Archive for the ‘Guest Posts’ Category

Let’s Pause Before We Dole Out Dollars

Thursday, May 14th, 2015

Out of thin airPrevious posts here and here addressed the calls of some that settlement amounts in an FCPA enforcement action be, at least in part, returned to the so-called victims of the underlying bribery.

Today’s post is from Joe Murphy.

Murphy is the author of 501 Ideas for Your Compliance and Ethics Program (SCCE; 2008) and a frequent commentator on compliance issues.

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There was recently an online posting championing the idea of the Department of Justice using some of the $9 billion criminal penalty imposed on one company for violations of sanctions against Sudan, Iran and Cuba to compensate victims of the regimes in those countries.  The Department would explore who those victims were and determine how to compensate them.

As a student of political science, I find this worrisome.  Any figure with that many zeros behind it is real money.  And, it can fairly be said, that money is a form of power.  Here we would have unelected enforcement officials making policy decisions about how to spend large pools of funds. Determining exactly who were the victims of such systemic violations is not simply an administrative task; there will be important policy decisions to be made, including matters of foreign policy.

When the fines were small this could be considered an incidental function. But when the amounts are in the billions, this is cause for much more consideration. Sure, we are often frustrated by the slow process of legislative deliberation, but that is the governmental system we have chosen. The raising and allocation of funds is subject to a system of checks and balances.  We live in a democracy, not a government of selected elites who choose to spend money as they think best. Enforcement officials should be enforcing the law and taking steps to prevent violations. Courts should be hearing disputes and resolving conflicts. But they are not legislatures and should not be selecting where to dole out billions of dollars in funds.

As the size of criminal fines has ballooned we have passed the point where this issue can be ignored.  There are serious policy issues.  If, on the one hand, the funds were simply added to the general funds of the government we would also have the troublesome issue of law enforcement being converted into a revenue-raising operation.  This specter is seen in Europe, where the EU’s competition law enforcers sometimes seem more like revenue agents than public servants dedicated to preventing violations. Consider the institutional bias this would introduce if an enforcement agency is a funding source for government operations.  Instead of having an incentive to stamp out violations, there would at least appear to be an opposite interest:  let the violations ripen into large cases so there is more revenue to harvest.

On the other hand, if the proceeds go elsewhere, then what is done with the money and who decides?  In the US at the federal level the proceeds go to victim reimbursement.  But as the cases deal with systematic violations or ones where victims are not clearly defined, this is not so easy.  When the violations are not simply theft, how do we determine who the victims are?  Who makes those decisions?  Is there a process in place capable of handling this?  And in a system where the victims are capable of pursuing their own compensation through litigation, what happens to the penalty funds generated by government?

If enforcers are allocating billions of dollars, can lobbying for that money be far behind?  What alert non-profit would pass up the opportunity to have access to those funds? And, as the enforcers should know well, dealing in those sums eventually invites fraud.  Will the enforcers require reports on how the funds were spent?  Will they audit or investigate this?  Will they then be allocating resources to monitor their grants to the victims and those who purport to benefit the victims?  Is this a business we want enforcers conducting?

Giving this level of power to enforcement officials should at least cause us to stop and think more about the process. They were not trained in how to do this, they were not selected for this, and they are not accountable to the public for what they do. Up until now, this question has not only not been answered, but for the most part it is not even being asked.  I find this at least a cause for concern.

Book Review – “The Foreign Corrupt Practices Act In A New Era”

Tuesday, May 12th, 2015

New EraToday’s post is a book review by Professor Peter Reilly (Texas A&M University School of Law and author of several FCPA articles) of my book “The Foreign Corrupt Practices Act In A New Era.”  The review originally appeared in a recent volume of International Trade Law and Regulation.

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The Foreign Corrupt Practices Act in a New Era, by law professor Mike Koehler, provides a fascinating and thorough analysis of the Foreign Corrupt Practices Act (“FCPA”).  But the book does far more than that; this volume attempts to educate readers in such a manner that they understand not only the motivation and thought processes behind the initial passage of the Act, but also the ongoing policy debates surrounding this important and controversial piece of legislation.

