During last month's House hearing on the FCPA (see here for the prior post) Representative James Sensenbrenner told Greg Andres (DOJ) that if Andres were the general counsel of a company advising the CEO and everyone else, he would likely be advising the company in the "most narrow way" and "exercising the greatest amount of caution."
Indeed, the current era of FCPA enforcement has led to a high level of anxiety and skittishness over things that should not, with the end result being overcompliance and inefficient use of resources.
Case in point, the latest FCPA Opinion Procedure Release.
Despite a statutory affirmative defense concerning reasonable and bona fide expenses concerning promotion, demonstration or explanation of products or services, and despite several past "on-point" Opinion Procedure Releases that a first-year associate would be capable of analyzing, the Requestor in Release 11-01 was still apparently skittish enough to go through the time (and no doubt expense) of obtaining a DOJ seal of approval as to conduct that would not raise an eyebrow if directed to a non-foreign official
On June 30th, the DOJ released (here) its first FCPA Opinion Procedure Release of the year - a release dealing with reasonable and bona fide travel expenses in connection with the promotion, demonstration or explanation of products or services - an affirmative defense under the FCPA's anti-bribery provisions.
The Requestor was a "U.S. adoption service provider" that "proposes to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies to learn more about the services provided by the Requestor."
According to the Release, "the two officials will be selected by their agencies, without the involvement of the Requestor" and the Requestor "has no non-routine business pending before the foreign government agencies that employ these officials."
The Requestor "intends to pay for economy class air fare, domestic lodging, local transport, and meals" and it represented, among other things, that:
it "will host only the designated officials, and not their spouses or family members;"
it "intends to pay all cost directly to the providers [and] no cash will be provided directly to the officials;
any souvenirs to the officials "would reflect Requestor's business and/or logo and would be of nominal value;" and
it will not "fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money."
Based on the Requestor's representations and the above facts and circumstances, the DOJ stated that "the expenses contemplated are reasonable under the circumstances and directly relate to 'the promotion, demonstration, or explanation of [the Requestor's] products or services" and therefore the DOJ "does not presently intend to take any enforcement action with respect to the planned program and proposed payments described in the request."
For additional commentary on the Release 11-01, see here from Thomas Fox ("the question posed to the Department of Justice (DOJ) is so straight-forward, and has been previously asked and answered, that it is difficult to understand how any first year compliance practitioner did not know the answer to it"); here from Howard Sklar ("this is, simply put, not a situation that should have gone to the DOJ"); and here from the FCPA Blog ("in its first FCPA Opinion Procedure Release of 2011, the DOJ confirmed what should be obvious -- that the promotional expenses affirmative defense can be used to pay travel expenses of government officials who are being shown a company's products").
Showing posts with label Opinion Procedure Release. Show all posts
Showing posts with label Opinion Procedure Release. Show all posts
Tuesday, July 12, 2011
Friday, March 25, 2011
Libya
Two feature articles this week, one from the New York Times the other from Canada's Globe and Mail, focus on business dealings in Libya.
The New York Times article (here) by Eric Lichtblau, David Rohde and James Risen begins by noting that "some companies, including several based in the United States, appeared willing to give in to" Libya's demand for monetary contributions to help Libya pay $1.5 billion for its role in the downing of Pan Am Flight 103 - as a condition of continuing to do business in the country.
The article also notes that after the U.S. reopened trade with Libya in 2004, American and international oil companies, telecommunications firms and contractors "discovered that Colonel Qaddafi or his loyalists often sought to extract millions of dollars in “signing bonuses” and “consultancy contracts” — or insisted that the strongman’s sons get a piece of the action through shotgun partnerships."
Among other examples cited, the articles notes that "in 2008, Occidental Petroleum, based in California, paid a $1 billion "signing bonus" to the Libyan government as part of a 30-year agreement." According to the article, "Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license."
One strange aspect of the FCPA is that it does not prohibit payments to foreign governments, only foreign officials. See e.g., DOJ Opinion Procedure Release 09-01 (here) stating that the conduct at issue would "fall outside the scope of the FCPA" in that the things of value "will be provided to the foreign
government, as opposed to individual government officials ...".
The Globe and Mail article (here) by Nathan Vanderklippe begins as follows.
"Near the centre of Tripoli sits the bunker, residence and military command post of Moammar Gadhafi. It is hidden behind three concentric rings of defensive walls. It is a fortress that sprawls over six square kilometres. But for much of the past decade, those working hardest to penetrate it have not been citizens rising up against a despot. They have, instead, been wealthy Western companies, intent on wringing riches from the Libyan desert’s massive oil reserves. For some of them, gaining access to Col. Gadhafi – whether directly, or through one of his powerful sons, or through a shadowy network of well-connected “consultants” – was just one of the many challenges of operating in a country some remember as downright bizarre."
The New York Times article (here) by Eric Lichtblau, David Rohde and James Risen begins by noting that "some companies, including several based in the United States, appeared willing to give in to" Libya's demand for monetary contributions to help Libya pay $1.5 billion for its role in the downing of Pan Am Flight 103 - as a condition of continuing to do business in the country.
The article also notes that after the U.S. reopened trade with Libya in 2004, American and international oil companies, telecommunications firms and contractors "discovered that Colonel Qaddafi or his loyalists often sought to extract millions of dollars in “signing bonuses” and “consultancy contracts” — or insisted that the strongman’s sons get a piece of the action through shotgun partnerships."
Among other examples cited, the articles notes that "in 2008, Occidental Petroleum, based in California, paid a $1 billion "signing bonus" to the Libyan government as part of a 30-year agreement." According to the article, "Petro-Canada, a large Canadian oil company, made a similar $1 billion payment after Libyan officials granted it a 30-year oil exploration license."
One strange aspect of the FCPA is that it does not prohibit payments to foreign governments, only foreign officials. See e.g., DOJ Opinion Procedure Release 09-01 (here) stating that the conduct at issue would "fall outside the scope of the FCPA" in that the things of value "will be provided to the foreign
government, as opposed to individual government officials ...".
The Globe and Mail article (here) by Nathan Vanderklippe begins as follows.
"Near the centre of Tripoli sits the bunker, residence and military command post of Moammar Gadhafi. It is hidden behind three concentric rings of defensive walls. It is a fortress that sprawls over six square kilometres. But for much of the past decade, those working hardest to penetrate it have not been citizens rising up against a despot. They have, instead, been wealthy Western companies, intent on wringing riches from the Libyan desert’s massive oil reserves. For some of them, gaining access to Col. Gadhafi – whether directly, or through one of his powerful sons, or through a shadowy network of well-connected “consultants” – was just one of the many challenges of operating in a country some remember as downright bizarre."
Tuesday, October 19, 2010
The FCPA Mulligan Rule?
The FCPA Opinion Procedure regulations (here) state that issuers and domestic concerns subject to the FCPA may "obtain an opinion of the Attorney General as to whether certain specified, prospective -- not hypothetical -- conduct conforms with the Department's present enforcement policy regarding the antibribery provisions of the Foreign Corrupt Practices Act."
Since 1980, the DOJ has issued 55 FCPA opinion procedure releases (see here and here).
In nearly every instance the DOJ expresses an opinion that it does not intend to take any enforcement action as to the disclosed facts or conduct? If my figures are correct, in 54 of the 55 opinion procedure releases (98%) the DOJ expressed such an opinion. [The only exception would appear to be 98-01 (here)].
Perhaps you already knew this, but recently I learned something that may help explain this 98% no enforcement statistic.
What did I learn?
That often times, when the requestor senses that it will not receive a favorable DOJ opinion, it simply withdraws the request. I confirmed that this practice does indeed occur with a former high-ranking DOJ FCPA official and others.
Call it the FCPA mulligan rule.
Sec. 80.15 of the opinion procedure regulations specifically states that "a request submitted under the foregoing procedure may be withdrawn prior to the time the Attorney General issues an opinion to such request."
But here is the issue as I see it.
How does the requestor get the sense that it will receive an unfavorable DOJ opinion so that it can withdraw the request before the opinion procedure is publicly released?
After all, Sec. 80.09 of the regulations, titled "no oral opinion," states: "no oral clearance, release or other statement purporting to limit the enforcement discretion of the Department of Justice may be given."
This would seen to eliminate DOJ oral communications to the requestor as to DOJ's initial observations which may then motivate the requestor to withdraw the request.
Sec. 80.8 of the regulations requires that the Attorney General "respond to the request by issuing an opinion ...". So if the initial DOJ observation which then motivates the requestor to withdraw the request is communicated in writing, should the writing be made public in the same fashion as the opinions that are actually released? Would this not add to the mix of information available as to the FCPA?
As long as I am in question mode, let me throw out this question (see here for the prior post) - should DOJ's declination decisions be made public?
At a recent public event, I asked Charles Duross (DOJ FCPA chief) this question and he said (see here) that it was a "difficult issue." In a recent video (here - start at the 6 minute mark), William Stuckwisch (DOJ) wondered aloud whether DOJ declination decisions should be made public. Last, but not least, in this recent Q&A with Sue Reisinger of Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: "The Justice Department could publicize cases anonymously that it has not brought because of the company's actions."
Since 1980, the DOJ has issued 55 FCPA opinion procedure releases (see here and here).
In nearly every instance the DOJ expresses an opinion that it does not intend to take any enforcement action as to the disclosed facts or conduct? If my figures are correct, in 54 of the 55 opinion procedure releases (98%) the DOJ expressed such an opinion. [The only exception would appear to be 98-01 (here)].
Perhaps you already knew this, but recently I learned something that may help explain this 98% no enforcement statistic.
What did I learn?
That often times, when the requestor senses that it will not receive a favorable DOJ opinion, it simply withdraws the request. I confirmed that this practice does indeed occur with a former high-ranking DOJ FCPA official and others.
Call it the FCPA mulligan rule.
Sec. 80.15 of the opinion procedure regulations specifically states that "a request submitted under the foregoing procedure may be withdrawn prior to the time the Attorney General issues an opinion to such request."
But here is the issue as I see it.
How does the requestor get the sense that it will receive an unfavorable DOJ opinion so that it can withdraw the request before the opinion procedure is publicly released?
After all, Sec. 80.09 of the regulations, titled "no oral opinion," states: "no oral clearance, release or other statement purporting to limit the enforcement discretion of the Department of Justice may be given."
