How Much Should FCPA Hawks Worry About Trump’s Pick for SEC Chair?

Every time I write about the impact that the Trump Administration will have on FCPA enforcement, I’m reminded of the old joke about the actor hired to play the gravedigger in a production of Hamlet: When his wife asks what the play is about, he replies, “Well, it’s about this gravedigger, who meets a prince….” Even if we limit our focus to corruption-related issues, FCPA enforcement might not crack the top-5 in terms of high-priority concerns in the Trump Administration. Nonetheless, since the FCPA is one of the things I follow, and one of the things that a big chunk of the US anticorruption community spends a lot of time thinking about, I suppose it’s worth continuing to comment on this issue from time to time.

As regular GAB readers likely know, I’m both something of an “FCPA Hawk” (see here and here), and something of a pessimist when it comes to the likely consequences of a Trump presidency for FCPA enforcement (see here and here). Now that we know President-Elect Trump’s picks to head the two agencies responsible for FCPA enforcement—the Department of Justice and the Securities & Exchange Commission—how much should FCPA Hawks like me worry that these appointees will significantly scale back and/or politicize FCPA enforcement efforts?

The confirmation hearings for Jeff Sessions, Trump’s nominee for Attorney General, are going on today, and for now I don’t have much to say about how his appointment might impact FCPA enforcement. (With respect to the DOJ, I’m actually much more interested in, and concerned about, who’s appointed to head the DOJ’s Criminal Division and the Fraud Section.) Let me instead say a few words about Trump’s pick for SEC Chair, Jay Clayton, currently a partner at Sullivan & Cromwell, a prestigious US law firm.

There’s already been quite a bit of commentary about the Clayton pick, both generally and with respect to the FCPA specifically. I’ll confess right up front that I know very little about Mr. Clayton; I’d never heard of him before Trump picked him for SEC Chair, and I haven’t yet had time to do any detailed research. Based solely on preliminary media reports and some of the discussion that’s already happened, I’d say there’s (1) at least one good reason that FCPA Hawks should be concerned about the choice; (2) at least one not-good reason that some FCPA Hawks (and others) are concerned about the choice; and (3) at least one reason to be maybe cautiously optimistic, or at least relieved. Let me touch on each in turn:

First, the best reason for FCPA Hawks to be concerned about the selection of Jay Clayton to chair the SEC is Mr. Clayton’s role in drafting (or at least overseeing the drafting) of a 2011 New York City Bar Association (NYCBA) report on the FCPA. Much like the Chamber of Commerce’s 2010 Restoring Balance report, the NYCBA is essentially a lobbying document; it asserts, first, that FCPA enforcement is imposing significant (and asymmetrical) costs on US businesses and thereby hurting US competitiveness abroad, and goes on to suggest that FCPA enforcement is not effective in combating corruption. The NYCBA report then suggests certain reforms (even while disclaiming that it is doing so), including—troublingly in the current context—“dial[ing] back the scope of FCPA enforcement with respect to companies and focus[ing] more on individuals.” And perhaps even more troubling, the report (in its attempt to seem like a dispassionate evaluation of pros and cons) offers, as the main argument against dialing back FCPA enforcement against companies, the (alleged) concern that doing so “may be seen as an admission that the FCPA has failed,” which would be “embarrassing, and, perhaps, politically unpalatable[.]”

For the record, while I don’t have the time or space for a detailed critique of the NYCBA report here, I found its analysis sloppy, one-sided, and unconvincing. I recognize that not all readers share my views on FCPA enforcement, and some may find the report more persuasive than I did. That’s fine—I certainly encourage everyone who is interested to read it and decide for themselves. My only point here is that for folks like me, who believe that vigorous FCPA enforcement is, on the whole, a good idea (and that enforcement against companies is desirable, indeed perhaps more effective than attempting to penalize individuals in many cases), the report certainly raises concerns about Clayton’s nomination. I hope it is something that comes up in his confirmation hearings, and that anticorruption advocacy groups make a lot of noise about during that process, if only as an opportunity to make a strong affirmative case for the importance of the FCPA, and (hopefully) to get Mr. Clayton on record saying some supportive things about the statute.

