February 1st, 2016

Compliance Professionals Should Take The Corruption Perceptions Index With A Grain Of Salt

saltTransparency International, a global civil society organization dedicated to the fight against corruption, recently released it annual Corruption Perceptions Index (“CPI”).  (See here for TI’s release).

As stated by TI, the CPI “scores and ranks countries/territories based on how corrupt a country’s public sector is perceived to be” and 168 countries were ranked with Denmark, Finland, Sweden, New Zealand, the Netherlands, and Norway topping the list (i.e. low levels of perceived corruption) and Somalia, North Korea, Afghanistan, Sudan, South Sudan, and Angola on the bottom of the list (i.e. high levels of perceived corruption).

The CPI generates a lot of media coverage and is a popular tool for business organizations in ranking risk (and thus prioritizing compliance). However, for the reasons highlighted in this post compliance professionals should take the CPI with a grain of salt.

For starters, just because compliance professionals should take the CPI with a grain of salt, does not mean that the CPI (or other similar rankings) should be ignored.

Indeed, in a rare appellate court decision in the FCPA space, the Second Circuit in the Bourke case listed circumstances which provided “ample evidence” to support Bourke’s trial conviction on a conscious avoidance theory under the FCPA’s third-party payment provisions and specifically stated that “Bourke was aware of how pervasive corruption was in Azerbaijan generally.”

Nevertheless, query whether the CPI is a reliable or meaningful measure of the specific risks specific business organizations face when competing in the global marketplace for the following reasons.

  • The CPI is merely a survey, and a survey of perceptions at that. This is not a dig on the CPI itself, after all how does measure an issue like bribery and corruption (particularly since there is no universal definition of these terms). To its credit, TI itself recognizes the limitations of the CPI. As stated by TI, “there is no meaningful way to assess absolute levels of corruption in countries or territories on the basis of hard empirical data.” Moreover, TI rightly acknowledges that the CPI does not tell the full story of corruption in a country because it “is limited in scope, capturing perceptions of the extent of corruption in the public sector from the perspective of business people and country experts.”
  • The CPI is composed of distinctions without differences. Each country in the CPI is assigned a numerical score between 100 (the best score) and 0 (the worst score). Sure there is a meaningful distinction between Denmark (91) and Somalia (8), but you probably did not need the CPI to inform this perspective. However, as a practical matter is there a meaningful distinction between a score of 39 (El Salvador) and 30 (Tanzania)? Hardly, but these scores result in a substantial difference in the CPI rankings (El Salvador – 72nd and Tanzania – 117th).
  • The CPI is country specific, not province or region specific. We all recognize that certain states in the U.S., indeed certain cities within those states, have higher levels of actual or perceived corruption and the same is true in foreign countries. However, the CPI score is only on a country basis and is not province or region specific. In short, bribery and corruption is often localized and thus the CPI can both induce complacency (i.e. the business is fine because the country’s overall score is fine, even though a specific region in which the company operates may have higher levels of actual or perceived corruption) as well as result in needless worry (i.e. while the country overall has higher levels of actual or perceived corruption, the specific region in which the company operates may have substantially less).
  • At its core, FCPA risk is the function of specific business actors (employees and agents) coming into contact with specific foreign officials, in the context of specific foreign business conditions. None of these factors are adequately captured by the CPI. Indeed, one can easily imagine a scenario where because of the industry, because of the product or service, and because of the go-to-market strategy, Denmark presents more of a risk than Somalia.
  • The CPI perpetuates stereotypes. No surprise that Finland is, as it always has been, atop the CPI list and that Kenya is, as it always has been, near the bottom of the list. Yet to state the obvious, there are millions of hard-working, honest and ethical people in Kenya. On the flip side, there are some dishonest and unethical people in Finland.

In short, while I enjoy each time this year looking at the CPI map, I don’t think it is a very useful tool for business organizations when adopting policies and procedures designed to minimize FCPA risk.

FCPA risk is best minimized through a risk assessment unique to a business organization in which the following questions provide a good starting point.

