Archive for the ‘Successor Liability’ Category

“The FCPA – A View From The Hill”

Thursday, June 28th, 2012

At the Oil and Gas Supply Chain Compliance conference yesterday in Houston (see here), Todd Harrison (Chief Counsel, Oversight and Investigations, Energy and Commerce Committee, U.S. House) gave a presentation titled “The FCPA – A View from the Hill.”

Harrison provided his personal views on FCPA reform, specifically the “currents on the Hill” regarding the issue and a “sense of what Congress is thinking about in terms of changing” the law.  Harrison stated that until recently, the FCPA has not been a “tremendous focus on Capitol Hill” and that even against the backdrop of recent efforts to reform the FCPA “there is not a lot of momentum on the Hill for changes to the FCPA.”  However, Harrison stated that it “usually takes a lot of time to get things rolling and for legislation to come to fruition” and that changes to legislation often take place over 2-3 Congresses (each with a two year term) because there a lots of discussions with various stakeholders.”

[As a historical aside, the last period of major FCPA substantive reform occurred in the 1980’s and that process took 8 years from the time the first reform bill was introduced until President Reagan signed the Omnibus Trade and Competitiveness Act of 1988 which contained FCPA amendments at Title V, Subtitle A, Part I.]

Harrison next spoke of the “very prominent setbacks” the DOJ has recently suffered, most notably the Africa Sting cases, and that in light of these setbacks there was indeed “momentum gaining to make changes to the FCPA.”  However, Harrison said that the New York Times Wal-Mart article “changed the tide and mood entirely.”

During the Q&A, I asked Harrison generally as follows – “I know that Capitol Hill is a political institution and body, but explain why the Wal-Mart investigation should impact FCPA reform, after all, Wal-Mart is now one of approximately 125 companies under FCPA scrutiny and it is debatable whether the Wal-Mart payments at issue even violate the FCPA.”  (see here for the prior post).

Harrison said that as a “practical matter, public opinion matters, what happens in the real world matters” and that the atmosphere surrounding FCPA reform after the Wal-Mart article has made it “harder for different groups to advocate” for FCPA reform.  Harrison acknowledged that this perception “does not have a whole lot to do with the underlying facts” of the Wal-Mart matter, but that “public perception and pressure on government institutions” matters.

As to substantive FCPA reform, Harrison focused mostly on successor liability issues, which he called the Chamber’s number one reform issue.  However, Harrison said that this concern was hypothetical because as a “practical matter the DOJ has not been bringing prosecutions under this theory.”  During the Q&A I asked him whether anyone on the Hill is actually reading the enforcement actions because recent DOJ or SEC enforcement actions based on successor liability theories include Alliance One, General Electric and Watts Water Technologies.  In response, Harrison backtracked and said “no one has come to me about those particular cases” and that “none of these particular cases have become prominent on Capitol Hill.”

In short, Harrison’s personal view was that there is not a “wave of support or pressure to make actual legislative changes regarding successor liability.”

In response to a question, Harrison did not have any insight as to the timing of expected FCPA guidance.  He stated that his “personal guess is not anytime soon.”

FCPA Issues Can Reduce The Value Of A Merger

Thursday, June 14th, 2012

Getting transactional lawyers to take the Foreign Corrupt Practices Act seriously can sometimes be an uphill battle.

The recent and ongoing FCPA scrutiny of ABM Industries Inc. should help sell the story.

As noted in this prior post, in December 2011 ABM disclosed in its annual report as follows.  “During October 2011, the Company began an internal investigation into matters relating to compliance with the U.S. Foreign Corrupt Practices Act and the Company’s internal policies in connection with services provided by a foreign entity affiliated with a Linc joint venture partner. Such services commenced prior to the Company’s acquisition of Linc. As a result of the investigation, the Company has caused Linc to terminate its association with the arrangement. In December 2011, the Company contacted the U.S. Department of Justice and the Securities and Exchange Commission to voluntarily disclose the results of its internal investigation to date. The Company cannot reasonably estimate the potential liability, if any, related to these matters. However, based on the facts currently known, the Company does not believe that these matters will have a material adverse effect on its business, financial condition, results of operations or cash flows.”

