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Q+A - Professor finds flaws in U.S. anti-bribery enforcement

Wed, 1 Jun 2011 13:06 GMT

Source: trustlaw // Luke Balleny

By Luke Balleny

LONDON (TrustLaw) – Enforcement of the U.S anti-graft law, the Foreign Corrupt Practices Act (FCPA) is, “in certain cases, contrary to the statute itself,” says prominent FCPA commentator, Mike Koehler.

Koehler, an assistant professor of business law at Butler University in the United States and author of the popular blog FCPA Professor, spoke to TrustLaw about the FCPA, its enforcement and two high profile provisions within the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) which the U.S. government is expected to use in its fight against corruption.

WHAT OBJECTIONS DO YOU HAVE TO THE FCPA OR ITS ENFORCEMENT?

The FCPA is a fundamentally sound statute that was rightly passed by the U.S. Congress in 1977. Is the FCPA a perfect statute? No, I do not believe that it is. An issue deserving of serious analysis is the creation of an “adequate procedures” defence similar to the UK Bribery Act. Certain FCPA reform bills in the 1980s containing such a defence passed the U.S. House in 1988, and this is an issue that ought to be revisited.

That the FCPA is a fundamentally sound statute does not mean that FCPA enforcement is fundamentally sound. I, along with many others, have serious concerns about FCPA enforcement across a wide spectrum. On one end, many enforcement theories seem to be contrary to the intent of Congress in passing the FCPA and indeed, in certain cases, contrary to the statute itself. On the other end, the most egregious instances of corporate bribery are resolved without FCPA anti-bribery charges.

IF YOU WERE THE U.S. ATTORNEY GENERAL, HOW WOULD YOU CHANGE THE DEPARTMENT OF JUSTICE’S FCPA ENFORCEMENT?

For starters, I would direct the FCPA Unit to read and be faithful to the U.S. Attorneys Manual. In May 2010, U.S. Attorney General Eric Holder issued a memo reaffirming guidance provided to prosecutors as to charging and sentencing decisions.  Among other things, the Holder memo states:

1. “Persons who commit similar crimes and have similar culpability should, to the extent possible, be treated similarly.”
2.  “A federal prosecutor should ordinarily charge the most serious offense that is consistent with the nature of the defendant’s conduct.”
3.  “Prosecutors should generally continue to advocate for a sentence” within the Sentencing Guidelines range. 

All three of these principles are inconsistent with much of the DOJ’s (the Department of Justice) FCPA enforcement program. 

I would remind the FCPA Unit of Article 5 of the OECD Anti-Bribery Convention, which states that enforcement “shall not be influenced by considerations of national economic interest, the potential effect upon relations with another state or the identity of the natural or legal persons involved.”

I would instruct the FCPA Unit to publicly state, in a manner consistent with the DOJ’s current FCPA Opinion Release Procedures, its declination decisions by stating, in a transparent manner, the facts the company disclosed and why the DOJ declined enforcement on those facts.  

I would also direct the FCPA Unit that the use of non-prosecution or deferred prosecution agreements are no longer allowed to resolve FCPA enforcement actions. 

Finally, I would require all FCPA Unit enforcement attorneys to sign a pledge whereby the enforcement attorney agrees, post-DOJ employment, not to provide FCPA defence or compliance services for a five-year time period. 

THE DEPARTMENT OF JUSTICE CONSIDERS EMPLOYEES OF STATE-OWNED ENTERPRISES (SOEs) TO BE GOVERNMENT OFFICIALS UNDER THE FCPA. WHY DO YOU OBJECT TO THIS?

Because, under the U.S. legal system, U.S. law enforcement agencies have the authority only to enforce laws actually passed by Congress.  

There is no express statement or information in the FCPA’s legislative history to support the DOJ’s expansive legal interpretation that alleged SOEs are instrumentalities (or departments or agencies) of a foreign government and that employees of SOEs are therefore “foreign officials” under the FCPA’s anti-bribery provisions. However, there are several statements, events, and information in the FCPA’s legislative history that demonstrate that Congress did not intend the “foreign official” definition to include employees of SOEs.

MOST ANTI-GRAFT ORGANIZATIONS APPROVE OF U.S. LEGISLATION, IN THE DODD-FRANK ACT, REQUIRING OIL/MINING COMPANIES TO DISCLOSE ALL PAYMENTS MADE TO GOVERNMENT ENTITIES. WHY HAVE YOU CALLED THE PROVISION “AN ILL-CONCEIVED, POORLY DRAFTED LAW?”

What the provision requires is that one industry – even though numerous industries do business with governments – discloses perfectly legal and legitimate payments to foreign governments even though improper payments to those same governments are already prohibited by the FCPA. 

When Congress was considering legislation in the mid-1970s to address the foreign payments problem, the two approaches considered were a disclosure of all payments to a foreign governments regime versus a prohibition of just improper payments. The final House Report on what would become the FCPA 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."

These concerns, sensible when the FCPA was enacted in 1977, are sensible today as well. Yet the resource extraction disclosure provisions, inserted as a “miscellaneous provision” into the massive Dodd-Frank Act – without any meaningful Congressional debate or analysis – are now law but will not do anything to reduce bribery and corruption that the FCPA is not already capable of addressing.

A PROVISION IN THE DODD-FRANK ACT WILL PERMIT WHISTLEBLOWERS TO RECEIVE UP TO 30 PERCENT OF ANY SANCTIONS IMPOSED BY THE SEC. WILL THIS LEAD TO MORE FCPA ENFORCEMENT?

Contrary to most (people) who have made predictions as to Dodd-Frank’s impact on FCPA enforcement, I predict that the whistleblower provisions will have a negligible impact for at least two reasons. 

First, the provisions will only be triggered when an individual has information as to an entity subject to the SEC’s jurisdiction. There are many more business entities not subject to SEC jurisdiction than subject to SEC jurisdiction and the whistleblower provisions should not impact this prong of FCPA enforcement.

Second, most FCPA enforcement actions already result from corporate voluntary disclosures. I don’t think the universe of FCPA enforcement actions is really going to expand that much when companies are already largely voluntarily disclosing conduct to the SEC – presumably the same conduct that a whistleblower would disclose.