Archive for the ‘Facilitating Payments’ Category

Friday Roundup

Friday, January 25th, 2013

The latest double standard installment, a Rocky Mountain Rakoff, interesting tidbits, save the date, and just in case you were wondering.  It’s all here in the Friday roundup.

Double Standard

A pharmaceutical company faces pending government restraints that could negatively affect its business.  The company turns to its lobbyists that include the former chiefs of staff to various current government officials on a key government committee.  Also, in recent years the company indirectly gave thousands of dollars to the current government officials and otherwise made large donations to groups favored by the current government officials.  The government officials insert a paragraph into a massive spending bill that, while not specifically mentioning the company, strongly favors one of the company’s drugs.  The effect of the paragraph in the bill gives the company two additional years to sell the drug without government price controls.

Having read the recent Eli Lilly FCPA enforcement action (see here for the prior post) and otherwise being an astute FCPA observer, your FCPA antennas are going off.

But wait.

The government officials were not “foreign officials” – they were U.S. government officials!

See here for the recent New York Times story on Amgen’s courting of various members of the Senate Finance Committee.

Scrap those internal investigation plans, forget about voluntary disclosure, and slim chance there will be an enforcement action. Nobody said our system was perfect, but that is just how the system works some will say.

But 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? After all, there is a U.S. domestic bribery statute (18 USC 201) with elements very similar to the FCPA.  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?

As you contemplate these questions, just remember, as soon to be former Assistant Attorney General Lanny Breuer recently declared (see here), “we in the United States are in a unique position to spread the gospel of anti-corruption.”

For numerous prior posts concerning the double standard, see here.

A Rocky Mountain Rakoff

We celebrate Mary Jo White’s appointment to be the next Chair of the SEC by focusing on yet another federal court judge calling into question the SEC’s signature neither admit nor deny settlement policy.  For more on that policy and how it contributes to a facade of enforcement, see numerous prior posts here, here, here, and here - focusing mostly on Judge Jed Rakoff’s (S.D.N.Y.) disdain of the policy.

In August 2012, the SEC brought a complaint (see here) against Colorado-based Bridge Premium Finance LLC and certain of its executives for allegedly perpetrating a Ponzi scheme.  The SEC and defendants agreed to resolve the matter and, as typical and as is frequently the case in SEC FCPA matters, the defendants did so without admitting or denying the SEC’s allegations.

Enter U.S. Senior District Court Judge John Kane (D. Co.) who pulled a Rocky Mountain Rakoff.  In a January 17th order, Judge Kane stated as follows.

“I refuse to approve penalties against a defendant who remains defiantly mute as to the veracity of the allegations against him. A defendant’s options in this regard are binary: he may admit the allegation or he may go to trial. I also object to the language in the consents and the proposed final judgments whereby the defendants waive their rights to the entry of findings of fact and conclusions of law pursuant to FRCP 52 and their rights to appeal. These findings are important to inform the public and the appellate courts. I will not endorse any final judgments including such provisions.”

Returning to Judge Rakoff, you may recall (see here for the prior post) that his disdain for the SEC’s settlement policy is currently before the Second Circuit in SEC v. Citigroup.  As Professor Barbara Black notes on her Securities Law Prof blog, oral arguments on the merits is scheduled for February 8th.

Interesting Tidbits

Alexandra Wrage (President of Trace International) writes in a recent Forbes column (here) as follows.

“Whether they’re stating it expressly or acting on it quietly, governments are using corporations as their primary tool to reduce international bribery.   They alarm companies with vast fines and terrify individuals with substantial prison sentences with the hope of ending the payment of bribes because they cannot, in most cases, do much of anything about those demanding them.   This is not inappropriate.  Companies are regulated, subject to laws and answerable to shareholders.  The worst offenders demanding bribes, on the other hand, do so with impunity, hiding behind sovereign immunity and, often, their own, complicit local law enforcement.  Abacha.  Suharto. Marcos.  Duvalier.  It’s a longstanding tradition, still thriving in many countries today.  US and some European law enforcement agencies have been extraordinarily successful, with fines in the United States now counted in the billions of dollars and other jurisdictions promising to catch up soon.   While these efforts have done more than anything else to reduce bribery, they have yet to convince us that companies are both the sole source and solution of all international corruption — and that’s insupportable.  [...]  The simple reality is that there are just some things that companies can’t do about corruption.”

Spot-on.

Wrage’s comments remind me a similar spot-on observation made during the middle of the FCPA’s legislative history.  See here for the prior post regarding Milton Gwirtzman’s dandy article published by the New York Times Magazine in October 1975 in which he observes as follows – “it would be unwise, as well as unfair, simply to write off bribery abroad to corporate lust – it is a symbol of far deeper issues …”.

As to those deeper issues, an issue I frequently write about is why do FCPA violations occur?  Do companies subject to the law have bribery as a business strategy?  Or do companies subject to the law encounter difficult and opaque business conditions abroad?  To be sure, FCPA enforcement actions have been based on both scenarios, but my opinion (as well as that of the former chief of the DOJ’s FCPA unit – see here for his previous guest post) is that the later scenario is the more common reason for FCPA exposure.

For instance, a recent post on the China Law Blog by Dan Harris (here) begins as follows.

“Got a call the other day from an American company wanting to sell its food products into China. And fast.  The problem this company is facing is that one cannot “just” sell food into China immediately.  To sell food legally into China, Foreign companies must first pass certification before China’s General Administration of Quality Supervision, Inspection and Quarantine, better known as AQSIQ.  The food company told me that its research had revealed that it typically takes around a year to secure this certification, but that someone in China was promising they could do it in “around six to eight weeks.”

Also on the list of FCPA exposure risks, I would add various trade distortions and barriers, such as central government procurement policies.  For this reason, I found this recent Sidley & Austin alert interesting.  It concern a new China “regulation that subjects certain high-value medical devices to a centralized procurement regime.”

Save the Date

D.C. area readers may be interested in a February 12th event hosted by American University Washington College of Law and presented by the American University International Law Review.  Titled “Bribes Without Borders:  The Challenges of Fighting Corruption in the Global Context,” the symposium will feature panels of academics, practitioners, and civil society representatives and will touch upon a variety of bribery and corruption topics including the FCPA.  I will be participating on an afternoon panel and will be speaking on FCPA enforcement and the rule of law.  Robert Leventhal (Director, Anti-Corruption and Governance Initiatives, U.S. State Department) will deliver a keynote luncheon address.  The symposium is free, but registration is requested.