As suggested by the above disclosure, ABM’s FCPA scrutiny does not involve anything it did, rather it is based on a foreign entity affiliated with a joint venture partner of a company (The Linc Group LLC) ABM merged with December 2010.  As noted in this ABM release, ABM acquired The Linc Group, LLC (“TLG”) for $300 million in cash.

The merger agreement (here) contains a typical target company representation and warranty as follows.

“Section 3.25 Certain Practices. Neither the Company [The Linc Group LLC] nor any Subsidiary (including any of their officers, manager, directors or employees acting on behalf of the Company or any Subsidiary) nor, to the Knowledge of the Company, any other Person acting on behalf of the Company or any Subsidiary, has, directly or indirectly through another Person, made, offered or authorized the use of, or used, any corporate funds or provided anything of value (a) for unlawful payments, contributions, gifts, entertainment or other unlawful expenses relating to political activity, (b) to foreign or domestic government officials or employees in violation of the Foreign Corrupt Practices Act of 1977 and any similar anti-corruption or anti-bribery laws applicable to the Company or any of the Subsidiaries in any jurisdiction other than the United States (collectively, the “FCPA”), or (c) for a bribe, rebate, payoff, influence payment, kickback or other similar payment in violation of any Applicable Law.”

Perhaps FCPA specific due diligence was conducted by ABM prior to closing and the due diligence did not detect the potential FCPA issue or perhaps FCPA specific due diligence was not conducted.

Regardless of the answer, ABM’s FCPA scrutiny, based entirely on the pre-merger conduct of The Linc Group or its affiliates, is reducing the value of the merger.

In its recent quarterly filing (here), ABM disclosed, for the six months ending April 30, 2012, $2.7 million of legal fees and other costs associated with the internal investigation.  Given that ABM’s investigation would appear to be in its infancy, and factoring in potential exposure through an actual enforcement action, it is not hard to imagine that 5% of the merger price could evaporate due to the FCPA issue.  And then of course, there is potential post-enforcement action costs.

For instance, in 2010 Alliance One International resolved an FCPA enforcement action by agreeing to pay $19.5 million in combined DOJ and SEC fines and penalties.  The entire enforcement action was based on the pre-merger conduct of acquired entities.  (See here for the prior post).  Pursuant to a non-prosecution agreement, Alliance One was required to engage a compliance monitor for three years.  In FY 11, the company disclosed $3.4 million in monitor costs.  Earlier this week, in an annual report, the company disclosed an additional $6.1 million in monitor costs.

In short, the FCPA matters, including for transactional attorneys, in the context of M&A.

For previous posts discussing similar merger issues, see here and here.

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As readers may know, one of the FCPA reform proposals suggested is in the context of M&A transactions.  The original ABM post from December 2011 linked above, discussed the company’s disclosure in the context of George Terwilliger’s (here – an FCPA practitioner at White & Case and former Deputy Attorney General) period of repose proposal.  The proposal, as Terwilliger explains in this piece “is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days.”
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As to M&A issues, readers may be interested in this recent publication from Transparency International U.K. titled “Anti-Bribery Due Diligence for Transactions.”  As explained in the publication, the “guidance is intended to provide a practical tool for companies on undertaking anti-bribery due diligence in the course of mergers, acquisitions and investment.”

A Focus On FCPA Reform

Thursday, September 8th, 2011

The FCPA was enacted in 1977, amended in 1988, and amended again in 1998.

It is widely expected that an FCPA reform bill will be introduced this month.   Who will introduce the reform bill, what specific amendments will it seek, will hearings be held, will the reform bill succeed?  All interesting issues to monitor.

Against the backdrop of expected FCPA reform, several articles have been written in recent weeks.  In this Politico article, Assistant Attorney General Lanny Breuer stated, “I don’t really accept the fact that the FCPA is truly a burden on American business.”  Several former DOJ officials (not to mention many others) disagree.  One of the more vocal proponents of FCPA reform has been former U.S. Attorney General Michael Mukasey who testified at the June House hearing on behalf of the U.S. Chamber of Commerce.  (See here for links to his prepared statement as well an overview of the hearing).  In the Politico article, Mukasey states that “nobody is looking to slacken in cases involving real bribery of public officials.”

