Tuesday, May 25, 2010

FCPA Debarment Bill Introduced

Last week, Representative Peter Welch (D-VT) introduced H.R. 5366 (see here).

Titled the "Overseas Contractor Reform Act," the bill states that "it is the policy of the United States Government that no Government contracts or grants should be awarded to individuals or companies who violate the Foreign Corrupt Practices Act of 1977."

The bill states, "any person found to be in violation of the Foreign Corrupt Practices Act of 1977 shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such violation."

However, there is a big "unless" qualifier.

The qualifier is "unless waived by the head of a Federal Agency." The bill states: "The head of a Federal agency may waive this section for a Federal contract or grant. Any such waiver shall be reported to Congress by the head of the agency concerned within 30 days from the date of the waiver, along with an accompanying justification."

Because most FCPA enforcement actions are settled through a non-prosecution agreement (NPA) or deferred prosecution agreements (DPA) (see here), the bill may need some tweaking if it is to be effective.

Among other issues will be: is a company that agrees to an NPA or DPA to resolve an FCPA case "found to be in violation of the FCPA." Likely not.

Also, the bill defines "final judgment" as when "all appeals of the judgment have been finally determined, or all time for filing such appeals has expired." Again, this assumes that all FCPA enforcement actions are resolved through actual judicial proceedings - which is not how FCPA enforcement works in many cases.

Other issues with the bill is that "persons" merely includes: an individual, a partnership and a corporation. Other business entities are equally capable of violating the FCPA and the bill, to be most effective, should adopt the definition of "domestic concern" in the FCPA. (see 78dd-2(h)(1) here).

Other potential shortcomings with the bill is that it only applies to violations of the FCPA's antibribery provisions. Thus, the bill would not be triggered by the recent "bribery, yet no bribery" cases (Daimler, BAE, and Siemens) - see here, here and here. In these cases, despite DOJ allegations that would seem to establish that the company violated the FCPA's antibribery provisions, none of these companies were charged with violating the FCPA's antibribery provisions. Instead, non-FCPA charges or FCPA books and records and internal controls violations were charged in an attempt to avoid application of the European Union debarment provisions. (This fact is apparent from the DOJ's sentencing memos in the cases - see here).

The big picture flaw with H.R. 5366 (as currently drafted) is it assumes all FCPA enforcement actions are resolved through judicial proceedings and it assumes all FCPA enforcement actions are resolved with charges that actually fit the facts.

Neither of these assumptions are accurate - that why I call FCPA enforcement, in many cases, a facade.

Nevertheless, despite the shortcomings of H.R. 5366 as drafted, the bill is a step in the right direction.

The bill has been referred to the House Oversight and Government Reform Committee. Yesterday's post (see here) profiled a letter from the Chairman of that committee, Edolphus Towns (D-NY), to Attorney General Holder regarding debarment issues.


  1. Greetings:

    It is possible for some corporations to avoid the risk of disbarment by creating "special purpose" subsidiaries to conduct certain activities.

    There is a Civil Law principle that if a subsidiary has insufficient assets to satisfy its creditors, the parent (an entity capable of exercising control of the subsidiary, irrespective of percentage of ownership) is liable. That is, the corporate veil does not operate as an obstacle.

    A similar principle should probably be applied in disbarment situations.


    Ethan S. Burger

  2. It looks well intentioned, but as Prof. Koehler points out, if passed in its present form, it will result in more Kabuki actions--
    FCPA, but not really FCPA, actions.