Archive for the ‘Legislative History’ Category

The Importance Of The FCPA’s Legislative History

Tuesday, August 25th, 2015

CongressTo some, the legislative history of the Foreign Corrupt Practices Act is not important.

However, there is one category of persons who rightly care about the motivations of Congress in passing the FCPA, the competing bills Congress considered in enacting the FCPA, and Congress’s intent as to various elements of the FCPA.

That group is federal court judges.

As readers no doubt know, judicial scrutiny of FCPA enforcement theories is sparse.  Yet when it does occur, a common thread in most FCPA judicial decisions is discussion and analysis of the FCPA’s legislative history, often but not exclusively because the judge found various provisions of the FCPA ambiguous.

The recent decision (see here for the prior post) by  Judge Janet Bond Arterton (D. Conn.) trimming the DOJ’s FCPA enforcement action against Lawrence Hoskins by granting in part his motion to dismiss and denying a DOJ motion in limine was based primarily on the FCPA’s legislative history and what it revealed about Congress’s intent in capturing a certain category of defendant.

Likewise, although the 11th Circuit completely bungled its analysis of the FCPA’s legislative history relevant to the “foreign official” element in its 2014 U.S. v. Esquenazi opinion (see this article at pgs. 24-42 for a detailed analysis), the opinion nevertheless contained much discussion of the FCPA’s legislative history.

Several FCPA commentators object to the notion that the FCPA is ambiguous or that resort to legislative history is important. This Forbes article titled “Top 5 Misconceptions About The FCPA” set out to “clear up a few misconceptions about the FCPA.”  Number one on the list of misconceptions was that ‘the FCPA is a vague statute.”  The FCPA Blog has long maintained (see here and here for examples) that FCPA lawyers say that the law is “complicated, technically challenging, obscure, poorly drafted and badly organized” but warns,” don’t believe it. There’s no evidence in the record that judges or juries have any trouble understanding the FCPA.”

The above protestations and observations are just plain wrong.  There is abundant ”evidence in the record” that the FCPA is an ambiguous statute and/or that the FCPA’s legislative history is important.

In addition, to the recent Hoskins and Esquenazi cases, this post summarizes the many other instances in which federal court judges have found various provisions of the FCPA to be ambiguous and/or have consulted the FCPA’s legislative history.

In SEC v. Straub,  921 F.Supp.2d 244 (S.D.N.Y. 2013) Judge Richard Sullivan (see here for the prior post) found the FCPA’s jurisdictional element ambiguous and thus consulted the legislative history.

In SEC v. Jackson, 908 F.Supp.2d 834 (S.D.Tex. 2012)Judge Keith Ellison consulted the FCPA’s legislative history regarding: the need to identify the “foreign official,” the facilitation payments exception, and the corrupt intent element.

In U.S. v. Jensen, 532 F.Supp.2d 1187 (N.D. Cal. 2008), Judge Charles Breyer stated as follows regarding  § 78m(b)(5) which makes “knowing” violations of the FCPA books and records and internal control provisions a crime.  “Because the plain language of § 78m(b)(5) is not unambiguous, the Court turns to legislative history.”

In U.S. v. Kozeny, 582 F.Supp.2d 535 (S.D.N.Y. 2008), Judge Shira Scheindlin consulted the legislative history in a decision concerning the FCPA’s local law affirmative defense.

In U.S. v. Kozeny, 493 F.Supp.2d 693 (S.D.N.Y. 2007), Judge Scheindlin stated as follows concerning the statute of limitations applicable to FCPA criminal violations.  “I find that [18 U.S.C. § 3282] is ambiguous, and turn to its legislative history for guidance on its proper interpretation.”

In U.S. v. Bodmer, 342 F.Supp.2d 176 (S.D.N.Y. 2004), Judge Scheindlin addressed the question “whether prior to the 1998 amendments, foreign nationals who acted as agents of domestic concerns, and who were not residents of the United States, could be criminally prosecuted under the FCPA.”  Judge Scheindlin concluded that the FCPA’s language, as it existed prior to the 1998 amendments, was ambiguous and she thus resorted to legislative history.  Judge Scheindlin further commented in dismissing the FCPA charges against Bodmer as follows.  “After consideration of the statutory language, legislative history, and judicial interpretations of the FCPA, the jurisdictional scope of the statute’s criminal penalties is still unclear.”

In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Court stated as follows.  “It is difficult to determine the meaning of the word “corruptly” simply by reading it in context. We therefore look outside the text of the statute to determine its intended meaning. [...]  (“Legislative history and other tools of interpretation may be relied upon only if the terms of the statute are ambiguous.”

In U.S. v. Kay, 200 F.Supp.2d 681 (S.D. Tex. 2002), Judge David Hittner concluded that the FCPA’s “obtain or retain business” element was ambiguous and thus turned to an analysis of the legislative history.  On appeal, the Fifth Circuit (see 359 F.3d 738 (5th Cir. 2004)) likewise stated as follows prior to an extensive review of the FCPA’s legislative history.

