Archive for the ‘FCPA Reform’ Category

Leading FCPA Practitioner Calls For An FCPA Compliance Defense

Tuesday, August 5th, 2014

Joseph Warin (Gibson Dunn) is a leading FCPA practitioner.  With the DOJ’s blessing, Warin has also served as a corporate monitor in connection with several Foreign Corrupt Practices Act enforcement actions.

In short, Warin knows the FCPA and FCPA compliance.

In this recent article in Corporate Disputes, Warin and his co-authors renew the call for an FCPA compliance defense.  In pertinent part, the article states:

“[This new era of FCPA enforcement] has wrought drastic change on the compliance landscape for transnational corporations, which devote significant resources to promoting FCPA compliance among their thousands of employees and contractors operating in international fora.  In particular, internal compliance, reporting and mitigation systems have grown significantly more robust in past years as companies seek to prevent corrupt practices and – when issues of noncompliance arise – to ferret them out and terminate them.  Even so, the lack of binding guidelines for framing compliance programs and the lack of assurances that robust programs will reliably mitigate the DOJ’s decisions to bring criminal charges leaves corporations in a state of uncertainty:  despite pouring millions into meaningful compliance regimes and sincere efforts to comply with the law, corporations are no more certain than they were 30 years ago that the actions of one, or a few, rogue employees will not bring debilitating criminal liability upon an entire entity.”

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[The enforcement agencies] continued resistance to a compliance defense in light of a completely changed FCPA playing field is short-sighted.  The DOJ and SEC have strong interests in promoting self-policing within companies and turning them into corporate partners.  Where corporate compliance programs are functioning as they should – i.e. internally identifying employees who are operating outside of the bounds of company policy and extinguishing and mitigating illegal practices – companies should be rewarded with indemnification from the actions of those outsider employees, not punished with the threat of criminal and/or civil charges for actions that they took substantial steps to prevent.”

[...]

“It is time to reconsider the need for either an administrative or a statutory compliance defense.  The government’s focus on stemming corporate corruption has also raised the stakes for transnational corporations with ties to the United States.  The costs of internal investigations and compliance efforts are higher than ever before, and yet – as the DOJ and SEC acknowledge in their 2012 FCPA Resource Guide – ‘no compliance program can ever prevent all criminal activity by a corporation’s employees.’  Rather than continue to toe the anti-compliance defense line of a decade ago, the DOJ and SEC should acknowledge this changed landscape and give ethical companies that implement strong compliance programs assurance that they will not be punished for those occasional, inevitable acts by rogue employees who violate otherwise effective corporate policies.”

Warin’s call for an FCPA compliance defense mirror my own – see here for my 2011 article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” (the most extensive article written on the subject).

Numerous posts on FCPA Professor have since returned to the issue of an FCPA compliance defense – see here, here, and here for the most recent posts.

An FCPA compliance defense is a not panacea, but it is the best positive incentive to achieve greater FCPA compliance. The goal of an FCPA enforcement program ought to be constructing an enforcement regime that best promotes compliance, reduces improper conduct, and best advances the FCPA’s objective of reducing bribery.  However, the DOJ and SEC have a “wooden attitude” when it comes to a compliance defense and are seemingly incapable of grasping the benefits of a compliance defense to their enforcement programs.  Can the enforcement agencies soften this “wooden attitude”?  Are the enforcement agencies capable of diverting attention from enforcement statistics, settlement amounts, and political statements filled with empty rhetoric?

The FCPA has witnessed courageous moments before and a courageous moment is once again presented.

Warin’s call for an FCPA compliance defense is an important contribution to the current dialogue.

“The FCPA Guide Presents A Classic Case Of Treating A Symptom While Ignoring The Disease”

Wednesday, April 9th, 2014

This recent post highlighted a Foreign Corrupt Practices Act article by former Deputy DOJ Assistant General Larry Thompson in a recent issue of the American Criminal Law Review (“ACLR”).  Thompson’s article was part of a symposium edition of the ACLR (Volume 51, Number 1, Winter 2014) titled “Reducing Corporate Criminality:  Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform.”

In addition to Thompson’s article, there was another FCPA article in the ACLR edition that should likewise make its way onto your reading stack.

