Why DOJ’s New FCPA Corporate Enforcement Policy May Be a Step Backwards

At the end of last year, the U.S. Department of Justice announced a new Corporate Enforcement Policy to guide prosecutors charged with overseeing Foreign Corrupt Practices Act (FCPA) violations. This new policy codifies, and builds on, the DOJ’s FCPA Pilot Program, which had been in place since mid-2016. Under the Pilot Program, the DOJ announced that it would consider mitigated penalties for companies that voluntarily disclosed FCPA violations, fully cooperated with the government investigation, and agreed to remediation measures. Those mitigated penalties included a reduction in penalties by 50% below the low end of the U.S. Sentencing Guidelines range, or in some cases outright declination of prosecution.

The new Corporate Enforcement Policy goes further, stating that when a company voluntarily self-discloses an FCPA violation, fully cooperates, and adopts timely and appropriate remediation measures (including disgorgement of any gains from the violation), there is a presumption that the DOJ will offer the company a declination, absent aggravating circumstances (such as a particularly severe offense). This presumption of a declination is stronger than the Pilot Program, which only said that the DOJ would “consider” a declination. Additionally, while Pilot Program gave prosecutors the discretion to reduce requested fines, the new policy directs prosecutors to ask for lower fines as long as companies meet the requirements noted above. The new policy also gives favorable terms even to companies that do not voluntarily disclose misconduct, so long as they later fully cooperate and implement a remediation program. For these companies, the DOJ will recommend a sentence reduction of up to 25% off of the low end of the U.S. Sentencing Guidelines. (The DOJ also recently announced that it’s expanding this beyond the FCPA, applying it also to crimes such as securities fraud.)

One way to understand the new FCPA Corporate Enforcement Policy is as a response to concerns that the U.S. government’s traditional approach to enforcing the FCPA has over-emphasized corporate settlements at the expense of prosecuting individual wrongdoers. In that sense the new policy, and the Pilot Program before it, can be seen as consistent with the Yates Memo, which declared that the DOJ would focus more on individual liability. A related but distinct justification for the new Corporate Enforcement Policy is the idea that it will improve overall FCPA enforcement by encouraging more voluntary self-disclosures. The rationale is that there are likely a large number of low-level corporate bribery cases that companies learn about but don’t report, for fear of the expected penalties. The DOJ would prefer that companies disclose these transgressions, and the Department appears to have concluded that the benefits of encouraging such disclosures outweighs concerns about reducing punishments for FCPA violations. Indeed, in justifying the new enforcement policy, U.S. Deputy Attorney General Rod Rosenstein emphasized that under the Pilot Program, the number of voluntary disclosures during the program doubled to 30.

These justifications for the new policy at first seem plausible, but they suffer from an important flaw: They overlook the impact of DOJ’s enforcement posture on corporate culture. The new policy may increase incentives for voluntary self-disclosure and post hoc remediation, but at the same time the new policy weakens incentives for companies to actively work to promote a pro-integrity corporate culture. For that reason, the new policy may end up worsening overall foreign bribery activity, even if both corporate self-disclosures and prosecutions of individuals increase.

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Enlisting the Private Sector in the Fight Against Corruption — Part 2

Part 1 of this post lists 21 countries plus the Canadian province of Quebec that have taken measures to get corporations to join the fight against corruption.  Thanks to a bad case of jet lag, the post’s author ran out of steam before explaining what he meant by a company’s “joining the fight” or how countries got them to join it.  Herewith an explanation of both along with my apologies to readers puzzled by part 1.

To begin, a table summarizing the laws to which part 1 referred along with summaries of bills pending in the Irish and Vietnamese legislatures appears here: National Compliance Rules.  (Thanks to readers who caught errors in the part 1 list; similar scrutiny of the table solicited.)

