Archive for the ‘FCPA Scholarship’ Category

New Article – “Foreign Corrupt Practices Act Ripples”

Tuesday, July 15th, 2014

RippleIn house counsel and other compliance professionals are often looking for additional ways to stress the importance of Foreign Corrupt Practices Act compliance to corporate leaders. A common way to do this is forwarding to corporate leaders the latest multi-million dollar settlement with the message “this could be us” if we don’t invest in and implement FCPA compliance best practices.

This common method however often fails to resonate with corporate leaders. Moreover, 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 in this new era.

To be most effective in communicating with corporate leaders regarding the need for pro-active FCPA compliance, in house counsel and other compliance professional need to speak to corporate leaders in business terms that matter such as liquidity, market capitalization, cost of capital, lost or delayed business opportunities and the like.

My new article, “Foreign Corrupt Practices Act Ripples” (available for download here), recently published in the American University Business Law Review, assists in house counsel and compliance professionals stress the importance of FCPA compliance by highlighting issues that matter most to corporate leaders.

The article abstract is as follows.

An obvious reason to comply with the Foreign Corrupt Practices Act (“FCPA”) is that non-compliance can expose a company to a criminal or civil FCPA enforcement action by the Department of Justice (“DOJ”) and/or the Securities and Exchange Commission (“SEC”). However, this Article highlights that 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 in this new era.

By coining a new term of art – the “three buckets” of FCPA financial exposure – and through various case studies and examples, this Article demonstrates how FCPA scrutiny and enforcement can impact a company’s business operations and strategy in a variety of ways from: pre and post-enforcement action professional fees and expenses; to market capitalization; to cost of capital; to merger and acquisition activity; to impeding or distracting a company from achieving other business objectives; to private shareholder litigation; to offensive use of the FCPA by a competitor or adversary to achieve a business objective or to further advance a litigating position.

This Article thus shifts the FCPA conversation away from a purely legal issue to its more proper designation as a general business issue that needs to be on the radar screen of business managers operating in the global marketplace. By highlighting the many ripples of FCPA scrutiny and enforcement, it is hoped that more business managers can view the importance of FCPA compliance more holistically and not merely through the narrow lens of actual enforcement actions.

Help shift the FCPA conversation by sharing the article (available for download here) with your clients, corporate boards, audit committees and other corporate leaders.

When Is It Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?

Monday, May 5th, 2014

The Foreign Corrupt Practices Act often intersects with other disciplines and it is refreshing to read how others see this current era of FCPA enforcement including the resolution vehicles used to resolve enforcement actions as well as government policy relevant to such resolution vehicles.

Professor Peter Reilly (Texas A&M School of Law) focuses his writing in the area of alternative dispute resolution, ethics, emotional intelligence and theories of influence and persuasion within the context of mediation and negotiation.  Professor Reilly previously authored this guest post regarding his article ”Negotiating Bribery: Toward Increased Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under The Foreign Corrupt Practices Act”  and he is out with a new article to be published soon in the Harvard Business Law Review titled:  ”Ralph Lauren, Transnational Bribery, and Voluntary Disclosure Under the Foreign Corrupt Practices Act: When Is It Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?”

Below is the abstract and the article can be downloaded here.

“In 2013, the SEC announced a non-prosecution agreement (“NPA”) with Ralph Lauren Corporation in connection with bribes paid to government officials in Argentina. The SEC decided not to charge the corporation with violations of the Foreign Corrupt Practices Act due to the company’s response to the situation, including: (1) the prompt reporting of the violations on its own initiative; (2) the completeness of the information provided; and (3) the “extensive, thorough, and real-time cooperation” put forth during the SEC investigation. While the SEC and various legal commentators suggest the case stands for the proposition that “substantial and tangible” benefits will accrue to companies that self-report FCPA violations and cooperate fully with the SEC, this article arrives at a very different assessment of the matter. Specifically, the article suggests that (1) it might not have been a good idea, from a business perspective, for Ralph Lauren Corporation to self-report the potential violation to the SEC; and (2) the non-prosecution agreement negotiated to resolve the matter — the SEC’s first-ever NPA awarded in an FCPA case — also might not have been in the best interest of the company. In other words, this article suggests that, under current SEC policy, a company’s ability and willingness to self-report to and cooperate with the government is not always strategically wise in the context of FCPA enforcement.

