FCPA Reform « FCPA Professor

Archive for the ‘FCPA Reform’ Category

FCPA Reform Related Scholarship

Monday, January 21st, 2013

Three articles of interest regarding various aspects of FCPA reform to pass along.

Choosing Governance In The FCPA Reform Debate

Joseph Yockey (University of Iowa College of Law) recently published the above article in the Journal of Corporation Law.

The abstract is as follows.

“The recent rise in enforcement under the U.S. Foreign Corrupt Practices Act (FCPA) has led to a vigorous debate about the need for reform. Critics say the statute is overenforced and harms shareholders. Regulators disagree and argue in favor of the status quo. This Article examines both sides of the FCPA reform debate and finds them wanting on several levels. First, a variety of factors suggest that critics’ fears of overenforcement are often exaggerated. That said, proponents of existing enforcement efforts who believe that nothing needs to change are also mistaken. Instead of overenforcement, there is a risk that the FCPA is being underenforced. Instead of encouraging firms to develop anticipatory and sustainable compliance programs, current enforcement policy incentivizes a focus on static programs that are incapable of addressing the dynamic risk of corruption. Finally, the present regulatory model fails to adequately address how gaps in international anti-corruption enforcement pose unique compliance challenges on the domestic front.

This Article seeks win-win solutions to these problems by recommending a shift of focus toward regulatory strategies designed around principles of collaboration and experimentation that fall within the category of “new governance.” Through a governance-based approach to regulation, firms are expected to better institutionalize context-specific compliance tools developed in consultation with the state and other actors. This approach — when ongoing and initiated outside the context of a specific enforcement action — ought to produce more effective and efficient self-regulation and fewer instances of bribery. The public−private learning process envisioned by new governance should also enhance the United States’ efforts to promote international anti-corruption norms and help level the playing field for American firms.”

Yockey’s other recent FCPA scholarship includes: FCPA Settlement, Internal Strife, and the ‘Culture of Compliance’ (Wisconsin Law Review) and Solicitation, Extortion and the FCPA (Notre Dame Law Review). Yockey was previously an attorney at Sidley Austin LLP in Chicago.

The New Era of FCPA Enforcement: Moving Towards a New Era of Compliance

Thomas Gorman (Dorsey & Whitney) and William McGrath recently published the above article in Securities Regulation Law Journal.

The abstract is as follows.

“The DOJ and the SEC are aggressively enforcing the FCPA in what has come to be called the New Era of FCPA enforcement. Those efforts are reflected by expansive interpretations of the statute, the increasing use of industry sweeps, spiraling costs to settle corporate cases and a focus on individuals, coupled with demands for longer prison sentences. This has spawned increasing demands for amendments to the statutes. Congress has considered the question but not acted. Enforcement officials could spur compliance by amending their prosecution guidelines to include items such as a compliance defense but have not. Yet business organizations and their employees remain at risk. To avoid or at least mitigate liability, business organizations need to step-up and implement reasonable compliance systems and begin a new era of compliance.”

Gorman is a former SEC enforcement attorney and author of the site SEC Actions.

Dodd-Frank’s Whistleblower Provision Fails to Go Far Enough: Making the Case for a Qui Tam Provision in a Revised Foreign Corrupt Practices Act

Nathaniel Garrett, a student at the University of Cincinnati College of Law, recently published the above article in the University of Cincinnati Law Review.

The abstract is as follows.

“In the wake of the 2008 financial collapse, Congress enacted the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank). Included within Dodd–Frank is a whistleblower provision that some businesses believe has gone too far. While Dodd–Frank’s reach is substantial, the whistleblower provision actually fails to go far enough as applied to the Foreign Corrupt Practices Act (FCPA). There are numerous statutory roadblocks and administrative hindrances that will prevent Dodd–Frank’s whistleblower provision from assisting in the enforcement of the FCPA. The solution I argue in this Comment is for Congress to amend the FCPA to include a qui tam provision, modeled after that found in the False Claims Act.”

The Manhattan Institute Joins The FCPA Reform Conversation

Thursday, January 17th, 2013

Citing to certain of my prior scholarship (here and here) and other writings, and otherwise highlighting certain issues that have been frequently highlighted on this site for a long time, the Manhattan Institute for Policy Research has joined the FCPA reform conversation.