Just in Case

Just in case you were wondering about the U.K. SFO’s position on facilitation payments (see here for a prior post), the Bribery Library site shines light on a December 6, 2012 “to whom it may concern” letter (here) from SFO Director David Green in which he states that “facilitation payments are illegal under the Bribery Act 2010 regardless of their size or frequency.”

You can now head into the weekend confident in your knowledge of the U.K.’s position.

*****

A good weekend to all.

Judge Grants Jackson And Ruehlen’s Motion To Dismiss SEC’s Monetary Claims – Finds That SEC Was Not Diligent In Bringing Case And That SEC Failed To Negate Facilitation Payments Exception – However Judge Allows SEC To File An Amended Complaint

Wednesday, December 12th, 2012

Previous posts here, here and here discussed the motion to dismiss briefing in the SEC v. Mark Jackson and James Ruehlen Foreign Corrupt Practices Act enforcement action.  The enforcement action is notable in that the defendants, unlike most FCPA defendants, mounted a legal defense.

This previous guest post highlighted last week’s oral argument on the motion.

Yesterday, Judge Keith Ellison (S.D. Tex.) issued a lengthy 61 page decision (see here).

This post goes long and deep as to Judge Ellison’s decision.

Judge Ellison granted Defendants’ motion to dismiss the SEC’s claims that seek monetary damages while denying the motion to dismiss as to claims seeking injunctive relief.  Even though Judge Ellison granted the motion as to SEC monetary damage claims, the dismissal is without prejudice meaning that the SEC will be allowed to file an amended complaint within 30 days.  Presumably after the SEC does this, a new round of briefing will begin again.

In short, Judge Ellison’s decision was based on statute of limitations grounds (specifically that the SEC failed to plead any facts to support an inference that it acted diligently in bringing the complaint) as well as the SEC’s failure to adequately plead discretionary functions relevant to the facilitation payments exception.  As to the first issue, see this post from February 2011 in which I imagined a world in which FCPA defendants mounted legal defenses based on black-letter legal principles such as statute of limitations.  As to the second issue, Judge Ellison concluded, in what is believed to be an issue of first impression, that the SEC must bear the burden of negating the facilitation payments exception.

In addition, Judge Ellison’s decision also touches upon whether the SEC needs to specifically identify the alleged ”foreign officials” as well as corrupt intent.  As to the first issue, Judge Ellison concluded that the identity of the foreign official need not be pled with specificity nor does the FCPA mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.  In so concluding, Judge Ellison acknowledged his disagreement with Judge Lynn Hughes (also in the S.D. of Texas) who stated the opposite in the DOJ’s unsuccessful prosecution of John O’Shea.

All issues are discussed below in the order discussed in Judge Ellison’s decision.

By way of background, the SEC’s complaint (see here for the prior post) alleges that Jackson and Ruehlen violated “the FCPA by participating in a bribery scheme to obtain illicit permits [Temporary Import Permits - "TIPs"] for oil rigs  in Nigeria in order to retain business under lucrative drilling contracts.”  The SEC’s complaint is based on the same core set of facts as the November 2010 DOJ/SEC enforcement action against the Defendants employer, Noble Corporation (see here for the prior post).  As Judge Ellison stated (his recitation of the facts takes up 15 pages) ”the SEC charges Jackson and Ruehlen with multiple violations of the Foreign Corrupt Practices Act and other federal securities law in connection with actions they allegedly took to obtain TIPs and TIP extensions in order to avoid paying permanent import duties.”

As Judge Ellison observed in setting forth the legal standard in ruling on a motion to dismiss, “the question for the court to decide is whether the complaint states a valid claim when viewed in the light most favorable to the plaintiff” and the “court should not evaluate the merits of the allegation, but must satisfy itself only that plaintiff has adequately pled a legally cognizable claim.”

Judge Ellison next addressed Defendants claims which contended that the SEC’s complaint failed to adequately plead:  (1) the involvement of a foreign official; (2) that the payments were not facilitating payments, (3) that the Defendants acted corruptly, and (4) whether the facilitating payments exception is unconstitutionally vague.

“Foreign Official”

As to the involvement of a “foreign official,” Judge Ellison summarized the position of the parties as follows.

“Defendants contend that the FCPA requires a plaintiff to allege the identity of the foreign official whose authority a defendant sought to misuse.  They suggest that the SEC must allege by name, or at a minimum by role and job responsibility, the foreign official who was sought to be influenced.  The SEC contends that there is nothing in the FCPA that requires pleading the identity of the foreign official involved with the level of detail Defendants advocate.  Furthermore, it [the SEC] argues that Defendants’ interpretation of the FCPA would run counter to congressional intent.”

Judge Ellison stated, in pertinent part, a follows.

“The language of the statute does not appear to require that the identity of the foreign official involved be pled with specificity. Indeed, the terms of the FCPA make it unlawful corruptly to authorize payments to any person, knowing that any portion of those payments would be offered to any foreign official.  It is possible that the requirement that the payment be made or authorized with the purpose of “influencing any act or decision of such foreign official . . . in his . . . official capacity . . . , (ii) inducing such foreign official . . . to do or omit to do any act in violation of the lawful duty of such foreign official . . . , or (iii) securing any improper advantage . . . ”, would, at times, require the government to plead details about the foreign official’s identity, duties and responsibilities. For instance, the Court can imagine cases where, in order to show that the payment was intended to influence the official to neglect some particular duty, the government would have to plead that the official had that duty in the first place. However, the Court can similarly imagine situations where the purpose element could be satisfied without pleading details about a foreign official’s particular duties. Where the government alleges that payments made were intended to influence a foreign official to violate the very laws he is charged with implementing, it hardly seems necessary to require the government to identify the day-to-day duties of that foreign official; that foreign official, irrespective of whether he is the most junior staff member or the official who name appears at the top of the organizational chart, surely has a duty, like every government official, not to violate the laws he is charged with implementing. Furthermore, [the FCPA] provides that the purpose element can be satisfied by factual allegations that a payment was made with the purpose that some foreign official would be paid money to secure some improper advantage, which also does not appear to require allegations about that individual’s job responsibilities. The Court cannot see why the purpose requirement in [the FCPA] should mandate a bright-line rule of detailed pleadings about a foreign official’s particular duties.

Nothing in the legislative history of the FCPA suggests that Congress intended to limit the application of [the FCPA] to those cases where the government could show that a defendant knew, either by name or job description, precisely which foreign officials would be receiving the illicit payments he had authorized. The Fifth Circuit has recognized that, subject to the narrow exception for facilitation payments, Congress intended, with the FCPA, to “cast an otherwise wide net over foreign bribery.”  Kay I, 359 F.3d at 749.  Indeed, in explaining the requirement that a defendant act knowingly, Congress specified that the statute is intended to cover “both prohibited actions that are taken with ‘actual knowledge’ of intended results as well as other actions that, while falling short of what the law terms ‘positive knowledge,’ nevertheless evidence a conscious disregard or deliberate ignorance of known circumstances that should reasonably alert one to the high probability of violations of the Act.” H.R. Conf. Rep. 100-576 (1988).

