A section of the report concerns the Bribery Act, and as detailed below, the committee recommends that “the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.”

Chapter 10 of the report states, in full, as follows (emphasis in original).

Introduction

10.1. The Bribery Act 2010 came into force in July 2011. Its purpose was to modernise domestic and foreign offences of bribery. Its enactment led to a flurry of concern that SMEs would be particularly harshly affected. Mr Simon of UKTI agreed that the Act had “provoked a bit of anxiety” and said that “it is possible that [the UK] have lost some business”

10.2. It was not surprising, therefore, that whilst several witnesses recognised it as having enhanced the reputation of the UK in terms of business ethical standards, some expressed concern that the Act had given rise to uncertainty and put the UK at a trading disadvantage. Deltex Medical Ltd, for example, said: “The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities—for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.”

10.3. He went on: “BRIC countries especially raise challenging questions around the Bribery Act. My fellow directors and I have concerns over how we operate correctly under the Bribery Act within those countries. We have taken legal advice. We have made changes to our contracts. All of those areas have ways of trading that are different from those that we have in the UK, and different standards. It is difficult for any company to go in and follow the recommendations.”

10.4. Tony Shepherd of Alderley plc expressed his views robustly: “The existing Act is virtually impossible to operate as far as a UK company is concerned. You cannot really take someone out to dinner without committing a crime. I am very strongly in favour of trying to eliminate bribery, but to have a situation where we are subject to a law that is much more severe than anywhere else in the world is not good.”

10.5. ADS also recognised the value of the Act but asked for “clearer guidance … on its practical application and its implications, particularly the responsibility on SMEs for local ‘agents’. They also thought it “essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged”.  LMK Thermosafe Ltd. similarly understood the purpose of the Act but said that adhering to the Act restricted their ability to sell successfully and, as a result of Act, they preferred to “work in markets where honesty is appreciated”.  Mr. Ehmann of the IoD described the Bribery Act as a “counterproductive” measure that has “held us back”. It had had, he said, “a significant impact” on his members, especially for those trading with BRIC countries and developing economies.

Current Government action

10.6. The Government explained to us what action they had taken to help SMEs to understand the implications of the Bribery Act 2010. The Ministry of Justice has published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. There is an online Business Anti-Corruption Portal which is specially targeted at SMEs and provides a comprehensive and practical business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue.  Mr. Simon referred also to an initiative being considered by UKTI, “a potential signposting opportunity to people who can give specific guidance to companies as to how directors can take appropriate levels of care to ensure they do not infringe the Bribery Act”. He suggested that the “most dangerous thing” was not “the legislation per se” but a “lack of confidence”

10.7. As with intellectual property issues, we exhort the Government to make efforts to promote the international harmonisation of standards, and also to raise awareness amongst SMEs about the application of the Bribery Act 2010 and explain exactly how it will be applied in practice.

10.8. Mr Simon suggested that “there is a desire that the Bribery Act be tested by the Crown Prosecution Service, because then the community as a whole will have a better sense of where it stands”.  We do not agree. It is not satisfactory to wait for elaborate court cases to define the actual workings of the Bribery Act 2010 in case law.

10.9. Whilst we acknowledge the importance of the example of high ethical standards being set by the UK, application of the Bribery Act 2010 has been met with confusion and uncertainty. We recommend, therefore, that, at the earliest opportunity, the Act should be the subject of post legislative scrutiny by a Parliamentary select committee.

To be sure, the report and its recommendation represent U.K. growing pains.  But let’s not forget, here in the U.S. we too had growing pains concerning the young FCPA.

As detailed in prior posts here and here, the ink was hardly dry on the FCPA when concerns were raised that the law was harmful to U.S. business.

There was much activity on this issue in the early 1980′s and among other things:

(i) the Carter administration (Carter signed the FCPA into law in December 1977) “sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters” – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department;”

(ii) the GAO released a report in 1981 detailing how the FCPA “is riddled with complicating ambiguities and shortcomings;”

(iii) President Reagan’s “transition team on the workings of the Securities and Exchange Commission [...] recommended decriminalization of bribery; and

(iv) John Fedders, named in 1981 to be the SEC’s Director of Enforcement to replace Stanley Sporkin who left to become general counsel at the CIA, stated during a news conference that he ”pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous.”

