Archive for the ‘FCPA Reform’ Category

FCPA Enforcement Critic And Reform Advocate Selected As New DOJ Fraud Section Chief

Monday, January 12th, 2015

WeissmannLast week, the DOJ announced Andrew Weissmann has been selected as the Chief of the Criminal Division’s Fraud Section.

In recent years, Weissmann has been a vocal advocate of Foreign Corrupt Practices Act reform and more broadly, reforming corporate criminal liability principles.

In October 2010, Weissmann was the lead author of “Restoring Balance:  Proposed Amendments to the FCPA.”  Written on behalf of the U.S. Chamber Institute for Legal Reform, “Restoring Balance,” lead to a Senate FCPA reform hearing in November 2010, and thereafter, a House FCPA reform hearing in June 2011.

Here is what Weissmann wrote in “Restoring Balance”.

“In spite of this rise in enforcement and investigatory action, judicial oversight and rulings on the meaning of the provisions of the FCPA is still minimal. Commercial organizations are rarely positioned to litigate an FCPA enforcement action to its conclusion, and the risk of serious jail time for individual defendants has led most to seek favorable terms from the government rather than face the expense and uncertainty of a trial. Thus, the primary statutory interpretive function is still being performed almost exclusively by the DOJ Fraud Section and the SEC. Notably, these enforcement agencies have been increasingly aggressive in their reading of the law. The DOJ has expressed its approach primarily through its opinion releases, but also in its decisions as to what FCPA enforcement actions to pursue. Many commentators have expressed concern that the DOJ effectively serves as both prosecutor and judge in the FCPA context, because it both brings FCPA charges and effectively controls the disposition of the FCPA cases it initiates.”

Using phrases such as “how far the DOJ has pressed the limits of enforcement,” “DOJ’s aggressive pursuit” of companies as “indication of how far the DOJ is willing to expand the scope of FCPA enforcement,” and “the highly aggressive stance the DOJ is taking to expand the FCPA net beyond its borders,” Weissmann stated:

“The current FCPA enforcement environment has been costly to business. Businesses enmeshed in a fullblown FCPA investigation conducted by the U.S. government have and will continue to spend enormous sums on legal fees, forensic accounting, and other investigative costs before they are even confronted with a fine or penalty, which, as noted, can range into the tens or hundreds of millions. In fact, one noteworthy innovation in FCPA enforcement policy has been the effective outsourcing of investigations by the government to the private sector, by having companies suspected of FCPA violations shoulder the cost of uncovering such violations themselves through extensive internal investigations.

From the government’s standpoint, it is the best of both worlds. The costs of investigating FCPA violations are borne by the company and any resulting fines or penalties accrue entirely to the government. For businesses, this arrangement means having to expend significant sums on an investigation based solely on allegations of wrongdoing and, if violations are found, without any guarantee that the business will receive cooperation credit for conducting an investigation.”

Elsewhere in “Restoring Balance,” Weissmann wrote:

“[T]he FCPA should be modified to make clear what is and what is not a violation. The statute should take into account the realities that confront businesses that operate in countries with endemic corruption (e.g., Russia, which is consistently ranked by Transparency International as among the most corrupt in the world) or in countries where many companies are state-owned (e.g., China) and it therefore may not be immediately apparent whether an individual is considered a “foreign official” within the meaning of the act. As the U.S. government has not prohibited U.S. companies from engaging in business in such countries, a company that chooses to engage in such business faces unique hurdles. The FCPA should incentivize the company to establish compliance systems that will actively discourage and detect bribery, but should also permit companies that maintain such effective systems to avail themselves of an affirmative defense to charges of FCPA violations. This is so because in such countries even if companies have strong compliance systems in place, a third-party vendor or errant employee may be tempted to engage in acts that violate the business’s explicit anti-bribery policies. It is unfair to hold a business criminally liable for behavior that was neither sanctioned by or known to the business.

The imposition of criminal liability in such a situation does nothing to further the goals of the FCPA; it merely creates the illusion that the problem of bribery is being addressed, while the parties that actually engaged in bribery often continue on, undeterred and unpunished. The FCPA should instead encourage businesses to be vigilant and compliant. For this reason, and given the current state of enforcement, the FCPA is ripe for much needed clarification and reform through improvements to the existing statute. Such improvements, which are best suited for Congressional action, are aimed at providing more certainty to the business community when trying to comply with the FCPA, while promoting efficiency and enhancing public confidence in the integrity of the free market system as well as the underlying principles of our criminal justice system.”