The article explores, through the lens of the Ralph Lauren case, the factors that companies and their counsel must consider when making the difficult and critical calculation of whether or not to voluntarily disclose a potential FCPA violation to the SEC. I investigate the policies and programs used by the SEC to entice voluntary reporting and cooperation, as well as the kinds of results and rewards that might be achieved therefrom. I demonstrate that although the risks associated with voluntary disclosure tend to be concrete and predictable, the rewards have heretofore been largely uncertain — a calculus that militates against disclosure. I conclude that in order to increase the likelihood that companies will self-report FCPA violations in the future, and thereby assist in eradicating the scourge of transnational bribery worldwide, the SEC must be far more transparent: Its policies, pronouncements, rules, and regulations must provide more certain, specific, and calculable incentives to companies for volunteering to come forward. Simply put, companies will not come forward in large numbers, or on significant FCPA matters, until they can determine with certainty and specificity that the rewards obtained will outweigh the risks involved. The article concludes with reform measures that can and should be implemented within the SEC to bring about such transparency. Implementing these changes would benefit everyone involved — the companies and their counsel, the regulatory agencies, and, perhaps most important of all, the people and institutions throughout the world currently suffering the ill effects of transnational bribery.”

New Article – “A Foreign Corrupt Practices Act Narrative”

Wednesday, April 30th, 2014

Each year, I publish a long-form FCPA Year in Review article. Given the realities of law review publishing, there is a delay in releasing the article from the end of the year.

I am pleased to share “A Foreign Corrupt Practices Act Narrative” recently published by the Michigan State International Law Review.  Full of useful charts and other information regarding FCPA enforcement, the abstract is as follows:

“This article, part of an annual series, weaves together Foreign Corrupt Practices Act and related developments from 2013 into a coherent narrative of value to anyone who seeks an informed base of knowledge regarding the FCPA, its enforcement, and related legal and policy issues. Specifically, this article uses FCPA enforcement action data to highlight perennial issues associated with this new era of FCPA enforcement and otherwise discusses top FCPA or related developments from 2013.  Although this article focuses on one statute and its enforcement, reference is made throughout to other significant developments in 2013 relevant to the FCPA as such references best facilitate an appreciation for many of the controversial aspects of FCPA enforcement.

Part I of this article highlights various FCPA enforcement statistics from 2013 and places the statistics in a proper and historical perspective.

Part II of this article uses certain statistics to highlight perennial issues associated with this new era of FCPA enforcement.  The following issues will be discussed: (i) the prominent role non-prosecution, deferred prosecution agreements, and administrative settlements have in corporate FCPA enforcement and how criticism of these resolution vehicles continues to mount; (ii) the wide gap between corporate and individual FCPA enforcement actions and a relevant data point that helps explain the gap; and (iii) how the financial consequences of corporate FCPA scrutiny and FCPA enforcement continue to rise, how FCPA settlement amounts have come a long way in a short amount of time, and how certain excesses have come to define FCPA scrutiny.

Part III of this article highlights other top FCPA or related developments from 2013 and uses these developments to spotlight the following issues: (i) certain alarming enforcement actions and why anyone who values the rule of law should be concerned by these actions; (ii) actual judicial scrutiny of FCPA enforcement agency theories as well as how non-FCPA legal developments should cause pause as to certain FCPA enforcement theories; (iii) FCPA enforcement agency speeches and policy positions; and (iv) certain uncomfortable truths and double standards regarding the U.S. fight against bribery and corruption.”

Combine the above article with my other Year in Reviews and you will have an extensive collection of FCPA statistics, trends, and analysis over time.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

A Reminder That The FCPA Has Long Tentacles

Monday, April 28th, 2014

The FCPA has long tentacles as FCPA scrutiny and enforcement can impact a wide range of business activities.

