Wednesday, November 17, 2010

"We Are In a New Era of FCPA Enforcement; and We Are Here to Stay"

These were the words of Assistant Attorney General Lanny Breuer yesterday at ACI's signature FCPA conference (see here).

This post contains excerpts of Breuer's speech (see here) and contains my comments in italics.

Breuer's speech begins as follows:

"... I’m proud to say that our FCPA enforcement is stronger than it’s ever been – and getting stronger. To give you just one metric, in the past year, we’ve imposed the most criminal penalties in FCPA-related cases in any single 12-month period – ever. Well over $1 billion.

I am aware that, for some of you, as we have become more aggressive, you have become more worried.

On one hand, I want to tell you this afternoon that you are right to be more concerned. As our track record over the last year makes clear, we are in a new era of FCPA enforcement; and we are here to stay. On the other hand, I want to impress upon you that you should not wait in worry for us to come knocking on your door. There are many steps that you can be taking that would put your organization in a better position for the day we do come knocking, or that could prevent us from coming at all.

Perhaps it’s no surprise that in the last 19 months, as we’ve stepped up our FCPA investigations and prosecutions, there are some who have stepped up their criticism of the Act itself. No doubt, some of the criticisms and suggestions out there are worth debating, and you should know that we do take serious commentary into account. For example, I am aware that some practitioners and others would like to see, in the FCPA area, an amnesty program similar to the one that exists in the realm of antitrust. Although I think there are significant differences between foreign bribery and antitrust violations, I can at least tell you that we listen to considered suggestions of this kind.

I am also aware, however, of much less thoughtful commentary. For example, there are some who have suggested recently that FCPA enforcement is "bad for business." To me, this is a little like saying that our public corruption prosecutions are "bad for government." It’s exactly upside down. As Attorney General Holder explained to an audience earlier this year, bribery in international business transactions weakens economic development; it undermines confidence in the marketplace; and it distorts competition."

I agree, we are in a new era of FCPA enforcement. See here for my recent piece "The Foreign Corrupt Practices Act in the Ultimate Year of its Decade of Resurgence."

But the question needs to be asked - why are we in a new era?

Has the FCPA changed?


Has a court opinion legitimized certain enforcement theories that yield the highest quantity of enforcement actions?

No. (If your answer was yes, U.S. v. Kay, 359 F.3d 738 (5th Cir. 2004), I suggest you carefully analyze the opinion).

So why are we in a new era of FCPA enforcement?

Because enforcement theories have changed.

Who says so.

Let's start with Mark Mendelsohn (here) the DOJ's top FCPA prosecutor from 2005 to 2010 and the individual "responsible for overseeing all DOJ investigations and prosecutions under the FCPA" during his tenure.

In this recent interview with "The Boardroom Channel" (3 minute mark approximately), Mendelsohn candidly states that “What’s really changed is not so much the legislation, but the enforcement and approach to enforcement by U.S. authorities.”

Is this enforcement that defines this new era taking place within the context of the judicial system?

By and large no, as I demonstrate in my recent "Facade of FCPA Enforcement" article (see here).

Against this backdrop, there has been increased criticism of FCPA enforcement and rightfully so.

Who are the critics?

For starters, how about former DOJ and SEC FCPA enforcement attorneys.

In a recent interview with the Corporate Crime Reporter (Sept. 10th), Mendelsohn stated that "some of the factors" the DOJ uses to resolve FCPA cases are transparent, but "there are other factors less easy to see from the outside." Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements that the "danger" "is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don't actually constitute violations of the law."

Philip Urofsky (here) used to enforce the FCPA while at the DOJ. In this piece, and others he has written, he has questioned certain FCPA enforcement theories.

Martin Weinstein (here) used to enforce the FCPA while at the DOJ. In this Q&A, he agrees that FCPA enforcement has morphed and he proposes his own revisions to the law.

Richard Grime (here) used to be an FCPA enforcement attorney while at the SEC. He recently questioned (here) several aspects and theories of FCPA enforcement.

Kenneth Winer (here) is a former SEC enforcement attorney. In this piece he asks "are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?"

These are only a few representative samples of former enforcement officials criticizing the enforcement policies that define this "new era of FCPA enforcement" that Breuer speaks of.

Who else is asking questions?

Congress (see here and here) and it should ask many more questions about this new era of FCPA enforcement.

I agree with Breuer that simply saying FCPA enforcement is "bad for business" is not very effective or persuasive.

However, as I point out in the "Facade of FCPA Enforcement" the facade matters and not just because it breeds overcompliance and creates uncertainty for business.

The facade of FCPA enforcement matters because it is troubling when any area of law largely develops outside of the judicial process. The facade of FCPA enforcement matters because when any law develops through an opaque process, public confidence in that law suffers.

So deep is the facade of FCPA enforcement that when the House passes a bill that is supposed to be triggered by a company violating the FCPA's anti-bribery provisions, the bill will be impotent because very few companies are actually found to have violated the FCPA's anti-bribery provisions. See here.

The facade of FCPA enforcement is not just a business issue, it is a rule of law issue, and having a discussion about the facade of FCPA enforcement is a valid and legitimate discussion to be having.

