Archive for the ‘FCPA Scholarship’ Category

Friday Roundup

Friday, January 22nd, 2016

Roundup2Listening in, for the reading stack, and time served.  It’s all here in the Friday Roundup.

Listening In

This previous post about the $75,000 FCPA enforcement action against Hyperdynamics highlighted that the company spent approximately $12.7 million in pre-enforcement action professional fees and expenses (a shocking 170:1 ratio).

In this recent investor conference call, company executives stated:

“The FCPA investigations restricted our available opportunities to raise capital and significantly increased our legal bills.

[...]

Speaking of legal fees I do want to address the fees we incurred during the FCPA investigation.  As you know, we spent $12 MM from inception to closure of that investigation.  We were unhappily aware that FCPA investigations can take years to conclude but that we only had until September 2016 because of the date for the conclusion of the concession.  We therefore determined that our only option was to do everything in our power to facilitate a resolution of the investigation, and ultimately were able to close the investigations in 20 months. This came at a very heavy legal cost to say the least, but again it was the best option we saw to move forward on the path to drilling the well.”

Dear Hyperdynamics executives and shareholders, you ought to be asking some serious questions about the extent of your pre-enforcement action professional fees and expenses.

To learn more how settlement amounts in an FCPA enforcement action are often only a relatively minor component of the overall financial consequences of FCPA scrutiny and enforcement, see here for “Foreign Corrupt Practices Act Ripples.”

Reading Stack

In 2015, the UC-Davis Law Review and Fordham Law Review both held events focused on bribery and corruption topics. The articles from those events were recently published and are available below.

UC-Davis Law Review

Fordham Law Review

Time Served

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

As recently noted here by Reuters:

“Gonzalez “avoided prison time beyond the 16-1/2 months she already served after admitting that she accepted millions of dollars in bribes from a Wall Street brokerage to which she steered business. Maria de los Angeles Gonzalez de Hernandez, who was a senior official at Caracas-based Banco de Desarrollo Económico y Social de Venezuela, also known as Bandes, was further ordered by U.S. District Judge Denise Cote to forfeit the roughly $5 million she garnered from the scheme. Cote said she was “affected by the degree of remorse” Gonzalez showed in a statement she read to the court through an interpreter. ”We’re enormously grateful for the court’s compassion and understanding,” said Jane Moscowitz, Gonzalez’s attorney, after the sentencing.”

Previously in connection with the same core action:

  • Jose Hurtado was sentenced to three years in prison, followed by three years of supervised release, and consented to a $11.9 million forfeiture.
  • Ernesto Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture.
  • Tomas Clarke was  sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture.
  • Benito Chinea was sentenced to four years in prison, followed by three years of supervised release, and consented to a $3.6 million forfeiture; and
  • Joseph DeMeneses was sentenced to four years in prison, followed by three years of supervised release, and consented to a $2.7 million forfeiture.

*****

A good weekend to all.

 

A Downtime FCPA Reading Package

Wednesday, December 23rd, 2015

Required ReadingThe practice of law – as well as other corporate positions in the FCPA space – occasionally result in certain periods of downtime.

The next 10 days or so are often a downtime. If you have substantive work great (or perhaps not), but if not substantive work probably will not hit your desk until the New Year.

However, this downtime can be used effectively to elevate your Foreign Corrupt Practices Act knowledge and sophistication.

This post provides a downtime reading package designed to do just this.

FCPA – Statute

A good place to start, and to better understand how we got here in the first place, is to read the “Story of the Foreign Corrupt Practices Act.” The article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law. The FCPA’s story remains important and relevant to government agencies charged with enforcing the law, those subject to the law, and policy makers contemplating reform.

Next, read the actual FCPA statute. It can be found here (in 50 different languages). When reading the FCPA realize that the law appears much more dense than it actually is.  The FCPA’s anti-bribery provisions are divided into three separate prongs (dd-1, dd-2, and dd-3 for “issuers,” “domestic concerns,” and persons other than issuers or domestic concerns).  While each prong contains certain differences – particularly as to jurisdictional issues – the key substantive provisions are essentially repeated three times.

FCPA Enforcement

To start, it is important to recognize that the FCPA is enforced two different ways.

The first (traditional) way is for the enforcement agencies (the DOJ or SEC) to allege FCPA violations and to prove those violations to a judge or jury in the context of an adversarial proceeding.

The second more common approach over the past decade is for the enforcement agencies to utilize leverage over risk-averse business organizations and to resolve alleged FCPA violations through alternative resolution vehicles – such as a non-prosecution agreement or deferred prosecution agreement – in the absence of any meaningful judicial scrutiny.

