Archive for the ‘Obtain or Retain Business’ Category

FCPA Guidance Rewrites The FCPA

Tuesday, July 16th, 2013

Readers have likely read the FCPA Guidance by now, if not multiple times.

The Guidance contains an appendix that includes, among other things, the text of the Foreign Corrupt Practices Act.  In the Guidance, the enforcement agencies have rewritten the text of the FCPA and this post highlights a statutory construction error that even a first year law student would be expected to understand and recognize.

Set forth below is the text of the FCPA regarding the “obtain or retain business” element.

   ”anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality,

         in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

Set forth below is how the text of the FCPA is portrayed in the FCPA Guidance.

   “anything of value to

         any foreign official for purposes of

(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or

(B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;

On one hand, the obvious error and rewriting of the FCPA in the Guidance could be attributed to scrivener’s error.  After all, both the DOJ’s FCPA website and the SEC’s FCPA website contain accurate versions of the FCPA.

On the other hand, scrivener’s error seems unlikely given the substance of the Guidance and that it appears the DOJ and SEC have always wanted an FCPA statute that doesn’t exist.

As I highlight in my article “Grading the FCPA Guidance,” the most disturbing portion of the Guidance concerns the ‘‘obtain or retain business’’ element of the FCPA. The Guidance asserts that ‘‘in 1998, the FCPA was amended to conform to the requirements of the [OECD] Anti-Bribery Convention,’’ and ‘‘these amendments expanded the FCPA’s scope to include payments made to secure ‘‘any improper advantage.’’

The notion that the FCPA’s 1998 amendments conformed the FCPA to the OECD Convention and expanded the FCPA’s scope to include payments made to secure ‘‘any improper advantage’’ is demonstratively false.

Indeed, the DOJ’s position on this specific issue was rejected by both the trial court and the appellate court in United States v. Kay, a case involving payments to Haitian “foreign officials” for the purpose of reducing customs duties and sales taxes a company owed the Haitian government.

The trial court decision stated:

“The OECD Convention had asked Congress to criminalize payments made to foreign officials ‘‘ ‘in order to obtain or retain business or other improper advantage in the conduct of international business.’’ . . . Congress again declined to amend the ‘‘obtain or retain business’’ language in the FCPA . . . . Congress did not insert the ‘‘improper advantage’’ language into the ‘‘obtain or retain business’’ provision of the FCPA.”

Although the Fifth Circuit overruled the trial court’s decision granting the defendants’ motion to dismiss, the appellate likewise court stated as follows concerning the FCPA’s 1998 amendments:

“When Congress amended the language of the FCPA, however, rather than inserting ‘any improper advantage’ immediately following ‘obtaining or retaining business’ within the business nexus requirement (as does the Convention), it chose to add the ‘improper advantage’ provision to the original list of abuses of discretion in consideration for bribes that the statute proscribes.’’

Others have pointed out this key statutory difference as well, including Philip Urofsky, a former DOJ Assistant Chief of the Fraud Section.  Writing after the 2010 CustomsGate cases involving use of Panalpina (see here for the prior post), Urofsky stated (here) as follows.

“When criminal liability is at issue … it is important that the borders of the statute be carefully limned. Unfortunately, the government’s pleadings in the Panalpina cases do more to blur than clarify the limits of the law. For example, in some cases, the DOJ did not even plead the language of the FCPA but used instead that of the OECD Convention. For example, in Pride International, the conspiracy count alleged that the payments in question were ‘to make corrupt payments to a Mexico government official in order to obtain or retain business and to obtain other favorable treatment.’  Similarly, in the Noble NPA, the DOJ stated that the FCPA was intended to prohibit bribes ‘for the purpose of obtaining or retaining business or securing any improper advantage.’  In each case, the italicized language is simply not a part of the statutory element.”

The enforcement agencies state that the Guidance sets forth “what the law is” and has claimed that the document took nearly a year to draft.

Thus, the above statutory construction error is troubling, yet telling at the same time.

Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure

Tuesday, September 18th, 2012

I am pleased to share my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure” recently published in the Bloomberg BNA White Collar Crime Report.

The abstract is as follows.

High-profile instances of Foreign Corrupt Practices Act scrutiny focus attention on the law and its enforcement across a broad spectrum. In spring 2012, arguably the most high-profile instance of scrutiny in the FCPA’s 35-year history occurred as Wal-Mart’s alleged conduct in Mexico dominated the news cycle. Wal-Mart’s scrutiny has been instructive in many ways at a key point in time for the FCPA. The article uses Wal-Mart’s potential FCPA exposure as a prism to view the current FCPA enforcement environment.