“[T]he district court concluded that the FCPA’s language is ambiguous, and proceeded to review the statute’s legislative history.  We agree with the court’s finding of ambiguity for several reasons. Perhaps our most significant statutory construction problem results from the failure of the language of the FCPA to give a clear indication of the exact scope of the business nexus element; that is, the proximity of the required nexus between, on the one hand, the anticipated results of the foreign official’s bargained-for action or inaction, and, on the other hand, the assistance provided by or expected from those results in helping the briber to obtain or retain business. Stated differently, how attenuated can the linkage be between the effects of that which is sought from the foreign official in consideration of a bribe (here, tax minimization) and the briber’s goal of finding assistance or obtaining or retaining foreign business with or for some person, and still satisfy the business nexus element of the FCPA?”

In U.S. v. Blondek, 741 F.Supp. 116 (N.D.Tex 1990), Judge Harold Sanders consulted the FCPA’s legislative history in concluding that “foreign officials” can not be charged with conspiracy to violate the FCPA.

To some, the FCPA’s legislative history is nothing more than a history lesson.

However, federal court judges who interpret the FCPA in the rare occasions they are given an opportunity to do have consistently reminded us otherwise.

This is why the Story of the FCPA (see here for the article) remains important today.

The Success Of “Soft Enforcement” In The U.K.

Tuesday, August 18th, 2015

Success3As distinguished from “hard” enforcement of a law by enforcement agencies, “soft” enforcement generally refers to a law’s ability to facilitate self-policing and compliance to a greater degree than can be accomplished through “hard” enforcement alone.

Those subject to the law, whether a traffic law or otherwise, comply with the law’s prohibitions because they “could” be found to be in violation of the law, even though the prospect of “hard” detection and enforcement of the violation is low.

Indeed, one of the most notable statements from the FCPA’s legislative history was made by the Chairman of Lockheed who stated:

“So it is true that we knew about the practice of payments on some occasions to foreign officials. But so did everyone else who was at all knowledgeable about foreign sales. There were no U.S. rules or laws which banned the practice or made it illegal.  […] If Congress passes laws dealing with commissions and direct or indirect payments to foreign officials in other countries, Lockheed, of course, will fully comply with them.” (See Lockheed Bribery: Hearings Before the S. Comm on Banking, Hous., and Urban Affairs, 94th Cong. (1975).

In passing the FCPA, Congress anticipated that the “criminalization of foreign corporate bribery will to a significant extent act as a self-enforcing preventative mechanism.” (See S. Rep. No. 93-114, at 10 (1977). Likewise since the FCPA’s earliest days, the DOJ has recognized that the “most efficient means of implementing the FCPA is voluntary compliance by the American business community.” (See “Justice Outlines Priorities in Prosecuting Violations of For. Corrupt Practices Act,” The American Banker (Nov. 21, 1979).

In this regard, a former DOJ prosecutor responsible for investigating and prosecuting FCPA cases rightly observed that “this new era of more aggressive [FCPA] prosecution has, in turn, encouraged corporations to pay even greater attention to their internal compliance programs, matching the ‘hard’ enforcement with ‘soft’ enforcement.” (See Philip Urofsky, et al, “How Should We Measure the Effectiveness of the Foreign Corrupt Practices Act? Don’t Break What Isn’t Broken—The Fallacies of Reform,” 73 The Ohio Law Journal 1145 (2012).

Against this backdrop, the U.K. government recently released this ”Impact of the Bribery Act 2010 on SMEs” (as in small and medium size enterprises). In examining the findings of the report, it is important to be mindful that the report categorizes medium sized enterprises as having between 50 to 250 employees; small enterprises as having between 10 to 49 employees; and micro enterprises as having less than 10 employees.
According to the report:

Two-thirds (66%) of the SMEs surveyed had either heard of the Bribery Act 2010 or were aware of its corporate liability for failure to prevent bribery. Awareness was greater among SMEs exporting to regions that are less developed, including the Middle East, Asia, Africa and South and Central America (68%) compared to those companies only exporting to developed regions including Europe, North America and Australia (56%).

The proportion of SMEs that had heard of the Act by name increased with business size. Only 42% of micro sized companies had heard of the Act compared to 54% of small companies and 78% of medium sized companies. Furthermore, those exporting to higher risk regions, as defined by the Corruption Perception Index (including the Middle East, Asia, Africa and South and Central America), were more likely to have heard of the Bribery Act (58%) compared to those companies only exporting to regions at less risk including Europe, North America and Australia (41%)

In addition to whether SMEs had heard of the Bribery Act by name, SMEs were asked whether they were aware of the corporate failure to prevent bribery offence at section 7 of the Act (as described in the introduction). Just over half of all SMEs (53%) were aware of it. Awareness was linked with company size with only 39% of micro companies being aware, compared to 53% of small companies and 73% of medium sized companies.

SMEs were also asked if they had sought any professional advice about the Bribery Act or about bribery prevention. Around a quarter (24%) of SMEs who were aware of the Bribery Act or its corporate failure to prevent provisions had sought such advice, which was most commonly offered by legal professionals (54% of those seeking professional advice).

Around four in ten SMEs (42%) said that they had put bribery prevention procedures in place; defined as anything that they thought helped prevent bribery. Among SMEs that did have procedures in place, these procedures were most typically financial and commercial controls such as bookkeeping, auditing and approval of expenditure (94%) or a top level commitment that the company does not win business through bribery (88%). Just under half of those with procedures in place had written staff policy documents about bribery prevention which are signed by staff (48%) or raised awareness and provided training about the threats posed by bribery in the sector or areas in which the organisation operates (44%). Again, SMEs exporting to the less developed export regions (45%) and especially China (59%) were more likely to have bribery prevention procedures in place.