As to the first way, you should read every substantive FCPA judicial decision – after all there are not that many despite the FCPA being around for 38 years.  At a minimum, read the following cases: U.S. v. Liebo, U.S. v. Esquenazi, U.S. v. Carson, U.S. v. Lindsey Manufacturing, SEC v. Straub, SEC v. Steffen, U.S. v. Kay, SEC v. Mattson, U.S. v. Bourke, SEC v. Jackson, U.S. v. Castle, and SEC v. World-Wide Coin.

As to the second more common way of resolving alleged instances of FCPA violations, you may want to check out this article titled “The Facade of FCPA Enforcement.” In addition,  this article titled “Measuring the Impact of NPAs and DPAs on FCPA Enforcement,” highlights how alternative resolution vehicles have become the dominant way the DOJ resolves corporate FCPA scrutiny and serve as an obvious reason for the general increase in FCPA enforcement over the past decade. To the many cheerleaders of increased FCPA enforcement, NPAs and DPAs are thus worthy of applause. Yet in a legal system based on the rule of law, quality of enforcement is more important than quantity of enforcement. Through empirical data and various case studies, the article measures the impact NPAs and DPAs have on the quality of FCPA enforcement and concludes that NPAs and DPAs — while resulting in higher quantity of FCPA enforcement — result in lower quality of FCPA enforcement.

Despite the prevalence of NPAs and DPAs in FCPA enforcement, on occasion the DOJ or SEC are still put to their burden of proof, and more often than not, the end result is a defense win.  This article asks the question – “What Percentage of DOJ FCPA Enforcement Losses is Acceptable?”

Regardless of how an alleged FCPA violation is resolved, it is important to understand various FCPA enforcement theories by reading actual FCPA enforcement actions. All DOJ FCPA enforcement actions (minus a few exceptions) can be found here and all SEC FCPA enforcement actions (minus a few exceptions) can be found here. For a more in-depth review of every FCPA enforcement action since July 2009 (and most “old” FCPA enforcement actions), visit the FCPA Professor search page and look for the subject-matter tag “(year) enforcement actions.”

Additional Reading on Enforcement and Related Issues

While FCPA enforcement actions by the DOJ or SEC are worthy of attention, a sophisticated understanding of the FCPA is to recognize 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.  By coining a new term of art – the “three buckets” of FCPA financial exposure – and through various case studies and examples, this article titled “FCPA Ripples” 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.

The below links contain extensive year-in-review articles regarding FCPA enforcement, enforcement agency policy, and related issues. Combine the below articles and you will have an extensive collection of FCPA enforcement statistics, trends, and other information over time.

  • For 2014, see here.
  • For 2013, see here.
  • For 2012, see here.
  • For 2011, see here.
  • For 2010, see here.
  • For 2009, see here.

For a general overview of the FCPA and its enforcement in a Q&A format, see here for the “FCPA 101″ page of FCPA Professor.

Although much tends to be written about the FCPA and its enforcement, there are certain FCPA facts that are seldom discussed. Yet such facts, covering the entire span of the FCPA — from the statute’s enactment, to its statutory provisions, to FCPA enforcement, to FCPA reform, to the FCPA industry itself — occasionally bear repeating.  This article, highlights ten seldom discussed FCPA facts that you need to know.

Guidance / Compliance

It is also worth your time to review other information and sources of guidance relevant to the FCPA.

This include: the SEC’s 1981 guidance concerning the FCPA’s books and records and internal controls provisions (here); the DOJ’s and SEC’s 2012 FCPA Guidance (here); and DOJ FCPA Opinion Procedure Releases (here). For an article titled “Grading the FCPA Guidance” see here.

An FCPA expert should also be well-versed on compliance best practices and benchmarking metrics that can be found in the following documents: the DOJ’s Principles of Prosecution of Business Organizations; the U.S. Sentencing Guidelines; and the OECD Good Practice Guidance on Internal Controls, Ethics, and Compliance.

Looking for a fun way to benchmark FCPA compliance.  See here for the article titled “How a Successful Football Organization Can Inform FCPA Compliance in a Business Organization.”

FCPA Reform

Just because the FCPA may be a fundamentally sound statute does not mean that the FCPA (or its enforcement) could not be improved.

In November 2010, the Senate held an FCPA hearing (see this post for the full hearing transcript and vide0).  In June 2011, the House followed with its own FCPA hearing and here is the transcript.

Much of the discussion in both hearings focused on an FCPA compliance defense. To better understand how an FCPA compliance defense can better accomplish the goals of the FCPA as well as other policy objective see here for the article titled “Revisiting an FCPA Compliance Defense.”

