Archive for the ‘Compliance Defense’ Category

“Without Law or Limits: The Continued Growth Of The Shadow Regulatory State”

Thursday, April 16th, 2015

ShadowJames Copeland and others at the Manhattan Institute have written some good pieces about the DOJ’s use of non-prosecution and deferred prosecution agreements.

See here for the 2012 post discussing “The Shadow Regulatory State:  The Rise of Deferred Prosecution Agreements.”

See here for the 2014 post discussing “The Shadow Lengthens:  The Continuing Threat of Regulation by Prosecution.”

If you are interested in NPAs and DPAs (and you should be if you follow the FCPA given that since 2010 approximately 85% of corporate DOJ enforcement actions have involved either an NPA or DPA), you should check out Copeland’s latest titled “Without Law or Limits: The Continued Growth of the Shadow Regulatory State.

The introduction states:

This report focuses on DPAs and NPAs reached between the U.S. government and businesses or individuals in 2014. [...]

Through specific case studies, this report explores three key issues that arise under the shadow regulatory state:

  1. Enforcement efforts can undermine compliance. As shown through a plea agreement, a DPA, an NPA, and a cease-and-desist settlement entered into between the U.S. government and Hewlett-Packard [see prior posts here and here] and its foreign subsidiaries, federal prosecutors often punish companies notwithstanding extensive compliance programs, even when the companies self-report offenses and even when “rogue” employees go to extraordinary lengths to hide misconduct from their employers. Such a “strict liability” enforcement strategy may deter companies from developing effective compliance regimes.
  2. The DPA-NPA process lacks definite terms and judicial oversight. As shown through the federal government’s decision to extend a two-year DPA with Standard Chartered Bank for an additional three-year term, without any proffered evidence of additional wrongdoing, federal prosecutors’ authority in the DPA-NPA process is supreme. These agreements typically grant prosecutors the sole authority to determine whether an agreement has been breached. Indeed, the Department of Justice argues that federal judges have no authority over DPAs, beyond ensuring that such agreements comply with the terms of the Speedy Trial Act. [For prior posts examining this issue, see here and here].
  3. The DPA-NPA process is ill-suited for application to individuals. One concern about the increased use of DPAs and NPAs by the federal government is that they give prosecutors broad powers over businesses, notwithstanding that, more often than not, no individual is ever prosecuted for any underlying offense alleged in the agreement. [For prior post containing FCPA-specifics on this issue, see here and here]. The recent decision of the Securities and Exchange Commission to apply DPAs and NPAs to individuals—acquiring significant authority over people’s lives and retaining the ability to prosecute, essentially at prosecutors’ discretion—is a troubling new application of this power. The NPA reached with an unnamed individual in a 2014 insider-trading investigation exemplifies these concerns, as the alleged misconduct itself most likely does not constitute insider trading under current law.

Notwithstanding the lack of judicial oversight in the shadow regulatory state, two judges asserted new authority over this process in 2014—continuing a trend observed in 2013. Ultimately, however, reforming the shadow regulatory state requires legislative action. Part IV of this report discusses one proposed solution, the Accountability in Deferred Prosecution Act, sponsored by U.S. Representative Bill Pascrell, Jr. (D-N.J.). Although this proposed legislation does not go far enough to address some of the serious problems with DPAs and NPAs, the legislation would add substantial clarity, transparency, and oversight, as compared with current practice, and is a great starting point for much-needed reform.”

Numerous posts have highlighted the problems of NPAs and DPAs in the FCPA context. (See here for example.  For a more comprehensive analysis see “The Facade of FCPA Enforcement“).

My long-standing, two-fold FCPA reform proposal is to amend the FCPA to include compliance defense and couple this with abolishing NPA and DPAs.  (Among other prior posts, see here).

Should this occur, the resulting enforcement landscape would look as follows.

If a payment is made in violation of the FCPA’s anti-bribery provisions within a business organization, two issues will be relevant.

First, if the payment was made, authorized or condoned by a director or executive officer, the business organization will not be able to avail itself of an FCPA compliance defense.  Second, if the payment was made by any employee or agent in the absence of pre-existing FCPA compliance policies consistent with the best practices, the business organization will not be able to avail itself of an FCPA compliance defense.  In these scenarios involving corrupt directors or executive officers or business organizations without a commitment to FCPA compliance, the enforcement agencies will have two choices:  do not prosecute or prosecute the business organization for violating the FCPA.  This is a just and reasonable result and the third option of an NPA or DPA is not needed in such a scenario. As even the DOJ has acknowledged and empirical research has demonstrated, it is extremely unlikely that actual criminal prosecution of such a business organization will result in its demise.

