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WHITE COLLAR CRIME REPORT!
VOL. 6, NO. 4 166-172 FEBRUARY 25, 2011
Reproduced with permission from White Collar Crime Report, 6 WCR 166, 02/25/2011. Copyright 2011 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com
Foreign Corrupt Practices Act Enforcement in 2010: Big, Bold, and Bizarre
BY MIKE KOEHLER
Mike Koehler is an assistant professor of business law at Butler University. Koehler is the author of the FCPA Professor Blog (http:// fcpaprofessor.blogspot.com). His FCPA expertise and views are informed by a decade of legal practice at a leading international law ﬁrm.
n 2010, Assistant Attorney General Lanny Breuer proclaimed ‘‘a new era of Foreign Corrupt Practices Act enforcement; and we are here to stay.’’1 The first year of this new era witnessed several developments. This article provides an overview of the year that was and describes the big, bold, and bizarre year in FCPA
1 Department of Justice Release, ‘‘Assistant Attorney General Lanny A. Breuer Speaks at the 24th National Conference on the Foreign Corrupt Practices Act’’ (November 16, 2010).
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2 enforcement; the increased scrutiny of the FCPA and FCPA enforcement; and events related to the FCPA as well as other anti-corruption laws and initiatives.
Very Proﬁtable Year. How big was FCPA enforcement in 2010? Big—$1.4 billion big, which was the amount of combined fines and penalties in FCPA enforcement actions. Both the Justice Department and the Securities and Exchange Commission brought approximately 20 corporate enforcement actions, with DOJ assessing approximately $870 million in criminal fines and the SEC assessing approximately $530 million in civil penalties and disgorgement.2 FCPA enforcement has become so prominent for DOJ that 50 percent of the total amount of fines and penalties secured by DOJ’s Criminal Division in 2010 were in FCPA enforcement actions.3 As DOJ’s former assistant chief for FCPA enforcement candidly stated, ‘‘The government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore.’’4
So big was FCPA enforcement in 2010 that eight of the top 10 enforcement actions of all time occurred during the year.5 In comparison, in 2000 there was one FCPA enforcement action—by the SEC—and the total penalty amount was $300,000. The past decade has thus witnessed a remarkable transformation—not as to the FCPA itself (which has not changed since 1998), but as to FCPA enforcement and theories of prosecution. Much of the magnitude of FCPA enforcement in 2010 was a function of foreign companies (with shares listed on U.S. exchanges or otherwise allegedly subject to the FCPA based on various jurisdictional theories) engaging in conduct in apparent violation of the FCPA. In fact, approximately 90 percent of 2010 FCPA fines and penalties were paid by foreign companies. For instance, the five largest FCPA enforcement actions in 2010 were all against foreign companies: s Snamprogetti Netherlands BV ($365 million in combined fines and penalties) (5 WCR 498, 7/16/10); s Technip SA ($338 million) (5 WCR 467, 7/2/10); s Daimler AG ($185 million) (5 WCR 205, 3/26/10); s Alcatel-Lucent SA ($137 million) (5 WCR 925, 12/31/10); and s Panalpina Inc. ($81.8 million) (5 WCR 802, 11/19/10). These enforcement actions were largely based on conduct that occurred nearly a decade ago—a time when compliance norms and expectations (particularly in non-U.S. companies) were not nearly what they are today.
2 DOJ’s figure does not include the $400 million fine paid by BAE Systems Plc (a non-FCPA enforcement action), and the SEC figure does not include the $50 million the commission assessed, but waived, against Innospec based on its claimed inability to pay. 3 DOJ press release, Department of Justice Secures More Than $2 Billion in Judgments and Settlements as a Result of Enforcement Actions Led by the Criminal Division (Jan. 21, 2011). 4 See Joseph Rosenbloom, Here Come the Payoff Police, American Lawyer (May 17, 2010) (quoting William Jacobson). 5 See FCPA Blog, Recent Cases, Foreign Companies Dominate New Top Ten (Jan. 5, 2011). This ranking includes the BAE enforcement action.