Those more likely to have bribery prevention procedures in place included: Medium sized companies (60%), compared to small companies (43%) and micro companies (29%).

To some, the above numbers represent a failure of the U.K. Bribery Act (such opinions have mostly been from Bribery Act Inc. participants who have used the report to market their compliance services).

However, the above number represent the success of “soft enforcement” of the Bribery Act in the U.K.

Consider these facts: the U.K. Bribery Act only went live in July 2011 and there has not yet been any enforcement of the FCPA-like provisions in the U.K. Bribery Act.

The relevant analogy would be how many U.S. small to medium size enterprises during the first five years of the FCPA’s existence had heard of the FCPA and developed and put in place preventative procedures?

Fast forward today and query, if one would survey SME managers, nearly 40 years after the FCPA was enacted against the backdrop of the current enforcement climate what the numbers would look like?

Would nearly 70% of U.S. SME managers be aware of the FCPA? Would nearly 40% of managers of micro companies (those with less than 10 employees) be aware of the FCPA? Would 60% of medium size companies, approximately 45% of small companies, and nearly 30% of micro companies have pro-active preventative procedures in place?

I highly doubt it.

Thus, what the recent U.K. report demonstrates is that even in the absence of any “hard” enforcement of the FCPA-like provisions of the U.K. Bribery Act, the U.K. Bribery Act – no doubt because of its adequate procedures defense – is having, even at this early stage, a positive impact of “soft enforcement.”

And kudos to the U.K. government for recognizing this.  The report rightly notes that the purpose of the adequate procedures defense is “to influence behaviour and encourage bribery prevention as part of corporate good governance.”

There are several commentators who are opposed to an FCPA compliance defense.  However, noticeably absent for the critiques is any discussion of how a compliance defense can have a positive impact on “soft enforcement” of the FCPA.

As highlighted in my article “Revisiting a Foreign Corrupt Practices Act Compliance Defense” and numerous posts thereafter (hereherehere and here), a compliance defense might very well lead to a minor reduction in “hard enforcement” of the FCPA,” but the expected increase in “soft enforcement” of the FCPA makes a compliance defense sound public policy.

Judge Trims DOJ’s FCPA Enforcement Action Against Lawrence Hoskins

Monday, August 17th, 2015

Judicial DecisionLast week, U.S. District Court Judge Janet Bond Arterton (D. Conn.) trimmed the DOJ’s FCPA enforcement action against Lawrence Hoskins (a former Alstom executive criminally charged in August 2013 – see here) by granting in part his motion to dismiss and denying a DOJ motion in limine.

In pertinent part, Hoskins (a U.K. citizen) moved to dismiss count one of the DOJ’s Third Superseding Indictment “on the basis that it charges a legally invalid theory that he could be criminally liable for conspiracy to violate the FCPA even if the evidence does not establish that he was subject to criminal liability as a principal, by being an “agent” of a “domestic concern.”

As stated by Judge Arterton:

“Relatedly, the Government moves in limine to preclude Defendant from arguing to the jury that it must prove that he was the agent of a domestic concern because the Government contends that Defendant can also be convicted under theories of accomplice liability. For the reasons that follow, Defendant’s Motion to Dismiss Count One of the Third Superseding Indictment will be granted in part to preclude Defendant’s FCPA conspiracy prosecution from being de-linked from proof that he was an agent of a domestic concern and the Government’s Motion in Limine is denied.”

In the words of Judge Arterton:

“[T]hese two motions put before the Court the question of whether a nonresident foreign national could be subject to criminal liability under the FCPA, even where he is not an agent of a domestic concern and does not commit acts while physically present in the territory of the United States, under a theory of conspiracy or aiding and abetting a violation of the FCPA by a person who is within the statute’s reach.2 The Court concludes that the answer is “no” and that accomplice liability cannot extend to this Defendant under such circumstances and thus Defendant’s Motion to Dismiss Count One is granted in part and the Government’s Motion in Limine is denied.”

Judge Arterton began by discussing the Gebardi Principle that has been used previously by judges in dismissing DOJ FCPA enforcement actions against foreign nationals (Castle and Bodmer referenced below)  Specifically, the Judge noted as follows.

“[T]he Gebardi principle is that where Congress chooses to exclude a class of individuals from liability under a statute, “the Executive [may not] . . . override the Congressional intent not to prosecute” that party by charging it with conspiring to violate a statute that it could not directly violate. United States v. Castle, 925 F.2d 831, 833 (5th Cir. 1991); see also United States v. Bodmer, 342 F. Supp. 2d 176, 181 n.6 (S.D.N.Y. 2004) (“In Gebardi, the Supreme Court held that where Congress passes a substantive criminal statute that excludes a certain class of individuals from liability, the Government cannot evade Congressional intent by charging those individuals with conspiring to violate the same statute.”). The Gebardi principle also applies to aiding and abetting liability.

In determining whether the Gebardi principle applies, the question is “not whether Congress could have” reached a certain class of individuals under the conspiracy or aiding and abetting statutes, “but rather whether Congress intended to do so, or more specifically, whether Congress intended the general conspiracy statute” to apply to these individuals.5 Castle, 925 F.2d at 835 (emphasis in original).

