The game is baseball is simple. You score more runs than your opponent, you win. Your opponent scores more runs than you, you lose. To score runs, batters have to get on base. A batter gets on base by getting a hit, getting hit by a pitch, or getting walked. The worst possible thing a batter can do is strike out. Striking out represents failure by a batter.
Recently, New York Yankees player Aaron Judge set a Major League Baseball record for batter failure. As highlighted here, over the weekend Judge struck out in his 36th consecutive game breaking the record held by a National League pitcher. (For good measure, Judge also struck out on Sunday pushing the record to 37 consecutive games).
By this metric, Judge is a failure as a batter.
Yet, judging Judge by this one statistic is absurd. Despite the above statistic, Judge is having a fantastic year as a batter. Indeed, as noted in the same article “Judge is having a spectacular season that will almost certainly net him the American League Rookie of the Year award and warrant AL MVP consideration as well.”
If baseball experts can judge Judge holistically and not through the narrow prisim of one just statistic, why can’t the SEC and DOJ view a multinational company’s internal controls holistically and not through the narrow prism of just one business transaction, one employee, or one division or subsidiary? After all, this is what the FCPA commands.
The FCPA’s internal control provisions are specifically qualified through concepts of reasonableness.
Legislative history instructs that the internal controls provisions standard does not equate to an “unrealistic degree of exactitude or precision.”
The only judicial decision to substantively address the internal controls provisions states:
“It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs.”
And even the SEC has stated in internal controls guidance as follows.
“Inherent in this concept [of reasonableness] is a toleration of deviations from the absolute.”
“The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company.”
Sports analogies are often useful in other contexts.
The sports analogy in this post demonstrates just how off-the-rails FCPA enforcement has become in many instances as numerous FCPA enforcement actions are based on the enforcement agencies wearing rose-colored glasses and with the benefit of hindsight viewing a multinational business organization with thousands of employees through the lens of just one business transactions, one employee or one business unit or subsidiary.
Indeed, an interesting clause in most corporate FCPA enforcement action resolution documents is that the company conducted a thorough review of its business operations in a number of jurisdictions other than the locus of the alleged FCPA violation. Yet, in most cases no other improper conduct is alleged in the enforcement action. This alone is suggestive of effective internal controls regardless of the discrete conduct alleged in the enforcement action.
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