Current Trend. The trend of foreign companies comprising a large percentage of FCPA enforcement actions is likely to continue, albeit perhaps not at the 2010 level. Certain of the medical device and pharmaceutical companies that have disclosed FCPA issues are foreign companies, and there is an increasing trend of Chinabased companies issuing shares on U.S. exchanges, thus making those companies subject to the FCPA. Not only was FCPA enforcement big in 2010, but so too were the reported fees companies paid in connection with FCPA inquiries and investigations. Avon Products has not yet settled an FCPA enforcement action, yet the company has disclosed that its professional costs in connection with its internal inquiry and investigation of conduct in China and other countries is near $100 million.6 On a much smaller—yet still meaningful—scale, in August 2009 Team Inc. disclosed that an internal investigation conducted by FCPA counsel found evidence suggesting payments totaling $50,000 over a five-year period in its Trinidad branch (a branch representing approximately one-half of 1 percent of the company’s overall revenue) may have violated the FCPA.7 In October, the company disclosed that its total professional costs associated with the investigation have risen to approximately $3.2 million.8 These two examples of pre-enforcement action professional fees raise the question of whether FCPA inquiries and investigations (even as to conduct limited in scope) legitimately result in extensive professional fees or whether, in the name of cooperation, FCPA inquiries and internal investigations have turned into a boondoggle for many involved. Big describes not only corporate FCPA enforcement in 2010 but individual FCPA enforcement as well. While the enforcement agencies’ FCPA programs remain largely corporate enforcement programs, 2010 did witness the largest-ever coordinated individual enforcement action in the FCPA’s history as 22 ‘‘executives and employees of companies in the military and law enforcement products industry’’ were charged with engaging in a scheme to ‘‘pay bribes to the minister of defense for a country in Africa.’’9 The FCPA sting enforcement action was not only big but bold and bizarre as well. As to bold, the enforcement action was not the first time DOJ had used undercover tactics in an FCPA enforcement action, but the Africa sting case was certainly the most dramatic, with nearly all of the defendants being arrested while attending a trade show in Las Vegas after months of surveillance and monitoring by the FBI. As to bizarre, Richard Bistrong, a person who had already pleaded guilty to separate FCPA violations, assisted the FBI in concocting a scheme in which FBI agents posed as representatives of an imaginary Gabonese minister of defense whom the defendants allegedly intended to influence with improper payments. The past year also witnessed a big individual sentence, the longest in the FCPA’s history. While a clear trend emerged in 2010 of sentencing judges significantly rejecting DOJ sentencing recommendations in
Avon Products Inc., Form 10-Q filing (Oct. 28, 2010). Team Inc. Form 8-K filing (Aug. 4, 2009). 8 Team Inc. Form 10-Q filing (Oct. 8, 2010). 9 See 5 WCR 62 (1/29/10); DOJ press release, Twenty-Two Executives and Employees of Military and Law Enforcement Products Companies Charged in Foreign Bribery Scheme (Jan. 19, 2010).
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3 individual prosecutions and sentencing individual FCPA defendants to approximately one year in prison, Charles Jumet’s sentence was an outlier. In April, Jumet was sentenced to 87 months, which included 60 months on a conspiracy to violate the FCPA charge and 27 months on a false statements charge in connection with $200,000 in improper payments to Panamanian officials to receive a lighthouse and buoy contract.10 gence, the enforcement agencies continue to take an expansive view of the ‘‘obtain or retain business’’ element of the FCPA and seemingly ignore the act’s express exception for so-called facilitating or expediting payments. When a group of large multinational companies collectively settle FCPA enforcement actions for approximately $236 million, it seems odd to ask whether the conduct at issue even violated the FCPA. Yet this question is warranted in the November Panalpina-related enforcement actions, where the conduct at issue largely involved obtaining permits and licenses from the notoriously corrupt Nigerian Customs Service and other conduct, such as expedited delivery services and payments to customs, tax, and other ministerial officials in several countries.14 While some find facilitating payments to be a corrupt payment under a different name and while a compliance trend is to prohibit such payments, the fact remains that the FCPA contains an express exception for such payments, and it is this statute that the enforcement agencies are obligated to enforce. Should the United