Today’s post is from James McGrath (McGrath & Grace Ltd. – here) and author of the Internal Investigations Blog (here).

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Last Friday, the Ohio State Law Journal presented a symposium entitled “The FCPA at Thirty-Five and Its Impact on Global Business” at the Moritz College of Law. Though Spring Break was already on for most of the student body and the Ohio State campus was relatively empty, experts, practitioners, and a sizable number of the law school’s students packed the William B. Saxbe Law Auditorium to focus on the FCPA.

While the conference consisted primarily of academic panelists presenting executive summaries of their forthcoming
papers on widely-ranging aspects of the Foreign Corrupt Practices Act, the Law Journal staff did score a coup in securing the DOJ’s Charles Duross, who is the Deputy Chief of its Fraud Section and the head of the DOJ’s FCPA unit.  Duross said he elected to attend the OSU event instead of an OECD conference considering the submission of Russia’s most recent anti-corruption legislation in terms of treaty compliance and the audience’s reception indicated its gratitude.

Affable and self-deprecating, Duross sat on two of four presentation panels and gave what he represented to be his personal opinions on the FCPA and its enforcement.  He asked, therefore, that they not be considered binding upon the Department of Justice.  The concern that a double Wolverine – Duross attended both undergraduate and law school at Michigan – finding himself in Columbus might result in Duross in distress was quickly dismissed. In making his own presentation and addressing ad hoc issues raised throughout the day, he pressed the rightness of the DOJ’s enforcement posture much as one expected.

The substantive Duross presentation on the subject of “The FCPA and Government” consisted of his impressions of five things that have not changed about the DOJ’s approach to FCPA enforcement over the years, five things that have changed in the recent past, and five things to look for in the future.

Five Things That Have Not Changed

From the FCPA’s inception in 1977 to the present, the following are the five constants Duross identified:

FCPA as a constant source of complaints.  These complaints primarily come from the U.S. Chamber of Commerce and are in direct contrast with his experience in talking to compliance officers who see the law as giving them a competitive advantage.  As evidence of this, Duross indicated that a Chief Compliance Office recently told him that his people in the field have used the statute as a shield to explain non-payment of bribes to those demanding them.

Methods of corruption stay the same.  Duross noted that in the 1970s, Lockheed used the Tokyo-based Marubeni Corporation as a middleman in securing sales in Japan and that Marubeni was back in the Bonny Island bribery case.  Duross also indicated that the use of intermediaries to do the dirty work has not changed during the FCPA’s 35 years.

Centralization of enforcement.  Duross noted that although some cases were initiated and prosecuted by individual U.S. Attorney’s at the FCPA’s inception, by and large, the Fraud Section has handled enforcement in the last 20 years.  According to Duross, this has lent a consistency and certainty to the effort and this is an overwhelming positive.

Definitions of “instrumentality” and “anything of value”.  While Duross acknowledged that the meanings of these terms are the subject of debate, they have been consistently construed over the years.  To that point, the definition of “anything of value” has been the same as in the domestic bribery and other criminal statutes, where it is not often complained of or litigated.

Use of agency theory.  Duross stated that this theory of criminal liability has always been used in FCPA enforcement, interpreted in the same way and that agency principles will continue in FCPA enforcement.

Five Things That Have Changed

The five changes seen by Duross are as follows.

Passage of international anti-bribery treaties.  While the U.S was the first nation to pass a foreign bribery statute, the formation of the OECD by treaty has been a prime mover in getting other countries to pass similar laws.  Passage of FCPA-style anti-bribery and anti-corruption laws is a major goal of the accord.  Duross noted that while China and India are not signatories to the convention, Russia is one and its attempt at treaty compliance is now being considered in Paris.

Jurisdictional Changes.  In 1998, Congress amended the FCPA statute to include alternative nationality jurisdiction – as to U.S. companies and citizens the law applies regardless of a U.S. territorial nexus – and jurisdiction over “persons other than issuers or domestic concerns” – including foreign nationals – while they are within the United States.    According to Duross, these changes significantly expanded the scope of the law and the reach of the U.S. government enforcement agencies.

International enforcement cooperation.  Thanks in large part to technological advances such as video conferencing, it is easier for multiple governments around the globe to coordinate investigations and prosecutions.  In addition, data collection and transmission across vast distances and national boundaries has benefitted from the ever-expanding capabilities of successive generations of computers.

Advent of NPAs and DPAs.  While not previously seen, their advent came in 1994 [in a non-FCPA case] when the DOJ and target corporations entered into two of them.  In recent years, the average number of agreements has risen.  According to Duross, increased popularity of NPAs and DPAs mirror the jump in enforcement and attest to the corporate ability to avoid the excessive adverse publicity of trials.

Increase in number of trials.  According to Duross, from 1997 to 2010 there were 18 FCPA defendants who went to trial.  In 2011 alone, there were 17 defendants who went to trial.

