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The Story Of The Foreign Corrupt Practices Act

Tuesday, December 11th, 2012

Thirty-five years ago this month, the Foreign Corrupt Practices Act became law. In connection with this anniversary, I am pleased to share my scholarship “The Story of the Foreign Corrupt Practices Act” recently published in the Ohio State Law Journal. For a short video introduction to the article and issues, see here courtesy of Levick Communications.

“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.

The Guidance And Declinations

Tuesday, November 27th, 2012

Much of the buzz surrounding the Guidance concerns six anonymized examples of matters DOJ and SEC declined to pursue, including a discussion of the facts DOJ and SEC considered when choosing to decline the particular matters. However, contrary to the buzz, this is not first time, nor most detailed instance, of the DOJ publicly disclosing it FCPA “declination” decisions.

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.

What If?

Monday, November 26th, 2012

What if, instead of issuing guidance in 2012, the DOJ would have issued guidance in 1988 after Congress, as part of the FCPA’s 1988 amendments, encouraged the DOJ to issue such guidance?

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?

Remembering Senator Arlen Specter

Monday, October 15th, 2012

Yesterday, former Senator Arlen Specter passed away.

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.

“Shifting Gears On Bribes Abroad”

Thursday, October 11th, 2012

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.

Shifting Gears on Bribes Abroad – Bill Brock – New York Times (Aug. 16, 1981)

“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject - corporate bribery abroad - some people turn a blind eye to its shortcomings rather than risk being accused of being soft on bribery.

That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. Congress is addressing a complex, tough issue in a reasoned manner and deserves our attention and admiration.

As the Senate moves toward final consideration of changes in the act, this is a good time to discuss the modifications, which have been proposed in a legitimate effort to clarify the act’s ambiguous language.

Here are several common misunderstandings and questions about the changes and some straight answers:

1. In modifying the act, Congress condones corporate bribery of foreign officials.

Wrong. Any corporation found guilty of ‘paying, giving, offering or promising anything of value to a foreign official for the purpose of obtaining business,’ under the revised act, would be subject to a million-dollar fine. Individuals would face a $10,000 fine or five years in jail or both.

2. American businesses are crying wolf. The act has not discouraged exports. In fact, American international trade has increased since its enactment.

Not exactly. True, our trade has increased since 1977. But much of that increase disappears when adjusted for inflation. No one contends that the act is solely responsible for the last five consecutive years of trade deficits totaling $100 billion. However, a General Accounting Office study, the President’s Export Council and extensive testimony by businesses have cited the act as a significant export deterrent because of its vague and unpredictable application.

3. Without the act’s provisions requiring businesses to establish new accounting systems, bribery of foreign officials will go undetected because the Government will not have a ‘paper trail’ to monitor.

False. There are two misconceptions in this statement. First, under this law the Government can not ‘monitor the paper trail’ to track down bribers. Instead, the act sets accounting and recordkeeping standards that all companies - whether or not they conduct international business - must follow. Second, the proposed changes would make a felony of falsifying books and records for the purpose of concealing illegal payments to foreign officials. It makes more sense to penalize the few who falsify their books to conceal a bribe than to impose a broad and expensive standard of recordkeeping on every publicly owned corporation.

4. If questionable payments are a way of life with some of our trading partners, what is so bad about conforming to accepted business practices in other countries so long as we do not do it at home?

Plenty. Bribes are morally, ethically and economically wrong. They create national security problems, distort normal market forces and, by corrupting officials, jeopardize the political stability of friendly nations. They suffer, and the United States suffers from that ‘way of life.’

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.”