Last month, Assistant Attorney General Lanny Breuer delivered the Franz-Hermann Brüner Memorial Lecture at the World Bank and focused his remarks on the DOJ Criminal Division's "comprehensive approach to fighting corruption." (See here for the transcript).
This post provides an overview of Breuer's remarks.
*****
"Corruption corrodes the public trust in countries rich and poor, and has particularly negative effects on emerging economies. When a developing country’s public officials routinely abuse their power for personal gain, its people suffer tremendously. At a concrete level, roads are not built, schools lie in ruin, and basic public services go unprovided. At a more abstract, but no less important, level, political institutions lose legitimacy, threatening democratic stability and the rule of law, and people begin to lose hope that they will ever be able to improve their lot. As the President put it last week, you cannot reach your potential when you “cannot start a business without paying a bribe.”"
"There are of course many ways in which the U.S. government addresses the problem of corruption abroad. As the head of Criminal Division, I want to focus on three: our criminal prosecution efforts; our work to build the prosecutorial and law enforcement capacity of foreign nations; and our emerging focus on recovering and repatriating the proceeds of foreign official corruption."
As to criminal prosecution efforts, after highlighting recent corruption cases involving federal, state, and local officials, Breuer talked about the FCPA. He stated as follows.
"The FCPA was the first effort of any nation to specifically criminalize the act of bribing foreign officials. The statute was enacted in the wake of the Watergate scandal, which led to the resignation of President Richard Nixon in 1974 and resulted in a dramatic plunge in Americans’ overall trust in government."
"In 1976, following certain prosecutions for illegal use of corporate funds arising out of Watergate, the U.S. Securities and Exchange Commission issued a report in which it determined that foreign bribery by U.S. corporations was “serious and sufficiently widespread to be a cause for deep concern.” S.E.C. investigations revealed that hundreds of U.S. companies had made corrupt foreign payments involving hundreds of millions of dollars. With this background, the Senate concluded that there was a strong need for anti-bribery legislation in the United States. “Corporate bribery is bad business,” the Senate Banking Committee said in its report on the legislation. “In our free market system it is basic that the sale of products should take place on the basis of price, quality, and service. Corporate bribery is fundamentally destructive of this basic tenet.”"
"That was true then, and it’s true now. And over the two-plus years of this Administration, we have dramatically increased our enforcement of the FCPA. The numbers speak for themselves. In 2004, the Justice Department charged two individuals under the Act and collected around $11 million in criminal fines. In 2005, we charged five individuals and collected around $16½ million. By contrast, in 2009 and 2010 combined, we charged over 50 individuals and collected nearly $2 billion."
"And we are only moving forward. Earlier this month, we secured the first jury conviction ever against a corporation in an FCPA case. The case, which also resulted in trial verdicts against the company’s president and its CFO, involved a scheme to pay bribes to Mexican government officials at CFE, a state-owned utility company."
"Last week, the former CEO of a Miami-based telecommunications company pleaded guilty to conspiring to pay bribes to government officials in Honduras in connection with a scheme to secure contracts from Hondutel, the state-owned telecommunications authority. Last month, the former vice-president of sales for Europe, Africa, and the Middle East at the multi-national valve company Control Components Inc., or CCI, pleaded guilty to conspiring to bribe government officials in Saudi Arabia, Qatar, and other countries."
" ... [T]he point is this: FCPA enforcement matters. When U.S. businesspersons, foreign executives, and even foreign officials know that they risk liability under the FCPA and related statutes, behavior changes. In addition to motivating U.S. and foreign corporations to change the way they do business – something that I believe is already happening – the threat of liability can help corporations resist corrupt demands from foreign officials, which can lead the officials themselves to alter their practices. Beyond that, through our FCPA enforcement, we are also sending a signal to ordinary people – [...] across the globe – that we stand with you: we support you in your desire to have fair and transparent institutions, and to have the chance to compete in marketplaces large and small."
As to the DOJ's "emerging focus on recovering and repatriating the proceeds of foreign official corruption," Breuer talked about the DOJ's "new Kleptocracy Asset Recovery Initiative."
He stated as follows.
"The goal of the Kleptocracy Asset Recovery Initiative, which Attorney General Holder announced last July and which my team and I have been working to build over the past year, is to identify the proceeds of foreign official corruption, forfeit them, and repatriate the recouped funds for the benefit of the people harmed."
"In the context of a criminal prosecution, a court can order forfeiture, upon conviction, as part of the defendant’s sentence. Thus, for example, if we were to bring a criminal case against a kleptocrat in the United States, we would be able to seek criminal forfeiture of his or her stolen assets."
"Often, however, it may be impractical or impossible to bring a criminal prosecution against a kleptocrat. He or she may be immune from prosecution, beyond the jurisdiction of the United States, or otherwise unavailable. In these circumstances, the Kleptocracy Team can bring a civil forfeiture action to recover the stolen property. This is sometimes referred to internationally as non-conviction based confiscation."
"The Kleptocracy Team recently brought its first cases, and we expect more to come in the near future. Let me provide a specific example. Diepreye Solomon Peter Alamieyeseigha, also known as DSP, was the elected governor of the oil-producing Bayelsa State in Nigeria from 1999 until his impeachment in 2005. According to court papers, DSP’s official salary for this entire period was approximately $81,000, and his declared income from all sources during the period was approximately $248,000. Nevertheless, as governor, DSP accumulated enormous wealth through corruption and other illegal activities. He acquired at least four properties in the United Kingdom worth approximately $8.8 million, he had money in bank accounts around the world, and he also acquired property in the United States. When he was ultimately arrested at Heathrow Airport in 2005, the Metropolitan Police Service in London found approximately $1.6 million in cash in his house."
"In March and April of this year, we brought two separate civil forfeiture actions to recover over $1,000,000 in what we allege are DSP’s ill-gotten gains. In Maryland, we are seeking forfeiture of a private residence worth more than $600,000, and in Massachusetts we are seeking forfeiture of close to $400,000 in a Fidelity brokerage account."
"We were able to bring these cases, even though DSP long ago absconded to Nigeria, because the law permits us to bring a civil action against the corrupt proceeds themselves rather than against the person to whom they belong."
*****
A good weekend to all.
Showing posts with label Legislative History. Show all posts
Showing posts with label Legislative History. Show all posts
Friday, June 24, 2011
Wednesday, June 22, 2011
Summer Reading For Representative Conyers
During last week's FCPA hearing in the House, Representative John Conyers (D-MI) had a contentious Q&A exchange with Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers). See here for the previous post regarding the hearing.
Conyers asked - "give me some examples of overcriminalization of the FCPA." He repeatedly interrupted Regon and asked "just give me some examples" "give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization." Conyers stated, "only 140 cases have been brought in 10 years -that averages 14 cases a year - is that overcriminalization to you?" Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occurred.
There should be plenty of concern regarding prosecutions that have already occurred, but given the glare of the cameras, the stress of testifying, and the disruption of being interrupted, it would have been difficult for any witness to retrieve from their memory bank specific FCPA enforcement actions.
This post provides a summer reading list of FCPA enforcement actions, commentary and analysis, and legal scholarship for Representative Conyers so that he can best seek answers to the question he posed to Regon.
For starters, what does overcriminalization mean?
To be sure, it can mean different things to different people in different circumstances. In "The Overcriminalization Phenomenon(here) Eric Luna provides this definition - "the overcriminalization phenomenon consists of: (1) untenable offenses; (2) superfluous statutes; (3) doctrines that
overextend culpability; (4) crimes without jurisdictional authority; (5) grossly disproportionate punishments; and (6) excessive or pretextual enforcement of petty violations. In this piece, Jeffrey Parker (while observing that "definitions of “overcriminalization” are a bit fuzzy and debatable") identifies the following as among the factors that may contribute to overcriminalization: "the vague, arcane, or trivial nature of such prohibitions, as undermining citizens ability to conform, and debasing the moral moment of the criminal sanction" and "the lack of adequate mens rea standards in criminal prohibitions."
Not all overcriminalization factors are relevant to this "new era of FCPA enforcement" (see here), but in the minds of many, several factors are.
Enforcement Actions
In the 2011 Comverse Technologies enforcement action (see here), the company paid $2.8 million in combined fines and penalties (and no doubt millions more in connection with the investigative and resolution process) to resolve a matter in which the DOJ did not allege that the company even knew about the improper payments at issue. The action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Alliance One International enforcement action (see here), the company paid approximately $20 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter in which it did absolutely nothing wrong. Rather, the entire DOJ enforcement action was based on a successor liability theory. Again, the action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Noble Corporation enforcement action (see here), the company paid approximately $8 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter involving the import and export of goods into Nigeria. When Congress passed the FCPA, its intent as to so-called facilitating or grease payments was clear. Senate Report No. 95-114 (May 2, 1977) states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs ...". The relevant House Report (No. 95-640, September 28, 1977) similarly states as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments." The Noble enforcement action was resolved via a non-prosecution agreement meaning, again, there was no judicial scrutiny of the DOJ's enforcement theory.
And then of course there is the issue of "foreign official" and the fact that most FCPA enforcement actions in this new era are based on alleged improper payments to employees of alleged state-owned or state-controlled enterprises ("SOEs") on the theory that such business entities are "instrumentalities" of a foreign government and thus all employees, regardless of rank or position, are "foreign officials" under the FCPA. Yet, (1) During its multi-year investigation of foreign corporate payments, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. (2) In certain of the bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOE entities. These bills were introduced in both the Senate and the House during both the 94th and 95th Congress. (3) Despite being aware of SOEs and despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, Congress chose not to include such definitions or concepts in what ultimately become the FCPA in 1977. See here for extensive reading on this issue.
Commentary and Analysis
In 2010, Forbes ran a feature article (here) titled "The Bribery Racket" - "How Federal Crackdown on Bribery Hurts Business And Enriches Insiders." Lucinda Low, a respected FCPA practitioner, notes in the article that "the scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it's unclear if they would prevail in court" and that "you don't have the checks and balances you would normally have if you had more litigation." Commenting on the current era of FCPA enforcement, Joseph Covington (who headed the DOJ's FCPA efforts in the 1980's) said that the current era "is good business for law firms [...] good business for accounting firms, it's good business for consulting firms, the media--and Justice Department lawyers who create the marketplace and then get yourself a job."
Here, Michael Levy (a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr.) talks about what he calls prosecutorial common law. Levy states that "prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable ...". Levy notes that "we have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA."
In this publication, an author group including Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar) noted that in several recent FCPA enforcement actions "the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear." In other cases, the author group states that in many cases critical elements of the statute were not pleaded or were pled in a way "that is not consistent with established precedent and the language of the statute."
In a September 10, 2010 interview with the Corporate Crime Reporter, Mark Mendelsohn (the former head of DOJ FCPA enforcement during this era of resurgence who departed the DOJ for private practice in 2010) stated that "some of the factors" the DOJ uses to resolve FCPA cases are transparent, but "there are other factors less easy to see from the outside." Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements (the common way FCPA enforcement actions are resolved) that the "danger" "is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don't actually constitute violations of the law."
In this Q&A exchange, Martin Weinstein (a former DOJ FCPA attorney who prosecuted the Lockheed case in the mid-1990's and is now a prominent FCPA practitioner) stated as follows. "The last decade of FCPA enforcement has seen extraordinary evolution, and I think you have to say that when Congress passed the law in 1977, they did not envision the wide reach of enforcement today and the types of things that the government gets involved in, such as transactions, joint ventures, and successor liability."
Legal Scholarship
In "Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act" (here), Amy Westbrook (Washburn University School of Law) argues that the recent "transformation of the FCPA has been brought about by ad hoc enforcement actions, rather than legislation, judicial decision, or regulation" and that "in the absence of formal process or reasoned articulation, the actual scope of the law is unclear."
In "The Facade of FCPA Enforcement" (here), I argue that "the FCPA often means what the enforcement agencies say it means" and that "even though the resolution vehicles typically used to resolve an FCPA enforcement action are not subject to judicial scrutiny and [thus] the vehicles do not necessarily reflect the triumph of the enforcement agencies’ theories, in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law" which breed "inefficient overcompliance by risk averse business actors fearful of enterprise - threatening liability because of the enforcement agencies’ untested and dubious theories."