Our FCPA growing pains lasted until 1988 when the FCPA was amended in significant ways and, to a certain extent, the growing pains have not fully disappeared even as the FCPA has matured into an “adult” statute.

In short, the U.K’s growing pains are understandable and to be expected.

The story remained open as to George McLean (Vice President of Solar Turbines International (“Solar”), a division of International Harvester Company), and Luis Uriarte (the Latin American Regional Manager of Solar).

As noted in the prior post, soon after McLean and Uriarte (and several others) were indicted in October 1982, in November 1982 the DOJ also filed a criminal information against International Harvester (see here).  The information was based on the same core set of allegations as in the October 1982 indictment and was based on the conduct of its employees McLean and Uriarte.  International Harvester pleaded guilty to conspiracy to violate the FCPA (see here) and was ordered to pay a $10,000 fine and agreed to also pay $40,000 civil cost reimbursement.  (Notice the italics).

McLean and Uriarte filed a motion to dismiss the indictment principally based on the so-called Eckhardt amendment that was then part of the FCPA.  In June 1983, Judge George Cire (S.D. Tex.) granted the motion to dismiss the substantive FCPA charges against them, but not the conspiracy charge.  The DOJ appealed the dismissal which lead to a Fifth Circuit opinion.  Before summarizing Judge Cire’s decision, as well as the Fifth Circuit’s decision, this post provides background information on the so-called Eckhardt amendment.

*****

The Eckhardt amendment was named after Representative Robert Eckhardt (D-Tex).  If you read my detailed history of the FCPA, “The Story of the Foreign Corrupt Practices Act,” you will learn that Eckhardt was a leader in the House as to what would become the FCPA.  My article provided a detailed overview of the FCPA legislative history, yet at the same time to keep the article at a publishable limit, omitted certain side issues also found in the FCPA’s extensive legislative history.

One side issue that developed towards the later part of the FCPA’s legislative history as the basic contours of the law began to take shape, and an issue of great concern to Representative Eckhardt, was that individual corporate actors might be put at a disadvantage in defending themselves in an FCPA enforcement action.

Representative Eckhardt stated in an April 1977 hearing, in pertinent part, as follows.

“I don’t have any compunctions against making acts of foreign bribery illegal for the corporation.  [...]  [T]he [corporate] defendant would always be able to marshal what evidence there was to contradict any contention that the company had anything to do with the bribery.  With respect to that necessary element of the case without which a conviction could not be had, the defendant would be peculiarly in control of the evidence, both overseas evidence and domestic evidence.  But this is not so with respect to the individual who is an agent of such issuer and who is being accused of an act overseas where the totality of the proof would be from activities overseas.  Indeed, the corporations interest might even be in conflict with that of the agent.  The corporation might desire to have Joe Bloke found to have intentionally engaged in bribery and to have been the sole moving agent, that is, the company never agreed to it and the quicker they can convict Joe Bloke, the better off the company is.  It is relieved of responsibility and it has a sacrificial lamb in Rome and everybody forgets about the activity.”

[...]

“I don’t find any difficulty whatsoever with the corporation’s position as a defendant because indeed it has a very inside road to testimony and information.  [...]  [I]t seems to me that there is a vast difference between the position of the individual defendant accused of having violated the act and the corporate defendant.  Besides, the individual defendant can be clapped in jail and the corporation can’t be clapped in jail.”

In September 1977, Representative Eckhardt testified before a House committee and likewise stated, in pertinent part, regarding H.R. 3815 (a bill he introduced, which in compromise with S. 305, ultimately became the FCPA).

“[W]e were so concerned about the individual penalty as a means of making a scapegoat of an individual that we provided in our bill that unless the corporation were found to be guilty there could not be an individual penalty at all.”

In short, the FCPA originally contained the following introductory language as to the penalty provisions applicable to employes or agents of issuers of domestic concerns “whenever an [issuer or domestic concern] is found to have violated [the FCPA's anti-bribery provisions] …”.

*****

Back to McLean and Uriarte’s challenge.

In granting the motion to dismiss the substantive FCPA charges against them,  Judge Cire noted that the defendants’ employer, International Harvester, pleaded guilty to conspiracy and not to a substantive FCPA offense.  Judge Cire reasoned that “conspiracy and the related substantive offense which is the object of the conspiracy are separate and distinct crimes.”