Weissmann also testified, on behalf of the U.S. Chamber, at the November 2010 Senate hearing.  In his written testimony, Weissmann stated:

“The FCPA had been tailored to balance various competing interests, but that balance has been altered, at times, by aggressive application and interpretations of the statute by the government. Instead of serving the original intent of the statute, which was to punish companies that participate in foreign bribery, actions taken under more expansive interpretations of the statute may ultimately punish corporations whose connection to improper acts is attenuated at best and nonexistent at worst.

The result is that the FCPA, as it currently written and implemented, leaves corporations vulnerable to civil and criminal penalties for a wide variety of conduct that is in many cases beyond their control and sometimes even their knowledge. It also exposes businesses to predatory follow-on civil suits that often get filed in the wake of a FCPA enforcement action. In fact, there is reason to believe that the FCPA has made U.S. businesses less competitive than their foreign counterparts who do not have significant FCPA exposure.”

In concluding his written testimony, Weissmann stated:

“The recent dramatic increase in FCPA enforcement, coupled with the lack of judicial oversight, has created significant uncertainty among the American business community about the scope of the statute. In addition, some of the enforcement actions brought by the SEC and DOJ are not commensurate with the original goals of the FCPA, in that they fail to reach the true bad actors and instead assign criminal liability to corporate entities with attenuated or non-existent connections to potential FCPA violations.”

As reflected in this transcript, during the hearing Weissmann stated:

“One of the reasons it is important to have a clearer statute, particularly in the FCPA arena, is that corporations cannot typically take the risk of going to trial and, thus, there is a dearth of legal rulings on the provisions of the FCPA as it applies to organizations. Thus, the government’s interpretation can be the first and the last word on the scope of the statute as it applies to a company. The lack of judicial oversight, expansive government interpretation of the FCPA, and the increased enforcement that you heard about from [the DOJ witness] have led to considerable concern and uncertainty about how and when the FCPA applies to overseas business activities.”

During the hearing, Senator Arlen Specter asked: “overall, do you think that the act is fairly well balanced and fairly well enforced or too tough?”

Weissmann responded:

“I think there is no question that many of the cases that were brought up today, such as Siemens, fall far, far, far into the—that it is amply warranted for the application of the statute. The problem is that every company in America and many companies overseas worry about the statute daily. And so regardless of what the Department of Justice is doing, people think about the statute and could their conduct fall on one side of it versus the other and will they be subject to an investigation. So it is a difficult question to answer, because I have seen many prosecutions where you say, of course, that seems like a just result and should have been warranted, but there are many companies that are hurt by the ambiguities in the statute and what I think is the over-breadth of some of its provisions on a daily basis.”

Beyond the FCPA, Weissmann has also been a vocal advocate of reforming corporate criminal liability principles.

In “Rethinking Corporate Criminal Liability,” 82 IND. L.J. 411, 414 (2007), Weissmann challenged traditional notions of corporate criminal liability and argued that when the DOJ “seeks to charge a corporation as a defendant, the government should bear the burden of establishing as an additional element that the corporation failed to have reasonably effective policies and procedures to prevent the conduct.”

Here’s What Would Get More Companies To Self-Disclose Bribery

Thursday, December 11th, 2014

This recent Wall Street Journal Risk & Compliance post asks “what would get more companies to self-disclose bribery?”  The article discusses several  answers (publicize declinations, start a leniency program, lower the amount of fines), but the best answer  is depicted in the below picture (with an FCPA compliance defense being the red arrow).

Compliance Defense As A Gap

There currently exists an informational gap between those with evidence of FCPA violations (i.e. companies and their counsel who conduct FCPA internal investigations) and the government agencies (DOJ and SEC) who enforce the FCPA.

Although – as highlighted in this recent post – approximately 60% of recent FCPA enforcement actions are the result of corporate voluntary disclosures, it should be an uncontroversial observation that many more FCPA violations (at least based on current enforcement theories) are happening in the global marketplace on a daily basis.

This observation is based on my nearly ten years of FCPA practice experience (and will be recognized as a self-evident truth by other FCPA practitioners) as well as my frequent conversations with FCPA practitioners.  While I am not suggesting the following is empirical evidence, the general thrust of comments I hear from FCPA practitioners is that approximately only 50% of FCPA issues in public companies are disclosed to the DOJ/SEC and that very, very few FCPA issues in private companies are disclosed to the DOJ.  The follow-up question I then ask is – in the situations in which the company has not voluntarily disclosed, has the DOJ/SEC ever found out about the problematic conduct at issue.  The universal response I have received is no.

