Archive for the ‘FCPA Scholarship’ Category

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 Readings

Wednesday, March 12th, 2014

If your idea of a good time is cuddling up with an entire law journal volume devoted to the Foreign Corrupt Practices Act, then this post is for you.

Even if that is not your idea of a good time, if you are the least bit interested in the FCPA and its evolution, then you owe it to yourself to get your hands on the Fall 1982 edition of the Syracuse Journal of International Law and Commerce, a symposium volume titled “The Foreign Corrupt Practices Act:  Domestic and International Implications.”

This post previously highlighted the speech by Richard Shine (Chief, Multinational Fraud Branch, Criminal Division, U.S. Department of Justice – the name given to the DOJ’s then de facto FCPA Unit) in the volume.

This recent post highlighted the speech by Frederick Wade (Chief Counsel, SEC Enforcement Division) in the volume.

The remainder of this post highlights notable aspects of other articles found in the Fall 1982 edition of the Syracuse Journal of International Law and Commerce.

In “An Overview of the FCPA,” Wallace Timmeny (the former Deputy Director, SEC Division of Enforcement and at the time a lawyer in private practice) rightly identified the foreign policy concerns which motivated Congress to pass the FCPA:

“Concerns were expressed that our government was faced with foreign policy determinations and decisions made by American corporations.  In other words, some of our corporations were affecting foreign policy and there was also the overriding concern that the whole idea of foreign payments or corruption in business was really putting an arrow in the bow of the countries that oppose our system.”

For more on this primary motivation of Congress in enacting the FCPA, and how the FCPA was thus not a purely altruistic act, see my article “The Story of the Foreign Corrupt Practices Act.”

In “An Examination of the Accounting Provisions of the FCPA,” Lloyd Feller (the former Associate Director of the SEC’s Division of Market Regulation and at the time a lawyer in private practice) nicely touched upon the FCPA’s books and records and internal controls provisions and how they created much controversy at the time.

“Let me try to put into context the controversy surrounding the accounting provisions.  First, it is important to understand that the accounting provisions are part of the Securities Exchange Act of 1934, and apply to all issuers which register securities with the SEC.  The provisions apply to all such issuers, whether or not they do business overseas.  The Act, as it is applied through the accounting provisions, has absolutely nothing to do with foreign corrupt practices; it has to do with accounting, including the maintenance of books and records, and the establishment and maintenance of a system of internal accounting controls.”

“I think it is important to start with the understanding of how the Act was presented to the corporate community at the time it was passed, because the context in which the words were used and the purpose for which the accounting provisions were intended create the great controversy.  It is important to understand that people who never heard of the bribery of foreign officials woke up one day and found that an Act had just been passed which applied to them in very significant ways.  This was an Act which they had never heard of, had never thought involved them, had never paid any attention to, and had never understood.  They listened to the lawyers and accountants explain it to them and still did not understand.”

In “The SEC Interpretative and Enforcement Program Under the FCPA,” John Sweeny (former Assistant General Counsel of the SEC and at the time a lawyer in private practice) rightly noted:

“The SEC did not actively support the bribery provisions of the Foreign Corrupt Practices Act.  Indeed, it’s not entirely clear that they have any interest in prohibiting bribery per se.”

Sweeny also nicely touched upon a prosecutorial common law issue that remains today.

“The corporate community cannot sit back and wait to see how the law develops.  Because it makes sound business sense to comply with federal regulatory authorities without a public clamor, corporations must confirm their activity in ways which the agency requires.  To do otherwise would mean that the corporations would be risking substantial litigation expenses and adverse publicity.”

In ”International Aspects of the Control of Illicit Payments,” Professor Seymour Rubin assessed the then current state of the FCPA.

“The course of events in this particular area has been long, but it has not yielded much in the way of result.  Whether the FCPA has yielded a great deal in the way of results, I leave to all of you who have considered the matter.  Certainly it has yielded much in the way of instruction to people in various corporations.  I am somewhat impressed by the amount of paper which has been produced on this subject.  It reminds me again of the old saying to the effect that when the weight of the paper equals the weight of the airplane, the airplane will fly.”

Professor Rubin also rightly identified bribery and corruption as a trade issue and particularly how Senate Resolution 265 sponsored by Senator Ribicoff during the FCPA’s legislative debate was the most promising way to deal with the bribery and corruption problem.  For more on Senate Resolution 265, see the Story of the Foreign Corrupt Practices Act (pgs. 982-984).

“[Senator Ribicoff's proposal - Senate Resolution 265] was more realistic than some of the other proposals.  In particular, Senator Ribicoff argued that bribes, as well as similar practices, represent distortions of proper trade practices.  Under this premise, the members of the General Agreement on Tariffs and Trade would be the appropriate group to consider the question of illicit payments and bribes that distort the fair competition desirable in the field of international trade.  In other words, just as dumping and subsidization distort normal competition, so too does the practice of making illicit payments.  This premise served as the basis upon which the issue was to be presented at the GATT conference.  But when a special trade representative presented Senator Ribicoff’s proposal before the GATT conference, he was greeted with polite silence.  The GATT, in 1979, concluded a multilateral trade negotiation.  Among other things, this multilateral trade negotiation dealt with trade-distorting practices such as nontariff barriers, the question of government procurement, dumping codes, and the anti-subsidy or subsidies and countervailing duties.  It would seem that the multilateral trade negotiation would have been a legitimate arena in which to discuss the subject, as being one more example of a trade distortion which ought to be regulated.”