The issue brief (here) titled “The Foreign Corrupt Practices Act: Aggressive Enforcement and Lack of Judicial Review Create Uncertain Terrain for Businesses,” and authored by Paul Enzinna (a partner at Brown Rudnick), argues as follows. “There is a strong case for reforming the FCPA through legislation, in order to continue to uphold the statute’s historical commitment to maintain the integrity of American businesses’ dealings abroad while limiting the ability of federal enforcement agencies to police business conduct worldwide and gain broad, quasi-regulatory powers over global businesses absent judicial oversight.”

The issue brief then states as follows.

“Congress should take up the cause of FCPA reform, clarifying the statute’s reach in the areas in which DOJ and the SEC have aggressively sought its expansion:

Jurisdiction. Congress should clarify the reach of the FCPA’s “in furtherance of” jurisdiction. Specifically, Congress should decide whether to limit the FCPA’s application against foreign businesses bribing foreign officials. The Justice Department’s broad interpretation of the FCPA, predicated upon transactions denominated in dollars and those messages that may pass through U.S.-based e-mail servers, potentially affects U.S. diplomacy and finance and technology sector competitiveness.
Foreign official. Congress should specify the extent to which the FCPA applies to low-level employees of state-owned enterprises. The economic emergence of formerly Communist countries and of the still formally Communist China has led to a proliferation of state-owned enterprises with which American companies must do business in order to compete globally.
To obtain or retain business. Congress should clarify the “routine government actions” covered by the FCPA’s express exemption for “facilitating payments” not covered by its prohibition on payments to officials to “obtain” or “retain” business. DOJ’s broad interpretation of this element to include payments intended to obtain licenses or permits and other low-level bribes seems in conflict with the statute’s express preemption and has fueled the growth in FCPA enforcement actions.”

I agree with many of the issues raised in the brief such as:

“Although the ever-widening interpretations of the FCPA seem to go beyond a commonsense understanding of the statute and its purpose, these interpretations are not being subjected to adequate judicial review because the high costs associated with potential criminal conviction have generally led targeted corporations to resolve cases without trial through “deferred-prosecution agreements” (DPAs) or “non-prosecution agreements” (NPAs).”

“DOJ has made it difficult for businesses to parse the statutory term “foreign official” by issuing contradictory statements” (see here for the prior post).

“DOJ’s expansive readings of the FCPA, along with the lack of judicial review over the department’s interpretations, are problematic. Invoking the statute to prosecute payments intended to help obtain licenses or permits is clearly at odds with Congress’s express facilitating-payments exception.” (see here for my article detailing legislative history and judicial scrutiny concerning non-foreign government procurement payments).

“In its current guise, the FCPA has helped generate an essentially unaccountable DOJ bureaucracy …”.

However, my reaction to the latest reform proposals is the same as my general reaction to certain of the Chamber’s FCPA reform proposals (see here).

While I have argued for an FCPA compliance defense (see here for my scholarship “Revisiting an FCPA Compliance Defense”), many other aspects of FCPA reform – and calls to amend the statute – are more pleas for judicial scrutiny and application of black letter legal principles to FCPA enforcement.

The remedy for enforcement of a law that largely takes place in the absence of judicial scrutiny where enforcement is in many cases contrary to Congressional intent and inconsistent in certain other respects with black letter legal principles, is not to amend the law, but to inject judicial scrutiny into the process so that Congressional intent and black letter legal principles can be vetted and decided upon by someone other than the enforcement agencies. For my verbal explanation of this issue, see this recent interview (approximately 5 to 7 minute mark) with the on-line news site Main Justice.

My FCPA reform proposal is to couple a compliance defense along the lines I outline in my article with abolishing NPAs and DPAs. These alternative resolution vehicles (first introduced into FCPA enforcement in 2004 as a matter of DOJ policy and not Congressional authorization) have created the conditions in which the “facade of FCPA enforcement” I have written about here continues to flourish. Think of the judicial process as a river where issues are allowed to flow into the proper channel. NPA and DPAs are logs in the river blocking the flow of issues into the proper channel.