Conversely, if the payment at issue is made by a non-executive employee or agent contrary to the business organization’s pre-existing FCPA compliance policies, the organization will be able to avail itself of an FCPA compliance defense.  Thus, as a matter of law, no FCPA prosecution of the organization will be able to proceed.  This too is a just and reasonable result and aligns FCPA enforcement with enforcement regimes in several other peer countries.

The above FCPA reforms will take courage, both by Congress in amending the FCPA and by the enforcement agencies in abolishing the resolution vehicles they created.  The reform proposals may indeed result in less hard FCPA enforcement actions as certain business organizations will be able to avail itself of the compliance defense and as enforcement agencies are once again mindful of their burdens of proof in prosecuting alleged FCPA violations.

However, more FCPA enforcement is not necessarily an inherent good and ought not be the singular goal of the FCPA.  The goal ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, best advances the FCPA’s objective of reducing bribery, increases transparency and better aligns FCPA enforcement with rule of law principles.

The above two-fold FCPA reform proposal will accomplish these goals as well as increase public confidence in FCPA enforcement.  The proposals will also allow the enforcement agencies to better allocate limited prosecutorial resources to cases involving corrupt business organizations and the individuals who actually engage in the improper conduct. (See here for the prior post).

Spain Becomes The Latest Country To Adopt A Compliance Defense

Tuesday, April 14th, 2015

SpainThe article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” highlights, among other things, that several countries like the United States that are signatories to the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), have a compliance-like defense in their domestic laws.

The article discussed compliance-like defense concepts in the laws of the following OECD Convention countries: United Kingdom, Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, and Switzerland.

As noted in the article:

“That additional OECD Convention signatory countries [do not have compliance defense concepts] does not mean that those countries rejected compliance-like defenses relevant to their “FCPA-like” law. Rather, in many OECD Convention countries the concept of legal person criminal liability (as opposed to natural person criminal liability) is non-existent. Further, in many OECD Convention countries that recognize legal person criminal liability, such legal person liability can only result from the actions of high-level personnel or other so-called “controlling minds” of the legal person. If a foreign country does not provide legal person liability, there is no need for a compliance defense, and the rationale for a compliance defense is less compelling if legal exposure of the legal person can only result from the conduct of high-level executive personnel or other “controlling” minds of the legal person.”

“Revisiting a Foreign Corrupt Practices Act Compliance Defense” was published in January 2012 and since then several other OECD Convention countries (and other countries) have adopted or are considering adopting compliance-like defense concepts in their domestic laws.

Prior posts here and here highlighted developments in Singapore and Ireland.

The point is – a compliance-like defense applicable to the offense of bribery of foreign officials is not novel, risky, or dangerous as the DOJ and others have argued.

The latest country to recognize this – and become smart as to enforcement of anti-bribery laws – is Spain.

In this recent post published on Global Compliance News (a news platform moderated by Baker & McKenzie), Brian Whisler and Rafael Jimenez-Gusi write:

“Pursuant to amendments to the Spanish Criminal Code approved on March 26, 2015 by the Spanish Congress and scheduled to take effect on July 1, 2015, a company’s directors are legally obligated to adopt a compliance program and the program must be supervised by a body or individual authorized to exercise high-level control. The amended code provides companies with an exemption from criminal liability for crimes committed by their officers or employees, provided the company meets certain requirements set forth under the new law. Specifically, Article 33 of the amended code exempts companies from criminal liability under the following conditions:

  1. the directors have adopted a compliance program that meets the legal requirements under Spanish law,
  2. the supervision of the program is entrusted to a company´s body or individual with authorized powers of initiative and control (Compliance Body),
  3. the officers or the employees have committed a crime by intentionally violating the compliance program, and
  4. the Compliance Body did not neglect its duties of supervision, oversight and control.

