Archive for the ‘Double Standard’ Category

What’s The Difference?

Wednesday, July 8th, 2015

What's the DifferenceIt was not my intent to publish a third-straight post on double standard issues, let alone a post with the same headline as yesterday (see posts here and here from earlier this week).

However, in writing on the double standard topic (that is how business interactions with alleged “foreign officials” seem to be subject to different standards than business interactions with similarly situated U.S. parties) numerous examples abound that are hard to ignore.

Consider the following.

A Foreign Corrupt Practices Act enforcement action included allegations that a company paid royalties to Argentine physicians and for travel of Chinese physicians.

Another FCPA enforcement action included allegations that a company provided various gifts such as vacation packages, televisions, and laptops to Mexican healthcare workers.

Another FCPA enforcement action included allegations that a company provided various gifts such as meals, wine, visits to bath houses, card games, specialty foods,  door prizes, spa treatments, cigarettes and visits to karaoke bars to Chinese physicians.

Another FCPA enforcement action included allegations that a company provided travel benefits to Polish and Romanian physicians.

Another FCPA enforcement action included allegations that a company provided travel benefits to Croatian physicians; hospitality, gifts, and support for international travel for Chinese physicians; international travel and recreational opportunities for Czech physicians; and gifts, and support for domestic and international travel for Italian physicians.

Another FCPA enforcement action included allegations that a company provided travel to medical conventions for Polish physicians as well as travel and other gifts for Romanian physicians.

Other examples could also be cited, but by now you should get the point – numerous FCPA enforcement actions have included allegations that a company subject to the FCPA provided various things of value to foreign physicians or other foreign healthcare workers.

Against this backdrop, this recent Wall Street Journal article titled “Drug and Medical-Device Makers Paid $6.49 Billion to Doctors, Hospitals in 2014″ notes:

“Drug and medical-device makers paid $6.49 billion to U.S. doctors and teaching hospitals during 2014, according to the federal government’s first full-year accounting of the breadth of industry financial ties with medical providers.

The tally comprises company payments to more than 600,000 doctors and 1,100 hospitals for services such as consulting, research and promotional speeches about drugs, as well as the value of free meals provided to doctors by sales reps pitching products.

[...]

Payments for food, beverages, travel and lodging amounted to $403.64 million, the vast majority of it in in-kind payments. Details of some payments for miscellaneous “entertainment” included a $65 massage at an airport, Alcatraz tickets and a $2,000 payment for a training seminar in the Cayman Islands.”

So what’s the difference between this conduct and the conduct alleged in FCPA enforcement actions?

If your answer is that the FCPA enforcement actions involved “foreign officials” you are correct to the extent the DOJ/SEC alleged that physicians and other healthcare workers of the above healthcare systems were “foreign officials’ even though there is no legal support for this position.

Even if there was,  given that approximately 20% of U.S. hospitals are owned by state or local governments (see here) and an additional 150 or so medical centers are run by the Veterans Health Administration (see here), one can presume that portions of the $6.49 billion in 2014 was given to U.S. officials – if the enforcement theory is to be applied in an intellectually consistent manner.

Yet, one should not hold their breath waiting for enforcement actions under 18 U.S.C 201, the U.S. domestic bribery statute with very similar elements to the FCPA’s anti-bribery provisions.  Nor should one hold their breath as to any books and records or internal controls enforcement actions regarding such payments by issuer companies.

But the question is why?

Assuming that foreign physicians and healthcare personnel are indeed “foreign officials” under the FCPA, why should corporate interaction with a “foreign official” be subject to greater scrutiny and different standards of enforcement than corporate interaction with a U.S. official?  Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home?

For additional posts on the specific double standard highlighted above, see here and here.

What’s The Difference?

Tuesday, July 7th, 2015

JebAs readers no doubt are aware, since August 2013 JP Morgan has been under FCPA scrutiny for its alleged hiring of so-called Chinese princelings (family members of alleged Chinese officials) to curry favor with Chinese officials in a position of influence over its business.

JP Morgan’s FCPA scrutiny soon lead to an industry sweep of the financial services industry concerning hiring practices in China and other Asian countries. Among the other banks under scrutiny are: Bank of New York Mellon Corp., Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, Goldman Sach Group Inc., Morgan Stanley, and UBS AG.

Given the industry, the FCPA scrutiny has generated a significant amount of critical commentary.  For instance, in this Wall Street Journal editorial former SEC Commissioner Arthur Levitt called the FCPA scrutiny of the financial industry “scurrilous and hypocritical.”  He wrote:

“If you walk the halls of any institution in the U.S.—Congress, federal courthouses, large corporations, the White House, American embassies and even the offices of the SEC—you are likely to run into friends and family members of powerful and wealthy people.”