Accordingly, Judge Cire concluded as follows.  “Since International Harvester plead guilty to conspiracy and not to a substantive FCPA violation, it has not been found to have violated the FCPA.  The Eckhardt amendment protects employees like McLean and Uriarte from prosecution under the FCPA when their employer has not been found to have violated the FCPA.”  (See here for Judge Cire’s Memorandum and Order).

The DOJ appealed Judge Cire’s order and presented three arguments on appeal:  (1) that the FCPA does not require the employer be convicted of an FCPA violation, only that it be established in the employee’s trial that the employer violated the FCPA; (2) that McLean, as an individual, may be charged with aiding and abetting FCPA violations; and (3) that International Harvester’s conviction of conspiracy was sufficient.

The Fifth Circuit began its decision (here) as follows.

“We are presented for the first time with the question of whether the FCPA permits the prosecution of an employee for a substantive offense under the Act if his employer has not and cannot be convicted of similarly violating the FCPA.”

The Fifth Circuit began its decision as follows.

“Our task in interpreting the FCPA ‘is to construe the language so as to give effect to the intent of Congress.  To do so, we look primarily to the language of the statute and secondarily to its legislative history, which includes the ‘purpose the original enactment served, the discussion of statutory meaning in committee reports, the effect of amendments-whether accepted or rejected-and the remarks in debate preceding passage.”

[See this recent post highlighting the importance of the FCPA's legislative history]

The Fifth Circuit then reviewed the “found to have violated” language of the Eckhardt amendment and stated as follows.

“Hearings were conducted on the precurser to the final version of the Eckhardt Amendment in April of 1977 by the subcommittee of the House Interstate and Foreign Commerce Committee. The subcommittee examined two proposed bills: (1) H.R. 3815, introduced by Congressman Bob Eckhardt, which imposed as a prerequisite to the conviction of an employee a showing of violation of the Act by the issuer or domestic concern, and (2) H.R. 1602 which had no such requirement. At the hearing, Congressman Eckhardt, the subcommittee chairman, in discussing H.R. 3815 [... stated as follows].

“Indeed, the corporations [sic] interest might even be in conflict with that of the agent. The corporation might desire to have Joe Bloke found  to have intentionally engaged in bribery and to have been the sole moving agent, that is, the company never agreed to it and the quicker they can convict Joe Bloke, the better off the company is. It is relieved of responsibility and it has a sacrificial lamb in Rome and everybody forgets about the activity.”

The Fifth Circuit then stated as follows.

“Congressman Eckhardt pointed out the dependence of the agent on the corporation for an adequate defense since the corporation, due to its superior resources, would be in a much better position than the employer to defend against accusations of wrongdoing in a foreign country.  He articulated concern over legislation that would require the agent alone to bear the burden of refuting allegations of FCPA violations. He was also troubled about giving the uncharged corporate employer incentive to both disavow knowledge of the agent’s activity and to let the agent bear all responsibility for the wrongdoing.  This problem was avoided [...] because what would become the Eckhardt Amendment ‘would require the government … to prove in the first instance that the issuer had violated the section, because that is the condition precedent to the holding of any agent responsible.”

After reviewing other aspects of the FCPA’s legislative history, the Fifth Circuit concluded that “both the language of the Act and its legislative history reveal a clear intent to impose criminal sanctions against the employee who acts at the behest of and for the benefit of his employer only where his employer has been convicted of similar FCPA violations.”

The Fifth Circuit then stated as follows.

“We hold that in order to convict an employee under the FCPA for acts committed for the benefit of his employer, the government must first convict the employer.  Because the government failed to convict Harvester and under the plea agreement will be unable to indict Harvester and try it with McLean, the Act bars McLean’s prosecution.”

In so holding, the court observed that “it is well-settled that a conspiracy to commit an offense and the commission of a substantive offense are separate and distinct crimes.”

Uriarte was subsequently charged in a one-count superseding information and pleaded guilty to “accessory after the fact” in violation of 18 USC 3.  He was placed on probation for one year.  (See here).

As for McLean, contrary to what the FCPA Blog stated in this prior post, the Fifth Circuit’s decision did not end the DOJ’s case against McLean in that the decision only addressed the substantive FCPA charges against him that were dismissed by the trial court.  The Fifth Circuit decision did not address the conspiracy charge against McLean.

As to the conspiracy charge, McLean proceeded to trial and was found not guilty by the jury.