Put this all together and the resulting landscape is that there are many FCPA violations occurring (at least based on current enforcement theories) that are not disclosed to the enforcement agencies.  Because the violations are not disclosed to the enforcement agencies, there is no enforcement action. Because there is no enforcement action, the individual engaging in the problematic conduct are not being held accountable.  Because the individual engaging in the problematic conduct is not being held accountable, FCPA enforcement is not as effective as it could be.

The DOJ (and SEC) clearly recognize the gap that exists and in recent months enforcement officials have tried to articulate policies that can help close this gap (see here, here, and here for summaries of recent speeches).

As highlighted in this prior post,  the policies articulated by DOJ officials are sensible (voluntarily disclose, cooperate, and identify culpable individuals).

Problem is, this is the same policy the enforcement agencies have been talking about for nearly a decade and its seems not to be closing the gap that exists between evidence of FCPA violations and prosecution of FCPA violations, including individuals.  Indeed, as highlighted by this prior post, 82% of corporate SEC FCPA enforcement actions since 2008 have not resulted in any related enforcement action against a company employee and 75% of corporate DOJ FCPA enforcement actions since 2008 have not resulted in any related enforcement action against a company employee.

An FCPA compliance defense will not close this gap completely, but it will help bridge the gap.

As stated in my 2012 article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

“An FCPA compliance defense will better facilitate the DOJ’s prosecution of culpable individuals and advance the objectives of its FCPA enforcement program. At present, business organizations that learn through internal reporting mechanisms of rogue employee conduct implicating the FCPA are often hesitant to report such conduct to the enforcement authorities. In such situations, business organizations are rightfully diffident to submit to the DOJ’s opaque, inconsistent, and unpredictable decision-making process and are rightfully concerned that its pre-existing FCPA compliance policies and procedures and its good faith compliance efforts will not be properly recognized. The end result is that the DOJ often does not become aware of individuals who make improper payments in violation of the FCPA and the individuals are thus not held legally accountable for their actions. An FCPA compliance defense surely will not cause every business organization that learns of rogue employee conduct to disclose such conduct to the enforcement agencies. However, it is reasonable to conclude that an FCPA compliance defense will cause more organizations with robust FCPA compliance policies and procedures to disclose rogue employee conduct to the enforcement agencies. Thus, an FCPA compliance defense can better facilitate DOJ prosecution of culpable individuals and increase the deterrent effect of FCPA enforcement actions.”

Are the enforcement agencies capable of viewing an FCPA compliance defense, not as a race to the bottom, but a race to the top? Are the enforcement agencies capable of viewing an FCPA compliance defense as helping them better achieve their FCPA policy objectives?

Let’s hope so, because the gap is problematic.

Might a compliance defense result in 1 or 2 fewer corporate enforcement actions per year?  Perhaps, but against this slight drop in “hard” enforcement would be an increase in “soft” enforcement of the FCPA (see here and here), and indeed because the gap would be narrowed there would be more “hard” enforcement of culpable individual actors.

See here and here for prior posts on the same topic.

A Comprehensive FCPA Resource

Wednesday, November 5th, 2014

The question was recently asked: ”will there ever be a classic treatise on the FCPA?”New Era

According to Webster’s, a treatise is a book, article, etc., that discusses a subject carefully and thoroughly.

With that definition in mind, I invite you to consider my new book “The Foreign Corrupt Practices Act in a New Era.”  Inside you will find:

  • A thorough telling of the story of the FCPA told largely through original voices of actual participants who shaped the pioneering law;
  • Foundational knowledge (such as DOJ and SEC policy and resolution vehicles and the realities of the global marketplace) that best enhance understanding and comprehension of specific FCPA topics;
  • A comprehensive analysis of the FCPA’s anti-bribery provisions and for each element, exception or affirmative defense discussion of all legal sources of authority (including all relevant substantive FCPA judicial decisions) as well as non-legal sources of information (including discussion of over 70 FCPA enforcement actions);
  • Discussion of other legal issues also relevant to FCPA enforcement;
  • A comprehensive analysis of the FCPA’s books and records and internal controls provisions including legal authority as well as non-legal sources of information;
  • Analysis of the typical origins of FCPA scrutiny and enforcement;
  • Discussion of FCPA settlement amounts, how they are calculated, and analysis of legal and policy issues relevant to settlement amounts;
  • Discussion of FCPA sentencing issues, how sentences are calculated, and an analysis of legal and policy issues relevant to sentencing decisions;
  • An extended discussion and analysis of an often overlooked topics, “FCPA Ripples,” and how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement;
  • An exploration of practical and provocative reasons for the general increase in FCPA enforcement during this new era including a discussion of FCPA Inc. and the business of bribery;
  • Identification and discussion of FCPA compliance best practices and benchmarking metrics; and
  • An in-depth discussion and analysis of FCPA reform designed to ensure that the FCPA is best achieving the original goals of the law and that FCPA enforcement is transparent and consistent with rule of law principles.

