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Lanny Breuer And Foreign Corrupt Practices Act Enforcement

Monday, March 25th, 2013

Lanny Breuer stepped down as Assistant Attorney General of the Justice Department’s Criminal Division on March 1st after nearly four years on the job. Word of Breuer’s departure began circulating soon after the airing of a PBS Frontline program that examined the general lack of prosecutions of Wall Street executives in the aftermath of the so-called financial crisis. While much of the public scrutiny of Breuer and his Criminal Division focused on the financial services industry, the substantive law of most interest to Breuer appeared to be the Foreign Corrupt Practices Act. This article examines FCPA enforcement and related issues during Breuer’s tenure, demonstrates that his tenure was not as glowing as DOJ suggests, and shows that FCPA enforcement under Breuer raised significant public policy issues that need to be addressed by his successor.

So begins my article “Lanny Breuer and Foreign Corrupt Practices Act Enforcement” recently published by Bloomberg BNA’s White Collar Crime Report. (The article can be downloaded here).

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Interested in analyzing Breuer’s public FCPA statements and assessing the performance of his Criminal Division against such statements? Breuer’s FCPA speeches can be found here, here, here, here, here, here, here, here, here, here, and here.

Do NPAs And DPAs Deter?

Tuesday, March 12th, 2013

As highlighted below, the DOJ recently acknowledged, despite prior definitive statements by former Assistant Attorney General Lanny Breuer to the contrary, that “measuring the impact of NPAs and DPAs in deterring the bribery of foreign public officials would be a difficult task, save providing certain anecdotal and other circumstantial evidence.”

As discussed in this previous post, in September 2012 then Assistant Attorney General Lanny Breuer passionately defended the DOJ’s use of NPAs and DPAs. Among other things, Breuer boldly stated that NPAs and DPAs “have had a truly transformative effect on particular companies and, more generally, on corporate culture across the globe” and that the result of DOJ’s frequent use of such agreements “has been, unequivocally, far greater accountability for corporate wrongdoing – and a sea change in corporate compliance efforts.” Breuer further stated as follows.

“One of the reasons why deferred prosecution agreements are such a powerful tool is that, in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea: when a company enters into a DPA with the government, or an NPA for that matter, it almost always must acknowledge wrongdoing, agree to cooperate with the government’s investigation, pay a fine, agree to improve its compliance program, and agree to face prosecution if it fails to satisfy the terms of the agreement.”

Despite Breuer’s rhetoric, the question of whether NPAs and DPAs adequately deter future improper conduct has long been asked.

As noted in this previous post, in 2009, the Government Accountability Office (“GAO”) released a report regarding DOJ’s use of NPAs and DPAs. The GAO Report was not FCPA specific, although it does mention the FCPA as being one area where NPAs and DPAs are frequently used. The GAO Report stated as follows.

“DOJ cannot evaluate and demonstrate the extent to which DPAs and NPAs—in addition to other tools, such as prosecution—contribute to the department’s efforts to combat corporate crime because it has no measures to assess their effectiveness. Specifically, DOJ intends for these agreements to promote corporate reform; however, DOJ does not have performance measures in place to assess whether this goal has been met.”

The GAO Report concluded as follows.

“[W]hile DOJ has stated that DPAs and NPAs are useful tools for combating and deterring corporate crime, without performance measures, it will be difficult for DOJ to demonstrate that these agreements are effective at helping the department achieve this goal.

As noted in this previous post, in the 2010 OECD Phase 3 Report of U.S. FCPA enforcement, the evaluators likewise noted that the “actual deterrent effect [of NPAs and DPAs have] not been quantified.” In the Report, the evaluators sought information about the deterrent effect of DPAs and NPAs” and one of the recommendations in the Report was for the U.S. to “make public any information about the impact of NPAs and DPAs on deterring the bribery of foreign public officials.”

The DOJ recently responded to the OECD’s recommendation in its “Final Follow-Up To Phase 3 Report and Recommendations.” The DOJ response, dated December 2012, states in full, as to the NPA / DPA issues as follows.

“Scholars have recognized that quantifying deterrence is extremely difficult. This is equally true for the deterrent effect of DPAs and NPAs. Thus, as discussed at the time this recommendation was made, measuring ‘the impact of NPAs and DPAs in deterring the bribery of foreign public officials’ would be a difficult task, save providing certain anecdotal and other circumstantial evidence.