*****

Stung by its McLean defeat, the DOJ sought to repeal the Eckhardt Amendment.  In a September 1986 FCPA reform hearing in the Senate, John Keeney (Deputy Assistant Attorney General, Criminal Division) submitted a written statement, which read in pertinent part, as follows.

“The Department also wishes to highlight a serious law enforcement problem in both the existing law and in [a Senate bill to amend the FCPA], with respect to the prohibition against convicting an employee (and, in the present FCPA, an agent) of an issuer or domestic concern unless the domestic concern itself is ‘found to have violated’ the Act.  The purpose of this provision, known in the present FCPA as the Eckhardt Amendment, was to prevent a company from labeling an employee as a renegade, thereby making him a scapegoat for the company’s criminal acts, and forcing him to bear alone the full economic burden of defending the criminal charges as well as the potential criminal sanctions.  This goal, unfortunately, has not been met.  There is nothing to prevent a company from pleading guilty to a FCPA violation thereby forcing the employee or agent to defend by himself.  Situations similar to this have occurred in the cases brought thus far.”

“While the Eckhardt provision falls short of fulfilling its purpose, it also makes it more difficult to prosecute certain classes of individuals regardless of the quantum of evidence as to their guilt or that of their employers.  In the only reported opinion on this issue, an appellate court construed Eckhardt to mean that a company must be convicted of a FCPA violation rather than merely be ‘found to have violated’ the act.”

“In that case, a company entered a pre-indictment guilty plea to conspiracy to violate the FCPA rather than to a substantive violation of the Act.  The conspiracy plea was permitted because of the serious financial condition of the company and the real possibility that the imposition of a substantial fine would force it into bankruptcy.  Two company employees were indicted for multiple FCPA violations as well as for conspiracy to violate the FCPA.  The government offered to present proof beyond a reasonable doubt that the company had violated the FCPA and suggested that the Court instruct the jury to make the required Eckhardt finding prior to considering the guilt or innocence of the employees.  The Court rejected these alternatives and dismissed the FCPA charges.  In our view, this construction of the statute does not comport with the intention of Congress in enacting the Eckhardt language.”

“A similar problem exists where a company, over the objection of the United States, enters a plea of nolo contendere to FCPA violations.  In that situation, a court could enter a judgment of conviction against the company for FCPA violations without necessarily making a finding as to guilt for purposes of the statute.  Arguably, the United States might be prevented from prosecuting an employee or an agent of that company following such a conviction.  Such an argument has recently been made by a fugitive defendant who, as agent for a domestic concern, acted as the conduit for transmitting in excess of 10 million dollars in bribes to two foreign officials on behalf of the company which pleaded no contest to 48 FCPA charges.  Given the current state of the law, the eventual resolution of this issue is not completely free from doubt.  What is clear is that there is no justification for allowing conduct of this sort to go unpunished.”

“Should the Subcommittee wish to retain the language of Eckhardt, the Department would suggest that it clarify what is meant by “found to have violated.”  Alternatively, the Subcommittee might wish to substitute some other language which more clearly sets out the intent of Congress.  If the Subcommittee wishes to insure that the goals of Eckhardt are met, we suggest adding language requiring a company to indemnify an employee’s attorney’s fees unless it can be shown that the employee was clearly was operating as a renegade or without the company’s knowledge.  The Department is willing to work with the Subcommittee to clarify the Eckhardt provisions.”

A relevant House Conference Report in April 1987 (Rep. 100-576) as to a bill to amend the FCPA stated, in pertinent part, as follows.

“Anti-bribery Provision – House Repeal of Eckhardt Amendment

House bill.   The House bill repealed the so-called Eckhardt amendment to the FCPA by deleting the lead-in clause of present law, which reads “whenever an issuer/domestic concern is found to have violated …”.  The deleted language had the effect of providing that employees or agents could not be prosecuted for FCPA violations unless the domestic concern or issuer, whichever the case may be, had been found to have violated the Act.

Senate amendment.  The Senate amendment contained no comparable provision.

Conference agreement.  The Senate receded to the House.

When the FCPA was finally amended in 1988, among its changes, was repeal of the so-called Eckhardt amendment.

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, Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here). As noted in the remarks, 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 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.

The FCPA reform debate is not as vibrant as it was a year ago, but reform remains a viable issue.  See prior posts here and here for recent commentary.

Will President Obama play a role in FCPA history?

