One of the more interesting ongoing Foreign Corrupt Practices Act investigations involves allegations that the investment banking giant JP Morgan’s “sons and daughters” program in China. According to media reports, JP Morgan’s China and Hong Kong offices offered jobs, and in some cases consulting contracts, to the children of well-connected officials in China (including the heads of state-owned enterprises and senior party officials) in return for lucrative business opportunities in the Chinese market (see, for example, here and here). The case is still under investigation, the facts are still in dispute, and the government enforcement agencies have not yet accused JP Morgan of any of its executives of any wrongdoing. Yet there have been hints that if the facts turn out to be as bad as they look, the U.S. government will consider JP Morgan’s so-called “sons & daughters” hiring program to have violated the FCPA’s anti-bribery provisions. That conclusion would depend crucially on the premise that providing a job to the (adult, non-dependent) child of a foreign official counts as providing “anything of value” to the official. (Things would be different if there were evidence that the officials’ children funneled some of the money back to their parents, but at the moment no such evidence has come to light.)
About six months ago, Professor Andrew Spalding (who has also contributed a number of insightful posts to this blog – see here, here, and here) published a provocative four-part series at the FCPA Blog (see here, here, here, and here) raising serious concerns about this legal theory, and suggests that applying it in JP Morgan’s case would be not only inappropriate, but a serious affront to fundamental legal principles. Somewhat unusually, I find myself in disagreement with Professor Spalding. Indeed, if the facts turn out to be as bad as early media reports suggest, I think that this is an easy case. To my mind, it’s straightforward that offering a benefit to a third party can count as offering “anything of value” to a foreign official under the FCPA, and nothing in the DOJ’s prior opinion releases would constrain the U.S. government from applying that principle in this case.
To explain my disagreement with Professor Spalding, I first need to say a bit more about his position. Simplifying a bit, Professor Spalding makes three main arguments:
- First, he asserts that in the 1980s the Department of Justice published a pair of Opinion Releases (Release 82-04 and Release 84-01) that established a “very clean, very simple” bright-line rule, according to which (in Professor Spalding’s words) “the job [for an official’s relative] is not itself a ‘thing of value’ to the official” and that “as long as nothing of value — money or otherwise — passes from the hired relative to the official, hiring that relative does not violate the FCPA.”
- Second, Professor Spalding acknowledges the government’s position–spelled out clearly in the FCPA Resource Guide–that donations to a foreign official’s favorite charity can count as a “thing of value” for FCPA purposes, and he recognizes that this could be considered an analogous case to giving a job to an official’s relative. But Professor Spalding views this a close question that would need additional explanation. (He characterizes this analogy as “not … counter-intuitive, but it requires some explaining [and] we still need a legal theory.”)
- Third, he suggests that even if the above theory is plausible, if the U.S. government were to adopt that theory and apply it in JP Morgan’s case, notwithstanding the earlier Opinion Releases, it would be “contrary to the rule of law on the most fundamental level,” and moreover that if the SEC and DOJ resolve this case without “lay[ing] down a clear rule for all to follow,” it would show the world that the FCPA does not in fact promote the rule of law.
My take is a bit different. Before addressing the relevance, if any of the DOJ’s prior Opinion Releases, let me first make the case that offering a benefit to a third party can count as a bribe to a foreign official is consistent with the language and purpose of the statute. The FCPA makes it unlawful to provide anything of value to a foreign official, without regard to why the official places value on that thing. The choice of terms seems deliberately broad. That understanding is much more consistent with the purpose of the FCPA, which after all is to prevent entities under US jurisdiction from distorting decision-making by foreign officials through improper inducements. From the perspective of the foreign government and its citizens, it doesn’t much matter what those inducements are, or whether the official was motivated by personal greed or by a desire to help friends, family, or pet causes (no matter how worthy). If the purpose of the statute were to prevent the enrichment of foreign officials, that would be another matter. But it’s not. The FCPA’s purpose (as reflected by the text, structure, and context of the statute) is to prevent entities subject to FCPA jurisdiction from distorting foreign government decisions by offering improper inducements, and so it doesn’t matter what those inducements are.