Among the issues discussed in the article are the following: whether Congress intended in passing the FCPA to capture the type of payments at issue in Wal-Mart; what caselaw instructs as to the payments; whether what Congress intended or what courts have concluded even matters; the impact of Wal-Mart’s scrutiny on the company as well as industry peers; and the politicization of Wal-Mart’s scrutiny and its impact on FCPA reform.

The complete article can be downloaded here.

A Wide-Ranging Interview

Wednesday, September 12th, 2012

The FCPA Report is an online publication that contains articles on a variety of FCPA topics to assist lawyers in relevant practice areas, in-house counsel,  and risk and compliance managers stay ahead of the curve.  It launched this June and features thematic sourced and researched by primarily lawyers, as well as contributed articles by experts in the field, interviews with leading figures, and reports on important developments. It is available to subscribers and trial subscribers at www.fcpareport.com.

I was pleased to do a telephone interview with the FCPA Report in mid-August.  Today’s post sends you to the wide-ranging Q&A previously published, in two parts, in the FCPA Report and linked to here with permission.

Topics covered in the Q&A include the following:  statute of limitations, judicial scrutiny, the duration of FCPA scrutiny, voluntary disclosure, Wal-Mart’s FCPA scrutiny, facilitation payments, obtain or retain business, foreign official, corporate fines, victims issues, a private right of action, FCPA Inc. and the revolving door, the three buckets of FCPA financial exposure and Foreign Corrupt Practices Act reform.

An Important FCPA Case You’ve Likely Never Heard About

Monday, May 7th, 2012

Last week (here) I noted, in connection with Wal-Mart’s potential FCPA exposure, that the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to judicial scrutiny three times.  After summarizing those three instances, I noted that the scorecard was as follows:  US – 1; Defendants – 2; or if you prefer US – .5; Defendants – 2.5 (recognizing that the 5th Circuit decision in Kay is equivocal).

Last week in doing some research, I stumbled upon a fourth instance where this enforcement theory was subjected to judicial scrutiny.

The result?  DOJ lost.

Thus, the scorecard is as follows when an enforcement agency is put to its burden of proof on the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions:  US – 1; Defendants – 3; or if you prefer US – .5; Defendants – 3.5 (again recognizing that the 5th Circuit decision in Kay is equivocal).

This 1990 FCPA enforcement action is so obscure it was not even cited in any of the decisions of the other challenges which occurred between 2002-2004.   For instance, in the Kay trial court decision in 2002, the court stated that it was confronting an issue of first impression in the federal courts.

Below is a summary of U.S. v. Alfredo Duran.

AEA Aircraft Recovery (“AEA”) was a division of Summerland Engineering Corp. (a Florida corporation) and engaged in the business of recovery of seized aircraft.  The sole shareholder of Summerland was Robert Gurin.

In 1989, the DOJ charged Joaquin Pou (a Dominican Republic citizen and an agent of AEA, Summerland and Gurin), Alfredo Duran (a U.S. citizen and agent of AEA, Summerland, and Gurin)  and Jose Guasch (a U.S. citizen and agent of AEA, Summerland, and Gurin) with conspiracy to violate the FCPA’s anti-bribery provisions.  See here for the criminal indictment.  In a criminal information (see here) the DOJ also charged Robert Gurin.

According to the charging documents, the defendants conspired to make payments to officials of the Dominican Republic in order to obtain the release of two aircraft seized by the government of the Dominican Republic.  The charging documents then proceed to set forth various acts in furtherance of the conspiracy.

Gurin and Guasch pleaded guilty and Pou (a citizen of the Dominican Republic) became a fugitive.  Gurin was sentenced to 5 years probation and 100 hours of community services and Guasch was sentenced to 4 years probation, 1 month of house arrest and 75 hours of community service.

Duran, a former Florida state Democratic Party chairman, pleaded not guilty and put the DOJ to its burden of proof at trial.  At the close of the DOJ’s case, he filed a motion for judgment of acquittal (see here).  Duran argued that “no reasonable jury could find that the purpose of any of the alleged intended payments was to assist [...] in obtaining or retaining business” and that the government “has failed to adduce sufficient evidence to prove any intended payments were not facilitating or expediting payments for the purpose of expediting or securing routine governmental action (i.e. grease payments).”