One of the best sources of anecdotal evidence demonstrating that DPAs and NPAs have a deterrent effect comes from the companies themselves. The companies against which DPAs and NPAs have been brought have often undergone dramatic changes. For instance, prior to or following the entry of DPAs or NPAs, many companies have terminated personnel, including senior managers, established new codes of conduct and compliance policies and procedures, pledged not to use third-party agents, withdrawn from bids tainted by corruption, provided new and substantial resources to compliance and audit functions within their organizations, and instituted new training regimes. These companies, through their remediation efforts under DPAs and NPAs, have often fundamentally changed how they conduct business. In addition, just like with individuals on parole or probation, the monitor provisions or self-reporting requirements of DPAs and NPAs are designed to deter future misconduct and, at the same time, ensure that companies meet their obligations. In meetings with board members, chief executive officers, chief financial officers, general counsel, and chief compliance officers, DOJ and SEC have heard directly from these senior leaders about the impact DPAs and NPAs have had on their companies for the better.

Beyond the companies themselves, DOJ and SEC have heard anecdotal stories about the deterrent effect of NPAs and DPAs on other companies and how those resolutions raise awareness of anti-corruption laws. Often those stories come from other corporate leaders who have discussed how their own practices have changed or even whole industries that have changed their behavior for the better. For example, during the course of one investigation, it was revealed that a major multinational corporation’s DPA caused another Fortune 50 company to implement an FCPA compliance program. In addition, following DPAs in different cases, companies have come forward to make voluntary disclosures of similar conduct. Many of our DPAs and NPAs are publicized extensively and scrutinized closely by the business community, the legal profession, and the compliance community, among others. The ‘lessons learned’ from these DPAs and NPAs, for example, help raise awareness of compliance risks and failures. The existence of DPAs and NPAs also encourages companies to voluntarily disclose conduct, by providing meaningful rewards to those companies, which enables DOJ and SEC to ensure further specific and general deterrence.”

Of course, what the DOJ says above as to the deterrent value of NPAs or DPAs would equally apply to actual prosecutions.

But let’s test the following statement made by the DOJ “One of the best sources of anecdotal evidence demonstrating that DPAs and NPAs have a deterrent effect comes from the companies themselves. The companies against which DPAs and NPAs have been brought have often undergone dramatic changes.”

In 2008, the DOJ announced (here) that Aibel Group Ltd. (Aibel Group) pleaded guilty to violating the antibribery provisions of the FCPA. As noted in the DOJ release, “Aibel Group admitted that it was not in compliance with a deferred prosecution agreement it had entered into with the Justice Department in February 2007 regarding the same underlying conduct.” The DOJ release further states as follows. “This is the third time since July 2004 that entities affiliated with Aibel Group have pleaded guilty to violating the FCPA.”

As this previous Wall Street Journal Corruption Currents post highlighted, Ingersoll-Rand, fresh off its exit of a DPA in 2011, soon disclosed that it found other potential violations of the FCPA. In a 2011 filing, the company stated as follows.

“We have reported to the DOJ and SEC certain matters which raise potential issues under the FCPA and other applicable anti-corruption laws, including matters which were reported during the past year. We have conducted, and continue to conduct, investigations and have had preliminary discussions with respect to these matters with the SEC and DOJ, which are ongoing.”

So the question remains, do NPAs and DPAs deter?

It turns out that not even the DOJ knows the answer.

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Interested in NPA and DPA issues? On May 3rd, I will be speaking at this event at the National Press Club in Washington, D.C. hosted by Corporate Crime Reporter.

Gabelli’s Broader Implications

Tuesday, March 5th, 2013

Today’s post is from Russ Ryan (Partner, King & Spalding). Prior to joining King & Spalding, Ryan spent ten years in the SEC’s Division of Enforcement, including his last three years as Assistant Director of the Division.

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Professor Koehler has already ably analyzed (see here) the Supreme Court’s recent statute of limitations decision against the SEC in Gabelli. The Court’s opinion obviously was limited to the precise statute of limitations question before it, but I view it – perhaps with a generous helping of wishful thinking – as an encouraging sign that the justices may be ready, willing, and able to take on other troubling issues that arise as federal law enforcement agencies continue to blur the lines between traditional criminal prosecution and increasingly punitive “civil” prosecution.