Double standard aside, in response to the FCPA scrutiny FCPA Inc. churned out clients alerts and other publications regarding best practices for hiring family members of foreign officials.

The following best practices were rightly noted (see here and here).

  • Check the educational and professional qualifications of the individual being considered for employment and ensure that they are appropriate for the position being filled.  Evidence that a relative of a government official was hired into a position for which he or she was not qualified will likely result in a finding that they were hired for improper purposes.
  • Ensure that the salary and treatment given to the relative of the government official is commensurate with the position and consistent with other individuals in a similar position.  Evidence that the relative of the government official is receiving a salary significantly higher than other individuals at a similar level and occupying similar positions suggests the additional funds may be provided to influence the related government official.
  • Confirm that the position was not created specifically for the relative of the government official.  Evidence that the position was created for a specific person will suggest that the company’s sole purpose in hiring the individual was to gain influence with the government official.
  • Make certain that, to the extent possible, the responsibilities of the relative of the government official do not fall in the realm of conduct over which the government official holds regulatory or other decision making authority.  For example, a relative of a government official charged with bank oversight should not be hired as the compliance officer for a bank subject to that authority.  Similarly, the hiring decision-maker should be independent of the business unit that may interact with the government official.
  • “An individual whose sole qualification for a prestigious Wall Street gig is a powerful mother or father in the … government should raise red flags.” If an individual “is not otherwise qualified for the position at [a] financial services company, the DOJ and SEC will ask about the basis for the hiring.”

Against this backdrop, as highlighted in this recent New York Times article:

“As [former Florida Governor and Republican Presidential Candidate Jeb] Bush sought to create a personal fortune for himself and his family after eight years in public office, he found a ready source of income: speeches sponsored by corporations and industry trade groups, including some that benefited from his administration’s policies.

Since 2007, Mr. Bush has delivered about 260 paid speeches, earning around $10 million in the process, according to records provided this week by his presidential campaign. The speeches, combined with his consulting and investment businesses, rapidly transformed his finances: His and his wife’s net worth soared to at least $19 million from $1.3 million over the past eight years.

The wealth he amassed from the speaking circuit pales in comparison to that collected by Hillary Rodham Clinton, a Democratic candidate. But it underscores the ease with which political figures can turn their public prominence into private riches.”

As relevent to the FCPA scrutiny of the financial services industry, as recently highlighted here by the Wall Street Journal, a release of Mr. Bush’s tax returns reveals that “over about six years as an adviser for the defunct Wall Street bank Lehman Bros. and later Barclays PLC, Mr. Bush earned, on average, between $1.3 million and $2 million.”

If the above bullet-point best practices were asked in connection with Mr. Bush’s adviser positions with Wall Street Banks, would what the answer be?

If the answers turned out to be the same as the answers regarding Wall Street’s FCPA scrutiny for allegedly hiring Chinese princelings, what’s the difference?

Let’s call a spade a spade.

We have princelings in this country too as well as individuals who bounce in and out of politics and “private” life so often that they are effectively part of the political class regardless of the precise moment in time in which the question is posed.

Senator Grassley Is Right To Ask The Questions That Need To Be Asked

Monday, July 6th, 2015

GrassleyBecause Senator Chuck Grassley is a Republican and Hillary Clinton is a Democrat, it would be easy to dismiss the underlying issues as merely political gamesmanship.

However, if that is your reaction to this recent letter from Senator Grassley to U.S. Attorney General Loretta Lynch (and others) it would be unfortunate because the underlying issues go to the glaring double standard that has frequently been highlighted on FCPA Professor.

The double standard being how business interactions with “foreign officials” seem to be subject to different standards than business interactions with U.S. officials.

Senator Grassley’s letter concerns allegations first raised in this New York Times article (see also here) concerning the “Clinton Foundation’s tie to a number of investors involved in a business transactions that resulted in the acquisition of Uranium One, owner of U.S. based Uranium assets, by a subsidiary of Rosatom, a Russian government owned company.

As stated in Senator Grassley’s letter:

“[D]uring critical stages of the acquisition approval, interested parties made large donations – some in the millions of dollars – to the Clinton Foundation while Ms. Hillary Clinton held the position of Secretary of State. When millions of dollars flow to decision makers who have substantial discretion to provide support for or against approval of controversial transactions, public confidence in the integrity of the process requires a commitment to transparency and responsiveness to oversight inquiries.”