Conyers asked - "give me some examples of overcriminalization of the FCPA." He repeatedly interrupted Regon and asked "just give me some examples" "give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization." Conyers stated, "only 140 cases have been brought in 10 years -that averages 14 cases a year - is that overcriminalization to you?" Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occurred.
There should be plenty of concern regarding prosecutions that have already occurred, but given the glare of the cameras, the stress of testifying, and the disruption of being interrupted, it would have been difficult for any witness to retrieve from their memory bank specific FCPA enforcement actions.
This post provides a summer reading list of FCPA enforcement actions, commentary and analysis, and legal scholarship for Representative Conyers so that he can best seek answers to the question he posed to Regon.
For starters, what does overcriminalization mean?
To be sure, it can mean different things to different people in different circumstances. In "The Overcriminalization Phenomenon(here) Eric Luna provides this definition - "the overcriminalization phenomenon consists of: (1) untenable offenses; (2) superfluous statutes; (3) doctrines that
overextend culpability; (4) crimes without jurisdictional authority; (5) grossly disproportionate punishments; and (6) excessive or pretextual enforcement of petty violations. In this piece, Jeffrey Parker (while observing that "definitions of “overcriminalization” are a bit fuzzy and debatable") identifies the following as among the factors that may contribute to overcriminalization: "the vague, arcane, or trivial nature of such prohibitions, as undermining citizens ability to conform, and debasing the moral moment of the criminal sanction" and "the lack of adequate mens rea standards in criminal prohibitions."
Not all overcriminalization factors are relevant to this "new era of FCPA enforcement" (see here), but in the minds of many, several factors are.
Enforcement Actions
In the 2011 Comverse Technologies enforcement action (see here), the company paid $2.8 million in combined fines and penalties (and no doubt millions more in connection with the investigative and resolution process) to resolve a matter in which the DOJ did not allege that the company even knew about the improper payments at issue. The action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Alliance One International enforcement action (see here), the company paid approximately $20 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter in which it did absolutely nothing wrong. Rather, the entire DOJ enforcement action was based on a successor liability theory. Again, the action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Noble Corporation enforcement action (see here), the company paid approximately $8 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter involving the import and export of goods into Nigeria. When Congress passed the FCPA, its intent as to so-called facilitating or grease payments was clear. Senate Report No. 95-114 (May 2, 1977) states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs ...". The relevant House Report (No. 95-640, September 28, 1977) similarly states as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments." The Noble enforcement action was resolved via a non-prosecution agreement meaning, again, there was no judicial scrutiny of the DOJ's enforcement theory.
And then of course there is the issue of "foreign official" and the fact that most FCPA enforcement actions in this new era are based on alleged improper payments to employees of alleged state-owned or state-controlled enterprises ("SOEs") on the theory that such business entities are "instrumentalities" of a foreign government and thus all employees, regardless of rank or position, are "foreign officials" under the FCPA. Yet, (1) During its multi-year investigation of foreign corporate payments, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. (2) In certain of the bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOE entities. These bills were introduced in both the Senate and the House during both the 94th and 95th Congress. (3) Despite being aware of SOEs and despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, Congress chose not to include such definitions or concepts in what ultimately become the FCPA in 1977. See here for extensive reading on this issue.
Commentary and Analysis
In 2010, Forbes ran a feature article (here) titled "The Bribery Racket" - "How Federal Crackdown on Bribery Hurts Business And Enriches Insiders." Lucinda Low, a respected FCPA practitioner, notes in the article that "the scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it's unclear if they would prevail in court" and that "you don't have the checks and balances you would normally have if you had more litigation." Commenting on the current era of FCPA enforcement, Joseph Covington (who headed the DOJ's FCPA efforts in the 1980's) said that the current era "is good business for law firms [...] good business for accounting firms, it's good business for consulting firms, the media--and Justice Department lawyers who create the marketplace and then get yourself a job."
Here, Michael Levy (a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr.) talks about what he calls prosecutorial common law. Levy states that "prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable ...". Levy notes that "we have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA."
In this publication, an author group including Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar) noted that in several recent FCPA enforcement actions "the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear." In other cases, the author group states that in many cases critical elements of the statute were not pleaded or were pled in a way "that is not consistent with established precedent and the language of the statute."
In a September 10, 2010 interview with the Corporate Crime Reporter, Mark Mendelsohn (the former head of DOJ FCPA enforcement during this era of resurgence who departed the DOJ for private practice in 2010) stated that "some of the factors" the DOJ uses to resolve FCPA cases are transparent, but "there are other factors less easy to see from the outside." Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements (the common way FCPA enforcement actions are resolved) that the "danger" "is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don't actually constitute violations of the law."
In this Q&A exchange, Martin Weinstein (a former DOJ FCPA attorney who prosecuted the Lockheed case in the mid-1990's and is now a prominent FCPA practitioner) stated as follows. "The last decade of FCPA enforcement has seen extraordinary evolution, and I think you have to say that when Congress passed the law in 1977, they did not envision the wide reach of enforcement today and the types of things that the government gets involved in, such as transactions, joint ventures, and successor liability."
Legal Scholarship
In "Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act" (here), Amy Westbrook (Washburn University School of Law) argues that the recent "transformation of the FCPA has been brought about by ad hoc enforcement actions, rather than legislation, judicial decision, or regulation" and that "in the absence of formal process or reasoned articulation, the actual scope of the law is unclear."
In "The Facade of FCPA Enforcement" (here), I argue that "the FCPA often means what the enforcement agencies say it means" and that "even though the resolution vehicles typically used to resolve an FCPA enforcement action are not subject to judicial scrutiny and [thus] the vehicles do not necessarily reflect the triumph of the enforcement agencies’ theories, in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law" which breed "inefficient overcompliance by risk averse business actors fearful of enterprise - threatening liability because of the enforcement agencies’ untested and dubious theories."
Friday, June 10, 2011
Friday Roundup
Another FCPA hearing on Capital Hill next week, news regarding Goldmann Sachs, questioning the use of NPAs and DPAs, an informative read regarding India, and something for your "foreign official" file.
Its all here in the Friday roundup.
House Hearing
Next Tuesday, June 14th, the Subcommittee on Crime, Terrorism and Homeland Security of the House Judiciary Committee will hold a hearing titled "Foreign Corrupt Practices Act." According to this report by Christopher Matthews of Main Justice the hearing is expected to focus on the following issues: successor liability, a potential compliance defense, "foreign official," and corporate mens rea issues.
The witness list for the hearing is as follows (see here).
Hon. Michael Mukasey (Former Attorney General, Partner, Debevoise & Plimpton LLP - see here); Mr. Greg Andres (Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice); Mr. George Terwilliger (Partner, White & Case LLP - see here); and Ms. Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers - see here).
Predictably, some are blasting the very existence of the hearing. For instance, Political Correction, a project of Media Matters Action Network (a self-described progressive research and information center dedicated to analyzing and correcting conservative misinformation in the U.S. media), describes the hearing here as "Rep. Lamar Smith's Fight to Make Bribery Easier For Big Business."
The House hearing follows a November 30th Senate hearing titled "Examining Enforcement of the Foreign Corrupt Practices Act." See here for a prior post.
This post, prior to the 2010 hearing provided some guiding words, and if those were not enough, how about this statement from William Brock, U.S. Trade Representative, on April 18, 1983 during a hearing before the House Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs.
"Mr. Chairman, no one minimizes the complexity of the issue before you today. Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’ That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years. After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond. Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”
Well said.
Goldman Inquiry
Yesterday, the Wall Street Journal reported - "Eyes on Goldman-Libya Dealings" - that the SEC is "examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya's sovereign wealth fund." The inquiry appears to be focused on a "$50 million fee Goldman initially agreed to pay [but one that was never paid to] the Libyan sovereign-wealth fund as part of a proposal ... to help the fund recoup losses."
A Goldman spokesman is quoted as follows. "We are confident that nothing we did or proposed was or could have been a breach of any rule or regulation. We retained outside counsel, as is our normal practice for any transaction to ensure that we were compliant with all applicable rules."
Can the FCPA be implicated by payments never made?
Yes. The anti-bribery provisions prohibit "an offer, payment, promise to pay, or authorization of payment ...".
What about payments to foreign governments?
No. The anti-bribery provisions only apply to offers, payments, promises of payment, or authorizations of payments to "foreign officials."
However, according to the WSJ article the inquiry appears to focus on whether the contemplated payment would have been passed on to an outside adviser firm "run at the time by the son-in-law of the head of Libya's state-owned oil company."
For more on the Goldman inquiry, see here from Ashby Jones (WSJ Law Blog) and here from Samuel Rubenfeld (WSJ Corruption Currents).
NPAs / DPAs
Non-prosecution and deferred prosecution agreements ought to be abolished. I've argued here and in other places that these agreements have traded one negative externality of white collar prosecution (the much over-hyped Arthur Anderson effect) for a host of others, including the alarming lack of any meaningful judicial scrutiny to ensure that NPAs and DPAs are truly based on facts and appropriate legal theories to support the charges “alleged.”
Mark Mendelsohn, the former head of the DOJ's FCPA unit during its era of resurgence, stated in a September 2010 interview with Corporate Crime Reporter, that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”
Asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” Mendelsohn stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”
Add W. Neil Eggleston, a former DOJ enforcement attorney currently a partner at Debevoise (here), to the growing list of former DOJ enforcement attorneys critical of these alternative resolution vehicles.
In this recent interview with Corporate Crime Reporter, Eggleston stated as follows. “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”
Well said.
India
If India is a country of concern or focus of yours, you will want to check out the most recent quarterly newsletter of the India Committee of the ABA Section of International Law. (See here).
Guest editor James Parkinson of BuckleySandler (here) provides the following articles, among others, in the newsletter: one devoted to the FCPA risks of doing business in India; another devoted to India's demand-side statute - the Prevention of Corruption Act; another focused on reducing corruption risks in India through compliance programs; and another calling for India to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
"Foreign Official"
And finally, because your "foreign official" file would be incomplete without it, here is a transcript of the May 9th oral argument in the Carson "foreign official" challenge. See here and here for previous posts.
*****
A good weekend to all.
Its all here in the Friday roundup.
House Hearing
Next Tuesday, June 14th, the Subcommittee on Crime, Terrorism and Homeland Security of the House Judiciary Committee will hold a hearing titled "Foreign Corrupt Practices Act." According to this report by Christopher Matthews of Main Justice the hearing is expected to focus on the following issues: successor liability, a potential compliance defense, "foreign official," and corporate mens rea issues.
The witness list for the hearing is as follows (see here).
Hon. Michael Mukasey (Former Attorney General, Partner, Debevoise & Plimpton LLP - see here); Mr. Greg Andres (Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice); Mr. George Terwilliger (Partner, White & Case LLP - see here); and Ms. Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers - see here).
Predictably, some are blasting the very existence of the hearing. For instance, Political Correction, a project of Media Matters Action Network (a self-described progressive research and information center dedicated to analyzing and correcting conservative misinformation in the U.S. media), describes the hearing here as "Rep. Lamar Smith's Fight to Make Bribery Easier For Big Business."
The House hearing follows a November 30th Senate hearing titled "Examining Enforcement of the Foreign Corrupt Practices Act." See here for a prior post.
This post, prior to the 2010 hearing provided some guiding words, and if those were not enough, how about this statement from William Brock, U.S. Trade Representative, on April 18, 1983 during a hearing before the House Subcommittee on International Economic Policy and Trade of the Committee on Foreign Affairs.
"Mr. Chairman, no one minimizes the complexity of the issue before you today. Just because the Foreign Corrupt Practices Act spotlights a sensitive subject, some people wish to turn a ‘blind eye’ to its shortcomings rather than risk being accused of being ‘soft on bribery.’ That is too easy a way out. Retreating from controversy will not cure the law’s deficiencies. Such inaction will no more eliminate the need for FCPA reforms today than it can eliminate the criticism of the Act brought over the past several years. After five and on half years experience with this law, after legitimate problems have been identified and examined, we have a responsibility to respond. Is there any U.S. law that ought to be above such review and clarification – especially one as complex as the FCPA.”