While some books on the FCPA appear to target a particular audience, such as academics for example, this volume will prove useful to anyone, in whatever field, who wants to thoroughly understand the past, present, and future of the FCPA, whether that person is engaged in business, law, government, academia, public policy, or any other pursuit or profession.

Professor Koehler’s insightful presentation and analysis of material on the FCPA likely comes from his unique background in the field.  Prior to academia, Koehler was an FCPA attorney in private practice where he advised clients on FCPA compliance matters, conducted FCPA investigations around the globe, and negotiated resolutions to FCPA enforcement actions with government agencies including the U.S. Department of Justice and the U.S. Securities and Exchange Commission.  Professor Koehler explains how his work in private practice led to an intense interest in “asking the why questions” regarding the FCPA and “injecting a candid and informed scholarly voice into the issues.”

This, in turn, led to a career in academia with a near-singular focus on mastering the complex and fascinating topics surrounding the FCPA and other anti-corruption laws and initiatives.  In this capacity, Koehler has testified before the U.S. Congress on the FCPA, published articles on the topic in leading law reviews and journals, been cited in legal briefs, judicial decisions, policy papers, and Congressional testimony, and been a featured source in various national and international media.  In short, Professor Koehler has become one of the most knowledgeable and influential thinkers in the field, both domestically and internationally, and this volume represents the fruit of a number of years of thoughtful research, writing, and teaching on the subject.

The depth and breadth of material covered in the book is ambitious, including the FCPA’s legislative history; enforcement agency policies and practices, including various alternative dispute resolution vehicles commonly used by enforcement agencies; FCPA legal authority, as well as administrative and other sources of guidance concerning the law; the FCPA’s anti-bribery provisions, as well as its books and records and internal controls provisions; reasons for the increase in FCPA enforcement during the past decade; compliance and best practices information; and suggested FCPA reform measures.

At the beginning of the book, Professor Koehler sets forth numerous questions, many of which could take an entire law review article to answer.   These questions include: (1) Who decides what bribery is? (2) Are business organizations that are subject to FCPA scrutiny ‘bad’ or ‘unethical’? (3) Is it still ‘bribery’ if the conduct in question was supported by the highest levels of the U.S. government? (4) If bribery is ‘bad,’ does that mean that all attempts to punish bribery and deter future misconduct are ‘good’? (5) Why has FCPA enforcement increased to the point that it is now a top legal and compliance concern for companies doing business in the global marketplace? (6) Has the quantity of FCPA enforcement actions become a higher priority for enforcement agencies than the quality of those actions? (7) Why does FCPA compliance remain difficult for even the most well-managed and well-intentioned companies? (8) Has this ‘new era’ of FCPA enforcement actually resulted in wasteful over compliance, with companies viewing every foreign business partner with irrational suspicion? (9) Is this ‘new era’ of FCPA enforcement—along with the ‘thriving and lucrative anti-bribery complex’ that has emerged simultaneously—desirable from a legal or policy perspective? (10) Has this ‘new era’ of FCPA enforcement been successful in actually reducing bribery?  And if not, could the FCPA be amended, or could certain enforcement agency policies and procedures be revised, in order to better achieve the original aims of the FCPA?

The book addresses the issues surrounding these questions at a surprisingly detailed and in-depth level, especially with respect to those questions requiring answers that are more subtle and complex in nature.  The fact is there can be strong disagreement regarding the answers to many of these questions.  One of the more interesting aspects of studying the FCPA is to consider how much a person’s political or economic interests can influence his or her reasoning in answering the various questions posed by Koehler.  The key is that Professor Koehler, ever the law school teacher who is more fond of questioning, probing, and analyzing an issue than of trying to force feed his own conclusions in the matter, concentrates on building knowledge and skill-level within readers so they themselves can successfully grapple with the questions presented in the book, as well as their own questions involving the FCPA.