And Finally …

The FCPA is not the only statute in the federal criminal code concerning bribery. Rather, the FCPA was modeled in large part after the U.S. domestic bribery statute, and when speaking of its FCPA enforcement program, the government has recognized that it “could not be effective abroad if we did not lead by example here at home.” Indeed, the policy reasons motivating Congress to enact the FCPA — that corporate payments were subverting the democratic process, undermining the integrity and stability of government, and eroding public confidence in basic institutions — apply with equal force to domestic bribery.

Against this backdrop, this article titled “The Uncomfortable Truths and Double Standards of Bribery Enforcement” explores through various case studies and examples whether the United State’s crusade against bribery suffers from uncomfortable truths and double standards. Through these case studies and examples you can decide for themselves whether the U.S. government “practices what it preaches” when it comes to the enforcement of bribery laws and whether the United States is indeed “in a unique position to spread the gospel of anti-corruption.”

New Article – Measuring The Impact Of NPAs And DPAs On FCPA Enforcement

Tuesday, December 15th, 2015

Ruler3My new article was recently published in the U.C. Davis Law Review.

*****

The summary is as follows.

Historically, the Department of Justice (“DOJ”) had two choices when a business organization was the subject of Foreign Corrupt Practices Act (“FCPA”) scrutiny: either charge the entity with an FCPA violation or not charge. However, in 2004 the DOJ brought to FCPA enforcement a third option: alternative resolution vehicles called non-prosecution agreements (“NPAs”) and deferred prosecution agreements (“DPAs”).

The use of alternative resolution vehicles to resolve FCPA scrutiny is not authorized by the FCPA nor any other specific Congressional legislation. Moreover, DOJ policy states that alternative resolution vehicles are to be used only “under appropriate circumstances.” However, this article demonstrates that alternative resolution vehicles have become the dominant way the DOJ resolves corporate FCPA scrutiny and serve as an obvious reason for the general increase in FCPA enforcement over the past decade. To the many cheerleaders of increased FCPA enforcement, NPAs and DPAs are thus worthy of applause.

Yet in a legal system based on the rule of law, quality of enforcement is more important than quantity of enforcement. Through empirical data and various case studies, this article measures the impact NPAs and DPAs have on the quality of FCPA enforcement and concludes that NPAs and DPAs — while resulting in higher quantity of FCPA enforcement — result in lower quality of FCPA enforcement. This disturbing finding matters not only in the specific context of the FCPA but more broadly as other nations with “FCPA-like” laws adopt U.S.-style alternative resolution vehicles.

The article can be downloaded at this link.

In analyzing the impact NPAs and DPAs have on the quality of FCPA enforcement, readers are encouraged to ponder the numerous statistics highlighted in the article such as:

  • The percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees prior to alternative resolution vehicles being introduced to the FCPA context compared to the percentage of FCPA enforcement actions against business organizations that resulted in related prosecution of company employees after alternative resolution vehicles were introduced to the FCPA context;
  • Since 2008, the percentage of corporate FCPA enforcement actions there were the result of a criminal indictment or resulted in a guilty plea that have resulted in related criminal charges of company employees compared to the percentage of corporate FCPA enforcement actions resolved solely with an NPA or DPA that have resulted in related criminal charges of company employees; and
  • Two aggressive FCPA enforcement theories (not subjected to any meaningful judicial scrutiny) that have yielded 17 DOJ enforcement actions against business organizations in which the DOJ extracted approximately $350 million in corporate settlements, yet 0 of these enforcement actions have resulted in any related criminal prosecution of individuals associated with the companies resolving the enforcement actions.

New Article: The Uncomfortable Truths And Double Standards Of Bribery Enforcement

Thursday, October 29th, 2015

Double Standard4My new article “The Uncomfortable Truths and Double Standards of Bribery Enforcement” will soon be published in the Fordham Law Review. Click here to download the article.

Here is what the article is about.

“In recent years, Foreign Corrupt Practices Act (FCPA) enforcement has become a top priority for the U.S. government, and government enforcement officials have stated that “we in the United States are in a unique position to spread the gospel of anti-corruption” and that FCPA enforcement ensures not only that the United States “is on the right side of history, but also that it has a hand in advancing that history.”

However, the FCPA is not the only statute in the federal criminal code concerning bribery. Rather, the FCPA was modeled in large part after the U.S. domestic bribery statute, and when speaking of its FCPA enforcement program, the government has recognized that it “could not be effective abroad if we did not lead by example here at home.” Indeed, the policy reasons motivating Congress to enact the FCPA—that corporate payments were subverting the democratic process, undermining the integrity and stability of government, and eroding public confidence in basic institutions—apply with equal force to domestic bribery.