SEC enforcement is a classic example of such civil prosecution. And, in a nod to the primary focus of this website, SEC enforcement of FCPA violations comes perhaps closest to the bull’s eye, because in nearly all cases the SEC works side-by-side with criminal prosecutors in investigating and announcing its own civil cases.

So why is Gabelli so encouraging in this regard? For starters, the Court’s unanimous opinion explicitly rejected the notion that the SEC should be treated like a private plaintiff when it sues people in its law enforcement capacity. To the contrary, the opinion correctly notes that when the SEC accuses private businesses and citizens of breaking the law, and seeks government-imposed punishment for those violations, the SEC is “a different kind of plaintiff” seeking “a different kind of relief.”

Specifically, the SEC’s role is much closer to that of a traditional criminal prosecutor than that of an injured shareholder seeking compensation for investment losses. At one point, in fact, the Court explicitly characterized the SEC’s role in Gabelli as “a prosecutor seeking penalties.”

This recognition – which was long overdue – logically invites much broader questions than simply the starting gun for the SEC’s statute of limitations. If the SEC’s enforcement role is more like that of a criminal prosecutor than a private plaintiff, why shouldn’t the SEC be held to some of the same procedural and evidentiary burdens of a prosecutor rather than benefitting from the more relaxed standards accorded to private plaintiffs?

For example, why should the SEC be able to prosecute and punish private citizens under the relatively forgiving “preponderance of evidence” burden of proof rather than “guilt beyond reasonable doubt” – or at least “clear and convincing evidence”? As Justice Scalia pointed out in his questioning of the government’s lawyer during oral argument in Gabelli, “You just call it a civil penalty and you don’t have to prove it beyond a reasonable doubt.”

Why too should the SEC be entitled to infer guilt from a defendant’s exercise of his or her constitutional right to remain silent, or to hammer that adverse inference home before the judge and jury deciding the case? And why should the SEC be entitled to seek additional law enforcement penalties even after the defendant has already been punished in a parallel federal criminal case involving the same offense? Finally, why shouldn’t an accused securities law violator facing a government law enforcement prosecution – even if nominally civil – have an absolute right to the assistance of competent counsel, paid for by the government if the defendant can’t afford it?

The Supreme Court didn’t have to address these questions in Gabelli, and for the most part lower courts have generally sided with the SEC whenever such questions have arisen. But I’m not sure the SEC will have compelling answers to these questions if they should ever reach the Supreme Court. And given the Supreme Court’s decisive rejection of the SEC’s position in Gabelli – unanimously, less than two months after oral argument, and requiring only a 11-page opinion – those answers may not come easy for the SEC.

New Position, New Positions

Monday, December 17th, 2012

On February 1, 2012 Davis Polk announced (here) that Greg Andres (the former DOJ Deputy Assistant Attorney General, Criminal Division) was leaving government service to join the law firm. The firm’s release noted that Andres, while at the DOJ, ”was involved in policy and enforcement issues” relating to the Foreign Corrupt Practices Act. Likewise, on his Davis Polk bio page (here), Andres notes that while at the DOJ he “managed” many of the DOJ’s white collar prosecutions, including the DOJ’s FCPA program, and that he “represented” the DOJ on FCPA issues before Congress.

Indeed, at both the November 2010 Senate FCPA hearing and the June 2011 House FCPA Hearing, Andres was the voice and face of the Department of Justice.

This post highlights how Andres’s new position has resulted in new positions as to several FCPA issues and also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.

During his Senate testimony (here), Andres encouraged companies to voluntarily disclose conduct that could implicate the FCPA.

Now that he is in private practice, Andres appears to have a different position on voluntary disclosure.

In an interview published by Corporate Crime Reporter on November 19th, Andres stated as follows. “Not every issue that a company uncovers should necessarily be disclosed. Some of it depends on size and scale – hundreds, or thousands or tens of thousands of dollars – it may not rise to the level where you would need to bring it to the Department’s attention.”

During his House testimony (here), Andres stated that an FCPA compliance defense ”is a novel and somewhat risky approach, the time is not right to adopt such a compliance defense.”

Now that he is in private practice, Andres appears to have softened his position. The same Corporate Crime Reporter interview included the following Q&A.