In light of this legislative history, it would be perverse to read into the statute a requirement that a defendant know precisely which government official, or which level of government official, would be targeted by his agent; a defendant could simply avoid liability by ensuring that his agent never told him which official was being targeted and what precise action the official took in exchange for the bribe. Yet, Defendants contend that the Complaint must allege this level of detail. [...] The Court seriously doubts that Congress intended to hold an individual liable under [the FCPA] only if he took great care to know exactly whom his agent would be bribing and what precise steps that official would be taking. Congress intended to address the problem of domestic entities bribing foreign officials to accomplish certain proscribed ends, see Kay I, 359 F.3d at 747, not domestic entities carefully monitoring the execution of that bribery.  And, if the FCPA does not require a defendant to know precisely which government official was being bribed, a plaintiff bears no burden to allege such facts.

[T]he limitations set out in [the FCPA] do not require the government in every case to plead details about the particular duties of the government official involved; sometimes, the nature of the benefit sought would inherently fall into the class of prohibited acts. Similarly, as discussed infra, pleading the non-applicability of the “facilitating” payments exception will not always require pleading details about the foreign official’s duties. Finally, that the offer or payment must be made in order to assist a defendant in obtaining or retaining business also does not require pleading anything about the foreign officials’ particular responsibilities.  Accordingly, the Court’s conclusion is bolstered by the fact that interpretations of the domestic bribery statutes have not required the level of specificity Defendants seek.

The authorities cited by the Defendants do not convince this Court. It is true that, in Kay I, the Fifth Circuit noted, in a parenthetical, that among the elements of a violation of the FCPA are “the identity of the foreign country and of the officials to whom the suspect payments were made, and the sought-after unlawful actions taken or not taken by the foreign officials in consideration of the bribes.”  Kay I, 359 F.3d at 760.  This, of course, says nothing about the level of detail with which these elements must be alleged. It is telling that, in Kay I itself, the government alleged only that payments were made to “customs officials in the Republic of Haiti” and “officials of other Haitian agencies” to accept documents that understated the true amount of rice being imported by the defendants in that case.  Kay I, 359 F.3d at 762.  The indictment does not specify the job responsibilities of the customs officials and entirely unidentified “other” officials, or what precise actions they took to accept the false documents at issue in Kay I.  If the Fifth Circuit intended for the foreign officials’ identities and specific  misdeeds to be alleged in the great level of detail that Defendants propose, the Court thinks it would have made mention of the woefully inadequate allegations in the case before it. The SEC here has alleged that payments were made to “Nigerian government officials” to “process eleven illegitimate TIPs with false paperwork” and “to obtain discretionary or unlawful extensions of these TIPs.”  The SEC also specifically alleges that among the agencies that received such payments were the NMA and NPA. The Court finds that these allegations are no less detailed than the allegations in Kay I’s indictment.

[...]

In a footnote, Judge Ellison stated as follows.

“[T]he Court must disagree with Judge Hughes’s oral statements in a recent criminal FCPA prosecution. [U.S. v. O'Shea] (“You can’t convict a man promising to pay unless you have a particular promise to a particular person for a particular benefit. If you call up the Basurtos and say, look, I’m going to send you 50 grand, bribe somebody, that does not meet the statute.”). This Court holds that asking a third party to bribe a government official, in order to induce that official to act in one of the proscribed ways detailed in [the FCPA], would meet the statute. The government does not have to “connect the payment to a particular official.”

“Facilitating” Payments and “Corruptly”

Judge Ellison summarized the position of the parties as follows.

“Defendants argue that the FCPA charges must be dismissed because the SEC bears the burden of pleading the inapplicability of the “facilitating” payments exception, [...]   and it has failed to do so. Defendants also argue that the SEC has failed to plead sufficient facts that would support the inference that Defendants acted “corruptly” because the facts pled by the SEC are equally consistent with Defendants’ belief that the payments were permissible facilitating payments, and because, in any event, the SEC has not alleged sufficient facts to indicate that the payments were made with the requisite intent.  Finally, Ruehlen argues that the “facilitating” payments exception is unconstitutionally vague.

The SEC contends that Defendants bear the burden of pleading the inapplicability of the “facilitating” payments exception, but claims that, in any event, it has negated the “facilitating” payments exception.  The SEC further argues that it has adequately pled corrupt intent because it has pled sufficient facts to support the inference that Defendants knew their actions did not fall under the “facilitating” payments exception and were, in fact, taken with the requisite evil motive.  Finally, the SEC argues that the “facilitating” payments exemption is not unconstitutionally vague because a man of common intelligence would have understood what would constitute a permissible payment under the exception and what would not.”

As to the issues, Judge Ellison stated as follows.

“[T]he Court cannot, in every instance, divine, from the sheer fact that Congress chose to exempt “facilitating” payments from liability through an exception instead of an affirmative defense, that it intended for plaintiffs to bear the burden of pleading and proving the exception.  Instead the Court starts from the presumption that  Defendants bear the burden of raising and proving the applicability of an affirmative defense.  The Court then considers whether this statute is on of those rare instances where the true definition of the offense cannot be discerned unless the exception is negated.”

Judge Ellison next turns to the “particular circumstances that led to the addition of the “facilitating” payments exception, which neither party addresses” and stated as follows.

“When the FCPA was first enacted in 1977, there was no such explicit exception, but the legislative history indicated that by using the word “corruptly,” Congress intended to exempt such payments from the purview of the statute. For instance, the House Committee on interstate and foreign commerce provided as follows in its report: The language of the bill is deliberately cast in terms which differentiate between such payments and facilitating payments, sometimes referred to as “grease payments.” In using the word “corruptly,” the committee intends to distinguish between payments which cause an official to exercise other than his free will in acting or deciding or influencing and act or decision and those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action. H.R. Rep. No. 95-640, at 4 (1977). Similarly, the Senate Committee on Banking, Housing and Urban Affairs wrote: “The statute does not . . . cover so-called ‘grease payments’ such as payments for expediting shipments through customs or placing a transatlantic telephone call, securing required permits, or obtaining adequate police protection, transactions which may involve even the proper performance of duties.” S. Rep. No. 95-114, at 10 (1977). In adding an explicit exception for “facilitating” payments in 1988, both houses explained that the amendment was meant “only to clarify ambiguities ‘without changing the basic intent . . . of the law.’” [...]  The legislative history reveals that Congress intended, by using the word “corruptly,” to except facilitating payments from the ambit of the FCPA, and the addition of the “facilitating” payments exception into the language of the statute was intended only to clarify that intent. No one disputes that the SEC must bear the burden of proving that Defendants acted corruptly. Accordingly, the Court finds that the evolution of the statute in this case strongly supports the conclusion that the SEC must bear the burden of negating the “facilitating” payments exception.  The facilitating payments exception is best understood as a threshold requirement to pleading that a defendant acted “corruptly.”

