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In The Words of Stanley Sporkin


Stanley Sporkin passed away in March 2020 and this prior post highlighted his contributions relevant to the enactment of the Foreign Corrupt Practices Act (he was the head of SEC enforcement during the mid-1970’s) as well as his advocacy for FCPA reform later in his career.

Recently the Historical Society of the District of Columbia Circuit released this oral history of Sporkin.

As relevant to the FCPA, Sporkin stated:

“I would go home at night and watch the Watergate hearings. They used to be replayed at night on TV and toward the end of the hearings, they brought in a number of corporate officials who testified as to their corporations making contributions to the Committee to Re-elect the President, which was President Nixon. And I remember, after listening to the hearings one night, I came in the next day and I called in one of my lawyers. Because of my accounting background, what I wanted to know was: how could a corporation make an illegal payment – and remember these were illegal because they were being made out of corporate funds. These were not PACs that were making these payments. They were clearly illegal. And I called in one of my lawyers and said – look, Gulf Oil testified yesterday to making these payments. Would you go visit Gulf Oil. Nothing elaborate – go and visit Gulf Oil and find out how did it make an illegal campaign contribution. How was it booked? What account did it use? And within a day or two the fellow came back. He said Gulf was very candid. He was told Gulf had set up two Bahamian companies, called Bahamian X, and Bahamian Y. Gulf funded it with five million dollars each. It then brought the money back and put it in the safe of a fellow named Dorsey, who was the Chairman of Gulf Oil. That provided Gulf with a slush fund of ten million dollars to do whatever Dorsey wanted to do with it. And we brought in the Gulf people and asked them, “Why did you do it this way?” Interestingly, the reason Gulf did it this way, is that they capitalized the money rather than expensed it, because they were afraid of the IRS. So if you wanted to see mens rea or intent, it was there. They clearly knew that they were doing wrong. But the problem we had was that there was no rule in the book that said that an industrial company had to keep accurate books and records. Financial institutions had to but not industrial companies. I couldn’t believe it so I said that, look, a company that’s engaged in illegal activity has to disclose it to the shareholders. And my theory was that shareholders should know that because we don’t know what could happen to a company engaged in illegal activities. They could lose their franchise to do business, and that could be a tremendous loss to shareholders. The problem I had was dealing with the concept of materiality. If we went strictly on the ten million dollars in a company like Gulf Oil, it would not be material. Quantitatively, it was not material because it was a blip. And so we had to construct materiality on the concept that it could jeopardize the company’s business. That would be important for shareholders and thus meet the test of materiality.

And we took the issue to the five member SEC Commission. I must tell you there was a tremendous battle at the Commission. Some commissioners did not want to touch it, but with commissioners like Pollack, we were able to convince the Commission to go this route. Well, of course what happened then is what is happening today. It was not just Gulf Oil. It was not just some of these other companies. It became so wide-spread that over the period we had this program, we brought some 65 actions against corporations for making improper payments. We found out that the accounts that were being used for the improper campaign contributions were also being used for other nefarious activities – such as bribing foreign officials. In other words, they would use these monies to bribe foreign officials. We later learned they were used to bribe domestic officials as well.

Finally, I got a call one day at a conference I was attending to come home immediately. The SEC’s Corporation Finance Director, Alan Levenson, a wonderful friend, also was asked to return to Washington. We were both out of Yale Law School, although at different times, and we were very close.

And we were both called back and the Chairman said to us – look, this has been going on long enough – we got to end it. So see what you can do, see what you can come up with. And what Alan and I came up with was the voluntary program. We put out the word to the corporate community that, if they would go out and hire good lawyers and do an internal investigation and report their findings to the shareholders and to the SEC, without giving them a promise of amnesty, amnesty could happen if in fact we were satisfied. So that program was another extremely successful program like the back office program I told you about – and it brought in reports, self examination reports, from I think it was 650 companies. And in very few cases did we take action – so it worked. It worked so well that, if you notice in recent times the Commission has dusted it off, and is now telling companies to do the same thing. So it’s now in the arsenal of the Commission.

At the same time, there was a wonderful Senator, probably the greatest Senator of all time, Senator Bill Proxmire. There is no more honest person. Never took a nickel in campaign contributions, and walked the state of Wisconsin to get re-elected. He had liked the work that I was doing at the SEC. The Senator and one of his assistants, Ken McLain, called me and asked, “Stan, what do we got to do to fix this problem? We want to do something in Congress.” I said, “Senator, you’re not going to believe what I’m going to tell you, but all you need is a one-line statute that would say that companies must keep accurate books and records. Because if they kept accurate books and records, they would have difficulty continuing with these practices because the accountants would pick it up.” They would not be able to hide it. He said, “It can’t be that easy.” I said, “It is, Senator.” He said, “Alright, we’ll pass a law that says that.” He said, “But, we also want to pass a law that says that it shall be unlawful to bribe a foreign official.”

We had a wonderful group of people at the SEC. We had Alan Levenson and then we also had a fellow named Sandy Burton, who was the chief accountant. You couldn’t ask for better colleagues, smarter people. Burton added a provision that required companies to have good internal controls. And so that became the law – three parts: 1) accurate books and records; 2) an internal control provision, and 3) an anti-bribery provision. That became the Foreign Corrupt Practices Act, which is still on the books and is a very important part of the law. I was vindicated because if you look at the cases brought, you’ll see that the vast majority are brought under the books and records provisions. And very few under the bribery section, because bribery is hard to prove. So that is how the Foreign Corrupt Practices Act came into being. And I love it when I get called by foreign officials to ask about the process and the procedure that we went through for our government to adopt this law. They all think that there was a program, a plan, or something. I hope I have some humility left, but what amazes me was what one person can do is incredible in our government. I was one person. Now, whether it’d be me or somebody else, it was one person that’s responsible for this – which is an amazing kind of thing when you think of the power of an individual – that you could have a law like this passed. An amazing kind of thing, when you think of it.”

Although some have called Sporkin the “Father of the FCPA,” (see here and here), this title with all due respect to Mr. Sporkin always struck me as a bit misplaced. While Sporkin most certainly played a key role in what would become the FCPA’s books and records and internal controls provisions, Sporkin’s SEC was not in favor of what would become the FCPA’s anti-bribery provisions and wanted no part in enforcing the anti-bribery provisions.

I had the pleasure of appearing on several panels with Sporkin during his life. Given his background, he appeared to me to think that the FCPA’s books and records and internal controls provisions were the panacea to corporate bribery. This too always struck me as a bit misplaced given that the vast majority of business organizations subject to the FCPA’s anti-bribery provisions are not even subject to the FCPA’s books and records and internal controls provisions (which only apply to issuers – a relatively modest slice of the overall business landscape).

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