States seek to prohibit facilitating payments (as does the recently enacted U.K. Bribery Act), this is a decision for Congress, not for the enforcement agencies through charging decisions that corporate defendants are, for all practical reasons, unable to challenge. The past year witnessed several other bold enforcement theories, beginning with the first enforcement action of the year, against NATCO Group.15 In that case, the SEC alleged that the company’s wholly owned subsidiary in Kazakhstan was on the receiving end of extortionate demands by immigration officials. The company complied with the demands and made approximately $45,000 in payments to the officials. However, the SEC alleged that the payments were not properly recorded in the subsidiary’s books and records and, without alleging a single fact to suggest that NATCO was involved or had knowledge of the conduct at issue, charged NATCO with FCPA books-and-records and internal-control violations. Similarly bold were certain of the SEC’s allegations against Joe Summers, a nominal employee of Pride International in Venezuela.16 Among other allegations supporting the SEC’s FCPA anti-bribery charges against Summers was that Pride was having difficulty collecting certain bona fide receivables from Venezuela’s alleged state-owned or state-controlled oil company. According to the SEC, a mid-level employee at the oil company refused to release the funds owed to Pride unless a $30,000 payment was made to him, and Summers authorized the payment. Other bold enforcement theories from 2010 included the SEC charging a non-issuer and a company settling an FCPA enforcement action even though the company
14 See 5 WCR 802 (11/19/10); DOJ press release, Oil Services Company and Freight Forwarding Company Agree to Resolve Foreign Bribery Investigations and Pay More Than $156 Million in Criminal Penalties—SEC and Companies Agree to Civil Disgorgement and Penalties of Approximately $80 Million (Nov. 4, 2010). 15 SEC press release, SEC Files Settled Civil Action Charging NATCO Group Inc. with Violations of the Foreign Corrupt Practices Act (Jan. 11, 2010). 16 SEC press release, SEC Charges Former Employee of Pride International with Violating the Foreign Corrupt Practices Act (Aug. 5, 2010).
FCPA enforcement in 2010 was also bold as the enforcement agencies, largely enforcing the statute against cooperating defendants and without any meaningful judicial scrutiny, continued to push the envelope in terms of enforcement theories. For instance, a key element of an FCPA anti-bribery violation is the involvement of a ‘‘foreign official,’’ defined as ‘‘any officer or employee of a foreign government or any department, agency, or instrumentality thereof.’’ The enforcement agencies continue to interpret this key element, contrary to congressional intent in enacting the FCPA, to include employees of alleged state-owned or state-controlled enterprises (often enterprises with publicly traded stock, doing business all over the world, and possessing other attributes of private business) on the theory that the enterprise is an ‘‘instrumentality’’ of a foreign government. In 2010, approximately 60 percent of corporate FCPA enforcement actions involved (in whole or in part) employees of SOEs—an enforcement theory that also impacted several related individual prosecutions in 2010. The ownership threshold for what constitutes an SOE in the enforcement agencies’ view dropped as well in 2010. In the Alcatel-Lucent enforcement action, the SEC and DOJ charged that Telekom Malaysia Berhad (TM) was a state-owned and controlled telecommunications provider because the Malaysian Ministry of Finance owned approximately 43 percent of TM’s shares, had veto power over all major expenditures, and made important operational decisions.11 Yet TM is one of Asia’s leading communications companies, has approximately 25,000 employees, describes itself as privatized, and reports a shareholder base of approximately 35,000 institutional and private/retail investors.12 The enforcement agencies’ dubious legal interpretation did receive a greenhorn challenge13 in 2010, yet this interpretation remains ripe for a sophisticated challenge, and a meaningful, merits-based judicial review is warranted.
Agencies Continue to Stretch Boundaries. The ‘‘foreign official’’ element is not the only key FCPA element that was often stretched beyond congressional intent by the enforcement agencies in 2010. Keeping with a trend that has developed during this era of the FCPA’s resur10 See 5 WCR 289 (4/23/10); DOJ press release, Virginia Resident Sentenced to 87 Months in Prison for Bribing Foreign Government Ofﬁcials (April 19, 2010). 11 United States v. Alcatel-Lucent SA, No. 1:10-cr-20906 (S.D. Fla. Dec. 27, 2010) (5 WCR 925, 12/31/10). 12 FCPA Professor, Foreign Ofﬁcial Limbo . . . How Low Can it Go? (Jan. 10, 2011). 13 FCPA Professor, Judge Denies Esquenazi’s Foreign Ofﬁcial Challenge (Nov. 23, 2010).