The amended Spanish code also lists six key elements that a compliance program must include in order to insulate a company from criminal liability (provided that the compliance program has been adopted before a crime was committed by any of its officers or employees). These six elements, as enumerated in Article 33 bis 5, are:

  1. Risk assessment,
  2. Standards and controls to mitigate any criminal risks detected,
  3. Financial controls to prevent the crimes,
  4. Obligation to report to the Compliance Body any violations of the standards and controls (a whistleblowing channel),
  5. Disciplinary system to sanction violations of the compliance program by officers and employees, and
  6. Periodic review of the compliance program, making the necessary adjustments when serious violations occur or when the company undergoes organizational, structural or economic changes.

Since the amended code requires an effective compliance program, companies will also need to demonstrate that their officers and employees have received proper training.

Prior to this development, in 2010, Spanish legislation introduced corporate liability for a number of crimes, including corruption. Directors could be held criminally liable if a crime was committed that could have been avoided. However, that legislation did not address the consideration a judge could give to a company’s compliance program. The 2015 Spanish legislation now places great weight on effective compliance programs, following the global trend toward mandating compliance programs reflecting core elements for such programs.

Additionally, much like in the U.K., the recent Spanish legislation is designed to provide an affirmative compliance defense for companies that can demonstrate the six elements of an effective compliance program described in the new law.”

A Look Back At 2014

Monday, February 23rd, 2015

Today’s post is short on written words, but long on content.

Recently, I had the pleasure to again visit with Thomas Fox for his Foreign Corrupt Practices Act Compliance and Ethics Report.

In this episode I discuss:

  • 2014 FCPA enforcement statistics;
  • The variety of actions brought by the DOJ and SEC in 2014;
  • 2014 enforcement actions that should cause concern;
  • The top FCPA story from 2014;
  • 2014 FCPA opinion procedure releases;
  • Enforcement agency policy speeches from 2014; and
  • How a compliance defense can assist the enforcement agencies in accomplishing their objectives (see here for the prior post).

 

 

Senate Remains Interested In FCPA Issues

Thursday, February 12th, 2015

SenateGranted it has been approximately four years since the Senate held its Foreign Corrupt Practices hearing in November 2010.  (The House followed-up with an FCPA hearing in June 2011).

FCPA reform legislation was never introduced (for potential reasons why – see this article), yet the Senate very much remains interested in FCPA issues.

The Senate Judiciary Committee recently released this document which contains Attorney General Nominee Loretta Lynch’s responses to various Senator questions.

The remainder of this post excerpts all FCPA related questions and Lynch’s answers.

As highlighted below, the Q&A’s cover the following topics:  DOJ guidance, DOJ declinations, “FCPA abuses” (as stated in a series of questions), Andrew Weissman’s FCPA reform positions prior to recently re-joining the DOJ (see here for the prior post), international cooperation, FCPA reform (including a compliance defense), and the time it takes to resolve FCPA investigations.

*****

FROM SENATOR GRASSLEY (R-IA)

Q: In 2012, the Department of Justice and Securities Exchange Commission (SEC) issued joint guidance detailing Foreign Corrupt Practices Act (FCPA) enforcement information and the agencies’ enforcement priorities. While the guidance clarified portions of the law and some of the agencies’ enforcement theories, many companies and individuals seeking to comply with the FCPA have asked for further, and continued, clarification. This request was expressed to Attorney General Eric Holder and Assistant Attorney General Leslie Caldwell during previous Committee hearings.

a. If confirmed, will you commit to working with companies and individuals to further improve the Guidance?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing the outreach efforts that the Department has been making with the private sector to understand their needs and concerns and, if necessary, update and/or improve the Guide.

b. Will you commit to updating the Guidance, when necessary, to reflect changes in DOJ enforcement practices?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing efforts that the Department has been making to provide meaningful guidance in the FCPA context where necessary and appropriate.

In the area of FCPA enforcement, there is little guiding case law available for compliance practitioners to rely on. However, the FCPA Guidance that was issued in 2012 took an important first step in helping practitioners understand how the enforcement agencies’ interpret the statute. The Guidance includes six anonymized examples of declinations— instances where the DOJ and SEC declined to bring FCPA-related enforcement actions in recognition of the companies’ timely voluntary disclosures, meaningful cooperation, and sophisticated compliance policies and controls. The continued publication of FCPA declinations would foster greater FCPA compliance by providing practitioners with a better understanding of how the FCPA is interpreted. If confirmed, would you support increasing DOJ transparency regarding declination decisions?