“I think if one were to rexamine the idea presented in Senate Resolution 265 and adopt this in the area of trade, one would be addressing the problem of illicit payments in more meaningful and significant terms.  When a large contract is lost by an American corporation because somebody else paid a bribe, a trade distortion results.  Clearly, if one were really serious about achieving a meaningful agreement in the area of international control of illicit payments, the peg on which to hang it would be trade policy and not morality.”

In “The Foreign Corrupt Practices Act:  Implications for the Private Practitioner,” Robert Primoff (a lawyer in private practice) called the FCPA a “prosecutor’s paradise” and observed:

“The target is always guilty of the violation.  The government has the option of deciding whether or not to prosecute.  For practitioners, however, the situation is intolerable.  We must be able to advise our clients as to whether their conduct violates the law, not whether this year’s crop of administrators is likely to enforce a particular alleged violation.  That would produce, in effect, a government of men and women rather than a government of law.”

If the Fall 1982 edition of the Syracuse Journal of International Law and Commerce does not completely fill your FCPA belly, you might also want to check out Volume 18, Number 2 of the Northwestern Journal of International Business (Winter 1998).

It is a symposium edition titled “A Review of the Foreign Corrupt Practices Act on Its Twentieth Anniversary:  Its Application, Defense and International Aftermath.“  The articles are rather pedestrian, but Stanley Sporkin’s (the former Director of the SEC’s Enforcement Division during Congress’s consideration and deliberation of the FCPA) article “The Worldwide Banning of Schmiergeld:  A Look at the Foreign Corrupt Practices Act On Its Twenieth Birthday” is worth a read as he provides a first-person account of the origins of the FCPA. [In case you are wondering Schmiergeld is the German word for bribe].

See here for a prior post detailing articles in a 2012 symposium edition of the Ohio State Law Journal “The FCPA At Thirty-Five and Its Impact on Global Business.”

Why You Should Be Alarmed By The ADM FCPA Enforcement Action

Friday, January 24th, 2014

I am pleased to share my new article recently published by Bloomberg BNA’s White Collar Crime Report titled “Why You Should Be Alarmed By The ADM FCPA Enforcement Action.”

The abstract is as follows.

“Like all statutes, the Foreign Corrupt Practices Act has specific elements that must be met in order for there to be a violation. However, with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. A case in point is the recent $54 million FCPA enforcement action against Archer Daniels Midland Co. (ADM) and related entities.  After discussing the principal features of this enforcement action – namely that ADM and its shareholders were victims of a corrupt Ukraine government – this article highlights why anyone who values the rule of law should be alarmed by the ADM enforcement action.”

The FCPA Turns 36

Friday, December 20th, 2013

Happy 36th birthday to our favorite statute, the Foreign Corrupt Practices Act.

Thirty-six years ago today, President Jimmy Carter signed S. 305.  President Carter’s signing statement stated in full as follows.

“I am pleased to sign into law S. 305, the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977. During my campaign for the Presidency, I repeatedly stressed the need for tough legislation to prohibit corporate bribery. S. 305 provides that necessary sanction. I share Congress’s belief that bribery is ethically repugnant and competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and stability of governments and harm our relations with other countries. Recent revelations of widespread overseas bribery have eroded public confidence in our basic institutions. This law makes corrupt payments to foreign officials illegal under United States law. It requires publicly held corporations to keep accurate books and records and establish accounting controls to prevent the use of ‘off-the-books’ devices, which have been used to disguise corporate bribes in the past. The law also requires more extensive disclosure of ownership of stocks registered with the [SEC]. These efforts, however, can only be fully successful in combating bribery and extortion if other countries and business itself take comparable action. Therefore, I hope progress will continue in the United Nations toward the negotiation of a treaty on illicit payments. I am also encouraged by the International Chamber of Commerce’s new Code of Ethical Business Practices.”

S. 305, of course, did not fall out of the sky onto President Carter’s desk thirty-six years ago today.  Rather, S. 305 was the result of more than two years of Congressional investigation, deliberation, and consideration.

If the FCPA is your cup of tea, you owe it to yourself to read the most extensive piece ever written about the FCPA’s history – “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.

Among other things, you will learn: (i) how the foreign corporate payments problem was discovered, specific events that prompted congressional concern, and the policy ramifications of those events which motivated Congress to act; (ii) how seeking new legislative remedies to the foreign corporate payments problem was far from a consensus view of the U.S. government and the divergent views as to a solution; (iii) the many difficult and complex issues Congress encountered in seeking a new legislative remedy; (iv) the two main competing legislative responses to the problem—a disclosure approach as to a broad category of payments and a criminalization approach as to a narrow category of payments, and why Congress opted for the later; and (v) how Congress learned of a variety of foreign corporate payments to a variety of recipients and for a variety of reasons, but how and why Congress  intended and accepted in passing the FCPA to capture only a narrow category of such payments.