Specifically, Professor Koehler relies on numerous vehicles and texts to build what he calls “FCPA goggles” for readers, enabling them to understand the FCPA to the extent necessary to make their own assessments of the strengths and weaknesses of the law, and to be able to pinpoint areas where the FCPA might be changed for improvement.  Readers are introduced to the FCPA’s statutory text, legislative history, judicial decisions, enforcement agency guidance, and various enforcement actions.  Koehler believes that analyzing these various authorities, and figuring out their impact upon how the FCPA is understood and enforced, are key aspects of providing readers with the knowledge they need to continue their own questioning, probing, and analyzing of this controversial law.  As Professor Koehler says to the reader, “[W]ith your FCPA goggles you now have a sharper focus to critically analyze various aspects of this new era, including whether the current FCPA and its enforcement best advance the laudable objectives of the FCPA.”

It is these ‘FCPA goggles’ that allow readers to judge the two suggestions for reform put forth by Professor Koehler toward the end of the volume:  a compliance defense, as well as the abolition of Non-Prosecution and Deferred Prosecution Agreements (NPAs and DPAs) within the context of FCPA enforcement.  I will leave it to readers of the book to determine for themselves, through their own ‘FCPA goggles,’ whether Koehler has made a strong case for either suggested reform measure.  I will say, however, that Professor Koehler seems to be aware that he has well-equipped readers to subject his ideas to deep and knowledgeable scrutiny based upon what he has taught them to that point in the book.  With that in mind, Koehler has to carefully explain why, for example, a compliance defense is neither a new nor novel idea; how in some respects the Department of Justice already recognizes a ‘de facto’ compliance defense; how numerous former high-ranking government officials support such a defense; and which important policy objectives would be advanced through an FCPA compliance defense.  Koehler builds and bolsters his argument by relying upon various testimony and legal and policy authority.  It almost feels like an academic ‘capstone’ exercise for the book, where the Professor puts forth his arguments and then turns to the reader/student and asks, “Have I done what I set out to do in this project?  Are you now able to thoroughly question, analyze, and criticize my arguments based upon what you have learned through this book?”

The answer is unequivocally yes; and the contribution this new volume makes to the field is unequivocally substantial.

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For additional reviews of the book, see 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.

 

Spain Becomes The Latest Country To Adopt A Compliance Defense

Tuesday, April 14th, 2015

SpainThe article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” highlights, among other things, that several countries like the United States that are signatories to the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Convention), have a compliance-like defense in their domestic laws.

The article discussed compliance-like defense concepts in the laws of the following OECD Convention countries: United Kingdom, Australia, Chile, Germany, Hungary, Italy, Japan, Korea, Poland, Portugal, Sweden, and Switzerland.

As noted in the article:

“That additional OECD Convention signatory countries [do not have compliance defense concepts] does not mean that those countries rejected compliance-like defenses relevant to their “FCPA-like” law. Rather, in many OECD Convention countries the concept of legal person criminal liability (as opposed to natural person criminal liability) is non-existent. Further, in many OECD Convention countries that recognize legal person criminal liability, such legal person liability can only result from the actions of high-level personnel or other so-called “controlling minds” of the legal person. If a foreign country does not provide legal person liability, there is no need for a compliance defense, and the rationale for a compliance defense is less compelling if legal exposure of the legal person can only result from the conduct of high-level executive personnel or other “controlling” minds of the legal person.”

“Revisiting a Foreign Corrupt Practices Act Compliance Defense” was published in January 2012 and since then several other OECD Convention countries (and other countries) have adopted or are considering adopting compliance-like defense concepts in their domestic laws.

Prior posts here and here highlighted developments in Singapore and Ireland.

The point is – a compliance-like defense applicable to the offense of bribery of foreign officials is not novel, risky, or dangerous as the DOJ and others have argued.