RESPONSE: As you know, the United States Attorney’s Manual provides a mechanism to allow for notification to an individual (or entity), where appropriate, that an investigation as to that individual (or entity) is being closed. If I am confirmed as Attorney General, I look forward to continuing the Department’s practice of providing meaningful guidance in the FCPA context (such as procedures to respond to opinion requests) and of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared.

FROM SENATOR CRUZ (R-TX)

DOJ Foreign Corrupt Practices Act Abuses

In much the same way as civil forfeiture, critics of the FCPA note that the Department of Justice collects and retains for use (without further congressional approval or disbursal from the Treasury) fines paid in settlement of federal FCPA investigations. This ability to retain FCPA fines incentivizes not only a vigorous application of the FCPA, but also “creative” legal theories (which can lead to investigations of companies for potentially innocuous behavior). Critics of the FCPA, and the Department’s pursuit of FCPA investigations, point out that the combination of investigation and potential litigation expenses frequently drive what may be innocent companies to settle, which both cements the revenue source for the Department and prevents federal judges from having opportunities to interpret provisions of the FCPA.

Do you agree or disagree with the claim that the ability of the Department of Justice to keep and use FCPA settlement fines incentivizes application of the FCPA? If you disagree with this claim, please provide a detailed explanation as to why.

RESPONSE: I disagree with this claim, which I believe is built on a faulty premise regarding the process by which criminal fines and other financial penalties are paid and subsequently put to use. Fines for FCPA violations are not “kept” or “used” by the Department, and no such use incentivizes application of the FCPA. Rather, as with all cases, the Department considers the strength of the evidence and other long-standing policy considerations (see, e.g., United States Attorney’s Manual (USAM) 9-28.300) in determining whether to bring an FCPA prosecution.

A company convicted of an FCPA violation pays any accompanying fine not to the Department but to the relevant U.S. district court clerk’s office. Those funds are then directed to the Crime Victim Fund, which is a U.S. Treasury fund created pursuant to Title 42, United States Code, Section 10601. Funds paid into the U.S. Treasury are not available for use by the Department except through the appropriations process or by statute.

A company that settles an FCPA investigation through a non-prosecution or deferred prosecution agreement pays any accompanying financial penalty not to the Department but to the U.S. Treasury. Pursuant to Congressional authorization and strict Departmental oversight, a small percentage of these funds may be made available to the Department. More specifically, in 1993 Congress authorized the creation of a 3% working capital fund (“3% Fund”) for the Department. See Public Law 113-234, 28 C.F.R. Section 527. Three percent of penalties associated with certain financial recoveries, including through non-prosecution and deferred prosecution agreements, are paid into the 3% working capital fund. After rigorous review by the Collection Resources Allocation Board, overseen by the Justice Management Division, the Department may award funds from the 3% Fund to support certain litigation, data administration, and personnel costs.

Has your office actually tried any FCPA cases to a verdict in federal court? If the answer is yes, please provide details about these cases.

RESPONSE: The Eastern District of New York has participated in a number of significant FCPA investigations with the Fraud Section of the Criminal Division of the Department, and it continues to do so. To date, these investigations have resulted in two corporate resolutions: (1) In re Ralph Lauren, NPA, $882,000 penalty, press release at: http://www.justice.gov/opa/pr/ralph-lauren-corporation-resolves-foreign-corrupt-practices-actinvestigation-and-agrees-pay; and (2) In re Comverse Technology, Inc., NPA, $1.2 million penalty, press release: http://www.justice.gov/opa/pr/comverse-technology-inc-agrees-pay-12- million-penalty-resolve-violations-foreign-corrupt); and one guilty plea by Garth Peterson of Morgan Stanley (and a declination against Morgan Stanley) (press release: http://www.justice.gov/opa/pr/former-morgan-stanley-managing-director-pleads-guilty-roleevading-internal-controls-required). While the Department has conducted FCPA trials in many districts, the United States Attorney’s Office for the Eastern District of New York has not had an FCPA trial to date.