The motion stated that “the legislative history to the 1977 Act makes clear that the evil redressed by the Act was the use of bribery by U.S. corporations to obtain contracts for the sale of good or services to foreign countries.”  The motion then referenced that in 1988 Congress “created an exception for expediting or facilitating payments for the purpose of securing routine governmental action.”  The motion stated, “by clear implication, payments in respect of the awarding of procurement contracts of the foreign government are the type of payments targeted” by the FCPA.

The motion then stated as follows.  “The evidence, taken in the light most favorable to the government, shows at best that payments were to be made to Joaquin Pou and, through him, to unidentified Dominican government officials for the purpose of obtaining the release of a single aircraft to its owner.  Clearly, this is not what Congress intended by the phrase obtaining or retaining business …  The fact that this intended payment may have indirectly benefited Gurin’s business by facilitating the release of an aircraft does not establish the type of direct business purpose contemplated by the statute.”  Duran argued that “the government has failed to establish that the intended payments in this case were for the specific purpose of obtaining or retaining business … and, accordingly, a judgment of acquittal should be entered.

Turning next to facilitating payments, the motion argued that “the government bears the burden of disapproving that the payment was not a ‘facilitating or expediting payment” and that had “Congress intended the ‘facilitating or expediting payment exception’ to be an affirmative defense, it would have placed it” in the portion of the FCPA containing affirmative defenses.  The motion stated as follows.  “By its nature, therefore, the exception creates an additional element which the government must disprove beyond a reasonable doubt to establish the crime.”  The motion then goes through the legislative history of facilitating payments and how in the original FCPA the concept was imbedded in the definition of “foreign official” and how in 1988 Congress created the stand-alone facilitating payment exception.

As to the evidence at trial, the motion stated as follows.  “Here the evidence introduced by the prosecution is only consistent with a finding that the purpose of the alleged intended payments was to facilitate or expedite the release of an aircraft.  The Defendant had been told by an undercover government informant that there was no legal holds upon the aircraft.  He was led to believe that neither the Dominican Republic nor any other government held any legal claim to or right in the aircraft.  He understood that it was simply a straightforward matter of expediting the release of an aircraft on behalf of the owner.  Any intended payment was simply for the purpose of hurrying along a bureaucratic process.  The purpose of the alleged intended payment was to expedite a routine governmental action.  Consequently, no reasonable jury could conclude that the Defendant agreed upon an illegal objective.”

Elsewhere, the motion stated as follows.  “The facts simply show that the army of the Dominican Republic had no discretion in the matter of the release of the aircraft, and that some government officials were simply trying to line their pockets outside of their official capacities.”  Further the motion stated as follows.  “There was no decision-making process in this case, the facts merely demonstrate a ministerial or clerical matter involving the processing of government papers and the automatic release of the aircraft.”

On April 17, 1990, U.S. District Court Judge Jame Kehoe granted a judgment of acquittal (see here).

Original source media accounts note that  Judge Kehoe said “the government failed to prove the charges against [Duran] were a crime under the Foreign Corrupt Practices Act.”  According to media reports, Judge Kehoe refused a government request to stay acquittal while prosecutors appealed.  Duran is reported as stating, “I feel that I have been throughly vindicated.  I was ready to take the stand in my own defense.  I am very happy.”

An additional dynamic in the case was that Pou fled the U.S. and Judge Kehoe agreed with the defense that all evidence concerning Pou should be excluded from the case.

According to media reports, the case began when the Government used an informant to pose as an agent for the owner of a drug plane seized by the Dominican military.    Media reports suggest that the government was investigating Gurin in light of allegations he had bribed high-ranking military officials in the Dominican Republic and other Caribbean countries to recover drug planes.

Understanding Wal-Mart

Tuesday, May 1st, 2012

Prior posts here and here discussed and analyzed the New York Times April 21st article regarding Wal-Mart and its potential FCPA exposure.  As noted in the prior posts, the New York Times article was both unremarkable and remarkable at the same time.  Wal-Mart has dominated the news cycle not because it is under FCPA scrutiny (this was known since December 2011 when Wal-Mart disclosed its FCPA scrutiny joining a list of approximately 100 companies known to be under FCPA investigation).  Rather, Wal-Mart has dominated the news cycle because of how the company acted, or failed to act, since learning of potential FCPA issues in approximately 2005.  Thus, Wal-Mart is mostly a corporate governance story.