So here is one for you.

On its recently revamped FCPA website (here), the SEC recently posted (here) the May 1976  “Report of the Securities and Exchange Commission on Questionable and Illegal Corporate Payments and Practices.”

The 1976 Report is an important piece of FCPA legislative history and is discussed at length in both my article “The Story of the Foreign Corrupt Practices Act” (here) and my “foreign official” declaration (here) that has been used in the recent “foreign official” challenges, including the pending 11th Circuit appeal.

You should read the 1976 SEC Report.

The document best demonstrates that during Congress’s multi-year investigation of the foreign corporate payments problem, Congress learned of a wide range of foreign corporate payments to a variety of recipients for a variety of reasons.  Congress could have legislated as to the wide range of foreign corporate payments discovered and documented in, among other sources in the legislative history, the 1976 SEC Report. Indeed, certain of the bills introduced during the legislative process captured a wide range of foreign corporate payments. Yet in passing the FCPA’s anti-bribery provisions, Congress intended to capture only a narrow range of foreign corporate payments.

In short, reading the 1976 SEC report will increase one’s understanding and appreciation of the narrow range of foreign corporate payments Congress intended to capture by the FCPA’s anti-bribery provisions and how the FCPA is a limited statute.

Thirty-five 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-five 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, as it is mine, you owe it to yourself to read the most extensive piece ever written about the FCPA’s history.  See here for my recently published scholarship “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.

“The Story of the Foreign Corrupt Practices Act” is the most extensive piece ever written about the FCPA’s history and it tells the FCPA’s story through original voices of actual participants who shaped the law.

The abstract of the article is as follows.

In the mid-1970s, Congress journeyed into uncharted territory. After more than two years of investigation, deliberation, and consideration, what emerged in 1977 was the Foreign Corrupt Practices Act, a pioneering statute and the first law in the world governing domestic business conduct with foreign government officials in foreign markets. This 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. As the FCPA approaches thirty-five years old, and as enforcement enters a new era, the FCPA’s story remains important and relevant to government agencies charged with enforcing the law, those subject to the law, and policy makers contemplating reform.

In 1983 in the context of FCPA reform hearings, a House Committee wanted to better understand and access the DOJ’s FCPA enforcement program.  To this end, it requested a variety of information from the DOJ, including its closed FCPA cases.  The DOJ responded with “summaries of all closed investigations of alleged FCPA violations” and its response detailed 83 investigations summarized over 18 pages.

In reading the summaries, it is interesting to note that several instances concern conduct that would very likely be the basis of an FCPA enforcement action in this current era.  It is further interesting to observe from the summaries something old-fashioned on display. That is the DOJ being mindful of the evidentiary burdens it would be put to in bringing an action (either in persuading a grand jury to indict or ultimately prevailing at trial).   For most of the FCPA’s history, the DOJ had two choices when faced with conduct that might implicate the FCPA: prosecute or do not prosecute.  In this era, the DOJ has created and championed a system with a third option – non-prosecution and deferred prosecution agreements. Since introduced to the FCPA context in 2004, this third option is one of the more obvious reasons for the increase in FCPA enforcement.

More recently, the DOJ provided information concerning its FCPA “declination” decisions in follow-up answers to questions asked at the June 2011 House FCPA hearing.  (See here for the prior post).  The information DOJ provided to Congress then is substantively similar to the “declination” information included in Guidance.

Aside from not being as revolutionary as observers may think, the Guidance “declination” examples raise more questions than answers.  For instance, in three of the examples, it is not even clear based on the information provided that the FCPA was violated.  For instance, Example 1 at most indicates that a company received competitor bid information from a third party with connections to a foreign government and discovered various FCPA red flags during an internal investigation.  Example 4 at most indicates that a customs agent engaged by a company’s foreign subsidiary made small bribe payments without any discussion of whether the company or its foreign subsidiary possessed the requisite knowledge under the FCPA’s third-party payment provisions.  Example 5 at most indicates that a company, in connection with its acquisition of a foreign company, learned of potential improper payments without any discussion of whether the foreign company was subject to the FCPA’s jurisdiction.  (For additional reading on this quality of the examples, see this recent Guidance alert authored by WilmerHale - specifically pgs. 8-9).

Moreover, in all of the declination examples in the Guidance, the factors motivating the “declination” decision – such as voluntary disclosure and cooperation, effective remedial measures, small improper payments – can often be found in many instances in which FCPA enforcement actions were brought.