Barry Pollack (Miller & Chevalier) was the lead author of an article focusing on DOJ guidance surrounding the FCPA, including the 2012 FCPA Guidance.  (See “Lone Wolf Or The Start Of A New Pack:  Should The FCPA Guidance Represent A New Paradigm In Evaluating Corporate Criminal Liability Risks?”).

Commenting on DOJ settlement documents (NPAs/DPAs, etc.) serving as “de facto agency ‘jurisprudence’ guiding corporate conduct”, Pollack observes, consistent with my own observations in “The Facade of FCPA Enforcement” (2010), as follows.

“While publicly available resources regarding settlement dispositions through plea agreements, DPAs, and NPAs are helpful in providing corporations with some insight into the DOJ’s enforcement priorities and practices, there are some very important differences and limitations which distinguish these settlement documents from case law. Most importantly, these settlements represent the results of privately-negotiated agreements between the DOJ and corporate defendants, which are subject to little or no judicial scrutiny. While plea agreements and DPAs are filed with the court and are technically subject to a judge’s approval, the DOJ and defendants are not generally required to present or defend the factual assertions or legal theories contained in such agreements. Furthermore, NPAs are subject to no judicial scrutiny because they are not filed with the court. Accordingly, these documents provide fertile ground for the prosecution to advance expansive enforcement theories based on bare-boned and undeveloped factual assertions without having to meet the burden of proof beyond a reasonable doubt, given that the promise of avoiding the costly and risky endeavor of litigation through settlement provides every incentive to corporate defendants to accept the prosecution’s position so long as the matter is resolved quickly and for the lowest fine possible.

As a result, the agreements do not necessarily contain all of the relevant facts that went into determining the outcomes. They may contain broader enforcement theories than what would result from fully litigated cases, they do not have precedential value and thus do not bind the DOJ to act consistently, and they may not represent cases where criminal FCPA violations would have been found had the cases actually been litigated.”

Regarding the 2012 FCPA Guidance, Pollack writes:

“Overall, while the Guide is comprehensive and represents an unprecedented undertaking, it marks no sharp departure from current practice. Rather, the Guide clarifies the statute and how it is applied by the enforcement agencies, expressly confirms pre-existing enforcement practices and policies apparent in settlement documents to practitioners in the field, and consolidates current agency thinking into a single, comprehensive reference source.”

Spot-on and consistent with my own observations in “Grading the Foreign Corrupt Practices Act Guidance.”

Further, Pollack states that the “FCPA Guide presents a class case of treating a symptom while ignoring the disease.”

Among the “facets” of the disease is that “the collateral consequences for contesting and litigating corporate criminal liability are far too great for a corporation of any size.”

The article then states:

“Unless and until at least one of these aspects of the disease is eradicated, the symptoms of the disease will continue to exist. The symptoms are over- and under-compliance based on a lack of clear understanding regarding what the law forbids, and the acceptance by risk-adverse corporations of criminal dispositions in cases that are eminently defensible.

In a world where the disease exists, the FCPA Guide makes perfect sense. It provides an authoritative source of information regarding current practice. Before the Guide was issued, practitioners could only cite to their own experience and the limited information available in negotiated settlements.”

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“The FCPA Guide is not as novel as it might appear.”

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“The authors hope that at some point, Congress will turn its attention to fighting the disease.”

I’ll second that, but add the DOJ and SEC to the mix (i.e. hopefully the enforcement agencies will turn its attention to better fighting the disease by reconsidering certain enforcement agency policies and procedures).  (See here among other posts for more).

Assignment: Read Former Deputy Attorney General Larry Thompson’s New Article

Thursday, March 27th, 2014

Larry Thompson has experience with the Foreign Corrupt Practices Act from a number of vantage points few can claim:  DOJ Deputy Attorney General, a lawyer in private practice, and a general counsel of a major multinational company.

For this reason, you should read Thompson’s new article -”In-Sourcing Corporate Responsibility for Enforcement of the Foreign Corrupt Practices Act,” 51 American Criminal Law Review 199 (Winter 2014).

In the article, you will find an informed and candid critique of many current aspects of FCPA enforcement.

Thompson laments the uncertainty of the FCPA and states:

“The uncertainty of precisely what the FCPA forbids and allows harbors frightening potential for prosecutorial abuse and over-criminalization – topics that have preoccupied me, both as a private attorney and as Deputy Attorney General of the United States, for many years.  This uncertainty in the FCPA is particularly troubling when one is dealing not just with individuals, who have control over all their own actions, but also with large corporations – artificial ‘persons’ consisting of hundreds, or thousands, or even hundreds of thousands, of individuals for whom the corporation can be held accountable.”