As you know, the Criminal Division’s Fraud Section is charged with investigating and enforcing the criminal provisions of the FCPA. Recently, Andrew Weissmann was selected to be the Chief of the Fraud Section. Mr. Weissmann is a former prosecutor and FBI general counsel. In private practice, however, Mr. Weissmann has been an outspoken critic of DOJ’s FCPA program. Specifically, in a report36 Mr. Weissmann drafted for the U.S. Chamber of Commerce’s Institute for Legal Reform, he has recommended that: (1) a compliance defense to the FCPA should be added; (2) a company’s liability should be limited for the prior actions of a company it has acquired; (3) a “willfulness” element should be added for corporate criminal liability; (4) a company’s liability should be limited for the actions of a subsidiary; and (5) the definition of “foreign official” under the FCPA should be changed.

Do you agree with any, some, or all of Weissmann’s proposals for reforming the FCPA?

RESPONSE: It is my understanding that Mr. Weissmann made these comments while in private practice and in connection with his representation of the U.S. Chamber Institute for Legal Reform (“Chamber”). It is also my understanding that, in the intervening time period, the Department has met with the Chamber, as well as other stakeholders, to engage in a healthy and productive dialogue regarding the Department’s interpretation and application of the FCPA. If confirmed as Attorney General, I would continue to foster dialogue with the Chamber and other stakeholders regarding our FCPA program.

Which of these changes (if any) do you think could be done administratively, as opposed to legislatively?

RESPONSE: I do not support the proposed changes. Several of them would be a significant departure from general principles of corporate criminal law, effectively creating unique exceptions for FCPA cases that are unwarranted, are contrary to Congress’s intent in enacting the FCPA, and would impose often insurmountable obstacles to effective enforcement of the FCPA.

In 2004, then-Deputy Attorney General (and current director of the Federal Bureau of Investigation) James Comey stated that “[the Department of Justice wants] real time enforcement, so that the public and potential white collar criminals see that misdeeds are swiftly punished.” Despite this statement, the 2014 OECD Foreign Bribery Report noted that “the average time taken (in years) to conclude foreign bribery cases has steadily increased over time, [from an average of 1.3 years in 2004] peaking at an average of 7.3 years taken to conclude the 42 cases in 2013.” Lengthy federal investigations not only place a tremendous financial burden on the targeted corporations and their shareholders, but also on taxpayers who shoulder the agency’s expenses for conducting the investigation.

Do you agree or disagree with Director Comey’s statement regarding the value of real-time law enforcement? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that law enforcement must move swiftly and responsibly in investigating both white collar and other criminal activity. I also agree that, for deterrence purposes, it is important to move quickly and bring charges against those individuals and companies that have engaged in criminal behavior. While the Department has been working diligently to find meaningful and reasonable ways to reduce the time white collar FCPA investigations take, the question’s reliance on the OECD Foreign Bribery Report is misplaced. As I understand it, the referenced statistic is based on an aggregate of all the OECD Working Group members’ cases, rather than isolating the time taken by the United States in its cases. Also, this statistic does not measure the length of the criminal investigation. Rather, it measures the time between the last criminal act and the sanction, increasing substantially the time measured, since the Department (or foreign law enforcement) might not learn about a potential violation until years after the last criminal act has occurred.

Given that the FCPA Unit within the Department’s Fraud Section has expanded its personnel from 2004 to today, and given that the Department receives even more international cooperation today than it did in 2004, do you agree or disagree that the Department should be witnessing reduced investigative timelines for FCPA investigations rather than increased timelines? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Additional resources and cooperation are greatly appreciated and can often be key factors in expediting criminal investigations. However, they are only two of many factors that can influence the time it takes to conduct a successful investigation of any kind. Compared to other white collar investigations, the challenges associated with FCPA investigations can be much greater. Because of the nature of the offense, most of the evidence in these cases is typically located overseas. While international cooperation efforts have expanded significantly over the past ten years, the process for obtaining evidence from overseas is still time-consuming.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to dramatically reducing the timeline of FCPA-related Fraud Unit investigations, in order to reduce the financial burden on potentially innocent corporations and reduce investigation-related taxpayer expenses? If you will not commit to reducing these investigative timelines, please provide a detailed explanation as to why.

RESPONSE: Under my leadership, the Eastern District of New York has been committed to increasing the speed of its white collar investigations, including its FCPA investigations. As a result of the particular challenges of corporate and overseas investigations, however, the investigations can take a significant amount of time. While improvements in this area can be made, irresponsibly or artificially expediting an investigation solely for the sake of speed can harm the investigation and the pursuit of justice, as well as create greater harms to the targets, subjects, and witnesses in our investigations. If I am confirmed as Attorney General, you can be assured that the Department will continue to review each case on its merits and will move as expeditiously and responsibly as possible.