The discussion of so-called “declinations” in the Guidance raises once again the pressing question of how the enforcement agencies actually define a “declination.”  To my knowledge, the DOJ has never offered a definition, but perhaps in an effort to portray a fair and balanced FCPA enforcement program, the DOJ appears to be advocating an expansive definition.  However, in the criminal context the term “declination” should be reserved for instances in which the DOJ concludes that it can prove beyond a reasonable doubt all the necessary elements of a cause of action, yet decides not to pursue the action.

With this definition, many of the Guidance “declination” examples are like a police officer “declining” to issue a speeding ticket in instances in which the driver was not speeding.  This is not a “declination”-  it is what the law commands – and such reasoning applies in the FCPA context as well.

For instance, a relevant House Report stated as follows.  “In order to enhance compliance with the provisions of the FCPA [the FCPA amendment] establishes a procedure for the [DOJ] to issue guidance describing examples of activities that would or would not conform with the [DOJ’s] present enforcement policy regarding FCPA violations.”

The Sixth Circuit noted that the 1998 amendments “clearly evince[d] a preference for compliance in lieu of prosecution; however, in response to Congress’s suggestion, the DOJ determined in 1990 that “no guidelines are necessary.”  (See here and here for prior posts).

What if, instead of issuing guidance in 2012, the enforcement agencies would have issued guidance in 2002 after the OECD, in its Phase 2 Report of the U.S., encouraged the U.S. to issue such guidance?

In pertinent part, the OECD Report stated as follows.  “Despite the abundance of articles and commentaries on [the FCPA], there is only limited amount of authoritative or official guidance available on compliance with the twenty five-year statute.  […]  Much of the authority or guidance regarding the Act comes from speeches from DOJ and SEC officials, DOJ opinions, DOJ and SEC complaints, settlements that have been filed, and informal discussions of issues between companies’ counsel and the DOJ or the SEC.  […]  The status of these various sources of information is however not always clear:  there could be merit in regrouping and consolidating them in a single guidance document.”

The OECD Phase 2 Report concluded on this issue as follows.  “In the view of the lead examiners, the time has come to explore the need for further forms of guidance, mainly to assist new players […] on the international scene, and to provide a valuable risk management tool to guide companies through some of the pitfalls which might arise in structuring international transactions involving potential exposures.”

What if, instead of issuing FCPA guidance in 2012, the enforcement agencies would have issued guidance in 2010 after the OECD, this time in its October 2010 Phase 3 Report of the U.S., stated as follows.  “The evaluators recommend that the United States consider consolidating and summarizing [all relevant sources of FCPA information] to ensure easy accessibility, especially for [companies] which face limited resources.”

Despite Congress suggesting FCPA guidance in 1988, and repeated OECD recommendations for guidance in 2002 and 2010, the DOJ refused to issue guidance.

For instance, in the aftermath of a November 30, 2010 Senate FCPA hearing, Senator Amy Klobuchar asked the DOJ the following post-hearing question.  “Do you believe companies could comply with more certainty with the FCPA if they were provided with more generally-applicable guidance from the Department in regards to situations covered by the FCPA that are not clear cut or fall into ‘gray’ area.”   The DOJ response was that it “believes it provides clear guidance with respect to FCPA enforcement through a variety of means” and it then listed the same general categories of information the OECD identified in 2002 as being deficient. (See here).

Although the enforcement agencies state in the Guidance that its issuance was “in part, a response to [the OECD’s] Phase 3 recommendations” the DOJ’s above response after the OECD Phase 3 recommendations calls into question the genuineness of this motivation.

Another likely motive for issuing the Guidance was the desire of the enforcement agencies to forestall introduction of an actual FCPA reform bill.

As to this issue, the following background is relevant.  After the November 2010 Senate FCPA hearing, FCPA reform gained steam heading into a June 2011 House hearing.  The House hearing evidenced bi-partisan support for certain aspects of FCPA reform and at the conclusion of the hearing Chair James Sensenbrenner stated that “we will be drafting [an FCPA reform] bill.  (See here).  Against this backdrop, in November 2011, Assistant Attorney General Lanny Breuer announced that in 2012 the DOJ intended to issue FCPA guidance.  (See here).