  • Who are the company’s customers or potential customers in each country?  Is the customer a government (whether federal, state, or local) department, agency or instrumentality?  Does a government department, agency, or instrumentality, or individual associated with such units, have an ownership or equity interest in the customer?
  • How does the company do business and/or interact with customers or potential customers in the country?  Does the company use third parties in the foreign countries?
  • How does the company’s product enter and exit the country? Does the company use the services of a customs broker or freight forwarder?
  • What licenses, permits, or certifications does the company need to do business in the country?  As to each license, permit or certification, how does the company obtain such approvals?
  • Is the company subject to other unique forms of government regulation in the country?  What other points of contact does the company have with foreign government in the country (such as tax and immigration authorities)?
Posted by Mike Koehler at 12:03 am. Post Categories: ComplianceTransparency International




January 29th, 2016

Like A Kid In The Candy Store

Kid in Candy StoreLike every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox.  This post highlights various FCPA or related publications that caught my eye.

Reading the below publications is recommended and should find their way to your reading stack.

However, be warned.  The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.

Shearman & Sterling

The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.

Content that caught my eye:

“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”

[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]

[...]

“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”

[...]

“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”

[For more on this topic, see this prior post]

[...]

“[Regarding the 2015 BNY Mellon "internship" enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”

Debevoise & Plimpton

The firm’s FCPA Update is the best monthly read there is and the most recent edition states:

“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.

One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.

Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.

But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.

And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”

Gibson Dunn

The firm’s Year-End FCPA Update is also a quality read year after year.

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”

It begins as follows.

“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone.  Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”

Davis Polk

The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.

Jenner Block

The firm’s Business Guide to Anti-Corruption Laws 2016 is here.

Hogan Lovells

The firm’s Global Bribery and Corruption Review is here.

Arnold & Porter

The firms Global Anti-Corruption Insights is here.





January 28th, 2016

Weismmann On 2015 Slow-Down In DOJ FCPA Prosecutions: “Just Wait Three Months, It Might Be A Very Different Picture”

WeissmannAndrew Weissmann’s selection of DOJ Fraud Section Chief in January 2015 was interesting to say the least.

As highlighted in this prior post, in recent years Weissmann has been a vocal advocate of Foreign Corrupt Practices Act reform and more broadly reforming corporate criminal liability principles. Unable to achieve, no doubt for political reasons, the actual reforms he previously championed, Weissmann is widely viewed as the architect of the DOJ’s new compliance counsel position, largely a public relations move as highlighted in this prior post.

Trace Blog recently scored an interview with Weissmann. Relevant excerpts of the Q&A are set forth below.

“TT: Assistant Attorney General Leslie Caldwell announced in November that the FCPA Unit was planning to increase its capacity by hiring 10 additional prosecutors – where will the efforts of these additional lawyers be focused?

AW: That’s correct, in addition to the 19 line attorneys currently working in the FCPA Unit, we are adding 10 more, as well as 5 supervisors. These additional resources will help us enhance the “stick” side of the carrot and stick approach we use in the Fraud Section. The focus will be on companies that do not self-disclose, and on parts of the world where there is a sense of “practical immunity” due to common misperceptions that investigations are unlikely to take place there. Also, as we don’t just rely on self-disclosures, we need additional resources to follow other various leads, such as referrals from international enforcement agencies and governments, statements made by whistleblowers, and results of paper trails.

TT: How can you explain the relative dearth of FCPA prosecutions in 2015 when compared with previous years?

AW: I would say that 1 year isn’t long enough to tell the whole story. If we just wait three months, it might be a very different picture. The other part of the answer is that we are prosecuting more individuals. This focus on individuals adds a lot of complexity to our investigations and makes for a more time consuming process overall. And on top of that, we have a very high number of open investigations. The volume of matters per attorney was one reason I made the pitch for more resources.

[...]

TT: Do you have plans to update the 2012 Resource Guide?

AW: Yes, we are actually looking into it right now. There have been some clarifications and new issues since the last edition that would be important to include in the updated version.”

*****

Weissman assertion that the DOJ is “prosecuting more individuals” is curious.

As highlighted in this post and based on the DOJ’s own information, in 2015 the DOJ prosecuted fewer individuals for FCPA offenses than in 2014 and in 2014 the DOJ prosecuted fewer individuals for FCPA offenses than in 2013.