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4 did nothing wrong. In November, the SEC charged Panalpina, a non-issuer, with FCPA violations and collected approximately $11.3 million in disgorgement on the jurisdictional theory that Panalpina acted as an agent for certain of its issuer-customers and violated the FCPA by masking the true nature of bribe payments in invoices submitted to its issuer customers that allowed the customers to then violate the FCPA.17 In August, tobacco company Alliance One agreed to pay approximately $9.5 million based entirely on a successor-liability theory that it was legally responsible for the conduct of companies it acquired.18 charged with FCPA violations and other offenses on the basis of allegations that he made more than $78 million in unlawful payments to two senior Kazakhstan officials in connection with oil transactions for major American oil companies. The case proceeded slowly, largely due to Giffen’s defense that his actions were taken with the knowledge and support of the Central Intelligence Agency, the National Security Council, the Department of State, and the White House. In August, the case came to an abrupt and mysterious conclusion as Giffen pleaded guilty to a one-paragraph superseding criminal information charging a misdemeanor tax violation.22 In November, the presiding judge stated that Giffen was a Cold War hero and commented that the case should have never been brought in the first place.
FCPA enforcement in 2010 was more than just big and bold, it was also bizarre. In February, DOJ alleged that BAE Systems, one of the largest defense contractors in the world, provided ‘‘substantial benefits’’ to a Saudi public official in a position of influence regarding lucrative fighter jet contracts secured by the company.19 According to DOJ, BAE provided million in benefits, such as the purchase of travel and accommodations, security services, real estate, automobiles, and personal items, through various payment mechanisms both in the territorial jurisdiction of the United States and elsewhere. Despite these allegations, DOJ did not charge BAE with violating the FCPA, even though the company did agree to pay a $400 million criminal fine based on a non-FCPA charge. The lack of FCPA charges against BAE was bizarre, but the strangeness continued even after the enforcement action. In September, BAE, after already securing numerous multimillion-dollar U.S. government contracts in the months after the enforcement action, announced that the FBI (the same government agency that assisted in the BAE investigation giving rise to the $400 million enforcement action) awarded the company a $40 million information security contract.20 The final bizarre twist in the BAE case concerned the independent compliance required per the plea agreement, which stated that the monitor shall have ‘‘sufficient independence from [BAE] to ensure effective and impartial performance of the monitor’s duties.’’ However, the monitor blessed by the Justice Department is a lawyer with a U.K. law firm that has previously represented BAE and a law firm that represented the Saudi official who was the alleged recipient of the improper payments giving rise to the enforcement action that required the monitor in the first place.21 Bizarre also best describes the individual enforcement against James Giffen—an action that mysteriously concluded in 2010. In 2003, Giffen was criminally
17 SEC press release, SEC Charges Panalpina with Violating the Foreign Corrupt Practices Act (Nov. 4, 2010). 18 See 5 WCR 562 (8/13/10); DOJ press release, Alliance One International and Universal Corporation Resolve Related FCPA Matters Involving Bribes Paid to Foreign Ofﬁcials (Aug. 6, 2010). 19 See 5 WCR 178 (3/12/10); DOJ press release, BAE Systems Plc Pleads Guilty and Ordered to Pay $400 Million Criminal Fine (March 1, 2010). 20 BAE press release, BAE Systems to Provide Cyber Security to FBI in $40 Million Order (Sept. 21, 2010). 21 FCPA Professor, Is BAE’s Monitor Independent? (Sept. 2, 2010).
Against the backdrop of a big, bold, and bizarre year in FCPA enforcement, 2010 also witnessed increased scrutiny of the FCPA and its enforcement from all directions, including judges, Congress, and other interested individuals and organizations.