Former Deputy Attorney General George Terwilliger, who also testified at the June hearing, is in favor of reforming the FCPA as well.  Terwilliger recently penned a client alert (here) titled “Can the FCPA Be Good for Business?”  Placing FCPA reform in the context of current economic conditions, Terwilliger stated as follows.  “Those responsible for making and enforcing our laws are in a position to adopt laws and policies that can help foster, rather than inhibit, business growth. At the heart of that analysis, asking whether broad-ranging laws like the FCPA are functioning as an impediment to a restored economy is worthwhile.”  Terwilliger adds that “because of its global impact on the expansion of U.S. businesses abroad, it is worth looking specifically at the FCPA as a case study for worthwhile reform initiatives.”

Continuing a theme he discussed during the June hearing, Terwilliger writes as follows.  “One of the surest methods for US businesses to expand globally is through the acquisition of existing foreign companies. In many emerging markets, most acquisition targets are beyond the purview of the FCPA and thus unlikely to employ anti-corruption compliance policies. But these companies have become attractive targets because of their position in growth markets. Those markets are also noted as typically more corrupt than other, more established markets subject to closer scrutiny by governments. Preacquisition due diligence, looking specifically at indicia of potential FCPA compliance issues, can be an asset to decision making. But in most circumstances, the opportunity for the kind of in-depth examination that is likely to reveal potential FCPA compliance issues is quite limited. As a result, any acquisition abroad, and particularly those in emerging markets, can carry a ticking time bomb of FCPA compliance issues.  I have advocated in congressional testimony that Congress amend the statute to provide a period of repose under the FCPA following an acquisition. The idea is that US companies, with notice to US enforcement authorities, would have a defined period after an acquisition in which to perform a rigorous FCPA compliance review of the acquired entity. If FCPA compliance issues were uncovered, the acquiring company would remediate them, and disclose both the existence of the problem and its remediation to the government. The acquiring company would be immune from civil or criminal enforcement as to matters uncovered during the review period, which could be on the order of 90 to 120 days. At its most elemental level, this procedure would serve the fundamental objectives of the FCPA, which are to root out and eliminate corruption in the global marketplace. That it may also tip the balance toward overseas expansion by reducing the risk of hidden FCPA liability is good for business and good for the US economy.”

Terwilliger’s acquisition period of repose concept has merit, however it would seem that such a concept could easily be embedded within a compliance defense rather than a separate FCPA amendment.

Other recent articles regarding FCPA reform include here from David Hilzenrath at the Washington Post and here from Dan Froomkin at the Huffington Post.  Froomkin’s article is lengthy and contains views on both sides of the issues including those of Harvard Law Professor David Kennedy who correctly notes that the FCPA has “led to a quite remarkable network of measures across the world.”  However, coverage regarding other OECD member countries that have adopted FCPA-like measures lacks any mention (as noted in this prior post) that many of those countries have embedded compliance-like defenses in their domestic laws.  In addition, coverage regarding the U.K. Bribery Act also lacks any mention of the Act’s adequate procedures defense, a defense that undermines the foolish rhetoric that the Act is somehow the “FCPA on steroids.”

Terwilliger concludes his alert by rightly putting part of burden for FCPA reform on U.S. business.  He states as follows.  “US businesses can help themselves by advocating for reform of the FCPA’s terms and its enforcement. Until such reforms gain momentum, these companies will have to be prepared to face greater FCPA risk than is necessary as part of the price of moving businesses forward and bringing sustained growth to US companies and the economy—which is so dependent on them for job creation and expansion.”

However, what business or industry sector is going to step up to the plate and advocate for FCPA reform?  The atmosphere is just too toxic to do so.   Indeed, Froomkin begins his piece by noting that the U.S. Chamber is “taking on something as seemingly unassailable as an anti-bribery law.”

And therein lies the problem.

So I leave you with some guiding words from some of the major players the last time Congress undertook substantial FCPA reform in the 1980′s.

“The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”  “The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective.”   (Senator Alfonse D’Amato – 1981).

“We’ve learned a great deal about the Foreign Corrupt Practices Act in the last three years. We’ve learned that the best of intentions can go awry and create confusion and great cost to our economy.”   ”Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the ‘bad old days’ of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill’s language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion.”   (Senator John Chafee – 1981).