Against this backdrop, this Article explores through various case studies and examples whether the United States’s crusade against bribery suffers from uncomfortable truths and double standards. Through these case studies and examples, readers can decide for themselves whether the U.S. government “practices what it preaches” when it comes to the enforcement of bribery laws and whether the United States is indeed “in a unique position to spread the gospel of anti-corruption.”

Do read the article and decide for yourself.

FCPA Summer Reading List

Tuesday, August 11th, 2015

Summer ReadingThe dog days of summer.  A time for reflection, a time to think, a time to read.

This post provides an overview of FCPA writings that can help you elevate your Foreign Corrupt Practices Act knowledge, sophistication, and practical skills.

“The Foreign Corrupt Practices Act in a New Era”

This book is the most comprehensive and candid book written about the FCPA. The book dissects the FCPA’s new era and readers from the boardroom, to the courtroom, to the classroom will benefit from the nine chapters of the book which place the FCPA’s new era in context and provide a practical and provocative analysis of the FCPA, its enforcement, and related topics.

To see what others are saying about the book see herehere, here and here.

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

“The Facade of FCPA Enforcement”

According to available metrics, “The Facade of FCPA Enforcement” is the most downloaded article written about the FCPA. The 2010 article began a much-needed discussion of various aspects of FCPA enforcement, analyzes various pillars that contribute to the facade of FCPA enforcement, and highlights that the FCPA, in its so-called new era, is being enforced like no other law.  To download the article, click here.

“Ten Seldom Discussed FCPA Facts That You Need To Know”

Much is written about the Foreign Corrupt Practices Act. However, amid the clutter of enforcement agency rhetoric and resolution documents not subjected to any meaningful judicial scrutiny as well as the mountains of FCPA Inc. marketing material touting the next compliance risk, there are certain FCPA facts that are seldom discussed. Yet such facts, covering the entire span of the FCPA — from the statute’s enactment, to its statutory provisions, to FCPA enforcement, to FCPA reform, to the FCPA industry itself — occasionally bear repeating.  This article does that by highlighting ten seldom discussed FCPA facts that you need to know. To download the article, click here.

“The Story of the Foreign Corrupt Practices Act”

This article, published on the FCPA’s 35th anniversary, is the most extensive piece written about the history of the FCPA and it weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.  To download the article, click here.

“Foreign Corrupt Practices Act Ripples”

The most extensive article written about the negative business effects of FCPA scrutiny and enforcement beyond actual enforcement actions.  The Article 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.   The article assists in-house counsel and compliance professionals stress the importance of FCPA compliance by highlighting issues that matter most to corporate leaders. To download the article, click here.

“Revisiting a Foreign Corrupt Practices Act Compliance Defense”

This article asserts that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments.  To download the article, click here.

“Grading the Foreign Corrupt Practices Act Guidance”

A critical analysis of the FCPA Guidance released by the DOJ and SEC in November 2012.  Among other things, the following topics are discussed: (i) the enforcement agencies’ motivations in issuing the Guidance and the fact that it should have been issued years ago; (ii) the utility of the Guidance from an access-of-information perspective and how the Guidance can be used as a measuring stick for future enforcement agency activity; and (iii) how the Guidance is an advocacy piece and not a well-balanced portrayal of the FCPA as it is replete with selective information, half-truths, and, worse information that is demonstratively false. To download the article, click here.

“Foreign Corrupt Practices Act Enforcement as Seen through Wal-Mart’s Potential Exposure”

What does the most high-profile instance of FCPA scrutiny in history tells us about the current FCPA enforcement environment?  Quite a lot actually.  To download the article, click here.

“Why You Should Be Alarmed by the ADM FCPA Enforcement Action”

Certain FCPA enforcement actions should legitimately cause many to wonder whether the enforcement agencies have transformed FCPA enforcement into a free-for-all in which any conduct the agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. This article highlights why anyone who values the rule of law should be alarmed by the ADM enforcement action.  To download the article, click here.

“What Percentage of DOJ FCPA Losses is Acceptable?”

Bringing criminal charges and marshalling the full resources of law enforcement against an individual is an awesome power that our government possess. Because that power alters the lives of real people and their families, sidetracks real careers, empties real bank accounts in mounting a defense, and causes often irreversible damage to real reputations, it ought to be exercised with real discipline and prudence. It is fact that during this new era of FCPA enforcement the DOJ has an overall losing record in FCPA enforcement actions when actually put to its ultimate burden of proof and this article poses the question:  what percentage of DOJ FCPA losses is acceptable?  To download the article, click here.

In addition to the above articles, each year I publish an extensive FCPA year in review.  Put them all together and you will have an extensive collection of FCPA statistics, trends, and analysis over time.

For 2014, see here.

For 2013, see here.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

To read my Senate FCPA testimony click here to download, and to see a full listing of all my FCPA writings click here.

Thanks for reading!