. Although this law is only one of several thousand imposing criminal penalties, it presents a significant impediment to businesses and uncertainty in FCPA enforcement standards represents a ready example of the adverse affect on businesses of poorly formed statutes. Specifically, because the FCPA is largely enforced exclusively by the Department of Justice and Securities Exchange Commission, beyond the scrutiny of judicial oversight, enforcement is dependent largely on prosecutorial discretion and internal agency guidance. In order to provide greater clarity to the FCPA, Congress should consider some of the following reforms.

Affirmative Defense for Adequate Procedures: Like the UK Bribery Act, the FCPA should include a presumption against criminal prosecution upon a showing by a defendant corporation that it has in place an effective compliance program, structured around specified standards. Such a reform would permit companies to concentrate resources into structuring effective compliance programs (which in turn would help assist in furthering the deterrent effect of the law), knowing that the efforts could help insure them against unforeseeable corruption risks, thus helping to spur investment in overseas operations and ventures.

Repose of Post-Acquisition Due Diligence: Congress should consider an amendment to the FCPA that would provide that if in a defined period after an acquisition closes, a company conducts a detailed compliance assessment of the acquired company’s operations, promptly discloses to the government and remediates any non-compliant conduct discovered, the acquiring company would be immune from penalty for FCPA violations occurring in the acquired entity’s operations during or prior to that period. Because the realities of pre-acquisition due diligence do not always allow full and complete access to the target company’s operations records, this would incentivize and allow an acquiring company the opportunity to uncover issues not identified during preacquisition due diligence and to quickly and fully integrate the acquired entity into its compliance program.

Additional Reforms: Additionally, in order to promote greater clarity, Congress should consider amendments to the FCPA that would clarify specific ambiguous terms that have been the subject of much spilled ink in the academia, the FCPA bar, and before this very Committee. Specifically, greater clarity should be provided to the meaning of “foreign official” and the degree of control required of foreign governments before a state-owned enterprise or other foreign entity is considered an “instrumentality” of a foreign government.

Greater clarity can also be provided to the meaning of “facilitation payment.” Due in part to the government’s expansive definition of liability, the facilitation payment exception to the FCPA exists in theory, but not in practice. Many companies that discover what appear to be benign facilitating payments can be left paralyzed with uncertainty as to whether the practice violates the law.”

[For additional reading on a compliance defense, see my article “Revisiting an FCPA Compliance Defense“]

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