This would seen to eliminate DOJ oral communications to the requestor as to DOJ's initial observations which may then motivate the requestor to withdraw the request.
Sec. 80.8 of the regulations requires that the Attorney General "respond to the request by issuing an opinion ...". So if the initial DOJ observation which then motivates the requestor to withdraw the request is communicated in writing, should the writing be made public in the same fashion as the opinions that are actually released? Would this not add to the mix of information available as to the FCPA?
As long as I am in question mode, let me throw out this question (see here for the prior post) - should DOJ's declination decisions be made public?
At a recent public event, I asked Charles Duross (DOJ FCPA chief) this question and he said (see here) that it was a "difficult issue." In a recent video (here - start at the 6 minute mark), William Stuckwisch (DOJ) wondered aloud whether DOJ declination decisions should be made public. Last, but not least, in this recent Q&A with Sue Reisinger of Corporate Counsel Billy Jacobson (a former high-ranking DOJ FCPA official) stated: "The Justice Department could publicize cases anonymously that it has not brought because of the company's actions."
Thursday, September 9, 2010
My Two Cents On The FCPA's Affirmative Defenses
Students looking for scholarship ideas, should consider the Foreign Corrupt Practices Act.
Why?
There is a good chance that publication of an article will generate coverage and discussion on the blogosphere and elsewhere.
Case in point is Kyle Sheahen's "I'm Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act." (see here).
For prior coverage of Sheahen's article see here, here and here.
Sheahen's article is about the FCPA's two affirmative defenses - the so-called local law and promotional expense defenses.
Big picture, Sheahen terms these defenses as being "hollow," "illusory," and "useless in practice."
For starters, I respectfully disagree with Sheahen's statement that "business and businessmen accused of giving bribes to foreign officials have fared poorly in federal courts" as well as the implication that this somehow supports his thesis.
The three FCPA trials cited from 2009 - Frederick Bourke, William Jefferson, and Gerald and Patricia Greene were a mixed bag for the DOJ, not slam-dunk successes.
For starters, the jury found Jefferson not guilty of substantive FCPA anti-bribery violations (see here).
Sure, Bourke was found guilty by a jury of conspiracy to violate the FCPA and the Travel Act (as well as making false statements to the FBI) (see here), yet when the DOJ alleges that one is a key participant of a "massive bribery scheme" yet secures only a 366 day sentence (see here) from a judge who remarks that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both” - I struggle to put such a case in the decisive "win" category for the DOJ. Plus, Bourke's case is currently on appeal (see here).
The Green case (see here) would seem to represent the cleanest win for the DOJ even though the sentencing judge expressed concerns whether the Green's conduct caused any harm in sentencing the couple to six months in prison thereby rejecting the DOJ's recommended ten year sentence. (See here).
Sheahen's article was published before the Giffen Gaffe (see here). Giffen aggressively mounted a legal defense and, whether for legal, political or other reasons, the case that began with charges 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" ended with a one-paragraph superseding information charging a misdemeanor tax violation. Further, back in 2004, Giffen was successful in having FCPA-related criminal charges dismissed when the trial court judge (see here) concluded that the DOJ offered "the slenderest of reeds" to support the collateral criminal charge.
Going back in time ...
George McLean won his FCPA case when the Fifth Circuit concluded, see 738 F.2d 655 (5th Cir. 1984) that the FCPA, as it then existed because of the subsequently repealed Eckhardt Amendment, barred prosecution.
Donald Castle and Darrell Lowry (two Canadian "foreign officials") won their FCPA-related cases, see 741 F.Supp. 116 (N.D. Tex. 1990), when the court dismissed their criminal indictments. The DOJ asserted that even though the officials could not be prosecuted under the FCPA, they could be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. However, the court declined DOJ's invitation to extend the reach of the FCPA through the application of the conspiracy statute to Castle and Lowry.
Richard Liebo was acquitted, following a three week jury trial, of several counts including nine counts of violating the FCPA's anti-bribery provisions and one count of violating the FCPA's accounting and record keeping provisions. See 923 F.2d 1308 (8th Cir. 1991). He was found guilty of one FCPA count concerning his company's purchase of honeymoon airline tickets for the cousin and close friend of Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force. In connection with this conviction, the Eighth Circuit found that the district court "clearly abused its discretion in denying Liebo's motion for a new trial" and remanded for a new trial.
Hans Bodmer didn't fare too badly either in 2004 when Judge Shira Scheindlin (the same judge in the Bourke case) held that the portion of the criminal indictment "charging Bodmer with conspiracy to violate the FCPA contravenes the constitutional fair notice requirement, and the rule of lenity demands its dismissal."
Of course, the DOJ has had its fair share of FCPA successes, but it remains a misperception that FCPA defendants have "fare[d] so badly" in FCPA trials as Sheahen, and others, have asserted.
Returning to the substance of Sheahen's article, he discusses the October 2008 Bourke decision by Judge Scheindlin (see 582 F.Supp.2d 535) - a case of first impression on the FCPA's local law defense.
Bourke argued that the FCPA's local law affirmative defense was applicable because, under Azeri law even though the payments were illegal, he was relieved from criminal responsibility when he reported the payments at issue to the President of Azerbaijan.
Judge Scheindlin disagreed, drawing a hard line between payments - the focus of the FCPA's local law affirmative defense in her mind - and the related issue of whether a person could not be prosecuted in the foreign country because a provision may relieve that person from criminal responsibility.
Judge Scheindlin concluded that "an individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law."
I agree with Sheahen's statement that Judge Scheindlin's decision of first impression narrowed the FCPA's local law defense "to the point of extinction."
I would go a step further and argue that Judge Scheindlin's decision would seem to violate the basic axiom that a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.
In other words, courts should not suppose that Congress intended to enact unnecessary statutes and there is a presumption against interpreting a statute in a way that renders it ineffective.
The local law affirmative defense was added to the FCPA in 1988 and we must presume that Congress intended to enact the affirmative defense for some reason.
It was widely assumed by Congress in 1977 (when the FCPA was enacted), and by the Congress that amended the FCPA in 1988 to include the local law defense as well, that no nation's written law permitted bribery of its officials.
Yet, given Judge Scheindlin's narrow construction of the local law defense, the decision would appear to render the local-law defense (a statutory term that must have some meaning) inoperative, superfluous and insignificant.
As to the promotional expense defense, I would respectfully disagree with Sheahen's apparent conclusion that the defense is meaningless just because it has never been successfully invoked by an FCPA defendant at trial.
Because of the "carrots" and "sticks" the DOJ and SEC possess in an FCPA enforcement action, and because of the resolution vehicles typically offered to FCPA defendants to resolve an FCPA enforcement action (such as non and deferred prosecution agreements) there is much about the FCPA that has never been subjected to judicial scrutiny.
That does not mean however that an element or defense not successfully invoked at trial renders that element or defense meaningless or hallow.
Indeed, Sheahen discusses the FCPA Opinion Procedure Release process. Through this mechanism, those subject to the FCPA have gained degrees of comfort from DOJ "no enforcement" opinions that are based on the promotional expense defense.
Although the Opinion Procedure Releases are not precedent, countless others in the legal, business, and compliance communities find comfort in these releases, as well as the statute itself, when analyzing real-world conduct for potential FCPA exposure.
FCPA enforcement is in need of many fixes and indeed the Opinion Procedure Release process is likely not the best way for the DOJ to make its enforcement positions known.
However, these structural flaws in FCPA enforcement, coupled with the typical ways in which FCPA enforcement actions are resolved, necessarily leads to the conclusion that the FCPA's affirmative defenses are "hollow," "illusory," and "useless in practice."
*****
I provided Sheahen with my draft post so that he could respond and here is what he said.
"Professor Koehler,
Thank you for your thorough analysis. Although DOJ's trial record in FCPA prosecutions is not a clean sheet, the government has still been substantively successful in almost every FCPA case that has gone to trial. Further, the fact remains that no FCPA defendant has successfully invoked either the local law or the promotional expenses defense in an FCPA enforcement action.
Also, while I agree that the promotional expenses defense provides some guidelines for compliance with the FCPA, neither it nor the local law defense provide a meaningful defense to an enforcement action. Accordingly, Congress must take action to ensure that individual and corporate defendants have the actual ability to raise the affirmative defenses contemplated by the statutory scheme.
Thanks again and all the best,
Kyle Sheahen
sheahen2010@lawnet.ucla.edu
Why?
There is a good chance that publication of an article will generate coverage and discussion on the blogosphere and elsewhere.
Case in point is Kyle Sheahen's "I'm Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act." (see here).
For prior coverage of Sheahen's article see here, here and here.
Sheahen's article is about the FCPA's two affirmative defenses - the so-called local law and promotional expense defenses.
Big picture, Sheahen terms these defenses as being "hollow," "illusory," and "useless in practice."
For starters, I respectfully disagree with Sheahen's statement that "business and businessmen accused of giving bribes to foreign officials have fared poorly in federal courts" as well as the implication that this somehow supports his thesis.
The three FCPA trials cited from 2009 - Frederick Bourke, William Jefferson, and Gerald and Patricia Greene were a mixed bag for the DOJ, not slam-dunk successes.
For starters, the jury found Jefferson not guilty of substantive FCPA anti-bribery violations (see here).
Sure, Bourke was found guilty by a jury of conspiracy to violate the FCPA and the Travel Act (as well as making false statements to the FBI) (see here), yet when the DOJ alleges that one is a key participant of a "massive bribery scheme" yet secures only a 366 day sentence (see here) from a judge who remarks that “after years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both” - I struggle to put such a case in the decisive "win" category for the DOJ. Plus, Bourke's case is currently on appeal (see here).
The Green case (see here) would seem to represent the cleanest win for the DOJ even though the sentencing judge expressed concerns whether the Green's conduct caused any harm in sentencing the couple to six months in prison thereby rejecting the DOJ's recommended ten year sentence. (See here).
Sheahen's article was published before the Giffen Gaffe (see here). Giffen aggressively mounted a legal defense and, whether for legal, political or other reasons, the case that began with charges 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" ended with a one-paragraph superseding information charging a misdemeanor tax violation. Further, back in 2004, Giffen was successful in having FCPA-related criminal charges dismissed when the trial court judge (see here) concluded that the DOJ offered "the slenderest of reeds" to support the collateral criminal charge.
Going back in time ...