Judicial Scrutiny. While FCPA enforcement is largely devoid of judicial scrutiny, 2010 did provide certain opportunities for someone other than the enforcement agencies to make judgments about some aspect of FCPA enforcement—even if not as to the FCPA’s core elements. Most notably, in October, Judge Jackson L. Kiser, of the U.S. District Court for the Western District of Virginia, rejected DOJ’s 38-month sentencing recommendation for FCPA defendant Bobby Elkin, a tobacco company executive who previously pleaded guilty to conspiracy to violate the FCPA for paying and authorizing payments to various Kyrgyzstan officials. In sentencing Elkin to three years’ probation and allowing him to return to Kyrgyzstan to start anew in the tobacco industry, Kiser invoked accounts of the CIA bribing warlords in Afghanistan as a parallel that ‘‘sort of goes to the morality’’ of the situations commonly found in FCPA enforcement actions.23 Kiser’s rejection of DOJ’s sentencing recommendation was part of a noticeable trend in 2010 in which judges significantly rejected DOJ sentencing recommendations as to other FCPA defendants as well.24 Sentencing issues are one of the few areas of FCPA enforcement in which the judiciary plays an active role and in which an adversarial process is on display. Thus, this sentencing trend is meaningful and perhaps foreshadows future judicial concerns regard22 See 5 WCR 561 (8/13/10); DOJ press release, New York Merchant Bank Pleads Guilty to FCPA Violation; Bank Chairman Pleads Guilty to Failing to Disclose Control of Foreign Bank Account (Aug. 6, 2010). 23 See 5 WCR 561 (8/13/10); Mike Ganglof, Judge Gives Tobacco Exec Probation, Fine for Bribery, ROANOKE TIMES (Oct. 22, 2010). 24 In December, a federal district judge in California sentenced Leo Winston Smith to six months’ imprisonment, rejecting DOJ’s 37-month sentencing recommendation; in September, a federal district judge in Pennsylvania sentenced Nam Nguyen to 16 months’ imprisonment, rejecting DOJ’s 14-17 year sentencing recommendation and also rejecting DOJ’s recommendations as to other related defendants; and in August, a federal district judge in California sentenced Gerald and Patricia Green to six months’ imprisonment, rejecting DOJ’s 10-year sentencing recommendation.
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5 ing DOJ’s substantive positions in FCPA enforcement actions—should more FCPA defendants actively mount a legal defense. char asked whether DOJ had planned on increasing FCPA guidance to the business community, and Andres responded that the department is open to having such discussions. Sen. Christopher Coons (D-Del.) stated that he ‘‘would welcome the opportunity’’ to work on ‘‘potential amendments to the [FCPA] that would allow clarification on the definition of foreign official and the creation of a compliance defense.’’
Congressional Scrutiny. Even before the Senate’s November hearing, described below, members of Congress were already asking pointed questions as to certain features of FCPA enforcement. In May, Sen. Arlen Specter (D-Pa.) of the Senate Judiciary Committee grilled Breuer about the lack of individual prosecutions in the record-setting Siemens enforcement action—an enforcement action in which the enforcement agencies alleged that Siemens was engaged in a pattern of bribery unprecedented in scale and geographic reach.25 Also in May, Rep. Edolphus Towns (D-N.Y.) released a letter to Attorney General Eric Holder expressing the concern of the House Committee on Oversight and Government Reform that settlements of certain civil and criminal cases by DOJ, including certain FCPA enforcement actions, ‘‘are being used as a shield to foreclose other appropriate remedies, such as suspension and debarment, that protect the government from continuing to do business with contractors who do not have satisfactory records of quality performance and business ethics.’’26 Congressional scrutiny of the FCPA reached an apex in November when Specter (then chairman of the Senate Judiciary Committee’s Subcommittee on Crime and Drugs) called an oversight hearing to examine enforcement of the FCPA. In opening the hearing, Specter stated that his concerns regarding certain features of FCPA enforcement were heightened by the November Panalpina-related enforcement actions.27 During the hearing, several witnesses, including this author, testified: s Greg Andres, acting