The Uranium One deal is merely one of several criticisms or concerns of financial ties between the Clinton Foundation and various business interests.  See here, here, here, here, here, here, here, here, here and here. In fact, new revelations and findings are so numerous it is hard to keep up.

In this recent Breitbart news article I stated as follows.

“When asked if the donations to the Clinton Foundation by defense contractors including Boeing (which subsequently received State Department approval of sales of their products to foreign governments) constituted a violation of domestic bribery statues, Law School Professor and Foreign Corrupt Practices Act (FCPA) expert Michael Koehler tells Breitbart News, “I’ll answer that question by quoting a former law professor who was fond of saying ‘if it walks like a duck and quacks like a duck chances are it is a duck’”

I was an intern in the Clinton White House and I generally admired the Clintons.  However, with each new revelation or finding, it is hard not to see several potential double standards.

After all, several FCPA enforcement actions have been based on donations to charities or foundations favored by “foreign officials” and/or things of value provided to family members of “foreign officials.”

Recently, I was contacted by an individual who has a brother in federal prison for violating the FCPA.  The individual asked why is my brother in federal prison while Hillary Clinton is running for President?

As a professor, I always strive to give substantive, well-reasoned answers to questions? However, with this one, I was left scratching my head.

Euphemisms, Code Words and Metaphors About Bribery And Corruption

Monday, June 15th, 2015

double standardThis recent post on the FCPA Blog highlighted euphemisms, code words, and metaphors used by corporate employees in certain bribery and corruption cases.

All worthy observations.

But also consider that several institutional euphemisms, code words and metaphors are used to describe what many would call bribery and corruption here in the United States.

Consider U.S. government diplomats who act as “marketing agents” for U.S. companies and help broker sales with foreign governments.  As detailed by the New York Times:

“The king of Saudi Arabia wanted the United States to outfit his personal jet with the same high-tech devices as Air Force One. The president of Turkey wanted the Obama administration to let a Turkish astronaut sit in on a NASA space flight. And in Bangladesh, the prime minister pressed the State Department to re-establish landing rights at Kennedy International Airport in New York. Each of these government leaders had one thing in common: they were trying to decide whether to buy billions of dollars’ worth of commercial jets from [a U.S. company] or its European competitor, Airbus. And United States diplomats were acting like marketing agents, offering deals to heads of state and airline executives whose decisions could be influenced by price, performance and, as with all finicky customers with plenty to spend, perks. […] To a greater degree than previously known, diplomats are a big part of the sales force, according to hundreds of cables released by WikiLeaks, which describe politicking and cajoling at the highest levels.”

In short, is there a difference between the U.S. government using public taxpayer money to offer or pay a foreign government to induce the government to purchase U.S. company product and a company using private shareholder money to offer or pay a foreign official to induce the government to purchase its product?  Why does the U.S. government construct programs around the former and call it “foreign military financing” or “foreign military sales” while criminally prosecuting the later as bribery?

As to this issue, it has been noted that “the [U.S.] government wants to give the impression that it is law-abiding and others are not when the same behavior is engaged” in by both and that “when the government itself gives bribes in foreign countries every day of the week, they just call it foreign aid.”

Does the difference highlight that in the United States the dividing line between bribery and no bribery is subtle and dependent on the source of the money and influence? It has been noted:

“It’s not that the United States lacks corruption, [...]— or even pervasive corruption.  It’s just not of the low-level and petty variety like the kind [in certain emerging market countries like Africa], not most of the time anyway.  In America, corruption is concentrated at the highest levels of society — and it masquerades [under different names].”

Similarly, the subtle differences between foreign bribery and U.S. bribery have been described:

“The idea of corruption … is simple bribery — cash changing hands. It’s the proverbial cash in the piano or the freezer. Corruption is reduced to bribery. In fact, today’s most savvy power brokers are engaged in a kind of corruption that is much more subtle and more difficult to detect. Today’s most corrupt players, at least in the West, don’t need this quid pro quo corruption. They are far beyond that. That’s for the little players. That’s for the small fry.”

Bribery ought to be bribery pure and simple and subtle distinctions ought not be drawn on the source of the money and influence.  Doing so merely creates a distinction without a difference.  Indeed, perhaps because of this uncomfortable truth regarding the U.S. crusade against bribery, U.S. government enforcement agencies frequently employ overblown and inconsistent rhetoric when describing FCPA enforcement.

As to certain U.S. examples of what many would consider bribery and corruption, the legality of such conduct has been countenanced by the U.S. Supreme Court in both Citizens United and McCutcheon because, in the words of the court, “ingratiation and access are not corruption.” Likewise, as to corporate lobbying in the U.S., the Second Circuit recently stated:

“Lobbying has been integral to the American political system since its very inception.  […] In order to more effectively communicate their clients’ policy goals, lobbyists often seek to cultivate personal relationships with public officials. This involves not only making campaign contributions, but sometimes also hosting events or providing gifts of value such as drinks, meals, and tickets to sporting events and concerts.”

