Call them green, inexperienced, and naive as to how things really work.
I call them good Foreign Corrupt Practices Act survey respondents because they are immersed in learning: (i) about black letter legal principles; (ii) legal authority as opposed to non-legal sources of information; and (iii) how the law and the adversarial system functions in other areas of law. I call them good FCPA survey respondents because their answers are not influenced by client concerns, maintaining their own practice, or maintaining good will with the enforcement agency officials who possess the “carrots” and “sticks” relevant to FCPA enforcement.
The below survey data has been collected – anonymously – thus far from students in my FCPA class at Southern Illinois University School of Law.
By way of background, the class begins (as does my forthcoming book “The Foreign Corrupt Practices Act in a New Era“) by:
(i) telling the story of the FCPA through original voices of actual participants who shaped the law (see my article “The Story of the Foreign Corrupt Practices Act“);
(ii) addressing various FCPA “foundational knowledge” such as respondeat superior; the realities of the global marketplace; the “carrots” and “sticks” relevant to FCPA enforcement – that is – enforcement agency policies relevant to FCPA enforcement (such as the DOJ Principles of Prosecution of Business Organizations, the U.S. Sentencing Guidelines, and SEC policy); resolution vehicles typically used in FCPA enforcement actions (such as NPAs and DPAs and neither admit nor deny civil settlements); and the difference between FCPA legal authority (i.e. the statutory text, FCPA case law and legislative history) and other non-legal sources of FCPA information (i.e. the DOJ/SEC Guidance, resolved enforcement actions, and DOJ FCPA Opinion Procedure Releases).
With a solid foundation as to general legal principles and enforcement agency policies and resolution vehicles relevant to FCPA enforcement, coverage then turns to the FCPA’s statutory elements. In this regard, legal authority and non-legal sources of information is highlighted as to each substantive element of the FCPA’s anti-bribery provisions.
Set forth below are the survey questions and responses.
(1) In enforcing the FCPA, or any law for that matter, what is the best definition of success?
A. The number of settlements the DOJ or SEC is able to secure = 17%
B. Instances in which the DOJ or SEC is put to its burden of proof in an adversarial proceeding and prevails = 83%
(2) Rank, in the order of importance (with 1 being most important and 4 being least important) what the FCPA means?
Judicial decisions construing the FCPA = average = 3.1
The FCPA’s statutory language = average = 1.3
Enforcement agency guidance, including resolved enforcement actions = average = 3.4
Congressional intent in enacting the FCPA = average = 2.3
(3) You are the general counsel of ABC Inc. A whistleblower has contacted the DOJ and SEC regarding potential FCPA violations in your China operations and the agencies have opened up an investigation. After an internal review conducted by outside counsel, outside counsel advises you that based upon the factual evidence and relevant FCPA legal authority, should the enforcement agencies bring an action and be put to its burdens of proof in an adversarial proceeding, there is only a 30% chance that the enforcement agencies would prevail. Should the enforcement agencies bring an action (i.e. the DOJ criminally charges the company and the SEC civilly charges the company), it is likely that the company’s stock price would fall at least 3% (and perhaps more) eclipsing $750 million in shareholder value. Outside counsel advises you that during its negotiations with the DOJ and SEC, the agencies are willing to offer the company non-prosecution agreements in which the company will be required to pay $75 million in aggregate fine and penalty amounts to resolve its alleged FCPA scrutiny. The non-prosecution agreements are unlikely to have any impact on the company’s stock price. As general counsel, what course of action are you going to suggest to the company’s board of directors?
A. Put the DOJ and SEC to its burden of proof at trial = 11%
B. Agree to resolve the company’s FCPA scrutiny via the non-prosecution agreements = 89%
(4) The FCPA’s legislative history instructs that Congress’s primary motivation in enacting the FCPA was the foreign policy implications resulting from the discovered payments. Are foreign policy implications present in most current FCPA enforcement actions given the alleged “foreign officials”?