The Government maintains that Gebardi recognized only a “narrow exception to [the] long-established legal principle” that “the conspiracy and accomplice liability statutes apply to classes of persons who lack the capacity to commit a violation of the underlying substantive crime.”  It maintains that this exception only “applies in two limited circumstances: (1) where a class of person is a necessary party to the crime and was specifically excluded from prosecution for the substantive violation by Congress (e.g., the foreign official who receives the bribe payment under the FCPA, or the woman who is transported across state lines under the Mann Act); or (2) where the substantive statute was enacted to protect the class of person to which the individual belongs (e.g., victims).”  Defendant maintains that Gebardi applies whenever “Congress affirmatively chooses to exclude a certain class of individuals from liability under a criminal statute.”

The Court agrees with Defendant that the Government’s interpretation of Gebardi is too narrow and that while the two “[f]actual scenarios . . . posited by the government bring Congress’s intent into view and, thereby, make it easier to glean the existence of an affirmative legislative policy,” Congressional intent can be evident in other circumstances. For example, in Amen, the Second Circuit applied Gebardi and held that a person who was not the head of a criminal enterprise could not be subject to the drug “kingpin” statute’s sentencing enhancement under a theory that he aided and abetted a violation, because “[w]hen Congress assigns guilt to only one type of participant in a transaction, it intends to leave the others unpunished for the offense.” 831 F.2d at 381.

The Second Circuit’s reasoning was not, as the Government maintains, that a violation of the kingpin statute requires “the participation of two classes of persons— those who lead a criminal enterprise, on the one hand, and those who are led, on the other” and that “Congress chose only to provide for an enhanced punishment of one of those necessary parties.”  Rather, the Second Circuit reasoned that while the statute’s “legislative history makes no mention of aiders and abettors, it makes it clear that the purpose . . . was not to catch in the [kingpin] net those who aided and abetted the supervisors’ activities.”

Judge Arterton relied extensively on the FCPA’s legislative history to support her decisions. The application section of the ruling states in its entirety as follows.

“The clearest indication of legislative intent is the text and structure of the FCPA, which carefully delineates the classes of people subject to liability and excludes nonresident foreign nationals where they are not agents of a domestic concern or did not take actions in furtherance of a corrupt payment within the territory of the United States. See Community for Creative Non–Violence v. Reid, 490 U.S. 730, 739 (1989) (“The starting point for [the] interpretation of a statute is always its language.”).

In United States v. Castle, 925 F.2d 831, 832 (5th Cir. 1991), the Fifth Circuit applied Gebardi to conclude that another class of individuals not subject to liability as principals under the FCPA—the foreign officials who accept bribes—could not be prosecuted for conspiracy to violate the FCPA. The Fifth Circuit found an intent in the FCPA to exclude the foreign bribe recipients because, in enacting the FCPA in 1977 in the aftermath of the Watergate scandal, Congress was principally “concerned about the domestic effects of such payments,” such as “the distortion of, and resulting lack of confidence in, the free market system within the United States.” Id. at 834–35.

Congress was aware that it “could, consistently with international law, reach foreign officials in certain circumstances,” but it was also concerned about “the ‘inherent jurisdictional, enforcement, and diplomatic difficulties’ raised by the application of the bill to non-citizens of the United States” and decided not to do so. Id. at 835 (quoting H.R.Conf.Rep. No. 831, 95th Cong., 1st Sess. 14, reprinted in 1977 U.S.Code Cong. & Admin.News 4121, 4126).7 From the text of the statute and the legislative history expressing concern about reaching non-citizens, the Fifth Circuit found “in the FCPA what the Supreme Court in Gebardi found in the Mann Act: an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law.” Id. at 836.

Legislative History of 1977

Although the text and structure of the FCPA provide strong indication that Congress did not intend for non-resident foreign nationals to be subject to the FCPA unless they were agents of a domestic concern or acted in the territory of the United States, the Court also considers the legislative history of the Act.

While the extensive legislative history of the enactment of the FCPA in 1977 and its amendments in 1998 identified by the parties contain little discussion of accomplice liability, that which does exist is consistent with what the plain text and structure of the final enactment implies regarding the limits of liability for non-resident foreign nationals. The initial version of the Senate bill introduced by the Committee on Banking, Housing and Urban Affairs on June 2, 1976 made it unlawful for any U.S. “issuer” or “domestic concern” to use any means or instrumentality of interstate commerce to authorize or pay a bribe. S. 3664, 94th Cong. (1976). “Domestic concern” was defined to include (1) U.S. citizens and nationals and (2) entities owned or controlled by U.S. citizens and nationals that were either incorporated in or had a principal place of business in the United States. Id. at 7.

An amendment to the Senate bill responded to a request by the administration of President Carter “to clearly cover under the bill individuals making payments” that was not “crystal clear” in the original version. Markup Session on S. 305, Senate Comm. on Banking, Housing and Urban Affairs, 95th Cong., 8 (Apr. 6, 1977). The definition of domestic concern was left unchanged, but the proposal added that officers, directors, employees and stockholders acting on behalf of U.S. issuers or domestic concerns, irrespective of nationality, would be liable for making bribes on behalf of the company. S. Rep. No. 95-114, at 11; 123 Cong. Rec. 13817 (1977). Although the Carter Administration requested that liability be extended to foreign subsidiaries of U.S. companies, Markup Session on S. 305 at 9, the Senate declined to do so, S. Rep. No. 95-114.

