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BNA Corporate Counsel Weekly (Mike Koehler Q&A)

BNA Corporate Counsel Weekly (Mike Koehler Q&A)

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Published by Mike Koehler
BNA Corporate Counsel Weekly (Mike Koehler Q&A)
BNA Corporate Counsel Weekly (Mike Koehler Q&A)

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Published by: Mike Koehler on Jun 09, 2014
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08/26/2014

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Reproduced with permission from Corporate Counsel Weekly Newsletter, 29 CCW 22, 06/04/2014.Copyright
 
 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
 The Foreign Corrupt Practices Act: A ‘‘New Era’’ of Enforcement
 Bloomberg BNA recently conductedan e-mail interview with Southern Illinois University School of Law professor Mike Koehler about thecurrent landscape of FCPA enforce-ment and what companies can do toensure compliance. Professor Koehler is author of the blog ‘‘FCPA Professor’’ and of anew book, ‘‘The Foreign Corrupt Practices Act in a New Era.’’ Thebook injects innovative and pro- vocative concepts into the study of the FCPA, addressing topics criticalto possessing a sophisticated under- standing of the FCPA and FCPA en- forcement. The book also includes a specific chapter devoted to FCPAcompliance that aggregates variousbest practices metrics designed toeffectively manage and minimizerisk.
Bloomberg BNA
: What do youmean when you say the U.S. is in a‘‘new era’’ of FCPA enforcement?
Mike Koehler
: The title of thebook, ‘‘The Foreign Corrupt Prac-tices Act in a New Era,’’ is derivedfrom the November 2010 declara-tion by then-DOJ Assistant AttorneyGeneral Lanny Breuer that ‘‘we arein a new era of [FCPA] enforce-ment; and we are here to stay.’Breuer or others at the DOJ wouldhave to speak to why in 2010 theydeclared a ‘‘new era’’ of enforce-ment as to the FCPA—a statutepassed in 1977. As discussed in thebook, the DOJ’s declaration was cu-rious as not one word of the FCPA has changed since 1998, and it wasnot obvious why a new era of FCPA enforcement should be declared or why FCPA enforcement has materi-ally and dramatically changed overthe last decade.
BBNA
: Is the current enforcementmethod best furthering the pur-poses of the statute, in your opin-ion?
[S]everal companies that haveresolved FCPA enforcementactions or been the subject of FCPA scrutiny have beendesignated, during the same general time period, as being among the ‘‘world’s most ethicalcompanies.’’
Koehler
: For starters, in address-ing bribery and corruption, it istempting to take the position thatbecause bribery (however defined)is inherently bad, all attempts to en-force bribery laws must therefore beinherently good. However, this isnot the position I take in the book and, indeed, as Congress recog-nized in passing the FCPA, briberyis not ‘‘the simple, safe issue itseemed at first blush.’’The main issues associated withthis ‘‘new era’’ of FCPA enforce-ment include whether FCPA en-forcement is consistent with com-monly accepted rule of law prin-ciples, as well as whether the fightagainst bribery and corruption suf-fers from double standards and in-herent inconsistencies.Moreover, as your question sug-gests, there is the issue o whether—37 years after passage of the FCPA—the current enforcementclimate is best accomplishing theFCPA’s original objective of reduc-ing improper payments to ‘‘foreignofficials.’’ I do not believe that it isand, in the book, I propose FCPA re-forms designed to promote compli-ance and thus reduce improper con-duct, increase transparency, andbetter align FCPA enforcement withrule of law principles.
BBNA
: Should companies be con-cerned with increased litigation of derivative claims and related securi-ties claims following FCPA enforce-ment action?
Koehler
: Yes, the FCPA has longtentacles, and FCPA enforcementactions brought by the DOJ and/orSEC are often just one consequenceof FCPA scrutiny in this new era.One of these ‘‘tentacles’’ is the in-crease in FCPA-related civil suits inconnection with a company’s FCPA scrutiny, and an issue explored inthe book is whether such suits serve
 Mike Koehler is a law professor at Southern Illinois University Schoolof Law and was previously a law professor in the College of Businessat Butler University. Professor Koehler has testified before Congresson the FCPA, has served as an expert in FCPA and related matters,and is a frequent speaker before business and academic audi-ences. Leading law reviews and journals have published Professor Koehler’s scholarship, and his work has been cited in legal briefs, judicial decisions, policy papers and Congressional testimony.
COPYRIGHT
 