In terms of other FCPA reform measures, I have also suggested that the enforcement agencies publish declination decisions when a company voluntarily discloses and the establishment of meaningful post-employment restrictions on FCPA enforcement attorneys.

The Impact Of The New FCPA Guidance On Reform Efforts

Monday, December 3rd, 2012

Today’s post is from former Attorney General Alberto R. Gonzales.

*****

The Impact of the New FCPA Guidance on Reform Efforts

Hon. Alberto R. Gonzales, Counsel at Waller Lansden

As Professor Mike Koehler noted in his recent post, the DOJ previously declined to issue FCPA guidance on numerous occasions, despite specific recommendations from Congress and the Organisation for Economic Co-Operation and Development. That position changed after the U.S. Chamber of Commerce issued a position paper in October 2010 identifying perceived faults in the statute and enforcement of it and proposing certain recommendations for reform. Under the title “Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act,” the Chamber advocated five specific reforms:

• Adding a compliance defense;

• Limiting a company’s liability for the prior actions of a company it has acquired;

• Adding a “willfulness” requirement for corporate criminal liability;

• Limiting a company’s liability for acts of a subsidiary; and

• Better defining a “foreign official” under the statute.

In a speech approximately one year later, Assistant Attorney General Lanny Breuer specifically referenced the Chamber’s reform efforts, among those carried out by unnamed others. While AAG Breuer expressed a willingness to “work[] with Congress on ways to improve our criminal laws” he also took pains “to be clear about one thing with respect to these proposals: we have no intention whatsoever of supporting reforms whose aim is to weaken the FCPA and make it a less effective tool for fighting foreign bribery.” Later in the speech, he noted that the Department had recently taken “considered suggestions about FCPA enforcement into account,” referencing his personal involvement in discussions with industry representatives at a Department of Commerce sponsored roundtable. He then spoke of the Department’s ongoing efforts to prepare what would become the guidance, suggesting that such discussions would serve to inform that process.

While AAG Breuer touted the Department’s consideration of industry viewpoints in preparing the guidance, it is less than clear whether the efforts by reformers were causally, as opposed to merely temporally, related to the guidance’s formulation. A skeptic might conclude that the Department fashioned the guidance solely in an effort to derail reform efforts, which were beginning to gather support in Congress. One adopting that stance would view the guidance as less of a genuine attempt to increase transparency relating to the government’s enforcement approach or provide insight on how companies might structure suitably effective compliance programs, and more of a calculated bid to give the impression of compromising on reform efforts without actually conceding any ground.

While interesting to ponder, the question of whether the reform efforts triggered the guidance is far less important than the question of its effect upon reform efforts. That answer may depend on the responses to the following three questions:

1) does the guidance constitute a concession on any of the reforms sought?

2) if not, does the guidance refute, beyond all reasonable debate, the need for such reforms?

3) regardless of whether the guidance forecloses the contentions advanced by reformers, does it effectively overcome the perceived need for reform?

Answering the first question is relatively easy: nothing in the guidance reflects agreement with or constitutes a concession regarding proposed major reforms. While the guidance extols the virtues of an effective compliance program and catalogues general principles regarding its construction and maintenance, it offers no indication that the government believes that existence of a compliance program – even one that is unquestionably robust – should automatically shield the company from FCPA liability as a matter of law. (Any lingering uncertainty regarding the government’s position on this point was resolved when, during a panel discussion at the American Conference Institute’s 2012 National Conference on the FCPA, AAG Breuer made clear Department’s wholesale rejection of the need for any such modification to the statute). Similarly, the guidance details the underpinnings of the government’s views on parent-subsidiary liability and successor liability, but offers no indication of a perceived need for reform on either topic. The guidance compiles a list of “non-exclusive factors to be considered” in evaluating whether an individual may fairly be deemed associated with a “department, agency or instrumentality” of a foreign government, but offers nothing to suggest that a formal definition is necessary in the statute. Finally, the guidance dedicates a scant three paragraphs to the wilfulness issue, disregarding entirely reformers’ claimed deficiency regarding corporate prosecutions, much less their proposed solutions.