George McLean won his FCPA case when the Fifth Circuit concluded, see 738 F.2d 655 (5th Cir. 1984) that the FCPA, as it then existed because of the subsequently repealed Eckhardt Amendment, barred prosecution.
Donald Castle and Darrell Lowry (two Canadian "foreign officials") won their FCPA-related cases, see 741 F.Supp. 116 (N.D. Tex. 1990), when the court dismissed their criminal indictments. The DOJ asserted that even though the officials could not be prosecuted under the FCPA, they could be prosecuted under the general conspiracy statute (18 USC 371) for conspiring to violate the FCPA. However, the court declined DOJ's invitation to extend the reach of the FCPA through the application of the conspiracy statute to Castle and Lowry.
Richard Liebo was acquitted, following a three week jury trial, of several counts including nine counts of violating the FCPA's anti-bribery provisions and one count of violating the FCPA's accounting and record keeping provisions. See 923 F.2d 1308 (8th Cir. 1991). He was found guilty of one FCPA count concerning his company's purchase of honeymoon airline tickets for the cousin and close friend of Captain Ali Tiemogo, the chief of maintenance for the Niger Air Force. In connection with this conviction, the Eighth Circuit found that the district court "clearly abused its discretion in denying Liebo's motion for a new trial" and remanded for a new trial.
Hans Bodmer didn't fare too badly either in 2004 when Judge Shira Scheindlin (the same judge in the Bourke case) held that the portion of the criminal indictment "charging Bodmer with conspiracy to violate the FCPA contravenes the constitutional fair notice requirement, and the rule of lenity demands its dismissal."
Of course, the DOJ has had its fair share of FCPA successes, but it remains a misperception that FCPA defendants have "fare[d] so badly" in FCPA trials as Sheahen, and others, have asserted.
Returning to the substance of Sheahen's article, he discusses the October 2008 Bourke decision by Judge Scheindlin (see 582 F.Supp.2d 535) - a case of first impression on the FCPA's local law defense.
Bourke argued that the FCPA's local law affirmative defense was applicable because, under Azeri law even though the payments were illegal, he was relieved from criminal responsibility when he reported the payments at issue to the President of Azerbaijan.
Judge Scheindlin disagreed, drawing a hard line between payments - the focus of the FCPA's local law affirmative defense in her mind - and the related issue of whether a person could not be prosecuted in the foreign country because a provision may relieve that person from criminal responsibility.
Judge Scheindlin concluded that "an individual may be prosecuted under the FCPA for a payment that violates foreign law even if the individual is relieved of criminal responsibility for his actions by a provision of the foreign law."
I agree with Sheahen's statement that Judge Scheindlin's decision of first impression narrowed the FCPA's local law defense "to the point of extinction."
I would go a step further and argue that Judge Scheindlin's decision would seem to violate the basic axiom that a statute should be construed so that effect is given to all of its provisions, so that no part will be inoperative or superfluous, void or insignificant.
In other words, courts should not suppose that Congress intended to enact unnecessary statutes and there is a presumption against interpreting a statute in a way that renders it ineffective.
The local law affirmative defense was added to the FCPA in 1988 and we must presume that Congress intended to enact the affirmative defense for some reason.
It was widely assumed by Congress in 1977 (when the FCPA was enacted), and by the Congress that amended the FCPA in 1988 to include the local law defense as well, that no nation's written law permitted bribery of its officials.
Yet, given Judge Scheindlin's narrow construction of the local law defense, the decision would appear to render the local-law defense (a statutory term that must have some meaning) inoperative, superfluous and insignificant.
As to the promotional expense defense, I would respectfully disagree with Sheahen's apparent conclusion that the defense is meaningless just because it has never been successfully invoked by an FCPA defendant at trial.
Because of the "carrots" and "sticks" the DOJ and SEC possess in an FCPA enforcement action, and because of the resolution vehicles typically offered to FCPA defendants to resolve an FCPA enforcement action (such as non and deferred prosecution agreements) there is much about the FCPA that has never been subjected to judicial scrutiny.
That does not mean however that an element or defense not successfully invoked at trial renders that element or defense meaningless or hallow.
Indeed, Sheahen discusses the FCPA Opinion Procedure Release process. Through this mechanism, those subject to the FCPA have gained degrees of comfort from DOJ "no enforcement" opinions that are based on the promotional expense defense.
Although the Opinion Procedure Releases are not precedent, countless others in the legal, business, and compliance communities find comfort in these releases, as well as the statute itself, when analyzing real-world conduct for potential FCPA exposure.
FCPA enforcement is in need of many fixes and indeed the Opinion Procedure Release process is likely not the best way for the DOJ to make its enforcement positions known.
However, these structural flaws in FCPA enforcement, coupled with the typical ways in which FCPA enforcement actions are resolved, necessarily leads to the conclusion that the FCPA's affirmative defenses are "hollow," "illusory," and "useless in practice."
*****
I provided Sheahen with my draft post so that he could respond and here is what he said.
"Professor Koehler,
Thank you for your thorough analysis. Although DOJ's trial record in FCPA prosecutions is not a clean sheet, the government has still been substantively successful in almost every FCPA case that has gone to trial. Further, the fact remains that no FCPA defendant has successfully invoked either the local law or the promotional expenses defense in an FCPA enforcement action.
Also, while I agree that the promotional expenses defense provides some guidelines for compliance with the FCPA, neither it nor the local law defense provide a meaningful defense to an enforcement action. Accordingly, Congress must take action to ensure that individual and corporate defendants have the actual ability to raise the affirmative defenses contemplated by the statutory scheme.
Thanks again and all the best,
Kyle Sheahen
sheahen2010@lawnet.ucla.edu
Wednesday, September 8, 2010
A Narrow Opinion Procedure Release
The DOJ recently issued FCPA Opinion Procedure Release No. 10-03 (see here).
As I discuss in this post, the disclosed facts suggest a broad range of potential issues, but the DOJ's analysis is strangely narrow and would appear to contain a key acknowledgment (in contrast to prior opinion procedure releases) that local law does indeed matter when determining who is a "foreign official" under the FCPA.
The disclosed facts are as follows.
The "Requestor" is a "limited partnership established under U.S. law," "headquartered in the U.S.," and "engaged in development of natural resources trading and infrastructure."
As described in the release:
"The Requestor is pursuing an initiative with a foreign government regarding a novel approach to particular natural resource infrastructure development. Because the approach is relatively novel and the market is dominated by a consortium of established companies, the Requestor determined that it required assistance in entering into discussions with the foreign government."
The solution?
According to the release, the Requestor plans to contract with a consultant (a U.S. partnership whose sole owner is a U.S. citizen) who just so happens to have "extensive contacts in the business community and the government in the foreign country" and who "previously and currently holds contracts to represent the foreign government and act on its behalf, including performing marketing on behalf of the Ministry of Finance, and lobbying efforts in the U.S."
In other words, to get things done in the foreign country, the Requestor would like to turn to someone who knows how to get things done in the foreign country and indeed someone who appears to have a track record of getting things done for the foreign government itself as the consultant is a "registered agent of the foreign government" and has "represented ministries of the foreign government that will play a role in the discussions of the Requestor's initiative."
Sounds like plenty of red flags.
In addition, according to the release, "the Consultant will be paid a signing bonus by the Requestor at the time the consulting contract is signed." Further, the release notes that the "bulk of any payment by the Requestor to the Consultant under the contract will come in the form of success fees, should the Consultant's efforts result in the foreign government entering into a business relationship with the Requestor."
Ordinarily, the DOJ views third-party success fees in connection with foreign government business with a high-degree of suspicion.
But not so when it comes to the Requestor's proposed consultant.
The release contains several "safeguards" the Requestor put in place to "ensure that no conflict of interest would arise between the Consultant's representation of the Requestor and the Consultant's separate and unrelated representation of the foreign government."
Most FCPA enforcement actions involve allegations that a company paid something of value - such as a success fee - to a third-party, such as a consultant, who then provides a portion of the money to a "foreign official" in violation of the FCPA.
The analysis is often whether the company provided the thing of value to the third-party under circumstances that suggest the company was "aware of a high probability" that the thing of value would be passed along to the "foreign official."
Although the Requestor's disclosed facts do not suggest a perfect analogy, it is interesting to note that the DOJ's analysis is not focused on the broad range of potential issues suggested by the disclosed facts.
Rather, in the words of the DOJ, "its opinion is limited to the narrow question of whether the Consultant would be a 'foreign official' for purposes of the payments under the consulting contract."
On this issue, the DOJ stated that because the Consultant is ordinarily "an agent of the foreign government" the Consultant and its employees could be "foreign officials" for purposes of the FCPA "in certain circumstances."
However, the DOJ was "satisfied that for purposes of the contract with the Requestor" the Consultant will "not be acting on behalf of the foreign government" and that therefore the Consultant is not a "foreign official."
In its "foreign official" analysis, the DOJ cites local law - a reference to the Requestors disclosure that: "[a]s a matter of law local, the Consultant and its employees are not employees or otherwise officials of the foreign government, and the Requestor has secured a local law opinion that it is permissible for the Consultant to represent both the foreign government and the Requestor at the same time."
The DOJ's apparent acknowledgment that local law is indeed relevant in determining who is a "foreign official" under the FCPA is encouraging - even though it stands in contrast to the DOJ's prior statements in opinion procedure releases.
For instance, in Opinion Procedure Release No. 94-01 (see here) the DOJ opined that a general director of a state-owned enterprise being transformed into a joint stock company is a "foreign official" under the FCPA despite a local law opinion that the individual would not be regarded as either a government employee or a public official in the foreign country.
Similarly, in Opinion Procedure Release No. 08-01 (see here) the DOJ opined that the "Foreign Private Company Owner" at issue was a "foreign official" for purposes of the FCPA notwithstanding the fact that other government officials in the country at issue concluded that the relevant privatization regulations did not apply to the "Foreign Private Company Owner" because he was not a government official for purposes of the regulations.
Even though the DOJ's analysis in Opinion Procedure Release 10-03 is limited to the narrow question of whether the Consultant "would be a 'foreign official' for purposes of the payments under the consulting contract" it does seem to recognize that Requestor's proposed relationship with the Consultant could perhaps pose some problems.