deputy assistant attorney general for DOJ’s Criminal Division, provided an overview of the Justice Department’s FCPA enforcement program. s I provided a critique of DOJ’s charging decisions in the most egregious cases of corporate bribery as well as DOJ’s prosecution of individuals. s Andrew Weissmann, of Jenner & Block LLP, New York, who appeared on behalf of the U.S. Chamber of Commerce, suggested potential reforms to the FCPA, including an affirmative compliance defense and clarification of the ‘‘foreign official’’ element. s Michael Volkov, of Mayer Brown, Washington, D.C., proposed a more balanced enforcement approach and suggested a corporate self-compliance limited amnesty program. Also during the hearing, Sen. Amy Klobuchar (DMinn.) noted that ‘‘one of the basic principles of due process is that people in companies have to be able to know what the law is in order to comply with it.’’ She stated that ‘‘many very good standing companies [in her state of Minnesota] . . . do not always know what behavior will trigger an enforcement action.’’ Klobu25 FCPA Professor, Breuer—Siemens Investigation (As to Individuals) Remains Open (May 10, 2010). See also 5 WCR 860 (Senate hearing), and 3 WCR 858 (Siemens case). 26 FCPA Professor, Congressman Towns is Asking the Right Questions (May 24, 2010). See also 5 WCR 400 (6/4/10). 27 FCPA Professor, Examining Enforcement of the FCPA (Dec. 1, 2010) (containing a link to C-SPAN coverage of the hearing and the prepared statements of witnesses). See also 5 WCR 860 (12/3/10).
Other Scrutiny. Scrutiny of the FCPA and its enforcement in 2010 was not confined just to the judiciary and Congress. In July, Transparency International (TI) released its annual Progress Report on Enforcement of the Organisation for Economic Cooperation and Development Convention.28 Without specifically mentioning the United States, TI nevertheless called for a study ‘‘on the use of negotiated settlements to resolve foreign bribery cases’’ given that these agreements ‘‘could be questionable deals between prosecutors and politically influential companies.’’ TI also called for all settlements to be ‘‘submitted to judicial review independent from the Prosecutor’s Office.’’ In addition, TI questioned whether the marked increase in global enforcement of anti-bribery laws is actually making a difference, and it stated that ‘‘while the amounts paid by companies are rising steadily in some jurisdictions, the question remains whether there is adequate deterrence.’’ In October, the OECD released its much-anticipated ‘‘Phase 3’’ report on U.S. implementation and enforcement of the OECD Convention—in other words, its review of U.S. FCPA enforcement efforts and policies.29 While the OECD did generally commend U.S. enforcement efforts, the report contained some peculiar contradictions. For instance, while loudly praising the United States for its ‘‘high level’’ of enforcement, the OECD quietly criticized and questioned many of the policies and enforcement theories that yield the ‘‘high level’’ of enforcement. The OECD noted that the FCPA’s language ‘‘does not specifically convey’’ that cases concerning ‘‘an operating license or permit to operate a business, or a reduction in tax or import duty’’ are in violation of the statute. Yet the previously mentioned Panalpina-related enforcement actions were principally based on this theory. Further, the OECD noted that ‘‘due to an absence of explicit language in the definition of foreign official’’ it is an open question whether employees of so-called state-owned or state-controlled enterprises are ‘‘foreign officials’’ under the FCPA. However, approximately 60 percent of corporate FCPA enforcement actions in 2010 were based, in whole or in part, on this theory. The OECD also noted that the increase in deferred prosecution and nonprosecution agreements ‘‘are one of the reasons for the impressive FCPA enforcement record in the U.S.’’ Yet the OECD noted that these agreements are subject to little or no judicial scrutiny. Finally, no discussion of FCPA scrutiny in 2010 would be complete without mentioning Forbes’s provocative article, The Bribery Racket—How Federal
FCPA Professor, Report Cards (Aug. 12, 2010). FCPA Professor, The OECD Report—Initial Observations (Oct. 21, 2010), available at http://fcpaprofessor.blogspot.com/ 2010/10/oecd-report-initial-observations.html. See also 5 WCR 734 (10/22/10).