“… There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?”  (Senator John Heinz – 1981).

And my personal favorite.

“Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to 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.  Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years.  After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond.  Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”  (Honorable William Brock – U.S. Trade Representatives – 1983).

It will be an interesting Fall.  Feel free to make your voice heard on FCPA reform issues on this site.  E-mail me at mjkoehle@butler.edu.

 

The U.K. Bribery Act Goes Live

Friday, July 1st, 2011

At the time of this post, the U.K. Bribery Act has been live for about ten hours, yet there has not been an enforcement action. Given that the Act is not retrospective and applies only to bribes paid after July 1st, this is hardly surprising, but I hope you appreciate the Friday humor.

U.K. corporates and others subject to the Bribery Act are doing business around the world, including in high-risk jurisdictions, and a healthy dose of corporate hospitality is no doubt occurring at Wimbledon. In other words, the world has not changed.

Today, of course, is the day the U.K. Bribery Act finally goes live.

As explained is this U.K. Ministry of Justice circular, “the Bribery Act replaces the offences at common law and under the Public Bodies Corrupt Practices Act 1889, the Prevention of Corruption Act 1906 and the Prevention of Corruption Act 1916 (known collectively as the Prevention of Corruption Acts 1889 to 1916) with a new consolidated scheme of bribery offences.”

The FCPA-like provision of the Bribery Act is Section 6 described in the circular as follows. “Section 6 is designed to deal with the corruption of decision making in publicly funded business transactions through the personal enrichment of foreign public officials by those seeking business opportunities. The offence is committed where a person offers, promises or gives a financial or other advantage to a foreign public official with the intention of influencing the official in the performance of his or her official functions. There must also be an intention to obtain or retain business or a business advantage on the part of the perpetrator. However, the offence is not committed where the official is permitted or required by the applicable written law to be influenced by the advantage.”

As to corporate liability, the circular states as follows. “The Bribery Act includes a new form of corporate criminal liability where there is a failure to prevent bribery perpetrated on behalf of a “relevant commercial organisation” (Section 7). This new corporate liability for bribery [...] does not in any way change the existing common law principle governing the liability of corporate bodies for criminal offences that require the prosecution to prove a fault element or ‘mens rea’ in addition to a conduct element. This common law principle, sometimes referred to as the “identification principle”, will therefore continue to operate so that where there is evidence to prove that a person who is properly regarded as representing the “directing mind” of the body in question possessed the necessary fault element required for the offence charged the corporate body may be proceeded against.”

As to the Section 7 offense, the circular states as follows. “The offence at section 7 of the Act creates a new form of corporate criminal liability. The offence applies only to a “relevant commercial organisation” as defined at section 7(5) and focuses on a failure by such an organisation to prevent a person “associated with” it from committing a section 1 or 6 bribery offence in order to obtain or retain business or an advantage in the conduct of business for that organisation. It creates direct rather than vicarious liability and its commission does not amount to the commission of a substantive bribery offence under section 1 or 6. A commercial organisation will have a full defence if it can show that despite a particular case of bribery it nevertheless had adequate procedures in place designed to prevent persons associated with it from bribing.”

As Michael Volkov (here) nicely stated – “The longest pre-game show in history is drawing to a close. The new world will shortly be upon us. Will the UK Bribery Act be a game-changer or will it fizzle out like Y2K? Everyone has their predictions; everyone has their focus and emphasis.”

Here is my two cents.

As with any new law, there is likely to be a learning phase for both the enforcement agencies and those subject to the law. That was certainly the case in the U.S. in the years following passage of the FCPA in 1977. Thus, it very well may be the case that there are no enforcement actions for some time (recognizing that it often takes a few years from beginning of an inquiry to resolution of an action). Thus the greatest immediate impact of the Bribery Act is sure to be the compliance ethic it inspires. I expect that the enforcement actions that may develop over time to focus on egregious instances of corporate conduct on which no reasonable minds would disagree. I do not get the sense, based on public comments of the Ministry of Justice and the Serious Fraud Office, that the envelope will be pushed too far in the early years of the Bribery Act.