The latest country to recognize this – and become smart as to enforcement of anti-bribery laws – is Spain.

In this recent post published on Global Compliance News (a news platform moderated by Baker & McKenzie), Brian Whisler and Rafael Jimenez-Gusi write:

“Pursuant to amendments to the Spanish Criminal Code approved on March 26, 2015 by the Spanish Congress and scheduled to take effect on July 1, 2015, a company’s directors are legally obligated to adopt a compliance program and the program must be supervised by a body or individual authorized to exercise high-level control. The amended code provides companies with an exemption from criminal liability for crimes committed by their officers or employees, provided the company meets certain requirements set forth under the new law. Specifically, Article 33 of the amended code exempts companies from criminal liability under the following conditions:

  1. the directors have adopted a compliance program that meets the legal requirements under Spanish law,
  2. the supervision of the program is entrusted to a company´s body or individual with authorized powers of initiative and control (Compliance Body),
  3. the officers or the employees have committed a crime by intentionally violating the compliance program, and
  4. the Compliance Body did not neglect its duties of supervision, oversight and control.

The amended Spanish code also lists six key elements that a compliance program must include in order to insulate a company from criminal liability (provided that the compliance program has been adopted before a crime was committed by any of its officers or employees). These six elements, as enumerated in Article 33 bis 5, are:

  1. Risk assessment,
  2. Standards and controls to mitigate any criminal risks detected,
  3. Financial controls to prevent the crimes,
  4. Obligation to report to the Compliance Body any violations of the standards and controls (a whistleblowing channel),
  5. Disciplinary system to sanction violations of the compliance program by officers and employees, and
  6. Periodic review of the compliance program, making the necessary adjustments when serious violations occur or when the company undergoes organizational, structural or economic changes.

Since the amended code requires an effective compliance program, companies will also need to demonstrate that their officers and employees have received proper training.

Prior to this development, in 2010, Spanish legislation introduced corporate liability for a number of crimes, including corruption. Directors could be held criminally liable if a crime was committed that could have been avoided. However, that legislation did not address the consideration a judge could give to a company’s compliance program. The 2015 Spanish legislation now places great weight on effective compliance programs, following the global trend toward mandating compliance programs reflecting core elements for such programs.

Additionally, much like in the U.K., the recent Spanish legislation is designed to provide an affirmative compliance defense for companies that can demonstrate the six elements of an effective compliance program described in the new law.”

Fighting Foreign Corrupt Practices – How Current DOJ and SEC Revenue Generation is Unproductive

Thursday, March 12th, 2015

meaninglessToday’s post is from Peter Manda. Manda is a former international in-house counsel and has worked on a variety of international in-house investigations and FCPA matters.

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In the early days of FCPA enforcement, courts and the DOJ alike made every effort to ascertain the source of the violation and to deal with that violation on the local level.  Prosecutions were limited to local employees; and fines and penalties on issuers were limited in scope.

Over time, as issuers were found to have intentionally and knowingly violated the FCPA, disgorgement of profits and high fines and penalties became more common. Nevertheless, collected fines and penalties (while volatile) increased (at most) at an average rate of $100M a year. This all changed in 2012 with the adoption by the SEC and DOJ of the FCPA Guidelines which purport to outline the compliance steps that must be undertaken in order to prevent an FCPA violation or to reduce or mitigate potential fines and penalties through voluntary disclosure and cooperation.

In describing liability for acts conducted in or by subsidiaries, the Guide articulates a strict liability respondeat superior standard that compels issuers to disgorge any revenue that is arguably derived from an alleged violation. The results have sent shock waves through the international business community. Fines and penalties collected have increased at a clip pace of $500M a year. Issuers now face the difficult choice of voluntarily reporting and potentially paying impressively high fines or hedging a bet that the SEC or DOJ won’t find the violation for a while and then paying a lesser fine by cooperating in the investigation. Worse, it is pretty clear from recent official statements that the SEC and DOJ assume issuers are companies that go out into the world with the intent of breaking all the rules, paying bribes, and being corrupt.

