Archive for the ‘Private Right of Action’ Category

Second Circuit – “There Is No Private Right Of Action Under The Antibribery Provisions Of The FCPA”

Thursday, September 25th, 2014

In a September 18th decision, the Second Circuit concluded in Republic of Iraq v. ABB et al that “there is no private right of action under the antibribery provisions of the FCPA.”

The FCPA issue was a minor component of the Second Circuit’s decision in the long-running civil RICO case in which Iraq sought recovery from a long list of defendants for their “alleged conspiracy with Iraq’s then-president Saddam Hussein and Iraq’s ministries to corrupt and plunder the Oil-for-Food Program, an international humanitarian program administered by the United Nations during the final years of Hussein’s rule.”  As to the primary RICO claim, the Second Circuit affirmed the trial court’s dismissal of the claim on the grounds that, among other things, the plaintiff was in pari delicto with defendants.

Notwithstanding the fact that previous FCPA enforcement actions concerning the Oil for Food Program were largely books and records and internal controls cases only because the alleged bribe payments went to the government, not a particular foreign official as required under the anti-bribery provisions, and notwithstanding the fact that Iraq was a unique plaintiff to say the least, it nevertheless brought FCPA claims against the defendants on the theory that the FCPA allowed for a private right of action.

As to this issue, the Second Circuit stated – in full – as follows.

“The Amended Complaint alleged that the surcharges and kickbacks paid by the Vendor and Oil Purchasing Defendants violated the antibribery provisions of the FCPA. The Republic contends that the district court should have recognized an implied private right of action for violations of those provisions despite a consistent line of cases holding to the contrary. The Republic is particularly critical of Lamb v. Phillip Morris, Inc., 915 F.2d 1024 (6th Cir. 1990) (“Lamb”), cert. denied, 498 U.S. 1086 (1991), the leading case declining to recognize such a cause of action. The Republic argues that Lamb erred in its analysis of the legislative history of the FCPA and that that history suggests that the reason Congress did not expressly provide for a private right of action was to avoid creating a “negative inference” that would dissuade judicial recognition of implied private rights of action under other provisions of the Securities Exchange Act of 1934, to which the FCPA was an amendment. We are unpersuaded.

“[P]rivate rights of action to enforce federal law must be created by Congress.” Alexander v. Sandoval, 532 U.S. 275, 286 (2001) (“Sandoval”). A federal statute may create a private right of action either expressly or, more rarely, by implication. In considering whether a statute confers an implied private right of action, “[t]he judicial task is to interpret the statute Congress has passed to determine whether it displays an intent to create not just a private right but also a private remedy.” Id. To discern Congress’s intent, “we look first to the text and structure of the statute.” Lindsay v. Association of Professional Flight Attendants, 581 F.3d 47, 52 (2d Cir. 2009), cert. denied, 11 130 S. Ct. 3513 (2010). To “illuminate” this analysis, id. at 52 n.3, we also consider factors enumerated in Cort v. Ash, 422 U.S. 66 (1975), which include the following:

First, is the plaintiff one of the class for whose especial benefit the statute was enacted, . . . –that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? . . . . Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? Id. at 78 (emphasis in Cort v. Ash) (internal quotation marks omitted). In our analysis, we are mindful that “the Supreme Court has come to view the implication of private remedies in regulatory statutes with increasing disfavor.” Hallwood Realty Partners, L.P. v. Gotham Partners, L.P., 286 F.3d 613, 618 (2d Cir. 2002).

The antibribery provisions of the FCPA prohibit certain entities and persons from, inter alia, corruptly making payments to foreign officials for the purpose of influencing official action in order to obtain business. See 15 U.S.C. §§ 78dd-1(a), 78dd-2(a), 78dd-3(a). The text of the statute contains no explicit provision for a private right of action, although it does provide for civil and criminal penalties, see id. §§ 78dd-2(g), 78dd-3(e), 78ff(c), and permits the Attorney General to seek injunctive relief, see id. §§ 78dd-2(d), 78dd-3(d). Because “[t]he express provision of one method of enforcing a substantive rule suggests that Congress intended to preclude others,” Sandoval, 532 U.S. at 290, the structure of the statute, by focusing on public enforcement, tends to indicate the absence of a private remedy.

The Cort v. Ash factors also do not support recognition of a private right. The statute’s prohibitions focus on the regulated entities; the FCPA contains no language expressing solicitude for those who might be victimized by acts of bribery, or for any particular class of persons. “Statutes that focus on the person regulated rather than the individuals protected create no implication of an intent to confer rights on a particular class of persons.” Sandoval, 532 U.S. at 289 (internal quotation marks omitted).