Q: You were with the government when the government was saying no compliance defense is necessary. Is that your view now?

A: I don’t know that I would take a specific view on that. I’m certainly aware of what the government’s arguments were in favor [of rejecting such a defense]“

The Corporate Crime Reporter interview also highlights the significant public policy issue of former enforcement agency attorneys marketing, in private practice, the reality they helped to create while at the government.

For instance, in both his written and oral Senate testimony, Andres stated as follows. “The investigation and prosecution of transnational bribery is an important priority for the Department of Justice and we have been hard at work.”

Now in private practice, Andres’s practice appears to be benefitting from the priorities and policy he recently articulated while at the DOJ. The Corporate Crime Reporter interview included the following Q&A.

“Q: What part of your practice is FCPA?

A: At the moment a large part. That remains a large focus of the government’s white collar program. Our practice reflects in part the priorities of the Department of Justice. And clearly the FCPA is one.”

For another instance of a former high-ranking DOJ FCPA official marketing the reality he helped to create, see this prior post.

I have frequently written about the revolving door of FCPA enforcement attorneys into private practice. Some will say, that is just how Washington works. That is hardly a persuasive response.

Given the niched nature of both the DOJ and SEC FCPA units, I have long called for (see here and here) a five year prohibition on FCPA enforcement attorneys and those setting government FCPA policy from providing FCPA defense or compliance services in the private sector.

Related to this issue, a recent study focused on the SEC (here) and examined whether SEC lawyers’ future career prospects influence their enforcement efforts while at the SEC. The study found that lawyers that leave the SEC to join law firms that specialize in defending clients against the SEC are associated with stronger enforcement efforts.

Assistant Attorney General Lanny Breuer On …

Wednesday, October 24th, 2012

Yesterday, Assistant Attorney General Lanny Breuer spoke at IBC Legal’s World Bribery & Corruption Compliance Forum in London. See here for his remarks. Breuer touched upon a number of topics (but not FCPA guidance as noted by the FCPA Blog here), including the following as excerpted below.

General

“I am asked to speak about efforts in the United States to fight foreign bribery perhaps more than on any other subject, and all over the world.”

“As you may know, no criminal FCPA case can be brought in the United States without the Fraud Section’s authorization. I have said before that I personally believe our FCPA work is so important. It helps to level the playing field for U.S. and foreign companies, and motivates corporations to create genuine cultures of compliance. Moreover, corruption has such negative effects, particular in emerging economies, that we must use every tool at our disposal to fight it. Not only does corruption corrode the public trust and weaken democratic institutions, but it also creates gaps in government structures that organized criminal groups and terrorist networks can exploit. The FCPA, which has been on the books for approximately 35 years, was the first effort of any nation to specifically criminalize the act of bribing foreign officials. But only in the last several years has the law become a strong enforcement tool.”

“In recent years, we have witnessed a significant awakening to the problem of corruption around the globe. Russia, China and India are taking foreign bribery more seriously than ever before; the U.K. has an important new Bribery Act; and, perhaps due in part to United States enforcement efforts, companies and individuals doing business around the world are coming to appreciate that they will be held accountable for the way they conduct business with foreign officials. In short, the world is moving in one direction only with respect to anti-corruption efforts. There is still plenty of work to be done. But we are making progress, and I hope and believe that we will continue to make strides in this area together.”

Asset Recovery

“Criminal enforcement is a critically important aspect of our anti-corruption work. But, in the Criminal Division, we have also been developing an asset forfeiture initiative – the Kleptocracy Asset Recovery Initiative – that involves civil actions against the proceeds of foreign official corruption. Attorney General Holder announced the initiative in Uganda in 2010, and my team and I have been building the initiative in the Criminal Division’s Asset Forfeiture and Money Laundering Section since then. Our theory is simple: Even if we cannot pursue you criminally in the United States – because we lack criminal jurisdiction, for example – corrupt leaders should not be permitted to use the United States as a safe haven for the proceeds of their corrupt activities. We have recently had our first Kleptocracy Initiative successes. In July, for example, we announced that we had secured a restraining order against more than $3 million in corruption proceeds related to James Onanefe Ibori, the former governor of the oil-producing Delta State in Nigeria; and, earlier this month, we executed restraints against an additional $4 million in Ibori assets, including the proceeds from the sale of a penthouse unit in the Ritz-Carlton in Washington, D.C. Ibori was previously convicted here in the United Kingdom on money laundering and fraud charges and sentenced to 13 years in prison. Another example involves two civil forfeiture complaints we have filed against approximately $70 million in assets allegedly belonging to Teodoro Nguema Obiang Mangue, a government minister for Equatorial Guinea and the son of that country’s president. According to the complaints, despite an official government salary of less than $100,000 per year, Minister Obiang corruptly amassed wealth of more than $100 million. Among the items that we are seeking to forfeit are a Gulfstream jet, a mansion in Malibu, Calif., and $1.8 million worth of Michael Jackson memorabilia.”

