July 17th, 2014

Comparing DOJ FCPA Enforcement To SEC FCPA Enforcement Is Not A Valid Comparison

This recent Wall Street Journal Risk & Compliance Journal headline stated “SEC Stays on the FCPA Sidelines” and states in relevant part:

“The Securities and Exchange Commission has largely stayed on the sidelines of anti-bribery enforcement so far this year … The agency has brought just two enforcement actions tied to the Foreign Corrupt Practices Act in the first six months of the year, compared to 13 brought by the Justice Department.”

For starters, there have not been 13 FCPA enforcement brought by the DOJ this year and, once again, it is only through creative counting methods that some industry participants are able to reach numbers.  As noted in this recent post, thus far this year the DOJ has brought 3 corporate enforcement actions (HP related entities, Alcoa and Marubeni) and 3 core individual enforcement actions (5 individuals in connection with Indian mining licenses, 3 individuals associated with PetroTiger and 2 individuals added to the 2013 case involving individuals associated with broker-dealer Direct Access Partners).  As highlighted several times on these pages, the most reliable way to keep FCPA statistics is using the “core” approach (i.e. the Indian mining licenses case is one “core” action, etc.), an approach endorsed by the DOJ and an approach that is a commonly accepted method used in other areas.

Regardless of counting method, comparing DOJ FCPA enforcement to SEC FCPA enforcement is not a valid comparison because – sticking with the “sidelines” reference – the DOJ and SEC “play” on different fields.

As demonstrated visually below, the SEC has FCPA jurisdiction over only issuers and associated person (78dd-1 – a relatively narrow slice of the range of “persons” subject to the FCPA).

The DOJ, by contrast, has FCPA jurisdiction over issuers and associated persons (78dd-1), as well as domestic concerns (78dd-2 – all U.S. companies regardless of form of business organization and U.S. persons) and persons other than issuers or domestic concerns (78dd-3 – literally any company in the world or any person in the world to the extent certain jurisdictional requirements are met).

Jurisdiction

In 2014, when the DOJ and SEC are playing on the same field – that is issuer FCPA enforcement actions – there is perfect 2 for 2 overlap as the SEC also brought enforcement actions against HP and Alcoa.  (Marubeni is not an issuer).  Even if it wanted to, the SEC could not bring FCPA charges against individuals in the Indian mining license enforcement action, individuals associated with PetroTiger or individuals associated with Direct Access Partners (although the SEC did bring non-FCPA charges against certain of the Direct Access Partners individuals because the entity was a broker-dealer).

In short, it is not that the SEC is staying on the “sidelines,” rather it is not allowed under the FCPA to step onto the same “playing field” as the DOJ.

In case you are wondering, in 2013 the DOJ brought 6 issuer FCPA enforcement actions (ADM, Weatherford, Diebold, Total, Ralph Lauren and Parker Drilling) and in all 6 of those DOJ issuer actions there were also related SEC enforcement actions against those same issuers.  In 2013, the SEC brought an additional 2 issuer enforcement actions (Stryker and Philips) that the DOJ theoretically could have joined, but here, it is not surprising that the SEC, a civil law enforcement agency, brought more issuer cases than the DOJ, a criminal law enforcement agency.  To complete the analysis from 2013, there was 1 DOJ enforcement action (Bilfinger) involving a non-issuer and thus the SEC was not allowed on that “playing field”).

Posted by Mike Koehler at 12:04 am. Post Categories: FCPA StatisticsJurisdiction




July 17th, 2014

FCPA Compliance And The Important Role Of Gatekeepers

To best manage and minimize Foreign Corrupt Practices Act risk, it is important that a business organization not view FCPA compliance as strictly a legal function, but rather a function best achieved holistically throughout the organization.  This requires business managers, including finance and audit professionals in particular, to have the skill-set to recognize FCPA risk.

It is clear from recent FCPA enforcement actions that the enforcement agencies, and the SEC in particular, expect much from business managers when it comes to FCPA compliance including the ability of these gatekeepers to spot FCPA issues and display a high degree of intellectual curiosity as to many company transactions and expenditures.  (See enforcement actions here, here and here).

This free video (created in collaboration with Emtrain with whom I’ve created a global anti-bribery and corruption training course) has been created to help business organizations best mitigate FCPA risk.  Feel free to share the video with clients, in-house counsel and other compliance professionals, and business managers within your organization.