Yet, it is difficult to square the above judicial logic with the allegations in many FCPA enforcement actions which equate “ingratiation and access,” with a certain type of public official, or providing various things of value to a certain type of public official, as corruption.

Regarding unchecked political contributions in the U.S., President Jimmy Carter termed it “legal bribery of candidates.” Recall that President Carter signed the FCPA into law in 1977 and was praised for doing so.

How should we react to President Carter speaking out about another form of bribery?

So yes euphemisms, code words, and metaphors are often used by corporate employees in certain bribery and corruption cases.

However, we also have several institutional euphemisms, code words and metaphors to describe what many would call bribery and corruption here in the United States.

A Bi-Partisan Edition Of The Double Standard

Wednesday, June 3rd, 2015

Bipartisian

Numerous previous post on FCPA Professor have highlighted the double standard between enforcement of the Foreign Corrupt Practices Act and enforcement of 18 U.S.C. 201, the domestic bribery statute.

After all, in many respects the FCPA was modeled after the domestic bribery statute and it has very similar elements to the FCPA’s anti-bribery provisions.

The theme explored in the numerous double standard posts is how business interactions with “foreign officials” seem to be subject to different standards than business interactions with U.S. officials.  The issues that arise include the following:

  • Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home or call it something different such as participation in the political process?
  • Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax?
  • Ought not there be some consistently between enforcement of the FCPA and the domestic bribery statute?

Consider the following.

A billionaire business executive bankrolls a high-ranking politician’s campaign, finances the politician’s legislative agenda, and subsidizes the politician’s “personal finances, as the rising politician and his wife grappled with heavy debt and big swings in their income.”

Or consider the following.

A company supports (and indeed would benefit from) the trade agenda of a high-ranking government official and hosts the official at its company headquarters for a speech.  During the visit, the company gives the official a hard to obtain product that the company knows is subjectively valued by the official.

In both scenarios, a prudent FCPA practitioner would immediately see the “red flags;” counsel the companies at issue to conduct an internal investigation as to the conduct at issue and related conduct; and – mindful of the enforcement agencies guidance and cognizant of the carrots and sticks they posses – likely suggest voluntarily disclosure of the investigative findings.

But wait.

The above high-ranking government officials were not “foreign officials” – they were U.S. government officials.

The first scenario involves Republican Senator and Presidential hopeful Marco Rubio.

According this New York Times article:

“[Billionaire auto dealer Norman Braman] has left few corners of Mr. Rubio’s world untouched. He hired Mr. Rubio, then a Senate candidate, as a lawyer; employed his wife to advise the Braman family’s philanthropic foundation; helped cover the cost of Mr. Rubio’s salary as an instructor at a Miami college; and gave Mr. Rubio access to his private plane.

The money has flowed both ways. Mr. Rubio has steered taxpayer funds to Mr. Braman’s favored causes, successfully pushing for an $80 million state grant to finance a genomics center at a private university and securing $5 million for cancer research at a Miami institute for which Mr. Braman is a major donor.

Even in an era dominated by super-wealthy donors, Mr. Braman stands out, given how integral he has been not only to Mr. Rubio’s political aspirations but also to his personal finances.”

[...]

Pressed on his financial ties to Mr. Braman, Mr. Rubio said in an interview that he saw no ethical issue. “What is the conflict?” he asked. “I don’t ever recall Norman Braman ever asking for anything for himself.”

He acknowledged that Mr. Braman had approached him about state aid for projects, such as funding for cancer research, but said that he had supported the proposals on their merits.”

The second scenario involves President Obama.

As highlighted here during Obama’s recent visit to Nike headquarters to promote his trade agenda, the company provided Obama, an avid basketball player and fan, with an exclusive pair of top secret Air Jordan sneakers as well as a pair of specifically designed presidential sneakers in a custom presidential box.

I’d like to think that President Obama has countless reasons to support his trade agenda and is unlikely to be influenced one iota by Nike providing him something of value.

By why then do FCPA enforcement actions simplistically allege that foreign officials (who no doubt have countless reasons to engage in the discretionary acts that underlie the FCPA scrutiny) are influenced by handbags, evenings at Karaoke bars, flowers or even cigarettes?  (In case you wondering, those are actual allegations from recent FCPA enforcement actions).

While you ponder the above questions, just remember, in the words of a high-ranking DOJ official:

“We in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do.”