Even so, there are some core and fundamental FCPA issues worthy of exploration.  This post discusses many of the same issues I’ve discussed with journalists and others over the past week.  Given the space constraints of media outlets, the below was understandably reduced to one or two sentences.  It is in instances like this when I particularly enjoy having my own website and having the ability to go long and deep.

So long and deep we shall go and the issues discussed below are informed by, among other things, my review of the FCPA’s entire legislative history and my years as an FCPA practitioner.  Although focused on the FCPA’s “foreign official” element, a thorough and comprehensive review of the FCPA’s legislative history can be found here (my “foreign official” declaration used in connection with several recent judicial challenges).  My article “The Story of the Foreign Corrupt Practices Act” is forthcoming in the Ohio State Law Journal.

Do the Wal-Mart Mexico payments at issue violate the FCPA’s anti-bribery provisions?  From a practical standpoint, does it even matter?

The FCPA’s Anti-Bribery Provisions

Two distinct and important questions can be asked about many instances of FCPA scrutiny, including Wal-Mart’s, in this new era of FCPA enforcement.

The first question is whether, given the DOJ and SEC’s current enforcement theories, the Mexican payments at issue - allegedly in connection with permitting, licensing and inspection issues - can expose Wal-Mart to an FCPA enforcement action?  The answer is likely yes and in the past several years the enforcement agencies have brought several FCPA enforcement actions premised on payments to obtain foreign licenses, permits and the like.  For instance see here (and embedded posts therein) for the numerous Panalpina related enforcement actions in 2010.  See here at pages 972-975  for a listing of such cases 2007-2009.

The second (and from my perspective more important) question is whether Congress, in passing the FCPA, intended the law to capture payments occurring outside the context of foreign government procurement and involving ministerial and clerical acts by foreign officials.  The answer from the FCPA’s legislative history is no.

In the mid-1970′s Congress learned of a variety of foreign corporate payments to a variety of recipients and for a variety of reasons.  Congress accepted and acknowledged in passing the FCPA that it was capturing only a narrow range of foreign payments.  For instance the relevant Senate Report in May 1977 specifically notes that “the committee has recognized that the bill would not reach all corrupt overseas payments.”  Likewise, the relevant House Report in September 1977 also states that “the proposed law will not reach all corrupt payments overseas.”

Of note, in November 1977 (a month prior to passage of the FCPA in December 1977), Representative Robert Eckhardt  (D-TX, a Congressional leader on the foreign payments issue) stated on the House floor as follows.  “Payments to a [foreign official with ministerial or clerical duties] for instance, to complete a form that ought, in equity, to be completed, to give everybody equal treatment, to move the goods off a dock which he will not move without a tip, a mordida, I think, as they call it in the Spanish language, a facilitating payment, or a grease payment would not constitute a bribe.”

Thus, when the FCPA was passed in December 1977 it specifically excluded from the definition of “foreign official” “any employee of a foreign government or any department, agency, or instrumentality thereof whose duties are essentially ministerial or clerical.”  This was the FCPA’s original (albeit indirect) facilitating payment or grease exception. The relevant House Report states in pertinent part as follows: “… a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must be performed in any event.”

When Congress amended the FCPA in 1988 it, among other things, amended the definition of foreign official by removing this indirect facilitating payment exception from the “foreign official” definition by creating a stand-alone facilitating payment exception currently found in the statute.  The relevant House Report indicates that Congress did not seek to disturb Congress’s original intent. “The policy adopted by Congress in 1977 remains valid, in terms of both U.S. law enforcement and foreign relations considerations. Any prohibition under U.S. law against this type of petty corruption would be exceedingly difficult to enforce, not only by U.S. prosecutors but by company officials themselves. Thus while such payments should not be condoned, they may appropriately be excluded from the reach of the FCPA. U.S. enforcement resources should be devoted to activities have much greater impact on foreign policy.”

Even if a payment does not meet the FCPA’s facilitation payments exception, in order for there to be a violation of the FCPA’s anti-bribery provisions, all statutory elements must be met including the “obtain or retain business” element.

To my knowledge, the enforcement theory that payments outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions has been subjected to judicial scrutiny three times.  These three judicial decisions are summarized below.