Often, many of the countries with corrupt officials are the same countries that harbor terrorists, that seek to undermine U.S. foreign policy, and that have rampant bid rigging and illegal cartel conduct. On the opposite side of the equation, there are an increasing number of countries that have passed new anti-bribery statutes in the hope of curbing their own internal corruption problems and spurring legitimate economic growth.

How will you marshal the criminal justice resources of the Department of Justice to enforce the FCPA in a way that helps in the fight against terrorism, cartel conduct, and international money laundering? Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you intend to tackle the problem.

RESPONSE: As the United States Attorney for the Eastern District of New York, I am well aware of the link between corruption, corrupt regimes, and transnational crime, including economic crime, human trafficking, narcotics trafficking, money laundering, and even terrorism. In addition to prosecuting foreign corruption, narcotics trafficking, money laundering, and terrorism cases, the Department works closely with its counterparts throughout the U.S. government to devise and implement robust anticorruption strategies. For example, my Office has worked closely with the intelligence community on terrorism and corruption-related matters. The Department further participates, along with colleagues in other agencies in the U.S. government, in developing anticorruption policies through various international organizations and anticorruption conventions, including the Organization for Economic Cooperation and Development’s Working Group on Bribery, the G-7, the G-20, and the U.N. Convention Against Corruption. The Department also consults with civil society organizations involved in the battle against corruption. If confirmed as the Attorney General, I would continue to ensure that fighting corruption overseas, as well as domestically, remains a top priority for the Department. I would ensure that resources are appropriately directed to enforcing U.S. laws targeting foreign corruption, recovery of assets stolen by kleptocrats, and corrupt regimes.

Given that more and more countries are enacting and enforcing anti-bribery statutes, would you agree or disagree that the FCPA ought to be amended to restrict FCPA jurisdiction to countries that do not have a prima facie anticorruption infrastructure? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Such an exception would be unique under federal law. I disagree with this approach, as I believe it would do harm to the Department’s anticorruption efforts. The Department works closely with countries that are developing their own anticorruption infrastructures, and we are well aware that it can take years of persistent effort to create an effective and holistic response to corruption of domestic and foreign officials.

As a recent OECD Report on Foreign Bribery noted, enforcement of existing anticorruption statutes, particularly those targeting foreign bribery, is improving but has a long way to go to see consistent and effective enforcement even among top economies in the world.

The Department of Justice generally emphasizes the benefit of voluntary self-disclosure to, and voluntary cooperation with, FCPA investigations. Corporations are increasingly questioning the benefit, however, of rushing toward self-disclosure without demonstration of some sort of legal or cost benefit for doing so. To address this, some practitioners have suggested that the FCPA should contain a “safe harbor” from criminal prosecution for corporations that (1) have robust compliance programs, (2) self-disclose potential FCPA violations, and (3) cooperate fully with the Department’s investigation, akin to what the Antitrust Division has for cartel enforcement. (The Department would, of course, be able to continue to obtain non-criminal penalties for violations.)

Do you agree or disagree with the statement that there should be an FCPA “safe harbor provision” to help corporations that are trying to do the right thing? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I do not believe a “safe harbor provision” is necessary or desirable. Both the U.S. Sentencing Guidelines and the Department of Justice already provide significant benefits for companies that have robust compliance programs, self-disclose potential FCPA violations, and cooperate fully with the Department’s investigation. Indeed, in a recent FCPA matter, the Criminal Division and the Eastern District of New York declined to prosecute Morgan Stanley based on many of those factors, among others, despite the fact that one of its Managing Directors bribed a foreign official to obtain business for and on behalf of Morgan Stanley.

If you agree with the concept of an FCPA safe harbor provision, please describe what the structure or contours of such a safe harbor provision should be, and how you would implement that provision. Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you would write and implement such a provision.

RESPONSE: The factors outlined in your question are important considerations in all FCPA cases, but I do not believe that a “safe harbor provision” is necessary or desirable.