The substance of DOJ's analysis ends as follows:
"The Department does not opine on any other aspect of the proposed contract or any other prospective conduct involved in the Request. Indeed, while the Consultant is not a foreign official for FCPA purposes under the limited facts and circumstances described by the Requestor, the proposed relationship increases the risk of potential FCPA violations. This opinion does not foreclose the Department from taking enforcement action should an FCPA violation occur during the execution of the consultancy."
Requestors are usually able to gain some level of comfort from a DOJ "no enforcement action" opinion in an FCPA Opinion Procedure Release. However, given this last paragraph, the Requestor in Opinion Procedure Release 10-03 may still have some sleepless nights ahead.
*****
As to an oft heard criticism of the FCPA Opinion Procedure Release system - that it takes too long and thus is of little value in a world where business decisions must be made in days or weeks, not months - the release notes that materials were submitted by the Requestor on March 9th, supplemental materials were submitted by the Requestor on August 2nd, and the DOJ release was issued on September 1st.
As I discuss in this post, the disclosed facts suggest a broad range of potential issues, but the DOJ's analysis is strangely narrow and would appear to contain a key acknowledgment (in contrast to prior opinion procedure releases) that local law does indeed matter when determining who is a "foreign official" under the FCPA.
The disclosed facts are as follows.
The "Requestor" is a "limited partnership established under U.S. law," "headquartered in the U.S.," and "engaged in development of natural resources trading and infrastructure."
As described in the release:
"The Requestor is pursuing an initiative with a foreign government regarding a novel approach to particular natural resource infrastructure development. Because the approach is relatively novel and the market is dominated by a consortium of established companies, the Requestor determined that it required assistance in entering into discussions with the foreign government."
The solution?
According to the release, the Requestor plans to contract with a consultant (a U.S. partnership whose sole owner is a U.S. citizen) who just so happens to have "extensive contacts in the business community and the government in the foreign country" and who "previously and currently holds contracts to represent the foreign government and act on its behalf, including performing marketing on behalf of the Ministry of Finance, and lobbying efforts in the U.S."
In other words, to get things done in the foreign country, the Requestor would like to turn to someone who knows how to get things done in the foreign country and indeed someone who appears to have a track record of getting things done for the foreign government itself as the consultant is a "registered agent of the foreign government" and has "represented ministries of the foreign government that will play a role in the discussions of the Requestor's initiative."
Sounds like plenty of red flags.
In addition, according to the release, "the Consultant will be paid a signing bonus by the Requestor at the time the consulting contract is signed." Further, the release notes that the "bulk of any payment by the Requestor to the Consultant under the contract will come in the form of success fees, should the Consultant's efforts result in the foreign government entering into a business relationship with the Requestor."
Ordinarily, the DOJ views third-party success fees in connection with foreign government business with a high-degree of suspicion.
But not so when it comes to the Requestor's proposed consultant.
The release contains several "safeguards" the Requestor put in place to "ensure that no conflict of interest would arise between the Consultant's representation of the Requestor and the Consultant's separate and unrelated representation of the foreign government."
Most FCPA enforcement actions involve allegations that a company paid something of value - such as a success fee - to a third-party, such as a consultant, who then provides a portion of the money to a "foreign official" in violation of the FCPA.
The analysis is often whether the company provided the thing of value to the third-party under circumstances that suggest the company was "aware of a high probability" that the thing of value would be passed along to the "foreign official."
Although the Requestor's disclosed facts do not suggest a perfect analogy, it is interesting to note that the DOJ's analysis is not focused on the broad range of potential issues suggested by the disclosed facts.
Rather, in the words of the DOJ, "its opinion is limited to the narrow question of whether the Consultant would be a 'foreign official' for purposes of the payments under the consulting contract."
On this issue, the DOJ stated that because the Consultant is ordinarily "an agent of the foreign government" the Consultant and its employees could be "foreign officials" for purposes of the FCPA "in certain circumstances."
However, the DOJ was "satisfied that for purposes of the contract with the Requestor" the Consultant will "not be acting on behalf of the foreign government" and that therefore the Consultant is not a "foreign official."
In its "foreign official" analysis, the DOJ cites local law - a reference to the Requestors disclosure that: "[a]s a matter of law local, the Consultant and its employees are not employees or otherwise officials of the foreign government, and the Requestor has secured a local law opinion that it is permissible for the Consultant to represent both the foreign government and the Requestor at the same time."
The DOJ's apparent acknowledgment that local law is indeed relevant in determining who is a "foreign official" under the FCPA is encouraging - even though it stands in contrast to the DOJ's prior statements in opinion procedure releases.
For instance, in Opinion Procedure Release No. 94-01 (see here) the DOJ opined that a general director of a state-owned enterprise being transformed into a joint stock company is a "foreign official" under the FCPA despite a local law opinion that the individual would not be regarded as either a government employee or a public official in the foreign country.
Similarly, in Opinion Procedure Release No. 08-01 (see here) the DOJ opined that the "Foreign Private Company Owner" at issue was a "foreign official" for purposes of the FCPA notwithstanding the fact that other government officials in the country at issue concluded that the relevant privatization regulations did not apply to the "Foreign Private Company Owner" because he was not a government official for purposes of the regulations.
Even though the DOJ's analysis in Opinion Procedure Release 10-03 is limited to the narrow question of whether the Consultant "would be a 'foreign official' for purposes of the payments under the consulting contract" it does seem to recognize that Requestor's proposed relationship with the Consultant could perhaps pose some problems.
The substance of DOJ's analysis ends as follows:
"The Department does not opine on any other aspect of the proposed contract or any other prospective conduct involved in the Request. Indeed, while the Consultant is not a foreign official for FCPA purposes under the limited facts and circumstances described by the Requestor, the proposed relationship increases the risk of potential FCPA violations. This opinion does not foreclose the Department from taking enforcement action should an FCPA violation occur during the execution of the consultancy."
Requestors are usually able to gain some level of comfort from a DOJ "no enforcement action" opinion in an FCPA Opinion Procedure Release. However, given this last paragraph, the Requestor in Opinion Procedure Release 10-03 may still have some sleepless nights ahead.
*****
As to an oft heard criticism of the FCPA Opinion Procedure Release system - that it takes too long and thus is of little value in a world where business decisions must be made in days or weeks, not months - the release notes that materials were submitted by the Requestor on March 9th, supplemental materials were submitted by the Requestor on August 2nd, and the DOJ release was issued on September 1st.
Tuesday, July 27, 2010
A Results Based Opinion Procedure Release?
The Department of Justice recently issued (see here) an FCPA opinion procedure release - a meaningful event in the FCPA arena given the general lack of substantive FCPA case law. [To read more about the detailed requirements of the Foreign Corrupt Practices Act Opinion Procedure process (see here and here)]
Reading Opinion Procedure Release 10-02, in which a "non-profit, U.S. based microfinance institution" was the Requestor, I found myself returning to the same question - is this a results-based DOJ opinion?
The big-picture facts are as follows: to get a government-issued license, an entity subject to the FCPA is directed by a government agency to provide something of value to an institution whose board members include a sitting government official and a former government official.
According to the DOJ's analysis, an analysis that mentions the word "humanitarian" more than once, the contemplated conduct would not cause the DOJ to take any enforcement action.
As explained below, a relevant factor in the DOJ's opinion is the due diligence the Requestor undertook. Yet, if ... say an oil and gas company ... undertook similar due diligence steps would such due diligence be viewed as perfuctory or superficial?
Was the humanitarian, non-profit microfinance institution viewed a bit differently than a similarily situated for-profit company?
Was the DOJ's mindset as to the red flags involving the non-profit along the following lines - this must be legitimate until it is proven that it isn't?
Conversely, is the DOJ's mindset as to red flags involving for profit companies, particularly those in high-risk industries, along the following lines - this must be illegal until it is proven that it is legal?
I don't know the answers to these questions and by posing them I am not drawing any conclusions myself.
Merely interesting questions to ponder while reviewing the facts of Opinion Procedure Release 10-02.
The facts are as follows.
The Requestor is "in the process of converting all of its local operations to commercial entities that are licensed as financial institutions, in order to permit them to attract capital and expand their services to include offerings such as savings accounts, microinsurance and remittances."
"One of those operations is a wholly-owned subsidiary in a country in Eurasia" which is "currently organized as a limited liability company under the laws of the Eurasian country and operates under a special non-banking financial institution license from the Central Bank of that country" and whose activities are "currently overseen by an agency of the Eurasian country (the 'Regulating Agency')."
"As part of its oversight of the Eurasian Subsidiary and [its] proposed transition to commercial status, the Regulating Agency has pressed the Eurasian Subsidiary to take steps to 'localize' its grant capital to ensure that it remains in the Eurasian country."
"Among other things, the Regulating Agency has insisted that the European Subsidiary make a grant to a local microfinance institution [Local MFI] in an amount equal to approximately 33 percent of the Eurasian Subsidiary's original grant capital."
"The Regulating Agency has provided a list of Local MFI's in the Eurasian country and has stated that the Eurasian Subsidiary could not fulfill its localization obligation unless it provided grant funding to one or more of them."
According to the release, the Requestor "is concerned that compelled grants to an institution on a short list of institutions - without appropriate safeguards - raise red flags under the FCPA." (emphasis added).
According to the relase, the Regulating Agency rejected the Requestor's alternative proposals and insisted on the above described arrangement.
The thing of value demanded by the Regulating Agency is not exactly spare change.
According to the release:
"To meet the Regulating Agency’s requirements, the Eurasian Subsidiary proposes to contribute a total of $1.42 million to expand the loan and technical capacity of a Local MFI which previously has received grant funding from the foreign aid community. Of the $1.42 million, $1.07 million would be used to increase the Local MFI’s loan capital – to more than triple its current loan capital. The remaining $350,000 would be used in support of the grant: (a) $50,000 to pay for loan tracking and reporting management system software; (b) $120,000 for capacity-building services and support, including hiring six additional staff members and retaining vendors to provide training and other technical assistance; and (c) $180,000 for the engagement of two independent organizations to monitor and audit the use of the proposed grant (the “Proposed Grant”)."
As referenced above, the Requestor conducted certain due diligence in connection with the "compelled grant."