Five Things For The Future

In the future, Duross said to look for the following:  more case law; more scholarly analysis of the FCPA; increasingly complex multi-jurisdictional issues (with overlapping efforts by various nations and their agencies, Duross said these issues will most likely be resolved by treaties between the U.S. and those countries);  more international attention (as additional countries join the OECD, the drive to fight foreign bribery and corruption will continue to move forward); more discussion on amending the FCPA (Duross noted that while the U.S. Chamber of Commerce leads the call to amend the law – primarily to posit an affirmative “compliance defense” – the OECD has also suggested changes to the FCPA, such as extending its statute of limitations).

In response to a post-presentation query as to why FCPA enforcement is so hot now, Duross opined that while corruption has always been a problem, things such as the Sarbanes-Oxley reporting requirements and more whistleblower tips have shined additional light on illicit payoffs and other nefarious activities.  According to Duross, technology and interconnectivity make for a smaller, less-isolated world and this translates into more reporting.  In addition, the DOJ follows the trail of evidence wherever it leads, sometimes making for larger, more-publicized results.

Answering a second question as to how the Fraud Unit decides whether to defer enforcement to other nations, Duross indicated that there is no formal protocol and that it is primarily talked through and decided on an individual basis.

As part of an afternoon discussion of “The FCPA’s Impact on Global Business”, Duross seized the opportunity to respond to many issues presented by other panelists.  Noting that he himself had left a large law firm as soon as he had paid off his student loans in order to enter public service and do something bigger, Duross stressed that he is proudly the face of a group that works hard to do the right thing.  Occasionally it makes mistakes, but “not all mistakes are misconduct” – no doubt a reference to the Lindseydismissal.  As to the size of the DOJ’s FCPA unit, Duross stressed the fact that even today there are only 20 lawyers in the entire section.  This makes the job difficult, he said, particularly in light of the resources possessed by enforcement targets and the white collar defense bar.  Nevertheless, he asserted that while he and his people might be outspent, they are “never out-classed and never out-hustled.”   Duross acknowledged that assessment of their work is appropriate and the pride he showed in his people is not only admirable, but indicative of solid leadership.

Nevertheless, to paint the DOJ as the underdog in this fight – as it wields the full investigative and prosecutorial power of the United States government – reminds me of Lou Holtz’s fretful assessments of his team’s chances each week while hunting down a national title at Notre Dame in 1998.  Subpoena and search warrant returns still trump big money and slick lawyers when the facts are bad for investigation targets and defendants.

Why does the FCPA Unit fight so hard?  According to Duross, because  foreign bribery is bad for business.  As Duross analogized, paying bribes to corrupt officials is like dealing with the mob. Companies think that if they can get that first contract by greasing the skids, their superior product or services will get them the next one on merit.  But the first shakedown, Duross asserted, is just that:  the first shakedown.  The sequence repeats itself and grows like a cancer, infecting an entire project, business, or industry.  And as the bribes paid often equal the profit on the underlying job, these payoffs are for naught, according to Duross.

Further and on a larger scale, Duross believes that FCPA violations can be indicative of more widespread corporate problems.  Where overseas corruption is present, there is a good chance that a company has other questionable business practices both at home and abroad.   Therefore, he firmly believes that “compliance is good for business”.

With respect to a “compliance defense” tailored to the FCPA, Duross is against it. Duross believes that while it may properly be part of a larger discussion of vicarious liability and respondeat superior in criminal cases generally, enacting an affirmative defense to any single statute – and the FCPA in particular – would be unwise.  He said that the anecdotal evidence supported his position, stating that no compliance officers at a recent meeting raised their hands in favor of a compliance defense.  How many were attorneys and if any were white collar litigators was not disclosed.  He also stated that no individuals in another forum he recently participated were willing to accept a more extensive U.K. Bribery Act-type statute as a trade off for a compliance defense.

The current trade-off for no compliance defense seems to be accessibility to DOJ decision-makers.  Duross closed his remarks for the day by indicating that if there be a need for FCPA certainty – definitions, defenses, or prosecutorial philosophy – it can certainly be found at his door.  Harkening back to the smallness of the FCPA Unit, Duross noted that it was unusual to be able to come to the same people who have been with the Department for long stints for guidance and answers.

Though well-intentioned, this does not provide real comfort in my opinion.  Though Duross proved very likeable and earnest in his symposium presentations and in a one-on-one conversation afterwards, the notion that bankable advice will always be available from the FCPA Unit because of the quality and professionalism of its current personnel is troubling.  After all, this has always been a nation of laws and not of men.  That being said, one would have to wonder what or whom to rely upon for FCPA guidance – and to what degree of certainty – when Charles Duross no longer heads the FCPA Unit.

[I would like to thank Professor Koehler for the opportunity to write this guest post.  Additionally, I would like to thank the Moritz College of Law at The Ohio State University, the Ohio State Law Journal, Editor-in-Chief Jaci Wilkening, Symposium Editor Katie Linehan, Symposium Faculty Advisor Professor Daniel Chow, and Professor Koehler for putting together an excellent event and for their collective hospitality.]

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Attending an event where a DOJ or SEC FCPA enforcement attorney is speaking?  Consider this an open invite to do a guest post for FCPA Professor.