A hot topic of late is what impact Wal-Mart’s FCPA scrutiny will have on FCPA reform efforts.
Last week, in an editorial (here) USA TODAY stated as follows. “Supporters of weakening the act argue that the Justice Department has become too powerful and arbitrary. Some Chamber proposals, such as clearer enforcement guidelines, are relatively non-controversial. But others would seriously undermine the law. The most troublesome would give companies an automatic defense merely for implementing internal compliance programs to prevent and police bribery. The proposal would amount to giving companies a get-out-of-jail-free card. It’s not hard to imagine corporations drawing up a set of cookie-cutter guidelines designed to meet the letter of the law, which might or might not reflect their commitment to thwarting corruption.”
[Dear USA TODAY Editorial Board, as noted in my article "Revisiting a Foreign Corrupt Practices Act Compliance Defense" (here) an FCPA compliance defense would not eliminate corporate criminal liability under the FCPA or reward “fig leaf” or “purely paper” compliance programs. A compliance defense would not apply to corrupt business organizations, activity engaged in or condoned by executive officers, or activity by any employee if it occurred in the absence of preexisting compliance policies and procedures. A growing chorus of former Department of Justice officials, including those who used to enforce the FCPA, support an FCPA compliance defense and a compliance defense will better incentivize more robust corporate compliance, reduce improper conduct, and thus best advance the FCPA’s objective of reducing bribery. As noted in this prior post, that’s not weakening the FCPA, that is strengthening the FCPA and best advancing its objective of reducing bribery.]
In an opposing view (here) also published by USA TODAY, former U.S. Attorney General Michael Mukasey (who represents the U.S. Chamber Institute for Legal Reform with regard to the Foreign Corrupt Practices Act) stated as follows. “Some suggest that increased FCPA enforcement has proved the law’s utility without the need for changes. But the opposite is true: Aggressive enforcement has alerted business and the courts alike to its flaws. That is why clarifying the FCPA has drawn bipartisan support.”
[I agree that high-profile instances of FCPA scrutiny such as News Corp.'s and Wal-Mart's has shined a much needed light on FCPA enforcement and caused those who do not ponder FCPA issues every day to take notice. See here and here for prior posts. And indeed, Mukasey is right, as noted in this previous post, certain aspects of FCPA reform share bipartisan support.]
This Wall Street Journal Corruption Currents post by Samuel Rubenfeld titled “Wal-Mart Bribery Allegations Stir Up FCPA Debate Anew” contains the views of many including a statement I liked from Ian Koski, a spokesman for Sen. Chris Coons (D., Del. who has been open to amending the FCPA) that the Wal-Mart investigation is ongoing and that the senator wouldn’t decide legislative policy based on a news story.
In this post Tom Fox (FCPA Compliance and Ethics Blog) said that Wal-Mart’s FCPA scrutiny “will sound the death knell for any efforts to amend” the FCPA. Fox also penned a guest post on the FCPA Blog (here) titled “How Wal-Mart Killed The Compliance Defense.” Also on the FCPA Blog, (here) Professor Andy Spalding penned a post titled “The Good Faith Compliance Defense, Unscathed.” Professor Peter Henning, writing on the New York Times DealBook page (here), stated as follows. “The investigation of Wal-Mart has brought the Foreign Corrupt Practices Act to the attention of the public in a way not seen since the 1970s scandals that led to its adoption. Congress may find it politically impossible to adopt changes to the statute that would arguably make it more difficult to pursue cases as long as the allegations of foreign bribery by a leading American company remain in the headlines.” Likewise, Michael Volkov (Corruption, Crime and Compliance Blog) stated (here) that “Congress is not going to amend the FCPA anytime soon, and especially not in an election year” and yesterday he stated (here) that “FCPA reform is dead — not just for this year but for years to come.”
What to make of all this?
For starters, let’s observe what I submit are facts. The reason Wal-Mart has dominated the news cycle the past few weeks is not because the company is under FCPA scrutiny, this was known in December 2011 when Wal-Mart disclosed its FCPA scrutiny, becoming one of approximately 100 companies known to be under FCPA investigation. Rather, the reason Wal-Mart has dominated the news is because of how the company acted, or failed to act, since learning of potential FCPA issues in approximately 2005. This is a corporate governance issue, not an FCPA issue, and thus should not impact limited and sensible FCPA reform.
However, many people, including politicians who are ultimately responsible for reform, are unlikely to make this critical distinction and thus the recent news regarding Wal-Mart could impact FCPA reform.
Exhibit A and B in the politicization of FCPA reform are nearly identical letters here and here from Elijah Cummings (Ranking Member of the House Committee on Oversight and Government Reform) and Henry Waxman (Ranking Member of the House Committee on Energy and Commerce) to the Chairman of the Board of Directors of the Retail Industry Leaders Association and the President of the U.S. Chamber of Commerce. The letters state as follows. “We are concerned about the role that Wal-Mart officials may have played in the Chamber’s Institute for Legal Reform. It would appear to be a conflict of interest for Wal-Mart officials to advise on ways to weaken the Foreign Corrupt Practices Act at a time when the leadership of the company was apparently aware of corporate conduct that may have violated the law.”
Regardless of any impact Wal-Mart’s FCPA scrutiny may have on FCPA reform, FCPA reform was unlikely to happen this year even before the recent coverage of Wal-Mart. When the DOJ in November 2011 promised FCPA guidance in 2012 (see here for the prior post), this forestalled introduction of an actual FCPA reform bill. Guidance has still not been released and when it is, there is likely to be an absorption period that flows into the election season.
Honestly debating and considering changes to a statute titled the “Foreign Corrupt Practices Act’ is a political hot potato. It always has been and will always be. For instance, several reform bills in the 1980′s sought to change the name of the law to the “Business Accounting and Foreign Trade Simplification Act” so that an honest and considered debate could occur.
Certain FCPA amendments occurred in 1998, but the last period of major substantive FCPA reform occurred in the 1980′s. Those reform efforts took approximately eight years.
FCPA reform is not dead, nor should it be. But it is likely going on a summer vacation. For more on my views on FCPA reform see this recent video (with many thanks to Levick Strategic Communications for the opportunity).
I conclude this post with guiding words from key players during the FCPA reform debates in the 1980′s.
In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill “provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “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.”
In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: “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.” During the hearing, Senator Chafee further stated as follows: “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.”
During Senate hearings, Senator D’Amato also noted as follows: “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 D’Amato further stated as follows. “I think it is very important that in the committee’s work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any ‘gray area’ by clearly spelling out the limits of the law.”
During Senate hearings, Senator John Heinz stated as follows. “… 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?”
During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: “Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption.”
My favorite quote from the FCPA reform debates of the 1980′s and one that rings true today is from William Brock (U.S. Trade Representative) who observed, during a 1982 FCPA reform hearing, as follows. “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. [… ] Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”