Those on Capitol Hill who were inclined to introduce an FCPA reform bill said that they would await DOJ’s FCPA guidance before introducing such a bill.  (See here).   That the Guidance was issued very soon after the November presidential election, during a lame duck Congress, would seem to advance, in addition to the above information, the notion that issuance and the timing of the Guidance was in part political.

Regardless of the enforcement agencies’ motivations in issuing the Guidance when they did, it is telling that it took over a year – from the time of Breuer’s announcement –  to issue the Guidance.  After all, both the DOJ and SEC have specific FCPA units and both enforcement agencies have indicated, in various ways and in various settings, that the FCPA is a clear and unambiguous statute.

The point is this.

While the Guidance is a useful resource guide as it collects in one document the positions and policies of the enforcement agencies, and for this the agencies deserve credit and a pat on the back, the pat on the back could have and should have occurred a long time ago.

Those who closely follow the FCPA are left to wonder what if the Guidance was issued two years, ten years, or twenty-four years ago?

In November 2010, Senator Specter chaired a Senate Judiciary subcommittee hearing titled “Examining Enforcement of the Foreign Corrupt Practices Act.”  (See here for the hearing transcript, here for the video).  I had the privilege to testify at the hearing (see here) and to work with Senator Specter’s office after the hearing on several issues of his concern (see here).

Much of the focus of Senator Specter’s comments and concerns centered on the 2008 record-setting FCPA enforcement action against Siemens and the fact that, then, there had not yet been any related enforcement actions against individuals.

In an exchange with Greg Andres (the DOJ representative who testified at the hearing), Specter stated as follows.

SPECTER: Mr. Andres, you talk about collecting more in criminal fines than anyone else, prosecuted more cases than other countries who are parties to the [OECD] convention, and you say you do not hesitate to go after individuals. But whom have you sent to jail? Did anybody go to jail in the Siemens case?”

ANDRES:  Senator, as we have said before, in the Siemens case, that investigation is ongoing.  There are a number of prosecutions ongoing in Germany.

SPECTER:  Are there individuals who are being prosecuted?

ANDRES:  That investigation is ongoing, Senator.

SPECTER:  Are there any individuals being prosecuted?  When you see all the publicity on Siemens, a big fine and $100 billion in revenues, $8 billion in profits, and no jail sentence, what effect does that have? Is this not really a signal that you can violate the act and pay a fine?”

Also during the hearing, Senator Specter stated as follows regarding FCPA reform testimony by Andrew Weissman who testified at the hearing on behalf of the Chamber of Commerce.  “I think you [Weissman] make some good points when you talk about a compliance defense, talk about rogue employees.”

Even after the hearing, indeed, even after he left the Senate, Specter continued to question why no individuals were prosecuted in connection with the record-setting Siemens action.  At the Dow Jones Global Compliance Symposium in March 2011 he stated as follows.  “If you don’t have a jail sentence in a case like Siemens, when are you going to have one?” (See here for the Wall Street Journal Corruption Currents post).

Approximately one year after the Senate FCPA hearing, the DOJ brought criminal charges against several former Siemens executives relating to conduct in Argentina.  (See here and here for prior posts).  As this Wall Street Journal Law Blog post stated, “Justice Department and SEC officials either got the message that day [the Senate 2010 FCPA hearing] or were biting their tongues, knowing that an ongoing investigation would eventually produce charges.”  As noted in this previous post, while the Siemens individual enforcement actions (which have largely been dormant for the past year) were a step forward, several issues remain.  First, Siemens itself was never charged with FCPA anti-bribery violations for the same conduct its former employees and agents are now facing FCPA anti-bribery charges.  Second, the DOJ and SEC have addressed – through individual enforcement actions – only a sliver of the conduct at issue in the 2008 enforcement action.  As alleged by the enforcement agencies, the corruption at Siemens involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe and the Americas.

Back to Senator Specter.

The timing of the November 2010 Senate hearing and Senator Specter’s motivations in calling it (at the time he was a so-called lame duck) have always been a mystery.  Perhaps he was motivated to shine a light on the lack of Siemens individual prosecutions; perhaps he wanted to provide a public and high-profile forum for FCPA reform discussion in that the Chamber’s FCPA reform whitepaper was released a month earlier; perhaps he was motivated by both.

Whatever his motivations, the hearing helped usher in a new era of critical analysis and examination of the FCPA and FCPA enforcement.  Thank you Senator Specter for helping to shine light on important FCPA topics.