Well said.
Goldman Inquiry
Yesterday, the Wall Street Journal reported - "Eyes on Goldman-Libya Dealings" - that the SEC is "examining whether Goldman Sachs Group Inc. and other financial firms might have violated bribery laws in dealings with Libya's sovereign wealth fund." The inquiry appears to be focused on a "$50 million fee Goldman initially agreed to pay [but one that was never paid to] the Libyan sovereign-wealth fund as part of a proposal ... to help the fund recoup losses."
A Goldman spokesman is quoted as follows. "We are confident that nothing we did or proposed was or could have been a breach of any rule or regulation. We retained outside counsel, as is our normal practice for any transaction to ensure that we were compliant with all applicable rules."
Can the FCPA be implicated by payments never made?
Yes. The anti-bribery provisions prohibit "an offer, payment, promise to pay, or authorization of payment ...".
What about payments to foreign governments?
No. The anti-bribery provisions only apply to offers, payments, promises of payment, or authorizations of payments to "foreign officials."
However, according to the WSJ article the inquiry appears to focus on whether the contemplated payment would have been passed on to an outside adviser firm "run at the time by the son-in-law of the head of Libya's state-owned oil company."
For more on the Goldman inquiry, see here from Ashby Jones (WSJ Law Blog) and here from Samuel Rubenfeld (WSJ Corruption Currents).
NPAs / DPAs
Non-prosecution and deferred prosecution agreements ought to be abolished. I've argued here and in other places that these agreements have traded one negative externality of white collar prosecution (the much over-hyped Arthur Anderson effect) for a host of others, including the alarming lack of any meaningful judicial scrutiny to ensure that NPAs and DPAs are truly based on facts and appropriate legal theories to support the charges “alleged.”
Mark Mendelsohn, the former head of the DOJ's FCPA unit during its era of resurgence, stated in a September 2010 interview with Corporate Crime Reporter, that a “danger” with NPAs and DPAs “is that it is tempting” for the DOJ “to seek to resolve cases through DPAs or NPAs that don‟t actually constitute violations of the law.”
Asked directly – if the DOJ “did not have the choice of deferred or non prosecution agreements, what would happen to the number of FCPA settlements every year,” Mendelsohn stated as follows: “if the Department only had the option of bringing a criminal case or declining to bring a case, you would certainly bring fewer cases.”
Add W. Neil Eggleston, a former DOJ enforcement attorney currently a partner at Debevoise (here), to the growing list of former DOJ enforcement attorneys critical of these alternative resolution vehicles.
In this recent interview with Corporate Crime Reporter, Eggleston stated as follows. “I worry that [NPAs and DPAs] will become a substitute for a prosecutor deciding – this is not an appropriate case to bring – there is no reason to subject this corporation to corporate criminal liability. In the old days, they would have dropped the case. Now, they have the back up of seeking a deferred or non prosecution agreement, when in fact the case should not have been pursued at all. That’s what I’m worried about – an easy out.”
Well said.
India
If India is a country of concern or focus of yours, you will want to check out the most recent quarterly newsletter of the India Committee of the ABA Section of International Law. (See here).
Guest editor James Parkinson of BuckleySandler (here) provides the following articles, among others, in the newsletter: one devoted to the FCPA risks of doing business in India; another devoted to India's demand-side statute - the Prevention of Corruption Act; another focused on reducing corruption risks in India through compliance programs; and another calling for India to join the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
"Foreign Official"
And finally, because your "foreign official" file would be incomplete without it, here is a transcript of the May 9th oral argument in the Carson "foreign official" challenge. See here and here for previous posts.
*****
A good weekend to all.
Monday, February 21, 2011
President's Day
Today is President's Day.
This post highlights the role of Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton in enactment and subsequent development of the FCPA.
Ford
After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a “Memorandum Establishing the Task Force on Questionable Corporate Payments Abroad” (see here).
The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime. The Ford Administration favored the former and in June 1976, Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here). As noted in the remarks, Ford directed the task force "to prepare legislation that would require corporate disclosure of all payments made with the intention of influencing foreign government officials."
Certain bills were introduced in Congress consistent with Ford's vision and in August 1976 Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).
Neither Ford's proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.
Carter
Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress and a movement that soon picked up speed when Congress reconvened in January 1977.
Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.
On December 20, 1977, President Carter signed S. 305 into law - see here for his signing statement.
Reagan
As noted in this previous post, President Reagan's administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration (1981-1989), numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that the FCPA had addressed a serious problem, but that the statute created much uncertainty and was, in the minds of many, unworkable.
Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced - either as stand alone bills or specific titles to omnibus trade and export bills - that sought to amend the FCPA. This legislative process took eight years.
In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan's signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.
Clinton
In November 1998, President Clinton signed S. 2375, the "International Anti-Bribery and Fair Competition Act of 1998." Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA - "any person" not an issuer or domestic concern to the extent such person's bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.
See here for President Clinton's signing statement.
Will President Obama play a role in FCPA history?
This post highlights the role of Gerald Ford, Jimmy Carter, Ronald Reagan, and William Clinton in enactment and subsequent development of the FCPA.
Ford
After watching Congress investigate and hold hearings on the foreign payments problem for approximately nine months, in March 1976 President Ford issued a “Memorandum Establishing the Task Force on Questionable Corporate Payments Abroad” (see here).
The great debate at this time was whether the foreign payments problem should be addressed through a disclosure regime or through a criminalization regime. The Ford Administration favored the former and in June 1976, Ford released “Remarks Announcing New Initiatives for the Task Force on Questionable Corporate Payments Abroad.” (see here). As noted in the remarks, Ford directed the task force "to prepare legislation that would require corporate disclosure of all payments made with the intention of influencing foreign government officials."
Certain bills were introduced in Congress consistent with Ford's vision and in August 1976 Ford issued “Foreign Payments Disclosure – Message From the President of the United States Urging Enactment of Proposed Legislation to Require the Disclosure of Payments to Foreign Officials.” (see here).
Neither Ford's proposal, or any other, was enacted by Congress prior to the 1976 elections in which Ford was defeated by Jimmy Carter.
Carter
Unlike the Ford Administration, the Carter administration favored the criminalization regime that was under consideration in the prior Congress and a movement that soon picked up speed when Congress reconvened in January 1977.
Certain members of the Carter administration testified at Congressional hearings throughout 1977 in favor of the criminalization regime and in December 1977, S. 305 (the Foreign Corrupt Practices Act of 1977 and the Domestic and Foreign Investment Improved Disclosure Act of 1977) was presented to President Carter.
On December 20, 1977, President Carter signed S. 305 into law - see here for his signing statement.
Reagan
As noted in this previous post, President Reagan's administration very soon sought decriminalization of foreign payments subject to the FCPA. During the Reagan administration (1981-1989), numerous efforts were made in Congress to amend the FCPA. Soon after the FCPA was enacted, it was widely recognized that the FCPA had addressed a serious problem, but that the statute created much uncertainty and was, in the minds of many, unworkable.
Among other things, the FCPA antibribery provisions enacted in 1977 contained a broad knowledge standard (“reason to know”) applicable to indirect payments to “foreign officials”; (ii) did not contain any affirmative defenses; and (iii) did not contain an express facilitating payments exception. Beginning in 1980, various bills were introduced - either as stand alone bills or specific titles to omnibus trade and export bills - that sought to amend the FCPA. This legislative process took eight years.
In August 1988, President Reagan signed H.R. 4848 the Omnibus Trade and Competitiveness Act of 1988. Title V, Subtitle A, Part I of the Act was titled “Foreign Corrupt Practices Act Amendments.” President Reagan's signing statement does not refer to the FCPA amendments buried in the omnibus trade bill. Among the amendments were a revised knowledge standard applicable to indirect payments and the creation of affirmative defenses and an express facilitating payment exception.
Clinton
In November 1998, President Clinton signed S. 2375, the "International Anti-Bribery and Fair Competition Act of 1998." Among other things, the Act amended the FCPA by (i) creating a new class of persons subject to the FCPA - "any person" not an issuer or domestic concern to the extent such person's bribery scheme has a U.S. nexus; and (ii) creating a new alternative nationality jurisdiction test for U.S. issuers and domestic concerns.
See here for President Clinton's signing statement.
Will President Obama play a role in FCPA history?
Thursday, January 20, 2011
The FCPA Was Not Hastily Enacted
"Enacted hastily in the post-Watergate Era’s ethical fever the Foreign Corrupt Practices Act ..."
So begins an otherwise solid lawyer written piece on the FCPA.
Say what you want about the FCPA, but one thing that can not be said is that the FCPA was "enacted hastily."
Beginning in the Spring of 1975, Congress held numerous hearings in the aftermath of news and disclosures of questionable foreign corporate payments to a variety of sources and for a variety of reasons.
What to do was an issue that occupied both the 94th Congress and the 95th Congress. What to do was also an issue of focus for the Gerald Ford administration as he appointed a Cabinet level "Task Force on Questionable Corporate Payments Abroad" in March 1976.
Between June 1975 and September 1977, approximately twenty bills were introduced in the Senate or House to address foreign corporate payments from a variety angles.
Between June 1975 and September 1977, Congress held eight hearings on the issue of foreign corporate payments and testimony was given by, among others, representatives from the State Department, the Defense Department, the Department of Justice, the Commerce Department, the Treasury Department, and the Securities and Exchange Commission. Congress also heard from lawyers, law professors, the American Bar Association, other bar association committees, industry groups, and public interest groups.
The 94th Congress came close to enacting what would become the FCPA in Fall 1976, but was unable to do so prior to adjourning for the 1976 elections in which Jimmy Carter defeated Gerald Ford.
When the 95th Congress began in January 1977, the legislative efforts begun in the 94th Congress resumed.
Jimmy Carter signed the Foreign Corrupt Practices Act on December 20, 1977.
Against this backdrop, was the FCPA "enacted hastily"?
I guess it depends on your definition of hastily, but I submit the answer is no.
So begins an otherwise solid lawyer written piece on the FCPA.
Say what you want about the FCPA, but one thing that can not be said is that the FCPA was "enacted hastily."
Beginning in the Spring of 1975, Congress held numerous hearings in the aftermath of news and disclosures of questionable foreign corporate payments to a variety of sources and for a variety of reasons.
What to do was an issue that occupied both the 94th Congress and the 95th Congress. What to do was also an issue of focus for the Gerald Ford administration as he appointed a Cabinet level "Task Force on Questionable Corporate Payments Abroad" in March 1976.
Between June 1975 and September 1977, approximately twenty bills were introduced in the Senate or House to address foreign corporate payments from a variety angles.
Between June 1975 and September 1977, Congress held eight hearings on the issue of foreign corporate payments and testimony was given by, among others, representatives from the State Department, the Defense Department, the Department of Justice, the Commerce Department, the Treasury Department, and the Securities and Exchange Commission. Congress also heard from lawyers, law professors, the American Bar Association, other bar association committees, industry groups, and public interest groups.
The 94th Congress came close to enacting what would become the FCPA in Fall 1976, but was unable to do so prior to adjourning for the 1976 elections in which Jimmy Carter defeated Gerald Ford.
When the 95th Congress began in January 1977, the legislative efforts begun in the 94th Congress resumed.
Jimmy Carter signed the Foreign Corrupt Practices Act on December 20, 1977.
Against this backdrop, was the FCPA "enacted hastily"?
I guess it depends on your definition of hastily, but I submit the answer is no.
Monday, December 20, 2010
Happy Birthday!
I was born in 1977.
Yet for most of my life, nobody cared or talked much about me.
However, about seven years ago, my caretakers suggested that I change my look (get a new haircut, change my wardrobe, those sort of things).
Boy did that help.
In some circles at least, I am now the most popular person in the room.