The “facilitating” payments exception was intended to provide a “very limited exception[] to the kinds of bribes to which the FCPA does not apply.”  Kay I, 359 F.3d at 750.  The exception allows for payments to foreign officials the purpose of which is to “expedite or secure the performance of a routine government action,” [...], which refers to a “very narrow categor[y] of largely non-discretionary, ministerial activities performed by mid- or low-level foreign functionaries.” Kay I, 359 F.3d at 751.  While the statute specifically includes “obtaining permits” as an example of the type of action that typically qualifies as routine, the Court interprets the example to refer to obtaining permits to which one is properly entitled.  See H.R. Rep. No. 95-640, at 8 (explaining that Congress intended to exclude from the FCPA’s reach “those payments which merely move a particular matter toward an eventual act or decision or which do not involve any discretionary action”).

The SEC alleges that Defendants authorized payments to foreign officials in order to obtain TIPs based on false paperwork, in contravention of what Defendants knew was the proper process for obtaining TIPs. As discussed supra,the SEC pled sufficient facts to support the allegation that Defendants knew these payments would be going to Nigerian government officials to obtain TIPs in a manner that violated Nigerian law. The grant of permits by government officials that have no authority to grant permits on the basis sought is in no way a ministerial act nor can it be characterized as “speeding the proper performance of a foreign official’s duties.” H.R. Rep. No. 95-640, at 8. Similarly, if payments were made to induce officials to validate the paperwork while knowing it to be false, that too would not qualify as simply expediting a ministerial act. Accordingly, the SEC’s pleadings easily negate the “facilitating” payments exception with regard to payments made to acquire false paperwork TIPs.

The SEC also alleges that Defendants authorized payments to foreign officials in order to obtain discretionary TIP extensions. Although the Court found that the SEC has alleged sufficient facts to support the inference that Ruehlen, and for the most part Jackson as well, knew that the payments they authorized would be going to bribe foreign officials, the Court cannot conclude that the Complaint pleads sufficient facts to support the allegation that Ruehlen or Jackson knew that these payments would be used to influence a discretionary decision of a foreign official. In fact, the SEC fails to plead sufficient facts to support the allegation that granting of TIP extensions is a discretionary action. The SEC repeatedly alleges that the granting of extensions is a discretionary action.  However, repeated incantations that NCS may grant an extension in its discretion do not satisfy the SEC’s obligations under Iqbal and Twombly to plead facts that render plausible such conclusory allegations.  The SEC alleges sufficient facts to support the conclusion that fourth extensions were illegal, including that grants of third extensions routinely indicated that the extension was the final extension that would be granted for that rig, as well as Noble’s own failed attempt to obtain a fourth extension.  It also alleges that NCS had previously denied a third extension because the rig was operating under a different drilling contract. However, these allegations are insufficient to make plausible the conclusion that granting TIP extensions is discretionary. These allegations are just as consistent with a regime where up to three TIP extensions are granted as a matter of routine for rigs that continue to operate on the same contract as they were operating when the initial TIP was granted. And if NCS does grant up to three TIPs routinely, any bribes offered to speed along or assure that action would fall squarely into the “facilitating” payments exception.

[...]

[T]he SEC has leave to amend the Complaint to allege facts that would support the allegation that granting TIP extensions is a matter of discretion. The SEC can satisfy this burden in a number of ways. The simplest way to do so would be to plead the Nigerian law or policy that so provides. However, the Court does not discount other means. After all, the SEC has plausibly pled that granting TIPs based on false paperwork is a violation of Nigerian law by relying on the fact of a prior Nigerian prosecution and the opinion of a legal expert.  Therefore, the Court does not rule out the possibility that the SEC may be able adequately to plead facts that would support the conclusion that grants of TIP extensions are a matter of discretion without pleading the provisions of Nigerian law. However, should the SEC not rely on Nigerian law, it must do more than just plead facts tat would be equally consistent with a protocol under which where TIP extensions are routinely granted if they satisfy certain threshold requirements.

After reviewing the FCPA’s legislative history, Judge Ellison interpreted the word “corruptly” as an act done with an evil motive or wrongful purpose of influencing a foreign official to misuse his position.”

He further stated as follows.

“In pleading that Defendants acted corruptly, the SEC need not proffer facts that would show that they knew their actions would constitute a violation of the FCPA [...] (noting that nothing about the word “corruptly” suggests that the government must prove that a defendant knew he was violating the FCPA);  Kay II, 513 F.3d at 450-451 (holding that even the willfulness requirement in a criminal prosecution does not require the government to prove that a defendant knew he was violating a particular statute).  Indeed, this court seriously doubts that the SEC even needs to prove that Defendants knew that their actions violated any specific law. Because Kay II interpreted the willfulness requirement as requiring only a showing that a defendant knew that his actions were in some way unlawful, [...] to interpret the word “corruptly” to require such knowledge would eliminate the distinction between a criminal and civil violation of the FCPA.  [...]

Defendants argue that the SEC has not pled that they acted corruptly because it had failed to plead any violations of Nigerian law, and because both defendants had a good faith belief that they were acting lawfully.   Specifically, Jackson argues that he had a good faith belief in the legality of the payments as facilitating payments, and Ruehlen argues that he relied in good faith on the approval of the payments by supervisors, including Jackson.