A competing House bill introduced on February 22, 1977 provided for broader liability for non-resident foreign nationals than the Senate bill, proposing liability not just for non-U.S. officers, directors, and employees of domestic concerns, but also (1) any “agent” of a U.S. issuer or domestic concern who “carried out” a bribe and (2) officers, directors, and employees of foreign affiliates irrespective of nationality. H.R. 3815 §§ 30A(c)(2), 3(c)(2), 3(f)(2)(A), 95th Cong. (1977).

The FCPA as enacted included elements from both the Senate and House bills, extending liability to agents of domestic concerns as the House proposed, but limiting criminal liability of agents and employees of domestic concerns to a person who was a “United States citizen, national, or resident or is otherwise subject to the jurisdiction of the United States,” and predicated such person’s criminal liability on a finding that the domestic concern itself had violated the statute. 15 U.S.C. § 78dd-2(b)(1)(B)(3) (1977).

The final bill excluded foreign affiliates of U.S. companies, as the Senate proposed, which the House Conference Report described as a “recogni[tion] [of] the inherent jurisdictional, enforcement and diplomatic difficulties raised by the inclusion of foreign subsidiaries of U.S. companies in the direct prohibitions of the bill.” H.R. Conf. Rep. No. 95-831, at *14. The Report explained, however, that because U.S. citizens, nationals, and residents were defined as domestic concerns, they could be liable for engaging in bribery “indirectly” through another person and that the “jurisdictional, enforcement and diplomatic difficulties” that applied to extending liability to foreign subsidiaries did not apply to “citizens, nations, or residents of the United States.” Id.

The Government notes that early versions of the Senate and House committee reports discussed accomplice liability: The committee fully recognizes that the proposed law will not reach all corrupt payments overseas. For example, Sections 2 and 3 would not permit prosecution of a foreign national who paid a bribe overseas acting entirely on his own initiative. The committee notes, however, that in the majority of bribery cases investigated by the SEC some responsible official or employee of the U.S. parent company had knowledge of the bribery and either explicitly or implicitly approved the practice. Under the bill as reported, such persons could be prosecuted. The concepts of aiding and abetting and joint participation would apply to a violation under this bill in the same manner in which those concepts have always applied in both SEC civil actions and in implied private actions brought under the securities laws generally. H.R. Rep. No. 95-640, at 8 (1977); S. Rep. No. 94-1031, at 7 (1976).

As discussed above, this legislative history discussing an early version of the bill was later clarified in response to concerns by the Carter Administration that the extent of individual liability (including for U.S. nationals) was not “crystal clear.” Rather than resorting to concepts of accomplice liability, the enacted version specifically delineated the extent of individual liability by “mak[ing] it clear that” the delineated individuals were “covered directly.” Markup Session on S. 305, Senate Comm. on Banking, Housing and Urban Affairs, 95th Cong., 8, 12 (Apr. 6, 1977). Therefore, the discussion of accomplice liability cited by the Government does not suggest that Congress intended for those who were excluded from direct liability under the Act to be subject to accomplice liability but only shows that Congress considered imposing individual liability based on concepts of accomplice liability but instead chose to do so directly and carefully delineated the class of persons covered to address concerns of overreaching.

Thus, as in Amen and Gebardi, even absent explicit discussion in the legislative history of accomplice liability, the carefully-crafted final enactment evinces a legislative intent to cabin such liability. See Amen, 831 F.2d at 382; Gebardi, 287 U.S. at 123. As the Fifth Circuit explained, when Congress “listed all the persons or entities who could be prosecuted” under the FCPA, it “intended that these persons would be covered by the Act itself, without resort to the conspiracy statute” and, as in Gebardi, that intent cannot be circumvented by resort to conspiracy and aiding and abetting liability. Castle, 925 F.2d at 836.

1998 Amendments

While the Government argues that the original version of the FCPA in 1977 provided for accomplice liability, it maintains that after the 1998 amendments to the FCPA “Congress unequivocally provided that it intended the accomplice liability and conspiracy statutes to apply to foreign nationals not otherwise subject to the FCPA as principals.” The 1998 amendments to the FCPA were “enacted to ensure the United States was in compliance with its treaty obligations,” United States v. Esquenazi, 752 F.3d 912, 923 (11th Cir. 2014), after the United States ratified the Organization for Economic Cooperation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (“OECD Convention”). Dec. 17, 1997, S. Treaty Doc. No. 105–43, 37 I.L.M.; International Anti– Bribery and Fair Competition Act of 1998, Pub.L. No. 105–366, 112 Stat. 3302.

The OECD Convention required each signatory country to “take such measures as may be necessary to establish that it is a criminal offence under its law for any person intentionally” to bribe foreign officials. OECD Convention art. 1.1. In response, the 1998 amendments expanded the scope of liability in three ways. First, Congress added 15 U.S.C. § 78dd-3(a), which prohibited those individuals or entities that did not already fall under other provisions of the statute from taking action “while in the territory” of the United States in furtherance of corrupt payments. 15 U.S.C. § 78dd-3(a). Second, the 1998 amendments eliminated a disparity in penalties between U.S. and foreign nationals acting as agents of domestic concerns whereby previously foreign nationals were subject only to civil penalties. The amendment made clear that foreign nationals acting as agents of domestic concerns could be criminally prosecuted for violating the FCPA if they used some manner or means of interstate commerce. 15 U.S.C. § 78dd-2. Third, Congress provided for nationality jurisdiction12, providing that it “shall also be unlawful for any United States person to corruptly do any act outside the United States in furtherance of” a foreign bribe. 15 U.S.C. § 78dd-2(i)(1); see also S. REP. 105-277, at *2–3 (1998) (describing these three changes to the FCPA as being intended “to conform it to the requirements of and to implement the OECD Convention”).