Lawyers travel to the far reaches of the globe just to determine if I am relevant.
Corporations publicly disclose potential dates with me.
There are numerous seminars and training sessions about me.
Lawyers run to Washington D.C. (my birthplace) to tell my caretakers how relevant I am (when in fact I may not be relevant at all).
I even hear there are a few blogs devoted to me.
As you can see, it is a good time to be me.
Who am I?
Why of course I am the FCPA and today is my 33rd birthday!
There is much that happened during my 32nd year. I was frequently misapplied. Even when I was clearly relevant, my primary caretaker did not invite me to the party. My parents never intended me to be an all-purpose corporate ethics statute, but that is what I am becoming. Speaking of the parents, they examined how I am being enforced last month. Some have suggested reforming me - I am not opposed to this in some areas.
*****
On December 19, 1977, the FCPA was enacted. On December 20, 1977, President Carter signed the FCPA into law.
Hosting an FCPA birthday party?
Here is the signing statement to read just before the candles are placed on the cake. After cake, instead of a game of “pin the cash-filled suitcase on the foreign official” how about a discussion as to whether the enacting Congress and President Carter would even recognize certain enforcement theories which have become a hallmark of current enforcement of the FCPA.
Yet for most of my life, nobody cared or talked much about me.
However, about seven years ago, my caretakers suggested that I change my look (get a new haircut, change my wardrobe, those sort of things).
Boy did that help.
In some circles at least, I am now the most popular person in the room.
Lawyers travel to the far reaches of the globe just to determine if I am relevant.
Corporations publicly disclose potential dates with me.
There are numerous seminars and training sessions about me.
Lawyers run to Washington D.C. (my birthplace) to tell my caretakers how relevant I am (when in fact I may not be relevant at all).
I even hear there are a few blogs devoted to me.
As you can see, it is a good time to be me.
Who am I?
Why of course I am the FCPA and today is my 33rd birthday!
There is much that happened during my 32nd year. I was frequently misapplied. Even when I was clearly relevant, my primary caretaker did not invite me to the party. My parents never intended me to be an all-purpose corporate ethics statute, but that is what I am becoming. Speaking of the parents, they examined how I am being enforced last month. Some have suggested reforming me - I am not opposed to this in some areas.
*****
On December 19, 1977, the FCPA was enacted. On December 20, 1977, President Carter signed the FCPA into law.
Hosting an FCPA birthday party?
Here is the signing statement to read just before the candles are placed on the cake. After cake, instead of a game of “pin the cash-filled suitcase on the foreign official” how about a discussion as to whether the enacting Congress and President Carter would even recognize certain enforcement theories which have become a hallmark of current enforcement of the FCPA.
Tuesday, December 7, 2010
Remembering Stephen Solarz
Stephen Solarz, the former Democratic congressman from New York died last week at the age of 70.
His obituary (see here) does not mention the Foreign Corrupt Practices Act. However Solarz, along with Representative Robert Eckhardt and Senators Frank Church and William Proxmire, were leaders in the mid-1970's as Congress investigated various foreign corporate payments - a process that resulted in the FCPA being signed by President Carter in December 1977.
Below are a few of Solarz's FCPA highlights.
*****
On June 3, 1975, Solarz introduced H.R. 7539 - believed to be the first bill (of many that would follow) to address foreign corporate payments. The bill stated: “Any American company or any official or employee of an American company who, with intent to influence any official act affecting such company, gives or attempts, offers, promises, conspires to give any thing of value to any foreign government, any foreign official, or any foreign political organization, shall be fined not more than $10,000 or imprisoned not more than one year, or both."
During a June 1975 hearing before the House Subcommittee on International Economic Policy, Solarz testified as follows. “It is tragic when one hears that a major U.S. concern bribes a foreign official in order to secure special trade concessions or when another leading multinational corporation makes a massive political donation to an incumbent political party in order to maintain business relations.” “[T]o deal with the problem,” Solarz said he introduced H.R. 7539 “to specifically prohibit the bribery of any foreign government, foreign official, or foreign political organization by any American company or official or employee thereof.” Solarz stated that “[t]his legislation would remove any questions which American business persons, foreign governments and their officials, and any others may have about the manner in which a U.S. firm operates overseas.”
On June 11, 1976, Solarz introduced H.R. 14340 - a bill that attempted to deal with the foreign corporate payments issue not by directly prohibiting such payments, but rather by requiring companies to disclose such payments. Titled the “International Contributions, Payments, and Gifts Disclosure Act,” H.R. 14340 provided that issuers shall be required to file a sworn disclosure statement “to provide a complete accounting of any offer or agreement of any agent of employee of a company or its parent, to make any contribution, pay any fee, or give anything of significant value in connection with (A) direct and indirect political contributions to foreign government; (B) direct and indirect payments and gifts to employees of foreign governments which are intended to influence the decisions of such employees and which are made either with or without the consent of their sovereign; and (C) direct and indirect payments and gifts to employees of foreign, nongovernmental purchasers and sellers which are intended to influence normal commercial decisions of their employer and which are made without the employer’s knowledge or consent.”
On July 1, 1976, Solarz introduced H.R. 14681 - a bill that attempted to deal with the foreign corporate payments issue indirectly through the Overseas Private Investment Corporation ("OPIC"). H.R. 14681 provided that the OPIC “shall issue such regulations and take such other steps as are necessary to provide for the termination of any insurance or reinsurance issued […] which is applicable to any investor with respect to a project if [OPIC] determines […] that such investor or any agent of such investor” inter alia “has offered, paid, or agreed to pay any significant amount of money or has offered, given, or promised to give anything of significant value to an individual who is an official of a foreign government or instrumentality thereof for the purpose of inducing that individual to use his influence within such foreign government or instrumentality to affect any decision or other action of such foreign government or instrumentality with respect to such project.”
H.R. 14681 passed the House on August 24, 1976. Solarz remarked on the House floor in urging passage of H.R. 14681 as follows: “This legislation is based on a very fundamental and important assumption which is that agencies of the U.S. Government should not insure corporations which are engaged in paying bribes to foreign officials. It seems to me that we have a moral obligation, as well as a political interest, in prohibiting practices which are both corrupt and counterproductive. Whatever the private advantages of illegal payments to foreign officials may be to the corporations which engage in them, I think they are far outweighed by the public disadvantages to the foreign policy of our own country, if and when they are disclosed. Mr. Speaker, in the last several months a number of agencies of our own Government, including the IRS and the SEC and the other body in this Congress, have attempted to deal with this problem by passing new legislation and promulgating revised regulations. I think we have a responsibility to act as well. This bill is by no means a panacea. Obviously, it will not eliminate the problem of bribery. But it is a significant step forward in the right direction, and it is a new beginning of which I think we can be proud.”
During a September 1976 hearing before the House Subcommittee on Consumer Protection, Solarz's written statement states as follows. “It is clear that American companies have engaged in bribery on a grand and international scale to such an extent that the conduct of American foreign relations has been damaged. Headline after headline has appeared concerning some new American multinational company coming forward with an admission of corporate bribery or other payments to foreign officials. One day it is Lockheed. Another day it is Gulf. A third day it is General Tire. And the list goes on and on to include a roster of some of the United States largest and most distinguished corporations.” Among other things, Solarz stated that the “problem with corporate bribery overseas is that it poses very significant problems for our own foreign policy.” Among other things, Solarz stated that “our relationship with Japan is the foundation of our whole foreign policy in the Far East, and yet we see the government of a valued ally being shaken as a result of the disclosures relating to the Lockheed scandal.” In his written statement, Solarz noted that “the Netherlands have been similarly shaken by the allegations surrounding Prince Bernhard, husband of Queen Juliana and Inspector General of the Armed Forces, suggesting that he received $1.1 million in Lockheed payoffs.” Similarly, Solarz noted that Italy “is essential to the viability of the southern plank of NATO, where a stable government committed to continued participation in NATO is essential to our own security interests and where the Italian Communist Party has made significant gains in the most recent elections, we find that the Government has been at least partially undermined as a result of allegations concerning the possible bribery of some of the highest officials of the Italian Government by American corporations.”
During an April 1977 hearing before the House Subcommittee on Consumer Protection and Finance, Solarz's written statement states as follows. “The time is long overdue … for affirmative and meaningful steps to be taken to cope with this situation. Failure to take prompt and effective action can only encourage the continuation of these practices, and thereby, continue to create serious problems in our international economic and political relations throughout the world. The stability of numerous governments has been threatened and political parties in several countries have been seriously compromised.”
His obituary (see here) does not mention the Foreign Corrupt Practices Act. However Solarz, along with Representative Robert Eckhardt and Senators Frank Church and William Proxmire, were leaders in the mid-1970's as Congress investigated various foreign corporate payments - a process that resulted in the FCPA being signed by President Carter in December 1977.
Below are a few of Solarz's FCPA highlights.
*****
On June 3, 1975, Solarz introduced H.R. 7539 - believed to be the first bill (of many that would follow) to address foreign corporate payments. The bill stated: “Any American company or any official or employee of an American company who, with intent to influence any official act affecting such company, gives or attempts, offers, promises, conspires to give any thing of value to any foreign government, any foreign official, or any foreign political organization, shall be fined not more than $10,000 or imprisoned not more than one year, or both."
During a June 1975 hearing before the House Subcommittee on International Economic Policy, Solarz testified as follows. “It is tragic when one hears that a major U.S. concern bribes a foreign official in order to secure special trade concessions or when another leading multinational corporation makes a massive political donation to an incumbent political party in order to maintain business relations.” “[T]o deal with the problem,” Solarz said he introduced H.R. 7539 “to specifically prohibit the bribery of any foreign government, foreign official, or foreign political organization by any American company or official or employee thereof.” Solarz stated that “[t]his legislation would remove any questions which American business persons, foreign governments and their officials, and any others may have about the manner in which a U.S. firm operates overseas.”
On June 11, 1976, Solarz introduced H.R. 14340 - a bill that attempted to deal with the foreign corporate payments issue not by directly prohibiting such payments, but rather by requiring companies to disclose such payments. Titled the “International Contributions, Payments, and Gifts Disclosure Act,” H.R. 14340 provided that issuers shall be required to file a sworn disclosure statement “to provide a complete accounting of any offer or agreement of any agent of employee of a company or its parent, to make any contribution, pay any fee, or give anything of significant value in connection with (A) direct and indirect political contributions to foreign government; (B) direct and indirect payments and gifts to employees of foreign governments which are intended to influence the decisions of such employees and which are made either with or without the consent of their sovereign; and (C) direct and indirect payments and gifts to employees of foreign, nongovernmental purchasers and sellers which are intended to influence normal commercial decisions of their employer and which are made without the employer’s knowledge or consent.”
On July 1, 1976, Solarz introduced H.R. 14681 - a bill that attempted to deal with the foreign corporate payments issue indirectly through the Overseas Private Investment Corporation ("OPIC"). H.R. 14681 provided that the OPIC “shall issue such regulations and take such other steps as are necessary to provide for the termination of any insurance or reinsurance issued […] which is applicable to any investor with respect to a project if [OPIC] determines […] that such investor or any agent of such investor” inter alia “has offered, paid, or agreed to pay any significant amount of money or has offered, given, or promised to give anything of significant value to an individual who is an official of a foreign government or instrumentality thereof for the purpose of inducing that individual to use his influence within such foreign government or instrumentality to affect any decision or other action of such foreign government or instrumentality with respect to such project.”
H.R. 14681 passed the House on August 24, 1976. Solarz remarked on the House floor in urging passage of H.R. 14681 as follows: “This legislation is based on a very fundamental and important assumption which is that agencies of the U.S. Government should not insure corporations which are engaged in paying bribes to foreign officials. It seems to me that we have a moral obligation, as well as a political interest, in prohibiting practices which are both corrupt and counterproductive. Whatever the private advantages of illegal payments to foreign officials may be to the corporations which engage in them, I think they are far outweighed by the public disadvantages to the foreign policy of our own country, if and when they are disclosed. Mr. Speaker, in the last several months a number of agencies of our own Government, including the IRS and the SEC and the other body in this Congress, have attempted to deal with this problem by passing new legislation and promulgating revised regulations. I think we have a responsibility to act as well. This bill is by no means a panacea. Obviously, it will not eliminate the problem of bribery. But it is a significant step forward in the right direction, and it is a new beginning of which I think we can be proud.”