No doubt, as Weissmann stated, the “focus on individuals adds a lot of complexity to [DOJ]investigations and makes for a more time consuming process overall.” That tends to happen when the DOJ is forced to prove things to someone other than itself and the DOJ is subject to an adversary proceeding. In the 38 year history of the FCPA, only two business organizations have put the DOJ to its ultimate burden of proof in FCPA matters and in both instances the DOJ did not prevail.

To the extent the DOJ / SEC issues revised FCPA Guidance as Weissmann hinted, a good place to start might be correcting the selective information, half-truths, demonstratively false information in the 2012 Guidance. (To learn more, see the article “Grading the FCPA Guidance“).

At the very least, it should be an interesting start to 2016 based on Weissmann comment about the next three months.

Stay tuned to FCPA Professor for the most comprehensive, real-time coverage of any FCPA enforcement action.

Posted by Mike Koehler at 12:03 am. Post Categories: DOJEnforcement Agency PolicyEnforcement Agency Speeches




January 27th, 2016

The Top Quotes From 2015

Quotes5Perhaps it started with Chris Farley’s Saturday Night Live character Bennet Brauer (for a good laugh watch this video). Regardless of the origin, I’ve always had a thing for quotes.

Set forth below are my favorite quotes from 2015 organized by the general category of speakers.

Enforcement Agency Officials

Throughout the year, I frequently highlight the empty rhetoric in DOJ / SEC enforcement attorney speeches or how the DOJ or SEC’s own data undermine certain points made. I am not going to do that here, after a while it becomes a bit repetitive.

  • As pre-enforcement action professional fees and expenses continue to escalate, Assistant Attorney General Leslie Caldwell took to the podium and stated: “we do not expect companies to aimlessly boil the ocean.” Caldwell’s proclamation set off a war-of-words of sorts in the FCPA space and shortly thereafter Caldwell again took to the podium and stated: “That’s not us. That’s the companies” who are responsible for the pre-enforcement action professional fees and expenses.” My own two cents is both the enforcement agencies and FCPA Inc. share blame for the often high-costs of pre-enforcement action professional fees and expenses. (To learn more, read “FCPA Ripples.”). The most direct victims of FCPA scrutiny and enforcement would seem to be shareholders who are footing the bills for these often boundless boondoggles.  
  • In the minds of many, DOJ officials spent much of 2015 wandering in the wilderness, lost as to how it should prosecute corporate crime. In announcing the “Yates Memo,” Deputy Attorney General Sally Yates stated: “[I]n order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct. [...] “We make these changes recognizing the challenges that they may present.  Some corporations may decide, for example, that the benefits of consideration for cooperation with DOJ are not worth the costs of coughing up the high-level executives who perpetrated the misconduct.  Less corporate cooperation could mean fewer settlements and potentially smaller overall recoveries by the government.  In addition, individuals facing long prison terms or large civil penalties may be more inclined to roll the dice before a jury and consequently, we could see fewer guilty pleas. Only time will tell.  But if that’s what happens, so be it.  Our mission here is not to recover the largest amount of money from the greatest number of corporations; our job is to seek accountability from those who break our laws and victimize our citizens.  It’s the only way to truly deter corporate wrongdoing.”
  • SEC Director of Enforcement Andrew Ceresney stated that the SEC is committed to enforcing the FCPA to the fullest extent of the statute.” With FCPA enforcement actions in 2015 involving a company that was an official sponsor of the 2008 Summer Olympics and as such, received priority access to tickets, hospitality suites, and accommodations for the games that it then offered to public and private customers alike, as well as an enforcement action involving a company that offer paid and unpaid internships to family members of foreign officials, the question arises: just what is the fullest extent of the FCPA?  And in the minds of whom? The mind of the SEC in exercising its leverage against risk averse issuers or in the mind of Congress  which passed the FCPA or a court?
  • Assistant Attorney General Leslie Caldwell is deserving of mention again when she stated: “We usually publicly announce corporate resolutions and pleas, and make the documents available on our website.” (emphasis added). As highlighted in this prior post, for years there have been whispers in the FCPA space about “secret” FCPA enforcement actions. This statement, along with the other profiled in the prior post, only add to the whispers.

