Archive for the ‘Legislative History’ Category

FCPA Readings

Wednesday, March 12th, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hail To The Chief

Monday, February 17th, 2014

Today is Presidents’ Day.

This post highlights the role of Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton in enactment and subsequent development of the FCPA.  My article “The Story of the Foreign Corrupt Practices Act” also contains a detailed overview of the roles of the Ford and Carter administrations.

Ford

After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a  “Memorandum Establishing the Task Force on Questionable Corporate Payments  Abroad” (see here).

The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime.  The Ford Administration favored the former and in June 1976, President Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here).  As noted in the remarks, President Ford directed the task force “to prepare legislation that would require corporate disclosure of all payments made with the intention of  influencing foreign government officials.”

Certain bills were introduced in Congress consistent with Ford’s vision and in August 1976 President Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).

Neither Ford’s proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.

Carter

Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress.  When Congress reconvened in January 1977 after the election, the movement to adopt a criminalization regime soon picked up speed again.

Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.

On December 20, 1977, President Carter signed S. 305 into law – see here for his signing statement.

Reagan

As noted in this previous post, President Reagan’s administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration, numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that while the FCPA had addressed a serious problem, the statute created much uncertainty and was, in the minds of many, unworkable.

Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced – either as stand alone bills or specific titles to omnibus trade and export bills – that sought to amend the FCPA. This legislative process took eight years.

In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan’s signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.

Clinton

In November 1998, President Clinton signed S. 2375, the “International Anti-Bribery and Fair Competition Act of 1998.” Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA – “any person” not an issuer or domestic concern to the extent such person’s bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.

See here for President Clinton’s signing statement.

FCPA Reform And The Olympics

Tuesday, February 11th, 2014

The DOJ may think that my “foreign official” declaration ”selectively reviews the [FCPA's] legislative history.”  However, the truth is the 152 page declaration is the most comprehensive document ever written on the FCPA’s legislative history relevant to “foreign official” issues.  So comprehensive in fact that it highlights Foreign Corrupt Practices Act reform efforts and the Olympics.

You may be asking in your best Gary Coleman voice “whatcha talkin bout.”

This is what I am talking about.

In April 1999, Representative Henry Waxman introduced H.R. 1370, Senator John McCain introduced S. 803, and Senator John Ashcroft introduced S. 797.  These bills sought to amend the FCPA by restricting American corporate sponsorship of the International Olympic Committee (“IOC”).

Specifically, H.R. 1370 sought to ”amend the FCPA to prevent persons doing business in interstate commerce from providing financial support to the International Olympic Committee until the International Olympic Committee adopts institutional reforms.”

Specifically, S. 803 sought “to make the International Olympic Committee subject to the FCPA” by amending the “foreign official” definition – specifically the “public international organization” prong to include the International Olympic Committee.

Specifically, S. 797 sought ”to apply the FCPA to the International Olympic Committee” by amending the term “‘foreign official’ [to] include[] any member of, employee of, or any person acting in an official capacity for or on behalf of, the International Olympic Committee.’”.

None of these bills made it out of committee.

You may be thinking, what about the “public international organization” prong of the FCPA’s “foreign official” definition which states that a “public international organization” is

an organization that is designated by Executive Order pursuant to section 1 of the International Organizations Immunities Act (22 U.S.C. § 288); or

any other international organization that is designated by the President by Executive order for the purposes of this section, effective as of the date of publication of such order in the Federal Register

The list of “public international organizations” is here.  For more, see here.

And now back to the Games.

The FCPA Turns 36

Friday, December 20th, 2013

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

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

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

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

If the FCPA is your cup of tea, you owe it to yourself to read the most extensive piece ever written about the FCPA’s history – “The Story of the Foreign Corrupt Practices Act.”

The article weaves together information and events scattered in the FCPA’s voluminous legislative record to tell the FCPA’s story through original voices of actual participants who shaped the law.

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

In A Way, It Is Like Gambling

Tuesday, November 12th, 2013

Last week Penn National Gaming Inc. Chairman Peter Carlino spoke at the Baron Investment Conference in New York.  This article by CNBC’s Lawrence Delevingne states:

“The U.S. government is too restrictive in trying to prevent its companies from corruption abroad and it’s hurting business expansion in Asia and elsewhere, according to Carlino. ‘There’s a little bit of overzealousness in this,’ Carlino said during a speech at the Baron Conference. ‘Those are limitations that American companies face that others don’t.’  Carlino said he wants to get into the lucrative Asian casino market—Las Vegas Sands already has a large presence in Macau, for example—but hasn’t been able to out of fear of violating U.S. rules.  [...] ‘There’s a problem for U.S. businesses, frankly. We had an interesting opportunity in a country that I won’t name; we were hampered in a major way by the American Foreign Corrupt Practices Act,’ he said.  [...]  Carlino said Penn looked at expanding into the Asian country via an existing company but one of the line items of the business was to pay off the border guards.  ‘It seems OK to me, frankly. If that’s the game, we’ll play it,’ Carlino said to chuckles from the mostly retiree Baron fund-shareholder audience. ‘There are problems for American companies trying to do business.’  ‘If it’s there, we’re looking at it. Problem is, the pickings are slim,’ he said of countries like Burma, India and Sri Lanka. ‘So finding the right opportunity, although we look and I trust we will, is tough,’ Carlino added.”