Such as merger and acquisition activity.

Two recent developments serve as a reminder.

As noted here, Zimmer Holdings Inc. agreed to acquire Biomet Inc. in a cash and stock transaction valued at approximately $13.35 billion.

In March 2012 Biomet resolved a $22.8 million Foreign Corrupt Practices Act enforcement action  ($17.3 million via a DOJ deferred prosecution agreement and $5.5 million via a settled SEC civil complaint).  The DPA had a three year term and, as is common, contained the following clause:

Sale or Merger:  Biomet agrees that in the event it sells, merges, or transfers all or substantially all of its business operations as they exist as of the date of this Agreement, whether such sale is structured as a stock or asset sale, merger, or transfer, it shall include in any contract for sale, merger, or transfer a provision binding the purchaser, or any successor in interest thereto, to the obligations described in this Agreement.”

The Zimmer – Biomet merger highlights how FCPA compliance obligations of a target company can be inherited by the acquiring company.

News of General Electric’s possible purchase of Alstom’s energy business highlights how FCPA scrutiny of a target company can be, depending on how the transaction is structured, inherited by the acquiring company.

Alstom has been under FCPA (and related) scrutiny for several years.  Among other things, former Alstom employees and business partners have resolved FCPA enforcement actions concerning the Tarahan power plant project in Indonesia (see here and here for prior posts).  Documents filed in connection with the individual enforcement actions suggest that the following Alstom projects are also under scrutiny: (i) ”projects in Indonesia other than the Tarahan Project, including intended payments to government officials in connection with the Labuan Angin and the Maura Tawar projects;” (ii) ”projects in India, including intended payments to government officials in connection with the Sipat, Barh I, and Barh II projects;” and (iii) the following projects in China - ”Baima PRC Project,” ”Qilu, Maoming, Guangzhou, Wuhan, Jin Men,Yueyang.”

In short, Alstom’s FCPA scrutiny is well known.  Thus, a potential GE – Alstom transaction would not seem to implicate many of the thorny due diligence issues discussed in certain FCPA Opinion Procedure Releases or certain hypotheticals discussed in the FCPA Guidance.

In any event, the FCPA Guidance states:

“Companies acquire a host of liabilities when they merge with or acquire another company, including those arising
out of contracts, torts, regulations, and statutes. As a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities Successor liability is an integral component of corporate law and, among other things, prevents companies from avoiding liability by reorganizing. Successor liability applies to all kinds of civil and criminal liabilities, and FCPA violations are no exception. Whether successor liability applies to a particular corporate transaction depends on the facts and the applicable state, federal, and foreign law.”

As referenced in the FCPA Guidance “whether successor liability applies to a particular corporate transaction depends on the facts and the applicable state, federal, and foreign law.”

Here it is important to recognize the following black-letter legal principles.

In a stock purchase agreement, the acquiring company will ordinarily inherit the target company’s pre-acquisition legal liability. In an asset purchase agreement, the acquiring company ordinarily (subject to certain limited exceptions) does not inherit pre-acquisition legal liability of the seller.

In this area, as in others, the free-for-all nature of FCPA enforcement is apparent.

In “The Federal Common Law of Successor Liability and the Foreign Corrupt Practices Act” forthcoming in the William & Mary Business Law Review, Taylor Phillips (Bass Berry) writes:

“Although successor liability is a key aspect of the government’s FCPA enforcement policy, the Department of Justice and the Securities and Exchange Commission have not distinguished clearly between the contexts of mergers, stock purchases, and asset acquisitions. As demonstrated by this article, asset purchases should be recognized as an acquisition structure that minimizes the risk of FCPA liability. That is because the law that should be applicable to such transactions is not a relatively broad federal common law of successor liability. Instead, it is state common law, which traditionally concedes only very narrow exceptions to the general rule of successor nonliability. Furthermore, given the remedial foundations of most successor liability doctrines, it is not obvious that traditional state common law encompasses punitive — much less criminal — successor liability theories.”

“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.”

[...]

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

[...]

“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).