Referencing FCPA congressional hearings in 2010 and 2011, Thompson observes:

“DOJ was unperturbed by the uncertainty surrounding FCPA enforcement.  Indeed, one could be forgiven for suspecting that at least some federal prosecutors favor that uncertainty.  But we must never forget that uncertainty in the law is the antitheses of the rule of law.  There is reason that the Latin word for ‘uncertainty’ is arbitrarius.  That some FCPA enforcement attorneys might relish and exploit the arbitrary enforcement of a federal criminal statute is not merely unseemly – it is illegitimate.”

In short, you can add Thompson’s observation to my own (see here) in countering commentator suggestions that the FCPA is anything other than clear.

On the topic of the 2012 FCPA Guidance, Thompson cites my article “Grading the Foreign Corrupt Practices Act Guidance” and states:

“Its 130 pages appear impressive at first glance, but about two-thirds of that is routine recitation of background information:  the introduction and table of contents consume thirty-five pages, the reprinting of the statute itself accounts for another thirty pages, and a summary of previously issued (and by definition inadequate) guidance and discussion of other statutes fleshes out yet another twenty pages.”

On the general topic of guidance and commenting on NPAs and DPAs used to resolve FCPA enforcement actions, Thompson cites my Congressional testimony and observes:

 ”The FCPA guidance … offered by the Justice Department [in NPAs and DPAs] is less helpful because it may include coerced settlements that record instances where even DOJ itself was not sure that a violation of the FCPA actually occurred.”

Thompson’s observation in this regard is similar to former Attorney General Alberto Gonzales’s observation as highlighted in this previous post.

The majority of Thompson’s article renews calls for an FCPA compliance defense.

I first highlighted Thompson’s call (along with several other former higher ranking DOJ officials) for a compliance defense in my article ”Revisiting a Foreign Corrupt Practices Act Compliance Defense” and in this previous post I further highlighted Thompson’s call for compliance defense at an FCPA symposium.

In short, a hard-to-ignore reality of the current compliance defense debate – against the backdrop of DOJ’s strong institutional opposition to compliance defense concepts – is the chorus of former DOJ officials who support compliance defense concepts.

In his new article, Thompson writes:

“[W]e must create an incentive structure that drives corporations to establish internal compliance programs and to root out foreign corruption within their own organizations.  Only those businesses themselves have the resources to conduct the global investigations that the FCPA requires.  To accomplish this end, I believe that we need to do two things:  first, we must give businesses clear and predictable guidance on what sort of compliance programs they must establish; second, we must give them powerful incentives to engage in self-investigation and self-reporting of the bribery they uncover or suspect.  The incentives I suggest are two:  (1) businesses must be assured that a strong compliance program and prompt and full self-disclosure will ensure that the company itself will not be subject to criminal prosecution under the FCPA; and (2) such self-disclosure will also prevent the company from being debarred from doing business with the federal government or being denied government permits or licenses necessary for the company’s operations.”

Adopting a similar “baby carrot” / “real carrot” analogy I used in “Revisiting an FCPA Compliance Defense“, Thompson writes:

“I propose two carrots.  First, if a corporation establishes a comprehensive, fully funded, adequately staffed and trained FCPA compliance program, then the rogue employee who circumvents it and violates the FCPA – and is caught and turned over to authorities by his employer – should be deemed to be acting outside the realm of his corporate responsibilities and the self-reporting corporation should not be held criminally liable for his conduct.  This would be an instance of a blameless corporation. For this incentive to work, of course, the carrot must be large and appetizing – hence the absolute necessity for transparency and predictability in FCPA enforcement.  The second carrot is that a genuinely cooperative, self-reporting company with a proper compliance program must be assured that it will not be debarred from contracting with the United States government or receiving the government permits required to run its operations.”

In my “Revisiting an FCPA Compliance Defense” article and elsewhere (see prior posts here, here and here) I have articulated – like Thompson – reasons why the DOJ should be in support of – not opposed to – a compliance defense.  A compliance defense is not a race to the bottom – as government officials have suggested – it is a race to the top.  Like Thompson, I have argued that a compliance defense will better facilitate DOJ’s prosecution of culpable individuals and advance the objectives of the FCPA.