Kay Trial Court

In 2001, David Kay and Douglas Murphy (“Defendants”), the president and vice president of Houston-based American Rice, Inc. (“ARI”), were criminally indicted.  The indictment charged FCPA anti-bribery violations and alleged that the defendants made improper payments to Haitian “foreign officials” for the purpose of reducing customs duties and sales taxes owed by ARI to the Haitian government.  The indictment, while specific as to other items, merely tracked the FCPA’s “obtain or retain business” language and did not specifically allege how the alleged payments assisted ARI in obtaining or retaining business in Haiti or what business was obtained or retained.  As stated by the court:  “In other words, the indictment recite[d] no facts that could demonstrate an actual or intended cause-and-effect nexus between reduced taxes and obtaining identified business or retaining identified business opportunities.”

In a case of first impression in the federal courts, the court granted Defendants’ motion to dismiss the indictment and held, as a matter of law based on the FCPA’s legislative history, that the alleged payments were not payments made to “obtain or retain business” and thus did not fall within the scope of the FCPA’s anti-bribery provisions.  See 200 F.Supp.2d 681 (S.D. Tex. 2002).

Mattson / Harris

A few months after the trial court decision in Kay, the Southern District of Texas again considered whether payments made outside the context of foreign government procurement fall under the FCPA’s anti-bribery provisions.  As noted in this previous post, the Mattson and Harris enforcement action (a civil enforcement action brought by the SEC) involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment.  The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.  The court noted that U.S. v. Kay  had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation.  However, the SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases.  The court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.”  See this Memorandum and Order (Sept. 9, 2002).  As noted in this release, the SEC dropped its appeal in July 2004.

Of interest is that Mattson’s lawyers, Martin Weinstein and Robert Meyer of Willkie Farr & Gallagher, were the lawyers identified in the New York Times articles who advised Wal-Mart in 2005 on an investigative work plan that was apparently rejected by Wal-Mart.

Kay Fifth Circuit Ruling

The DOJ appealed the 2002 decision of the Southern District of Texas dismissing the indictment and one issue on appeal was whether payments to “foreign officials” to obtain favorable tax and customs treatment can come within the scope of the FCPA’s anti-bribery provisions.

The Fifth Circuit, like the trial court, concluded that the FCPA’s “obtain or retain business” element was ambiguous and it thus analyzed the FCPA’s legislative history.  See 359 F.3d 738 (5th Cir. 2004).  The Fifth Circuit focused specifically on the U.S. Senate’s 1977 sponsored bill and the SEC report on which the Senate’s proposal was based.  According to the court, the SEC report “exhibited concern about a wide range of questionable payments [including those at issue in Kay] that were resulting in millions of dollars being recorded falsely in corporate books and records.”  Although the Fifth Circuit recognized that the Senate’s proposal did not expressly cover payments that seek to influence the administration of tax laws or seek a favorable tax treatment, the Senate, in the words of the court, “was mindful of bribes that influence legislative or regulatory actions, and those that maintain established business opportunities.”

In short, the Fifth Circuit was convinced that Congress intended to prohibit a range of payments wider than those that only directly influence the acquisition or retention of government contracts or similar arrangements.  The Fifth Circuit held that making payments to a “foreign official” to lower taxes and custom duties in a foreign country can provide an unfair advantage to the payer over competitors and thereby assist the payer in obtaining and retaining business.  The court concluded that there was “little difference” between these type of payments and traditional FCPA violations in which a company makes payments to a “foreign official” to influence or induce the official to award a government contract.

However, the Kay court empathically stated that not all such payments to a “foreign official” outside the context of directly securing a foreign government contract violate the FCPA; it merely held that such payments “could” violate the FCPA.  According to the court, the key question of whether Defendants’ alleged payments constituted an FCPA violation depended on whether the payments were intended to lower ARI’s costs of doing business in Haiti enough to assist ARI in obtaining or retaining business in Haiti. The court then listed several hypothetical examples of how a reduction in custom and tax liabilities could assist a company in obtaining or retaining business in a foreign country.  On the other hand, the court also recognized that “there are bound to be circumstances” in which a custom or tax reduction merely increases the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.

The court specifically stated: “[I]f the government is correct that anytime operating costs are reduced the beneficiary of such advantage is assisted in getting or keeping business, the FCPA’s language that expresses the necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage – a conclusion that we are forbidden to reach.”

In short, the enforcement theory that payments outside the context of foreign government procurement satisfy the FCPA’s “obtain or retain business” has been subjected to judicial scrutiny three times.