Yet, a review of recent FCPA enforcement actions does not show how bad US issuers are. Rather, they often point to local employees in far-distant countries committing FCPA violations — violations that are often only apparent in hindsight after the controls implemented by the issuer detect the wrong-doing. In most cases, those employees are individuals who operate culturally under different assumptions and who don’t seem to have received the memo that US companies don’t tolerate bribery and corrupt practices. This is especially the case where an issuer acquires a foreign company and then finds that employees in the acquired company had been engaging in corrupt practices.

The outcry from issuers and from those who think about the FCPA and its scope is justified. In effect the government has converted what should be an anti-corruption measure into a revenue generating measure. By having widened the standards to allow prosecutors to coerce settlements that disgorge from the consolidated global earnings of issuers, the DOJ and SEC have opened the revenue stream pipeline and the money is flowing at a clip pace of $500M a year. Naturally there is pushback from this overreach, pushback that has included Congressional hearings. The negative result of this pushback could be a watering down of the effort to fight corruption abroad. Not only would that be unfortunate, it would violate OECD objectives and commitments.

In an article I wrote – recently published by the International In-House Counsel Journal - I suggest that the DOJ and SEC should adopt an intermediate standard that allows for limitation of liability (including fines and penalties) to the foreign subsidiary (that is, no disgorgement of consolidated global earnings) where (a) the issuer parent voluntarily discloses immediately upon the discovery of a violation, (b) the issuer parent’s compliance controls are effective and were the reason for the discovery, and (c) the violations were engaged in by employees or agents who knew of the issuer’s commitment to FCPA compliance but chose to ignore them regardless; or (d) where an issuer acquires a foreign subsidiary and finds a violation after the fact despite due diligence conducted according to generally accepted auditing principles.

I believe the result of adopting an intermediate standard would encourage more cooperation between the government and issuers. An intermediate standard would make issuers allies with the DOJ and SEC in the fight against corruption — rather than adversaries fighting a calculus of revenue generation and earnings reduction. Equally important, by focusing on the subsidiary rather than the parent issuer, the DOJ and SEC could engage the issuer to interact with local authorities to prosecute the violators and to implement effective informational campaigns that could have a wider, more permanent, effect in the fight against corruption. Disgorgement of consolidated earnings punishes the parent issuer, it does nothing to help reduce foreign corrupt practices. It’s time the SEC and DOJ turned their attention from generating revenue from issuers to making them allies in the fight against foreign corrupt practices.

Navigating The ‘Gift, Entertainment And Hospitality’ Landscape In India

Thursday, February 19th, 2015

IndiaSherbir Panag (MZM Legal Advocates & Legal Consultants in Mumbai, India). Panag is the India Expert for FCPA Professor.

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FCPA enforcement actions in 2014 have seen companies such as HP Poland, Bruker and Avon (in part) face heat as a result of alleged bribes being paid under the alleged guise of gifts and corporate hospitality.

The risk for multinational companies operating in countries with engrained ‘gift giving’ and ‘hospitality extending / accepting’ cultures is thus a real compliance concern. India happens to be one such country where its cultural and ethnic diversity, multitude of festivals and high levels of public corruption, make the already complex compliance task all the more challenging.

In the ‘Resource Guide to the U.S. Foreign Corrupt Practices Act’ the DOJ and SEC recognize that a small gift is often an appropriate way for business people to display respect for each other. It further goes on to lay down some hallmarks of appropriate gift giving as “when the gift is given openly and transparently, properly recorded in the giver’s books and records, provided only to reflect esteem or gratitude, and permitted under local law.”

The focus of this post will be to help facilitate a better understanding of what gifts, entertainment and hospitality to public servants is permitted under Indian law.

