The Curious Absence of FCPA Trials

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.

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Jared Kushner, Ivanka Trump, Anti-Nepotism, and Conflicts of Interest

On the same day as President Trump’s swearing in, the Department of Justice’s (DOJ) Office of Legal Counsel (OLC) released a memorandum elaborating upon why President Trump’s appointment of his son-in-law Jared Kushner as a Senior White House Advisor did not violate the federal anti-nepotism statute (5 U.S.C. § 3110). That statute prohibits a public official (including the President) from appointing or employing a relative (which the statute defines as including a son-in-law or daughter-in-law). The OLC reasoned that despite the seemingly clear prohibition in 5 U.S.C § 3110, another federal statute, 3 U.S.C. § 105(a), exempted positions in the White House Office from the anti-nepotism law. The OLC recognized this conclusion was a departure from its own precedent, but with the aid of some selective reading of legislative history, the OLC argued that lawmakers intended to allow the president “total discretion” in employment matters when it passed 3 U.S.C. § 105(a). (For non-specialists, see this primer for an explanation of these and other federal laws and regulations which could be relevant for addressing corruption in the Trump Administration.)

Somewhat predictably, the OLC memo generated debate among legal commentators (see here, here, here, and here). Yet even if the legal arguments were not entirely convincing, the OLC ended with a practical point that was echoed by many of the commentaries: given that President Trump will seek Mr. Kushner’s advice, regardless of whether he is a formal employee, it would be better for Mr. Kushner to be formally employed as a White House advisor, and thus subject to the applicable conflict-of-interest (COI) and financial disclosure rules. The same argument applies to Ivanka Trump, who also recently became an employee of the White House.

Some anticorruption advocates, myself included, were persuaded at the time by the OLC’s practical point. It would be best if the President did not make major policy decisions on the advice of radically unqualified relatives. But unfortunately, he is going to turn to them for advice. Given that baseline, we should prefer those family members occupy formal appointments, where at least they will be constrained by the COI statute and disclosure rules. However, with the benefit of hindsight, we should never have been persuaded. The COI statute and the disclosure rules turn out to be ineffective devices for preventing corruption in the Trump era. While the disclosure rules did encourage Mr. Kushner to make some divestments, they do not contain enough details to identify potential conflicts. And when there are conflicts, the COI statute is unlikely to be enforced, either because Attorney General Jeff Sessions will choose not to, or because the White House will grant a waiver.

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Why Does the SEC Enforce the FCPA?

Donald Trump’s nomination of Jay Clayton to chair the Securities and Exchange Commission (SEC) has attracted some attention and concern from the anticorruption community. That concern is due mainly to a report issued by a New York Bar Foundation committee, chaired by Mr. Clayton, which criticized the Foreign Corrupt Practices Act (FCPA) for its alleged adverse and asymmetric impact on U.S. corporations. Though it remains to be seen how strongly committed Mr. Clayton is to the views expressed in the report, the concern is understandable given that the SEC is one of the two agencies—along with the Department of Justice (DOJ)—that is responsible for enforcing the FCPA. This controversy also highlights another, broader question that some FCPA critics have raised: Why is the SEC even involved in FCPA enforcement in the first place?

Congress created the SEC in 1934 through the aptly named Securities Exchange Act to enforce federal regulations regarding the trade of securities after they have been issued. The main impetus for the SEC’s creation was the belief that an under-regulated securities market helped drive the 1929 stock market crash. However, over the past 80 years, the SEC has expanded into other areas of enforcement—such as FCPA enforcement—that seem tentatively tied to the SEC’s original mandate. Some have argued that due to resource limitations, it does not make sense for the SEC to pursue vigorous FCPA enforcement at the expense of diverting resources from protecting investors. In pushing this point, some critics also point out that the SEC’s major regulatory fumbles of the past decade coincide with the escalation of FCPA enforcement activity—which perhaps suggests that expanding the SEC’s responsibilities beyond its original mandate has indeed weakened the agency.

The reasons for the SEC’s involvement in FCPA enforcement are partly historical, as explained further below. But beyond that, despite the critics’ complaints, in fact FCPA enforcement remains a valuable use of the SEC’s resources in the 21st century.