Nor does the legislative history of the FCPA demonstrate an intention on the part of Congress to create a private right of action. As discussed in Lamb, 915 F.2d at 1029, a bill introduced by Senator Church in the 94th Congress included an express right of action for competitors of those who bribed foreign officials, see S. 3379, 94th Cong. § 10, 122 Cong. Rec. 12,605, 12,607 (1976); that provision, however, was deleted by a committee of the Senate, see S. Rep. No. 94-1031, at 13 (1976).

In the 95th Congress, which finally enacted the FCPA, a committee of the House of Representatives, in reporting out a bill that did not provide expressly for a private right of action, made a statement that the House “Committee intends that the courts shall recognize a private cause of action based on this legislation . . . on behalf of persons who suffer injury as a result of prohibited corporate bribery,” H.R. Rep. No. 95-640, at 10 (1977). We have three main problems with the Republic’s reliance on this statement, and other aspects of the FCPA’s legislative history, as justification for judicial implication of a private right of action in its favor

First, the House committee’s statement was not repeated (and no endorsement of its substance was in any way suggested) in the reports of either the Senate committee considering the FCPA or the conference committee that reconciled the views of the House and Senate to produce the language of the FCPA as it was ultimately enacted. See S. Rep. No. 95-114 (1977); H.R. Rep. 95-831 (1977). Indeed, in the debate on the conference committee report, one conferee stated that the question of whether “courts will recognize [an] implied private right of action . . . . was not considered in the Senate or during the conference, and thus [it] cannot be said that any intent is expressed at all on this issue.” 123 Cong. Rec. 38,601, 38,602 (1977) (statement of Sen. Tower) (emphasis added).

Second, although the legislative history contains additional references to the desirability of a private right of action, they do not provide any clear indication of congressional intent to create one. See generally Siegel, The Implication Doctrine and the Foreign Corrupt Practices Act, 79 Colum. L. Rev. 1085, 1105-12 (1979) (canvassing the legislative history in detail and finding “no conclusive evidence of congressional intent to grant private actions”).

Third, we note that this case illustrates the wisdom of Lamb, which avoids the question of what class of parties the FCPA was designed to protect. Although we agree that the statute was ”primarily designed to protect the integrity of American foreign policy and domestic markets,” Lamb, 915 F.3d at 1029, one might argue that it is principally the foreign governments whose processes might be corrupted. The Republic’s claim highlights the obvious problem with the latter concern here: The foreign government supposedly to be “protect[ed]” by the FCPA was the entity that demanded the bribes in the first place.

Finally, we note that although it has been nearly a quarter of a century since Lamb was decided, and although Congress has more recently amended the FCPA, see International Anti-Bribery and Fair Competition Act of 1998, Pub. L. No. 105-366, 112 Stat. 3302 (1998), Congress has not chosen to override Lamb. We conclude that there is no private right of action under the antibribery provisions of the FCPA and that the district court did not err in dismissing the Republic’s FCPA claims.”

As indicated in the Second Circuit’s decision, there have been previous appellate court decisions addressing whether the FCPA has a private right of action.  As highlighted in this prior post, the Sixth Circuit addressed the issue in Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).  The primary reason articulated by the court for declining a private right of action was something that never happened – at least until 2012 when the DOJ/SEC issued FCPA Guidance.  The Sixth Circuit stated:

“Recognition of the plaintiffs’ proposed private right of action, in our view, would directly contravene the carefully tailored FCPA scheme presently in place. Congress recently expanded the Attorney General’s responsibilities to include facilitating compliance with the FCPA. See 15 U.S.C. §§ 78dd-1(e), 78dd-2(f). Specifically, the Attorney General must ‘establish a procedure to provide responses to specific inquiries’ by issuers of securities and other domestic concerns regarding ‘conformance of their conduct with the Department of Justice’s [FCPA] enforcement policy….’ 15 U.S.C. §§ 78dd-1(e)(1), 78dd-2(f)(1). Moreover, the Attorney General must furnish ‘timely guidance concerning the Department of Justice’s [FCPA] enforcement policy … to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to [FCPA] provisions.’ 15 U.S.C. §§ 78dd-1(e)(4), 78dd-2(f)(4). Because this legislative action clearly evinces a preference for compliance in lieu of prosecution, the introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”

Prior to Lamb, the Fifth Circuit addressed a private right of action, albeit in dicta, in McLean v. Int’l Harvester Co., 817 F.2d 1214 (5th Cir. 1987).  The court stated:  ”we find it inappropriate to imply a private cause of action from the statute. The statute on its face shows no congressional intent to create a private action. Moreover, no legislative history exists referring to such an intent.” This last sentence is obviously false given the legislative history discussed in the recent Second Circuit opinion.