The Government maintains that because the OECD Convention required each signatory country to make it a “criminal offense under its law for any person” to pay a foreign bribe, OECD Convention, art. 1.1 (emphasis added), the “1998 amendments expanded the jurisdictional reach of the FCPA to cover any person over whom U.S. courts have jurisdiction” and a contrary interpretation “would place the United States in violation of its treaty obligations.” While the Supreme Court has admonished that “courts should be most cautious before interpreting . . . domestic legislation in such manner as to violate international agreements,” Vimar Seguros y Reaseguros, S.A. v. M/V Sky Reefer, 515 U.S. 528, 539 (1995), this Court does not agree with the Government’s contention that the OECD Convention required or even contemplated the extent of liability sought by the Government here by using the term “any person.”

Rather, the OECD’s reference to “any person” is cabined by Article 4 of the Convention, addressing jurisdiction, which provides that each signatory “shall take such measures as may be necessary to establish its jurisdiction over the bribery of a foreign public official when the offense is [1] committed in whole or in part in its territory” (OECD Convention, art. 4.1) or [2] by its own nationals while abroad (id., art. 4.2). Therefore, there is no indication that the OECD Convention requires the United States to prosecute foreign bribery committed abroad by non-resident foreign nationals who conspire with United States citizens.

Based on the text and structure of the FCPA and the legislative history accompanying its enactment and its amendment, the Court concludes that Congress did not intend to impose accomplice liability on non-resident foreign nationals who were not subject to direct liability. Count One will not be dismissed in its entirety, however, because if the Government proceeds under the theory that Mr. Hoskins is an agent of a domestic concern and thus subject to direct liability under the FCPA, the Gebardi principle would not preclude his criminal liability for conspiring to violate the FCPA. The Government may not argue, however, that Defendant could be liable for conspiracy even if he is not proved to an agent of a domestic concern.”

*****

Hoskins is represented by Christopher Morvillo and David Raskin of Clifford Chance.

Time Out On Slamming The Brits

Wednesday, August 12th, 2015

BritishAs highlighted in this recent report:

“The [U.K.] Government is reviewing the Bribery Act after business leaders claimed it was making it difficult for British firms to export goods. The Business Secretary, Sajid Javid, is inviting companies to comment on whether the tough anti-corruption measures are “a problem”. [...] Letters sent by the Department for Business, Innovation and Skills (BIS) invite industry leaders to comment on whether the Act has had an impact on their attempts to export. They also ask if guidance issued to help business people avoid problems under the Act is useful and for suggestions to clarify the information. BIS officials said the guidance that accompanies the Act, rather than the law itself, was the main focus.”

As noted in the report:

“Critics fear it is a way of weakening the law at a time when the Government should be clamping down on existing loopholes, and supporters of the Act say they are surprised by the move. They warn that any attempt to water down the Act will seriously damage the UK’s credibility on corruption.”

Time out for a relevant history lesson.

When the FCPA was still in diapers – as the U.K. Bribery Act currently is – the U.S. government did exactly the same thing!

Almost as soon as the FCPA was passed in 1977 concerns were raised across a wide spectrum that the law was vague and ambiguous, and because of that, harmful to U.S. businesses seeking to compete in the global marketplace.

The early 1980’s saw much FCPA reform activity.  In 1980, the Carter administration (recall that President Carter signed the FCPA into law in 1977) sent a report to Congress prepared by the Secretary of Commerce and the U.S. Trade Representative titled “Report of the President on Export Promotion Functions and Potential Export Disincentives.” (See  Report of the President on Export Promotion Functions and Potential Export Disincentives : Together with the Review of Executive Branch Export Promotion Functions and Potential Export Disincentives,” Transmitted to the Congress (Sept. 1980).

In pertinent part, the report stated:

“The [FCPA] is identified by businessmen and attorneys as one of the most significant export disincentives.  […]  The Act inhibits exporting because of uncertainty within the business community about the meaning and application of some of its key provisions.

“Uncertainty about the meaning of key provisions of the FCPA and how it will be applied is having a negative effect on U.S. exports.  Many of the businessmen and attorneys consulted expressed the view that this uncertainty has a far greater impact than the actual prohibition against bribery.  The problem described, in essence, is that what conduct is prohibited and what conduct is not prohibited under the Act is often unclear.  In order to avoid possible violations of the Act, attorneys often give such cautious guidance that their clients simply forego any transactions where the FCPA could possibly become an issue.”

“The effects of these uncertainties reportedly manifest themselves in various ways.  Consultations with the private sector revealed instances in which U.S. companies: withdrew from joint ventures for fear they later could be held responsible for the acts of their foreign partners; incurred substantial legal and investigative costs to check the backgrounds of their sales agents abroad; were unable to obtain the services of effective sales agents; lost contracts simply because of the time needed to investigate sales agents abroad and institute safeguards; withdrew from existing markets; and declined to enter new markets.”

