House Hearing - Pregame

Yesterday, Global Financial Integrity ("GFI") and The Task Force on Financial Integrity and Economic Development issued identical press releases (here and here) regarding today's House Judiciary subcommittee hearing on the FCPA (see here).

The releases, titled "Foreign Corrupt Practices Act Under Attack" portray today's hearing as a U.S. Chamber of Commerce sponsored event and states as follows. "Among other things, the hearing will specifically consider amendments proposed to the act by the U.S. Chamber Institute for Legal Reform, an affiliate of the U.S. Chamber of Commerce, which FCPA-proponents charge will significantly weaken the anti-corruption legislation and undermine efforts to tackle corruption and illicit financial practices abroad. The Chamber’s proposed changes would seriously undermine one of the most important anti-corruption statues we have on the books. [...] This is a blatant attempt by the business lobby to limit accountability and reduce a company’s risk of prosecution for paying bribes. It is a real threat to global efforts to stamp out corruption and foster economic development.”

GFI legislative affairs director and legal affairs council Heather Lowe states as follows. “With the exception of [the DOJ witness - Greg Andres], the witness lineup represents commercial interests. There is no witness on the panel representing those who are working to fight corruption without a commercial interest or government policy driving their testimony. Members of Congress need to have an opportunity to hear those voices as well.”

Attached to the releases are two documents.

The first document is titled "Concerns About the U.S. Chamber Institute of Legal Reform’s Proposals for Amending the FCPA." (For a copy of the Chamber's reform proposals - see here).

The document addresses five topics: (i) limiting liability of a parent company for acts of its subsidiaries; (ii) defining "foreign official"; (iii) allowing companies with compliance programs to escape liability (compliance as an affirmative defense); (iv) limiting the liability of a successor company for the prior acts of a company that has merged into it or that it has acquired; and (v) adding a “willfulness” requirement for corporate criminal liability.

As to "foreign official," the document states as follows. "The U.S. Chamber is promoting the creation of a definition of “foreign official” so that companies have greater legal certainty. Greater certainty of what? Greater certainty of who they are permitted to bribe and who they are not permitted to bribe."

In all due respect, this is a naive statement.

As I noted in this article, because of the enforcement agencies' current interpretation of "foreign official," those subject to the FCPA are spending significant time and money investigating the ownership structure of foreign customers and potential customers for any trace of foreign government ownership or control. Such a costly investigation, often involving lawyers and other investigative firms, is not motivated by the company’s desire to make improper payments to the foreign customer or potential customer to obtain or retain business should the investigation reveal no foreign government ownership or control. Rather, the costly investigation is often motivated for the simple reason that the company wants to treat these foreign customers the same as it treats its other customers. That means hosting such customers at corporate events in which some fun may take place (e.g., golf) or inviting such customers to an industry trade show—events that often take place in tourist locations. Companies fear providing such “things of value” to a “foreign official” (under the enforcement agencies’ interpretation) even though the company is legitimately and legally providing the exact same thing to its non- “foreign official” customers or potential customers. It is highly questionable whether Congress foresaw company lawyers being involved in the simple decision of whether to invite a particular customer to the company’s golf outing or trade show.

As to a potential compliance defense, the document states as follows. "If a company is found to be in violation of the FCPA, then the existence of a company’s compliance program must not have prevented the acts of bribery. So why should the existence of their compliance program be a defense to the charge of bribery?"

Again, an unsophisticated statement.

For instance, the U.K. Bribery Act Guidance (here) states as follows. "The objective of the Act is not to bring the full force of the criminal law to bear upon well run commercial organizations that experience an isolated incident of bribery on their behalf."

"[N]o bribery prevention regime will be capable of preventing bribery at all times."

"[A] commercial organization will have a full defense if it can show that despite a particular case of bribery, it nevertheless had adequate procedures in place to prevent persons associated with it from bribing."

Similarly, in a 1981 FCPA speech (to be profiled in a future post) the SEC Chairman noted as follows. “The test of a company’s internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed company. But, an adequate system of internal controls means that, when such breaches do arise, they will be isolated rather than systemic, and they will be subject to a reasonable likelihood of being uncovered in a timely manner and then remedied promptly. Barring, of course, the participation or complicity of senior company officials in the deed, when discovery and correction expeditiously follow, no failing in the company’s internal accounting system would have existed. To the contrary, routine discovery and correction would evidence its effectiveness.”

Elsewhere in the speech, the SEC Chairman stated as follows. "If a violation was committed by a low level employee, without the knowledge of top management, with an adequate system of internal control, and with appropriate corrective action taken by the issuer, we do not believe that any action against the company would be called for.”

This speech was given during the same general time frame when Congress was last seriously considering substantial FCPA reform in the 1980's. Numerous FCPA reform bills included a specific defense which stated a company would not be held vicariously liable for a violation of the FCPA’s anti-bribery provisions by its employees or agents, who were not an officer or director, if the company established procedures reasonably designed to prevent and detect FCPA violations by employees and agents. An FCPA reform bill containing such a provision did pass the U.S. House.

In my forthcoming scholarship, "Revisiting an FCPA Compliance Defense" (to be presented at the Wisconsin Law Review symposium - see here), I argue that amending the FCPA to include a compliance defense (a defense found in the “FCPA-like” laws of other nations) will best incentivize corporate FCPA compliance and not put a company at risk of FCPA scrutiny, costly FCPA internal investigations, and the growing collateral consequences of FCPA inquiries should a non-executive employee engage in conduct contrary to a company’s pre-existing FCPA compliance policies and procedures and compliance culture.

The second document attached to the GFI releases is titled "The Foreign Corrupt Practices Act in Context." The 2 page document ends with the following in red caps. "WE HAVE SHOWN THE WORLD THAT THE U.S. IS SERIOUS ABOUT COMBATING BRIBERY, AND THE WORLD IS FOLLOWING OUR LEAD. WEAKENING THE FCPA NOW WILL SEND A MESSAGE TO THE WORLD THAT THE U.S. IS SOFT ON CORRUPTION AND OUR COMPANIES ARE DEEP POCKETS FOR BRIBE-SEEKERS. THE U.S. SHOULD FOCUS ON ENCOURAGING WORLDWIDE ENFORCEMENT, NOT CRIPPLING A STATUTE THAT HAS BEEN THE MODEL FOR INTERNATIONAL ANTI-BRIBERY LEGISLATION."

Enjoy today's hearing.