The Case for State-Level Anticorruption Prosecutions in the U.S.

In the United States, the federal government’s Department of Justice (DOJ) plays a huge role in the prosecution of state-level public corruption: Over the past five years, federal prosecutors have obtained the convictions of approximately 1,700 corrupt state and local officials for corruption-related offenses. Examples range from prominent and powerful figures like Sheldon Silver, the former Speaker of the New York State Assembly, to low-level functionaries like Eloy Infante and Elpidio Yanez, Jr., two former members of the School Board of Donna, Texas.

The federal government’s primacy in prosecuting state and local corruption is no accident. One of the stories of American law enforcement in the 20th century, especially though not exclusively in the anticorruption context, is the expanding role of the federal government, an expansion that was in part a reaction to the perceived deficiencies of state law enforcement. Most states in the U.S. elect both prosecutors and judges, and concerns that these elected officials were under-resourced, incompetent, partisan, or captured by local influence-peddlers contributed to the rise of federal criminal law enforcement. The federal government’s role in prosecuting state and local corruption blossomed in the 1970s, with regional U.S. Attorney’s offices taking the lead, supported by a new DOJ Public Integrity Section in Washington, D.C. The U.S. Attorney’s offices were considered more independent and less vulnerable to capture than local law enforcement, were generally better resourced than their state and local counterparts, and were able to focus those resources on picked cases.

This system has worked well and achieved considerable success. Many argue—with justification—that the federal government’s central role in prosecuting state and local corruption was instrumental in breaking the stranglehold of corrupt political machines at the subnational level. But today, it’s important for state prosecutors to do more to supplement, and in some cases perhaps supplant, federal anticorruption prosecutions. If the story of the 20th century was a distrust of states to police their own politicians, the early 21st century story may be that we can no longer completely trust the feds to do it either. There are three main reasons why, going forward, we may need to rely increasingly on the states:

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Complying with Antibribery Laws: Mike Koehler’s Strategies for Minimizing Risk Under the FCPA and Related Laws

Professor Mike Koehler is perhaps the leading critic of the Foreign Corrupt Practices Act – or at least of how the U.S. Justice Department and Securities and Exchange Commission currently enforce it.  On his FCPA Professor Blog, he regularly bemoans the way the enforcement agencies have stretched a law its authors wrote to outlaw hard core bribery to make donations to foreign charities, internships for relatives of business associates, birthday gifts to business partners, and other seemingly innocuous  conduct a serious felony under American law. Such broad interpretations of the law’s antibribery stricture could never withstand judicial review he argues, but because the costs, reputational and otherwise, of challenging an FCPA enforcement action are so great, companies facing FCPA charges quickly settle rather than contest the agencies’ interpretation in court.  The result is the agencies not only enforce the law but their interpretations in effect make it as well.

So what advice does Professor Koehler proffer businesses wanting to avoid running afoul of the FCPA or the similar laws of other nations in his new book Strategies for Minimizing Risk Under the Foreign Corrupt Practices Act and Related Laws?  Does he urge a corporation threatened with an enforcement action based on an overly broad reading of a law to fight back?  Has he produced a polemical guide to compliance?  One written for the risk-taking corporate maverick?  Is this how he separates his book from the many other compliance guides flooding the market?

Not at all. To the contrary, what distinguishes Professor Koehler’s book from many of its competitors is its straightforward, easy to read exposition of what any firm should do to minimize the chances that, thanks to the wayward act of an employee or consultant, it will face allegations it has bribed a government official. In eight tightly-written chapters, he brings his encyclopedic knowledge of FCPA cases, pre-trial settlements of enforcement actions, and the commentary on antibribery law to bear to explain how to develop and implement a sound, reasonable, cost-effective antibribery compliance program. Along the way he chucks the jargon that has grown up around antibribery compliance programs, opting instead for clearly written prose that demystifies rather obscures the process all firms should follow to develop and implement preventive measures.

Take his account in chapter six on how to conduct a risk assessment. Continue reading

Mixed Messages from the UK’s First Contested Prosecution for Failure to Prevent Bribery

In February 2018, the UK secured its first ever contested conviction of a company for “failure to prevent bribery.” Under Section 7 of the UK Bribery Act (UKBA), a company or commercial organization faces liability for failing to prevent bribery if a person “associated with” the entity bribes another person while intending to obtain or retain business or “an advantage in the conduct of business” for that entity. Following an internal investigation, Skansen Interior Limited (SIL)—a 30-person furniture refurbishment contractor operating in southern England—discovered that an employee at its firm had agreed to pay nearly £40,000 in bribes to help the company win contracts worth £6 million. Company management fired two complicit employees and self-reported the matter to the National Crime Agency and the City of London police. The Crown Prosecution Service ultimately charged SIL with failing to prevent bribery under Section 7. Protesting its innocence, SIL argued that the company had “adequate procedures” in place at the time of the conduct to prevent bribery; SIL, in other words, sought to avail itself of the widely-discussed “compliance defense” in Section 7(2) of the UKBA, which allows a company to avoid liability for failing to prevent bribery if the company can show that it “had in place adequate procedures designed to prevent persons associated with [the company] from undertaking” the conduct in question.

The case proceeded to a jury trial. The verdict? Guilty. The sentence? None. In fact, SIL had been out of business since 2014, so the judge had no choice but to hand down an absolute discharge—wiping away the conviction.

The hollow nature of the government’s victory has led some commentators to call the prosecution “arguably unprincipled” or even a “mockery of the UK criminal process.” Indeed, the bribing employee and the bribed individual had already separately pleaded guilty to individual charges under UKBA Sections 1 and 2, respectively, and the remaining shell of a corporation had no assets or operations. Other commentators pointed out that precisely because the company was dormant it would have been unable to enter into a deferred prosecution agreement (DPA), lacking assets to pay financial penalties or compliance programs to improve. Putting aside arguments about the wisdom or fairness of pursuing a prosecution in these circumstances, the SIL case sheds light on Section 7(2)’s “adequate procedures” defense. While the UK government has secured a few DPAs for conduct under Section 7—beginning with Standard Bank Plc in 2015—SIL is the first case in which the Section 7(2) “adequate procedures” defense was tested in front of a jury.

While the government argued that it prosecuted the case primarily to send a message about the importance of anti-bribery compliance programs, the UK government’s actions in the SIL case ultimately sends mixed messages to companies and may have counterproductive effects. Continue reading