“Finally, companies point out that the extent to which companies have been successfully prosecuted under the FCPA does not define the extent of the disincentive.  Uncertainty can be a disincentive without any prosecutions and, moreover, exports are inhibited merely by the possibility of public charges and the adverse publicity surrounding them.  Even where a company is totally convinced that a court would find that it had not violated the FCPA, it nonetheless may forego the export opportunity for fear that an enforcement agency could publicly charge it with a violation of the Act.”

In 1981, the Government Accounting Office (“GAO”), the investigative arm of Congress, released a report titled “Impact of Foreign Corrupt Practices Act on U.S. Business.” (See By the Comptroller General, Report to the Congress of the United States, “Impact of the Foreign Corrupt Practices Act on U.S. Business,” (Mar. 1981).

The report was based in part on a GAO questionnaire survey of 250 companies randomly selected from the Fortune 1000 list of the largest industrial firms in the U.S. and the questionnaire addressed the FCPA’s relationship to the following four areas: (1) corporate policies and/or codes of conduct; (2) corporate systems of accountability; (3) cost burdens, if any, incurred by management to comply with the FCPA; and (4) corporate opinions regarding the: (i) FCPA’s effect on U.S. corporate foreign sales; (ii) the clarity of the FCPA’s provisions; (iii) the potential effectiveness of an international anti-bribery agreement; and (iv) perceived effectiveness of the FCPA in reducing questionable payments.

The GAO found that while the FCPA “has brought about efforts to strengthen corporate codes of conduct and systems of internal accounting control,” corporations reported that “their efforts to comply with the [the FCPA] have resulted in costs that were greater than the benefits received” and that a substantial number of businesses “reported that they had lost oversees business as a result” of the FCPA.  The GAO report noted concerns that the FCPA’s anti-bribery provisions were “vague and ambiguous” and stated that while “unambiguous requirements may be impractical and could provide a roadmap for corporate bribery” companies operating in the global marketplace “should be subject to clear and consistent demands by the Government agencies for enforcing the act.”

Despite its widely-perceived deficiencies, reforming a law called the “Foreign Corrupt Practices Act” was a political hot potato simply because of the name of the law. Indeed reform proposals included changing the name of the law so that a substantive, issue-based discussion could take place free from pro-bribery vs. anti-bribery rhetoric. For instance, among the first FCPA reform bills introduced in 1980 was the “Business Accounting and Foreign Trade Simplification Act” which sought to change the name of the FCPA as well as other substantive changes.

However, the mere discussion of FCPA reform was opposed by some who seemed to advance the simplistic – either you are against bribery or for bribery – position.  Despite this political atmosphere, certain Congressional leaders demonstrated courage to reform the FCPA into a better, more useable statute for business and the enforcement agencies alike.

Indicative of the political challenges of reforming a law called the Foreign Corrupt Practices Act, FCPA reform took eight years and it is noteworthy how it occurred.  In 1988 the FCPA was amended, not through a stand-alone bill, but through Title V, Subtitle A, Part I of the Omnibus Trade and Competiveness Act of 1988 signed into law by President Ronald Reagan.

In short, time out on slamming the Brits and their new Bribery Act.

What is currently occurring in the U.K. (no meaningful enforcement and good faith discussions about the impact of the new law) is precisely what happened in the U.S. in the early years of the FCPA.

SEC Potpourri

Monday, May 11th, 2015

SECLast week, the SEC released this document titled “Division of Enforcement Approach to Forum Selection in Contested Actions.”

In Foreign Corrupt Practices Act history, one can count the number of “contested” SEC FCPA enforcement actions on one hand, but the recent document is nevertheless an interesting read as it sets forth the SEC’s approach in determining whether an action proceeds as a civil action in federal court or an SEC administrative proceeding.

According to the document:

“There is no rigid formula dictating the choice of forum.  The Division considers a number of factors when evaluating the choice of forum and its recommendation depends on the specific facts and circumstances of the case.  Not all factors will apply in every case and, in any particular case, some factors may deserve more weight than others, or more weight than they might in another case.  Indeed, in some circumstances, a single factor may be sufficiently important to lead to a decision to recommend a particular forum. While the list of potentially relevant considerations set out below is not (and could not be) exhaustive, the Division may in its discretion consider any or all of the factors in assessing whether to recommend that a contested case be brought in the administrative forum or in federal district court.”

  • The document then sets forth the following factors;
  • The availability of the desired claims, legal theories, and forms of relief in each forum;
  • Whether any charged party is a registered entity or an individual associated with a registered entity;
  • The cost‐, resource‐, and time‐effectiveness of litigation in each forum;
  • Fair, consistent, and effective resolution of securities law issues and matters.

Under the last factors, the document states:

“If a contested matter is likely to raise unsettled and complex legal issues under the federal securities laws, or interpretation of the Commission’s rules, consideration should be given to whether, in light of the Commission’s expertise concerning those matters, obtaining a Commission decision on such issues, subject to appellate review in the federal courts, may facilitate development of the law.”

This statement is beyond concerning.