In short, the three appellate court decisions that address an FCPA private right of action are either: (1) based on a false premise (McLean); (2) based on a false premise at the time (Lamb); or (3) involved a unique and odd plaintiff.

An FCPA private right of action does warrant further consideration.

At the very least, this much should be undisputed:  if there was an FCPA private right of action, there would be substantially more case law of precedent concerning the FCPA’s provisions than currently exists and that, I submit, would be a good thing.

Contrary to the Second Circuit’s statement, courts have inferred private rights of action in several provisions of the ’34 Act (see e.g., J.I. Case v. Borak, 377 U.S. 426 (1964)) and the FCPA is after all part of the ’34 Act. Moreover, several of the Cort v. Ash factors for implying a private of right would seem to be met in the FCPA context.  Among the reasons Congress passed the FCPA was to level the playing field given how the discovered foreign corporate payments distorted free and fair competition.  Moreover,  the SEC itself has said on numerous occasions that FCPA enforcement is central to its mission of investor protection.  An FCPA private right of action would further seem to be consistent with the underlying premise of the FCPA which is to reduce foreign bribery.  Finally, “regulation of bribery directed at foreign officials cannot be characterized as a matter traditionally relegated to state control,” as even the Lamb court recognized.

As highlighted in prior posts here, here and here, for several years U.S. Representative Ed Perlmutter (D-CO) consistently introduced the “Foreign Business Bribery Prohibition Act” which would have provided for a limited private right of action under the FCPA.  The bills never made it out of committee.

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.

Where Should The Money Go?

Monday, March 26th, 2012

It is a thorny question with no easy answer.  Where should the money go when a company resolves an FCPA enforcement action?  It was addressed last year in connection with the Alcatel-Lucent enforcement action.  (See here, and here for prior posts).  Two recent events raise the issue again.

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Earlier this month, it was announced (here) that the U.K. “Serious Fraud Office, the Government of Tanzania, BAE Systems and the Department for International Development (DFID) … signed a Memorandum of Understanding enabling the payment of £29.5 million [$47 million USD] plus accrued interest to be paid by BAE Systems for educational projects in Tanzania.”  As noted in the release, “textbooks will be purchased for all 16,000 primary schools in the country and as a result 8.3 million children will benefit” in subjects such as Kiswahli, English, Maths and Science.  The release further notes that funds will also be used to ”provide all 175,000 primary school teachers with teachers’ guides, syllabi and syllabi guides to help improve their teaching skills” as well as the purchase of desks.  In the release, SFO Director Richard Alderman stated as follows.  “This agreement is a first for the SFO which piloted it through the UK legal system. It provides a satisfactory outcome for all concerned but most of all for the Tanzanian people and I am personally delighted that SFO staff were able to achieve this.”

In this release, BAE stated as follows.  “We are glad to finally be able to make the payment to the Government of Tanzania and bring this matter to a close. We are grateful to DFID for their work in agreeing the Memorandum of Understanding with the Government of Tanzania.”  The BAE release states that the “payment follows the settlement agreed between BAE Systems and the SFO.”  For a prior post on the settlement, see here.

To be sure, BAE’s payment to Tanzania, and the role of the SFO in brokering the payment, feels good.  What is not to like about children receiving textbooks?

However, the feel good nature of this most recent BAE development should not mask the significant problems with the BAE enforcement action (on both sides of the Atlantic).  As noted in this prior post, even the U.K. judge who accepted the SFO-BAE plea agreement called it “loosely and hastily drafted” and said the fine he levied reflected that he couldn’t “sentence for an offense which the prosecution failed to charge.”