As the table shows, the laws referenced require — or provide incentives for — companies under their jurisdiction to prevent their employees from paying bribes or engaging in other forms of corrupt conduct.  Some laws prescribe in detail the elements such an anticorruption compliance program should contain; others leave it to regulations or the courts to decide what companies must do.  With the October 2016 publication of ISO 37001 setting standards for corporate antibribery programs, most authorities will likely converge around the elements it recommends.   The recommendations are sensible and quite consciously track the experience of those countries that required corporate compliance programs, especially the United States, where guidelines on what constitutes an “effective” compliance program, drafted to help courts when deciding the culpability of corporations for the corrupt acts of employees and agents, have been in force since 2004.

Where national corporate compliance laws differ is in how countries “encourage” companies subject to their laws to institute a compliance program. The table reveals several approaches. Continue reading

Enlisting the Private Sector in the Fight Against Corruption

Governments need all the help they can get in the war against corruption.  The enemy is resourceful, well-financed, and will engage in tactics legal and illegal to frustrate an investigation, defeat a prosecution, or undermine prevention policies.  When looking for allies, though, many governments have until recently ignored an obvious source of recruits: the corporations they license to do business.  Doing business in a country is not a right but a privilege, one commonly conditioned on a corporation’s agreement to register, hold an annual meeting, and publish a yearly financial report.  There is no reason, however, why the privilege of conducting business should not also be conditioned on the corporation’s willingness to join the fight against corruption.

As the chart below shows, more and more governments now realize the advantages of enlisting the corporate sector in the fight against corruption.  By my count (additions/corrections welcome) today 21 countries plus the Canadian province of Quebec require corporations to help in someway in the fight against corruption.  The movement to enlist the private sector is picking up steam.  Of the 22 jurisdictions shown below, 15, or almost three-quarters, have enacted legislation in 2016 and 2017.  Argentina is the most recent additon, where a law was approved November 9, and if press reports are accurate Vietnam is about to become the 23rd.

Country Date Country Date Country Date
Argentina 2017 Colombia 2016 Germany 2010
France 2017 Czech Rep 2016 U.K. 2010
Malaysia 2017 South Korea 2016 Chile 2009
Mexico 2017 Spain 2015 Switzerland 2005
Peru 2017 Brazil 2014 Tanzania 2005
Thailand 2017 Russia 2013 U.S. 2004
Ukraine 2017 Quebec 2012 Italy 2001
    South Africa 2012    

The approaches vary.  In a later post I will discuss the differences and also flag some of the ways these laws can be abused.   In the meantime, I again solicit readers help in ensuring the chart is accurate.

 

ISO 37001 and the Federal Sentencing Guidelines Compared

The International Standards Organization’s ISO 37001: Antibribery Management Systems – Requirements with Guidance for Use has prompted an outpouring of commentary since publication last October.  Meant to set forth “reasonable and proportionate” measures organizations of any kind and size located anywhere can take to prevent, detect, and respond to bribery, it has received generally positive reviews — on this blog, the FCPA blog (examples here and here), and elsewhere (here, here, and here for examples).  Commentators offer it as a best practice guide for corporations wanting to instill an ethical culture among their employees and, not incidentally, avoid prosecution under the Foreign Corrupt Practices Act and its many offspring.  But none of the commentary, or at least none I have seen (a Google search for ISO 37001 brings back several hundred thousand hits), lists, let alone discusses, what ISO 37001 recommends.

As a start on filling this gap, the recommendations are summarized on this spreadsheet.  For perspective, ISO 37001 is compared to the latest version of the granddaddy of corporate compliance guides, the U.S. Government’s Federal Sentencing Guidelines (pp. 525 -33).  To make the comparison, both are benchmarked against the elements of a compliance program listed in the Anticorruption Ethics and Compliance Handbook for Business, a volume jointly issued by the OECD, the World Bank, and the UNODC in 2013.

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Argentina’s Draft Bill on Corporate Criminal Liability for Bribery: Some Striking Innovations on Sanctions

A few weeks ago, I had the good fortune to be able to attend an event at the University of Buenos Aires (co-sponsored by the New York University Law School), that focused, among other things, on a new draft bill, currently under consideration in the Argentinian legislature, that would impose criminal liability on corporations and other legal persons for corruption-related offenses. I’m largely unfamiliar with Argentina’s legal system, so I was very much an outside observer for this discussion, but there were a couple of things about the draft bill that struck me as interesting and worthy of attention from the wider anticorruption community. (Apologies for not providing a link: I’m working off a hardcopy of an unofficial English translation of the draft bill, which I can’t find on the web.)