The scorecard:  US – 1; Defendants – 2; or if you prefer US – .5; Defendants – 2.5 (recognizing that the 5th Circuit decision is equivocal).

Contrary to popular misperception, Kay thus does not hold that all payments to a “foreign official” outside the context of foreign government procurement fall within the FCPA’s scope.  Rather, the decision merely holds that Congress intended for the FCPA to apply broadly to payments intended to assist the payer, directly or indirectly, in obtaining or retaining business and that payments to a “foreign official”  outside the context of foreign government procurement can, under appropriate circumstances, fall within the statute. Given the facts and circumstances the Kay court found relevant, it is highly fact-dependant analysis whether a payment to a “foreign official” satisfies the “obtain or retain business” element outside of the context of foreign government procurement.

A key portion from the Kay ruling likely relevant in Wal-Mart is the following:  “there are bound to be circumstances” in which payments outside the context of foreign government procurement merely increase the profitability of an existing profitable company and thus, presumably, does not assist the payer in obtaining or retaining business.

Despite the equivocal nature of the Kay holding, (and the enforcement agencies overall losing record on the issue) the decision clearly energized the enforcement agencies and post-Kay there has been a significant increase in FCPA enforcement actions where the alleged improper payments involve customs duties and tax payments or are otherwise alleged to have assisted the payer in securing foreign government licenses, permits, and certifications which assisted the payer in generally doing business in a foreign country.  For a listing of many such cases, see my scholarship, “The Facade of FCPA Enforcement” – here.  None of the enforcement actions profiled therein were challenged or subjected to judicial scrutiny.

It thus remains an open question whether payments outside the context of foreign government procurement, in any particular case if subjected to judicial scrutiny, (i) would satisfy the FCPA’s “obtain or retain business” element; or (ii) are too attenuated to obtaining or retaining business (such as merely increasing the profitability of an existing profitable business) and thus, per the Kay holding, not a violation of this key FCPA anti-bribery element.

Does It Even Matter?

A logical and practical question then becomes, does it even matter?  As in most FCPA enforcement actions, the answer in any future Wal-Mart FCPA enforcement action is likely no.  At the end of the day it will not matter if Wal-Mart’s payments, if subjected to judicial scrutiny, would result in FCPA violations.

The short reason is that while Wal-Mart’s counsel can make valid and legitimate legal and factual arguments around conference room tables behind closed doors in Washington D.C., to truly challenge the DOJ in an instance of FCPA scrutiny, and to put the DOJ to its high burden of proof at trial, first requires that the company be criminally indicted, something few corporate leaders are willing to let happen.  It is simply easier, more cost-efficient, and more certain to resolve FCPA scrutiny notwithstanding aggressive (and dubious) enforcement theories or the existence of valid and legitimate defenses.  Also relevant to this issue is the existence of the “carrots” and “sticks” relevant to resolving FCPA enforcement actions.  To learn more about these “carrots” and “sticks” please read my article ”The Facade of FCPA Enforcement” – here.

To my knowledge, in the FCPA’s 35 year history, only two corporate defendants have put the DOJ to its high burden of proof in trial.  Wal-Mart will not become the third.  Even so, it is instructive to learn about the two instances in which corporate defendants have put the DOJ to its high burden of proof at trial.

The DOJ’s ultimate record?  0-2.

As noted in this prior post, in 1990, Harris Corporation (“Harris” – a publicly traded telecom provider), along with certain of its executives, were charged in a criminal indictment concerning conduct in Colombia.  In 1991, the court, after hearing the prosecution’s case, granted a defense motion for a verdict of acquittal.  The San Francisco Chronicle stated as follows. “Shortly after the government rested its case, U.S. District Judge Charles Legge of San Francisco ruled from the bench that ‘no reasonable jury’ could convict the company nor its executives on any of the five bribery-related counts for which they were indicted. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy. Legge also said it was the first time in his six years on the federal bench that he had dismissed a criminal case at mid-trial for lack of evidence.”

As noted in this prior post, in December 2011 (after the DOJ had secured trial court jury verdicts convicting privately held Lindsey Manufacturing Company and its CEO and CFO of FCPA offenses), Judge Howard Matz (C.D. Cal). vacated the convictions and dismissed the indictment based on numerous prosecutorial misconduct issues that together added “up to an unusual and extreme picture of a prosecution gone badly awry.”  In addition to prosecutorial misconduct, Judge Matz noted the “weakness of the Government’s case” and that the “case against the Lindsey Defendants was far from compelling.”