And let’s not forgot how this story began.  In 2004, the SFO began investigating whether BAE made bribe payments to secure Saudi fighter jet contracts. However, in late 2006, the SFO was forced to halt its investigation under pressure from the U.K. government, which cited national security concerns should the investigation go forward.  However, because BAE also allegedly made bribe payments in numerous other countries to secure business, the SFO, under a new Director, revived its  investigation of BAE, at least as to non-Saudi issues, including whether the  company paid bribes to secure contracts in various European and African countries. After settlement talks stalled – the conventional wisdom is that BAE was unwilling to plead guilty to bribery related offenses given the collateral effect of the mandatory European Union debarment provisions – the SFO pressed ahead with the case.  In late January 2010, the SFO issued a release (here) stating that Count Mensdorff, a former BAE agent, was criminally charged with “conspiracy to corrupt” and for “conspiring with others to give or agree to give corrupt payments […] to officials and other agents of certain Eastern and Central European governments, including the Czech Republic, Hungary and Austria as inducements to secure, or as rewards for having secured, contracts from those governments for the supply of goods to them, namely SAAB/Gripen fighter jets, by BAE Systems Plc.” Then, in early February 2010, the SFO announced (here) its long-awaited resolution of the BAE matter. Despite allegations of wide-spread bribery on a global scale, and despite BAE’s agent being criminally indicted a few days earlier in connection with bribe payments in “certain Eastern and Central European countries” (presumably on evidence that such payments did indeed occur), the SFO resolution related solely to the company’s failure “to keep reasonable and accurate accounting records in relation to its activities in Tanzania.”  Most dramatic, and in a strange turn of events, the SFO announced that it had withdrawn the criminal charges filed days earlier against Count Mensdorff. The same release also noted that “[t]his decision brings to an end the SFO’s investigations into BAE’s defense contracts.”  For more on “BAE – Inside the SFO”, see this prior post.

In any event, at least some children in Tanzania received some textbooks from BAE as a result.

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As previously highlighted on the FCPA Blog (here), Socio-Economic Rights and Accountability Project (“SERAP”) (a non-governmental civil society organization in Nigeria) recently wrote a letter (here) to SEC Enforcement Division Director Robert Khuzami (with a copy to Assistant Attorney General Lanny Breuer and Deputy Chief, Fraud Section Charles Duross)  regarding “FCPA civil penalty and disgorgement proceeds that companies agree to pay to resolve US Foreign Corrupt Practices Act investigations.”  As the letter notes, “currently such proceeds, once paid, are retained by the U.S. government.”

In summary, the SERAP letter requests “that the Enforcement Division establish a case-by-case policy or process that would enable foreign governmental entities that have been victims of corruptly-procured contracts to apply for, subject to appropriate anti-corruption safeguards, some or all of the civil penalty and disgorgement proceeds that would eventually be paid by companies alleged to have violated the U.S. Foreign Corrupt Practices Act.”  SERAP also suggests that “civil society groups in the home country, or U.S. non-profit organizations serving that country, be eligible within a short time-period to apply for such proceeds as well, or instead, for use for ‘public benefits projects’ in the affected foreign country, again subject to anti-corruption safeguards.”

The SERAP letter notes, among other things, as follows.  “… Many citizens in a country where such bribery has occurred might consider FCPA civil penalties and disgorgement payments imposed by the US, and then kept by the US, as in fact representing funds that rightfully ‘belong’ to the victim.”

Stating that “corruptly procured contracts ‘cost’ the victim at least 10 percent extra” the SERAP letter says that “this figure ought to be a presumed measure of possible funds available for third-party application in the context of a civil FCPA settlement, particularly since the Enforcement Division typically settles an investigation before extensive evidence of damages, as opposed to liability, is placed in the public realm.”

The specific SERAP proposal is as follows.  “…[A]fter, and ony after, public notice of an FCPA settlement agreement, the victim foreign government entity and any applicant NGO would have 60 days to file a request that the Enforcement Division pay some or all of the agreed payment proceeds to or for the benefit of the victim government entity or to a home country-based or US based NGO that would present a proposal [to] spend the proceeds for public purposes (e.g. on public health programs) in the country of the victim entity.  Thereafter, the Enforcement Division would have 60 days to act upon the request, favorably or not in its discretion; in this context the Enforcement Division should provide a brief statement of its reasons for its decisions.  In reaching its decisions the Enforcement Division would have the inherent authority to consult with Executive Branch agencies of the US government.

The SERAP letter raises some interesting issues regarding alleged victims of FCPA enforcement actions.  The SERAP letter also raises some interesting questions, including the following.

If the SEC would be required to relinquish a certain portion of money recovered in an FCPA enforcement action, what impact would this have on FCPA enforcement?  Would the SEC be less aggressive in bringing enforcement actions or perhaps more aggressive because more enforcement actions would be needed to sustain the current FCPA ”revenue stream”?  For instance, 10% of SEC FCPA “revenue” in 2011 was approximately $15 million, in 2010 approximately $53 million.

The SERAP proposal appears to assume that all FCPA enforcement actions involve foreign government procurement.  This is not the case.  Approximately 50% of recent  FCPA enforcement actions (i.e. in the past five years) do not involve foreign government procurement, but rather issues relating to foreign taxes, customs duties, or foreign licenses, permits, certifications and the like.  Is the victim analysis the same in these FCPA enforcement actions compared to foreign government procurement enforcement actions?

