Why FCPA Opinion Procedure Releases Are Broken and How to Fix Them

A couple months ago there was a rare sighting in the world of the Foreign Corrupt Practices Act (FCPA): a Department of Justice (DOJ) opinion procedure release. If you have no clue what an opinion procedure release is, don’t feel bad – if you aren’t an FCPA specialist, there’s a good chance you’ve never heard of them. Under 15 U.S.C. § 78dd-1(e), the DOJ is required to establish a procedure to provide advisory opinions to companies on whether contemplated conduct would conform with FCPA requirements. Regulations promulgated under this provision established “opinion procedure releases” – non-binding, public guidance opinions that provide companies with an indication of how the DOJ would treat a particular action. The releases are quite rare, however. Only 38 have been issued since 1993, and only four have been issued since 2012.

It’s probably fair to say that opinion procedure releases aren’t serving the purpose Congress originally intended for them. Congress presumably recognized that because the FCPA’s provisions are vague and consequences of violation can be severe, businesses require a way of ensuring that their contemplated conduct is within legal bounds. These concerns are even more pressing in 2014 as they were when the FCPA was passed in 1977, given that the DOJ and SEC are attempting to expand the FCPA’s reach through creative legal arguments, and multinational companies expanding into emerging markets that present new cultural and legal challenges. Companies constantly complain about legal uncertainty under the FCPA, yet the statutory mechanism designed to alleviate this problem is hardly used. Why?

A few reasons are already well-understood by FCPA practitioners. As others have noted, the application process for an advisory opinion can be onerous. Although the DOJ is supposed to provide a response within 30 days of the request, that’s too long to wait when companies that have to make quick decisions in a fluid business environment. Also, even if the DOJ does not object to the proposed conduct, the company risks putting itself on the radar of FCPA enforcers when it would prefer to remain inconspicuous.

I suspect there’s also another reason why the advisory opinions are so rarely used. As one lawyer described it, requesting an advisory opinion is tantamount to “throwing yourself on the sword” of FCPA enforcers. Even though FCPA cases are virtually never litigated in open court, the non-prosecution and deferred prosecution agreements that resolve most investigations are the product of intense negotiations between companies and the DOJ/SEC. The legal positions that emerge from such agreements are thus compromises between the interests of the government and the interests of companies subject to the FCPA. By contrast, a company that has submitted an advisory opinion request has no leverage to shape the legal conclusions that come out of that opinion; the DOJ is free to expound on its favored view of the law. Scholars have noted in analogous contexts that agencies often issue advisory opinions for precisely this purpose. From the perspective of a defense lawyer trying to cabin the FCPA’s expansion, it runs against reason to give the DOJ a quasi-legal platform to elaborate its view of the statute’s meaning.

So how could we make the opinion procedure process function more effectively? If I’m right that the core problem is companies’ reluctance to surrender their leverage over DOJ positions on the scope of the FCPA, then the solution may be giving private entities a role in the process that results in advisory opinions. Here are two possibilities:

First, the DOJ could amend its regulations to provide for a more collaborative advisory opinion process. The process adopted could involve formal meetings between FCPA enforcers and companies, or perhaps a notice-and-comment style system. Such a system would work particularly well if companies were allowed to bring hypothetical situations before the DOJ, rather than actual contemplated courses of conduct, so as to lower the potential costs to companies of an adverse DOJ opinion (and get around the problem of advisory opinions being too slow for businesses in the midst of decision-making). Either way, ensuring that companies have input into what the DOJ produces in opinion procedure releases would decrease the concern among companies (and their lawyers) that requesting an opinion is giving DOJ a license to expound on its vision of the FCPA.

Second, Congress could amend the statute to allow businesses to challenge the conclusions of advisory opinions in court. Such challenges might run into timing, ripeness, or reviewability problems, but some scholars have suggested such problems could be overcome through creative drafting on the part of Congress. If businesses knew they would be able to challenge an adverse DOJ opinion before a neutral court, they might be more inclined to put problems before the DOJ in the first instance. (Again, this kind of solution would probably only work if companies were allowed to request opinions on hypothetical courses of conduct, given the time consuming nature of litigation.)

Given the government’s reluctance to modify the FPCA, changes in this area seem relatively unlikely in the near term, but it’s not improbable that eventually demand for more clarity regarding the FCPA’s reach will trigger a shift.

One thought on “Why FCPA Opinion Procedure Releases Are Broken and How to Fix Them

  1. Sam,

    Interesting proposals. A few reactions:

    First, I think it’s worth noting that your first proposed solution — a more formal process for producing advisory opinions, with something like notice & comment — might address one of the business community’s concerns, but is likely to exacerbate the other concern, about the time it takes to get an opinion. You suggest that 30 days is already too long for many transactions, adding these various procedural safeguards is likely to make things take substantially longer. And given that there’s no guarantee DOJ will actually be moved by the firm’s arguments, it’s not clear this would be a big help. A similar concern applies to the proposal to allow companies to seek opinions on hypothetical transactions: that might well significantly increase the number of queries submitted to DOJ, and without a corresponding increase in DOJ resources, it would become substantially harder to process the requests in a timely fashion.

    As for the second proposal, I suppose a firm could seek a declaratory judgment (perhaps even without an amendment), but I don’t think this would help much. Firms are already extremely reluctant to litigate FCPA cases because of the bad press and high costs. Litigating ahead of time does avoid the possibility of an indictment, but only if the firm foregoes the transaction — and, as you say, in a fluid business environment, the firm is unlikely to get the opportunity back, even if it wins the case.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s