Federal Court Judges

  • As highlighted here, for the first time since its trial court debacles in 2011 and 2012, the DOJ was put to its burden of proof in an individual FCPA enforcement action. U.S. v. Joseph Sigelman was in the early stages of trial in June when the DOJ’s star witness Gregory Weisman (an individual who previously pleaded guilty to the same core conduct and was cooperating with the DOJ in the hopes of achieving a lower sentence) ran into some problems on the witness stand. In short, Weisman acknowledged giving false testimony during the trial prompting federal court judge Joseph Irenas (D.N.J.) to ask Weisman “did you have a hallucination?” The trial adjourned for the day, and shortly thereafter the DOJ effectively pulled its case against when it offered Sigelman a plea agreement to substantially reduced charges. As highlighted here, Judge Irenas refused to sentence Sigelman to any jail time and blasted the DOJ. Add the Sigelman debacle to the list of cases highlighted in this article “What Percentage of DOJ FCPA Losses is Acceptable?
  • Sigelman was not the only case in which the DOJ got benchslapped. As highlighted here, in a bribery case, albeit outside the FCPA context, U.S. District Court Judge Charles Breyer (N.D. Cal.) granted a motion to dismiss and stated: “My first reaction in reading this indictment is that your office is to be congratulated because, apparently, you have reduced crime in the Northern District of California, and indeed in the United States of America, to such a point that you are using resources of your office to go after criminal activity that occurs in foreign countries and for that — that’s a rather interesting concept that, apparently, you thought this is a good use of assets and resources of the United States Attorney’s Office for the Northern District of California.[...] And I never in my life, in 50 years of criminal practice, seen a more misguided prosecution as the one that you’ve brought. I just don’t even get it. I don’t get it, how you can — how you can use resources of the United States Attorney’s Office to prosecute some foreign nationals involved in a foreign company, engaged in conduct which was foreign, on doing things that weren’t directly related to the contribution of the United States to that entity.”
  • As highlighted in this prior post, FCPA issues often co-exist in two parallel universes. One universe is ruled by all-powerful gods with big and sharp sticks  in which subjects dare challenge the gods. Another universe consists of checks and balances in which independent actors call the balls and strikes. The first universe refers to FCPA enforcement by the DOJ and SEC. The second universe refers to litigation of FCPA-related claims in which judges make decisions in the context of an adversarial legal system. This second universe is often referred to as the rule of law universe. In dismissing securities fraud claims brought against Hyperdynamics Corporation in the aftermath of its FCPA scrutiny, U.S. District Court Judge Melinda Harmon (S.D. Tex.) stated: “[The FCPA's anti-bribery provision] does not bar a company from giving anything of value to a foreign government, as opposed to a foreign official personally, or to a third party such as a nonprofit in order to generate corporate goodwill, even if the gift indirectly influences government officials.”
  • As highlighted in this prior post, in rejecting a DPA in U.S. v. Fokker Services, U.S. District Court Judge Richard Leon (D.D.C) stated: “Both of the parties argue, not surprisingly, that the Court’s role is extremely limited in these circumstances.  They essentially request the Court to serve as a rubber stamp [...].  Unfortunately for the parties, the Court’s role is not quite so restricted. [...] “One of the purposes of the Court’s supervisory powers, of course, is to protect the integrity of the judicial process.” Fokker Services is on appeal to the D.C. Circuit and is certainly worth watching.
  • As highlighted in this prior post, in another instance in which a federal court judge questioned judicial authority to approve or reject DOJ deferred prosecution agreements, U.S. District Court Judge Emmet Sullivan (D.D.C.) stated: “This ambiguity [in the Travel Act], combined with the fact that Congress’s original purpose had nothing to do with the broad-ranging corporate deferred-prosecution agreements that have become commonplace, suggests that congressional action to clarify the standards a court should apply when confronted with a corporate deferred prosecution agreement may be appropriate.” [T]he current use of deferred-prosecution agreements for corporations rather than individual defendants strays from Congress’s intent when it created an exclusion from the speedy trial calculation for the use of such agreements.”
  • As highlighted in this prior post, U.S. District Court Jed Rakoff (S.D.N.Y.) penned an article about DPAs and the lack of individual enforcement actions and stated: “The preference for deferred prosecutions also reflects some less laudable motives, such as the political advantages of a settlement that makes for a good press release, the avoidance of unpredictable courtroom battles with skilled, highly paid adversaries, and even the dubious benefit to the Department of Justice and the defendant of crafting a settlement that limits, or eliminates entirely, judicial oversight of implementation of the agreement.”

