Protect and Maintain the Foreign Corrupt Practices Act (FCPA)
The Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. §§ 78dd-1, et seq., prohibits domestic companies from bribing foreign officials in foreign markets for the purpose of obtaining international business opportunities. The statute prohibits not only bribes paid to foreign officials, but also -- because bribes paid to foreign officials to obtain or retain government contracts are frequently unrecorded -- making false or misleading entries on a company’s books for any purpose.
The FCPA purposefully has a broad reach, extending to any company headquartered in the U.S., any natural persons who are citizens, nationals or residents of the U.S., and any company operating globally with securities registered in the U.S. Importantly, “foreign official” includes not only those directly employed by the government, but also persons employed by commercial enterprises owned or controlled by foreign governments, referred to under the statute as “instrumentalities.”
Significantly, over the last three years the Department of Justice (“DOJ”) has increased substantially the number of enforcement actions against corporations and individual executives. This new vigilance in ferreting out corruption promotes a competitive and fair international playing field and is more vital today than ever. The World Bank estimates that more than $1 trillion in bribes is paid each year – approximately 3% of the world economy, which some suggest amounts to a 20% tax on foreign investment. As the 1977 House Report accompanying the statute’s passage stated, this kind of corruption erodes public confidence in the integrity of the free market system, rewards corruption instead of efficiency, and creates foreign policy problems. And to state the obvious, it’s unethical.
The FCPA Under Assault
Despite the importance of the FCPA, many in the business community, including the Chamber of Commerce, seek to weaken its reach under the guise of “reforming” and “modernizing” the statute for an increasingly competitive global economy, suggesting the statute is impeding U.S. economic growth. Evidence shows otherwise. In fact, in its recent digest on FCPA enforcement trends, one prominent international law firm that represents corporate defendants wrote that on average the fines imposed on violators “call into question some of the outlandish claims made on both sides of the aisle – that the consequences of a FCPA violation are in all cases severe and dissuasive or that the enforcement penalties are out-of-control, extreme, and crippling.” i The same firm said it had “never seen a company put out of business as a result of a FCPA enforcement action.” ii
In describing his experience working in more than 50 developing countries, one commentator noted the FCPA only enhances the stature of Americans doing business abroad rather than limiting opportunities: U.S. companies “may lose the occasional piece of business, but we gain a lot more.”iii Efforts to weaken the scope of the FCPA are nothing short of a tacit endorsement of bribery and unethical behavior. The so-called “reforms” pedaled by the Chamber would only encourage corrupt business practices and subsequently tarnish the image of the U.S. abroad.
Efforts to add a compliance defense should be rejected.
Analysis of DOJ’s enforcement actions indicate the department already considers a company’s compliance efforts in making prosecutorial decisions. In addition, the U.S. Sentencing Guidelines credit a company’s FCPA compliance efforts in determining the appropriate sentencing guideline. Adding a compliance defense might serve to encourage some companies to create so-named, but deliberately ineffective compliance programs to avoid being held accountable for unethical activities
Narrowing the definition of “foreign official” is unnecessary and ignores congressional intent.
While corporations have argued the definition of “foreign official” is overly broad and vague, courts that have considered the issue have rejected this view.”iv One court dismissively noted, “persons of common intelligence would have fair notice of this statute’s prohibitions.”v Moreover, DOJ has issued ample guidance on how it applies “foreign official” in enforcement actions.vi
Adding a “willfulness” requirement is unnecessary.
A review of FCPA enforcement actions shows that DOJ is not prosecuting such cases unless a corporation has engaged in willful criminal conduct. The department follows time-tested legal principles in evaluating whether to charge a corporation, such as the “nature and seriousness of the offense,” the “pervasiveness of wrongdoing within the corporation, including the complicity in, or the condoning of, the wrongdoing by corporate management.” vii
Amending the books-and-records provisions to require the government to show a violation was “knowing” would let corporations off the hook.
Critics argue that because corporations can be liable for the corrupt actions of their subsidiary employees, the books-and-records and internal control provisions are tantamount to “strict liability.” As written, the statute provides strong incentives for corporations to adopt compliance programs. Adding a knowing intent would allow corporations to avoid culpability by deliberately turning a blind eye to violations. Justice department prosecutors, judges and juries, rather than corporations themselves, can determine whether compliance programs were adequate.
Adding a materiality requirement ignores the reality of how bribery works.
Congress understood when enacting the FCPA that corruption often takes the form of small “gifts” or payments made repeatedly over time. A stream of benefits is often part of a larger scheme. Moreover, a review of enforcement actions shows small gifts made over time have never been the primary basis for FCPA actions, which instead focus on larger payments.
Any effort to limit a company’s civil liability for acts of a subsidiary should also be rejected.
As DOJ has said in testimony before the U.S. Senate Judiciary Committee, successor liability is a well-established principle of corporate criminal liability and is imposed only when the facts and circumstances of a particular case warrant such treatment.viii
i Shearman & Sterling LLP, FCPA Digest: Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act, (January 2011), http://www.shearman.com/files/upload/FCPA-Trends-and-Patterns-Jan-2011.pdf (p.3).
iii Raymond Baker, Keeping Commitments, (Dec. 9, 2010), http://www.huffingtonpost.com/raymond-baker/keeping-commitments_b_794153.html.
iv See, e.g., United States v. Nguyen, et al., 2:08-cr-00522-TJS, Dkt. No. 144 (E.D. Pa. Dec. 30, 2009); United States v. Carson, et al., 8:09-cr-00077-JVS, Dkt. No. 373 (C.D. Ca. May 18, 2011); United States v. Aguilar, et al., 8:09-cr-00077-JVS, Dkt. No. 335 (C.D. Ca, Apr. 1, 2011).
v United States v. Esquenazi, et al., 1:09-cr-21010-JEM, Dkt. No. 309 at 3 (S.D. Fla. Nov. 19, 2010).
vi See, e.g., Lay Person’s Guide to the FCPA, http://www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf (the DOJ website also includes documents related to nearly 150 FCPA prosecutions, including charging documents, plea agreements, and relevant pleadings and orders).
vii Examining Enforcement of the Foreign Corrupt Practices Act: Hearing Before the Subcommittee on Crime and Drugs Committee on the Judiciary, 111th Cong. 3 (2010) (Questions for the Record by Senator Amy Klobuchar for Acting Deputy Assistant Attorney General Greg Andres).
viii Examining Enforcement of the Foreign Corrupt Practices Act: Hearing Before the Subcommittee on Crime and Drugs Committee on the Judiciary, 111th Cong. 5 (2010) (Questions for the Record by Senator Christopher A. Coons for Acting Deputy Assistant Attorney General Greg Andres).