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See here for the text of Richard Alderman’s (Director of the U.K. Serious Fraud Office) recent speech on the Bribery Act.

In a signature departure from U.S. enforcement policy concerning merger and aquisition issues, Alderman stated as follows. “I know that there are many occasions when an acquiring company takes over a target company and discovers either before or after the event that there are serious problems about corrupt activities in the target company. My view is that when an ethical acquiring company identifies these issues, then it is in everyone’s interest that that acquiring company gets on and sorts out the problems that it has inherited. I have difficulty in seeing that any SFO investigation at the corporate level would be justified although I would have to consider carefully the position of any individuals.” (As highlighted in this recent post, several FCPA enforcement actions have been based on successor liability theories).

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In this speech, Alderman stated the following regarding the “foreign public official” term in the Bribery Act.

“Who then is a foreign public official? This is the subject of litigation at the moment in the US and I am following this with interest. The test I use is one that was set out by the OECD in the commentary on the OECD Convention. What we look at is whether or not the foreign State is in a position to influence the foreign company. We therefore look at the relationship between the company and the State to see whether effectively this commercial organisation is being run by the State. This can lead us into some tricky areas. We have received questions about banking officials in countries where the State has a very major interest in the Bank and exercises that interest very actively. Are those officials foreign public officials? Our view is that in those circumstances the individual is likely to be a foreign public official. On the other hand if the State has a major interest but does not control the operations of the Bank, then I think we could have a different situation.”

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Keeping with today’s U.K. theme, earlier this week Bloomberg reported (here) that the SFO is assisting the SEC “on inquiries involving financial institutions and whether bribes were paid in transactions with sovereign wealth funds.”

As previously reported by the Wall Street Journal (see here) the SEC is “examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya’s sovereign wealth fund.” The SFO’s inquiry appears to be related to HSBC Holdings Plc’s interactions with Libya’s sovereign wealth fund.

Other financial services firms that have reportedly received letters of inquiry from the SEC include Bank of America, Morgan Stanley, and Citigroup.

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A good holiday weekend to all.

Summer Reading For Representative Conyers

Wednesday, June 22nd, 2011

During last week’s FCPA hearing in the House, Representative John Conyers (D-MI) had a contentious Q&A exchange with Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers). See here for the previous post regarding the hearing.

Conyers asked – “give me some examples of overcriminalization of the FCPA.” He repeatedly interrupted Regon and asked “just give me some examples” “give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization.” Conyers stated, “only 140 cases have been brought in 10 years -that averages 14 cases a year – is that overcriminalization to you?” Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occurred.

There should be plenty of concern regarding prosecutions that have already occurred, but given the glare of the cameras, the stress of testifying, and the disruption of being interrupted, it would have been difficult for any witness to retrieve from their memory bank specific FCPA enforcement actions.

This post provides a summer reading list of FCPA enforcement actions, commentary and analysis, and legal scholarship for Representative Conyers so that he can best seek answers to the question he posed to Regon.

For starters, what does overcriminalization mean?

To be sure, it can mean different things to different people in different circumstances. In “The Overcriminalization Phenomenon(here) Eric Luna provides this definition – “the overcriminalization phenomenon consists of: (1) untenable offenses; (2) superfluous statutes; (3) doctrines that
overextend culpability; (4) crimes without jurisdictional authority; (5) grossly disproportionate punishments; and (6) excessive or pretextual enforcement of petty violations. In this piece, Jeffrey Parker (while observing that “definitions of “overcriminalization” are a bit fuzzy and debatable”) identifies the following as among the factors that may contribute to overcriminalization: “the vague, arcane, or trivial nature of such prohibitions, as undermining citizens ability to conform, and debasing the moral moment of the criminal sanction” and “the lack of adequate mens rea standards in criminal prohibitions.”

Not all overcriminalization factors are relevant to this “new era of FCPA enforcement” (see here), but in the minds of many, several factors are.

Enforcement Actions

In the 2011 Comverse Technologies enforcement action (see here), the company paid $2.8 million in combined fines and penalties (and no doubt millions more in connection with the investigative and resolution process) to resolve a matter in which the DOJ did not allege that the company even knew about the improper payments at issue. The action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ’s enforcement theory.