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6 Crackdown on Bribery Hurts Business And Enriches Insiders. The article took issue with several features of ‘‘a thriving and lucrative anti-bribery complex’’ and noted, on the basis of comments from DOJ’s former head of FCPA enforcement in the mid-1980s, that the increase in FCPA enforcement 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 [themselves] a job.’’30 court. Yet all FCPA enforcement actions are routinely settled by companies via a resolution vehicle that does not require the company to admit or deny the SEC’s allegations. Thus, a settled Commission FCPA enforcement action does not necessarily represent the triumph of the SEC’s legal position over the company’s; rather, it reflects a risk-based decision primarily grounded in issues other than facts and the law. Against this backdrop, the wisdom of rewarding a whistleblower when the contours of the FCPA largely remain undefined by the courts and when companies, for reasons other than law or fact, do not even mount a legal defense is debatable. In November, the SEC issued proposed rules to govern various aspects of the whistleblower program, and the rules are expected to be finalized in the first quarter of 2011.31 Another Dodd-Frank provision that could affect FCPA enforcement is Section 1504, Disclosure of Payments by Resource Extraction Issuers. This miscellaneous provision was inserted into the act during final congressional negotiations. Written in broad terms, the provision would generally require ‘‘resource extraction issuers’’ to include in their annual report information relating to any payment made by the issuer or related entities to a ‘‘foreign government’’ for ‘‘the purpose of the commercial development of oil, natural gas, or minerals.’’ Like Dodd-Frank’s whistleblower provisions, the SEC issued proposed rules regarding the disclosure requirements, and the rules are expected to be finalized in the first quarter of 2011.
This past year also witnessed several significant developments related, albeit indirectly, to the FCPA and FCPA enforcement.
Debarment. One interesting, surprising, and controversial aspect of FCPA enforcement is that the U.S. government remains a lucrative customer for many FCPA violators, including some of the most egregious violators. In September, the House unanimously passed H.R. 5366, the Overseas Contractor Reform Act. The act generally provides that a corporation ‘‘found to be in violation of the [FCPA’s anti-bribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such a violation.’’ However, because of the frequent use of nonprosecution agreements and deferred-prosecution agreements in the FCPA context, very few companies are actually ‘‘found to be in violation’’ of the FCPA’s anti-bribery provisions. The act’s sponsor, Rep. Peter Welch (D-Vt.), remains in Congress, and it is likely that the bill will be re-introduced in the 112th Congress. If Congress concludes that imposing a debarment penalty on companies that commit FCPA anti-bribery violations represents sound public policy, which it does in egregious instances of corporate bribery that satisfy the elements of an FCPA anti-bribery violation involving high-level executives and/or board participation, the challenge will be to draft a law that can be effective in the face of largely unreviewable enforcement agency discretion. Dodd-Frank. In July, President Obama signed the Dodd–Frank Wall Street Reform and Consumer Protection Act. The wide-ranging act contains at least two provisions that could affect FCPA enforcement. Section 922 of Dodd-Frank amended the Securities Exchange Act of 1934 by creating a new section, Securities Whistleblower Incentives and Protection. The new section applies to all securities law violations, and the FCPA is part of the Exchange Act. Under the provisions, a qualifying whistleblower who voluntarily provides original information to the SEC that leads to the successful enforcement of a covered judicial or administration action shall be entitled to an award between 10 percent and 30 percent of the recovered amount. While the whistleblower provisions may represent sound policy as to other securities law violations, it is questionable whether the provisions are sound policy as applied to FCPA enforcement. Against the backdrop of little substantive FCPA caselaw, the FCPA is enforced largely on dubious government enforcement agency interpretations that have never been fully examined by a
The United States is not the only country with an anti-bribery law on its books, and 2010 saw certain countries continue an escalation in enforcement while other countries enforced their law for the first time. The United Kingdom received much of the attention in the past year—both in terms of enforcement of its existing law and its passage and preparation of the new Bribery Act.32 In March, the U.K. Serious Fraud Office (SFO) (an agency similar to DOJ) and DOJ announced a first-ever joint enforcement action against Innospec for bribery and corruption in Iraq and Indonesia.33 However, the SFO’s use of a DOJ-style negotiated plea was harshly criticized by one of the highest-ranking U.K. criminal judges. Among other things, the justice noted that it is for the court, not the prosecuting agency, to determine the sanction for criminal conduct and concluded that the ‘‘the Director of the SFO had no power to enter into the arrangements made and no such arrangements should be made again.’’34 The United Kingdom has long had a hodgepodge of antiquated bribery and corruption laws. However, the ineffectiveness of these laws has long been an issue and was most dramatically highlighted in 2010 in relation to the SFO’s BAE prosecution. In addition to the U.S. prosecution of BAE described above, the SFO also reached
5 WCR 769 (11/5/10). See 5 WCR 609 (8/27/10). 33 SFO press release, Innospec Limited Prosecuted for Corruption by SFO (March 18, 2010). See also 5 WCR 211 (3/26/10). 34 FCPA Professor, Lord Justice Thomas’s Innospec Sentencing Remarks (April 6, 2010).
