Archive for the ‘FCPA Reform’ Category

FIFA – A Beautiful Cesspit Of Corruption?

Wednesday, October 28th, 2015

FIFAToday’s post is from Professor Bruce Bean (Michigan State University College of Law). Professor Bean, who had a diverse practice career including at various law firms and in-house counsel positions, will be leading a panel discussion about the FIFA bribery scandal at International Law Weekend at Fordham University in New York City on November 7th.  (See here for more information).


FIFA, the organization controlling the world’s most popular sport, “football,” (“soccer” to those in North America), is formally known as Fédération Internationale de Football Association. FIFA is very big business. 209 national and other football associations from Andorra to Russia and the Faroe Islands to Australia make up FIFA membership. See here.  In the past three decades television and other broadcast rights, plus corporate sponsorships by international brands like Nike, Coca Cola and Visa have vastly increased the resources now involved in global football and, in particular, its quadrennial world championship, the FIFA World Cup. Between 2007 to 2014 FIFA had $10 billion in revenues and, as a Swiss registered NGO, it paid no taxes on its $969 million in profits.

Perhaps the greatest player of all time, Brazil’s legendary Pelé, published My Life and the Beautiful Game in 1977. The phrase the “beautiful game” is still synonymous with football.  In 2014, however, a whistleblower leaked “hundreds of millions” of FIFA documents to journalists at the London Sunday Times. Early in 2015 Heidi Blake and Jonathan Calvert published The Ugly Game: The Corruption of FIFA and the Qatari Plot to Buy the World Cup, describing a decidedly not very beautiful game.

In fact, FIFA has a decades-long, undistinguished, undisturbed history of involvement in scandals, bribery and corruption. In 2009, the Financial Action Task Force, the international anti-money laundering organization, released a report describing FIFA’s role in money-laundering, game-fixing, illegal gambling, and more. See here. Despite the great popularity of football in Europe and the rest of the world, and unending reports of FIFA corruption, no significant action had ever been taken against FIFA and its allegedly corrupt officials by a nation where football reigns supreme.  In the United States, international football is a minor sport, although there is a growing number who participate.  Nevertheless, on May 20, 2015 the United States Department of Justice an indictment in the U.S. District Court for the Eastern District of New York.  See here.  A Brooklyn Grand Jury returned the Indictment against nine current and former FIFA officials and five businessmen involved with FIFA. The release of the Indictment was coordinated with simultaneous raids and arrests by U.S. and Swiss officials at FIFA facilities in Miami and FIFA headquarters in Zurich. In addition to 14 defendants specifically charged, the Indictment refers to 25 unnamed co-conspirators.

The Indictment details $150 million in bribes paid on behalf of privately-held sports marketing companies to secure broadcast and marketing rights from FIFA for its various regional competitions and for the FIFA World Cup.  The charges filed include racketeering, conspiracy, wire fraud, money laundering, obstruction of justice, tax evasion, and, in one case, the unlawful procurement of naturalization.

Shortly after the US Department of Justice intruded into the world’s most popular sport by announcing the Indictment, Russia’s President Putin declared “This is another blatant attempt to extend [U.S.] jurisdiction to other states.” See here.  Offering a decidedly differing view, the Economist commented on the fact that it was the United States, where football is not that popular, that had finally taken steps regarding FIFA.  “America has a long history of being tougher on white collar crime and corruption than other countries….   Most of Europe is happy [with the U.S. bringing this action], believing that FIFA has long been a cesspit of corruption in desperate need of fresh faces and reform.”   See here.

Strangely, notwithstanding the fact that the U.S. has both the FCPA and the best record of prosecuting international bribery, there are no FCPA allegations in the entire 161 pages of the Indictment.  Why does this year’s highest profile bribery and corruption case not include a single allegation of an FCPA violation?  See this prior FCPA Professor post. FCPA charges were not eliminated because the Department of Justice suddenly decided to abandon its (over)broad view of the jurisdictional nexus required to apply U.S. law to foreigners.  See here.

Rather, there are no FCPA allegations because the FIFA officials allegedly involved with the bribes the Indictment describes are not “foreign officials” as described in the FCPA.  The FCPA defines the “term “foreign official” [as] any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization….”  The FCPA further provides that “’public international organization’ means any … international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register.”   See here.

