The New Head of the DOJ’s Fraud Unit Advocated Gutting the FCPA: Shouldn’t We Be More Upset About That?

Two months ago, the U.S. Department of Justice announced that Andrew Weissmann would take over as chief of Fraud Section in the DOJ’s Criminal Division, a position that involves responsibility for, among other things, the DOJ’s enforcement of the Foreign Corrupt Practices Act (FCPA). Mr. Weissmann has had a distinguished professional career, with previous stints in private practice and in government, including prior positions as Special Counsel to the Director of the FBI, and as the director of the DOJ’s Enron Task Force. But for those of us who care about maintaining the US government’s aggressive enforcement of the FCPA and its leadership in the global fight against corruption, Mr. Weissmann’s appointment should be cause for concern. The reason? Mr. Weissmann was one of the principal authors of the U.S. Chamber of Commerce’s 2010 report, Restoring Balance: Proposed Amendments to the Foreign Corrupt Practices Act. That report is notable principally for three things: (1) its strident attack on aggressive FCPA enforcement, (2) its proposal of a series of amendments to the statute that would gut the FCPA, and (3) its misleading manipulation (and sometimes outright misrepresentation) of both facts and law in making its case.

Fortunately, Professor Dan Danielsen at Northeastern School of Law and my Harvard colleague Professor David Kennedy provided an exceptionally thorough take-down of the Chamber of Commerce’s arguments in a report for the Open Society Foundations (OSF), called Busting Bribery: Sustaining the Global Momentum of the Foreign Corrupt Practices Act. Aside from a few small (but admittedly important) errors, the OSF report provides a sufficiently thorough rebuttal that I won’t attempt to summarize it all here; rather, I urge readers to follow the links above. But let me just highlight a few aspects of Mr. Weissmann’s report for the Chamber of Commerce to explain why I think it deserves the harsh language I used.

Here’s an initial example, which may seem relatively small, but which is illustrative of the more general problems with the Chamber Report. At the outset, to establish the allegedly enormous costs of FCPA enforcement, Mr. Weissmann’s Report says:

In a 1999 report to Congress authored by the Congressional Research Service (“CRS”), a division of the Library of Congress that provides nonpartisan analysis on current legislative issues, it was estimated that the FCPA’s anti-bribery provisions have cost up to $1 trillion annually in lost U.S. export trade.

This statement is false.  The document cited is a March 3, 1999 CRS Report to Congress on the FCPA by Michael V. Seitzinger. Here’s what the relevant passage of the CRS Report actually says:

Some critics of the [FCPA] have contended that [the Act’s] provisions have cost up to $1,000,000,000 annually in lost United States export trade.

There’s a world of difference between saying (as the CRS Report does) that some critics have claimed (without, it bears noting, any substantiation) that the FCPA costs the US $1 trillion per year in export trade, and saying (as Mr. Weissmann’s report does) that the nonpartisan CRS has itself concluded that the FCPA costs the US $1 trillion in lost export trade. This is a classic case of fact-laundering: An interest group asserts something, a more neutral body accurately reports that the assertion has been made, and then the interest group turns around and cites the neutral body in a way that suggests that the disinterested expert body, rather than the interest group, is the source of the fact. It’s sleazy and dishonest and hard to catch if you don’t go digging into the original sources.

I’d be willing to chalk this up as an honest mistake (we all make them from time to time – I’m sure anyone who combs through my published work will find citations that are not completely accurate), except the Chamber Report is shot full of misleading half-truths. The OSF rebuttal does a nice job in exposing some of this. A few highlights (lowlights?):

