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Taxing FCPA Enforcement

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This previous post discussed a bill titled “Countering Russian and Other Overseas Kleptocracy Act” (“CROOK Act”) introduced in the House of Representatives.

The bill seeks “an amount equal to five percent of each civil and criminal fine and penalty imposed pursuant to actions brought under the FCPA … that would otherwise be deposited in the Treasury of the United States” to fund the Anti-Corruption Action Fund.”

Recently, a similar bill – also titled “Countering Russian and Other Overseas Kleptocracy (“CROOK Act”) – was introduced by Senator Ben Cardin (D-MD) and Senator Roger Wicker (R-MS). (See here).

As explained below, the Senate version of the CROOK Act seeks to tax certain FCPA enforcement actions (those in which total criminal fines and penalties are in excess of $50 million) by imposing an “additional prevention payment equal to $5 million which shall be deposited in the Anti-Corruption Action Fund.”

Similar to the CROOK Act previously introduced in the House, the Senate version contains the following findings:

“Authoritarian leaders in foreign countries abuse their power to steal assets from state institutions, enrich themselves at the expense of their countries’ economic development, and use corruption as a strategic tool both to solidify their grip on power and to undermine democratic institutions abroad.

Global corruption harms the competitiveness of United States businesses, feeds terrorist recruitment and transnational organized crime, enables drug smuggling and human trafficking, and stymies economic growth.

Illicit financial flows often inconspicuously penetrate a country through what appears to be legitimate financial transactions, as kleptocrats launder money, use shell companies, amass offshore wealth, and participate in a global shadow economy.

The Government of Vladimir Putin in Russia is the leading model of this type of foreign kleptocratic system, using corruption to erode democratic governance from within and discrediting democracy abroad, thereby strengthening his authoritarian rule.

Russia uses stolen money (A) to purchase key assets in other countries, particularly with a goal of attaining monopolistic control of a sector; (B) to gain access to and influence the policies of democratic countries; and (C) to directly fund political parties and organizations that advance Russian interests in other countries, particularly those that undermine confidence and trust in democratic systems.

Thwarting these tactics by Russia and other kleptocratic governments requires the international community to strengthen democratic governance, the rule of law, and international cooperation in combating illicit finance, especially by empowering reformers in foreign countries during historic political openings for the establishment of the rule of law in those countries.

New reformers in foreign countries must act quickly to seize political openings for anti-corruption reform. Since such reformers are often outsiders with little government experience, they may need significant technical assistance to root out deep-seated corruption.”

The bill then establishes the “Anti-Corruption Action Fund” for the purpose of aiding foreign states:

“(1) to prevent and fight public corruption;

(2) to develop rule of law-based governance structures, including accountable investigation, prosecutorial, and judicial bodies; and

to supplement existing foreign assistance and diplomacy with respect to efforts described in paragraphs (1) and (2).”

The bill seeks to fund the “Anti-Corruption Action Fund” by having a court (in the case of conviction) or the Attorney General “impose an additional prevention payment equal to $5 million” if “total criminal fines and penalties in excess of $50 million are imposed against a person under the FCPA … whether pursuant to a criminal prosecution, enforcement proceeding, deferred prosecution agreement, non-prosecution agreement, a declination to prosecute or enforce, or any other resolution …”.

By way of comparison, as highlighted in the previous post, the House-version of the CROOK Act seeks “an amount equal to five percent of each civil and criminal fine and penalty imposed pursuant to actions brought under the FCPA … that would otherwise be deposited in the Treasury of the United States” to fund the Anti-Corruption Action Fund.”

Thus, the Senate version seeks to increase the cost of resolving only certain FCPA enforcement actions (in practice relatively few FCPA enforcement actions result in total criminal fines and penalties in excess of $50 million) by imposing an additional prevention payment of $5 million – described as a “surcharge” – whereas the House version seeks to transfer 5% of each civil and criminal fine and penalty imposed in all FCPA enforcement actions.

Either way – and as previously observed in connection with the House bill – versions of the CROOK Act represent “feel-good” legislation and will likely accomplish little.  As highlighted numerous times on these pages, a substantial root cause of many FCPA enforcement action is foreign trade barriers, distortions and other conditions of doing business in a foreign country.” Sending U.S. money to foreign governmental and nongovernmental parties will do little to address these root causes.

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