As the Court has already discussed, the SEC has alleged sufficient facts that support the inference that obtaining TIPs through the use of false paperwork violated Nigerian law. However, as explained, the SEC has no obligation to plead that Defendants knew that they were violating a law, or even that they were seeking an illegal result to state a civil FCPA violation. Instead, it must plead only that Defendants acted with the wrongful purpose of influencing a foreign official to misuse his official position. As explained the SEC has adequately alleged that Defendants authorized payments to foreign officials to obtain TIPs based on false paperwork, in contravention of what Defendants knew to be the proper protocol. Seeking to obtain governmentally-issued benefits through payments intended to ensure Nigerian officials ignore the proper protocols plainly satisfies the requirement of having the wrongful purpose of influencing a foreign official to misuse his position. Defendants’ representations of their good-faith belief that the payments were “facilitating” payments, and therefore legal, are unavailing. First, as explained, the SEC’s allegations support the inference that Defendants knew they were seeking to obtain TIPs in an illegal manner, thereby pleading facts that, if true, would negative any claim of good faith belief that the payments were made to ensure routine government actions. At the motion to dismiss stage, representations to the contrary are irrelevant. Second, the Court is not certain that the SEC is obliged to plead that Defendants did not have a good-faith belief that their payments fell under the “facilitating” payments exception. As a practical matter, the Court has difficulty imagining how the SEC could plead that Defendants acted “corruptly” without, at the same time, pleading facts that, if true, would render implausible any claim that Defendants had a good-faith belief that the payments fell into the “facilitating” payments exception. After all, it is hard to see how one could have the evil motive or wrongful purpose of influencing an official to misuse his official position while, at the same time, believing, in good faith, that he was simply ensuring or expediting a routine government action. The Court need not resolve the question, however, because, in any event, the facts alleged by the SEC support the inference that Defendants knew use of false paperwork to obtain TIPs was illegal.

Finally, Ruehlen argues that the SEC has not pled adequate facts that he acted corruptly because he authorized payments with the knowledge and consent of Noble’s senior management.  [...]  The factfinder may certainly consider whether Jackson’s approval of the payments negates corrupt intent. However, for the purpose of Rule 12(b)(6) motion, the Court finds that the facts pled regarding Ruehlen’s intimate involvement with the West Africa Audit make plausible the allegation that he did act “corruptly.”

Because the Court finds that the SEC has failed adequately to plead that the payments to obtain TIP extensions were not facilitating payments, it does not address whether the SEC has adequately pled that Defendants acted corruptly in making those payments. However, the Court notes, that should the SEC amend its complaint to plead sufficient facts to support the inference that the grant of TIP extensions is a discretionary act, it will need also to plead facts that support the inference that, in making these payments, Jackson and Ruehlen had the evil motive or wrongful purpose of influencing an official to misuse his position.”

In a footnote Judge Ellison then stated as follows.

[W]hile the Court finds no explicit statutory obligation to plead facts that would tend to show that Defendants did not have a good faith belief that their payments fell within the “facilitating” payments exception, the Court has difficulty imagining that the SEC will be able to plead that Defendants had the bad purpose of influencing an official to misuse his position if it does not first plead that Defendants knew they were not entitled to extensions as a matter of right upon satisfying certain basic threshold requirements.

As to the unconstitutional vagueness issue, Judge Ellison stated as follows.

“Here, a person of common intelligence should have no difficulty understanding that routine government actions do not include the granting of permits based on fraudulent documents. He would not fail to understand that the statutory example of “obtaining permits” as a routine governmental action presupposes that those permits are obtained based on some valid entitlement. Furthermore, even if a man of common intelligence might be somewhat uncertain about whether payments to secure TIPs through a known illegal method would be covered by the “facilitating” payments exception, the exception is but one of numerous elements of a civil FCPA violation; some ambiguity in the scope of this one part of the statute does not draw an impermissibly vague line.  [...]

Similarly, should the SEC amend its Complaint adequately to plead that the granting of TIP extensions is a discretionary action, any argument that enforcement actions could not be initiated on the basis of payments to obtain favorable exercises of discretion in obtaining permits would also fail. In analyzing the FCPA, the Fifth Circuit made it unambiguously clear that the FCPA was enacted in substantial part to “prohibit the type of bribery that . . . prompts officials to misuse their discretionary authority.”  [...} Even if the language of the “facilitating” payments exception failed adequately to put persons of common intelligence on alert that bribery to influence discretionary decisions was prohibited under the FCPA, Kay I, a  decision from February 2004, established the point as a matter of law. It is, of course, a “common maxim, familiar to all minds, that ignorance of the law will not excuse any person, either civilly or criminally.” [...]“

Statute of Limitations

Judge Ellison summarized the positions of the parties as follows.

“Jackson and Ruehlen argue that the SEC’s Complaint should be dismissed because all of the events giving rise to the claims occurred outside of the limitations period and the SEC’s Complaint has failed to raise any basis for tolling.  The SEC does not dispute that the Complaint, on its face, raises no basis for tolling, but it argues that the statute of limitations should be tolled because of tolling agreements between the parties, because the fraudulent concealment doctrine applies, and because the continuing violations doctrine applies. Additionally, the SEC contends that the statute of limitations does not apply to equitable relief such as injunctions.  Finally, the SEC requests leave to amend its Complaint to plead any additional facts necessary for statute of limitations purposes.”

After discussing the applicable five year statute of limitations, he stated as follows.

The Complaint in this case was filed on February 24, 2012. Accordingly, absent some reason the statute of limitations should not apply, claims that accrued before February 24, 2007 should be barred. Here, the vast majority of the misconduct alleged occurred before February 24, 2007.  Although the Complaint does not plead any basis for tolling, the Court examines the  arguments as to why the statute of limitations should be tolled or is inapplicable, to determine whether any of the claims predicated on conduct prior to February 24, 2007 survive, and also to determine whether leave to amend would be futile.

[...]

Defendants do not dispute that they each signed tolling agreements with the SEC that would suspend the running of the statute of limitations for a total of 290 days.  These tolling agreements would make timely any claims based on conduct occurring after May 10, 2006.  [...] Thus, although the SEC should have pled the existence of these tolling agreements, the Court finds it appropriate to grant the SEC leave to amend.”

As to fraudulent concealment as a basis for tolling the statute of limitations, Judge Ellison stated as follows.

Defendants also argue that the Complaint has failed to raise any basis for tolling. They argue that the SEC has failed to plead facts that would give rise to tolling based on the doctrine of fraudulent concealment. The SEC contends that it has pled the elements of fraudulent concealment that it is required to plead, and that Defendants actually bear some of the burden because the statute of limitations is an affirmative defense.

[...]

The Court rejects the SEC’s contention that it is Defendants who must bear the burden of proving that the Commission should have discovered the fraud earlier.

[...]

