As is well known, enforcement actions brought under the Foreign Corrupt Practices Act (FCPA) have expanded dramatically over the past decade and a half. With all this enforcement activity, someone unfamiliar with this field might suppose that the most important questions regarding the FCPA’s meaning and scope are now settled. But as FCPA experts well know, that is not the case; the realm of FCPA enforcement is a legal desert, with guidance often drawn not from binding case law but from a whirl of enforcement patterns, settlements, and dicta. As a result, many of the ambiguities inherent in the statutory language remain unresolved—even core concepts, such as what constitutes a transfer of “anything of value to a foreign official,” lack concrete legal decisions that offer guidance. While some claim that this ambiguity fades when the FCPA is applied to the facts at hand, past analysis shows that this may not always be the case.
The dearth of binding legal precedent in FCPA enforcement stems directly from the lack of FCPA cases that are actually brought to trial. Of course, most white collar and corporate criminal cases—like most cases of all types—result in settlements rather than trials. But a look at the major cases white collar cases going to trial in 2017, and the pattern of FCPA settlements, shows that FCPA trials are uniquely rare. In fact, FCPA cases are resolved through settlements more often than any other type of enforcement actions brought by the DOJ or SEC.
Why is this? Why are FCPA enforcement cases so rarely brought to trial, even compared to other white collar cases? The answer can help explain why FCPA case law is so sparse, and reveal whether this trend may change in the future.
The most obvious explanation for the lack of trials is that corporations fear the consequences of a guilty verdict, which carries with it a heavy economic burden in the form of fines, reputational damage, and potential repercussions in cases brought in parallel to US enforcement actions. Despite the government’s at times spotty record when FCPA cases actually do come to trial, the specter of potentially stringent criminal sentences is sufficient to induce corporations to settle, especially given that the expanded use of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) has given enforcement agencies a method for resolving FCPA cases without much, if any, contact with the court system.
That’s the conventional explanation, but it’s incomplete. After all, these characteristics are not unique to FCPA enforcement: Most white collar prosecutions will not go to trial for exactly these same reasons, but as noted above, the rate for FCPA enforcement trials is even lower than the rate for other white collar offenses. This suggests that there must be something else going on. While there are likely a multitude of factors at play, three factors seem like the most plausible contributing explanations:
- First, unlike most other forms of white collar crime, FCPA violations require some activity to occur outside of the United States, implicating at least one additional jurisdiction. Additionally, similar laws in other jurisdictions outside those immediately connected to the events in question, such as the UK Bribery Act, create a complicated web of interconnected liability. This issue of potential overlapping international enforcement has been discussed at greater lengths elsewhere on the blog, and has been tempered somewhat by pushback from European courts, which seem loath to permit additional prosecutions following an FCPA guilty plea. Firms would like to avoid the danger and expenses associated with ongoing investigations for the same violations in multiple foreign jurisdictions alongside the U.S., especially when the different national agencies coordinate. The benefits of choosing a settlement in this situation can be seen in the Siemens FCPA investigation, where settlement with the DOJ and SEC was coordinated to bring closure in the parallel German investigation. Not only were two costly investigations brought to an end, but the DOJ extended consideration of the German settlement into the penalties ultimately assigned to Siemens. If Siemens had decided to fight the enforcement more rigorously, it would be harder to bring multiple investigations to a close at the same time and include consideration for other enforcement actions in the final result.
- Second, a guilty verdict in an FCPA case might have greater negative reputational consequences, even compared to other forms of white collar crime. Moreover, even prior to a verdict, the reputational cost stemming from the prolonged, public, and potentially salacious coverage that would surround a fight against FCPA enforcement in court is likely much greater than the more generic reputational harms associated with other forms of white collar crime. (The reputational consequences associated with corruption chargers are illustrated, and likely enhanced, by the increasing tendency to frame anticorruption measures as part of the larger agenda of protecting human rights.)
- Third, FCPA law remains undeveloped because it never had time to adequately develop prior to the rise of DPAs and NPAs. While the FCPA has existed since the late 1970s, enforcement prior to the turn of the century was very limited. By the time FCPA enforcement began to pick up in the early 2000s, the use of DPAs and NPAs was also on the rise, and quickly became common tools for handling FCPA violations. As a result, a large number of cases were shunted down a track that would produce no workable case law, leaving the ambiguities surrounding the FCPA statute unmolded. While DPAs and NPAs are by no means unique to FCPA enforcement, other forms of high-profile white collar crimes, such as insider trading, had an extended period of time in which case law could develop. Many of the major cases that shaped the now accepted parameters for insider trading rules occurred prior to the rise of DPAs and NPAs, creating a sufficiently definite body of law for individuals and corporations to way the decision to go to trial into the 21st century, a development that never occurred for the FCPA.
None of these factors seems likely to change in the near future, meaning that FCPA trials will remain something of a rarity.
Another factor is that the DOJ and SEC don’t charge individuals (who are more likely to contest charges) is the vast majority of corporate enforcement actions including those based on dubious and aggressive enforcement theories. Consider the enforcement theory that employees of various foreign health care systems are “foreign officials” and thus on par with Presidents and Prime Ministers. The government has used this enforcement theory in approximately 25 corporate enforcement actions, but NEVER ONCE against an individual.
In my amicus brief supporting cert in the Esquenazi “foreign official” matter, a good portion of my brief was trying to explain to the Supreme Court the absence of FCPA case law (it is largely a function of the DOJ (and SEC’s) own making) and they like it that way.
Professor Mike Koehler
I very much agree with you that one of the reasons we see very few FCPA trials is the absence of cases brought against individual defendants — though we may disagree on whether that’s a good or bad thing (https://globalanticorruptionblog.com/2015/04/21/individual-fcpa-liability-a-risky-proposition-for-fcpa-enforcement-proponents/), just as we disagree on whether the DOJ’s interpretation of “foreign official” is reasonable (https://globalanticorruptionblog.com/2014/05/20/u-s-v-esquenazi-some-knee-jerk-reactions/). But putting those debates aside for the moment, I think Nick is also raising and addressing a distinct question: Why is it the case that, even if we restrict our attention only to cases brought against companies, do we see fewer trials in the FCPA context than we do in other areas of corporate crime, like antitrust or securities fraud? I think Nick’s suggestions are a plausible starting point, but I’m still not sure I feel like I have a really good answer to this really good question.
Statistically, I am not sure it is true that a higher percentage of criminal antitrust cases (whether against a business organization or an individual) or securities fraud cases are fully litigated compared to criminal FCPA cases. I would like to see this data (if it even exists).
The below post and podcast discuss certain of the relevant issues.
There have been two instances of business organizations putting the government to its burden of proof in FCPA matters and both times the government ultimately lost.
Fascinating. The perverse incentives for enforcement officials have been commented upon before. Maybe this should spur debate about the costs of adopting a deal-based approach over moving courts for trial. Trials in court allow for development of statutory interpretation, narrowing the area of ambiguity when statutes are drafted in too broad a fashion. Judicial interpretation supplements the fair notice requirements that a statute alone might not be doing satisfactorily (often argued in the case of the FCPA). Courts often have the potential of imbuing the law with a fairer interpretation as well as they are not answerable to either side. While the success rate of prosecutions is frequently acknowledged, this cost is not mentioned often.
Of course, Esquenazi shows that courts can get it wrong and worsen the situation (which, arguably, did happen there). Coming from India – which does not allow for any plea deals in corruption cases – I have seen courts get it wrong too often! But I think this does not take away from the merit of the argument itself.
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