Archive for the ‘Legislative History’ Category

The FCPA Turns 38

Monday, December 21st, 2015

38thYesterday our favorite statute, the Foreign Corrupt Practices Act, turned 38.

President Jimmy Carter’s December 20, 1977 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-eight years ago.  Rather, S. 305 was the result of more than two years of Congressional investigation, deliberation, and consideration.

If the FCPA is your area of practice or interest, 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.

Five Years Since The Senate’s FCPA Hearing

Monday, November 30th, 2015

Koehler CongressFive years ago today, the Senate held a hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.”

(See here for the full hearing transcript, here for the video).

It was the first congressional hearing on the FCPA during its new era of enforcement (to be followed by a June 2011 FCPA hearing in the House) and the first FCPA hearing in Congress since the FCPA was amended in 1998.

In opening the hearing, Senator Arlen Specter (who passed away in October 2012) noted that “oversight is a major function of Congress,” but that Congress does “not do very much of it.”

During the hearing:

  • Greg Andres (then the DOJ’s Acting Deputy Assistant Attorney General, Criminal Division) provided an overview of the DOJ’s FCPA enforcement program;
  • I provided a critique of the DOJ’s charging decisions in the most egregious cases of corporate bribery as well as the DOJ’s prosecution (or lack thereof) of individuals;
  • Andrew Weissmann (then with Jenner & Block, appearing on behalf of the U.S. Chamber of Commerce) suggested potential reforms to the FCPA, including an affirmative compliance defense and clarification of the “foreign official” element; and
  • Michael Volkov (then with Mayer Brown) proposed a more balanced enforcement approach and suggested a limited amnesty program for corporations.

During the hearing, Senator Amy Klobuchar (D-Minn.) noted, among other things, that “one of the basic principles of due process is that people in companies have to be able to know what the law is in order to comply with it” and she further stated that “many very good standing companies [in her state of Minnesota] … do not always know what behavior will trigger an enforcement action.”

Senator Christopher Coons (D-Del.) stated, among other things, that he “would welcome [the] opportunity” to work on “potential amendments to the [FCPA] that would allow clarification on the definition of foreign official and the creation of a compliance defense.”

Five years have passed since the Senate’s FCPA hearing and certain things have changed.

Most interestingly, Weissmann, who advocated for FCPA reform at the hearing, is now the current DOJ Fraud Section Chief (see this prior post for additional discussion) and Andres, who defended the DOJ’s FCPA enforcement program, is now in private practice and as highlighted in this prior post has largely abandoned many of the positions he articulated on behalf of the DOJ at the hearing. (For more on this general issue, see this prior post “In the FCPA Space, Who Speaks for Whom?”).

Other things have not changed, including my FCPA views (see here for my written testimony).

I went to Capitol Hill five years ago today without an agenda and on behalf of no one but myself.

My testimony represented my genuine beliefs and I was proud of what I said then and I remain proud today.

The TPP And Corruption

Tuesday, November 10th, 2015

TPPTrade barriers and distortions are often the root causes of bribery.

This has long been recognized, including by Congress in the mid-1970′s when it was considering various legislative approaches to the s0-called foreign corporate payments problem.

As highlighted in “The Story of the Foreign Corrupt Practices Act,” in November 1975 Senate Resolution 265 passed 93-0 and called for executive branch agencies to pursue remedies to the corporate payments problem within the framework of the General Agreement on Tariffs and Trade (GATT).

At the same time, Congress realized that multilateral trade agreement were “largely hortatory in nature and do not include reliable enforcement machinery or sanctions for violators” and that the then-existing trade discussions already included “a large number of complex and difficult negotiating objectives” and that it was not in the U.S. interest “to add yet another major problem” into the trade discussions.

Nevertheless, trade barriers and distortions remain a frequent root cause of bribery.

A long-awaited developed occurred in the trade space last week as the Obama administration released the full text of the Trans-Pacific Partnership (TPP) agreement. As highlighted here:

“The TPP would arguably be the largest free trade agreement in history when considering the economies of the 12 Pacific Rim member countries, covering approximately 40% of the global economy. The agreement must now be individually approved by each of the 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States, and Vietnam.”

The TPP is massive document and its potential to reduce trade barriers and distortions is country specific and indeed industry specific.

If the TPP does indeed reduce trade barriers and distortions, then it can help reduce the root causes of bribery and the reason is fairly straight-forward.

  • Trade barriers and distortions create bureaucracy.
  • Bureaucracy creates points of contact with foreign officials.
  • Points of contact with foreign officials create discretion.
  • Discretion creates the opportunity for a foreign official to misuse their position by making bribe demands.

While the potential of the TPP to reduce trade barriers and distortions is found deep within the country and industry specific information in the document, the TPP does contain an “aspirational” chapter (Chapter 26) devoted specifically to anti-corruption.

As highlighted in this U.S. government summary:

“The chapter ensures that U.S. exporters, service suppliers, investors, and other interested stakeholders in TPP have ready access to information about the laws, regulations, and other rules affecting trade or investment in TPP markets; guarantees due process rights; commits TPP Parties to have and enforce anti-bribery laws; and promotes rules against conflicts of interest in government. The chapter guarantees the full rights of governments to regulate for public health, environmental quality, and other public-policy goals.”

“The [chapter] requires TPP Parties to ensure that, to the extent possible, their laws, regulations, and administrative rulings related to any matters covered by the TPP Agreement are publicly available and that regulations are subject to notice and comment.”

Similar to the OECD Convention, the summary document highlights the following “aspirational” portion of the TPP.

“Each TPP Party commits to adopt or maintain laws that criminalize the offering of an undue advantage to a public official (or the solicitation of such an advantage by a public official), as well as other acts of corruption in matters affecting international trade or investment. Parties also commit to effectively enforce their anticorruption laws and regulations.”

One final note regarding the TPP anti-corruption chapter.

Unlike the FCPA’s definition of “foreign official” which is silent as to state-owned or state-controlled enterprises (SOEs) – as highlighted here competing bills introduced in Congress, but rejected by Congress, did contain explicit reference to SOEs – the TPP has no problem in explicitly capturing SOEs in its definition of “foreign public official” which includes “any person exercising a public function for a foreign country, at any level of government, including for a public agency or public enterprise.”

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.