A. Yes = 18%
B. No = 82%
(5) The FCPA defines “foreign official” as follows: “any officer or employee of a foreign government or any department, agency, or instrumentality thereof …”. In U.S. v. Carson, the court held that “the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact.” The court then listed the following factors that “bear on the question of whether a business entity constitutes a government instrumentality”:
(i) the foreign state’s characterization of the entity and its employees; (ii) the foreign state’s degree of control over the entity; (iii) the purpose of the entity’s activities; (iv) the entity’s obligations under the foreign state’s law, including whether the entity exercise exclusive or controlling power to administer its designated functions; (v) the circumstances surrounding the entity’s creation; and (vi) the foreign state’s extent of ownership of the entity, including the level of financial support by the state (e.g., subsidies, special tax treatment and loans).
The court then stated that “such factors are not exclusive, and no single factor is dispositive.” In addition to the above conclusion, the Carson court issued a “knowledge of status of foreign official” jury instruction which stated in pertinent part that the payment or gift at issue was to “a person the defendant knew or believed was a foreign official.”
The Carson decision and jury instruction:
A. Provides clarity to the FCPA’s “foreign official” element = 53%
B. Results in less clarity as to the FCPA’s “foreign official” element = 47%
(6) As to “foreign official,” the Carson court found “that the statutory language of the FCPA is clear, that the statutory scheme is coherent and consistent, and that resort to the legislative history of the FCPA is unnecessary.”
Do you agree?
A. Yes = 17%
B. No, as to foreign official, the statutory language is not clear and thus legislative history should have been consulted = 83%
(7) In U.S. v. Kay, the Fifth Circuit held that corrupt payments to “foreign officials” to avoid customs duties and sales taxes “could (but do not necessarily) come within the ambit” of the FCPA. In pertinent part, the court stated as follows:
“Avoiding or lowering taxes reduces operating costs and thus increases profit margins, thereby freeing up funds that the business is otherwise legally obligated to expend. And this, in turn, enables it to take any number of factions to the disadvantage of competitors. Bribing foreign officials to lower taxes and customs duties can provide an unfair advantage over competitors and thereby be of assistance to the payor in obtaining or retaining business.”
The court also stated “we hasten to add, however, that this conduct does not automatically constitute a violation of the FCPA: It still must be shown that the bribery was intended to produce an effect … that would ‘assist in obtaining or retaining business.’” Specifically, the court stated:
“[T]hat is not to say that such a diminution [in duties and taxes] always assists in obtaining or retaining business. There are bound to be circumstances in which such a cost reduction does nothing other than increase the profitability of an already-profitable venture or ensure the profitability of some start-up venture. Indeed, if the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion we are forbidden to reach.”
Company A is an already-profitable venture doing business in 75 countries. Company A’s subsidiary in a foreign country (a subsidiary that accounts for less than 5% of Company A’s overall business) makes a payment to a foreign official to reduce custom duties in connection with the importation of product. Given the Fifth Circuit’s holding and reasoning in Kay, has Company A violated the FCPA’s anti-bribery provisions?
A. Yes = 33%
B. No = 67%
(8) Given the DOJ and SEC’s enforcement theories – most notably in enforcement actions involving foreign licenses, permits, etc. – does the FCPA’s facilitating payment exception have any real meaning in this new era of enforcement?
A. Yes = 32%
B. No = 68%
(9) Given the “carrots” and “sticks” relevant to resolving a corporate FCPA enforcement action, as well as the DOJ’s and SEC’s enforcement theories, do statute of limitations have any real meaning in this new era of enforcement?
A. Yes = 16%
B. No = 84%
(10) Do you believe that the books and records and internal controls charges against Dow Chemical, Avery Dennison, Veraz Networks, NATCO Group, and Oracle – based on the allegations in those enforcement actions – were consistent with legal authority as to the books and records and internal controls provisions?
A. Yes = 40%
B. No = 60%
(11) Do you believe that the books and records and internal controls charges against Dow Chemical, Avery Dennison, Veraz Networks, NATCO Group, and Oracle – based on the allegations in those enforcement actions – were consistent with SEC/DOJ guidance as to the books and records and internal controls provisions?
A. Yes = 45%
B. No = 55%