During a September 1976 hearing before the House Subcommittee on Consumer Protection, Solarz's written statement states as follows. “It is clear that American companies have engaged in bribery on a grand and international scale to such an extent that the conduct of American foreign relations has been damaged. Headline after headline has appeared concerning some new American multinational company coming forward with an admission of corporate bribery or other payments to foreign officials. One day it is Lockheed. Another day it is Gulf. A third day it is General Tire. And the list goes on and on to include a roster of some of the United States largest and most distinguished corporations.” Among other things, Solarz stated that the “problem with corporate bribery overseas is that it poses very significant problems for our own foreign policy.” Among other things, Solarz stated that “our relationship with Japan is the foundation of our whole foreign policy in the Far East, and yet we see the government of a valued ally being shaken as a result of the disclosures relating to the Lockheed scandal.” In his written statement, Solarz noted that “the Netherlands have been similarly shaken by the allegations surrounding Prince Bernhard, husband of Queen Juliana and Inspector General of the Armed Forces, suggesting that he received $1.1 million in Lockheed payoffs.” Similarly, Solarz noted that Italy “is essential to the viability of the southern plank of NATO, where a stable government committed to continued participation in NATO is essential to our own security interests and where the Italian Communist Party has made significant gains in the most recent elections, we find that the Government has been at least partially undermined as a result of allegations concerning the possible bribery of some of the highest officials of the Italian Government by American corporations.”
During an April 1977 hearing before the House Subcommittee on Consumer Protection and Finance, Solarz's written statement states as follows. “The time is long overdue … for affirmative and meaningful steps to be taken to cope with this situation. Failure to take prompt and effective action can only encourage the continuation of these practices, and thereby, continue to create serious problems in our international economic and political relations throughout the world. The stability of numerous governments has been threatened and political parties in several countries have been seriously compromised.”
Thursday, November 18, 2010
Guiding Words
FCPA reform proposals circulating on what seems like a weekly basis.
Claims that the FCPA is bad for business.
Questions about how the FCPA enforcement agencies resolve matters.
In some circles these valid and legitimate questions or calls for reform are being met with claims that some want to weaken the FCPA and pave the way for corporations to go on a bribery binge.
Within days of the U.S. Chamber of Commerce sponsored piece (here - I will do a separate post on this in the near future) various commentators assailed mere discussion of reforming the FCPA as being pro-bribery.
For instance, Keith Olbermann began his October 27th MSNBC Countdown program as follows: "The plot to buy America. U.S. Chamber of Commerce job one: It wants the Congress it thinks it‘s going to buy to roll back enforcement of the anti-bribery Foreign Corrupt Practices Act." Later in the program Olbermann noted: "The Chamber of Commerce—the U.S. Chamber of Commerce, the biggest secret right-wing ad buyer, today released a report calling for weakening the FCPA. What the hell‘s that? The Foreign Corrupt Practices Act, which punishes American businesses for bribing officials overseas. Quote, “Unfortunately for the business community, an active FCPA enforcement environment appears likely to continue.” The chamber wants to make it easier for American companies to do business with corrupt officials, even, quote, “in countries where many companies are state owned, e.g., China.” Later in the program, Olbermann stated as follows: "I mentioned the U.S. Chamber of Commerce and this call on the new Congress to make it easier for rich Americans to bribe officials overseas and then get away with it if they‘re caught—which seems to sort of represent part of the American spirit, in a bizarre way."
It is unfortunate that any discussion of examining and perhaps reforming the FCPA, or more importantly FCPA enforcement, is met in some circles with naive and reactionary claims of being "pro-bribery."
In many ways, we are back to the 1980's.
In 1980, Congress set about amending the FCPA. The FCPA, at that time: contained a broad "reason to know" knowledge standard as to indirect payments to "foreign officials;" no affirmative defenses; and no express facilitating payment exception.
It took Congress eight years to wrestle with the issues and the FCPA was finally amended in 1988.
In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill "provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”
In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: "We've learned a great deal about the Foreign Corrupt Practices Act in the last three years. We've learned that the best of intentions can go awry and create confusion and great cost to our economy."
During the hearing, Senator Chafee further stated as follows: "Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the 'bad old days' of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill's language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion."
During Senate hearings, Senator D'Amato noted as follows: "The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective."
Senator D'Amato further stated as follows. "I think it is very important that in the committee's work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any 'gray area' by clearly spelling out the limits of the law."
During Senate hearings, Senator John Heinz stated as follows. "... There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?"
During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: "Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption."
The interesting thing about these representative comments is that they occurred during an era when the FCPA was, for all practical purposes, not even enforced!
As noted in yesterday's post, we are, in the words of Assistant Attorney General Breuer, in a new era of FCPA enforcement.
Part of this new era should be a renewed effort to examine the FCPA and more importantly FCPA enforcement.
The above comments from the 1980's should serve as useful guiding words.
Claims that the FCPA is bad for business.
Questions about how the FCPA enforcement agencies resolve matters.
In some circles these valid and legitimate questions or calls for reform are being met with claims that some want to weaken the FCPA and pave the way for corporations to go on a bribery binge.
Within days of the U.S. Chamber of Commerce sponsored piece (here - I will do a separate post on this in the near future) various commentators assailed mere discussion of reforming the FCPA as being pro-bribery.
For instance, Keith Olbermann began his October 27th MSNBC Countdown program as follows: "The plot to buy America. U.S. Chamber of Commerce job one: It wants the Congress it thinks it‘s going to buy to roll back enforcement of the anti-bribery Foreign Corrupt Practices Act." Later in the program Olbermann noted: "The Chamber of Commerce—the U.S. Chamber of Commerce, the biggest secret right-wing ad buyer, today released a report calling for weakening the FCPA. What the hell‘s that? The Foreign Corrupt Practices Act, which punishes American businesses for bribing officials overseas. Quote, “Unfortunately for the business community, an active FCPA enforcement environment appears likely to continue.” The chamber wants to make it easier for American companies to do business with corrupt officials, even, quote, “in countries where many companies are state owned, e.g., China.” Later in the program, Olbermann stated as follows: "I mentioned the U.S. Chamber of Commerce and this call on the new Congress to make it easier for rich Americans to bribe officials overseas and then get away with it if they‘re caught—which seems to sort of represent part of the American spirit, in a bizarre way."
It is unfortunate that any discussion of examining and perhaps reforming the FCPA, or more importantly FCPA enforcement, is met in some circles with naive and reactionary claims of being "pro-bribery."
In many ways, we are back to the 1980's.
In 1980, Congress set about amending the FCPA. The FCPA, at that time: contained a broad "reason to know" knowledge standard as to indirect payments to "foreign officials;" no affirmative defenses; and no express facilitating payment exception.
It took Congress eight years to wrestle with the issues and the FCPA was finally amended in 1988.
In 1981, Senator Alfonse D’Amato opened Senate hearings on a bill to amend the FCPA. He stated that the bill "provides us with a good opportunity to assess the effect of recently enacted legislation and its implementation.” Senator D’Amato noted as follows. “The discussion which takes place during these hearings is not a debate between those who oppose bribery and those who support it. I see the major issue before us to be whether the law, including both its antibribery and accounting provisions, is the best approach, or whether it has created unnecessary costs and burdens out of proportion to the purposes for which it was enacted, and whether it serves our national interests.”
In an opening statement during Senate hearings, Senator John Chafee, a leader in the FCPA reform movement stated: "We've learned a great deal about the Foreign Corrupt Practices Act in the last three years. We've learned that the best of intentions can go awry and create confusion and great cost to our economy."
During the hearing, Senator Chafee further stated as follows: "Critics have attempted to characterize my bill as a signal to U.S. companies that they can return to the 'bad old days' of foreign bribery. That is not my intent, nor should it be the signal. I abhor bribery, whether domestic or foreign, but I also dislike confusion. Thus, my bill will eliminate uncertainty while maintaining strong prohibitions against bribery. The ambiguities and murkiness of the bill's language have caused U.S. companies to withdraw from legitimate markets and contributed to the decline in the U.S. share of world exports. We need to end this confusion."
During Senate hearings, Senator D'Amato noted as follows: "The thing that bothers me about this kind of a debate is that we tend to posture this thing as if somebody were for or against bribery. I think it is important to state for the record that bribery of any foreign official by any U.S. concern is bad for our national health, and it is something that we have got to stop, we have got to deal with, and we have, I think, gone a long way with the FCPA. What we proposed to do is to simplify that law and to make it workable so that we can set that standard in concrete from now on and not have the abuses that occurred prior to 1977, but not by stopping exports, but by stopping bribery. That is the objective."
Senator D'Amato further stated as follows. "I think it is very important that in the committee's work that we not create the attitude that this committee is making it easier for businesses to engage in illegal activity. That has, in fact, been suggested, not only by our distinguished colleague from Wisconsin [Senator Proxmire, a Senate leader in enactment of the FCPA who generally opposed the reform efforts], but also by certain journalists, who are questioning the need for proposed changes. I think that rather than hampering prosecution of illegal acts, [the reform bill at issue] would clarify and make possible just prosecution of those who engage in bribery. It would eliminate any 'gray area' by clearly spelling out the limits of the law."
During Senate hearings, Senator John Heinz stated as follows. "... There are many people that are extremist, and there are others who get carried away by their enthusiasm who are going to argue that even if we change the provisions in the present act, that are unnecessary or ambiguous or uncertain, that even though we are not doing so, we are legalizing bribery. That strikes me as the worst kind of demagoguery, because it implies that everything that Congress has done in the past is perfect. And does anybody believe that?"
During the Senate hearing, William Satterwhite (Senior VP, General Counsel and Chief Legal Officer of Enserch Corp.) testified. He began his testimony as follows: "Before I begin my comments, I would like to state for the record, Enserch Corp. is not in favor of bribery. It is a sad commentary on the political atmosphere surrounding this legislation that those who support the bill feel compelled to make clear that they do not condone corruption."
The interesting thing about these representative comments is that they occurred during an era when the FCPA was, for all practical purposes, not even enforced!
As noted in yesterday's post, we are, in the words of Assistant Attorney General Breuer, in a new era of FCPA enforcement.
Part of this new era should be a renewed effort to examine the FCPA and more importantly FCPA enforcement.
The above comments from the 1980's should serve as useful guiding words.
Wednesday, November 3, 2010
In the Words of Theodore Sorensen
Theodore Sorensen recently passed away (see here).
Sorensen's career included several notable accomplishments and, as President Kennedy's speechwriter, he had a way with words.
Buried deep in the thousands of pages of FCPA legislative history, one will find a July 1976 article Sorensen, a lawyer who spent a substantial portion of his career with Paul Weiss, authored for Foreign Affairs titled "Improper Payments Abroad: Perspective and Proposals" (abstract available here).
July 1976 was a mid-point of sorts in the nearly three year journey of Congress in investigating and addressing the foreign payments problem. President Ford, whose administration favored a disclosure regime, would soon lose the November 1976 election to Jimmy Carter and Carter's administration favored a prohibition regime, which came to be embodied in the FCPA signed by President Carter in December 1977.
Sorensen's article begans as follows:
"Like motherhood and apple pie (zero population growth? food additives?), corporate bribery abroad is not the simple, safe issue it seems at first blush. Sharp division and delay have characterized its consideration by the U.S. Securities and Exchange Commission, Department of Justice and Internal Revenue Service, and by several Committees of the U.S. Congress, the Organization for Economic Cooperation and Development (OECD), and the International Chamber of Commerce. In the United States, a Presidential Cabinet-level Task Force-and in the United Nations, the Committee on Transnational Corporations-have been asked to untangle the problem; but no solution is yet agreed upon.