Breuer continues:

"So let me be perfectly clear about the Justice Department’s views on that topic: FCPA enforcement is not bad for business; it is, instead, vital to ensuring the integrity of our markets. Our FCPA enforcement program serves not only to hold accountable those who corrupt foreign officials, but in doing so it also serves to make the international business climate more transparent and fair for everyone. FCPA enforcement both roots out foreign corruption and deters it from taking hold in the first place."

The government's FCPA enforcement program "holds accountable those who corrupt foreign officials?" If accountability means the company pays an eye-popping multi-million dollar fine, then yes there is accountability - even if the fine paid, in most instances, is less than the amount of the bribes paid and less than the amount of business allegedly obtained or retained because of the bribe payments.

However, where is the accountability when the most egregious instances of corporate bribery (per the government's own evidence) are resolved without FCPA anti-bribery charges as in the Siemens and BAE prosecutions?

Where is the accountability when, within a year of charging Siemens with bribery “unprecedented in scale and geographic scope" where “bribery was nothing less than standard operating procedure," the U.S. government turns around and awards the company multi-million dollar contracts? (See here for the prior post).

Where is the accountability when the same government agency (the FBI) that assisted in the investigation of BAE's improper conduct awards a $40 million dollar contract to the company? See here for the prior post.

Breuer continues:

"... the United States, through its FCPA enforcement efforts, leads by example; and other countries are following. For instance, the United Kingdom passed a landmark anti-bribery law earlier this year, sending a clear message to the British business community that the U.K will not tolerate bribery in international commerce."

True, the U.S. government's enforcement of the FCPA is held up as a model for other nations. That's precisely why the facade of FCPA enforcement matters. Because other nations are modeling enforcement of their own anti-bribery laws on U.S. enforcement of the FCPA.

Leading by example?

What example is set by the Giffen Gaffe (see here)? This enforcement action began with allegations that Giffen " made more than $78 million in unlawful payments to two senior officials of the Republic of Kazakhstan in connection with six separate oil transactions, in which the American oil companies Mobil Oil, Amoco, Texaco and Phillips Petroleum acquired valuable oil and gas rights in Kazakhstan." It abruptly ended this past summer with Giffen agreeing to resolve the enforcement action via a one-paragraph superseding information charging a misdemeanor tax violation. Part of Giffen's defense was that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State and the White House.

For more see this prior post "As We Say, Not Necessarily As We Do."

Breuer then mentions the recent OECD and states that "while the OECD had some constructive suggestions, it strongly commended us for our exemplary enforcement actions - and for the extraordinary commitment of the United States to combating bribery."

As I noted in this previous post, quantity of enforcement does not always mean quality of enforcement.

Lost in the coverage of the OECD report is the salient fact that while loudly praising the U.S. for its "high level" of enforcement, the OECD quitely criticizes and questions many of the policies and enforcement theories which yield the "high level" of enforcement. For instance, the OECD Report notes that the FCPA's language "does not specifically convey" that cases concerning "an operating license or permit to operate a business, or a reduction in tax or import duty" are in violation of the statute. Yet, many FCPA enforcement actions are based on this theory - such as the entire line of Panalpina related enforcement actions earlier this month (see here). Further, the OECD Report notes that "due to an absence of explicit language in the definition of foreign official" it is an open question whether employees of so-called state-owned or state controlled enterprises are "foreign officials" under the FCPA. Yet, numerous FCPA enforcement actions are based on this theory.

Breuer's speech ends as follows:

"In a climate in which FCPA enforcement matters; in which the United States is pursuing foreign bribery vigorously, both here and abroad; and in which the government stands ready to reward sincere cooperation, what should you and your clients be doing? Let me offer you three suggestions.

First, take a hard look at your organization’s FCPA compliance practices. It is never too early to undertake such a review. You will rest easier if you satisfy yourselves that your company is behaving responsibly and in full compliance with the law. Or, if you discover problems before we do, and then work to fix them, you will receive a benefit for having done so.

Second, if your compliance program is lacking, strengthen it. This includes finding ways to tighten internal controls and encouraging a culture of compliance. The OECD’s recently adopted "Good Practice Guidance on Internal Controls, Ethics, and Compliance" is an excellent place to start. Establishing a top-notch compliance program will not only help to prevent misconduct from occurring, but it will also improve your position with us in any eventual investigation.

Finally, voluntarily disclose wrongdoing if you discover it. As a former defense lawyer, I understand that the question of whether to self-report is a difficult one. But I can assure you that if you do not voluntarily disclose your organization’s conduct, and we discover it on our own, or through a competitor or a customer of yours, the result will not be the same. Of course, voluntary disclosure is not the only factor we consider in deciding how to resolve a particular case. We take into account all the factors set forth in the Principles of Federal Prosecution of Business Organizations, and we consider the particular facts and circumstances of each individual case. But there is no doubt that a company that comes forward on its own will see a more favorable resolution than one that doesn’t.

Foreign bribery has a severe, negative impact on international democratic institutions, the worldwide marketplace, and American businesses. The Justice Department is firmly committed to investigating and prosecuting foreign bribery wherever it occurs – because rooting out foreign bribery matters. It matters for the health of democratic institutions across the globe and it matters for the strength of international commerce. At the same time, we are also determined to reward responsible behavior. If you are equally committed to conducting business transparently and free of foreign corruption, we can be strong partners in this fight. I hope you will join us in the months and years ahead."

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