According to the release:
"The Eurasian Subsidiary undertook a three-stage due diligence process to vet the potential grant recipients and select the proposed grantee. First, it conducted an initial screening of six potential grant recipients by obtaining publicly available information and information from third-party sources. Based on this review, it ruled out three of the six MFI candidates as generally unqualified to receive the grant funds and put them to effective use. Second, the Eurasian Subsidiary undertook further due diligence on the remaining three potential grant recipients. This due diligence was designed to learn about each organization’s ownership, management structure and operations; it involved requesting and reviewing key operating and assessment documents for each organization, as well as conducting interviews with representatives of each MFI to ask questions about each organization’s relationships with the government and to elicit information about potential corruption risk. Based on the information obtained during this second-stage review, the Eurasian Subsidiary ruled out two of the three remaining potential grant recipients: one for conflict of interest concerns, the other after the discovery of a previously undisclosed ownership change in the entity. As a third round of due diligence, the Eurasian Subsidiary undertook targeted due diligence on the remaining potential grant recipient, the Local MFI. This diligence was designed to identify any ties to specific government officials, determine whether the organization had faced any criminal prosecutions or investigations, and assess the organization’s reputation for integrity."
The release notes that this "final round of due diligence did not identify information of potential corruption in connection with the Proposed Grant."
However, it did "uncover that one of the board members of both the Local MFI and the Local MFI's Parent Organization is a sitting government official in the Eurasian country and that other board members are former government officials."
According to the release:
"The sitting government official, however, serves in a capacity that is completely unrelated to the microfinancing industry. In addition, under the law of the Eurasian country, sitting government officials may not be compensated for this type of board service, and the Local MFI confirmed that neither its own board members nor the board members of the Local MFI’s Parent Organization receive compensation for their board service. The proposed grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization."
The release then mentions several "significant controls" proposed by the Requestor as to the Proposed Grant, including "the grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization."
Based on these core facts, the DOJ's analysis is:
"the Department does not intend to take any enforcement action with regard to the proposed transaction..."
The DOJ first stated that the Requestor was subject to the FCPA's anti-bribery provisions and that the Proposed Grant to the Local MFI was indeed "for the purpose of obtaining or retaining business."
The DOJ framed the question as follows:
"The issue presented is whether the Proposed Grant would amount to the corrupt giving of anything of value to any officials of that country in return for obtaining or retaining business. Based on the due diligence that has been done and with the benefit of the controls that will be put into place, it appears unlikely that the payment will result in the corrupt giving of anything of value to such officials."
The DOJ stated:
"As an initial matter, it is important to note that the expressed motivation of the Regulating Agency here is to ensure that grant money given to the Eurasian Subsidiary for humanitarian purposes in the Eurasian country continues to be used for humanitarian purposes in that country. The Requestor was concerned, nevertheless, that without due diligence and appropriate controls, such a grant could carry a significant risk that the result might be the transfer of things of value to officials of the Eurasian country."
The DOJ continued:
"The Department is satisfied, however, that the Requestor has done appropriate due diligence and that the controls that it plans to institute are sufficient to prevent FCPA violations. As noted above, the Requestor conducted three rounds of due diligence. The controls that the Requestor proposes would ensure with reasonable certainty that the grant money from the Eurasian Subsidiary would not be transferred to officials of the Eurasian country. As noted, these controls include the following: the staggered payment of grant funds; ongoing monitoring and auditing; the earmarking of funds for capacity-building; a prohibition on the compensation of board members; and the institution of an anti-corruption compliance program."
The DOJ then lists three other opinion releases that deal with charitable-type grants or donations and ultimately states that the Proposed Grant "is consistent with the Department's past approach to grant-related requests."
This is the curious aspect of the DOJ's analysis because the Requestor's Proposed Grant was not charity or a donation, rather it was a "compelled grant" (a term DOJ used earlier in the release) specifically requested by the Regulating Agency as a condition to the Requestor obtaining the desired license.
Results-based opinion?
You be the judge.
For other coverage of Opinion Procedure Release 10-2, see here, here and here.
Reading Opinion Procedure Release 10-02, in which a "non-profit, U.S. based microfinance institution" was the Requestor, I found myself returning to the same question - is this a results-based DOJ opinion?
The big-picture facts are as follows: to get a government-issued license, an entity subject to the FCPA is directed by a government agency to provide something of value to an institution whose board members include a sitting government official and a former government official.
According to the DOJ's analysis, an analysis that mentions the word "humanitarian" more than once, the contemplated conduct would not cause the DOJ to take any enforcement action.
As explained below, a relevant factor in the DOJ's opinion is the due diligence the Requestor undertook. Yet, if ... say an oil and gas company ... undertook similar due diligence steps would such due diligence be viewed as perfuctory or superficial?
Was the humanitarian, non-profit microfinance institution viewed a bit differently than a similarily situated for-profit company?
Was the DOJ's mindset as to the red flags involving the non-profit along the following lines - this must be legitimate until it is proven that it isn't?
Conversely, is the DOJ's mindset as to red flags involving for profit companies, particularly those in high-risk industries, along the following lines - this must be illegal until it is proven that it is legal?
I don't know the answers to these questions and by posing them I am not drawing any conclusions myself.
Merely interesting questions to ponder while reviewing the facts of Opinion Procedure Release 10-02.
The facts are as follows.
The Requestor is "in the process of converting all of its local operations to commercial entities that are licensed as financial institutions, in order to permit them to attract capital and expand their services to include offerings such as savings accounts, microinsurance and remittances."
"One of those operations is a wholly-owned subsidiary in a country in Eurasia" which is "currently organized as a limited liability company under the laws of the Eurasian country and operates under a special non-banking financial institution license from the Central Bank of that country" and whose activities are "currently overseen by an agency of the Eurasian country (the 'Regulating Agency')."
"As part of its oversight of the Eurasian Subsidiary and [its] proposed transition to commercial status, the Regulating Agency has pressed the Eurasian Subsidiary to take steps to 'localize' its grant capital to ensure that it remains in the Eurasian country."
"Among other things, the Regulating Agency has insisted that the European Subsidiary make a grant to a local microfinance institution [Local MFI] in an amount equal to approximately 33 percent of the Eurasian Subsidiary's original grant capital."
"The Regulating Agency has provided a list of Local MFI's in the Eurasian country and has stated that the Eurasian Subsidiary could not fulfill its localization obligation unless it provided grant funding to one or more of them."
According to the release, the Requestor "is concerned that compelled grants to an institution on a short list of institutions - without appropriate safeguards - raise red flags under the FCPA." (emphasis added).
According to the relase, the Regulating Agency rejected the Requestor's alternative proposals and insisted on the above described arrangement.
The thing of value demanded by the Regulating Agency is not exactly spare change.
According to the release:
"To meet the Regulating Agency’s requirements, the Eurasian Subsidiary proposes to contribute a total of $1.42 million to expand the loan and technical capacity of a Local MFI which previously has received grant funding from the foreign aid community. Of the $1.42 million, $1.07 million would be used to increase the Local MFI’s loan capital – to more than triple its current loan capital. The remaining $350,000 would be used in support of the grant: (a) $50,000 to pay for loan tracking and reporting management system software; (b) $120,000 for capacity-building services and support, including hiring six additional staff members and retaining vendors to provide training and other technical assistance; and (c) $180,000 for the engagement of two independent organizations to monitor and audit the use of the proposed grant (the “Proposed Grant”)."
As referenced above, the Requestor conducted certain due diligence in connection with the "compelled grant."
According to the release:
"The Eurasian Subsidiary undertook a three-stage due diligence process to vet the potential grant recipients and select the proposed grantee. First, it conducted an initial screening of six potential grant recipients by obtaining publicly available information and information from third-party sources. Based on this review, it ruled out three of the six MFI candidates as generally unqualified to receive the grant funds and put them to effective use. Second, the Eurasian Subsidiary undertook further due diligence on the remaining three potential grant recipients. This due diligence was designed to learn about each organization’s ownership, management structure and operations; it involved requesting and reviewing key operating and assessment documents for each organization, as well as conducting interviews with representatives of each MFI to ask questions about each organization’s relationships with the government and to elicit information about potential corruption risk. Based on the information obtained during this second-stage review, the Eurasian Subsidiary ruled out two of the three remaining potential grant recipients: one for conflict of interest concerns, the other after the discovery of a previously undisclosed ownership change in the entity. As a third round of due diligence, the Eurasian Subsidiary undertook targeted due diligence on the remaining potential grant recipient, the Local MFI. This diligence was designed to identify any ties to specific government officials, determine whether the organization had faced any criminal prosecutions or investigations, and assess the organization’s reputation for integrity."
The release notes that this "final round of due diligence did not identify information of potential corruption in connection with the Proposed Grant."
However, it did "uncover that one of the board members of both the Local MFI and the Local MFI's Parent Organization is a sitting government official in the Eurasian country and that other board members are former government officials."
According to the release:
"The sitting government official, however, serves in a capacity that is completely unrelated to the microfinancing industry. In addition, under the law of the Eurasian country, sitting government officials may not be compensated for this type of board service, and the Local MFI confirmed that neither its own board members nor the board members of the Local MFI’s Parent Organization receive compensation for their board service. The proposed grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization."
The release then mentions several "significant controls" proposed by the Requestor as to the Proposed Grant, including "the grant agreement would expressly prohibit the Local MFI from transferring any of the grant funds to the Local MFI’s Parent Organization or otherwise using the grant funds to compensate board members of either the Local MFI or the Local MFI’s Parent Organization."
Based on these core facts, the DOJ's analysis is:
"the Department does not intend to take any enforcement action with regard to the proposed transaction..."
The DOJ first stated that the Requestor was subject to the FCPA's anti-bribery provisions and that the Proposed Grant to the Local MFI was indeed "for the purpose of obtaining or retaining business."
The DOJ framed the question as follows:
"The issue presented is whether the Proposed Grant would amount to the corrupt giving of anything of value to any officials of that country in return for obtaining or retaining business. Based on the due diligence that has been done and with the benefit of the controls that will be put into place, it appears unlikely that the payment will result in the corrupt giving of anything of value to such officials."
The DOJ stated:
"As an initial matter, it is important to note that the expressed motivation of the Regulating Agency here is to ensure that grant money given to the Eurasian Subsidiary for humanitarian purposes in the Eurasian country continues to be used for humanitarian purposes in that country. The Requestor was concerned, nevertheless, that without due diligence and appropriate controls, such a grant could carry a significant risk that the result might be the transfer of things of value to officials of the Eurasian country."