Under the applicable Fifth Circuit standard, the SEC has pled enough facts to suggest that Defendants concealed their wrongdoing. Specifically, the SEC has pled that each time a payment for false paperwork TIPs was approved, it was logged as a legitimate operating expense, as Defendants knew and intended. Furthermore, the SEC has alleged that Jackson signed personal certifications as CFO and CEO that were attached to Noble’s public quarterly and annual filings, dated from August 8, 2005 to May 9, 2007, stating that he had disclosed to Noble’s auditors and Audit Committee all significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud. These acts are pled with adequate specificity and can, theoretically, be enough to support a claim of concealment. However, the Court notes that, if these assertions by Defendants that their actions are legal are to be the sole basis of the fraudulent concealment allegations, the SEC will eventually have to show that its reliance on these representations was reasonable. This is because “generally speaking, denial of wrongdoing is no more an act of concealment than is silence” and such a denial may constitute concealment only “where the parties are in a fiduciary relationship, or where the circumstances indicate that it was reasonable for the plaintiff to rely on defendant’s denial.”

However, the SEC has not pled any facts that support the inference that it acted diligently in bringing this Complaint. The SEC argues that, because it did not learn of the misconduct until June 2007, and because it brought its complaint within five years of that date, it has pled all it needs to plead.  However, as explained above, the SEC must plead facts that show that it acted diligently in gathering the facts that form the basis of its claims. It concedes that, by June 2007, when Noble disclosed its internal investigation to the SEC, it had inquiry notice of potential misconduct. The SEC has leave to amend its Complaint to plead facts that would support the inference that it acted diligently in gathering the facts that form the basis of this Complaint.

As to the SEC seeking the equitable remedy of injunction, the court noted that the “parties have cited no cases that suggest that dismissal of claims for injunctive relief is appropriate at the Rule 12(b)(6) stage.  [...] The SEC, of course, ultimately will bear the burden of showing that an injunction is warranted.

Oral Argument Held In Jackson / Ruehlen Challenge

Monday, December 10th, 2012

Today’s post is from Sarah Frazier (Berg & Androphy ) regarding the SEC’s FCPA enforcement action against Mark Jackson and James Ruehlen.   Frazier attended the oral argument last Friday in Houston on the Defendants’ motion to dismiss the SEC’s complaint.  For prior posts on the challenge, see here.

*****

By Sarah Frazier

Pleased with the quality of the briefing by all parties on Defendants’ motions to dismiss and ready with questions, Judge Ellison heard arguments for two-and-a-half hours on Friday.  The motions presented a rare challenge to the SEC’s Foreign Corrupt Practices Act enforcement powers and raised issues surrounding pleading requirements under Rule 8(a)(2) with regard to intent, the FCPA’s facilitating payment exception, and the identity and role of the alleged “foreign officials” in the case.

The Court made it clear early in the hearing that he was inclined to ask the SEC to supplement its pleadings in one or more of these areas without dismissing the case, which may or may not make much difference in the end.  Kenneth Donnelly, arguing for the SEC, stated that he had much more to plead if need be.  Whether that includes specifics on the Nigerian “foreign officials” who received the alleged payments, who are unnamed in the complaint, remains to be seen, should Judge Ellison require it.

Regardless, the hearing proved a valuable opportunity for the Defendants, in pointing out what they saw as pleading inadequacies, to tell their own story.  The SEC alleges that Jackson and Ruehlen repeatedly paid Noble’s customs agent in Nigeria to pass on bribes to (unidentified) Nigerian officials in order to extend temporary drilling permits for Noble’s offshore rigs.  Further, the SEC alleges that Defendants submitted permit applications that falsely asserted that the rigs had been moved outside of Nigerian waters, a necessary falsehood in order to render the rigs eligible for the permits.  David Krakoff and Nicola Hannah, for Defendants Jackson and Ruehlen respectively, explained that Noble had in fact approved the “special handling fees” according to its written policy for allowing facilitating payments allowed by the FCPA, in reliance on counsel.  Hannah also did a fine job of making sure the Court knew that his client was a high school graduate whose work had been on rigs until shortly before his first involvement with the payments, and whose middle manager role excluded him from Board of Directors’ reports on the subject.

The SEC’s complaint refers multiple times to the permit applications as “false paperwork,” urging implicitly that the paperwork itself evidences corrupt knowledge.  Defense counsel argued vigorously that this “falsity” was a red herring because it is not itself prohibited under the FCPA, and would not in their view render the facilitating payment defense unavailable.  Judge Ellison was keen, given such arguments, to understand the FCPA’s intent requirement in a civil versus a criminal case – posing that question to both sides.  Donnelly (SEC) took the position that the term “corruptly” in the statute applies whenever a payment is made to an official for misuse of his or her duties, while the defendants argued that the FCPA is a specific intent law and the SEC must show intent to violate the FCPA.

The parties and the Court spent much of the hearing grappling with how intent under the FCPA works when applying the FCPA’s “facilitating payment” or “routine government action” exception.  If Jackson and Ruehlen understood that the bribe was illegal under Nigerian law, but qualified as a facilitating payment under the FCPA, then is corrupt intent present?  If so, would not the whole facilitating payment exception be swallowed up?  After all, as Krakoff, Hannah, and David Gerger (also representing Ruehlen) pointed out, aren’t facilitating payments essentially all bribes?  And aren’t bribes generally illegal under local law?  If it were otherwise, and facilitating payments were required to be legal locally, there would be no need for the separate affirmative FCPA defense allowing conduct that is legal under written local law.

But, the Court asked several times using various hypotheticals, what about where, independent of the bribe, the deed being paid for is discretionary or improper or even illegal?  Is that a qualifying facilitating payment?  Donnelly on behalf of the SEC took the position that it was not in those instances, but, interestingly, in doing so acknowledged that this issue makes Nigerian law potentially relevant in the case.

Hannah and Krakoff countered that a discretionary governmental act still qualifies as facilitating if it relates to issuance of a permit, as here, because the language in the FCPA specifically enumerates “permit,” but does not use the word “discretionary” except in a different context, and thus dicta in the Kay case is incorrect.  Further, defense counsel argued,  if Nigerian law is pertinent, then it must be pled, and the SEC’s bare notice of intent to rely on foreign law under Rule 44.1 is insufficient under Rule 8a.

Judge Ellison inquired whether the written law of Nigeria was sufficient to determine whether a government act was discretionary – wouldn’t it be necessary to put on evidence of actual practice?  Defense counsel agreed, unsurprisingly, while Donnelly disagreed but raised the possibility of expert evidence on the point.

The Court probably need not decide all of these novel questions in ruling on the Defendants’ motions, but the questions will surely be relevant should the case proceed to trial.  In the meantime, the parties gained insight into possible initial reluctance to apply the FCPA’s facilitating payment exception to situations involving governmental acts that seem improper or are merely discretionary.