Resolving the second inquiry is more difficult. In some areas (particularly discussion of successor liability), the guidance makes a persuasive case against the need for reform simply by demonstrating the government’s commitment to a principled and logical approach. But this is unlikely to tamp out all dispute on those issues, so it becomes necessary to take a more holistic approach to evaluation of the guidance.

While the enforcement agencies have received near universal praise for their efforts in compiling the guidance, there has been almost equal uniformity in the belief that the guidance fails to break any new substantive legal ground. If one accepts that as true (and the recent public pronouncements by FCPA enforcers in the wake of the guidance have not suggested they disagree), it would seem difficult to suggest that the need for the substantive reforms sought has been alleviated. If nothing has changed in the way the government interprets and enforces the statute, how can previous calls for reform be deemed answered?

Nevertheless, the sheer bulk of the guidance – 120 pages, 418 footnotes – constitutes an imposing presence. In addition to its size, the guidance’s substance further undercuts the case for reform. The guidance represents an expansive defense of the legitimacy of the government’s FCPA enforcement methodology, operating to tether positions previously staked out to particular authorities. Although a good number of those “authorities” are simply prior enforcement actions brought, and pronouncements made by the government itself, the guidance nevertheless creates a compelling impression that the FCPA is enforced in a straightforward and consistent fashion.

It is this impression which informs and is likely to resolve the third question. The guidance itself emphasizes that many areas of FCPA enforcement are subject to multi-factor tests and not bright line rules. However, the guidance represents perhaps the most detailed articulation by the government of any area of criminal law enforcement. Regardless of whether it actually resolves (or even addresses) the specific reforms proposed by the Chamber and others, the guidance’s issuance effectively refutes the notion – implicit in the reform efforts – that FCPA enforcement is a black box which leaves exposed even those companies who undertake sincere efforts to comply with the statute’s mandates. Whether under the principles of the fair warning doctrine or otherwise, advancing the notion post-guidance that those subject to the FCPA lack meaningful notice about the types of conduct than can and will be prosecuted would seem challenging at best. It will likely take some systemic pattern of enforcement at odds with the guidance’s pronouncements, or sufficiently egregious anecdotal evidence, to overcome the image that the guidance fosters.

As noted previously by Professor Koehler, those advocating FCPA reforms already face the task overcoming the suggestion that they are “soft on bribery” (or worse, supportive of it) and are in fact seeking to weaken the government’s ability to deter and prosecute such conduct. The guidance’s issuance steepens the climb for reformers, because it has created the perception of removing the element of uncertainty upon which much of the reformers’ claims of unfairness were premised. While the guidance can hardly be deemed a death knell for FCPA reform efforts, it certainly delays and likely hinders those endeavors.

What If?

Monday, November 26th, 2012

What if, instead of issuing guidance in 2012, the DOJ would have issued guidance in 1988 after Congress, as part of the FCPA’s 1988 amendments, encouraged the DOJ to issue such guidance?

For instance, a relevant House Report stated as follows. “In order to enhance compliance with the provisions of the FCPA [the FCPA amendment] establishes a procedure for the [DOJ] to issue guidance describing examples of activities that would or would not conform with the [DOJ’s] present enforcement policy regarding FCPA violations.”

The Sixth Circuit noted that the 1998 amendments “clearly evince[d] a preference for compliance in lieu of prosecution; however, in response to Congress’s suggestion, the DOJ determined in 1990 that “no guidelines are necessary.” (See here and here for prior posts).

What if, instead of issuing guidance in 2012, the enforcement agencies would have issued guidance in 2002 after the OECD, in its Phase 2 Report of the U.S., encouraged the U.S. to issue such guidance?

In pertinent part, the OECD Report stated as follows. “Despite the abundance of articles and commentaries on [the FCPA], there is only limited amount of authoritative or official guidance available on compliance with the twenty five-year statute. […] Much of the authority or guidance regarding the Act comes from speeches from DOJ and SEC officials, DOJ opinions, DOJ and SEC complaints, settlements that have been filed, and informal discussions of issues between companies’ counsel and the DOJ or the SEC. […] The status of these various sources of information is however not always clear: there could be merit in regrouping and consolidating them in a single guidance document.”