Furthermore, this view is consistent with the DOJ and SEC’s clearly stated position (in the FCPA Resource Guide, the most definitive guidance document the US government has released on the subject) on charitable giving–as Professor Spalding essentially concedes. Although though such giving is often a legitimate way to build goodwill, in certain circumstances agreeing to make a donation to an official’s preferred charity in direct exchange for a particular business benefit can count as an unlawful bribe. (Professor Spalding correctly notes that the case the Resource Guide uses to make this point, In re Schering-Plough Corp., was settled on the basis of books-and-records violations, rather than anti-bribery violations. But for present purposes that’s beside the point: the Resource Guide makes clear that it’s using the case as an example to illustrate the more general point that “us[ing] charitable donations … to induce [an] official to direct business to the company” is an unlawful bribe; even if it’s a “bona fide charitable organization,” a bribe has taken place — according to the Resource Guide — if “the payments were not viewed [by the company] as charitable contributions but rather as ‘dues’ [that it] was required to pay for assistance from the government official.”) Of course, it may be harder to prove an unlawful quid pro quo when the benefit does not take the form of a material payment to the official him- or herself. There are many more legitimate reasons why a firm might hire an official’s relatives, or make donations to an official’s favorite charity, than there are for handing an official a briefcase full of cash or a luxury car. But that goes to the government’s burden to prove that the offer was made “corruptly” and for purposes of influencing the foreign official to use her authority to help the defendant obtain or retain business, not to whether, at least in principle, conferring a benefit on a third party can count as a bribe to the official.
So to my mind, if we were writing on a blank slate, or basing the decision solely on the guidance offered in the Resource Guide, it’s entirely unproblematic to conclude that hiring an official’s relative can count as providing something of value to the official, particularly when the firm and the official reach a clear (though perhaps tacit) understanding that the job is being given to the relative in exchange for the official using his or her power to benefit the firm. But what about Professor Spalding’s claim that we are not in fact writing on a blank slate? The core of his main argument, particularly his rule-of-law critique, is that the US government already adopted, in two DOJ opinion releases from the early 1980s, the “bright-line rule [that] [for a relative] is not a thing of value (under the FCPA) to the public official … [no] matter how much the official might appreciate the hiring of his relative.” Here, I want to respectfully suggest that Professor Spalding is drastically over-reading these two releases, and perhaps (in my view) misinterpreting or exaggerating the function of the Opinion Release procedure.
- First, although both Opinion Releases in question do involve situations in which a company was contemplating a relative (or relatives) of a foreign government as representative agents, in neither release does the DOJ explicitly state the bright-line rule that Professor Spalding derives. Professor Spalding’s derivation of this “clean, simple” rule is based entirely on the Opinion Release’s silence on that point (coupled with the DOJ’s ultimate conclusion that it would not take enforcement action in the circumstances described).
- But that doesn’t follow. There does not appear to have been any suggestion, in either case, that the foreign officials in those cases viewed the retention of their relatives’ firms as itself a quid pro quo, offered in exchange for business. Indeed, as far as one can tell from the Opinion Releases, nobody appears to have contemplated that possibility, perhaps because the facts and circumstances were so different from the JP Morgan Sons & Daughters case. To read into these Releases an across-the-board rejection of the possibility that a job offer to a relative could ever be a thing “of value” to a foreign official–when the facts and circumstances of those particular cases seem not to have raised that as a concern–would, in my view, be a drastic over-reading of these documents.
- Related to that latter point about the fact-bound nature of the Opinion Releases, it’s important to keep in mind that the DOJ has always insisted that they apply only to the particular transaction that is the subject of the request for an opinion, given the particular facts and circumstances described in that request. Both of the Releases Professor Spalding cites (indeed, all the DOJ Opinion Releases) close with the disclaimer that the Release “[has] no binding application to any party which did not join in the request and can be relied upon by the requesting party only to the extent that the disclosure of facts and circumstances in the request is accurate and complete and continues to accurately and completely reflect such facts and circumstances.” Of course, given the dearth of FCPA case law, parties naturally look to the Opinion Releases, along with settlement agreements, for guidance as to how the DOJ (and SEC) interpret the statute. But to say that these prior Opinion Releases established a clear, prospective, across-the-board rule on which parties are entitled to rely strikes me as inconsistent not only with the language of these releases, but with the purpose of the Opinion Releases more generally.
- Finally, it’s worth noting that the FCPA Resource Guide–a more recent and more definitive guidance document than the 30-year-old Opinion Releases–explicitly says that even a donation to a bona fide charity can be a bribe if the donation was viewed as the “dues” that a company had to pay to a foreign official to get favorable treatment. The analogy to hiring an official’s relative (also as “dues” for favorable treatment) is so close that I think it’s unfair to suggest that, if the U.S. government takes this position in the JP Morgan case, it would be (in Professor Spalding’s words) “a reversal of prior guidance” that is “contrary to the rule of law on the most fundamental level.” True, the Resource Guide doesn’t address this particular situation, but as I argued above, the Opinion Letters don’t either
In sum, my position (which I expect is the government’s position as well) is that a job for an official’s relative, if offered corruptly in order to influence the official to use his or her official position to help that firm obtain or retain business, can be an unlawful bribe under the FCPA. That position is not inconsistent with any explicit language in prior Opinion Releases, and is consistent with the most closely analogous case discussed in the Resource Guide. So, there’s no problem. Am I wrong?