The current list of public international organizations includes 80 entities, ranging from the United Nations to the International Fertilizer Development Institute and the Pacific Salmon Commission.  Adding FIFA by Executive Order seems logical and straight-forward.  While FIFA is a private organization, it is responsible to no one and exercises extraordinary power over sovereign nations.  For instance, in October 2015 FIFA banned the Kuwaiti national football team from international play because of a dispute over a Kuwaiti law. See here.  In connection with the FIFA World Cup held in Brazil in 2014, FIFA insisted that Brazil exempt all twelve Brazilian World Cup venues from a 2003 national law prohibiting the sale of alcohol at football matches.  As the FIFA General Secretary announced on a trip to Brazil prior to the commencement of World Cup activities,  ”Alcoholic drinks are part of the FIFA World Cup, so we’re going to have them. Excuse me if I sound a bit arrogant but that’s something we won’t negotiate.” See here .

Given the supreme importance of the sport of football in most countries, the long history of scandalous allegations about FIFA and the fact that FIFA is entirely self-governing, responsible to absolutely no one outside itself, there is a strong argument that FIFA should be added to our list of international public organization.

This is not necessarily an easy task, however.

When concerns about corruption possibly related to the Salt Lake City Olympics arose in the late 1990s, three bills were introduced in Congress seeking to bring the International Olympic Committee within the FCPA.  As the FCPA Professor has previously noted, “None of these bills made it out of committee.”  See here.

Given that Congress has been unable to accomplish anything recently, let’s hope the President will act.  He (or perhaps she in the near future) has the authority under 22 USC 288 to designate “public international organizations.”  Adding FIFA to this list will finally bring the ultimate power over international football within the scope of the FCPA.  

Friday Roundup

Friday, September 25th, 2015

Roundup2More on the Yates Memo, scrutiny alerts, survey says, and FCPA reform.  It’s all here in the Friday roundup.

More on the Yates Memo

Once again a private company has marketed a public official to drive attendance to its paid event.

Earlier this week, Assistant Attorney General Leslie Caldwell delivered this speech reiterating various aspects of the “Yates Memo.” Caldwell stated:

“[O]ur focus on individuals stems from the reality that corporations act through human beings, and that justice usually requires identifying those responsible for criminal conduct and holding them personally accountable.  Prosecuting the corporate entity, and imposing a fine and other impersonal conditions, simply is not enough – in most instances – to fully punish and, more importantly, deter corporate misconduct.”

Regarding the cooperation credit aspects of the “Yates Memo,” Caldwell stated:

“We recognize, however, that a company cannot provide what it does not have.  And we understand that some investigations – despite their thoroughness – will not bear fruit.  Where a company truly is unable to identify the culpable individuals following an appropriately tailored and thorough investigation, but provides the government with the relevant facts and otherwise assists us in obtaining evidence, the company will be eligible for cooperation credit.  We will make efforts to credit, not penalize, diligent investigations.  On the flip side, we will carefully scrutinize and test a company’s claims that it could not identify or uncover evidence regarding the culpable individuals, particularly if we are able to do so ourselves.

As I have said before, it is not our intent to outsource our investigation of corporate wrongdoing to companies and their outside advisors.  As in the past, we will not sit idle, waiting for a company to conduct or complete its investigation.  Regardless of a company’s cooperation, federal agents and prosecutors will conduct thorough investigations.  If, through this process, we are able to identify the culpable individuals when the company itself did not do so, as well as evidence that would support the charging and prosecution of those individuals, we will assess whether that evidence truly was unavailable to the company.

We, of course, recognize that we sometimes can obtain evidence that a company cannot.  We often can obtain from third parties evidence that is not available to the company.  Also, we know that a company may not be able to interview former employees who refuse to cooperate in a company investigation.  Those same employees may provide information to us, whether voluntarily or through compulsory process.  Likewise, there are times when, for strategic reasons, we may ask that the company stand down from pursing a particular line of inquiry.  If so, the company will not be penalized for failing to identify facts subsequently discovered by government investigators.”

Caldwell also answered questions after the speech.  It appears that this Q&A was recorded and the same private company put the Q&A behind its paywall.

It’s just plain wrong that a private company is selling the words of public officials. It ought to stop.

Scrutiny Alerts


As highlighted here, in 2010 as part of the CustomsGate enforcement actions, Transocean resolved a $20.7 million FCPA enforcement action (involving a DOJ and SEC component) concerning alleged conduct in Nigeria.

Bloomberg reports:

“Transocean Ltd., the world’s largest offshore rig contractor, is being linked for the first time to the corruption probe of Petroleo Brasileiro SA, the state-owned energy giant at the center of Brazil’s biggest corporate scandal. A former executive at Brazil’s state-run oil company has testified to receiving what he says were payments made by someone claiming to be a Transocean agent in exchange for a rig-operation contract from Petrobras.”


This CBCNews report goes in-depth regarding new allegations in a civil suit concerning SNC-Lavalin. According to the article:

“Top executives for years endorsed bribes and lavish gifts — including a yacht and even prostitutes — to win contracts from Libya’s Gadhafi regime.”