Posted by Mike Koehler at 12:03 am. Post Categories: ComplianceInternal ControlsMultimedia




July 16th, 2014

FCPA Professor Turns 5

Five years ago today, I launched FCPA Professor with this simple mission statement.

“After a decade-long private practice legal career focused on the FCPA, I am pleased to launch “FCPA Professor” in connection with my new academic career. To be sure, there are other websites and blogs which cover FCPA topics. However, “FCPA Professor” seeks to inject a much-needed scholarly voice into FCPA issues. Thus, in addition to covering the “who, what, and where” of FCPA enforcement actions, news, and legislative initiatives, this blog will also explore the more analytical “why” questions increasingly present in this current era of aggressive FCPA enforcement. The goal of this blog is thus to foster a forum for critical analysis and discussion of the FCPA (and related topics) among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.”

Five years and 1,262 posts later, here I am, the mission remains the same, and I thank you for your readership and being part of this journey.

What started out as a “blog” has turned into so much more and I hope you agree that FCPA Professor is a comprehensive website with, among other things:  links to original source documents; a detailed FCPA 101 page; and approximately 1,000 subject matter categories designed to facilitate in-depth research and analysis.

All of this takes time, money, and substantial effort, yet the content on FCPA Professor is provided free to readers.

If FCPA Professor adds value to your practice or business or otherwise enlightens your day and causes you to contemplate the issues in a more sophisticated way, please consider a donation to FCPA Professor to help celebrate this 5th anniversary.  Yearly subscriptions to other legal publications or sources of information can serve as an appropriate guide for a donation amount.  To donate click here.

I would also be grateful for nominations for the ABA Journal’s Blawg 100 list (see here).

In this post, I offer a variety of perspectives from running FCPA Professor for five years and writing on a near daily basis about the Foreign Corrupt Practices Act and related topics.

As suggested in FCPA Professor’s mission statement, I launched FCPA Professor after a nearly decade long private practice career at Foley & Lardner during which I conducted FCPA investigations around the world, negotiated resolutions to FCPA enforcement actions with government enforcement agencies, and advised clients on FCPA compliance and risk assessment.  As I have shared before, my FCPA insights are further informed by having read and analyzed: the FCPA’s entire legislative history, every FCPA enforcement action, every FCPA judicial decision, and other information and sources of guidance relevant to the FCPA.

Surprises

While all voices are welcome in the marketplace of ideas, against the above backdrop, what has surprised me most is the extent to which many informational gatekeepers in the FCPA space are not lawyers, or if lawyers, lawyers without substantial, real-world practice experience in the subjects they are writing about.  (For more on this topic, see this prior post).  In short, there is some real garbage out there when it comes to FCPA reporting, commentary and analysis.  Not differences of opinion (those are welcome) and to be sure we all make mistakes.  Rather, the deficiencies are as to black and white factual issues that ought to serve as an initial competency test before someone hits the publish button regarding an FCPA topic.  (For more on this issue, see this prior post).  While I don’t expect readers to agree with me on every topic or issue, what I do hope is that readers agree that my posts (particularly as to enforcement actions) represent the most substantive and comprehensive discussion and analysis that is free and publicly available on a near real time basis.

If you would have told me five years ago that writing (as I occasionally do) about legislative history and actual judicial authority relevant to the FCPA would somehow be controversial or provocative, I would have been surprised and I remain surprised about this aspect of my writing to this day.  In the minds of some (see here), I am the “anti-FCPA Professor.”  However should anyone remain curious as to my FCPA positions, they are succinctly stated here.    The irony of course (as highlighted in this prior post) is that more often than not, a former FCPA enforcement official is likely to say (or has already said) the same thing!

In doing FCPA searches literally every 24 hours, I am surprised the extent to which recasting original ideas, thoughts and concepts without proper attribution is common.  Original idea, thoughts and concepts are my tools and all I really have professionally.  Is it that difficult to cite or attribute?  (See here among numerous other examples).

Rewards

Gosh, I have met many people through, and because of, FCPA Professor.  It is very rewarding to receive reader e-mails or to be at conferences around the world and have a person stop you to say “hi, I read you every day, keep up the good work.”

