A while back I posted a commentary on the proposal to add a so-called “compliance defense” to liability under the Foreign Corrupt Practices Act (FCPA). My basic take was that despite all the attention and controversy surrounding this proposal, in fact it would not make very much difference in practice. Without rehashing all the arguments in detail, my reasoning was basically as follows: First, corporate defendants (the only ones who would benefit from a compliance defense) are so reluctant even to be indicted—independent of the likely outcome if a case were actually to go to trial—that the addition of a formal compliance defense to liability would not significantly alter the bargaining game between the government and the corporate defendant. Second, the government already takes compliance efforts into account at several other stages in the process (and believes it is doing so appropriately), so the addition of the formal defense wouldn’t have much of an effect on the government’s position in settlement negotiations (which, as Jordan emphasized in a post from a few months ago, is really where all the action is).
I recently had an opportunity to discuss my hypothesis that the compliance defense wouldn’t actually matter much at a Duke Law School conference, where a bunch of white collar crime and FCPA experts who know much more about this subject than I do—including Duke Law Professor Sam Buell and Richmond Law Professor (and occasional GAB contributor) Andrew Spalding—pushed back against my argument. Among their many cogent criticisms, I wanted to address one in particular: If an FCPA compliance defense would make as little practical difference as I suggest, then why do the interested parties seem to care so much about it? Why (Professor Buell asks) have the Chamber of Commerce and the defense bar made this such a high priority on their FCPA reform agenda? And why (Professor Spalding asks) is the DOJ so dead set against it?
These are fair questions. I don’t have good answers, but in the interest of moving the conversation forward, let me suggest a few possibilities—and maybe folks out there in the blogosphere can react or offer their own explanations.
- One straightforward possibility—and the one that Professor Spalding and Professor Buell may have been driving at—is that I’m simply wrong that the compliance defense wouldn’t make much difference in the bargaining between the government and corporate defendants, because despite the rhetoric about corporations wanting to avoid FCPA indictment at all costs, in fact these negotiations all take place in the shadow of what would happen at trial, if the case were to proceed to trial. After all, very few criminal cases proceed to trial in any context—most settle, usually through plea bargains—but the addition or elimination of substantive defenses has a substantial impact on the content of those settlements (the bargaining takes place in the “shadow of the law“). That’s definitely a possibility, but it’s hard to square with the claim—often made with particular vigor by advocates of the compliance defense—that the FCPA context is special and unusual precisely because corporate defendants cannot generally credibly threaten to go to trial, even if the DOJ adopts an implausible (or at least highly contestable) reading of the statute. If that latter premise is true, then my original critique stands, and the reasonable question posed by Professors Buell and Spalding remains unanswered.
- Another possibility is that the participants in this debate simply haven’t fully understood the reasons why the compliance defense is unlikely to make a practical difference, and they’ve been fighting this out based on a misunderstanding, or at least an overestimation, of what the substantive impact of this defense would actually be. That’s not impossible—people misunderstand these sorts of things all the time—and it would certainly gratify my ego to believe that I’d seen something all these other sophisticated parties had missed. But that same fact makes me skeptical that this is in fact the right explanation.
- Here’s a variant on the last possibility: Some of the strong reaction to the proposed compliance defense (both pro and con) may be a particular manifestation of a more general instinctive reaction to prosecutorial discretion in this area. One of the striking things about the FCPA (and possibly other areas of corporate criminal law enforcement) is that so much of it—including the interpretation of the underlying legal liability standards—is shaped by prosecutorial interpretation, with relatively little judicial involvement. Some people (most of them prosecutors) are fine with this. Others (including many defense lawyers, but also including many lawyers more generally) find this disturbing, and possibly an affront to the very notion of the “rule of law.” So maybe part of the attraction of a compliance defense is that it seems, to its proponents, like a way to make FCPA enforcement more law-like—and prosecutors may react negatively precisely because the implicit message of adding such a defense is a distrust of prosecutors and how they choose to exercise their discretion. Of course, if my original analysis is right, the addition of the defense wouldn’t actually change the role of prosecutorial discretion all that much—but perhaps the addition of the compliance defense might still have an expressive function. And perhaps, contrary to my suggestion in my original post, the expressive value of a formal compliance defense might, through some complex psychological mechanism, influence settlement negotiations between the DOJ and corporate defendants, even if the latter still couldn’t credibly threaten to go to court and test the defense there.
- Here’s another possibility, at least for the advocates of the defense: Perhaps the compliance defense would indeed make a difference–not in the negotiations between corporate defense counsel and DOJ prosecutors (as is usually assumed), but rather in the discussions between corporate counsel (internal or external) and corporate executives. There’s a cynical version of this argument and a more charitable version. The cynical version goes like this: The corporate defense bar—FCPA Inc., as it’s sometimes derisively called—has an interest in scaring corporations into spending tons of money on FCPA compliance services. They do this in part by exaggerating FCPA risks (“They’ll come after you if you buy a foreign official a cup of coffee!”), and in part by emphasizing the importance of implementing a “gold-plated” FCPA compliance program. Even if the compliance defense wouldn’t actually make much difference to case outcomes, it may be a lot easier to “sell” the need for a fancy compliance program to corporate executives if one can point to a formal compliance defense in the law; that’s easier for a non-lawyer to understand than a discussion of prosecutorial discretion, sentencing guidelines, etc. So, the cynical version of the argument suggests, the focus on the compliance defense is less about actually changing negotiations and more about drumming up business for FCPA Inc. The charitable version of the argument is actually quite similar, except that it is less cynical about motives and more sympathetic to the need for investing substantial amounts in FCPA compliance programs. On this version of the argument, firms really do need to be spending more on compliance, but it is hard for lawyers and other compliance officers to convince executives who have not been through the ordeal of an FCPA investigation to invest adequately. A formal compliance defense, on this account, would be a helpful way for the lawyers and compliance officers to convince skeptical executives that a more elaborate compliance program is a good investment—even if the compliance defense per se would not make much of a difference. I’m not sure I find either version of this argument persuasive, and neither version fully explains DOJ’s resistance (especially since DOJ seems to want to encourage more investment in compliance programs), but it’s at least an intriguing possibility.
- One more possibility: Maybe the premise of Professor Buell’s and Professor Spalding’s critique is not actually corect—maybe neither the DOJ nor the business community and defense bar really do care all that much about the compliance defense. It’s true that the Chamber of Commerce has advocated for it vigorously, as have academic supporters of the proposal. And it’s true that the Department of Justice, when asked, has vigorously opposed it (again, with the support of many scholarly commentators). But using strong language about a proposal, and investing significant resources or political capital in pushing or resisting it, are two very different things. It’s not at all clear that either side in this debate have shown much of a willingness to make the compliance defense a top priority. So maybe there’s an implicit recognition on the part of both sides that this reform is not worth fighting that hard over (though when it comes up, it’s relatively cheap to use very strong rhetoric, pro or con).
That’s the best I can come up with right now for possible explanations. Anyone out there have further thoughts on why the proposed compliance defense seems to attract so much attention, and such forceful language, despite my arguments as to why it wouldn’t make much difference at all in the expected outcome of FCPA cases?