The practice of exporters and investors offering special inducements to host country officials is at least as old as Marco Polo. But in the United States a post-Watergate climate of pitiless exposure for all suspect practices connected with government has intensified both the investigations of these payments and the oversimplified publicity given to them. Indeed the seeds of the present furor were sown in Watergate. When the Special Prosecutor traced some of the "cover-up" financing to unreported corporate campaign contributions, often transmitted through foreign "slush funds," the SEC initiated a major check on all undisclosed payments to governments and politicians, both domestic and foreign, by the publicly owned companies subject to its jurisdiction.
As a result, U.S. corporate officials have engaged in the most painful rush to public "voluntary" confession since China's Cultural Revolution. Scores of U.S.-based companies have been investigated by one or more arms of the U.S. executive branch, legislative branch, and news media-or by their own directors. Many foreign officials of varying prominence have been forced to resign, deny, or both. The going rate for bribery has reportedly fallen in some countries as fear of disclosure increases, and risen in others as officials discover the full potential of their position. Debates between businessmen asserting that only they live in the "real world" ("Of course, I'm against bribery, but . . . .") and bureaucrats asserting that only they are without sin ("No payment of any kind or size for any reason should escape . . . .") have thus far produced more heat than light. It is hoped that a calmer, more long-range perspective can soon prevail. Otherwise, genuinely legitimate business practices will be inhibited by an atmosphere of fear and suspicion, generated by sweeping and hasty reactions, while those truly intent on corruption will merely wait for the emotional storm to pass."
In the article, Sorensen makes several insightful and valid points. Among those are the following.
"The [issue of how to remedy foreign payments] has been further distorted by an outpouring of self-serving, self-righteous hypocrisy on both sides. Among the biggest hypocrites have been the following: (i) those foreign governments which since time immemorial have closed their eyes and held out their hands, but which now denounce the United States for introducing corruption to their shores; (ii) those U.S. politicians who professed ignorance of the illegality of corporate campaign contributions they received (or knew others received) in cash in sealed envelopes behind a barn or men's room door, but who now insist that various company executives be prosecuted because they should have known of their subordinates' improper activities abroad; (iii) those agencies of the U.S. government which long knew of and even approved of barely concealed payoffs by companies engaged in favored overseas sales and investments, but which now wring their hands at the unbelievable shame of it all; and (iv) those U.S. and foreign newspaper commentators who long winked at free junkets and passes for newsmen, even a little extra income doing public relations for the organizations they were covering, but who now condemn the ethical standards of the business community."
Sorensen noted that "there will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence."
He offered the following examples.
"Example 1. The best lawyer in a foreign town is the London-educated son of the Minister of Commerce. Should he be prevented from accepting clients who need permits from the Ministry? Should a U.S. corporation be prevented from retaining him? Would it make any difference if he were a consultant or agent instead of a lawyer? The opportunities for abuse here are undeniable but not inevitable."
"Example 2. A U.S. corporation is asked by the Provincial Governor to contribute to the local Health and Welfare Fund, his favorite charity. Is this the obligation of a public-spirited company or an opportunity for covert graft?"
"Example 3. A U.S. corporation, already doing substantial business in a foreign country, wishes to invest as well in one of its local suppliers. The Prime Minister is the latter's principal stockholder. Would it make any difference if it were another U.S. company in which they would be investors together?"
"Example 4. A U.S. corporation's valuable inventory abroad is stored in a remote warehouse. The nearest police are willing to act as after-hours guards if they are paid by the corporation for their overtime services. Must a less effective and more expensive alternative be found?"
"Example 5. A U.S. corporation wishes to form a joint venture with a local firm owned by a member of the ruling family (not unusual or considered unethical in small countries with small elites). But see Example 1."
"Example 6. A U.S. corporation, seeking to locate its plant in an improverished land, invites the improverished Minister of Environmental Affairs to fly to the United States at its expense for a tour of its domestic installations, reportedly to demonstrate that its proposed plant will not pollute the local air and water. At what point does its hospitality become excessive; and should this expensive trip be more permissible than contributing the cash equivalent thereof?"
"Example 7. A U.S. corporation is informed that the government permit for which it was bidding has already been issued to a local corporation of unknown ownership which is willing to sell it to the U.S. bidder at the bid price. If no extra payment is thus involved, does the additional step render the transaction improper?"
As to these examples, Sorensen noted that "reasonable men and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions."
Sorensen's words, written nearly 35 years ago, remain relevant today.
I became aware of Sorensen's Foreign Affairs article a few years ago.
Against the current backdrop of aggressive FCPA enforcement and FCPA enforcement actions fitting the exact hypotheticals Sorensen posed, it was on my to-do list to contact him to probe his reaction to the current state of FCPA enforcement, and whether, more broadly, any of the issues and questions have changed much since 1976.
Regrettably, I never got to this item.
Sorensen's career included several notable accomplishments and, as President Kennedy's speechwriter, he had a way with words.
Buried deep in the thousands of pages of FCPA legislative history, one will find a July 1976 article Sorensen, a lawyer who spent a substantial portion of his career with Paul Weiss, authored for Foreign Affairs titled "Improper Payments Abroad: Perspective and Proposals" (abstract available here).
July 1976 was a mid-point of sorts in the nearly three year journey of Congress in investigating and addressing the foreign payments problem. President Ford, whose administration favored a disclosure regime, would soon lose the November 1976 election to Jimmy Carter and Carter's administration favored a prohibition regime, which came to be embodied in the FCPA signed by President Carter in December 1977.
Sorensen's article begans as follows:
"Like motherhood and apple pie (zero population growth? food additives?), corporate bribery abroad is not the simple, safe issue it seems at first blush. Sharp division and delay have characterized its consideration by the U.S. Securities and Exchange Commission, Department of Justice and Internal Revenue Service, and by several Committees of the U.S. Congress, the Organization for Economic Cooperation and Development (OECD), and the International Chamber of Commerce. In the United States, a Presidential Cabinet-level Task Force-and in the United Nations, the Committee on Transnational Corporations-have been asked to untangle the problem; but no solution is yet agreed upon.
The practice of exporters and investors offering special inducements to host country officials is at least as old as Marco Polo. But in the United States a post-Watergate climate of pitiless exposure for all suspect practices connected with government has intensified both the investigations of these payments and the oversimplified publicity given to them. Indeed the seeds of the present furor were sown in Watergate. When the Special Prosecutor traced some of the "cover-up" financing to unreported corporate campaign contributions, often transmitted through foreign "slush funds," the SEC initiated a major check on all undisclosed payments to governments and politicians, both domestic and foreign, by the publicly owned companies subject to its jurisdiction.
As a result, U.S. corporate officials have engaged in the most painful rush to public "voluntary" confession since China's Cultural Revolution. Scores of U.S.-based companies have been investigated by one or more arms of the U.S. executive branch, legislative branch, and news media-or by their own directors. Many foreign officials of varying prominence have been forced to resign, deny, or both. The going rate for bribery has reportedly fallen in some countries as fear of disclosure increases, and risen in others as officials discover the full potential of their position. Debates between businessmen asserting that only they live in the "real world" ("Of course, I'm against bribery, but . . . .") and bureaucrats asserting that only they are without sin ("No payment of any kind or size for any reason should escape . . . .") have thus far produced more heat than light. It is hoped that a calmer, more long-range perspective can soon prevail. Otherwise, genuinely legitimate business practices will be inhibited by an atmosphere of fear and suspicion, generated by sweeping and hasty reactions, while those truly intent on corruption will merely wait for the emotional storm to pass."
In the article, Sorensen makes several insightful and valid points. Among those are the following.
"The [issue of how to remedy foreign payments] has been further distorted by an outpouring of self-serving, self-righteous hypocrisy on both sides. Among the biggest hypocrites have been the following: (i) those foreign governments which since time immemorial have closed their eyes and held out their hands, but which now denounce the United States for introducing corruption to their shores; (ii) those U.S. politicians who professed ignorance of the illegality of corporate campaign contributions they received (or knew others received) in cash in sealed envelopes behind a barn or men's room door, but who now insist that various company executives be prosecuted because they should have known of their subordinates' improper activities abroad; (iii) those agencies of the U.S. government which long knew of and even approved of barely concealed payoffs by companies engaged in favored overseas sales and investments, but which now wring their hands at the unbelievable shame of it all; and (iv) those U.S. and foreign newspaper commentators who long winked at free junkets and passes for newsmen, even a little extra income doing public relations for the organizations they were covering, but who now condemn the ethical standards of the business community."
Sorensen noted that "there will be countless situations in which a fair-minded investigator or judge will be hard-put to determine whether a particular payment or practice is a legitimate and permissible business activity or a means of improper influence."
He offered the following examples.
"Example 1. The best lawyer in a foreign town is the London-educated son of the Minister of Commerce. Should he be prevented from accepting clients who need permits from the Ministry? Should a U.S. corporation be prevented from retaining him? Would it make any difference if he were a consultant or agent instead of a lawyer? The opportunities for abuse here are undeniable but not inevitable."
"Example 2. A U.S. corporation is asked by the Provincial Governor to contribute to the local Health and Welfare Fund, his favorite charity. Is this the obligation of a public-spirited company or an opportunity for covert graft?"
"Example 3. A U.S. corporation, already doing substantial business in a foreign country, wishes to invest as well in one of its local suppliers. The Prime Minister is the latter's principal stockholder. Would it make any difference if it were another U.S. company in which they would be investors together?"
"Example 4. A U.S. corporation's valuable inventory abroad is stored in a remote warehouse. The nearest police are willing to act as after-hours guards if they are paid by the corporation for their overtime services. Must a less effective and more expensive alternative be found?"
"Example 5. A U.S. corporation wishes to form a joint venture with a local firm owned by a member of the ruling family (not unusual or considered unethical in small countries with small elites). But see Example 1."
"Example 6. A U.S. corporation, seeking to locate its plant in an improverished land, invites the improverished Minister of Environmental Affairs to fly to the United States at its expense for a tour of its domestic installations, reportedly to demonstrate that its proposed plant will not pollute the local air and water. At what point does its hospitality become excessive; and should this expensive trip be more permissible than contributing the cash equivalent thereof?"
"Example 7. A U.S. corporation is informed that the government permit for which it was bidding has already been issued to a local corporation of unknown ownership which is willing to sell it to the U.S. bidder at the bid price. If no extra payment is thus involved, does the additional step render the transaction improper?"
As to these examples, Sorensen noted that "reasonable men and even angels will differ on the answers to these and similar questions. At the very least such distinctions should make us less sweeping in our judgments and less confident of our solutions."
Sorensen's words, written nearly 35 years ago, remain relevant today.
I became aware of Sorensen's Foreign Affairs article a few years ago.
Against the current backdrop of aggressive FCPA enforcement and FCPA enforcement actions fitting the exact hypotheticals Sorensen posed, it was on my to-do list to contact him to probe his reaction to the current state of FCPA enforcement, and whether, more broadly, any of the issues and questions have changed much since 1976.
Regrettably, I never got to this item.
Friday, July 16, 2010
Financial Reform Bill Contains Major Compliance Headache
News coverage today will be extensive as to the Dodd-Frank Wall Street Reform and Consumer Protection Act - the financial reform bill - that is expected to be signed by President Obama next week.
But you probably will not see much coverage as to a key "miscellaneous provision" tacked onto the end of the massive bill.
However, to many readers of this blog, this key "miscellaneous provision" is sure to cause much angst - as well it should. And no, I am not talking about the whistleblower provisions included in the financial reform bill that can reward a whistleblower who reports securities laws violations, a provision some are calling the FCPA Whistleblower Bounty Program (see here), even though the provisions are not specific to the FCPA. I will cover these provisions in a future post.
The "miscellaneous provision" is Section 1504.
It is titled "Disclosure of Payments by Resource Extraction Issuers" and it is substantively similar to S.1700, a bad bill that was introduced in the Senate in September 2009. I covered this bill, and its many problems, in this prior post.
As I noted in the prior post, bribery and corruption are bad, but that does not mean that every attempt to curtail bribery and corruption is good.
Case in point is Section 1504 of the financial reform bill.