The OECD Phase 2 Report concluded on this issue as follows. “In the view of the lead examiners, the time has come to explore the need for further forms of guidance, mainly to assist new players […] on the international scene, and to provide a valuable risk management tool to guide companies through some of the pitfalls which might arise in structuring international transactions involving potential exposures.”

What if, instead of issuing FCPA guidance in 2012, the enforcement agencies would have issued guidance in 2010 after the OECD, this time in its October 2010 Phase 3 Report of the U.S., stated as follows. “The evaluators recommend that the United States consider consolidating and summarizing [all relevant sources of FCPA information] to ensure easy accessibility, especially for [companies] which face limited resources.”

Despite Congress suggesting FCPA guidance in 1988, and repeated OECD recommendations for guidance in 2002 and 2010, the DOJ refused to issue guidance.

For instance, in the aftermath of a November 30, 2010 Senate FCPA hearing, Senator Amy Klobuchar asked the DOJ the following post-hearing question. “Do you believe companies could comply with more certainty with the FCPA if they were provided with more generally-applicable guidance from the Department in regards to situations covered by the FCPA that are not clear cut or fall into ‘gray’ area.” The DOJ response was that it “believes it provides clear guidance with respect to FCPA enforcement through a variety of means” and it then listed the same general categories of information the OECD identified in 2002 as being deficient. (See here).

Although the enforcement agencies state in the Guidance that its issuance was “in part, a response to [the OECD’s] Phase 3 recommendations” the DOJ’s above response after the OECD Phase 3 recommendations calls into question the genuineness of this motivation.

Another likely motive for issuing the Guidance was the desire of the enforcement agencies to forestall introduction of an actual FCPA reform bill.

As to this issue, the following background is relevant. After the November 2010 Senate FCPA hearing, FCPA reform gained steam heading into a June 2011 House hearing. The House hearing evidenced bi-partisan support for certain aspects of FCPA reform and at the conclusion of the hearing Chair James Sensenbrenner stated that “we will be drafting [an FCPA reform] bill. (See here). Against this backdrop, in November 2011, Assistant Attorney General Lanny Breuer announced that in 2012 the DOJ intended to issue FCPA guidance. (See here).

Those on Capitol Hill who were inclined to introduce an FCPA reform bill said that they would await DOJ’s FCPA guidance before introducing such a bill. (See here). That the Guidance was issued very soon after the November presidential election, during a lame duck Congress, would seem to advance, in addition to the above information, the notion that issuance and the timing of the Guidance was in part political.

Regardless of the enforcement agencies’ motivations in issuing the Guidance when they did, it is telling that it took over a year – from the time of Breuer’s announcement – to issue the Guidance. After all, both the DOJ and SEC have specific FCPA units and both enforcement agencies have indicated, in various ways and in various settings, that the FCPA is a clear and unambiguous statute.

The point is this.

While the Guidance is a useful resource guide as it collects in one document the positions and policies of the enforcement agencies, and for this the agencies deserve credit and a pat on the back, the pat on the back could have and should have occurred a long time ago.

Those who closely follow the FCPA are left to wonder what if the Guidance was issued two years, ten years, or twenty-four years ago?

The Guidance Press Conference

Thursday, November 15th, 2012

The Foreign Corrupt Practices Act guidance (here) released yesterday by the DOJ and SEC was a year long effort, no doubt subject to multiple revisions and review, and was highly scripted.

Not so with the press conference yesterday by Assistant Attorney General Lanny Breuer and SEC Enforcement Division Director Robert Khuzami. This post highlights certain of the comments made by Breuer and Khuzami at the press conference and contains a few comments of my own.

Breuer began the conference by noting that the guidance represents the “most comprehensive effort ever [by the DOJ] to explain [its] approach to enforcement as to a particular statute.” He said that the DOJ strives to be “transparent” in this area and wants everyone to “understand why we prosecute cases as vigorously as we do and why we make our charging decisions.”

Khuzami added that the guidance should “clear up some myths about the types of conduct that get prosecuted.”