Whether the above topics highlighted and explored in “The FCPA in a New Era” make it a classic treatise, well, I invite you to come to your own conclusion.  At the very least, you will have to agree that the cover of the book is more inviting than a typical treatise.

While I am certainly not going to ascribe labels to my own work, I am pleased to share what others have said about “The FCPA In a New Era.”

Michael Mukasey, former U.S. Attorney General

“Professor Koehler has brought to this volume the clear-eyed perspective that has made his FCPA Professor website the most authoritative source for those seeking to understand and apply the FCPA. This is a uniquely useful book, laying out systematically the history and rationale of the FCPA, as well as its evolution into a structure governed as much by lore as by law. It will be valuable both to those who counsel international corporations, whether in connection with immediate crises or long-term strategies; and to those who contemplate what the FCPA has become, and how it can be improved.”

Professor Daniel Chow, The Ohio State University Moritz College of Law

“This is the single most comprehensive academic treatment of the Foreign Corrupt Practices available. Professor Koehler’s book will become the authoritative standard for the field. The book not only treats the history of the FCPA, but analyzes the statute’s elements in detail, discusses current cases, and makes proposals for reforms where the current law is deficient. The book is written in a clear, accessible style and I will use it often as a resource for my own scholarly work.”

 Richard Alderman, former Director of the UK Serious Fraud Office

“An excellent and thought-provoking book by a great expert. Backed up by rigorous analysis of cases, Professor Koehler constantly challenges those involved in anti-corruption work by asking the question ‘why?’ He puts forward many constructive and well-argued suggestions for improvements that need to be considered. I have learned a lot from Professor Koehler over the years and I can thoroughly recommend this book.”

Thomas Fox, FCPA Compliance and Ethics Blog and FCPA Practitioner

“The Foreign Corrupt Practices Act in a New Era” should become one of the standard texts for any FCPA compliance practitioner, law student studying the FCPA or anyone else interested in anti-bribery and anti-corruption. It should be on your FCPA library bookshelf.”

Barry Vitou, thebriberyact.com and Compliance Practitioner

“If you only read one book on the US FCPA, read this one. [...] Mike Koehler’s new book is probably the best book we’ve read about the FCPA. [...] For those wanting a pair of ‘FCPA goggles’ no book is, in our opinion, better.”

To order a hard copy of the book, see here and here; to order an e-copy of the book, see here and here.

For media coverage of the book including Q&A’s, see here from Corporate Counsel, here from Global Investigations Review, and here from Corporate Counsel Weekly.

*****

Looking for even more information and analysis of the FCPA and FCPA enforcement?

I invite you to all also consider the following year in review articles.  Granted the below articles are not found between two covers, but you will find approximately 500 pages of FCPA statistics, trends and analysis over time.

For 2013, see here.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

A Q&A With CREATe.org

Thursday, October 30th, 2014

For today’s post, I send you over to the Center for Responsible Enterprise And Trade.

In a two-part Q&A, I respond to questions about a Foreign Corrupt Practices Act compliance defense and related issues, enforcement of FCPA-like laws in other countries, and the future of FCPA enforcement.

See here for Part I, here for Part II.

Billy Jacobson’s Various Vantage Points

Wednesday, October 8th, 2014

Billy Jacobson has experience with the Foreign Corrupt Practices Act from a number of vantage points few can claim.  He has been an Assistant Chief for FCPA enforcement in the DOJ fraud section.  He has been a Senior Vice President, Co-General Counsel and Chief Compliance Officer for Weatherford International Ltd., a large oil and natural gas services company that does business around the world.  Currently, he is a lawyer in private practice at Orrick and was previously a lawyer in private practice at other firms.