Members of the business community, practitioners, commentators, and even members of Congress have expressed frustration with the Department of Justice’s failure to publicize declined FCPA prosecutions, even where there is public knowledge that a particular corporation is under investigation. This practice may have several negative effects, including preventing corporations from having clarity about what type of conduct is considered acceptable. Given the Department’s financial incentive to ensure robust application of the FCPA, there is concern that this refusal to publish decline-to-prosecute information is intended to protect the FCPA fine-based revenue source for the Department.

Would you agree or disagree with the statement that FCPA decline-to-prosecute decisions should be made available to the public? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that the Department should continue to explore ways by which it can responsibly share information while protecting the many sensitive interests that federal, criminal investigations implicate. The Department has a longstanding general practice of refraining from discussing non-public information on matters it has declined to prosecute. This practice is designed to protect ongoing investigations, privacy rights and other interests of uncharged parties, and sensitive, internal law enforcement deliberations. This practice and these considerations apply across the enforcement of all federal criminal laws.

Nevertheless, I must emphasize that the Department does pursue means by which declinations and other information about the decision to prosecute can be responsibly shared with entities or individuals under investigation, the business community, practitioners, commentators, and members of Congress. The United States Attorney’s Manual (USAM) describes situations in which a United States Attorney can exercise discretion to provide notice that an investigation is being closed. See USAM § 9-11.155. Further, in the last two years, the Department has made great efforts to provide more information and transparency in the area of the FCPA, including the publication of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Resource Guide”). The Resource Guide, which was written by the Department and the U.S. Securities and Exchange Commission (SEC), provides the public with extensive information about the Department’s FCPA enforcement approach and priorities. It contains a section on declinations and sets out criteria prosecutors consider in declining to bring a prosecution under the FCPA. In addition, the Department responds to opinion requests concerning its enforcement intent about actions that may be perceived as violating the anti-bribery provisions of the FCPA. See Title 15, United States Code, Sections 78dd-l(e) and 78dd-2(f). These opinion letters provide significant additional insight into the Department’s enforcement views, as well as transparency for companies, individuals, and practitioners as to what is acceptable or not.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to publishing information about the FCPA cases that the Department has decided not to pursue or prosecute? If you will not commit to publishing this information, please provide a detailed explanation as to why.

RESPONSE: I will commit to continuing the Department’s practice of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared. As detailed in my answer to the preceding question, the United States Attorney’s Manual already provides a mechanism to provide notice that an investigation is being closed. I also commit to continuing the Department’s recent efforts to provide more information and transparency, as it did by publishing the Resource Guide.

Friday Roundup

Friday, January 30th, 2015

Roundup2Scrutiny alerts, compliance defense, be a scholar, industry news, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

The Bank of New York Mellon Corp (BNY Mellon) recently disclosed:

“In January 2011, the Enforcement Division of the U.S. Securities and Exchange Commission (the “SEC Staff”) informed several financial institutions, including BNY Mellon, that it had commenced an inquiry into certain of their business practices and relationships with sovereign wealth fund clients.  BNY Mellon has fully cooperated with the SEC Staff’s investigation.  In the third quarter of 2014, the SEC Staff issued Wells notices to certain current and former employees of BNY Mellon, informing them that the SEC Staff has made a preliminary determination to recommend enforcement action against them for alleged violations of the U.S. Foreign Corrupt Practices Act in connection with the provision of a limited number of internships to relatives of sovereign wealth fund officials.  BNY Mellon received a similar Wells notice in the fourth quarter of 2014.  Although it is not possible to predict the ultimate resolution or financial liability with respect to this matter, BNY Mellon is currently of the opinion that the outcome of this matter will not have a material effect on BNY Mellon’s business, financial condition or results of operations.”

A Wells Notice is not common in the FCPA context.  As highlighted earlier this week regarding Cobalt, just because the SEC issues a Wells Notice does not mean there will be an enforcement action.

Compliance Defense

Singapore, a country hardly viewed as a slouch on law and order issues, is in the process of reviewing its Prevention of Corruption Act (PCA).  As noted in this Norton Rose Fulbright update, among the areas for potential reform is corporate liability and a compliance defense.  As noted in the update:

Corporate Liability

Prosecutions in Singapore for bribery-related offences have primarily focused on individuals. While Singapore law allows corporations to be prosecuted, and international obligations under the OECD Anti-Bribery Convention require corporations to be legally liable for corrupt practices, the reality is that it is evidentially difficult to prove that a corporation had the requisite intent and carried out the relevant corrupt conduct. This is usually proven by showing the individual who committed the crime can be regarded as the “embodiment of the company” or its “directing mind and will” – not an easy task in an era of large multinational corporations with complex decision-making trees.