In response to a question whether the Chamber of Commerce should be satisfied with the guidance, Breuer stated that he called former Attorney General Michael Mukasey [who has lobbied on behalf of the Chamber for FCPA reform) prior to the conference and that the guidance reflects the Chamber's suggestion for various hypotheticals. Breuer said that "any fair-minded person" should see the guidance as a "substantial step forward in transparency in a very real way."

Breuer was asked specifically about an FCPA compliance defense and said such a defense would be "dangerous and antithetical to the way [the DOJ] pursues criminal justice cases.” Breuer stated that such a defense “runs the risk of a race to the bottom” and that there “can’t be an absolute defense.”

As to declinations and the inclusion in the guidance of various generic examples of apparent enforcement agency declinations, Breuer stated that the enforcement agencies “tried to provide clarity as to how [they] use [their] discretion” and that the guidance tries to give reader sa “fair sense of how we evaluate the cases.” Khuzami added that the declination “numbers are not really that important” but the principles behind the declinations are and that “companies can mold behavior” based on the declination examples given.

From my perspective, one of the more important statements made during the press conference was when Khuzami and Breuer spoke about how companies should spend compliance dollars.

In reference to the various hypotheticals in the guidance concerning travel and entertainment, Khuzami said that he heard from companies that they were spending compliance dollars to guard against these issues, that companies were spending a huge amount of resources on such issues and that such a focus was taking dollars away from compliance efforts as to high risk activity. Khuzami said that this was an argument he and Breuer have heard and that this argument “makes perfect sense.” Khuzami said that he was “interested in companies spending compliance dollars in the most sensible way” and he hoped that the guidance and the hypotheticals provided would help companies as to where they can “minimize investment and where they can maximize it.” Breuer added that the DOJ wants compliance programs “to address real matters of concern.”

One can interpret Khuzami’s and Breuer’s remarks on this topic as they like, but my interpretation was that they were saying that part of the reason why companies have such a high level of FCPA anxiety is not necessarily because of the FCPA or its enforcement, but rather the marketing and commentary by certain segments of FCPA Inc. If that was their intent and purpose, I agree.

Breuer next was asked whether the guidance will put an end to the Chamber’s concerns surrounding the FCPA and its enforcement. He said that “like with everything in life there is a process” and that the Chamber will probably want ongoing discussions about the FCPA and its enforcement and that the DOJ “welcomes that discussion.” Breuer said that the guidance was likely not “complete closure” as to various concerns regarding FCPA issues. Khuzami added that he “expects further commentary and proposal and expression of dissatisfaction” but that this “is the nature of the business we are in and an important part of the process.”

As to “foreign official” and the lack of a bright-line rule in the guidance, Khuzami said that they declined to draw a bright line because control of an enterprise can occur in different ways and that there are “many indirect ways of ownership and control.” Breuer did say that the guidance acknowledges that it is unlikely that less than 50% control will result in an enterprise being considered an instrumentality, but that there might “specific factors” that may make such an enterprise an instrumentality.

To those who are inclined to believe that the guidance represents anything new, Breuer said that the guidance “does not represent a change in policy” but it “gives others a window and greater guidance” as to the enforcement agencies policies. Khuzami agreed and said that Breuer’s comment was “absolutely right.” Khuzami said that the “real value [of the guidance] is its clarity and transparency” and that the guidance is a unique opportunity “to communicate directly with the regulated community.” He said that this opportunity does not always exist and that companies often receive information that is delivered and deciphered through counsel. Khuzami said that the real “value of the guidance is that [corporate] officials can put this on their desk and read it, understand it directly and not through others.” He said that this is the “great value” of the guidance. I agree and previously stated (here) that the guidance collects in one document information that was previously scattered and that in this way the guidance has substantial value and is easily accessible to anyone.

Breuer was next asked whether the enforcement agencies plan to update the guidance over time or whether it represents a one-time publication. Breuer stated that “for the foreseeable future” the guidance is it. He said that the public needs to be realistic as to the roles the DOJ has and that by devoting time to the guidance prosecutors were not spending time prosecuting cases. Khuzami added that rather than a “second-edition” that the guidance may be clarified over time through speeches or other commentary.