A lot of the provisions in the bill are fairly standard, though in many respects the bill is quite aggressive. For example, Article 3 makes parent companies jointly and severally liable for sanctions imposed on their subsidiaries (without any requirement to show that the subsidiary was an agent of the parent), while Article 4 imposes successor (criminal) liability in all cases of merger, acquisition, or other corporate transformation. In both these respects, the draft Argentinian bill imposes more sweeping corporate criminal liability than does U.S. law. Also, like U.S. law, the Argentinian bill (in Article 2) would make corporations criminally liable for the actions of its officers, employees, and agents.

But what most caught my attention were the draft bill’s provisions on sanctions: Continue reading

Lifting the Resource Curse: Beyond Potions, Incantations, and EITI

Thanks to Google those who have had a curse put on them can find numerous ways to lift it: from drinking a special potion on the first night of the waxing moon to repeating a certain incantation 13 times while holding a rabbit’s foot.  (Here, here and here for useful sources.)  But Google is not nearly so helpful for policymakers looking to lift the resource curse: the corruption, violence, and misgovernment that befall a poor country with plentiful quantities of hydrocarbons or other natural resources.

The best Google does for them is tout the Extractive Industry Transparency Initiative, a voluntary compact where the government agrees to disclose the monies it receives from the companies that produce its resource and the companies agree to report the monies they pay government.  As the 300,000 plus “hits” on EITI in Google explain, the theory is that civil society will use the disclosures to hold government and the companies accountable. Unfortunately for the policymaker looking for solutions to the resource curse, Google will also pull up a long list of studies (here and here for examples) showing that so far it has had little to no effect on corruption and governance in resource rich poor countries and that at best the relief it promises is many years away.

With this post I hope to persuade Google’s powers that be to modify the search algorithm so that when a user enters “resource curse – how to lift” something besides “EITI” is returned.  That something is Continue reading

Leniency Agreements Under Brazil’s Clean Company Act: Are They a Good Idea?

Brazil’s 2013 Clean Company Act, the country’s first anti-bribery statute applicable to companies, has grabbed Brazilians’ attention due to its recurrent use in the context of the so-called Car Wash operation. The Clean Company Act has provided the main legal basis for Brazilian public authorities (especially federal prosecutors) to sign leniency agreements with construction corporations whose top executives stand accused of bribing officials in exchange for contracts from Petrobras, Brazil’s state-owned oil giant. Under the Act, Brazilian authorities may enter into a leniency agreement as long as the company admits its participation in the illicit act, ceases any further participation, provides full restitution for damage caused, and cooperates fully and permanently with the ongoing investigation. In exchange, the fines can be reduced by up to two-thirds and, more importantly, the cooperating company may be exempted from judicial and administrative sanctions, including suspension or debarment from public contracts. Over the course of the Car Wash investigation, Brazilian authorities have already signed five leniency agreements with some of Brazil’s largest engineering firms, and at least twelve more companies are currently negotiating leniency deals with Brazilian authorities.

But do these sorts of leniency agreements provide for sufficient deterrence of corrupt behavior? And are they consistent with the interest in punishing those companies that have committed a serious crime? Those who defend Brazil’s increasing use of leniency agreements emphasize that a similar approach has proven to be effective in countries like the United States, one of the most successful countries in the world in the fight against corruption. Indeed, the leniency agreements authorized by the Clean Company Act were modeled on the Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) used by US authorities in white-collar criminal law enforcement. However, Brazil is following the US model precisely at a time when the widespread use of NPAs and DPAs is becoming more controversial, in part because of concerns that these sorts of agreements fail to deter economic crimes and allow high-ranking executives to escape accountability for their crimes (for a summary of the criticisms of those agreements, see here and here). Perhaps more importantly, even if one views the US experience with NPAs and DPAs as successful overall, there are several reasons why this model might be more problematic in the Brazilian context. Continue reading