In short, Section 1504 will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments. Section 1504 is akin to “swatting a fly with a bazooka" and it attempts to legislate an issue that was sensibly put to rest in the mid-1970's when Congress held extensive hearings on what would become the FCPA.
Section 1504 amends Section 13 of the Securities Exchange Act of 1934 (15 USC 78m) (“Periodical and Other Reports”) by adding a new section “Disclosure of Payments by Resource Extraction Issuers.”
Under this section, "no later than 270 days after enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the [SEC] shall issue final rules that would require:
• a “Resource Extraction Issuer” (a defined term which means an issuer that:(i) is required to file an annual report with the Commission; and (ii) engages in the commercial development of oil, natural gas, or minerals”)
• to include in its annual report
• “information relating to any payment”
• made by the issuer, “a subsidiary” of the issuer, “or any entity under the control of the issuer”
• to a “foreign government” (a defined term which means a “foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission”) or the "Federal Government"
• for “the purpose of the commercial development of oil, natural gas, or minerals.”
Although it is possible that the final SEC rules may shed more light on the above provisions, at this point not much about Section 1504 is clear.
Therein lies the problem.
Not sure, if your company is a “Resource Extraction Issuer” because you are unclear what “commercial development of oil, natural gas, or minerals” means?
No problem, Section 1504 provides this crystal clear definition – “the term ‘commercial development of oil, natural gas, or minerals’ includes exploration, extraction, processing, export and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity, as determined by the [SEC]. “
In other words, if you are an issuer, and you engage in “significant actions relating to oil, natural gas, or minerals” you just may have some huge, new reporting / disclosure requirements imposed on you!
Still confused? Join the club.
Is selling equipment to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?” Is selling exploration software to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?”
What is a payment?
That’s an easy one and Section 1504 provides this crystal clear definition – the term payment means:
(i) a payment that is (I) made to further commercial development of oil, natural gas, or minerals; and (II) not de minimis; and
(ii) includes taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the Commission [...] determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals."
Ignoring for the moment the imperfect and imprecise definition of “Resource Extraction Issuer,” it is one thing to require such issuers to disclose royalties paid to a foreign government, and if that is viewed as providing transparency and eliminating bribery and corruption (however dubious that view may be), well then perhaps Section 1504 is a good piece of legislation.
But Section 1504 seeks disclosure and reporting of much, much more and could conceivably require disclosure of every single dollar a “Resource Extraction Issuer” makes to a "foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission" for the "purpose of the commercial development of oil, natural gas, or minerals."
Here is the real kicker though.
Section 1504 requires all payments (meeting the above definitions – if indeed you can figure out what those definitions are) to be disclosed, including perfectly legitimate and legal payments.
To those who supported Section 1504, I've got this to say - "we’ve been down this road before."
It is called the FCPA (and the various versions of the statute before it was enacted). Years of congressional hearings were had as to this very same disclosure issue and we don’t need to repeat this exercise.
Here is some background.
The FCPA as enacted in 1977 contained (and still contains) an outright prohibition on improper payments to "foreign officials" to obtain or retain business (the anti-bribery provisions) as well as books and records and internal control provisions – but not disclosure provisions.
The original versions of what became the “FCPA” (i.e. the “Foreign Payments Disclosure Act” and other similar bills) started out with disclosure provisions, including provisions requiring all U.S. companies to disclose all payments over $1,000 to any foreign agent or consultant and any and all other payments made in connection with foreign government business.
As to these disclosure provisions, many people, including, most notably Senator Proxmire (D-WI - a Congressional leader on what would become the FCPA), were concerned that the disclosure obligations were too vague to enforce and would require the disclosure of thousands of payments that were perfectly legal and legitimate.
Proxmire said during congressional hearings, “I would think they [the corporations subject to the disclosure requirements] would want some certainty. They want to know what they have to report and what they don’t have to report. They don’t want to guess and then find themselves in deep trouble because they guessed wrong.”
The final House Report (see here) on what would become the FCPA is even more clear. It states (when discussing the various disclosure provisions previously debated, but rejected):
"Most disclosure proposals would require U.S. corporations doing business abroad to report all foreign payments including perfectly legal payments such as for promotional purposes and for sales commissions. A disclosure scheme, unlike outright prohibition, would require U.S. corporations to contend not only with an additional bureaucratic overlay but also with massive paperwork requirements."
The words of the late Senator Proxmire and the sensible conclusion reflected in the House Report are equally applicable to Section 1504.
Section 1504 (while however noble its intended purpose) is akin to “swatting a fly with a bazooka.”
The FCPA already criminalizes improper payments made to the “foreign government” recipients targeted in Section 1504 to the extent those payments are made to “obtain or retain business.”
Do we really now need a law that requires “Resource Extraction Issuers” to disclose all such payments, even perfectly legitimate and legal payments?
In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress apparently said yes to this question. However, with any bill of this magnitude, it is likely that certain members of Congress did not even know what they were voting for or, if they did, were willing to accept undesirable "miscellaneous provisions" to ensure overall passage. In fact, what is now Section 1504 never made it "out of committee" since being introduced in September 2009. A similar bill was also introduced in 2008, but likewise went nowhere.
That is all water under the bridge as they say, because Section 1504 is likely soon to become law.
But you probably will not see much coverage as to a key "miscellaneous provision" tacked onto the end of the massive bill.
However, to many readers of this blog, this key "miscellaneous provision" is sure to cause much angst - as well it should. And no, I am not talking about the whistleblower provisions included in the financial reform bill that can reward a whistleblower who reports securities laws violations, a provision some are calling the FCPA Whistleblower Bounty Program (see here), even though the provisions are not specific to the FCPA. I will cover these provisions in a future post.
The "miscellaneous provision" is Section 1504.
It is titled "Disclosure of Payments by Resource Extraction Issuers" and it is substantively similar to S.1700, a bad bill that was introduced in the Senate in September 2009. I covered this bill, and its many problems, in this prior post.
As I noted in the prior post, bribery and corruption are bad, but that does not mean that every attempt to curtail bribery and corruption is good.
Case in point is Section 1504 of the financial reform bill.
In short, Section 1504 will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments. Section 1504 is akin to “swatting a fly with a bazooka" and it attempts to legislate an issue that was sensibly put to rest in the mid-1970's when Congress held extensive hearings on what would become the FCPA.
Section 1504 amends Section 13 of the Securities Exchange Act of 1934 (15 USC 78m) (“Periodical and Other Reports”) by adding a new section “Disclosure of Payments by Resource Extraction Issuers.”
Under this section, "no later than 270 days after enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the [SEC] shall issue final rules that would require:
• a “Resource Extraction Issuer” (a defined term which means an issuer that:(i) is required to file an annual report with the Commission; and (ii) engages in the commercial development of oil, natural gas, or minerals”)
• to include in its annual report
• “information relating to any payment”
• made by the issuer, “a subsidiary” of the issuer, “or any entity under the control of the issuer”
• to a “foreign government” (a defined term which means a “foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission”) or the "Federal Government"
• for “the purpose of the commercial development of oil, natural gas, or minerals.”
Although it is possible that the final SEC rules may shed more light on the above provisions, at this point not much about Section 1504 is clear.
Therein lies the problem.
Not sure, if your company is a “Resource Extraction Issuer” because you are unclear what “commercial development of oil, natural gas, or minerals” means?
No problem, Section 1504 provides this crystal clear definition – “the term ‘commercial development of oil, natural gas, or minerals’ includes exploration, extraction, processing, export and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity, as determined by the [SEC]. “
In other words, if you are an issuer, and you engage in “significant actions relating to oil, natural gas, or minerals” you just may have some huge, new reporting / disclosure requirements imposed on you!
Still confused? Join the club.
Is selling equipment to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?” Is selling exploration software to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?”
What is a payment?
That’s an easy one and Section 1504 provides this crystal clear definition – the term payment means:
(i) a payment that is (I) made to further commercial development of oil, natural gas, or minerals; and (II) not de minimis; and
(ii) includes taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the Commission [...] determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals."
Ignoring for the moment the imperfect and imprecise definition of “Resource Extraction Issuer,” it is one thing to require such issuers to disclose royalties paid to a foreign government, and if that is viewed as providing transparency and eliminating bribery and corruption (however dubious that view may be), well then perhaps Section 1504 is a good piece of legislation.
But Section 1504 seeks disclosure and reporting of much, much more and could conceivably require disclosure of every single dollar a “Resource Extraction Issuer” makes to a "foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission" for the "purpose of the commercial development of oil, natural gas, or minerals."
Here is the real kicker though.
Section 1504 requires all payments (meeting the above definitions – if indeed you can figure out what those definitions are) to be disclosed, including perfectly legitimate and legal payments.
To those who supported Section 1504, I've got this to say - "we’ve been down this road before."
It is called the FCPA (and the various versions of the statute before it was enacted). Years of congressional hearings were had as to this very same disclosure issue and we don’t need to repeat this exercise.
Here is some background.
The FCPA as enacted in 1977 contained (and still contains) an outright prohibition on improper payments to "foreign officials" to obtain or retain business (the anti-bribery provisions) as well as books and records and internal control provisions – but not disclosure provisions.
The original versions of what became the “FCPA” (i.e. the “Foreign Payments Disclosure Act” and other similar bills) started out with disclosure provisions, including provisions requiring all U.S. companies to disclose all payments over $1,000 to any foreign agent or consultant and any and all other payments made in connection with foreign government business.
As to these disclosure provisions, many people, including, most notably Senator Proxmire (D-WI - a Congressional leader on what would become the FCPA), were concerned that the disclosure obligations were too vague to enforce and would require the disclosure of thousands of payments that were perfectly legal and legitimate.
Proxmire said during congressional hearings, “I would think they [the corporations subject to the disclosure requirements] would want some certainty. They want to know what they have to report and what they don’t have to report. They don’t want to guess and then find themselves in deep trouble because they guessed wrong.”
The final House Report (see here) on what would become the FCPA is even more clear. It states (when discussing the various disclosure provisions previously debated, but rejected):
"Most disclosure proposals would require U.S. corporations doing business abroad to report all foreign payments including perfectly legal payments such as for promotional purposes and for sales commissions. A disclosure scheme, unlike outright prohibition, would require U.S. corporations to contend not only with an additional bureaucratic overlay but also with massive paperwork requirements."
The words of the late Senator Proxmire and the sensible conclusion reflected in the House Report are equally applicable to Section 1504.
Section 1504 (while however noble its intended purpose) is akin to “swatting a fly with a bazooka.”
The FCPA already criminalizes improper payments made to the “foreign government” recipients targeted in Section 1504 to the extent those payments are made to “obtain or retain business.”
Do we really now need a law that requires “Resource Extraction Issuers” to disclose all such payments, even perfectly legitimate and legal payments?
In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress apparently said yes to this question. However, with any bill of this magnitude, it is likely that certain members of Congress did not even know what they were voting for or, if they did, were willing to accept undesirable "miscellaneous provisions" to ensure overall passage. In fact, what is now Section 1504 never made it "out of committee" since being introduced in September 2009. A similar bill was also introduced in 2008, but likewise went nowhere.
That is all water under the bridge as they say, because Section 1504 is likely soon to become law.
Thursday, June 10, 2010
DOJ Guidance and the FCPA
That is the issue addressed by James Parkinson (Mayer Brown - see here) in the below guest post.
*****
As followers of this blog know well, the UK’s newly-enacted Bribery Act (here) calls for the UK government to “publish guidance about procedures that relevant commercial organisations can put into place to prevent persons associated with them from bribing…” Seeing this provision in the Bribery Act suggests the question whether similar guidance issued by the US government would be helpful.
As it turns out, the US government considered this very question over 20 years ago but declined to offer guidance to companies affected by the FCPA. In the 1988 amendments to the FCPA, Congress added provisions entitled “Guidelines by Attorney General,” which required the following:
"Not later than one year after August 23, 1988, the Attorney General, after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue--
(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and
(2) general precautionary procedures which issuers may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.
The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title."