Yawning At The SFO’s “Revised Policies”

Wednesday, October 10th, 2012

Yesterday, the U.K. Serious Fraud Office (“SFO”) issued a release (here) announcing that it “has reviewed its policies on facilitation payments, business expenditure (hospitality) and corporate self-reporting.”  According to the SFO, the purpose of the “revised policies” is to

  • restate the SFO’s primary role as an investigator and prosecutor of serious or complex fraud, including corruption;
  • ensure there is consistency with other prosecuting bodies; and
  • meet certain OECD recommendations.

For the most part, although much ink is likely to be spilled by FCPA Inc. / Bribery Act Inc. in the coming days, the SFO’s “revised policies” are a yawner.

As to facilitation payments (here) and business expenditures (here), the SFO notes as follows.  Whether or not the SFO will prosecute in respect of a facilitation payment or payments or in respect of a bribe presented as hospitality or some other business expenditure will be governed by the Full Code Test in the Code for Crown Prosecutors and the Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010.

The Full Code Test (see here at Section 4) is essentially a realistic prospect of conviction plus in the public interest standard for bringing prosecutions.

As to facilitation payments, the SFO stated that “facilitation payments were illegal before the Bribery Act came into force and they are illegal under the Bribery Act, regardless of their size or frequency.”

Treatment of facilitation payments under the Bribery Act has been analyzed to death since enactment of the Bribery Act, however I have yet to see any reference to a pre-Bribery Act prosecution even though such payments were illegal prior to the Bribery Act.  That would seem to answer the public interest prong of the Full Code Test the SFO refers to regarding facilitation payments.

The Joint Prosecution Guidance of the Director of the SFO and the Director of Public Prosecutions on the Bribery Act 2010 (here) that the SFO refers to in its “revised policies,” and that it reaffirms, states as follows concerning facilitation payments and hospitality expenditures.

Facilitation payments

Facilitation payments are unofficial payments made to public officials in order to secure or expedite the performance of a routine or necessary action. They are sometimes referred to as ‘speed’ or ‘grease’ payments. The payer of the facilitation payment usually already has a legal or other entitlement to the relevant action.  There is no exemption in respect of facilitation payments. They were illegal under the previous legislation and the common law and remain so under the Act.

Public Interest Considerations

Prevention of bribery of foreign public officials is a significant policy aspect of the Act. In the context of facilitation payments, the following public interest factors tending in favour of and against prosecution may be relevant. A prosecution will usually take place unless the prosecutor is sure that there are public interest factors tending against prosecution which outweigh those tending in favour.

Factors tending in favour of prosecution:

  • Large or repeated payments are more likely to attract a significant sentence;
  • Facilitation payments that are planned for or accepted as part of a standard way of conducting business may indicate the offence was premeditated;
  • Payments may indicate an element of active corruption of the official in the way the offence was committed;
  • Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have not been correctly followed.

Factors tending against prosecution:

  • A single small payment likely to result in only a nominal penalty;
  • The payment(s) came to light as a result of a genuinely proactive approach involving self-reporting and remedial action;
  • Where a commercial organisation has a clear and appropriate policy setting out procedures an individual should follow if facilitation payments are requested and these have been correctly followed;
  • The payer was in a vulnerable position arising from the circumstances in which the payment was demanded.

Hospitality and promotional expenditure

Hospitality or promotional expenditure which is reasonable, proportionate and made in good faith is an established and important part of doing business. The Act does not seek to penalise such activity.

Hospitality and promotional expenditure could, however, form the basis of offences under s1 (bribing another person) or s6 (bribing a foreign public official) and constitute a bribe for the purpose of s7 (failure to prevent bribery). Under section 1 there must be an element of “improper performance”. Under section 6, it will be necessary to show that the provision of hospitality or promotional expenditure was intended to influence the foreign public official so as to obtain or retain business, or an advantage in the conduct of business.

The more lavish the hospitality or expenditure (beyond what may be reasonable standards in the particular circumstances) the greater the inference that it is intended to encourage or reward improper performance or influence an official. Lavishness is just one factor that may be taken into account in determining whether an offence has been committed. The full circumstances of each case would need to be considered. Other factors might include that the hospitality or expenditure was not clearly connected with legitimate business activity or was concealed.

Public Interest Considerations

Prevention of bribery of foreign public officials is a significant policy aspect of the Act. When considering the public interest stage, the factors tending in favour of and against prosecution referred to in respect of “active bribery” (section 1) are likely to be relevant. A prosecution will usually take place unless the prosecutor is sure that there are public interest factors tending against prosecution which outweigh those tending in favour.”

As noted in this March 2011 post, U.K. guidance on facilitation payments and hospitality expenditures pretty much aligns the Bribery Act and the FCPA despite the obvious statutory differences.  I predicted in January 2011 (see here) that enforcement of the Bribery Act will be disciplined and measured and this belief is further strengthened by yesterday’s SFO release of its “revised policies.”

As the SFO indicates in this Q&A regarding its “revised policies,” the only change “is that reference in the joint prosecution guidance to the SFO’s former policy on self-reporting has been removed.”  (See here for that policy which explained that ”the benefit to the corporate [in self-reporting] will be the prospect (in appropriate cases) of a civil rather than a criminal outcome as well as the opportunity to manage, with us, the issues and any publicity proactively.”

The Joint Prosecution Guidance, which the SFO reaffirms in its “revised policies,” stated as follows regarding self-reporting.

“The SFO encourages corporate self-reporting, but offers no guarantee that a prosecution will not follow any such report.”

The remainder of the “revised policy” on self-reporting (here) states as follows.

“If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. That Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.”

There is nothing revolutionary about any of this.

It substantively aligns with the DOJ’s Principles of Prosecution of Business Organizations (here) which states that a company’s ”timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents” is one factor the DOJ will consider in deciding whether to criminally charge a business organization.”

In short, although much ink is likely to be spilled in the coming days, the SFO’s revised policies are a yawner.  Speaking of the ink, before the clock struck midnight on the SFO’s “revised policies” the industry was cranking out the marketing material.

This industry participant stated as follows regarding the “revised policies” and the DOJ’s promised forthcoming guidance.  “Given this activity from government regulators, it is more important than ever that companies develop a meaningful compliance program that can be adapted if needed to meet changing government expectations. A successful compliance system must adequately educate employees and create a framework that can prevent violations before they occur. [Company] has the expertise to implement a truly functional FCPA or UK Bribery Act compliance program. We can help companies protect themselves in the face of strict enforcement of these laws and constantly changing government guidance.”

This industry participant stated as follows.  “Given the new [Bribery] Act’s tough penalties and the apparent ambiguity surrounding the consequences of self-disclosure, businesses may want to take extra care to comply with its provisions. Accordingly, businesses should consider seeking the advice of legal counsel in navigating this statute and its attendant revisions.”