Company / Executive Statements

  • Regarding that “boil the ocean” comment, in an investor conference call Hyperdyamics executives stated: “The FCPA investigations restricted our available opportunities to raise capital and significantly increased our legal bills. [...] Speaking of legal fees I do want to address the fees we incurred during the FCPA investigation.  As you know, we spent $12 MM from inception to closure of that investigation.  We were unhappily aware that FCPA investigations can take years to conclude but that we only had until September 2016 because of the date for the conclusion of the concession.  We therefore determined that our only option was to do everything in our power to facilitate a resolution of the investigation, and ultimately were able to close the investigations in 20 months. This came at a very heavy legal cost to say the least, but again it was the best option we saw to move forward on the path to drilling the well.” As highlighted in this prior post about the $75,000 enforcement action, Hyperdynamics executives and shareholders ought to be asking some serious questions about the extent of its pre-enforcement action professional fees and expenses.
  • Upon being criminally charged by Canadian authorities, SNL Lavalin stated: “It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.” However, as highlighted in this post, SNC-Lavalin should be grateful, and not pout, that Canadian law enforcement authorities have not abandoned (as U.S. authorities have) traditional legal principles in the name of ease and efficiency. The company should be grateful, and not pout, that it is subject to a legal system in which law enforcement has to prove facts and legal theories to someone other than itself.

Practitioners

You will notice that most of the below quotes are from former high-ranking DOJ or SEC enforcement officials. See here for the prior post “A Former Enforcement Official Is Likely To Say (Or Has Already Said) The Same Thing.”