In the 2010 Alliance One International enforcement action (see here), the company paid approximately $20 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter in which it did absolutely nothing wrong. Rather, the entire DOJ enforcement action was based on a successor liability theory. Again, the action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ’s enforcement theory.

In the 2010 Noble Corporation enforcement action (see here), the company paid approximately $8 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter involving the import and export of goods into Nigeria. When Congress passed the FCPA, its intent as to so-called facilitating or grease payments was clear. Senate Report No. 95-114 (May 2, 1977) states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs …”. The relevant House Report (No. 95-640, September 28, 1977) similarly states as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, 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 of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments.” The Noble enforcement action was resolved via a non-prosecution agreement meaning, again, there was no judicial scrutiny of the DOJ’s enforcement theory.

And then of course there is the issue of “foreign official” and the fact that most FCPA enforcement actions in this new era are based on alleged improper payments to employees of alleged state-owned or state-controlled enterprises (“SOEs”) on the theory that such business entities are “instrumentalities” of a foreign government and thus all employees, regardless of rank or position, are “foreign officials” under the FCPA. Yet, (1) During its multi-year investigation of foreign corporate payments, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. (2) In certain of the bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOE entities. These bills were introduced in both the Senate and the House during both the 94th and 95th Congress. (3) Despite being aware of SOEs and despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, Congress chose not to include such definitions or concepts in what ultimately become the FCPA in 1977. See here for extensive reading on this issue.

Commentary and Analysis

In 2010, Forbes ran a feature article (here) titled “The Bribery Racket” – “How Federal Crackdown on Bribery Hurts Business And Enriches Insiders.” Lucinda Low, a respected FCPA practitioner, notes in the article that “the scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it’s unclear if they would prevail in court” and that “you don’t have the checks and balances you would normally have if you had more litigation.” Commenting on the current era of FCPA enforcement, Joseph Covington (who headed the DOJ’s FCPA efforts in the 1980′s) said that the current era “is good business for law firms [...] good business for accounting firms, it’s good business for consulting firms, the media–and Justice Department lawyers who create the marketplace and then get yourself a job.”

Here, Michael Levy (a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr.) talks about what he calls prosecutorial common law. Levy states that “prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable …”. Levy notes that “we have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA.”

In this publication, an author group including Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar) noted that in several recent FCPA enforcement actions “the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear.” In other cases, the author group states that in many cases critical elements of the statute were not pleaded or were pled in a way “that is not consistent with established precedent and the language of the statute.”

In a September 10, 2010 interview with the Corporate Crime Reporter, Mark Mendelsohn (the former head of DOJ FCPA enforcement during this era of resurgence who departed the DOJ for private practice in 2010) stated that “some of the factors” the DOJ uses to resolve FCPA cases are transparent, but “there are other factors less easy to see from the outside.” Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements (the common way FCPA enforcement actions are resolved) that the “danger” “is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don’t actually constitute violations of the law.”

In this Q&A exchange, Martin Weinstein (a former DOJ FCPA attorney who prosecuted the Lockheed case in the mid-1990′s and is now a prominent FCPA practitioner) stated as follows. “The last decade of FCPA enforcement has seen extraordinary evolution, and I think you have to say that when Congress passed the law in 1977, they did not envision the wide reach of enforcement today and the types of things that the government gets involved in, such as transactions, joint ventures, and successor liability.”

Legal Scholarship

In “Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act” (here), Amy Westbrook (Washburn University School of Law) argues that the recent “transformation of the FCPA has been brought about by ad hoc enforcement actions, rather than legislation, judicial decision, or regulation” and that “in the absence of formal process or reasoned articulation, the actual scope of the law is unclear.”

In “The Facade of FCPA Enforcement” (here), I argue that “the FCPA often means what the enforcement agencies say it means” and that “even though the resolution vehicles typically used to resolve an FCPA enforcement action are not subject to judicial scrutiny and [thus] the vehicles do not necessarily reflect the triumph of the enforcement agencies’ theories, in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law” which breed “inefficient overcompliance by risk averse business actors fearful of enterprise – threatening liability because of the enforcement agencies’ untested and dubious theories.”