I agree with Thompson when he says that the DOJ and SEC have an “almost wooden attitude” when it comes to the FCPA. Reflecting on the enforcement agencies sense of confidence and the billions of dollars collected in enforcement actions, Thompson states:

“But this supposedly shining vision of FCPA enforcement prowess is a Potemkin village, because without corporations’ own internal policing and self-reporting, the FCPA can accomplish little.”

I sincerely hope that Thompson’s article can renew a substantive – not rhetorical – discussion of a compliance defense and how it can help advance the laudable purpose of the FCPA.  To learn more about my proposal, and how it differs slightly from Thompson’s, see here.

Can the DOJ and SEC soften its “wooden attitude”?  Is the DOJ and SEC capable of diverting attention from enforcement statistics, settlement amounts, and political statements filled with empty rhetoric?

As I wrote in my most recent post about a compliance defense, the FCPA has witnessed courageous moments before and a courageous moment is once again presented..

“The Shadow Lengthens”

Thursday, March 20th, 2014

[Late yesterday the DOJ announced this $88 million FCPA enforcement action (the 12th largest of all-time in terms of settlement amount) against Marubeni Corporation – the same company that resolved a $55 million DOJ FCPA enforcement action in 2012 (see here for the prior post) involving Bonny Island, Nigeria conduct.  Yesterday’s FCPA enforcement action against Marubeni involving the Tarahan power plant project in Indonesia is not a surprise.  In this April 2013 post regarding the FCPA enforcement action against current and former Alstom employees in connection with the same project, I sniffed out the details and accurately connected the dots to Marubeni.  A future post will go in-depth as to yesterday’s Marubeni enforcement action when original source documents become available]

I have long called for abolition of non-prosecution and deferred prosecution agreements in the FCPA context.  (See previous posts here, herehere, and here for instance).  In short, and as noted in the prior posts, use of NPAs and DPAs to resolve alleged corporate criminal liability in the FCPA context present two distinct, yet equally problematic public policy issues as well as other issues.  (See “The Facade of FCPA Enforcement“).

As noted in this previous post, in May 2012 the Center for Legal Policy Research at the Manhattan Institute released this dandy report titled “The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements.” Authored by James Copland, the report stated in pertinent part as follows:

“… [P]rosecutors’ virtually unchecked powers under DPAs and NPAs threaten our constitutional framework. To be sure, prosecutors are acting upon duly enacted laws, but federal criminal provisions are often vague or ambiguous, and the fact that prosecutors and large corporations alike feel obliged to reach agreement, rather than follow an orderly regulatory process and litigate disagreements in court, denies the judiciary an opportunity to clarify the boundaries of such laws. Instead, the laws come to mean what the prosecutors say they mean—and companies do what the prosecutors say they must. Federal prosecutors are thus assuming the role of judge (interpreting the law) and of legislature (setting broad policy choices about industry conduct), substantially eroding the separation of powers. That such discretion is often delegated to private contractors with sweeping powers—namely, corporate monitors—makes the denial of justice even graver.”

Recently, Copland and a co-authored followed up with this dandy report titled “The Shadow Lengthens:  The Continuing Threat of Regulation by Prosecution.”  In pertinent part, the Executive Summary states:

“The last ten years have seen the emergence of a new approach to business regulation and prosecution of wrongdoing in the United States. The U.S. Department of Justice now regularly enters into “deferred prosecution” or “non-prosecution” agreements (DPAs or NPAs) with large corporations, in which companies are paying billions of dollars in fines annually without trial. These agreements are presented as steps short of prosecution of corporations, a step that might drive firms into bankruptcy and disrupt their economic sectors. At the same time, a good case can be made that these agreements suffer from a lack of transparency. Questions naturally arise as to whether attorneys working for the federal government, with minimal to no judicial oversight, are best positioned to change significantly the business practices of individual companies and, indeed, entire industries.

Businesses prefer to enter into DPAs or NPAs rather than face trial, even when the costs of such arrangements are severe, because of the significant capital-market pressures stemming from criminal inquiries (including depressed stock prices and impaired credit) as well as the statutory and regulatory consequences flowing from indictment or conviction—for example, exclusion from government reimbursement or contracts, or the retraction of government licenses vital to a company’s operation. Prosecutors, in turn, prefer to avoid the risk and cost of trial as well as the potentially severe collateral consequences that indictment or conviction can impose on corporate stakeholders, including employees and creditors, as witnessed in the collapse of the large accounting firm Arthur Andersen following its 2002 federal indictment—which was ultimately set aside by the U.S. Supreme Court.