To cement ties, [the complaint] alleges specific SNC executives signed off on or approved numerous favours to help Gadhafi, including:

  • providing SNC staff and hiring university professor as tutors;
  • helping to obtain a Canadian visa;
  • considering appointing Saadi Gadhafi an SNC vice-president;
  • officially sponsoring his Italian Serie A professional soccer team.

One of the largest expenses included the purchase of a Palmer Johnson yacht worth $38 million for Saadi Gadhafi ”organized and validated by CFO Laramée and approved by the then CEO Lamarre.” Saadi Gadhafi visited Canada in 2008, and SNC Lavalin picked up the bill — more than $2 million.”

Survey Says

KPMG recently conducted a worldwide online survey of corporate risk leaders to find out the strengths and weaknesses of their companies’ programs to combat bribery and corruption.  According to the survey responses:

“There is a sharp increase in the proportion of respondents who say they are highly challenged by the issue of Anti-Bribery Compliance (ABC) compared with a survey KPMG conducted four years earlier.

As companies continue to globalize, management of third parties poses the greatest challenge in executing ABC programs.

Despite the difficulty of monitoring their business dealings with third parties, more than one third of the respondents do not formally identify high-risk third parties. More than half of those respondents with right to-audit clauses over third parties have not exercised the right.

ABC considerations are accorded too low a priority by companies preparing to acquire, or merge with, other corporations across borders.

Respondents complain they lack the resources to manage ABC risk.

A top-down risk assessment would help companies set priorities, but executives admit that an ABC risk assessment is one of their companies’ top challenges.

Data analytics is an increasingly important and cost-effective tool to assess ABC controls. Yet only a quarter of respondents use data analysis to identify violations and, of those that do so, less than half continuously monitor data to spot potential violations.”

FCPA Reform

The U.S. Chamber of Commerce recently released this document outlining its policy priorities. Included in the lengthy document was the following:  ”work to reform the Foreign Corrupt Practices Act by supporting changes to enforcement practices.”


A good weekend to all.


Chamber Of Commerce Recommends Changes To SEC Enforcement Practices

Thursday, July 16th, 2015

ChamberYesterday, the U.S. Chamber of Commerce Center for Capital Markets Competitiveness released this report titled “Examining U.S. Securities and Exchange Commission Enforcement: Recommendations on Current Processes and Practices.”

Based on a yearlong effort that included surveys and interviews of a diverse group of in-house counsels, securities lawyers, and former SEC staff, the report “looks at the enforcement practices of the Securities and Exchange Commission (SEC) and provides recommendations on how to improve the process for all participants.” (See here for the Chamber press release).

Other than a few survey responses, there is nothing in the report specific to the Foreign Corrupt Practices Act.  However, there is much in the report that is relevant to FCPA enforcement.

For instance, as highlighted in this 2014 FCPA year in review article, of the seven SEC corporate FCPA enforcement actions in 2014, six (86%) were resolved through SEC administrative orders.

Regarding the problematic surge in SEC administrative actions, the Chamber report states that “the fundamental problem in the use of an administrative forum to break new ground is the inherent risk of an unchecked expansion of existing legal policy that is not adequately overseen by a truly impartial third-party judicial forum.”

Against this backdrop, the report makes a number of recommendations relevant to SEC administrative actions that, at their core, propose “that the Commission adopt a policy to refrain from using its administrative forum as an avenue to adopt new interpretations of the federal securities laws or to apply existing interpretations to new or unique factual circumstances.”

Another recommendation in the report that caught my eye was the following: “The Commission should take a leadership role among regulatory bodies at the federal, state, and international levels to reduce or eliminate duplicative and overlapping investigations and duplicative enforcement actions for the same conduct.”

As stated in the report:

“When companies respond to allegations of improper activities, management’s focus is necessarily diverted from the day-to-day running of its business. That is an ineluctable attribute of doing business in a regulated society. But, there should be some understanding on government’s part that, in the current era, firms are frequently subject to multiple domestic and foreign regulators. Responding to multiple regulators with respect to the same conduct or transaction is not, and should not be allowed to become, a regular attribute of doing business. It is counterproductive—and damaging to shareholders—to subject firms and individuals serially to multiple SEC inquiries or multiple regulators and self regulators for the same alleged misconduct.”

A good place to eliminate duplicative regulation is to have the SEC stop enforcing the FCPA’s anti-bribery provisions.