Unsettled and complex legal issues are deserving of an independent judiciary, not the SEC’s own administrative law judges. Contrary to the SEC’s assertion, the above preference does not facilitate the development of law, it hinders the development of law.

*****

Speaking of SEC administrative actions, no surprise here – the SEC wins a very high percentage of its cases when brought before its own administrative law judges. According to this recent Wall Street Journal article:

“An analysis by The Wall Street Journal of hundreds of decisions shows how much of a home-court advantage the SEC enjoys when it sends cases to its own judges rather than federal courts. That is a practice the agency increasingly follows, the Journal has found.

The SEC won against 90% of defendants before its own judges in contested cases from October 2010 through March of this year, according to the Journal analysis. That was markedly higher than the 69% success the agency obtained against defendants in federal court over the same period, based on SEC data.”

As highlighted in prior posts (see here for instance), the predominate method by which the SEC has brought FCPA enforcement actions over the past few years have been through its own administrative process.  This is against the backdrop of the SEC never prevailing in an FCPA enforcement action when put to its ultimate burden of proof. (See here).

*****

In this recent speech, SEC Chair Mary Jo White talks about the SEC’s whistleblower program:

“There have always been mixed feelings about whistleblowers and many companies tolerate, at best, their existence because the law requires it.  I would urge that, especially in the post-financial crisis era when regulators and right-minded companies are searching for new, more aggressive ways to improve corporate culture and compliance, it is past time to stop wringing our hands about whistleblowers.  They provide an invaluable public service, and they should be supported.  And, we at the SEC increasingly see ourselves as the whistleblower’s advocate.

It has been nearly four years since the SEC implemented its whistleblower program.  While still evolving and improving, we have enough experience now to take a hard look at how the program is working and what we have learned.  Overall, I am here to say that the program is a success – and we will work hard at the SEC to build on that success.

The volume of tips has been greater and of higher quality than expected when the program was first adopted.  We have seen enough to know that whistleblowers increase our efficiency and conserve our scarce resources.  Importantly, internal compliance programs at companies also remain vibrant and effective ways to detect and report wrongdoing.  But despite the success of our program, the decision to come forward, especially in the face of internal pressure, is not an easy one.

The ambivalence about whistleblowers can indeed sometimes manifest itself in an unlawful response by a corporate employer and we are very focused at the SEC on cracking down on such misconduct.  We want whistleblowers – and their employers – to know that employees are free to come forward without fear of reprisals.  In 2014, we brought our first retaliation case and, this month, our first case involving the use of a confidentiality agreement that can impede whistleblowers from communicating with us.  This latter case has generated some controversy, which I will address shortly.  But, first, let’s look a bit closer at the four-year track record of the program.”

A portion of White’s speech also focused on “supporting internal compliance” and she stated:

“Let me say a bit more about company compliance programs.  When the Commission was considering its whistleblower rules, concerns were raised about undermining companies’ internal compliance programs.  Some commenters urged that internal reporting be made a pre-condition to a whistleblower award.  That was not done, but the final whistleblower rules established a framework to incentivize employees to report internally first.  A whistleblower’s participation in internal compliance systems is thus a factor that will generally increase an award, whereas interference with those systems will surely decrease an award. And, a whistleblower who internally reports, and at the same time or within 120 days reports to the Commission, will receive credit for any information the company subsequently self-reports to the SEC.

All indications are that internal compliance functions are as strong as ever – if not stronger – and that insiders continue to report possible violations internally first.  Although there is no requirement under our rules that the whistleblower be a current or former employee, several of the individuals who have received awards were, in fact, company insiders.  Notably, of these, over 80% first raised their concerns internally to their supervisors or compliance personnel before reporting to the Commission.

Many in-house lawyers, compliance professionals, and law firms representing companies have told us that since the implementation of our program, companies have taken fresh looks at their internal compliance functions and made enhancements to further encourage their employees to view internal reporting as an effective means to address potential wrongdoing without fear of reprisal or retaliation.  That is a very good thing, and, so far, we believe that the whistleblower program has achieved the right balance between the need of companies to be given an opportunity to address possible violations of law and the SEC’s law enforcement interests.”

In conclusion, White stated:

“The bottom line is that is that responsible companies with strong compliance cultures and programs should not fear bona fide whistleblowers, but embrace them as a constructive part of the process to expose the wrongdoing that can harm a company and its reputation.  Gone are the days when corporate wrongdoing can be pushed into the dark corners of an organization.  Fraudsters rarely act alone, unobserved and, these days, the employee who sees or is asked to make the questionable accounting entry or to distribute the false offering materials may refuse to do it or just decide that they are better off telling the SEC.  Better yet, either there are no questionable accounting entries or false offering materials to be reported in the first place or companies themselves self-report the unlawful conduct to the SEC.”

*****

If SEC enforcement is an area of interest, you will want to check out this recent article in Securities Regulation Journal about Stanley Sporkin.

Among Sporkin’s other notable accomplishments, he was the Director of Enforcement at the SEC in the mid-1970′s when the so-called foreign corporate payments problem arose and he championed what would become the FCPA’s books and records and internal controls provisions.

Many have called Sporkin the “father of the FCPA” – a label I have always found curious given that Sporkin and his enforcement division were opposed to the FCPA’s anti-bribery provisions and wanted no part in enforcing those provisions.

To learn more about this, see “The Story of the Foreign Corrupt Practices Act.”