DPAs / NPAs

“As a result both of increased FCPA enforcement and increased policing of corporate conduct in general, I think that the culture of corporate compliance has improved in recent years. As I explained in a speech in New York City recently, until roughly 20 years ago, prosecutors in the United States, when they encountered corporate misconduct, were usually faced with a stark choice – either to indict, or walk away. That began to change in the 1990s, when the government started doing something new: agreeing to defer prosecution against the corporation in exchange for an admission of wrongdoing; cooperation with the government’s investigation, including against individual employees; payment of monetary penalties; and concrete steps to improve the company’s behavior. And, over the past decade, deferred prosecution agreements, or DPAs, have become an important part of corporate criminal law enforcement. I am aware that the U.K. government recently put forth a proposal to introduce DPAs as a way of resolving corporate cases in the U.K. Based on the United States experience, my sense is that the availability of DPAs here would represent a positive step forward. In the United States, the increased use of DPAs has meant far greater accountability for corporate wrongdoing. Whereas prosecutors often declined when their only choice was to indict or walk away, now companies know that avoiding the disaster scenario of an indictment does not mean an escape from accountability. [...] DPAs and NPAs are appropriate in certain circumstances and, therefore, they can be useful alternatives to criminal indictments. But they cannot be a substitute for criminal charges.”

Individual Prosecutions

“As I have said repeatedly, the strongest deterrent against corporate wrongdoing is the prospect of prison time. That is why I have put such a high priority on making sure that individuals are prosecuted when the evidence warrants prosecution.”

Morgan Stanley

“A former managing director of Morgan Stanley, Peterson pleaded guilty to conspiring to evade the bank’s internal FCPA controls and was sentenced to prison in August. Because Morgan Stanley voluntarily disclosed Peterson’s misconduct, fully cooperated with our investigation and showed us that it maintained a rigorous compliance program, including extensive training of bank employees on the FCPA and other anti-corruption measures, we declined to bring any enforcement action against the institution in connection with Peterson’s conduct. Prosecutors need to be smart about how they use their discretion in the FCPA context, as in every context. And, as we did in the Peterson case, we always attempt to strike an appropriate balance between vigorous and responsible enforcement.”

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I had the pleasure to Chair the 2010 World Bribery & Corruption Compliance Forum in London. See here for my opening remarks.

In my remarks I stated as follows regarding NPAs and DPAs. “Non and deferred prosecution agreements share a common thread – they both remove, whether in whole or in part, an independent judiciary from a critical role in a transparent legal system founded on the rule of law – and that is ensuring that provable facts support each element of the crime alleged and ensuring that resolution specifics are in the public interest. In his recent Innospec sentencing remarks, Lord Justice Thomas cited a paper – “The Risk of Abusing a Dominant Position” – that notes, among other things, that the newly enacted SFO guidance on“alternative methods to the disposal of criminal investigations by way of negotiated pleas or other resolutions by corporate defendants” may “introduce some unintended risks of abuse.” I share this concern and assert that it is troubling when an area of law largely develops outside of the judicial system via privately negotiated agreements – agreements that corporates often feel compelled to enter into, regardless of facts or legal theories, mindful of the “sticks” the enforcement agencies posses. I support the study Transparency International (“TI”) has called for in its recent “Progress Report on the OECD Convention.” That report expresses a concern that negotiated settlements could be“questionable deals” between enforcement agencies and companies and it calls for procedures to make settlement terms subject to judicial approval independent from the prosecutor’s office.”

See here for my recent post on Breuer’s unconvincing defense of NPAs and DPAs.