As I’ve previously stated, should this reform occur, it could be called “granting the wish” because as highlighted in the article “The Story of the Foreign Corrupt Practices Act,” the SEC never wanted any role in enforcing the FCPA’s anti-bribery provisions. However, congressional leaders at the time of the FCPA’s enactment had a high level of distrust with the Justice Department and insisted, against the SEC’s objections both when the FCPA was enacted in 1977 and when it was first amended in 1988, that it play a role in enforcing the FCPA’s anti-bribery provisions.

For additional reading on divesting the SEC of its authority to enforce the FCPA’s anti-bribery provisions, see here from former DOJ FCPA enforcement attorney Philip Urofsky and here from Professor Barbara Black.



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

Thursday, April 16th, 2015

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

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

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

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

The introduction states:

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

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

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

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

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

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

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

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

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

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

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

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

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

Fighting Foreign Corrupt Practices – How Current DOJ and SEC Revenue Generation is Unproductive

Thursday, March 12th, 2015

meaninglessToday’s post is from Peter Manda. Manda is a former international in-house counsel and has worked on a variety of international in-house investigations and FCPA matters.


In the early days of FCPA enforcement, courts and the DOJ alike made every effort to ascertain the source of the violation and to deal with that violation on the local level.  Prosecutions were limited to local employees; and fines and penalties on issuers were limited in scope.

Over time, as issuers were found to have intentionally and knowingly violated the FCPA, disgorgement of profits and high fines and penalties became more common. Nevertheless, collected fines and penalties (while volatile) increased (at most) at an average rate of $100M a year. This all changed in 2012 with the adoption by the SEC and DOJ of the FCPA Guidelines which purport to outline the compliance steps that must be undertaken in order to prevent an FCPA violation or to reduce or mitigate potential fines and penalties through voluntary disclosure and cooperation.

In describing liability for acts conducted in or by subsidiaries, the Guide articulates a strict liability respondeat superior standard that compels issuers to disgorge any revenue that is arguably derived from an alleged violation. The results have sent shock waves through the international business community. Fines and penalties collected have increased at a clip pace of $500M a year. Issuers now face the difficult choice of voluntarily reporting and potentially paying impressively high fines or hedging a bet that the SEC or DOJ won’t find the violation for a while and then paying a lesser fine by cooperating in the investigation. Worse, it is pretty clear from recent official statements that the SEC and DOJ assume issuers are companies that go out into the world with the intent of breaking all the rules, paying bribes, and being corrupt.

Yet, a review of recent FCPA enforcement actions does not show how bad US issuers are. Rather, they often point to local employees in far-distant countries committing FCPA violations — violations that are often only apparent in hindsight after the controls implemented by the issuer detect the wrong-doing. In most cases, those employees are individuals who operate culturally under different assumptions and who don’t seem to have received the memo that US companies don’t tolerate bribery and corrupt practices. This is especially the case where an issuer acquires a foreign company and then finds that employees in the acquired company had been engaging in corrupt practices.

The outcry from issuers and from those who think about the FCPA and its scope is justified. In effect the government has converted what should be an anti-corruption measure into a revenue generating measure. By having widened the standards to allow prosecutors to coerce settlements that disgorge from the consolidated global earnings of issuers, the DOJ and SEC have opened the revenue stream pipeline and the money is flowing at a clip pace of $500M a year. Naturally there is pushback from this overreach, pushback that has included Congressional hearings. The negative result of this pushback could be a watering down of the effort to fight corruption abroad. Not only would that be unfortunate, it would violate OECD objectives and commitments.

In an article I wrote – recently published by the International In-House Counsel Journal - I suggest that the DOJ and SEC should adopt an intermediate standard that allows for limitation of liability (including fines and penalties) to the foreign subsidiary (that is, no disgorgement of consolidated global earnings) where (a) the issuer parent voluntarily discloses immediately upon the discovery of a violation, (b) the issuer parent’s compliance controls are effective and were the reason for the discovery, and (c) the violations were engaged in by employees or agents who knew of the issuer’s commitment to FCPA compliance but chose to ignore them regardless; or (d) where an issuer acquires a foreign subsidiary and finds a violation after the fact despite due diligence conducted according to generally accepted auditing principles.

I believe the result of adopting an intermediate standard would encourage more cooperation between the government and issuers. An intermediate standard would make issuers allies with the DOJ and SEC in the fight against corruption — rather than adversaries fighting a calculus of revenue generation and earnings reduction. Equally important, by focusing on the subsidiary rather than the parent issuer, the DOJ and SEC could engage the issuer to interact with local authorities to prosecute the violators and to implement effective informational campaigns that could have a wider, more permanent, effect in the fight against corruption. Disgorgement of consolidated earnings punishes the parent issuer, it does nothing to help reduce foreign corrupt practices. It’s time the SEC and DOJ turned their attention from generating revenue from issuers to making them allies in the fight against foreign corrupt practices.