Are individuals or organizations located in the country giving rise to the FCPA enforcement action really the most direct victims of the conduct at issue?  In the procurement context, what about a competitor who may have lost out on the foreign business because it was unwilling to make an improper payment?  With victim issues attracting new attention, should an FCPA private right of action receive new attention?

Last, but certainly not least, companies settling SEC FCPA enforcement actions are allowed to settle without admitting or denying the SEC’s allegations.  Even the SEC itself has stated that this settlement device often leads to settlements that ”do not necessarily reflect the triumph of one party’s position over the other.”  Given this dynamic, would SERAP’s proposal lead to undeserved “windfalls” for civil society organizations?  [In this prior post, I asked the same question as to Dodd-Frank Act whistleblowers.]

FCPA Reform Bill Introduced (But Not That One)

Thursday, December 1st, 2011

Those that have been following the FCPA reform debate over the past year have been anxiously awaiting introduction of an actual bill in Congress.  Yesterday, Congressman Ed Perlmutter (D-CO) introduced a reform bill, but not that one.

The bill Perlmutter introduced (see here) is H.R. 3531, the “Foreign Business Bribery Prohibition Act of 2011.”  As noted in this previous post, this development has been anticipated for some time and H.R. 3531 is substantively similar to H.R. 2152 that Perlmutter previously introduced in April 2009. See here and here for prior posts.

As drafted, H.R. 3531 would “authorize certain private rights of action under the [FCPA] for violations by foreign concerns that damage domestic business.”  However, the bill would have limited application as it seeks to amend only the 78dd-3 prong of the FCPA.  This prong of the FCPA is applicable to conduct by “persons other than issuers or domestic concerns” and has the most narrow jurisdictional scope – particularly after Judge Richard Leon’s ruling in the Africa Sting case (see here for the prior post).

H.R. 3531 provides as follows.  Any “foreign concern” (defined to mean a person other than an “issuer” or a “domestic concern” under the FCPA) that violates the FCPA’s anti-bribery provisions “shall be liable” to any “issuer” or “domestic concern” or “other United States person” that is “damaged by the violation” of the FCPA’s anti-bribery provisions “for damages caused to such issuer, domestic concern, or other person by the violation.”

As to “proof of damages,” H.R. 3531 states that a plaintiff must allege and prove that “the defendant foreign concern violated” the anti-bribery provisions and that the violations “prevented the plaintiff from obtaining or retaining business for or with any person” and “assisted the foreign concern in obtaining or retaining such business.”

As to “measure of damages,” H.R. 3531 allows the “higher of the two following amounts” (1) “the total amount of the contract or agreement that the defendant gained in obtaining or retaining business by means of the violation” or (2) “the total amount of the contract or agreement that the plaintiff failed to gain because of the defendant’s obtaining or retaining business by means of the violation.”  H.R. 3531 also allows from “treble damages” “togther with a reasonable attorney’s fee and costs.”

Because a “foreign concern” (as defined in H.R. 3531) can only violate the FCPA “while in the territory of the U.S.”, Perlmutter’s bill will have limited application.  Moreover, even though the premable of the bill states that its purpose is to authorize certain private rights of action for violations by foreign concerns “that damage domestic businesses”  given that any “issuer” can be a plaintiff, the bill would also authorize numerous foreign companies with shares traded on a U.S. Exchange to bring a private cause of action against a “foreign concern.”

H.R. 3531 has been referred to the Committee on Energy and Commerce and the Committee on the Judiciary.

A Discussion On The News Corp Scandal

Friday, July 22nd, 2011

Every now and then it is nice to have a light writing day. Today is such a day, but that does not mean today’s post is lacking in substance. I am pleased to send you here – an extensive discussion of the FCPA (and other) implications of the News Corporation scandal on Legal Talk Network and Lawyer2Lawyer. Joining me on the program, moderated by Bob Ambrogi, was Jane Kirtley, the Silha Professor of Media Ethics and Law at the School of Journalism and Mass Communication at the University of Minnesota (see here).

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In other News Corp. FCPA related news, Gateway News reported here that Representative Ed Perlmutter (D-CO) joined the growing list on Capital Hill calling for DOJ and SEC FCPA investigations of News Corp. Readers may recall that Representative Perlmutter previously introduced a bill seeking to amend the FCPA to provide a limited private right of action. See here and here for the prior posts. According to Gateway News, Representative Perlmutter plans to soon re-introduce his private right of action bill.

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A good weekend to all.