The DOJ continued:
"The Department is satisfied, however, that the Requestor has done appropriate due diligence and that the controls that it plans to institute are sufficient to prevent FCPA violations. As noted above, the Requestor conducted three rounds of due diligence. The controls that the Requestor proposes would ensure with reasonable certainty that the grant money from the Eurasian Subsidiary would not be transferred to officials of the Eurasian country. As noted, these controls include the following: the staggered payment of grant funds; ongoing monitoring and auditing; the earmarking of funds for capacity-building; a prohibition on the compensation of board members; and the institution of an anti-corruption compliance program."
The DOJ then lists three other opinion releases that deal with charitable-type grants or donations and ultimately states that the Proposed Grant "is consistent with the Department's past approach to grant-related requests."
This is the curious aspect of the DOJ's analysis because the Requestor's Proposed Grant was not charity or a donation, rather it was a "compelled grant" (a term DOJ used earlier in the release) specifically requested by the Regulating Agency as a condition to the Requestor obtaining the desired license.
Results-based opinion?
You be the judge.
For other coverage of Opinion Procedure Release 10-2, see here, here and here.
Thursday, July 22, 2010
Schumer Calls For BP Investigation
Senator Charles Schumer (D-NY) has requested a Department of Justice investigation of BP.
It has nothing to do with the Gulf of Mexico, but rather the Foreign Corrupt Practices Act.
BP is British company, but its ADR shares trade on the New York Stock Exchange and BP is thus subject to the FCPA.
In a letter to Attorney General Eric Holder (see here) Schumer requests that the DOJ investigate whether BP violated any of the provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans. [This post is limited to a discussion of the FCPA, and not the above referenced release.]
Why does Schumer think BP may have violated the FCPA?
Because, according to Schumer's letter - "BP has admitted that it lobbied United Kingdom government officials to wrap up a proposed prisoner transfer agreement (PTA) with the Libyan government amid concerns that a delay in reaching this agreement would harm a deal BP had signed with Libya’s National Oil Company to explore for oil and gas in the Gulf of Sidra and in parts of Libya’s western desert—an agreement which BP estimated could lead to eventual earnings of up to $20 billion."
Hold the phone and stop the presses ... a large corporation has admitted that it lobbied its own government in connection with a business purpose.
This would seem to be yet another example of the FCPA's double standard in that what is routinely done at home suddenly becomes a potential criminal matter when done in connection with international business. For other examples of the double standard see here and here.
Unless there is a finding that something of value went to a foreign official, the FCPA is not implicated because the law does not apply to giving things of value to a foreign government itself. Strange you say, but that is how the FCPA is written - a fact even the DOJ recognizes. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct "fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials ..."
Schumer's letter also states:
"If BP, or its officials, promised the Libyan Government that it would secure al-Megrahi’s release from detention in exchange for oil exploration rights—or even that it would provide lobbying services for such a release on the Libyan Government’s behalf—BP may have been unlawfully authorizing performance of valuable services to the Libyan Government in exchange for profitable oil exploration rights in express violation of the FCPA. Similarly, if BP promised anything of value to United Kingdom government officials to secure al-Megrahi’s release, this would also violate the FCPA."
According to Schumer's press release, he and "Senators Gillibrand, Menendez, and Lautenberg last week requested the British government investigate the circumstances surrounding al-Megrahi’s release and requested that BP and the British government turn over all documents related to the oil companies’ efforts lobbying for a prison-release agreement with Libya. They also called for the US State Department to press the British to investigate BP’s involvement in the incident."
It is unusual for a U.S. politician to call upon DOJ to investigate a foreign-based company (or any company for that matter) for FCPA violations - particularly when the conduct at issue largely centers on conduct between the company and its own government officials.
Although the U.K. Bribery Act is not yet law (see yesterday's post here), when enacted, it is expected to have a broad jurisdictional scope and apply to certain U.S. companies, just as the FCPA applies to certain U.K. companies.
Following Schumer's lead will a British politician request that the U.K. Serious Fraud Office investigate a U.S. company because it lobbied its own government officials in connection with a business purpose? As John Gapper, the associate editor and chief business commentator of the U.K. based Financial Times, stated in an editorial on the subject, "the US has been no stranger to dubious deals with foreign governments that benefit both its strategic interests and US companies."
For more, see here for Christopher Matthew's Main Justice story on the topic.
It has nothing to do with the Gulf of Mexico, but rather the Foreign Corrupt Practices Act.
BP is British company, but its ADR shares trade on the New York Stock Exchange and BP is thus subject to the FCPA.
In a letter to Attorney General Eric Holder (see here) Schumer requests that the DOJ investigate whether BP violated any of the provisions of the Foreign Corrupt Practices Act (“FCPA”) in connection with the August 2009 release of Abdel Baset al-Megrahi, the Libyan terrorist convicted of the 1988 bombing of Pan-Am flight 103 that killed 270 people, including 189 Americans. [This post is limited to a discussion of the FCPA, and not the above referenced release.]
Why does Schumer think BP may have violated the FCPA?
Because, according to Schumer's letter - "BP has admitted that it lobbied United Kingdom government officials to wrap up a proposed prisoner transfer agreement (PTA) with the Libyan government amid concerns that a delay in reaching this agreement would harm a deal BP had signed with Libya’s National Oil Company to explore for oil and gas in the Gulf of Sidra and in parts of Libya’s western desert—an agreement which BP estimated could lead to eventual earnings of up to $20 billion."
Hold the phone and stop the presses ... a large corporation has admitted that it lobbied its own government in connection with a business purpose.
This would seem to be yet another example of the FCPA's double standard in that what is routinely done at home suddenly becomes a potential criminal matter when done in connection with international business. For other examples of the double standard see here and here.
Unless there is a finding that something of value went to a foreign official, the FCPA is not implicated because the law does not apply to giving things of value to a foreign government itself. Strange you say, but that is how the FCPA is written - a fact even the DOJ recognizes. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct "fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials ..."
Schumer's letter also states:
"If BP, or its officials, promised the Libyan Government that it would secure al-Megrahi’s release from detention in exchange for oil exploration rights—or even that it would provide lobbying services for such a release on the Libyan Government’s behalf—BP may have been unlawfully authorizing performance of valuable services to the Libyan Government in exchange for profitable oil exploration rights in express violation of the FCPA. Similarly, if BP promised anything of value to United Kingdom government officials to secure al-Megrahi’s release, this would also violate the FCPA."
According to Schumer's press release, he and "Senators Gillibrand, Menendez, and Lautenberg last week requested the British government investigate the circumstances surrounding al-Megrahi’s release and requested that BP and the British government turn over all documents related to the oil companies’ efforts lobbying for a prison-release agreement with Libya. They also called for the US State Department to press the British to investigate BP’s involvement in the incident."
It is unusual for a U.S. politician to call upon DOJ to investigate a foreign-based company (or any company for that matter) for FCPA violations - particularly when the conduct at issue largely centers on conduct between the company and its own government officials.
Although the U.K. Bribery Act is not yet law (see yesterday's post here), when enacted, it is expected to have a broad jurisdictional scope and apply to certain U.S. companies, just as the FCPA applies to certain U.K. companies.
Following Schumer's lead will a British politician request that the U.K. Serious Fraud Office investigate a U.S. company because it lobbied its own government officials in connection with a business purpose? As John Gapper, the associate editor and chief business commentator of the U.K. based Financial Times, stated in an editorial on the subject, "the US has been no stranger to dubious deals with foreign governments that benefit both its strategic interests and US companies."
For more, see here for Christopher Matthew's Main Justice story on the topic.
Monday, June 7, 2010
A Look Back in Time
Literally, Time Magazine that is.
In connection with my work in progress on the FCPA's legislative / early history, the below articles from Time's searchable archives caught my eye. (See here).
*****
In November 1979, Time carried a piece (here) about the DOJ's new program to offer advice on the FCPA - what has come to be called the FCPA Opinion Procedure Release. The article contains this quote from Stanley Sporkin, the SEC's then Enforcement Chief: "We do not have guidelines for rapists, muggers and embezzlers, and I do not think we need guidelines for corporations who want to bribe foreign officials." Fast forward 30-some years and Sporkin is still on the FCPA scene. It was recently reported (here) that Sporkin is assisting former FBI Director Louis Freeh as the monitor in the Daimler enforcement action. Among the monitor's duties is "review[ing] and evaluat[ing] the effectiveness of Daimler's internal controls, record-keeping, and existing or new financial reporting policies and procedures as they relate to Daimler's compliance with the books and records, interal accounting controls and anti-bribery provisions of the FCPA, and other applicable anti-corrption laws." (See here Appendix D).
*****
Almost as soon as the FCPA was passed, concerns were raised that the law was harmful to U.S. business. There was much activity on this issue in the early 1980's as evidenced in this article from October 1980, this article from March 1981, this article from March 1981 as well, and this article from June 1981.
These articles detail, among other things: (i) that the Carter administration (Carter signed the FCPA into law in December 1977) "sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters" - one example - "the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department." (ii) that the GAO released a report in 1981 (see here for a prior post) detailing how the FCPA "is riddled with complicating ambiguities and shortcomings" including the key "foreign official" element; and (iii) that President Reagan's "transition team on the workings of the Securities and Exchange Commission [...] has recommended decriminalization of bribery."
At to this last point, Time notes:
"Such a stance by the Administration toward foreign bribery would itself cause problems. By failing to enforce the act as written, the Administration not only would leave the legislation's ambiguities unresolved, but would show a disrespect for the law, which is itself corrupting. Since the U.S. has adopted a moral position with regard to foreign bribery, neither the Administration nor Congress can now afford to let the subject wither away without compromising its principles in the process."
*****
In response to Forbes recent FCPA article (see here), the Wall Street Journal Law Blog asked (see here) "is the FCPA just a full employment act for the private bar." Such a question as it relates to the FCPA is not new. This March 1981 Time piece notes that the FCPA was "dubbed by one Wall Street wag" as the "Accountants' Full Employment Act of 1977."
In connection with my work in progress on the FCPA's legislative / early history, the below articles from Time's searchable archives caught my eye. (See here).
