Tuesday, June 21, 2011

Global Financial Integrity Responds

The goal of FCPA Professor (see here) is 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.

With that goal in mind, I asked Heather A. Lowe, Esq. (Legal Counsel & Director of Government Affairs, Global Financial Integrity ("GFI")) to consider a guest post to respond to my criticism last week of certain of GFI's statements in connection with the House FCPA hearing (see here for the prior post).

I am glad she accepted and below is Ms. Lowe's guest post.

If other readers want to make their voice heard on the topic of FCPA reform as well, please consider FCPA Professor as a suitable forum.


I appreciate the invitation from Prof. Koehler to provide some comments on this forum as a guest blogger.

On June 14, 2011, Prof. Koehler commented (here) on documents provided by Global Financial Integrity and other civil society organizations and GFI’s press release (here) circulated on Monday, prior to the House of Representatives’ hearing on the FCPA. Additional arguments are included in GFI’s formal submission (here) for the record at the hearing. Karen Lissakers, Director of the Revenue Watch Institute, and Corinna Gilfillan, Head of U.S. Office at Global Witness, each provided statements (see here and here) for the hearing record as well. I am sure readers will find our full submissions to be of interest.

One of the primary reasons that GFI wanted to provide a submission for the hearing was to ensure that Members of Congress were aware that (a) businesses and the Department of Justice were not the only stakeholders with views to be considered in this discussion, (b) proposed changes to the FCPA must be considered within an international context, and any changes will have international implications, and (c) there are strong economic arguments for carefully considering changes to the FCPA that might lead to a reduction in enforcement.

Anti-bribery laws are not enacted in this world without years of blood, sweat and tears from anti-corruption campaigners around the world, and I don’t expect that they will be willing to lose ground on this flagship anti-bribery legislation without making their voices heard. When I say “blood, sweat and tears” I literally mean blood, sweat and tears. There are activists around the world who have been threatened with violence, jailed and even killed over the years to achieve the progress that has been made. It would be inaccurate, therefore, to believe that corporations are the only ones with “skin” in this game.

GFI would not presume to speak on behalf of these organizations without their permission, but we did not want to miss the opportunity to provide at least one civil society submission as a place-holder for a critical group of stakeholders.

We appreciated Prof. Koehler’s comments on the documents he posted. We are trying to begin a meaningful dialogue on these issues that more civil society organizations with direct experience in the field, around the world, can join. His comments demonstrate that we have been successful in starting that conversation.

Prof. Koehler did not invite me to blog for my motivational comments, however. He would like me to respond to his post of June 14, 2011.

Apart from quoting the opinion of a former SEC Commissioner in a statement made 20 years ago

• during a hearing on bills proposing changes that the Professor considers to be similar to changes being proposed today,
• which were ultimately never adopted by Congress, and
• during a time preceding the international proliferation of anti-bribery conventions and national laws that we have to support our FCPA enforcement efforts today,

Prof. Koehler seems to be focusing on two main subjects: the proposed amendment to further define “foreign official” and the proposal to include a compliance defense in the FCPA.

The Professor refers to the UK Bribery Act Guidance to shore up his position in support of creating a compliance defense for companies. The U.S. Chamber refers to the UK Bribery Act (the “UK Act”) itself to support its position that a compliance defense is a reasonable amendment to request. The compliance defense in the UK Act should not be taken out of context, however. It must be viewed in light of the other provisions of the UK Act. The UK Bribery Act criminalizes ALL forms of commercial bribery. The FCPA criminalizes only payments made to foreign officials. The UK Act does not permit facilitation payments. The FCPA permits facilitation payments and has an express provision creating an affirmative defense for reasonable travel and lodging and other types of expenses one might incur as a “host” of a trading partner. The UK Act’s extraterritoriality provisions have been described as more far-reaching than the FCPA’s.

