Compliance Implications of the Current Enforcement Climate: An Interview with MikeKoehler, the FCPA Professor
August 22 and September 5
issues]By Rebecca Hughes ParkerThe FCPA Report recently interviewed Mike Koehler, Assistant Professor at SouthernIllinois University School of Law and author of the popular blog the FCPA Professor.He
has testified before Congress and written extensively about FCPA issues.Professor Koehler previously was Assistant Professor of Business Law in the College of Business at Butler University, and before that was an attorney at Foley & Lardner LLP,where he conducted FCPA investigations on behalf of companies, negotiated resolutionsto FCPA enforcement actions with government enforcement agencies and advised clientson FCPA compliance and risk assessment. Since leaving legal practice, Professor
Koehler has become a vocal critic of the government‟s FCPA enforcement theories,
which he sees as hinging on dubious and untested legal theories in contravention of
Congress‟s intent.
Professor Koehler spoke a
bout the long tail on FCPA violations and the “gray cloud” that
hangs over companies once they self-report, and he questioned whether companiesshould self-
report at all. See also “
,” The FCPA Report, Vol. 1, No. 2 (Jun. 20, 2012). He
also shared compliance advice in light of recent enforcement trends relating to facilitation
payments, the “obtain
or retain
business” element of the statute and the definition of
foreign officials. In addition, Professor Koehler discussed compliance lessons arising outof the unique way the FCPA is enforced and the relative lack of judicial scrutiny of thestatute.The Professor also addressed recent Supreme Court precedent affecting corporate fines;the potential for fines to be paid to victims instead of the U.S. Treasury; the cost-benefitanalysis of FCPA compliance and the three buckets
of FCPA costs; Professor Koehler‟s
distinction between license/permit cases and government procurement cases and itsimportance for compliance policies and procedures; and the prospect of FCPA reform, atopic on which Professor Koehler disagrees with Judge Sporkin.
Statute of Limitations and the Gray Cloud
FCPAR: Can you explain the ways the government gets around the five-yearstatute of limitations in the FCPA? What have the courts said about this?
Koehler: How does the government get around so many other things when it comes to
the FCPA? Simply because it doesn‟t become subject to judicial scrutiny.
The FCPA does not contain an express statute of limitations, so you have to fall back tothe catch-
all provision and that‟s five years. Even as a matter of law, there are a couple
of vehicles for enforcement agencies to exceed that five-year statute of limitations. Thefirst one, of course, is the DOJ can charge conspiracy
–
the conspiracy statute of limitations does not begin until the last overt act in connection with that conspiracy ends.So, you can imagine a situation where a contract was obtained through an improperpayment and the DOJ could logically say that the last time the company received moneyfrom that improper contract was an overt act in furtherance of the conspiracy.Another way is if the DOJ makes a request to a foreign law enforcement agency fordocuments or information in connection with the investigation, the statute of limitationsis tolled while that foreign legal assistance request is being considered.To my knowledge, the only statute of limitations case in connection with the FCPA wasin connection with the Frederic Bourke case in the Southern District of New York,probably about four or five years ago, which initially dismissed the FCPA-related chargeson statute of limitations grounds. But the DOJ asked for that decision to be reconsideredand upon reconsideration the court reinstated those charges. [See the Second Circuit
here.]When it comes to the FCPA, whether we are talking about statutory elements or statute of limitations, there is very little case law out there. So long as companies are effectivelyunable to put the DOJ to its burden of proof and challenge them, we are going to see thisdynamic continue,
and it‟s very unfortunate because, let‟s face it, in the 35 years since the
passage of the FCPA, the DOJ has only been put to its burden of proof by a companytwice, and they have lost both those cases ultimately.So you have a situation where if a company believes it has a statute of limitationsdefense, it can raise that issue around conference room tables in Washington, D.C. But atthe end of the day, no company in America is going to risk willing to be indicted to asserta statute of limitations defense. When the DOJ offers a non-prosecution or deferredprosecution agreement, even if the conduct is 7 to 10 to 15 years old, 99% of companiesare going to choose that route rather than asserting viable and legitimate legal defenses.
FCPAR: Pfizer, for example, recently settled with the government after initiallyvoluntarily disclosing its potential violations eight years ago. [See
,” The FCPA Report
, Vol. 1, No. 5 (Aug. 8, 2012).] Has the governmentbeen keeping companies on the hook longer recently?
Koehler: Yes, Pfizer did stand out for being a rather long period in which a gray cloudwas hanging over the company. Typically
it‟s only two to four years, but the Pfizer
action and a couple of others have really stuck out in terms of long periods. And I think it is too long. The DOJ and the SEC expect companies to cooperate with them and partof cooperation is being timely. And they are not bound by a statute of limitations
because one of the things companies do during the voluntary process to demonstrate theircooperation is either toll the statute of limitations or agree to waive statute of limitationdefenses. So this basically gives the DOJ and the SEC the green light to take their time.
When you dig into the details of most FCPA enforcement actions, the conduct takes placelonger than 5 years ago, sometimes longer than 10 years ago and sometimes longer than15 years ago. The DOJ and the SEC are not bound by the statute of limitations as apractical matter, and that is part of the leverage they have.
The Dangers of Self-Reporting
FCPAR: Is there anything companies can do once the internal investigation beginsto avoid having this gray cloud over them for so long and to move more quicklytowards settlement?
Koehler: Given that the vast, vast majority of enforcement actions in the corporate
context are the result of voluntary disclosure, the most obvious thing is don‟t voluntarily
disclose. Now this is an issue that I know people struggle with. The DOJ and the SECclearly want companies to voluntarily disclose. There may be some unique situationswith publicly traded companies where there may be affirmative disclosure obligations,but very few FCPA issues are material. However, the SEC takes the rather ridiculousposition (in my opinion) that all improper payments are qualitatively material,notwithstanding the dollar amount of the revenue associated with those payments.Companies struggle with this voluntary disclosure decision.
One message companies should hear is that in most cases, there‟s nothing wrong with
doing a complete and thorough internal investigation and based upon the results of thatinvestigation effectively remediating the issues through enhanced compliance policiesand procedures, through discipline or termination of wrongdoers. That is all acceptablewithout the voluntary disclosure.
Although empirical evidence is lacking on this issue because it‟s kind of a black hole
issue, you do read and hear from the FCPA bar that there has been a pushback against
voluntary disclosure where companies are saying we don‟t necessarily have to disclose
this if we take these otherwise proactive and effective steps to deal with the situationinternally. [For more on the calculus of self-reporting, see
,” The FCPA Report, Vol. 1, No. 2 (Jun. 20, 2012).
]Another way to avoid that gray cloud, which is nice to talk about but as a practical matteris a non-starter, is that a company could just
not
agree to toll the statute of limitations orcould
not
agree to waive statute of limitations defenses. But then the DOJ and SEC
would take the position that that‟s not cooperating and we know what the DOJ and the
SEC might do with companies that do not cooperate. At the end of the day, both
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