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SEC Chair Nominee Clayton – Because Of Exposure To FCPA And Related Laws “There Are Some Jurisdictions Where In The Vast Majority Of The Cases It May Make Sense Just Not To Participate”

Sullivan & Cromwell partner Jay Clayton testifies before the Senate Committee on Banking, Housing, and Urban Affairs during his confirmation hearing to become the next Chairman of the U.S. Securities and Exchange Commission in Washington.  March 23, 2017.

The flawed New Yorker article about the Trump Organization and its potential FCPA liability (see prior posts here and here as well as additional commentary here) continues to percolate.

During yesterday’s Senate Committee on Banking, Housing and Urban Affairs hearing on Jay Clayton’s nomination to head the SEC, the below exchange took place between Senator Sherrod Brown (D-Ohio) and Clayton.

It was the only Foreign Corrupt Practices Act related question posed to Clayton during the hearing. (See this prior post for coverage of a report titled“The FCPA and its Impact on International Business Transactions – Should Anything Be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?” by the Clayton-chaired International Business Transactions Committee of the Association of the Bar of the City of New York).

BROWN: You’ve clearly thought a lot about the Foreign Corrupt Practices Act. As a lawyer in private practice, how — how would you advise a client interested in complying with the act, if that client was weighing going into business in Azerbaijan with a politically connected family known to be corrupt and tied to the Iranian Revolutionary Guard — and you know that’s not just a what if, that’s a real case?

CLAYTON: No, I — I — I think that is a real case, and I’m — I’m going to not comment on a real case, but I’m going to comment on the question of how do you advise a client whose subject to the Foreign Corrupt Practices Act, who may be entering into business in a country that is well known for corruption.

I think you have to tell the client to think long and hard about whether you want to have the potential exposure to — and not just the Foreign Corrupt Practices Act but — but, thankfully now, which was not the case five, seven years ago, similar oversight and enforcement from other OECD countries.

And — and — and in fact there are some jurisdictions where in the vast majority of the cases it may — it may make sense just not to participate.

BROWN: I’m sure you know that the president was involved in that situation in 2012. He said that the FCPA is a horrible law that should be changed because it puts U.S. business at a huge disadvantage. I’m not asking you — I know you’ve had some similar kinds of thoughts, but I’m — I’m — I just — I think all of us want you to understand how important it is with a president like no other, in terms of family investments, in terms of the president’s family has gone overseas to do more investing while US taxpayers have paid to protect his families — his family when they are overseas.

And how those raise questions, not for this hearing, but that you need to be particularly vigilant because he is your boss. I understand you have a fixed term but he is your boss and he is — continues to appear to be making money from around the world.

And I’m hopeful that the standard will be high. We should send the message that American businesses — we — we shouldn’t be sending the message American businesses can be so successful partnering with corrupt entities.

I — it’s bad for our moral standing in the world. It’s bad for developing country. It’s bad for investors.”

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