FCPA Professor, The Bribery Racket (May 6, 2010). COPYRIGHT
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7 an agreement with BAE in which the company pleaded guilty to the offense of ‘‘failing to keep reasonably accurate accounting records in relation to its activities in Tanzania.’’35 This narrow prosecution of BAE sparked much controversy, as U.K. agencies were investigating BAE for several years for conduct all over the world, including in Saudi Arabia—a prong of the investigation halted after pressure from the U.K. government and its national security concerns should the investigation go forward. In responding to judicial challenges to the BAE plea agreement, the SFO explained, among other things, that under existing U.K. law it encountered difficulty in proving the involvement of a ‘‘controlling mind’’ (i.e., a board member or executive officer) in the conduct at issue.36 As in the Innospec matter, the SFO also received a stern rebuke from the presiding justice, who noted that, despite the accounting-only charges, an ‘‘obvious inference’’ from the allegations was that a ‘‘bribe’’ was paid to win a lucrative contract.37 The justice called the BAE-SFO plea agreement ‘‘loosely and hastily drafted’’ but said he could not ‘‘sentence for an offense which the prosecution failed to charge.’’ The SFO’s prosecution of BAE ended with BAE being fined £500,000 ($810,850) and agreeing to pay a charitable payment of approximately £30 million ($48.6 million) for the benefit of Tanzania. The past year also saw much coverage of the U.K.’s passage and preparation of a new Bribery Act. Enacted in April, the act—a law both more expansive than the FCPA (given its application to commercial transactions and its lack of a facilitating-payment exception) and
SFO press release, BAE Systems Plc (Feb. 5, 2010). FCPA Professor, BAE . . . Inside the SFO (April 30, 2010). FCPA Professor, U.K. Judge Reluctantly Accepts the Loosely and Hastily Drafted SFO-BAE Plea Agreement (Dec. 22, 2010).
36 37 35
more narrow than the FCPA (given its adequateprocedures defense)—was scheduled to go live in the fall. However, in July the U.K. Ministry of Justice announced that implementation of the Bribery Act would be delayed until April 2011. Recently, the Ministry of Justice announced that the Bribery Act will be delayed further and will not enter intor force until three months after the Ministry of Justice publishes guidance as to certain of the Act’s provisions.38 Whenever the Bribery Act goes live, it is likely that its enforcement will be disciplined and measured, notwithstanding the numerous doomsday predictions.
The Road Ahead
With a ‘‘new era of FCPA enforcement’’ declared, the year ahead will likely see many of the same big, bold, and bizarre developments of 2010. Among other inquiries that may turn into enforcement actions this year are the pharmaceutical industry sweep and further scrutiny of the financial services industry and sovereign wealth funds—both inquiries largely dependent on the enforcement agencies’ ‘‘foreign official’’ interpretation described above.39 At the same time, increased scrutiny of the FCPA and FCPA enforcement is also expected to escalate in the coming year. It is likely that additional congressional hearings will be held on the FCPA and that FCPA reform bills will be introduced in Congress. This year also presents the opportunity for much-needed judicial scrutiny of FCPA enforcement actions, such as the appeal by Frederic Bourke, and the potential for certain developments that may significantly change the FCPA enforcement landscape.
See 6 WCR 113 (2/11/11). See 6 WCR 70 (1/28/11).
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