By the way, it’s worth noting that this wouldn’t the first time we’ve had a lawyer who helped draft an anti-FCPA lobbying document take on a position of responsibility for enforcing the FCPA: As I wrote last year, the selection of Andrew Weissmann to head the DOJ’s Fraud Section should have been a cause of concern for FCPA hawks, given Weissman’s role as co-author of the Restoring Balance report, which if anything was worse than the NYCBA report in terms of both its analytical sloppiness and its transparent hostility toward effective FCPA enforcement. Though I continue to believe my concerns about Mr. Weissman’s appointment were well-founded, it doesn’t seem that his appointment did much immediate or obvious damage to FCPA enforcement efforts, perhaps because he’s basically a hired gun (and where you stand depends on where you sit), and perhaps because his bosses—Attorney General Loretta Lynch and Criminal Division head Leslie Caldwell—remained strongly committed to FCPA enforcement. Obviously that latter consideration points to a potentially important distinction between the two cases.

Now, I also said that, in addition to the above good reason for concern, there’s also a not-good reason for concern. That has to do with Mr. Clayton’s legal representation of various Wall Street banks. Some on the liberal/progressive side of the aisle have suggested that Mr. Clayton’s representation of the big banks is a sign that he’s in the pocket of the finance industry. (The most widely-circulated quote on this issue came from Democratic Senator Sherrod Brown, who said that “it’s hard to see how an attorney who’s spent his career helping Wall Street beat the rap will keep President-elect Trump’s promise to stop big banks and hedge funds from ‘getting away with murder.’”) That’s obviously not an FCPA-specific concern, but I wanted to mention it here because I don’t think this is a very good argument, and I really wish people would stop making it. Yes, lawyers have a choice over what practice areas they choose, and in certain cases over their clients, but in the main a securities lawyer is going to represent banks, and will zealously advocate for their clients. And as a general rule, I don’t think it’s a good idea (except, perhaps, in the most extreme cases) to treat a lawyer’s clients as a reason for opposing his or her nomination to a government position. If the shoe were on the other foot (and it has been), progressives would rightly denounce efforts to scuttle the nomination of a lawyer who had represented, say, suspected terrorists or accused criminals. And there’s lots of evidence, from Washington’s much-maligned “revolving door,” that lawyers who “change teams” can be vigorous and effective on both sides. (There’s a separate issue with Mr. Clayton, in that he, like many top-level Trump nominees, lacks any government enforcement experience. That’s a concern too, though one that goes more to effectiveness than bias.)

Finally, I do think there’s a cause for, if not optimism, than at least mild relief. I’m fairly sure that Mr. Clayton’s views on a whole range of issues within the SEC’s purview—including but not limited to the FCPA—are very different from mine. But, so far as I can tell from the available evidence, he doesn’t seem to be a Trump crony or a partisan hack or an incompetent know-nothing. Remember, one of my concerns regarding FCPA enforcement in a Trump Administration was not only that it would be weakened, but that it would be politicized, with the enforcement agencies laying off President Trump’s friends, cronies, and supporters, while aggressively targeting perceived “enemies” and/or foreign firms. So far, nothing in Jay Clayton’s bio suggests that his appointment is likely to further that sort of crude politicization of the SEC’s FCPA enforcement policy. He is, I suspect, a deeply conservative Wall Street lawyer who is skeptical of aggressive government regulation, but also a competent and intelligent professional. He’s not who I would have selected, but he’s not (so far as I can tell) a loyalist hack. And when it comes to the Trump Administration, I fear that now counts as high praise.

3 thoughts on “How Much Should FCPA Hawks Worry About Trump’s Pick for SEC Chair?

  1. I think your the first paragraph as a whole offers some additional (potential) hope for FCPA enforcement under . Clayton, since I’m sure that Clayton’s regulatory skepticism extends far beyond SEC FCPA enforcement. I wonder if Clayton may leave FCPA enforcement alone (at least initially) and focus on restraining the SEC in other areas. The gravedigger is one of the few characters that survives in Hamlet, after all. (I think, I admittedly haven’t read the play in a number of years.)

  2. Pingback: Why Does the SEC Enforce the FCPA? | Anti Corruption Digest

  3. Pingback: Why Does the SEC Enforce the FCPA? | |

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