15 U.S.C. §§ 78dd-1(d), 78dd-2(e).
Following the 1988 mandate, the DOJ issued a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” Department of Justice, Anti-Bribery Provisions of the Foreign Corrupt Practices Act, 54 Fed. Reg. 40,918 (Oct. 4, 1989).
What happened?
On July 12, 1990, the DOJ declined to issue guidelines on the anti-corruption provisions of the FCPA, stating:
"After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines."
Department of Justice, Anti-Bribery Provisions, 55 Fed. Reg. 28,694 (July 12, 1990).
How many responses did the DOJ receive?
According to the OECD’s Phase I Report on the US implementation of the Convention (at 15), “[o]nly 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary.”
This suggests another question: what would the commentary landscape look like today if the DOJ published a new Federal Register notice soliciting “views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines”?
Given the rise in enforcement activity and the focus companies now bring to compliance, it seems very likely that far more than five people would submit comments.
*****
As followers of this blog know well, the UK’s newly-enacted Bribery Act (here) calls for the UK government to “publish guidance about procedures that relevant commercial organisations can put into place to prevent persons associated with them from bribing…” Seeing this provision in the Bribery Act suggests the question whether similar guidance issued by the US government would be helpful.
As it turns out, the US government considered this very question over 20 years ago but declined to offer guidance to companies affected by the FCPA. In the 1988 amendments to the FCPA, Congress added provisions entitled “Guidelines by Attorney General,” which required the following:
"Not later than one year after August 23, 1988, the Attorney General, after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue--
(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and
(2) general precautionary procedures which issuers may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.
The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title."
15 U.S.C. §§ 78dd-1(d), 78dd-2(e).
Following the 1988 mandate, the DOJ issued a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” Department of Justice, Anti-Bribery Provisions of the Foreign Corrupt Practices Act, 54 Fed. Reg. 40,918 (Oct. 4, 1989).
What happened?
On July 12, 1990, the DOJ declined to issue guidelines on the anti-corruption provisions of the FCPA, stating:
"After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines."
Department of Justice, Anti-Bribery Provisions, 55 Fed. Reg. 28,694 (July 12, 1990).
How many responses did the DOJ receive?
According to the OECD’s Phase I Report on the US implementation of the Convention (at 15), “[o]nly 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary.”
This suggests another question: what would the commentary landscape look like today if the DOJ published a new Federal Register notice soliciting “views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines”?
Given the rise in enforcement activity and the focus companies now bring to compliance, it seems very likely that far more than five people would submit comments.
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.]
Saturday, December 19, 2009
Happy Birthday!
I was born in 1977.
Yet for most of my life, I was neglected and nobody cared or talked about me.
However, about ten years ago, my caretakers suggested that I change my look (get a new haircut, change my wardrobe, those sort of things).
Boy did that help.
In some circles at least, I am now the most popular person in the room.
Lawyers travel to the far reaches of the globe just to determine if I am relevant, corporations publicly disclose potential dates with me, there are seminars and training sessions about me, lawyers run to Washington D.C. (my birthplace) to tell my caretakers how relevant I am (when in fact I may not be relevant at all) ... and, I even hear there are a few blogs devoted to me.
Who am I?
Why of course I am the FCPA and today is my 32nd birthday!
*****
On December 19, 1977, the FCPA was enacted. On December 20, 1977, President Carter signed the FCPA into law.
Hosting an FCPA birthday party?
Here is the signing statement to read just before the candles are placed on the cake. After cake, instead of a game of “pin the cash-filled suitcase on the foreign official” how about a discussion as to whether the enacting Congress and President Carter would even recognize certain enforcement theories which have become a hallmark of current enforcement of the FCPA.
Yet for most of my life, I was neglected and nobody cared or talked about me.
However, about ten years ago, my caretakers suggested that I change my look (get a new haircut, change my wardrobe, those sort of things).
Boy did that help.
In some circles at least, I am now the most popular person in the room.
Lawyers travel to the far reaches of the globe just to determine if I am relevant, corporations publicly disclose potential dates with me, there are seminars and training sessions about me, lawyers run to Washington D.C. (my birthplace) to tell my caretakers how relevant I am (when in fact I may not be relevant at all) ... and, I even hear there are a few blogs devoted to me.
Who am I?
Why of course I am the FCPA and today is my 32nd birthday!
*****
On December 19, 1977, the FCPA was enacted. On December 20, 1977, President Carter signed the FCPA into law.
Hosting an FCPA birthday party?
Here is the signing statement to read just before the candles are placed on the cake. After cake, instead of a game of “pin the cash-filled suitcase on the foreign official” how about a discussion as to whether the enacting Congress and President Carter would even recognize certain enforcement theories which have become a hallmark of current enforcement of the FCPA.
Tuesday, October 27, 2009
The FCPA's Murky "Knowledge" Element
Knowledge is one of the more difficult concepts to distill in criminal law.
The FCPA is no exception, particularly when it comes to the FCPA's "while knowing" standard set forth in the FCPA's third party payment provisions which generally prohibit otherwise improper payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly” to a foreign official. (see 78dd-1(a)(3)).
The third party payment provisions have not always included this "while knowing" standard. When first enacted in 1977 and up until 1988 (when the FCPA was amended), the third party payment provisions had a broader standard and applied if a defendant engaged in the prohibited conduct “while knowing or having reason to know” that all or a portion of such money or thing of value would be offered, given, or promised, directly or indirectly to a foreign official.
In a superb new piece titled, "The 'Knowledge' Requirement of the FCPA Anti-Bribery Provisions: Effectuating Or Frustrating Congressional Intent?," - Kenneth Winer and Gregory Husisian of Foley & Lardner (the “Authors”) conclude that "[t]he DOJ and SEC ... now interpret the knowledge requirement so broadly that they have effectively eviscerated the 1988 statutory changes thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?" (see here).
These are the type of questions we like to posed here at the FCPA Professor blog and, for the record, I am glad to see that I am not alone in questioning whether certain aspects of current FCPA enforcement frustrate or contradict Congressional intent in enacting or amending the FCPA.
The authors do a fine job of walking the reader through a concise overview of the “knowledge” element’s legislative history, particularly the 1988 House and Senate bills which sought to amend the "knowledge" element. Reviewing case law cited in the compromise conference report, the Authors conclude that the "intent of the 1988 amendments" was to "address concerns that FCPA intermediary violations could be found where there was no actual knowledge" and that even though "Congress adopted language to cover situations beyond actual knowledge, it did so in a very circumscribed fashion."
That fashion, according to the Authors, - "[o]nly in the limited circumstances where the party had something very close to actual knowledge - that is, both awareness of a 'high probability' that a corrupt payment would be made and a 'deliberate' decision to avoid gaining information in a conscious effort to avoid learning the truth - is the knowledge requirement satisfied."
According to the Authors, the DOJ and SEC, and most FCPA commentators, talk about "willful blindness" or "head in the sand" language, provide a list of red flags, and then state that "failure to follow up on red flags will be treated as knowledge, regardless of the reason why the person did not inquire."
Suppose a company is aware of a "high probability" that a corrupt payment is being made on its behalf, but that the company, perhaps because of "cost, delay, disruption or likely futility involved" in attempting to conduct an investigation, does not further. Under the "common view," such a failure to investigate is a form of culpable knowledge.
Nonsense says Winer and Husisian. They note that "[o]f course, failing to conduct sufficient due diligence or ignoring red flags can, in many circumstances, be foolish in the extreme," but that, as noted in the FCPA's legislative history and cases cited therein, such "foolishness, in and of itself, cannot constitute a finding that knowledge is present."
According to the Authors, the "net effect of this attitude is to bring the FCPA back to its original 'reason to know' standard" and the current enforcement approach utilizing this standard is nothing more than "implementing an approach that Congress specifically rejected."
Winer and Husisian close by saying:
"The SEC, DOJ, and many commentators might think it would be best if the knowledge requirement was satisfied by failure to conduct adequate due diligence or the failure to follow up on red flags (even if the defendant was not motivated by a purpose of avoiding knowledge of the corrupt payment). But that is not the policy balance that Congress struck in the 1988 amendments. The agencies should rethink their interpretation of the FCPA and enforce the knowledge requirement as Congress intended."
***
Curious as to the Author’s take on the knowledge jury instructions from the Bourke and Green trials this summer? The Bourke jury instructions - thumbs up; the Green jury instructions - thumbs down.
The FCPA is no exception, particularly when it comes to the FCPA's "while knowing" standard set forth in the FCPA's third party payment provisions which generally prohibit otherwise improper payments to “any person, while knowing that all or a portion of such money or thing of value will be offered, given, or promised, directly or indirectly” to a foreign official. (see 78dd-1(a)(3)).
The third party payment provisions have not always included this "while knowing" standard. When first enacted in 1977 and up until 1988 (when the FCPA was amended), the third party payment provisions had a broader standard and applied if a defendant engaged in the prohibited conduct “while knowing or having reason to know” that all or a portion of such money or thing of value would be offered, given, or promised, directly or indirectly to a foreign official.
In a superb new piece titled, "The 'Knowledge' Requirement of the FCPA Anti-Bribery Provisions: Effectuating Or Frustrating Congressional Intent?," - Kenneth Winer and Gregory Husisian of Foley & Lardner (the “Authors”) conclude that "[t]he DOJ and SEC ... now interpret the knowledge requirement so broadly that they have effectively eviscerated the 1988 statutory changes thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by ignoring the reason that Congress amended the FCPA?" (see here).
These are the type of questions we like to posed here at the FCPA Professor blog and, for the record, I am glad to see that I am not alone in questioning whether certain aspects of current FCPA enforcement frustrate or contradict Congressional intent in enacting or amending the FCPA.
The authors do a fine job of walking the reader through a concise overview of the “knowledge” element’s legislative history, particularly the 1988 House and Senate bills which sought to amend the "knowledge" element. Reviewing case law cited in the compromise conference report, the Authors conclude that the "intent of the 1988 amendments" was to "address concerns that FCPA intermediary violations could be found where there was no actual knowledge" and that even though "Congress adopted language to cover situations beyond actual knowledge, it did so in a very circumscribed fashion."
That fashion, according to the Authors, - "[o]nly in the limited circumstances where the party had something very close to actual knowledge - that is, both awareness of a 'high probability' that a corrupt payment would be made and a 'deliberate' decision to avoid gaining information in a conscious effort to avoid learning the truth - is the knowledge requirement satisfied."
According to the Authors, the DOJ and SEC, and most FCPA commentators, talk about "willful blindness" or "head in the sand" language, provide a list of red flags, and then state that "failure to follow up on red flags will be treated as knowledge, regardless of the reason why the person did not inquire."
Suppose a company is aware of a "high probability" that a corrupt payment is being made on its behalf, but that the company, perhaps because of "cost, delay, disruption or likely futility involved" in attempting to conduct an investigation, does not further. Under the "common view," such a failure to investigate is a form of culpable knowledge.
Nonsense says Winer and Husisian. They note that "[o]f course, failing to conduct sufficient due diligence or ignoring red flags can, in many circumstances, be foolish in the extreme," but that, as noted in the FCPA's legislative history and cases cited therein, such "foolishness, in and of itself, cannot constitute a finding that knowledge is present."
According to the Authors, the "net effect of this attitude is to bring the FCPA back to its original 'reason to know' standard" and the current enforcement approach utilizing this standard is nothing more than "implementing an approach that Congress specifically rejected."
Winer and Husisian close by saying:
"The SEC, DOJ, and many commentators might think it would be best if the knowledge requirement was satisfied by failure to conduct adequate due diligence or the failure to follow up on red flags (even if the defendant was not motivated by a purpose of avoiding knowledge of the corrupt payment). But that is not the policy balance that Congress struck in the 1988 amendments. The agencies should rethink their interpretation of the FCPA and enforce the knowledge requirement as Congress intended."
***
Curious as to the Author’s take on the knowledge jury instructions from the Bourke and Green trials this summer? The Bourke jury instructions - thumbs up; the Green jury instructions - thumbs down.
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