I am often asked about the feedback I receive on my writing and the answer is as follows.  I start from the belief that a person who disagrees with me is more likely to contact me that a person who agrees with me.  Measured against this belief, it is rewarding that the feedback I receive is 90%+ positive and that includes from certain current DOJ and SEC officials who themselves struggle with many aspects of this new era of FCPA enforcement as well as many, many others who are simply incapable of publicly airing their genuine thoughts on many aspects of FCPA enforcement in a way they would like to do.

Some of my most rewarding feedback is from individuals, or more commonly family members of individuals, who find themselves caught up in this new era of FCPA enforcement.  These are real people, with real spouses, parents, children who have very real feelings about this new era of FCPA enforcement.  These are entirely different dynamics than a corporation being under FCPA scrutiny or a corporation resolving an enforcement action with shareholder money.

To my knowledge, FCPA Professor is the second “oldest” continuous website that focuses on FCPA issues and – I guess you can be the judge of this – the first website that began talking about FCPA issues in a different way.  Has FCPA Professor had an impact on various aspects of FCPA enforcement, FCPA reform and related issues? Again, you can be the judge of this, but regardless, I am confident in my answer.

Finally, there is intangible reward of knowing that someone, somewhere is beginning or ending their day, or passing time on their subway commute or airport delay reading you.  FCPA Professor readers span the globe and the sun literally never sets in terms of the traffic on this website.  I take my responsibility of being a gatekeeper of sorts very seriously and it is truly an honor.

I must admit, I enjoy reading FCPA enforcement actions (even though they are truly serious matters generally not thought of as pleasure reading), but reporting on enforcement and scrutiny alerts and updates is not what energizes me the most. Exploring the unexplored topics of the FCPA, making linkages, diving deep into the statistics, and holding public officials accountable for their policy positions is what I enjoy the most about running FCPA Professor.

Struggles

FCPA Professor is to a large extent a labor of love.

Nevertheless, doing anything on a near daily basis for five straight years can be taxing.  Daily searches for FCPA content and drafting and editing the daily post are sometimes a struggle particularly on days that I travel or have other professional or family commitments.  And let’s face it, the ebbs and flows of life are just that.  You all know me by virtue of this website, but I am, among other titles we all have, a husband, father, son, brother, and friend to others, not to mention having outside interests and passions as well.

You can assist these occasional struggles by submitting guest posts that I will consider for publication on FCPA Professor.  Candid, informed, and thoughtful commentary and analysis on FCPA and related issues are always welcome.

Is it a good thing that multiple websites all cover the FCPA on a daily basis and feel the need to deliver “new” content every day?  I struggle with this answer just as I struggle in my determination whether the 24-7 news cycle is actually a good thing.  Let’s face it, some days or weeks, there is just not much going on in the FCPA space.  Thankfully, my filler up to this point has been analyzing old enforcement actions so that FCPA Professor has the most extensive, in-depth collection, public and free collection of FCPA enforcement actions available.

The Future

Will I be running FCPA searches every 24 hours and writing near daily on FCPA topics in 3 years, 5 years, 10 years, 15 years, 20 years?   Gosh, I don’t know and in certain respects I could only be so lucky.

All I know is that the journey the past five years has been full of surprises, rewards, and occasional struggles.

Thank you for being part of the journey and I look forward to the future.

Posted by Mike Koehler at 12:04 am. Post Categories: Uncategorized




July 15th, 2014

New Article – “Foreign Corrupt Practices Act Ripples”

RippleIn house counsel and other compliance professionals are often looking for additional ways to stress the importance of Foreign Corrupt Practices Act compliance to corporate leaders. A common way to do this is forwarding to corporate leaders the latest multi-million dollar settlement with the message “this could be us” if we don’t invest in and implement FCPA compliance best practices.

This common method however often fails to resonate with corporate leaders. Moreover, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

To be most effective in communicating with corporate leaders regarding the need for pro-active FCPA compliance, in house counsel and other compliance professional need to speak to corporate leaders in business terms that matter such as liquidity, market capitalization, cost of capital, lost or delayed business opportunities and the like.

My new article, “Foreign Corrupt Practices Act Ripples” (available for download here), recently published in the American University Business Law Review, assists in house counsel and compliance professionals stress the importance of FCPA compliance by highlighting issues that matter most to corporate leaders.

The article abstract is as follows.