The year was 1981, the FCPA was a mere infant, and the beginnings of a vibrant FCPA reform debate were taking hold as to the new law.  Bill Brock was the U.S. Special Trade Representative and he took to the pages of the New York Times with the following Op-Ed published on August 16, 1981.

Before turning to Brock’s piece, a bit of historical context.

The FCPA was passed in 1977.  As noted in this prior post (which highlights historical articles in Time Magazine) almost as soon as the FCPA was passed, concerns were raised that the law was imprecise and ambiguous and thus harmful to U.S. business. There was much activity on this issue in the early 1980′s.   Among other things: (i) the Carter administration (Carter signed the FCPA into law in December 1977) sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters – one example – “the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department.” (ii) the GAO released a report in 1981 (see here for a prior post) detailing how the FCPA “is riddled with complicating ambiguities and shortcomings” including the key “foreign official” element; and (iii) the Reagan administration recommended decriminalization of bribery.

The FCPA reform debate on the 1980′s was met with many of the same anti-reform rhetoric heard in the past year.  See this prior post for a sampling of statements from that era.

As to the SEC issue Brock raised in his article, it is sort of ironic to note (in this era when the SEC has a specific FCPA Unit) that the SEC initially wanted no part in enforcing the FCPA’s anti-bribery provisions.   Despite being a reluctant actor, the SEC’s role in helping uncover the foreign corporate payments problem and the expertise it gained in doing so was highly valued by congressional leaders, particularly Senator Proxmire who stated that the SEC was “the only agency in the Government that hasn’t gone to sleep on this issue, and [that it did] a good job under the circumstances.”  That the SEC was also an independent agency, unlike the DOJ, was also highly valued by Senator Proxmire as indicated by the following statement Senator Proxmire made during a hearing.  “If we learned anything in the Watergate affair, we learned that the Department of Justice is not a department we can always rely on, especially when you have top influential corporate officials that are involved. They have a good record in some areas. They prosecute the hoodlums. They haven’t got such a good record on white-collar crime.”  The following statement by Senator Proxmire to SEC Chairman Hills during  a hearing best captures the SEC’s reluctant role in the foreign payments problem.  “[The SEC was] responsible for about the only action we have taken with respect to foreign bribery and your agreements, your work, with various corporations to persuade them to cleanse their operation have been a fine example of how an agency can work to get this job done even without legislation. Because of that, you see, we would like to have you involved at least on the investigative disclosure basis. And perhaps we can work something out that would protect you from not pushing you into something you think you wouldn’t want to do.”  Thus, the dual jurisdiction of the SEC and DOJ on FCPA matters is mostly a historical accident and one of the reform issues in the 1980′s was to strip the SEC of its FCPA anti-bribery enforcement powers, something the SEC itself did not object to.

Back to Brock’s Op-Ed piece which is set forth in full below.

5.  Transferring jurisdiction over the act from the Securities and Exchange Commission will insure that bribery of foreign officials will go undiscovered.  After all, the S.E.C. was solely responsible for the disclosure of illegal payments that brought the whole issue to a head in 1975-76.

False.  The S.E.C., under its charter, would continue to police the financial disclosures of American concerns and protect the rights of public investors.  The proposals seek to differentiate between the duties of different Government agencies.  The Justice Department is now responsible for enforcing all criminal penalties but only some civil penalties under the act, leaving the law subject to interpretation by two enforcement authorities.  The changes consolidate under the Justice Department the enforcement authority for all domestic and foreign anti-bribery laws.

6.  The real way to curb bribery around the world is through international negotiations.

True, but don’t hold your breath.  Until now, the United States has had to go it alone.  For six years the United Nations Economic and Social Council and the General Assembly have failed to obtain a commitment by other nations to an international agreement outlawing bribery.  Still, the Administration’s proposals would require the President to pursue international agreements to prohibit illicit payments to foreign officials.  We can strengthen our leadership in attaining international agreements by demonstrating to our trading partners that we have created a stringent yet fair prohibition against bribery without sacrificing exports.

Changing the act is a complex issue, and emotions will run high in the debate.  But the mandate of the American people is clear; a law should be understandable, enforceable and reserve sure and certain punishment for the few who violate it.  As it is now, the act penalizes the innocent more predictably than the guilty, and along with both, our competitiveness in world trade.”