Any reform to the PCA may do well to take a leaf out of the pages of Singapore’s own anti-money laundering law – the Corruption, Drug-Trafficking and Serious Crimes (Confiscation of Benefits) Act (CDSA). The CDSA renders money-laundering by a corporation a criminal offence that can be proven through the state of mind as well as the conduct of any “director, employee or agent” who was acting within the scope of his or her actual or apparent authority. In other words, the evidential threshold is significantly lowered and the outdated “directing mind and will” test is done away with.

Compliance Defense

If the threshold for proving corporate liability is lowered, some balance can be restored by introducing a compliance defence. A corporation that is found liable for bribes paid by its “director, employee or agent” can be absolved of legal liability if it can show that it took reasonable steps to prevent such corrupt practices from taking place. Such a compliance defence provides a legal impetus for companies to adopt prudent business practices and foster ethical corporate cultures through the implementation of anti-corruption compliance programs.

This notion of a compliance defence finds support in the form of the “adequate procedures” defence enshrined in the recent UK Bribery Act 2010, and has been the subject of a movement in the US to introduce a similar affirmative defence in the context of the reform of the Foreign Corrupt Practices Act (FCPA).

Be a Scholar

Trace International has announced that “applications for the 2015-2016 TRACE Scholar Program at the University of Washington School of Law are being accepted now until February 28, 2015.”  Click here and here to learn more.

Industry News

King & Spalding recently announced that Jason Jones (the Assistant Chief of the DOJ’s FCPA Unit) is returning to the firm.

As stated in the release:  ”As a supervisor in the Justice Department’s FCPA unit, Jones oversaw investigations and prosecutions of corporations and their employees for making improper payments to foreign officials in business transactions. He is well versed in the Justice Department’s increasing enforcement in this area.”

In the release, Christopher Wray, leader of King & Spalding’s Special Matters and Government Investigations practice, states: “We are pleased to welcome Jason back to the firm. Jason is well-known by many lawyers in the firm – and highly respected. His FCPA oversight experience at a national level and his strong trial skills provide added bench strength to the broad range of defense work we offer our clients. Jason is a natural fit for our team.“

*****

Debevoise & Plimpton recently announced that “David A. O’Neil, former Acting Assistant Attorney General for the Criminal Division and former Deputy Assistant Attorney General for the Fraud Section at the Department of Justice, has joined the firm as a partner in Washington, D.C.”  As noted in the release, O’Neil “has experience across a broad range of high-profile matters, including the most significant FCPA prosecutions …”.

In this recent Corporate Crime Reporter interview, O’Neil talks about the shift of the corporate crime universe from New York City to Washington, D.C. and states:

“I have witnessed in my time in the Department a significant growth in the work that Main Justice is doing. It is not that the Southern District [of New York] is doing less. It’s that Main Justice is doing more. There are a number of reasons for that. Some are the result of the U.S. Attorney’s Manual, which requires that the Fraud Section have a role in every Foreign Corrupt Practices Act (FCPA) case. Much of it is FCPA driven.”

“When I started out, I actually worked some FCPA cases in private practice. But at that time, it was more of a niche practice. It was not the same kind of focus that it is now.”

“Today, in some ways, white collar practice is synonymous with FCPA practice. As a result, in every FCPA case, Main Justice’s Fraud Section is going to be an active player.”

Asked whether “the FCPA pipeline is still loaded,” O’Neil states:

“The FCPA is going to continue to be an active area. I don’t think we are anywhere near the end of the pipeline. In fact, you see the Department devoting greater resources, including through the creation of a dedicated FCPA unit at the FBI. My prediction would be that FCPA cases continue at their current pace or increase.”

For the Reading Stack

Reagan Demas (Baker & McKenzie) “Biting the Hands That Feed:  Corporate Charity and the U.S. Foreign Corrupt Practices Act.”

A Texas-sized double standard?  See here from the Texas Tribune in an article that begins as follows.  ”It is illegal to bribe a public official in Texas, of course. But you might be surprised with what you can get away with if that public official is a state lawmaker.”

*****

A good weekend to all.