Thus, such arrangements have become commonplace, so much so that they might be characterized as a “shadow regulatory state” over business. The federal government has reached 278 DPAs and NPAs with businesses since 2004, with ten of the Fortune 100 companies operating under such agreements just since 2010. Although the federal government entered into only 17 DPAs and NPAs from 1993 through 2003, it entered into 66 in just the last two years, in which almost $12 billion in total fines and penalties were imposed. Companies in the finance and health-care sectors have been particularly likely to wind up under such agreements, with the finance sector accounting for 13 DPAs and NPAs and the health-care sector accounting for 8 of them in 2012–13. The reach of federal prosecutorial agreements has not stopped at America’s shores: the Department of Justice has asserted authority over hosts of foreign businesses—in some cases, for alleged conduct occurring completely outside the United States.

DPAs and NPAs are notable in that they impose terms on companies that go beyond the fines or incarceration normally associated with criminal punishment and because they go beyond requiring that the companies correct the specific practices alleged to be violations of the law. Instead, these agreements often call for major changes in firms’ internal processes of many types—from training to human resources—based on the apparent assumption that absent such changes, wrongdoing will be more likely to recur.

[...]

In many cases, the alleged predicate offenses underlying DPAs or NPAs involve ambiguous facts or strained or novel interpretations of law—interpretations that have remained untested in court, given companies’ pronounced pressure to settle. In addition, DPAs and NPAs regularly cede to prosecutors the sole discretion to determine whether companies are in breach of the agreement’s terms, without judicial oversight or the possibility of appeal.”

One of the NPAs highlighted in the recent report is the Ralph Lauren Corporation.  Citing to, among other sources, prior FCPA Professor posts, the report states:

“The Ralph Lauren [NPA] also highlights the broad scope of federal FCPA enforcement, in which the executive branch is arguably holding companies to account for activities exempted from Congress’s statute, with minimal prospects for judicial review.”

The report also rightly notes:

“Congress’s intent in enacting the FCPA was clearly to deter American companies from buying foreign influence on a large scale – but not to police all foreign bribes potentially paid by U.S. businesses.  Given the powerful incentives that businesses have to enter into DPAs and DPAs, however, federal prosecutors have broadly interpreted the FCPA’s scope – and limited its express exemption – effectively insulting it from judicial review.”

To learn more about Congressional intent in enacting the FCPA, see “The Story of the Foreign Corrupt Practices Act.”

FCPA Reform And The Olympics

Tuesday, February 11th, 2014

The DOJ may think that my “foreign official” declaration ”selectively reviews the [FCPA's] legislative history.”  However, the truth is the 152 page declaration is the most comprehensive document ever written on the FCPA’s legislative history relevant to “foreign official” issues.  So comprehensive in fact that it highlights Foreign Corrupt Practices Act reform efforts and the Olympics.

You may be asking in your best Gary Coleman voice “whatcha talkin bout.”

This is what I am talking about.

In April 1999, Representative Henry Waxman introduced H.R. 1370, Senator John McCain introduced S. 803, and Senator John Ashcroft introduced S. 797.  These bills sought to amend the FCPA by restricting American corporate sponsorship of the International Olympic Committee (“IOC”).

Specifically, H.R. 1370 sought to ”amend the FCPA to prevent persons doing business in interstate commerce from providing financial support to the International Olympic Committee until the International Olympic Committee adopts institutional reforms.”

Specifically, S. 803 sought “to make the International Olympic Committee subject to the FCPA” by amending the “foreign official” definition – specifically the “public international organization” prong to include the International Olympic Committee.

Specifically, S. 797 sought ”to apply the FCPA to the International Olympic Committee” by amending the term “‘foreign official’ [to] include[] any member of, employee of, or any person acting in an official capacity for or on behalf of, the International Olympic Committee.’”.

None of these bills made it out of committee.

You may be thinking, what about the “public international organization” prong of the FCPA’s “foreign official” definition which states that a “public international organization” is

an organization that is designated by Executive Order pursuant to section 1 of the International Organizations Immunities Act (22 U.S.C. § 288); or

any other 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

The list of “public international organizations” is here.  For more, see here.

And now back to the Games.