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Letter to DOJ and SEC Re. FCPA Guidance

Letter to DOJ and SEC Re. FCPA Guidance

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Published by: accountabilityrdtble on May 21, 2012
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1The Honorable Lanny A. Breuer Robert KhuzamiAssistant Attorney General Director of EnforcementCriminal Division U.S. Securities and ExchangeU.S. Department of Justice Commission950 Pennsylvania Avenue NW 100 F Street NEWashington, D.C. 20530-0001 Washington, D.C. 20549May 16, 2012
RE: Foreign Corrupt Practices Act guidance
Dear Mr. Breuer and Mr. Khuzami:On behalf of the undersigned organizations, we are writing to reiterate our main concerns andexpand upon suggestions as discussed during our consultation meeting on the draft guidancefor the Foreign Corrupt Practices Act held on March 14, 2012.We would also like to address concerns expressed in letters by the U.S. Chamber of Commerceon February 21, 2012
1
and by Senators Chris Coons and Amy Klobuchar on February 15, 2012,
2
 as well as proposals made by the U.S. Chamber Institute for Legal Reform (ILR) in its publication
Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act 
 
(“ILR Report”)
.
3
 
Definitions of “Foreign Official” and “Instrumentality”
 
The guidance should summarize and, if necessary, supplement current case law concerningwhat constitutes an instrumentality of government under the definition of foreign official.However, we have serious concerns about determinations based solely or principally on percentage ownership.
Both the ILR and Senators Coons, Klobuchar and Grassley have requested additional guidance
with respect to what constitutes an “instrumentality” of government under the definition of 
foreign official. As you know, recent case law has created a non-exhaustive list of factors that acompany should take into account when determining whether an entity is an instrumentality of government, and has noted that this is a fact-specific determination.
4
We support the inclusionand expansion of this type of analysis in the guidance.
1
Letter from the U.S. Chamber of Commerce and affiliated businesses to the Honorable Lanny A. Breuer, Assistant AttorneyGeneral, U.S. Department of Justice, and Robert Khuzami, Director of Enforcement, U.S. Securities and Exchange Commission
(Feb. 21, 2012) (hereinafter “Feb. 21 Ltr.”).
 
2
Letter from Senators Amy Klobuchar and Chris Coons to Eric Holder, Attorney General, U.S. Department of Justice (Feb. 15,
2012) (hereinafter “Feb. 15 Ltr.”).
 
3
U.S.
 
C
HAMBER
I
NSTITUTE FOR
L
EGAL
R
EFORM
,
 
R
ESTORING
B
ALANCE
:
 
P
ROPOSED
A
MENDMENTS TO THE
F
OREIGN
C
ORRUPT
P
RACTICES
A
CT
11
 
(2010).
4
 
Rachel Jackson, “Judicial Consensus Growing on ‘Foreign Official’ Criteria,”
 Just Anti-Corruption
, Feb. 28, 2012,
available at 
 
2The Chamber suggests that
in order to create a “clear understanding of the parameters of ‘instrumentality’ and ‘foreign official,’” the DOJ should adopt a policy that would allowcompanies to “identify the percentage ownership or level of control by a foreign government
that ordina
rily will qualify a corporation as an ‘instrumentality.’”
5
This is both surprising andconcerning to us.We are surprised at this position because the U.S. Chamber of Commerce (
the Chamber
),which tax records show is essentially the parent entity of the ILR and is the first signatory on theFeb. 21
 