 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 0886-0475
BNA’s
Corporate Counsel Weekly
 
a purpose or are merely parasitic ac-tions which feed off FCPA scrutinyand enforcement in this new era.So, yes, companies should be con-cerned about increased shareholderlitigation, as well as other aspectsthat have come to define this new era.The question remains, though: hasFCPA scrutiny and enforcement be-come a boondoggle for many in- volved in FCPA Inc. (including plain-tiffs’ lawyers), and has this all be-come just a ‘‘racket’’ (to paraphrasethe title of a Forbes article)?
BBNA
: How have companies seek-ing to defend FCPA enforcement ac-tions been most successful?
Koehler
: In the FCPA’s history,only two companies have mounted anactual legal defense against FCPA charges and put the DOJ to its burdenof proof. In 1991, Harris Corporation(and certain of its executives) pre- vailed in an FCPA trial when the judge granted a verdict of acquittalafter the DOJ’s evidence.In 2011, Lindsey Corporation (andcertain of its executives) were foundguilty by a federal jury of conspiracyto violate the FCPA and substantiveFCPA violations (26 CCW 158,5/18/11). However, the convictions were vacated and the charges dis-missed after the trial court judgefound numerous instances of pros-ecutorial misconduct.Both companies succeeded byforcing the DOJ to prove elementsand by shining a light on the DOJ’sinvestigative methods.
BBNA
: What are the difficulties of complying with this law?
Koehler
: The book exposes the fal-lacy that ‘‘good companies don’tbribe, period’by demonstrating,among other things, that several com-panies that have resolved FCPA en-forcement actions or been the subjectof FCPA scrutiny have been desig-nated, during the same general timeperiod, as being among the ‘‘world’smost ethical companies.’’So why is compliance difficult foreven the most well-managed and well-intentioned companies doingbusiness in the global marketplace? Among other reasons, consider what 99 percent compliance reallymeans. A typical multinational com-pany employs over 10,000 workers as well as over 1,000 third parties (oftenrequired by local law). Even if thiscompany engaged leading compli-ance professionals and spent millionsimplementing FCPA compliance poli-cies and procedures consistent withbest practices, and even if 99 percentof the company’s employees andthird parties abided by the policiesand procedures in all respects on adaily basis, this still means that morethan 100 instances of non-compliance—and thus potentialFCPA scrutiny—occur every day.If a student scores 99 percent onan exam, it is a phenomenal accom-plishment worthy of celebration. If apitcher takes the mound and throws99 percent strikes, it is a phenomenalaccomplishment worthy of celebra-tion. You get the point. Yet when itcomes to 99 percent FCPA compli-ance within a business organization,the company is, subject to the opaquediscretion of the enforcement agen-cies, susceptible to an enforcementaction.There ought to be a more sensibleposition as a matter of law, and I havelong suggested an FCPA compliancedefense applicable when a non-executive employee or agent actscontrary to a company’s pre-existingcompliance policies and procedures. An FCPA compliance defense is sup-ported by a chorus of former high-ranking DOJ officials and would bet-ter align the FCPA with FCPA-likelaws in other jurisdictions.
BBNA
: How far do companies haveto go in overseeing the activities of third party agents working in othercountries? What types of due dili-gence would you recommend?
Koehler
: In passing the FCPA, Con-gress recognized that a direct prohi-bition of payments to ‘‘foreign offi-cials’’ to ‘‘obtain or retain’’ business,by itself, would be ineffective as pay-ments could be funneled to ‘‘foreignofficials’’ through various third par-ties. Thus, the FCPA’s so-called third-party payment provisions apply notonly to direct payments, but pay-ments to any person while ‘‘know-ing’that money will be given orpromised to a ‘‘foreign official.’’ TheFCPA’s knowledge definition encom-passes not only actual knowledge,but so-called constructive knowledgeas well as willful ignorance.
[T]he majority of corporate FCPA enforcement actions concern the conduct of various thirdparties. Companies are wise tohave specific policies andprocedures regarding pre-engagement, engagement andpost-engagement of third parties.
Indeed, the majority of corporateFCPA enforcement actions concernthe conduct of various third parties.Because of this, companies are wiseto have specific policies and proce-dures regarding pre-engagement, en-gagement and post-engagement of third parties. Such policies and pro-cedures include, among other things,pre-engagement due diligence de-signed to illicit information capableof identifying various red flags, me-morializing in a written agreementthe relationship with the third party,and post-engagement monitoring andsupervision of a third party.Even though the FCPA contains abroad knowledge standard, the ques-tion nevertheless must be asked whether the current enforcement en- vironment has created a paranoiaamong companies regarding thirdparties. Companies may be inclinedto start from the mind-set that a thirdparty is corrupt and is an FCPA viola-tion waiting to happen and may en-gage in extensive and expensive duediligence in an attempt to prove thenegative. Such paranoia is often fear-based, not risk-based, not to mentionunfair to the third party, yet is oftenfacilitated by this new era of FCPA enforcement.
BBNA
: The top 10 largest FCPA settlements have occurred just since2008; does this indicate an enforce-ment trend of the agencies seekinghigher penalties?
Koehler
: This is because, to a largeextent, several foreign companiessubject to the FCPA (such as Sie-mens, Total, and Daimler) resolvedlarge historical cases during this timeperiod (23 CCW 385, 12/17/08). More-over, three of the cases in the top 10involve the same historical briberyscheme related to a $6 billion oil andgas project in Nigeria.
2
6-4-14 COPYRIGHT
 
 2014 BY THE BUREAU OF NATIONAL AFFAIRS, INC. CCW ISSN 0886-0475

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