*****
In November 1979, Time carried a piece (here) about the DOJ's new program to offer advice on the FCPA - what has come to be called the FCPA Opinion Procedure Release. The article contains this quote from Stanley Sporkin, the SEC's then Enforcement Chief: "We do not have guidelines for rapists, muggers and embezzlers, and I do not think we need guidelines for corporations who want to bribe foreign officials." Fast forward 30-some years and Sporkin is still on the FCPA scene. It was recently reported (here) that Sporkin is assisting former FBI Director Louis Freeh as the monitor in the Daimler enforcement action. Among the monitor's duties is "review[ing] and evaluat[ing] the effectiveness of Daimler's internal controls, record-keeping, and existing or new financial reporting policies and procedures as they relate to Daimler's compliance with the books and records, interal accounting controls and anti-bribery provisions of the FCPA, and other applicable anti-corrption laws." (See here Appendix D).
*****
Almost as soon as the FCPA was passed, concerns were raised that the law was harmful to U.S. business. There was much activity on this issue in the early 1980's as evidenced in this article from October 1980, this article from March 1981, this article from March 1981 as well, and this article from June 1981.
These articles detail, among other things: (i) that the Carter administration (Carter signed the FCPA into law in December 1977) "sent a hefty 250-page report to Congress on the various ways the U.S. discourages exporters" - one example - "the provisions of the 1977 Foreign Corrupt Practices Act, which have never been clearly spelled out by the Justice Department." (ii) that the GAO released a report in 1981 (see here for a prior post) detailing how the FCPA "is riddled with complicating ambiguities and shortcomings" including the key "foreign official" element; and (iii) that President Reagan's "transition team on the workings of the Securities and Exchange Commission [...] has recommended decriminalization of bribery."
At to this last point, Time notes:
"Such a stance by the Administration toward foreign bribery would itself cause problems. By failing to enforce the act as written, the Administration not only would leave the legislation's ambiguities unresolved, but would show a disrespect for the law, which is itself corrupting. Since the U.S. has adopted a moral position with regard to foreign bribery, neither the Administration nor Congress can now afford to let the subject wither away without compromising its principles in the process."
*****
In response to Forbes recent FCPA article (see here), the Wall Street Journal Law Blog asked (see here) "is the FCPA just a full employment act for the private bar." Such a question as it relates to the FCPA is not new. This March 1981 Time piece notes that the FCPA was "dubbed by one Wall Street wag" as the "Accountants' Full Employment Act of 1977."
Wednesday, May 26, 2010
The 1981 GAO Report
The year was 1981.
The FCPA was a mere infant - approximately 3.5 years old. Those living with it were concerned with its ambiguities and complying with it.
In March 1981, the "investigative arm" of Congress, the Government Accountability Office (GAO) released a report, “Impact of Foreign Corrupt Practices Act on U.S. Business.” (See here and here).
The report was based, in part, on a GAO questionnaire survey of 250 companies randomly selected from the Fortune 1000 list of the largest industrial firms in the U.S.
The questionnaire addressed the FCPA's relationship to the following four areas: (1) corporate policies and/or codes of conduct, (2) corporate systems of accountability, (3) cost burdens, if any, incurred by management to comply with the act, and (4) corporate opinions regarding the (i) acts effect on U.S. corporate foreign sales, (ii) the clarity of the act’s provisions, (iii) the potential effectiveness of an international antibribery agreement, and (iv) perceived effectiveness of the act in reducing questionable payments.
The GAO also discussed the FCPA's impact with leading public accounting firms, professional accounting and auditing organizations, professional legal associations and business and public interest groups. In addition, the GAO discussed enforcement of the FCPA with DOJ and SEC officials and examined documentation relating to enforcement activities. Also interviewed by the GAO were officials from the Overseas Private Investment Corporation, Department of Commerce, Treasury, and State.
The GAO report covers all the topics listed above. However, this post relates to the clarity of the FCPA's provisions.
Chapter 4 of the Report is titled “Issues Surrounding the Act’s Antibribery Provisions.”
The chapter begins by noting that there is “confusion over what constitutes compliance with the act’s antibribery provisions.”
The report notes that “corporate and governmental officials have criticized the anti-bribery provisions as being ambiguous about what constitutes compliance.”
The ambiguities include confusion or uncertainty about a host of issues, including the “definition of ‘foreign official.””
At the time, the term “foreign official” specifically excluded any employee whose duties are essentially ministerial or clerical.” This exclusion was eliminated in the 1988 amendments to the FCPA. Otherwise the definition of "foreign official" the GAO report found to be ambiguous is same today - “any officer or employee of a foreign government or one of its departments, agencies or instrumentalties.” [Note -the public international organization prong was added in 1998].
The report notes:
“This definition has been criticized as unclear. Lawyers we contacted questioned whether employees of public corporations, such as national airlines or nationalized companies, are considered foreign officials. Similar questions have surfaced in countries – particularly developing countries – where there are small and frequently closely related groups, including both business and government relationships as well as families. Individuals within these groups frequently move between the private and public sectors, often without a clear distinction.”
The report then discusses the DOJ’s guidance program and begins by noting that “President Carter expressed concern over the potential effect of the act’s alleged ambiguities in September 1978 – only 9 months after its passage.” “To reduce this uncertainty, he directed the Department of Justice to give the business community guidance concerning its enforcement intentions under the act.”
The report notes that in March 1980, the DOJ implemented its “long awaited guidance program” but that the “program has yet to effectively address the ambiguities, and it is doubtful it will.”
In concluding Chapter 4 of the Report, the GAO notes:
“the act is an expression of congressional policy, and rigorously defined and completely unambiguous requirements may be impractical and could provide a roadmap for corporate bribery. On other hand, companies, whether registered with SEC or domestic concerns under Department of Justice jurisdiction, should be subject to clear and consistent demands by the Government agencies responsible for enforcing the act.”
An option the GAO recommends is that “the Justice Department, SEC, and other interested agencies [...] offer legislative proposals which would amend the act to more explicitly define the antibribery provisions and [such an amendment] could cover concepts such as the definition of “foreign official.”
GAO notes “because of the importance of the act and the questions and concerns about the antibribery provisions, close congressional oversight is needed.”
Not surprsingly, both DOJ and SEC disagreed with the GAO's findings. In its responses, the agencies attack, not the substance of the findings, but the GAO's methodology.
The GAO report states:
“Both SEC and Justice disagree with our recommendations that they develop alternative ways to address the antibribery provisions. They contend that our statistics suggest that ambiguities in the act are not a sigifnicaint problem.”
In 1981, the investigative arm of Congress found, based on extensive study, that the FCPA's "foreign official" element was ambiguous.
Here we are some thirty years later having the same discussion.
[Here is another interesting nugget. In June 1981, John Fedders was named to be the SEC's Director of Enforcement, replacing Stanley Sporkin who left to become general counsel at the CIA. During a news conference, Fedders "pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous." See Owen Ullmann, "Corporate Lawyer Gets SEC Enforcement Post," Associated Press, June 29, 1981.]
The FCPA was a mere infant - approximately 3.5 years old. Those living with it were concerned with its ambiguities and complying with it.
In March 1981, the "investigative arm" of Congress, the Government Accountability Office (GAO) released a report, “Impact of Foreign Corrupt Practices Act on U.S. Business.” (See here and here).
The report was based, in part, on a GAO questionnaire survey of 250 companies randomly selected from the Fortune 1000 list of the largest industrial firms in the U.S.
The questionnaire addressed the FCPA's relationship to the following four areas: (1) corporate policies and/or codes of conduct, (2) corporate systems of accountability, (3) cost burdens, if any, incurred by management to comply with the act, and (4) corporate opinions regarding the (i) acts effect on U.S. corporate foreign sales, (ii) the clarity of the act’s provisions, (iii) the potential effectiveness of an international antibribery agreement, and (iv) perceived effectiveness of the act in reducing questionable payments.
The GAO also discussed the FCPA's impact with leading public accounting firms, professional accounting and auditing organizations, professional legal associations and business and public interest groups. In addition, the GAO discussed enforcement of the FCPA with DOJ and SEC officials and examined documentation relating to enforcement activities. Also interviewed by the GAO were officials from the Overseas Private Investment Corporation, Department of Commerce, Treasury, and State.
The GAO report covers all the topics listed above. However, this post relates to the clarity of the FCPA's provisions.
Chapter 4 of the Report is titled “Issues Surrounding the Act’s Antibribery Provisions.”
The chapter begins by noting that there is “confusion over what constitutes compliance with the act’s antibribery provisions.”
The report notes that “corporate and governmental officials have criticized the anti-bribery provisions as being ambiguous about what constitutes compliance.”
The ambiguities include confusion or uncertainty about a host of issues, including the “definition of ‘foreign official.””
At the time, the term “foreign official” specifically excluded any employee whose duties are essentially ministerial or clerical.” This exclusion was eliminated in the 1988 amendments to the FCPA. Otherwise the definition of "foreign official" the GAO report found to be ambiguous is same today - “any officer or employee of a foreign government or one of its departments, agencies or instrumentalties.” [Note -the public international organization prong was added in 1998].
The report notes:
“This definition has been criticized as unclear. Lawyers we contacted questioned whether employees of public corporations, such as national airlines or nationalized companies, are considered foreign officials. Similar questions have surfaced in countries – particularly developing countries – where there are small and frequently closely related groups, including both business and government relationships as well as families. Individuals within these groups frequently move between the private and public sectors, often without a clear distinction.”
The report then discusses the DOJ’s guidance program and begins by noting that “President Carter expressed concern over the potential effect of the act’s alleged ambiguities in September 1978 – only 9 months after its passage.” “To reduce this uncertainty, he directed the Department of Justice to give the business community guidance concerning its enforcement intentions under the act.”
The report notes that in March 1980, the DOJ implemented its “long awaited guidance program” but that the “program has yet to effectively address the ambiguities, and it is doubtful it will.”
In concluding Chapter 4 of the Report, the GAO notes:
“the act is an expression of congressional policy, and rigorously defined and completely unambiguous requirements may be impractical and could provide a roadmap for corporate bribery. On other hand, companies, whether registered with SEC or domestic concerns under Department of Justice jurisdiction, should be subject to clear and consistent demands by the Government agencies responsible for enforcing the act.”
An option the GAO recommends is that “the Justice Department, SEC, and other interested agencies [...] offer legislative proposals which would amend the act to more explicitly define the antibribery provisions and [such an amendment] could cover concepts such as the definition of “foreign official.”