Amendments To Simplify The FCPA For U.S. Businesses

Monday, September 24th, 2012

Foreign Corrupt Practices Act reform may be in sleep mode at the moment, but this has not stopped (nor should it) forward-thinking individuals from contemplating FCPA reform.

Case in point, Stephen Clayton, with today’s guest post.  Clayton is currently an attorney in private practice specializing in FCPA services.  Previously, he was an in-house counsel, including for Sun Microsystems.  At Sun, he responsible for all legal work in East and South Asia, Latin America, Australia/New Zealand and Canada, and then became Senior Director, Anti-Corruption Compliance, responsible for Sun’s global FCPA compliance.  Sun was acquired by Oracle in early 2010 at which point Clayton established his private practice.  Clayton also teaches an FCPA-related course for Golden Gate University’s School of Accounting.

*****

Amendments to Simplify the FCPA for US Businesses

Proposals for and against amending the FCPA have been percolating in Congress for the past 2 years. The U.S. Chamber of Commerce took a lead role, advocating that substantial changes are needed to promote international business by U.S. companies. Other groups, including the Open Society Foundations, have opposed any revisions that they say would weaken the FCPA or impede enforcement.   The amendments that would provide the most help US business people have not been proposed by any of the parties lobbying Congress.

Bribery is still very common in international business and US companies are harmed by it every day. Congress should consider common sense changes to the 35-year-old FCPA that would make the law less confusing and more in tune with anti-corruption compliance practices in 2012.  If changes are to be made to the FCPA, they should enable good companies and ethical business people understand and follow the law. It is easier for business people to comply with a clearly worded, strict law than try to deal with a complicated, confusingly worded law that has to be filtered through layers of lawyers. The proposals by the Chamber and its opponents retained all of the complexity and confusion in the current law, so in the end would not benefit business.

There are six changes would substantially reduce the confusion business people and in house lawyers have about the FCPA and thereby enable them to do international business with a clear understanding of their legal risks and implement effective compliance programs.

1. Eliminate the Exception for Facilitating Payments.

This exception creates the illusion that minor bribery of employees of foreign governments can be “legal.” Å corporate policy allowing employees to pay any bribes is morally indefensible. Even if corporate management believes small bribes are a necessary practice, it is extremely difficult to determine which bribes Congress considers “legal.” The facilitating payments exception is offensive to normal US ethical standards for corporate governance. The majority of companies that examine facilitating payments prohibit their employee and agents from paying them.  Congress should eliminate the exception.

2. Eliminate the affirmative defense for bribes that are “lawful under the written law or regulation of the country.”

Countries do not have written laws that permit conduct that is illegal under the FCPA. But business people and non-specialist lawyers see this language in the statute and think it must have some meaning. Here again they are forced to guess which types of bribes Congress considers to be “legal.” What difference does it make to good corporate governance if a country rigs its laws to allow bribery of members of its royal family or specific government employees? It is still bribery and clean, ethical US companies would lose business to the bribe payers. This affirmative defense is essentially meaningless and confusing and there is no reason for it to remain in the law.

3. Add provisions to the FCPA making commercial (private) corruption a federal crime.

The most glaring flaw of the FCPA is that it makes it a crime to bribe only certain people, i.e. “foreign officials” including employees of “instrumentalities” of foreign governments. By making that distinction, Congress created the impression that US companies can legally pay bribes to all other people. The FCPA as it is now written causes companies and their lawyers to spend an extraordinary amount of time trying to determine if corrupt payments made on their behalf are legal or illegal. This is the most confusing aspect of the FCPA and puts company management in an ethical conundrum. Amending the FCPA to criminalize all bribery of anyone in international business will end the confusion. In international business in the 21st century, it should not matter if the recipient of a bribe is a government official or works for an instrumentality of a government or is an employee or officer of a commercial company.

4. Add a U.K. style strict liability crime of failure to prevent bribery to the FCPA and a corresponding affirmative defense for proving an adequate compliance program.

The U.K. Bribery Act of July 2011 contains a new crime that does not exist in the FCPA: Failure by a Business Organization to Prevent Bribery. It’s a strict liability crime – if bribery of anyone occurred in a company’s business, the company has violated this law. To balance strict liability, the UKBA includes an affirmative defense. If the company whose employees paid bribes can prove it had in place adequate processes to prevent bribery before the bribery occurred, it may avoid liability for this specific crime.

Congress should consider amending the FCPA to incorporate this U.K. legal innovation that makes it easy for company management to understand that all bribery by employees and agents is a crime.

5. Amend the FCPA to clarify that a parent company is responsible for the violations of its subsidiaries.  

Executives of US companies create, manage and are responsible for their company’s foreign subsidiaries. US management hires the subsidiary’s managers and gives them their instructions and goals. Subsidiaries exist to generate profits and provide business advantages to the parent company. U.S. law should be unambiguous on the point that subsidiaries and their employees cannot be a convenient and easily manipulated shield from criminal liability for bribery.

Limiting a company’s liability for the FCPA violations of its subsidiaries adds to the list of gray areas that perpetuate the argument that Congress intended that only certain types bribes of certain people are illegal. Congress can remove uncertainty by amending the FCPA so it is impossible to doubt that a parent company is always responsible for the bribery, corruption and false records of any of its subsidiaries.  This is the kind of clear legal guidance US companies need.

6. Widen the scope of the FCPA’s “reasonable and bona fide expenditures” affirmative defense.

Companies should be able to engage normal sales and marketing operations and be confident this will not violate the law.  Congress needs to promote legitimate, properly documented business practices. The current affirmative defense is poorly worded and unnecessarily restrictive. It limits bona fide business expenditures to those “directly related to the promotion, demonstration or explanation of products or services; or the execution or performance of a contract…” That limitation is not necessary and is confusing to business people.

Conclusion:

These six amendments would make it easier for corporate management and in house lawyers to understand what is prohibited by the FCPA and significantly improve their ability to develop reasonable compliance programs. Many major companies already have policies that prohibit facilitation payments, make commercial (private) bribery by their employees and agents a terminable offense and apply their FCPA compliance program to all their subsidiaries. Congress should follow this leadership by business and bring the FCPA into the 21st century.  Congress should not enact a slate of amendments that only serve to perpetuate the most obvious flaw in the FCPA – that it prohibits only certain (poorly defined) bribery of certain (poorly defined) people and therefore permits all other bribery.  Amendments that merely play with the definitions of who can be bribed in what manner will not help US companies. All bribery in international business harms US companies and must be clearly illegal.