The U.S. Chamber’s proposals to amend the FCPA are entitled “Restoring Balance.” The UK Act’s compliance defense could conceivably be seen as an attempt to balance provisions that go well beyond those of the FCPA. A compliance defense in the FCPA would, in fact, be out of balance when viewed in full context. However, if there is a genuine move to bring the FCPA in line with the UK Bribery Act then let’s talk!

I also found it interesting that the Professor referenced the UK Bribery Act Guidance in his support of the compliance defense. The Guidance he refers to is the Guidance from the UK Ministry of Justice. At the very beginning of that document, in paragraph 4, the Ministry states, “The question of whether an organisation had adequate procedures in place to prevent bribery in the context of a particular prosecution is a matter that can only be resolved by the courts taking into account the particular facts and circumstances of the case. The onus will remain on the organisation, in any case where it seeks to rely on the defence, to prove that it had adequate procedures in place to prevent bribery. However, departures from the suggested procedures contained within the guidance will not of itself give rise to a presumption that an organisation does not have adequate procedures.”

So, what does a compliance defense actually accomplish in the UK? A company still has to prove that it had adequate procedures in place to prevent the criminal activity (which means all of the investigation into what actually took place must still be undertaken) and the matter still has to be adjudicated by the courts. Compliance in the UK is not an absolute defense that can be relied upon to avoid the cost of investigation and litigation at all, as seems to be the idea behind the U.S. Chambers’ proposal! The burden on a UK company is, in practical terms, the same as that of a company defending an FCPA violation under the current form of the statute.

Prof. Koehler characterized some of my statements as “unsophisticated” and “naïve,” so I was surprised by his argument that the real reason that companies want a clearer definition of “foreign official” is so that they can more easily determine who they can take out for a round of golf and a few drinks at the 19th without thinking too hard about it. While I do not doubt that this is something companies do have to think about, I stand by my statement that a clearer definition of foreign official can just as easily be used to determine who a company can bribe and who it can’t bribe and I am not naïve enough to think that this isn’t a frequent question. Let’s get on board with the UK on this one and just not bribe anyone.

I will say, however, that I think I have a fairly accurate view of what motivates corporations. Corporations are motivated by their bottom line and their cost/benefit analysis. There are externalities that also factor into decisions, like reputational risk, but in the end the externalities are quantified and factored in. This is not a bad thing – corporations exist to make money and are vital to support a strong economy.

For the reasons set forth in GFI’s submission, I don’t think that most companies set out to engage in bribery, unless they do not have the attributes to be truly competitive in the market they are entering in the first place (which should not be overlooked as a possible motivating factor). When faced with a bribe, however, the choice on the spot may be perceived to be one of paying a bribe or losing business worth many times the value of the bribe. A strongly enforced FCPA makes that bribe much more expensive in any cost/benefit analysis.

The perception that the choice a company is making is whether to pay a bribe or lose the business is where we should be focusing our energy, however. Many companies have created strategies, policies and outreach to governments in the countries in which they operate in order to ensure that it is understood by those with whom they do business that they are subject to the FCPA and cannot pay bribes. We are pretty sure that the whole notion of the FCPA isn’t a surprise to their business counterparts when the subject is raised.

As I stated in GFI’s submission for the hearing, “Some companies, like Newmont Mining, view the FCPA in a positive light. Newmont Mining, based in Colorado, is the second largest gold mining company in the world. Newmont’s Director Corporate & External Affairs for Africa, Chris Andersen, stated during a panel discussion at the Extractive Industries Transparency Initiative Global Conference in March of this year that,

“…Newmont’s experience, particularly in Africa, has been that FCPA has been an enormously valuable protective device for us…when you have a government person saying…‘we’ll give you that license if you buy us a car or something’…it’s not about look ‘I’m a mean guy and I don’t value our relationship, and therefore I’m not going to give it to you,’ you say ‘look, there’s a law out there that means I’m going to go to jail if I do that, I’m not going to go to jail for you or anybody else.’”

There are many more arguments to be made on all sides of this debate, I have no doubt. Let’s make sure that all relevant voices are being heard moving forward.

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