GAO notes “because of the importance of the act and the questions and concerns about the antibribery provisions, close congressional oversight is needed.”
Not surprsingly, both DOJ and SEC disagreed with the GAO's findings. In its responses, the agencies attack, not the substance of the findings, but the GAO's methodology.
The GAO report states:
“Both SEC and Justice disagree with our recommendations that they develop alternative ways to address the antibribery provisions. They contend that our statistics suggest that ambiguities in the act are not a sigifnicaint problem.”
In 1981, the investigative arm of Congress found, based on extensive study, that the FCPA's "foreign official" element was ambiguous.
Here we are some thirty years later having the same discussion.
[Here is another interesting nugget. In June 1981, John Fedders was named to be the SEC's Director of Enforcement, replacing Stanley Sporkin who left to become general counsel at the CIA. During a news conference, Fedders "pledged to enforce, with discretion, the Foreign Corrupt Practices Act, which he criticized as being ambiguous." See Owen Ullmann, "Corporate Lawyer Gets SEC Enforcement Post," Associated Press, June 29, 1981.]
Wednesday, April 28, 2010
Hiring a "Foreign Official"
Hiring a "foreign official" can be risky. Particularly when the "foreign official" is recommended by a foreign government. These are certain FCPA "red flags."
However, "red flags" don't always turn out red and in this case the "red flags" turn a pleasant shade of pink because the "foreign official" recommended by a foreign government is being hired in connection with a U.S. government contract.
That at least appears to be one take-away from FCPA Opinion Procedure Release No. 10-01 (see here).
According to the Release, a U.S. company (the "Requestor") "entered into a contract with an agency of the U.S. government to perform work in a foreign country." "Pursuant to that contract, the Requestor is obligated to hire and compensate individuals in connection with that work" and "at least one individual to be hired, and perhaps more, is a foreign official within the meaning of the FCPA."
Among other things, the Requestor represented that: (i) the foreign country selected the "foreign official" to be hired based upon the individual's qualifications for the position; (ii) the U.S. government directed the Requestor to hire the "foreign official"; (iii) the "foreign official" will be compensated $5,000 per month to provide services as directed by the foreign country; (iv) the foreign official currently serves as a paid officer for an agency of the foreign country, but the individual's position does not relate to the work at issue and the services that the individual will perform are separate and apart from those performed by the individual as a "foreign official"; and (v) the "foreign official" will not perform any services on behalf of, or make any decision affecting the Requestor including any procurement or contracting decisions.
Based on this information, the DOJ stated that it "does not presently intend to take any enforcement action with respect to the proposed service contract described in this request."
According to the DOJ, "[w]hile the Individual is a “foreign official” within the meaning of the FCPA, and will receive compensation as Facility Director, through a subcontractor, from the Requestor, the Individual is being hired pursuant to an agreement between the U.S. Government Agency and the Foreign Country, and will not be in a position to influence any act or decision affecting the Requestor."
The DOJ further stated:
"The Requestor is contractually bound to hire and compensate the Individual as directed by the U.S. Government Agency. The Requestor did not play any role in selecting the Individual, who was appointed by the Foreign Country based upon the Individual’s qualifications. Moreover, the Individual’s position is separate and apart from the Individual’s position as a Foreign Officer. In neither position will the Individual perform any services on behalf of, or receive any direction from, the Requestor. Accordingly, the Individual will have no decision-making authority over matters affecting the Requestor, including procurement and contracting decisions."
To read more about the detailed requirements of the Foreign Corrupt Practices Act Opinion Procedure process (see here and here).
For additional FCPA Opinion Procedure Releases on the topic of hiring a "foreign official" or otherwise doing business with a "foreign official" see 80-4 (here), 82-03 (here), 86-01 (here), 93-01 (here), 93-02 (here), 94-01 (here), 96-02 (here), 00-01 (here), 01-02 (here), 08-01 (here)
However, "red flags" don't always turn out red and in this case the "red flags" turn a pleasant shade of pink because the "foreign official" recommended by a foreign government is being hired in connection with a U.S. government contract.
That at least appears to be one take-away from FCPA Opinion Procedure Release No. 10-01 (see here).
According to the Release, a U.S. company (the "Requestor") "entered into a contract with an agency of the U.S. government to perform work in a foreign country." "Pursuant to that contract, the Requestor is obligated to hire and compensate individuals in connection with that work" and "at least one individual to be hired, and perhaps more, is a foreign official within the meaning of the FCPA."
Among other things, the Requestor represented that: (i) the foreign country selected the "foreign official" to be hired based upon the individual's qualifications for the position; (ii) the U.S. government directed the Requestor to hire the "foreign official"; (iii) the "foreign official" will be compensated $5,000 per month to provide services as directed by the foreign country; (iv) the foreign official currently serves as a paid officer for an agency of the foreign country, but the individual's position does not relate to the work at issue and the services that the individual will perform are separate and apart from those performed by the individual as a "foreign official"; and (v) the "foreign official" will not perform any services on behalf of, or make any decision affecting the Requestor including any procurement or contracting decisions.
Based on this information, the DOJ stated that it "does not presently intend to take any enforcement action with respect to the proposed service contract described in this request."
According to the DOJ, "[w]hile the Individual is a “foreign official” within the meaning of the FCPA, and will receive compensation as Facility Director, through a subcontractor, from the Requestor, the Individual is being hired pursuant to an agreement between the U.S. Government Agency and the Foreign Country, and will not be in a position to influence any act or decision affecting the Requestor."
The DOJ further stated:
"The Requestor is contractually bound to hire and compensate the Individual as directed by the U.S. Government Agency. The Requestor did not play any role in selecting the Individual, who was appointed by the Foreign Country based upon the Individual’s qualifications. Moreover, the Individual’s position is separate and apart from the Individual’s position as a Foreign Officer. In neither position will the Individual perform any services on behalf of, or receive any direction from, the Requestor. Accordingly, the Individual will have no decision-making authority over matters affecting the Requestor, including procurement and contracting decisions."
To read more about the detailed requirements of the Foreign Corrupt Practices Act Opinion Procedure process (see here and here).
For additional FCPA Opinion Procedure Releases on the topic of hiring a "foreign official" or otherwise doing business with a "foreign official" see 80-4 (here), 82-03 (here), 86-01 (here), 93-01 (here), 93-02 (here), 94-01 (here), 96-02 (here), 00-01 (here), 01-02 (here), 08-01 (here)
Wednesday, August 5, 2009
It's Been A While ... DOJ Issues FCPA Opinion Procedure Release
Thousands of companies face FCPA risks every single day. Many of these companies have legitimate questions as to how its operations in foreign countries could implicate the FCPA. If only there was a procedure in place for companies subject to the FCPA to receive guidance from the DOJ as to its enforcement stance as to particular conduct!
Well ... actually there is, but if you haven't heard about it, don't feel bad, because the Opinion Procedure Release provisions of the FCPA (15 USC 78dd-1(e)) are often overlooked.
After a year hiatus, (the last opinion was released on July 11, 2008), DOJ has penned Opinion Procedure Release 09-01 (see here).
Given the extent to which the health-care sector has come under FCPA scrutiny, it is not a surprise that the "Requestor" is a "domestic concern" "which designs and manufacturers a specific type of medical device."
Big picture ... the Requestor wants to provide a product sample to a foreign government so that government medical centers can evaluate the product to see if it would be eligible for the government subsidized medical device program. Requestor no doubt was nervous about this given that its competitors were already doing business with the foreign government (whereas Requestor was not) and given that the 100 product samples cost $19,000 each - amounting to a $1.9 million donation.
Based on a number of representations from Requestor, including that none of the product samples would go to government officials, the DOJ stated that it did not intend to take any enforcement action with respect to the proposed conduct because "the proposed provision of 100 medical devices and related items and services fall outside the scope of the FCPA in that the donated products will be provided to the foreign government, as opposed to individual government officials, for ultimate use by patient recipients selected in accordance with specific guidelines ..."
Requestor, it would seem, got the certainty it was looking for and can proceed with the arrangement free of FCPA worries.
All of which begs the question ... why isn't the FCPA Opinion Procedure process used more frequently? Common answers often include (i) the opinion expresses only the DOJ's opinion, but not the SEC's (obviously relevant to issuers); (ii) the procedure takes too long and the proposed business conduct is time sensitive (note that in 09-01 the Requestor made two supplemental disclosures); and (iii) the Requestor may receive an answer it doesn't like and thus needlessly raises its FCPA profile.
To read more about the detailed requirements of the FCPA Opinion Procedure process (see here).
Well ... actually there is, but if you haven't heard about it, don't feel bad, because the Opinion Procedure Release provisions of the FCPA (15 USC 78dd-1(e)) are often overlooked.
After a year hiatus, (the last opinion was released on July 11, 2008), DOJ has penned Opinion Procedure Release 09-01 (see here).
Given the extent to which the health-care sector has come under FCPA scrutiny, it is not a surprise that the "Requestor" is a "domestic concern" "which designs and manufacturers a specific type of medical device."
Big picture ... the Requestor wants to provide a product sample to a foreign government so that government medical centers can evaluate the product to see if it would be eligible for the government subsidized medical device program. Requestor no doubt was nervous about this given that its competitors were already doing business with the foreign government (whereas Requestor was not) and given that the 100 product samples cost $19,000 each - amounting to a $1.9 million donation.
Based on a number of representations from Requestor, including that none of the product samples would go to government officials, the DOJ stated that it did not intend to take any enforcement action with respect to the proposed conduct because "the proposed provision of 100 medical devices and related items and services fall outside the scope of the FCPA in that the donated products will be provided to the foreign government, as opposed to individual government officials, for ultimate use by patient recipients selected in accordance with specific guidelines ..."
Requestor, it would seem, got the certainty it was looking for and can proceed with the arrangement free of FCPA worries.
All of which begs the question ... why isn't the FCPA Opinion Procedure process used more frequently? Common answers often include (i) the opinion expresses only the DOJ's opinion, but not the SEC's (obviously relevant to issuers); (ii) the procedure takes too long and the proposed business conduct is time sensitive (note that in 09-01 the Requestor made two supplemental disclosures); and (iii) the Requestor may receive an answer it doesn't like and thus needlessly raises its FCPA profile.
To read more about the detailed requirements of the FCPA Opinion Procedure process (see here).
Subscribe to:
Posts (Atom)