  • Regarding the BNY Mellon “internship” enforcement action, Jay Darden (Paul Hastings and recently the Assistant Chief of the DOJ’s Fraud Section) stated: “it’s not the U.S. government’s job to regulate hiring policy.”
  • Commenting generally on the ever-expansive theories of FCPA enforcement, in this Law360 article, Richard Grime (former Assistant Director of Enforcement at the SEC and current partner at Gibson Dunn) states regarding recent alleged FCPA violations. “It’s not that you couldn’t intellectually [conceive of] the violation. It’s that the government is sort of probing every area where there is an interaction with government officials and then working backwards from there to see if there is a violation, as opposed to starting out with the statute … and what it prohibits.”
  • In this Global Investigations Review article, Timothy Dickinson (Paul Hastings and a veteran of the FCPA bar) states: “Ten years ago, I would have been happy to bet anyone a doughnut that I could accurately define what a foreign official is. Now, with various court definitions and a lack of clarity from the DoJ, I fear I might actually lose my doughnut.”
  • Regarding the DOJ’s trial court debacle in the Sigelman case, Miller & Chevalier’s FCPA Summer Review stated“The DOJ’s prosecution and trial of Joseph Sigelman deserves special notice, as it was the DOJ’s first trial of an individual on FCPA charges since the acquittal in January 2012 of John Joseph O’Shea. Sigelman’s trial … lasted nine days and ended with prosecutors entering into a negotiated guilty plea with Sigelman on only one of the six counts with which he was charged after a key government witness admitted to lying on the stand. Sigelman’s sentence of probation with no imprisonment was essentially a victory for Sigelman, and the judge was particularly critical of the government’s key witness as well as its sentencing recommendation. The trial adds to a string of recent FCPA prosecutions involving individuals in which the government has failed to secure a conviction or its recommended sentence, highlighting the difficulties the DOJ has sometimes encountered when forced to bear its burden of proof in court.”
  • In this Law360 article “FCPA Challenges Make for Spotty Trial Record for DOJ,” Michael Levy (Paul Hastings) states: “We’ve seen several trials in which the judges have been skeptical, if not outwardly hostile, to some of the government’s more aggressive interpretations of the FCPA. While those trials may have fallen apart for other reasons, that skepticism still played, I believe, a substantial role. Without the development of the law through judicial decisions, it’s very unclear what judges believe the FCPA means compared to what the DOJ think the FCPA means.” (See here for Levy’s FCPA Professor guest post titled “Prosecutorial Common Law”). In the same article, George Terwilliger (McGuireWoods and a former high-ranking DOJ official) states: “It is fundamental to due process that a person of ordinary intelligence should be able to read a law and understand what is required or prohibited, as the case may be. Many people of great intelligence on both sides of an FCPA question debate just such issues. That does not produce the fair warning that those subject to the law deserve to have.”
  • Paul Pelletier (former principal deputy chief of the DOJ Criminal Division’s Fraud Section) penned a dandy Wall Street Journal editorial titled “The Foreign Bribery Sinkhole at Justice.” In this follow-up piece Pelletier goes into more-depth on the same topic.  In pertinent part he writes: “[T]he pattern of costly delay in FCPA investigations continues unabated.  While every government investigation and resolution poses unique facts and circumstances that may serve to delay the investigatory process, these recent long-developing FCPA resolutions, together with the findings of the OECD report, are convincingly problematic.  The staggering investigative costs, ultimately borne by employees and shareholders alike, however, also can reach unconscionable levels. [...] The Department of Justice has recently articulated that at least part of the rationale or justification for these interminable investigations is that “[c]ompared to other white collar crime, the challenges associated with FCPA investigations can be much greater.”  The DOJ offered “overseas evidence” as one basis for this greater challenge. But this statement fails to explain the  more than twofold increase in investigatory durations from historical norms.  A dispassionate, experience-based analysis of this overly broad assertion exposes a faulty premise.  Simply put, the DOJ can and must do better. [...]  Regardless of the reason or reasons for these protracted investigations, both the continued vitality of the DOJ’s FCPA enforcement efforts and the prominence of the United States as the global leader of anti-corruption enforcement would seem to demand a renewed effort to dramatically reduce the time frame necessary to achieve resolution. [...] Legitimate enterprises benefit from those kinds of real-time revelations, and criminal political regimes can be immediately identified and deterred.  Moreover, when a criminal resolution discloses and punishes criminal conduct that occurred five or more years earlier, any deterrent effect of the resolution is significantly diminished.  [..] At that late stage, the principal deterrent effect is relegated to the size of the monetary penalty — something the DOJ continues to emphasize with all too much frequency and relish. [...] Given that the DOJ’s FCPA unit within the Fraud Section has more than doubled in size from 2009 to today and has been fortified by a dedicated squad of FBI agents, it is puzzling that many of these investigations seem to drag on interminably.  The DOJ must strive to be more than just “FCPA Inc.,” churning out stale resolutions notable only for their record-breaking penalties.” In conclusion Pelletier wrote: “The interests of justice are neither served nor advanced when FCPA investigations routinely drag on for five or more years.  Rigorous and prompt FCPA enforcement with respect to current bribery schemes can have a dramatic impact on the insidious and corrosive effect of corruption overseas.  Real-time enforcement is just one component of what must be a larger proactive strategy to root out overseas corruption, which includes punishing the bribe takers as well as the bribe payers and dispossessing the government officials of access to ill-gotten gains. Curing the deficiencies that lead to costly and wasteful delays will require a systemic and sustained effort, primarily by the DOJ.  It will also require a more focused approach by outside counsel.  Although the ameliorative benefits resulting from such change will not be achieved overnight, the long-term vitality and efficacy of the DOJ’s anti-corruption enforcement efforts ultimately rests on the government’s ability to sustainably alter the status quo.”