An obvious reason to comply with the Foreign Corrupt Practices Act (“FCPA”) is that non-compliance can expose a company to a criminal or civil FCPA enforcement action by the Department of Justice (“DOJ”) and/or the Securities and Exchange Commission (“SEC”). However, this Article highlights that settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

By coining a new term of art – the “three buckets” of FCPA financial exposure – and through various case studies and examples, this Article demonstrates how FCPA scrutiny and enforcement can impact a company’s business operations and strategy in a variety of ways from: pre and post-enforcement action professional fees and expenses; to market capitalization; to cost of capital; to merger and acquisition activity; to impeding or distracting a company from achieving other business objectives; to private shareholder litigation; to offensive use of the FCPA by a competitor or adversary to achieve a business objective or to further advance a litigating position.

This Article thus shifts the FCPA conversation away from a purely legal issue to its more proper designation as a general business issue that needs to be on the radar screen of business managers operating in the global marketplace. By highlighting the many ripples of FCPA scrutiny and enforcement, it is hoped that more business managers can view the importance of FCPA compliance more holistically and not merely through the narrow lens of actual enforcement actions.

Help shift the FCPA conversation by sharing the article (available for download here) with your clients, corporate boards, audit committees and other corporate leaders.

Posted by Mike Koehler at 12:01 am. Post Categories: Business EffectsFCPA Scholarship




July 14th, 2014

“Countering Small Bribes” – Nice Words, We’ve Heard Them Before, But They Are Wrong

Today’s post is from Professor Bruce Bean (Michigan State University College of Law).  Prior to academia, Bean had a diverse practice career including at various law firms and in-house counsel positions.

*****

As FCPA Professor recently highlighted, Transparency International UK released a new publication, “Countering Small Bribes – Principles and Good Practice Guidance for Dealing with Small Bribes including Facilitation Payments.” (See here.)  For once, TI has it all wrong!

This publication focuses on “grease,” “tea money,”  “facilitation payments.”  These terms describe small payments, and while no one knows how small these may be, such payments are common in the real world.  “Countering Small Bribes” discusses these in 44 pages and prescribes how such “bribes” can be eliminated.

TI begins by repeating a mantra regularly heard by those of us who deal in this area:

“[P]aying small bribes feeds a climate of corruption, which creates an unstable operating environment for companies. It destroys trust in government and public administration, undermines the rule of law, damages human rights and distorts business transactions. Small bribes are not confined to demands made to companies, as there are no boundaries for officials and others who demand bribes.”

Nice words.  We have heard them before.  They are wrong.

Small bribes do not “[create] an unstable operating environment,” “[damage] human rights” or “[distort] business.”  Rather, small bribes are one of the results of being in a jurisdiction where the rule of law has not been established and locals already do not trust government.  Facilitation payments do not create and do not corrode public and business standards; they are the result of an existing culture of corruption.

While the goal of eliminating corruption is a noble one, punishing the alleged “bribe” givers while ignoring the officials, high level and low, who extort such payments has proved to be fruitless.  Small and large bribes are more often extorted from businesses.  After all, no legitimate business hopes to give a bribe.  Such extortion is practiced by experts who have developed techniques very difficult to resist.  Fighting corruption by punishing the victims of such extortion is equivalent to pushing on a rope.  It gets us nowhere.  Given the 37 years of experience we have had with the FCPA, we cannot escape the conclusion that approaching bribery in international business solely from the bribe payers’ perspective has not, does not, and will not work.

Consider the prescription contained in “Countering Small Bribes.”  The TI approach is based upon ten unobjectionable principles.

“Effective countering of small bribes – including facilitation payments – will be based on the following principles.

1: There is a supporting culture of integrity

2: The company commits to eliminating small bribes

3: Risk assessment is the basis for designing the strategy and programme to eliminate small bribes

4: The company implements a programme to counter small bribes

5: Communication and training are provided to employees

6: Attention is given to countering third party risks

7: The internal accounting controls are designed specifically to counter small bribes

8: Appropriate actions are taken if small bribes are detected

9: The company monitors the effectiveness of its programme to counter small bribes

10: The company acts strategically to influence the corruption environment in which it operates.”

These principles already underlie many companies’ in-house anti-bribery compliance programs.  But these Ten Principles, or any principles, cannot be effective in eliminating bribes, large or small, in a corrupt environment.  The corruption problem in my experience (eight years in Moscow) will never be eliminated by focusing solely on the bribe payer, as the FCPA and the U.K. Bribery Act do.