Background:

India’s principal anti corruption legislation – the Prevention of Corruption Act, 1988 (PCA) recognizes that bribes paid to public servants are not limited to pecuniary gratifications or to gratifications estimable in monetary terms. This is further emboldened by the use of the term ‘any gratification whatever, other than legal remuneration’ in the substantive text of the bribery provisions. The gratification would be deemed to be illegal or a bribe if it is paid/given with the intention to:

  • motivate, influence or reward the public servant to perform or forbear performance of an official act;
  • show favour or disfavour to any persons;
  • render or attempting to render any service or disservice to a public servant.

Therefore, gifts given or hospitality extended to public servants beyond the threshold limits or in improper circumstances that are likely to influence the public servant, would be deemed as a bribe under Indian law.

Who is a Public Servant?

Section 2(c) of the PCA provides the definition of who would be deemed to be a public servant. The definition is extremely broad and includes among others government officials, local authorities, judicial officers, any holder of office to perform a public duty and employees of government owned or government controlled entities. Broadly speaking state control and financing is a reasonable test to determine whether an individual would be a public servant or not.

 What Gifts Can be Given and Hospitality Extended to a Public Servant?

Every public servant is governed by the conduct rules / code of conduct of his or her service or organisation. For example, the ‘All India Services (Conduct) Rules, 1968’ would cover services such as the Indian Administrative Services and the Indian Police Service, the state owned Oil and Natural Gas Corporation (ONGC) has the ‘ONGC Conduct, Discipline and Appeal Rules, 1994 (Amended 2011)’, Ministers of both the Union and States are governed by the ‘Code of Conduct for Minsters’ so on and so forth. These Conduct Rules establish the threshold limits on the value of gifts and hospitality that can be accepted by the concerned class of public servant and the circumstances thereof.

While the threshold value varies among the different services and organisation based on the class and seniority of the public servant, few standard aspects are prevalent:[1]

  • Public servants shall not accept nor have any member of his / her family or person acting on his/her behalf accept any gift for him / her.
  • Gifts shall include free transport, boarding, lodging or other service or any other pecuniary advantage when provided by any person other than a near relative or personal friend having no official dealings with the Government servant.
  • Gifts of the specified value may be accepted by public servants from his / her near relatives or personal friends having no official dealing with him/her when the same is in conformity with prevailing religious and social practices.
  • Public servants shall not accept any gifts from any foreign firm which is either contracting with the Government of India or is one with which the public servant had, has or is likely to have official dealings.
  • Generally a casual meal, lift or other social hospitality shall not be deemed to be a gift.
  • Public servants are to avoid accepting lavish hospitality or frequent hospitality from any individual or commercial organisation that have official dealings with him /her.
  • It is imperative to read the conduct rules / code of conduct alongside the applicable provisions and objectives of the PCA.

Best Practices That Corporations Should Bear in Mind While Framing Their ‘Gift, Entertainment and Hospitality’ Policies in India:

As noted above specific threshold limits as specified in the public servants code of conduct / conduct rules are applicable to them. Therefore, a ‘Gift, Entertainment and Hospitality’ policy must cater to these specificities and variations by keeping the following best practices in mind:

  • Companies should maintain a database of up to date and official conduct rules / code of conducts of the public servants it regularly interacts with.
  • Employees of the company should be adequately briefed on the legal need to carefully evaluate the specific gift, entertainment and hospitality provisions and corresponding threshold value of each class of public servant before giving a gift or extending hospitality to them.
  • Threshold values in the company policy must ideally be mentioned in Indian Rupees in order to ensure clarity and prevent any misunderstanding / misconduct that may inadvertently occur due to fluctuating foreign exchange rates.
  • Business courtesies should be accurately documented and reported in the company’s books and records.

[1] This list is merely indicative and is not exhaustive, nor applicable to all conduct rules / code of conduct. Items included in the list are subject to the exceptions, explanations, exclusions, modifications and additions as narrated in the respective conduct rules / code of conduct.

This post is purely informative and does not constitute legal advisory and should not be construed as such