  • In advocating for the sharp curtailment of criminal successor liability, the Chamber Report cites the Alliance One case, in which two tobacco companies (Dimon and SCC) merged into a new entity, Alliance One. Foreign subsidiaries of both Dimon and SCC had allegedly violated the FCPA. The DOJ entered into a non-prosecution agreement with Alliance One in which the company agreed to a compliance monitor, and the company’s foreign subsidiaries (which had committed FCPA violations prior to the merger), to plead guilty. The Chamber describes the Alliance One case an example of a situation in which the “DOJ has leveraged the threat of successor liability to achieve expansive internal controls,” which the Chamber asserts was particularly egregious in the Alliance One case because the “conduct underlying the [FCPA] violations in the Alliance One case predated the very existence of the corporate entity that was charged with the violations…. Nonetheless, [Alliance One] was held accountable as if [it] had engaged in the improper conduct.” What the Chamber Report neglects to mention – but the OSF Report succinctly summarizes – is that both Dimon and SCC had apparently engaged in widespread corruption schemes directed by senior management, and the merger may well have been an attempt by the company to escape all liability be creating a new legal entity; certainly the Chamber’s proposed limits to successor liability would have permitted it to do so. Thus, while the Chamber Report tries to portray criminal successor liability as having run amok, in fact the Chamber’s own leading examples involve quite limited applications of the principle, in contexts where it makes eminent good sense.
  • Here’s another example: In arguing against parent liability for bribes committed by subsidiaries, the Chamber Report cites the United Industrial Corporation (UIC) case as an example of a case in which the SEC adopted the “theory … that [a company] could be held liable for violating the anti-bribery provisions of the FCPA … even if it had no knowledge of the improper payments[.]” But, as the OSF Report again helpfully points out, the Chamber leaves out some inconvenient facts, among them: UIC’s legal department approved its subsidiary’s retention of the agent through which bribes were paid, “without any due diligence and on the basis of a contract which did not comply with UIC’s stated FCPA compliance policy,” a UIC official had approved “at least one substantial payment to the agent without investigation as to the purposes of the payment,” and the senior executive of the UIC subsidiary (who was mainly responsible for the bribery scheme) “had a direct reporting line to UIC’s CEO” and was “routinely listed” as a member of UIC’s senior management on the firm’s annual reports. In other words, while the Chamber Report tries to make it seem like the UIC case indicates that US enforcement agencies are out of control, imposing liability on parent companies for acts over which they have no control, in fact the Chamber relies on an example in which there’s a very good prima facie case to be made that the parent knew of (or was willfully blind to) the subsidiary’s bribery scheme, which was carried out by one of the parent’s own senior managers for the benefit of the parent corporation.
  • In arguing for a “compliance defense” (something I’ve pointed out elsewhere would be mostly irrelevant to actual case outcomes even if were adopted), the Chamber Report notes the existence of such a defense under the UK Bribery Act (UKBA), without mentioning that the UKBA also adopts a broad strict liability offense for failure to prevent bribery—not only by company employees (where corporate liability in the US is also essentially strict liability), but also by other agents or third parties. The Chamber report also asserts that adopting a compliance defense under the FCPA would “bring enforcement of the FCPA in line with Supreme Court precedent, which has recognized that it is appropriate and fair to limit respondeat superior liability where a company can demonstrate that it took specific steps to prevent the offending employee’s actions.” For this proposition, the Chamber Report cites Kolstad v. American Dental Association, a case involving employment discrimination suits under Title VII of the Civil Rights Act. But as the Chamber Report briefly acknowledges (so briefly that you’d miss it if you blinked), Kolstad involved the question of whether punitive damages should be available in private litigation in an employment discrimination law suit. This is a very different context, and the suggestion that government FCPA enforcement – involves quite standard principles of corporate criminal liability (for better or worse) – is somehow “out of line” with Supreme Court precedent is misleading to the point of mendacity.

There’s certainly more to say on the substance of the Chamber Report, little of it positive. It’s basically a paid hit job, mustering any argument, no matter how flimsy or misleading, against vigorous FCPA enforcement.

Now, this wouldn’t bother me so much if I thought Mr. Weissmann was just acting as a paid advocate for the U.S. Chamber of Commerce, much in the same way as a lawyer or lobbyist represents a client. What really scares me is that, according to people who know Mr. Weissmann, his testimony and statements on this and other issues are “his personal views rather than … work for a client.”

Perhaps Mr. Weissmann’s views will shift now that he’s back to being a prosecutor again. He seems to be a very talented person, and though I’ve never met him, mutual acquaintances speak very highly of him, at least in general terms (though his FCPA views haven’t really come up). But I have to say, as someone with an admittedly parochial interest in anticorruption issues, I’m troubled that the new chief of the Fraud Section is someone who seems to think that the surge in U.S. FCPA enforcement over the past 15 years was a mistake, and who wants to turn back the clock in the name of “restoring balance.” And why hasn’t the U.S. anticorruption community been more up in arms about this? Why no public statement from Transparency International USA, for example? This seems like kind of a big deal.

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