TI-UK’s “Countering Small Bribes” focuses on small bribes.  Fine.  Consider an employee driving home from work in a foreign city, late at night.  This is a common scenario if the client’s home office in the US opens for business at 3:30 PM or later Moscow time.  Leaving the office in Moscow at 10 PM is not unusual.  A local police officer, lying in wait on the street opposite the office parking lot, flags down the employee and suggests that, because of the late hour, he must have been drinking.  This faithful public servant demands a blood test and displays a not-very-sanitary syringe.  Which of the Ten Principles applies?  (After a payment of less than $20, I was no longer deemed inebriated.)

“Countering Small Bribes” also explains why the FCPA exception for “facilitation payments” is wrong.

“The US Foreign Corrupt Practices Act (‘FCPA’), which was passed in 1977, introduced in 1988 the concept of facilitating (also commonly referred to as ‘facilitation’) payments with an exception from prosecution for such payments. This was to recognise a type of intractable bribery confronting US businesses when operating abroad. Since then, this form of bribery has attracted considerable debate and controversy.

Facilitation payments are illegal in most countries, although a small number including Australia, New Zealand, South Korea and the USA provide exceptions, in certain circumstances, for facilitation payments when paid abroad. They remain illegal in their own domestic law.

There is growing international recognition that facilitation payments are not easily separated from other forms of small bribes and more and more companies are following a no-bribes policy throughout their global operations, with no exemptions for facilitation payments.”

The “growing recognition” referred to in the final quoted paragraph doubtless refers to UK’s Bribery Act 2010, which criminalized all bribes, no matter how small.  The Bribery Act was the UK’s long delayed response to the OECD Convention on Combating Bribery of Public Officials in International Business Transactions first signed by the British in 1997.  At that time, the official Commentary addressed facilitation payments as follows:

“Small “facilitation” payments do not constitute payments made “to obtain or retain business or other improper advantage” …  and, accordingly, are also not an offence. Such payments, which, in some countries, are made to induce public officials to perform their functions, such as issuing licenses or permits, are generally illegal in the foreign country concerned. Other countries can and should address this corrosive phenomenon by such means as support for programs of good governance. However, criminalization by other countries does not seem a practical or effective complementary action.”

Note the final sentence: “Criminalization by other countries does not seem a practical or effective complementary action.”  Obviously the U.K. Parliament disagreed when, after much debate, it explicitly criminalized facilitation payments.  Governmental hypocrisy is normal in every U.S. administration and is perhaps a necessary aspect of today’s democracies.  Our British cousins exemplify this with this statement describing facilitation payments which is found in the Guidance to the UK Bribery Act 2010:

“As was the case under the old law, the Bribery Act does not (unlike US foreign bribery law) provide any exemption for such payments.”

This carefully crafted statement is precisely accurate.  It explains that neither the Bribery Act enacted in 2010, nor the superseded earlier anti-bribery laws in England and Wales dating back to 1886, exclude facilitating payments from the definition of crime of bribery.  Absolutely true – the law of England and Wales has never excepted such payments.  On the other hand, in the century plus of British foreign trade under their prior trio of anti-bribery laws, and in the three years since the new Bribery Act became effective, there has also never been a prosecution for foreign facilitating payments.  Not one!  Perhaps this is why Parliament had no problem criminalizing something they believed was not going to be prosecuted.  Whatever one might think about the wisdom of the grease payment exception in the FCPA, as readers of FCPA Professor are aware, the Department of Justice does actively ignores this exception in bringing enforcement actions.

TI-UK’s “Countering Small Bribes,” unfortunately, does nothing to advance the fight against corruption. TI does very valuable work, the results of which we all rely upon.  But “Countering Small Bribes” does not advance this fight.  To combat bribery, national prosecutors must actually bring cases.  To be meaningful, such cases should involve actual bribes, not small facilitation payments.  And if we are sincerely interested in effectively reducing bribery, we must enhance our efforts to punish the extortionate government officials who demand bribes, rather than continue to punish only the victims of extortion.

*****

Note – contrary to TI’s suggestion, facilitating payments were always exempted in the FCPA originally though a carve-out in the “foreign official” definition (i.e. a “foreign official” did not include an individual with ministerial or clerical duties).  In 1988 this exemption became the stand-alone facilitation payments exemption currently found in the FCPA.

Posted by Mike Koehler at 12:04 am. Post Categories: Facilitating PaymentsGuest PostsOECDTransparency International