From the Heart

  • In this guest post on FCPA Professor titled “Carlos Rodriguez: My Dad, My Hero,” the adult daughter of Carlos Rodriguez (one of the defendants in the Haiti Teleco “foreign official” enforcement action who is currently in federal prison) stated: “Since he left, my dad has missed three Thanksgiving’s, four Christmas’s, my 15th-18th birthdays, my brother’s college graduation, and my high school graduation, plus all of the celebratory moments and memories in between. The only contact we have consists of letter exchanges and a restricted 15-minute phone call every two weeks. Courtesy of the U.S. government, my connection to my father will remain this way until January 2018. It’s absurd, surreal, ridiculous, and undeniably unfair, but somehow he has maintained his positive outlook on life. That’s why a very small part of me is grateful for this experience. Because of the “foreign official” issue, I’ve realized how much my father once protected me and, in losing that protection, how much strength I myself possess. I may not have the superpowers needed to free him or convince courts of his innocence, but I like to think that by mimicking his optimism I can one day be someone’s hero.”
Posted by Mike Koehler at 12:01 am. Post Categories: Year in Review 2015




January 26th, 2016

Why Does The SEC Have An FCPA Unit?

Women ThinkingNotwithstanding the fact that the SEC played an important role (indeed a more prominent role than the DOJ) in addressing the foreign corporate payment payments problem in the 1970s’s that led to enactment of the Foreign Corrupt Practices Act, it is a historical fact that the SEC never wanted any role in enforcing the FCPA’s anti-bribery provisions.

It is also a historical fact that the SEC did not object to various bills introduced during the FCPA reform debates of the 1980′s that sought to “divest” the SEC of enforcement authority over the anti-bribery provisions.

In both cases, the SEC explicitly stated that enforcement of the anti-bribery provisions was not central to the SEC’s investor protection mission.

Against this backdrop, it is strange that the SEC announced in August 2009 that it was forming a specialized FCPA Unit. In making the announcement, then SEC Enforcement Director Robert Khuzami stated:

“The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”

In January 2010, the five specialized SEC units, including the FCPA Unit, were formally launched. In making the announcement, Khuzami stated:

“These specialized units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed, and an increase in expertise throughout the Division.”

Since 2010, the SEC’s FCPA Unit has steadily grown. For instance, in previous public comments Kara Brockmeyer (SEC FCPA Unit Chief) stated:

“the SEC FCPA Unit has about three dozen staff dedicated full-time to the FCPA.  This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases.”

SEC FCPA Unit staff are public employees and as public employees it is worth asking the question: what are these approximate 40 people doing on a daily basis?

For instance, in 2014 and 2015 the SEC brought 16 corporate FCPA enforcement actions. 7 (approximately 45%) were the result of corporate voluntary disclosures. In such actions, the word “enforce” the FCPA is a bit too much, when the reality is the SEC largely “processes” the corporate voluntary disclosure.

Regardless of the origins of the SEC’s corporate FCPA enforcement actions, is the SEC actually litigating these cases and having to prove anything (a task that can require substantial time and resources if the defendant is mounting a defense)?

Nope.

Of the 16 corporate FCPA enforcement actions brought by the SEC over the past two years, 14 (88%) were resolved through administrative actions or a deferred prosecution agreement. The other two actions were resolved through settled civil complaints.

As one of only five “specialized units” at the SEC, one might think that a reasonably proportionate total of the SEC’s overall enforcement actions would come from the FCPA Unit.

Not true.

Since 2011, the SEC has broken its enforcement statistics into specific categories. As highlighted by the SEC’s own data below, FCPA enforcement actions are a miniscule percentage of overall SEC enforcement actions.

  • FY 2014 – FCPA actions .9% of total actions
  • FY 2013 – FCPA actions .7% of total actions
  • FY 2012 – FCPA actions 2% of total actions
  • FY 2011 – FCPA actions 2.7% of total actions

[Note: the SEC's fiscal year is not a calendar year]

There is certainly more to having an FCPA unit than srictly enforcement action output.

Nevertheless, given the above output it is a fair question to again ask – what do the approximately 40 people in the SEC’s FCPA Unit actually do on a daily basis?

More fundamentally, why does the SEC have an FCPA Unit?

Posted by Mike Koehler at 12:03 am. Post Categories: FCPA StatisticsSEC