This Q&A explores Jacobson’s unique FCPA insight and experience.

Q: What specific vantage point of a DOJ FCPA enforcement attorney do in-house FCPA counsel and outside FCPA counsel fail to understand or appreciate?

One issue that often gets misunderstood is the notion of “trends” within FCPA enforcement.  While certain actions can be grouped together by those looking to categorize, each case is handled by a Fraud Section prosecutor on its own merits as opposed to being thought of as part of a larger trend.  For sure, there have been, for example, “industry sweeps” in the pharma and medical device industries and there have been many prosecutions of oil and gas companies, but I don’t describe those enforcement actions as trends.

Rather, the prosecutors go where the evidence leads them: if that is to conduct in China, so be it; if it’s to several medical device companies because one has been caught and there is reason to believe others are going about their business in the same fashion, so be it.  And, of course, with oil and gas companies operating in the world’s most important industry and in the world’s most corrupt countries, one will unfortunately find corruption. The term “trend” to describe these enforcement actions is a misnomer, in my opinion.

Q:  What specific vantage point of an in-house FCPA counsel do DOJ FCPA enforcement attorneys and outside FCPA counsel fail to understand or appreciate?

One thing that attorneys other than in-house counsel fail to appreciate sometimes is the level of effort required to create and then maintain a truly robust anti-corruption compliance program.  When I was about to begin at Weatherford, someone told me that my entire perspective would change once I was in-house.  I thought was that was overstated as I tried to be empathetic to the demands on in-house counsel in my other roles over the years.  But, I distinctly recall looking up from my desk at the end of my first week in-house and thinking, “my entire perspective has changed.”  It was true.  Outside counsel gives recommendations about a company’s compliance program and the government (often) criticizes a program, but it’s the in-house counsel that actually has to make the program a reality and maintain the program.  This requires daily coordination with other functions within the company and political negotiations with senior management and the Board in a way that is not always appreciated by those outside.

Q:  What specific vantage point of an outside FCPA counsel do DOJ FCPA enforcement attorneys and in-house FCPA counsel fail to understand or appreciate?

In-house counsel have to work hard to maintain a “world view” and not become so enmeshed in just their company that they lose sight of what’s going on around them.  This can be extremely challenging given the various things going on within a company at any one time.  It is helpful for in-house counsel to attend events sponsored by associations of other in-house counsel, compliance conferences, government presentations, etc., so as to maintain this broader perspective.   FCPA enforcement attorneys, for their part, should appreciate that in-house counsel are dealing with many, varied legal and compliance issues in a given day and it’s not all about the FCPA 24/7.  Outside counsel may have a good perspective in this regard given their role in assisting companies with a variety of different legal and compliance challenges and the many different areas of expertise brought to bear by any one law firm.

Q: Which job category of the three is the most difficult and why?

Without question, in-house counsel has the hardest job of the three.  First, if it ever was true that lawyers went in-house to relax and work 9 to 5, it certainly is not true anymore.  Given the myriad risks faced by companies and the every-expanding reach of regulators, in-house counsel is constantly juggling many responsibilities.  And, increasingly, they are doing so with fewer and fewer resources at their disposal.  “Do less with more,” has become a cliché only because it is a mantra being constantly repeated in every C-suite in the country.

Q:  Which job category of the three can best advance the objectives of the FCPA?

I’m really showing a certain bias here, but I think it is in-house counsel that can best advance the objectives of the FCPA.  It’s with in-house counsel and corporations generally where the rubber meets the road.  DOJ can bring all the cases it wants and outside counsel will do their best to defend those cases, but unless corporations live and breathe their anti-corruption program, corruption will remain a problem.  Incidentally, I think we’ve seen tremendous strides in that direction in the past decade, at least in the US.

Q: In April 2012, while an in-house attorney, you wrote an article (previously highlighted in this post) in which you stated:  ”Current FCPA enforcement policy punishes rather than rewards companies that do all they can reasonably be expected to do to deter corruption and to cooperate with the government.”  More than two years has passed.  Comment on your previous comment – have things gotten better or worse?

I don’t think things have changed in that regard.  I still believe the sort of reform I described in my Bloomberg piece is the best approach to FCPA enforcement reform.  It wouldn’t require any legislation or formal rule making and would result in tangible benefits for the government.  DOJ’s main priority should be prosecuting individuals involved in corruption and my proposal furthers that end while also stressing the importance of a robust corporate compliance program.