There are two ways to view Carlino’s comments.

The first is that Carlino meant that the FCPA - the law passed by Congress – is hurting U.S. business abroad.  If so, well that is a correct policy decision that Congress knew and accepted when it passed the FCPA in 1977.  For instance, as highlighted in “The Story of the Foreign Corrupt Practices Act,” during a Congressional hearing Representative John Moss stated:

“To think that no loss of business would occur in every instance would be unrealistic. Can we allow this to occur? Yes, if that is the small price we must pay to return morality to corporate practice. Yes, if that is the small price we pay to show that U.S. firms compete in terms of price, quality, and service and not in terms of the size of a bribe. Real competition works. The vast majority of American companies have operated successfully in foreign countries without the need to resort to bribery.”

Likewise, Treasury Secretary Michael Blumenthal stated:

 “To the very, very small extent a particular company may lose a particular contract because it refuses to engage in this practice, I would be willing to say, all right, we will be at a slight competitive disadvantage and we will all sleep the better for it.”

The second way to view Carlino’s comments is that he conflated FCPA enforcement with the actual FCPA – as Donald Trump also did as highlighted in this prior post.  In other words, Carlino confused FCPA enforcement with the FCPA.

Simply put, there is often a difference between FCPA enforcement and the FCPA.

For instance, Congress specifically exempted facilitation payments from the FCPA’s anti-bribery provisions.  However, it is an open question whether the facilitating payments exception has any real meaning or whether the enforcement agencies have essentially repealed this exception through its enforcement theories.  For instance, the SEC’s former Assistant Director of Enforcement has called the FCPA’s facilitating payment exception “illusory” and stated:

“The drafters of the FCPA recognized that such demands for ‘grease payments’ are a reality in many countries, and accordingly made clear that certain payments made to expedite the approval of permits or licenses, or to prompt the expeditious performance of similar low-level ministerial duties, fell outside the ambit of the statute’s anti-bribery provisions. Yet that exception for ‘facilitating payments’ […] is becoming harder and harder to rely on. […]  The DOJ and SEC have pressed a narrow view of the exception in recent years … […] Of course, the fact that the FCPA’s twin enforcement agencies have treated certain payments as prohibited despite their possible categorization as facilitating payments does not mean a federal court would agree. But because the vast majority of enforcement actions are resolved through DPAs and NPAs, and other settlement devices, these cases never make it to trial. As a result, the DOJ and the SEC’s narrow interpretation of the facilitating payments exception is making that exception ever more illusory, regardless of whether the federal courts – or Congress – would agree.”

Similarly, the FCPA’s books and records and internal controls provisions are qualified by the term “reasonable” and the only substantive judicial decision on these provisions (see here for the prior post) stated:

“The definition of accounting controls does comprehend reasonable, but not absolute, assurances that the objectives expressed in it will be accomplished by the system. The concept of ‘reasonable assurances’ contained in [internal control provisions] recognizes that the costs of internal controls should not exceed the benefits expected to be derived. It does not appear that either the SEC or Congress, which adopted the SEC’s recommendations, intended that the statute should require that each affected issuer install a fail-safe accounting control system at all costs. It appears that Congress was fully cognizant of the cost-effective considerations which confront companies as they consider the institution of accounting controls and of the subjective elements which may lead reasonable individuals to arrive at different conclusions. Congress has demanded only that judgment be exercised in applying the standard of reasonableness. [...] It is also true that the internal accounting controls provisions contemplate the financial principle of proportionality—what is material to a small company is not necessarily material to a large company.”

SEC guidance on the FCPA’s books and records and internal controls provisions stand for the following propositions:

  • not all books and records are within the purview of the provisions;
  • issuers should not face liability when its management was not aware and reasonably should not have known of the conduct at issue;
  • the principal objective of the provisions is to reach knowing or reckless conduct;
  • thousands of dollars ordinarily should not be spent conserving hundreds;
  • the provisions are not an independent unrestrained mandate to establish novel or unprecedented corporate recordkeeping standards;
  • if conduct was engaged in by a low-level employee, without the knowledge of top management, and with appropriate corrective action taken, an enforcement action against the issuer is not warranted; and
  • the provisions do not require a company or its senior officials to be guarantors of all conduct of company employees.

Nevertheless, the enforcement agencies frequently bring FCPA enforcement actions against issuers without any allegation or suggestion that the conduct at issue was known or approved by top management (see here for example).  In this new era of FCPA enforcement, the position of the enforcement agencies appear to be that indeed corporate officers are guarantors of all conduct of company employees and that fail-safe accounting and internal controls measures are indeed the standard (see here for example).

Against this backdrop, seeking to do business in challenging foreign markets through employees or agents may indeed be- based on the current enforcement theories - in a way like gambling.

If this is what Carlino meant, perhaps he has a point.  The Congress that enacted the FCPA in 1977 and the Congress that amended the FCPA in 1988 certainly appeared to empathize.