Ltr.
even ahead of the ILR, knows very well that ownership of companies around theworld, including in the U.S., is impossible to determine independently. Not only is the Chamberaware of the problem, it has vociferously and formally objected to a U.S. legislative proposal torequire disclosure of the beneficial ownership of companies in the United States and continuesto lobby against efforts to do so.
6
The Chamber and ILR are literally standing in the way of theirown proposed solution. In the United States and around the world, it is not necessary toidentify the real shareholders or controllers of a corporation in registration documents. If shareholder information is required, nominee shareholders and legal entities may be identified,and only one level of ownership is ever required. The staff of a U.S. company is not likely to beable to independently verify the direct and indirect ownership of foreign companies. If the DOJand SEC are giving any consideration to this proposal, we recommend that those developing the
guidance discuss the issue with the Chief of the DOJ’s Asset Forfeiture and Money Laundering
Section, Jennifer Shasky Calvery.We are concerned by this proposal because it belies a fundamental confusion with respect tothe FCPA.
“Instrumentality” refers to a function, not a particular legal structure.
If a company oragency acts as an instrument of government policy and is effectively controlled by thegovernment, then it is an instrumentality, regardless of its percentage ownership. This virtue of control can be conferred by law, by overlap of executive officers, or even by unspoken custom,so a percentage ownership threshold is not an adequate line of inquiry. We would not supportDOJ guidance that seeks to overturn this basic premise.
In light of the UK Bribery Act’s prohibition of bribery in all commercial transactions, not just
transactions with foreign officials, a multinational company is unlikely to split hairs with respectto whether an entity is state-owned or not. Criminalization of all forms of commercial bribery is
5
Feb. 21 Ltr.,
supra
note1,at 2-3.
6
 
See
Letter from the U.S. Chamber of Commerce to Senators Joseph Lieberman and Susan Collins (Sept. 13, 2011),
available
 
at 
http://www.centerforcapitalmarkets.com/wp-content/uploads/2010/04/110913_S1483_The-IncorporationTransparencyandLawEnforcementAct_Senate-2.pdf. The Chamber vaunts its advocacy against the Incorporation
Transparency and Law Enforcement Assistance Act on its own website: “Due to Chamber lobbying and outreach, Senat
or CarlLevin dropped plans to offer S.1483, the Incorporation Transparency and Law Enforcement Assistance Act as an amendment tothe Homeland Security Authorization bill. This bill would place additional regulatory disclosure requirements on all business
entities in the United States.”
U.S. Chamber of Commerce, Capital Markets, Corporate Governance, and Securities Regulation:Policy Accomplishments for 2011,
at  
 
3also recommended in the UN Convention Against Corruption, to which the United States is aparty.
Compliance Programs And Compliance Defense
The guidelines should include best practices for compliance programs and details on DOJ’s
consideration of these programs in prosecutions. However, compliance programs should not constitute a defense to FCPA violations.
The Chamber and Senators Klobuchar and Coons have argued for the DOJ to provide guidanceconcerning what constitutes an effective compliance program, as well as to define the benefitscompanies will receive for having compliance programs.T
he Chamber’s
analysis of what information about compliance programs is currently available isincomplete, however. The Chamber cites the U.S. Department of Justice Principles of Federal
Business Organizations and the SEC “Seaboard Factors” as b
eing too general, and references
the “Corporate Compliance Program” (Attachment C) section of Deferred Prosecution
Agreements (DPAs) and Non Prosecution Agreements (NPAs), as having limited marginalutility.
7
In addition to the dismissal of these carefully calibrated standards, the Chamber alsoneglects to mention the U.S. Sentencing Guidelines or the Organization for Economic Co-
operation and Development’s (OECD) Good Practice Guidelines.
Between these guidelines,there is more than enough clarity on the steps a company needs to take to enact an effectivecompliance program.Common factors in these sources include:A clearly articulated and visible corporate policy against bribery with involvement bytop leadership and which extends throughout organizationUse of risk assessmentOngoing assessmentInternal financial and accounting controlsTraining and ongoing advice and guidance to prevent violationsOversight and compliance of business partners and agentsDiscipline and cooperation with enforcement authoritiesProtections to prevent retaliation against employees who report violations.
8
 
7
Feb. 21 Ltr.,
supra
note1,at 4.
8
 
See
U.S.
 
S
ENTENCING
G
UIDELINES
M
ANUAL
 
 
§ 8D2.1(2010); Attachment C in Panalpina Word Transport DPA,
available at 
 
;Tidewater Marine International DPA,
available at 
available at 
available at 
 
;and Pride International DPA,
available at 
 
;s
ee also
Thomas Fox,
DOJ Guidance on FCPA Compliance Program
 (Nov. 13, 2010),
at 
 http://www.infosecisland.com/blogview/9531-DOJ-Guidance-on-FCPA-Compliance-Programs.html (outlining common features of compliance programs in DPAs and NPAs); OECD
 
W
ORKING
G
ROUP ON
B
RIBERY IN
I
NTERNATIONAL
B
USINESS

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