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Judge Sullivan Calls Out the DOJ: What Corporate Settlements Reflect About The Broader Criminal Justice System

After the DOJ released the Yates Memo last September, I suggested that the DOJ was probably very serious about focusing attention on prosecuting individuals involved in corporate misconduct (including FCPA violations). This would constitute a significant shift away from the DOJ’s recent practice of resolving most allegations of corporate wrongdoing through deferred or non-prosecution agreements (known as DPAs and NPAs). Some proponents of DPAs and NPAs claim that such settlements—which allow companies to avoid formal legal charges if they cooperate with a DOJ investigation, disclose desired information, improve compliance measures, and perhaps pay a fine—are actually a “a more powerful tool” than convictions in changing corporate behavior. But many critics—such as Judge Rakoff—have argued that settlements usually obscure who is actually responsible for the misconduct, and “ever more expensive” compliance programs may do little to prevent future misconduct. As Judge Rakoff suggested:

“[T]he impact of sending a few guilty executives to prison for orchestrating corporate crimes might have a far greater effect than any compliance program in discouraging misconduct, at far less expense and without the unwanted collateral consequences of punishing innocent employees and shareholders.”

Federal judges, including Judge Rakoff, are responsible for approving the DOJ’s settlements with corporations. The scope of their review is quite limited, and they are required to defer to the prosecution decisions of the DOJ. But even before the Yates Memo, judges had begun reviewing settlements more carefully when individuals were not charged. At least one federal judge is still dissatisfied with the DOJ’s enforcement strategy, and recently took the opportunity—in a corruption case—to urge the DOJ to adhere to the Yates Memo and deal directly with individual wrongdoers. Moreover, he suggested this could have broader significance for how we think about the rest of the criminal justice system.

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Whistle While You Work: Protections for Internal Whistleblowers under Dodd-Frank

One of the many objectives of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act was to encourage whistleblowers to report securities violations—including violations of the Foreign Corrupt Practices Act (FCPA)—to the Securities and Exchange Commission (SEC). Among other things, Dodd-Frank created new remedies for whistleblowers who suffer retaliation by their employers, including allowing whistleblowers to sue their (former) employers on more favorable terms than existing anti-retaliation laws. But what if an employee doesn’t report a possible violation to the SEC, but only told her boss? If that “internal whistleblower” is subsequently terminated, can she avail herself of Dodd-Frank’s anti-retaliation provisions?  Because of the way the law was drafted, this turns out to be a difficult legal question, one on which courts across the U.S. have divided.

Nevertheless, there are strong practical reasons—above and beyond the basic reasons that could be advanced in any context—why Dodd-Frank should cover internal whistleblowers. Unless the courts resolve their division in favor of internal whistleblowers soon (most likely through a Supreme Court decision), Congress should step in and rewrite the law to remove any doubt that internal whistleblowers are protected.

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No Longer a Cost of Doing Business: The Yates Memo Signals DOJ Is Serious About Going After Individuals

As many observers have noted, penalties for Foreign Corrupt Practices Act (FCPA) violations tend to fall on corporations, rather than individual wrongdoers. The individual employees responsible for the unlawful conduct rarely pay fines or go to prison. The FCPA is not unique in this regard; many U.S. Department of Justice (DOJ) settlements with corporate defendants shield executives and employees from personal liability so long as the corporation accepts institutional responsibility. Yet this enforcement posture has been unsatisfying, and critics argue that many corporations simply treat the fines as an accepted cost of doing business. In response to this concern, and after much foreshadowing, the DOJ formally released a new policy on individual liability last week—a policy that applies to all corporate prosecutions and settlements, including those involving the FCPA. Known as the “Yates Memo” (it was announced by Deputy Attorney General Sally Quillian Yates in her remarks at NYU School of Law on September 9th), this new policy statement—the first major policy announcement from the DOJ under Attorney General Loretta Lynch—signals that the “cost of doing business” model of corporate compliance is coming to a definitive end.

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The FCPA Under Attorney General Loretta Lynch

After the third longest wait for Senate confirmation in history, Loretta Lynch finally received approval to be the next Attorney General of the United States on April 23. When she assumes her position as the head of the U.S. Department of Justice, complex challenges related to cybersecurity and community-police relations will likely be at the top of her list of undertakings. But Lynch has also vowed to make continuing the DOJ’s commitment to fighting global corruption “a top priority.”

Indeed, Lynch has substantial FCPA experience – more than any previous Attorney General (unsurprising, given that it was her two predecessors, Eric Holder and John Ashcroft, who largely oversaw the ascendance of the FCPA regime). As the U.S. Attorney for the Eastern District of New York, Lynch collaborated with the DOJ’s Fraud Section to secure the Ralph Lauren and Comverse non-prosecution agreements. She as worked on the other side as well. As a partner at Hogan & Hartson, she conducted internal investigations, advised clients that had run afoul of the FCPA, and conducted continuing legal education classes on anticorruption. As lawyers, scholars, and business leaders debate the need for FCPA reform (see, for example, here and here), what might the new Attorney General mean for the enforcement regime?

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