Is the “Too Big to Debar” Problem a Problem? And Is Partial Debarment a Solution?

In my last post, I discussed one aspect of the (very useful) OECD Foreign Bribery Report: the characteristics of the bribe-paying firms in the 427 enforcement actions between February 1999 and June 2014. Today, I want to turn to a different aspect of the report, concerning the penalties levied in those foreign bribery cases. As the report notes, although these cases have often resulted in quite substantial fines (and associated monetary penalties, like disgorgement), one available penalty in the public procurement context–debarment from future government contracts–has been used extremely rarely (in only two of the enforcement actions the OECD examined). The OECD Report concludes that this is a problem, emphasizing as one of the report’s key conclusions that “the fact that only 2 out of 427 cases resulted in debarment demonstrates that countries need to do more to ensure that those who are sanctioned for having bribed foreign officials are suspended from participation in national public contracting.” This conclusion echoes the thesis of a 2011 article by Professor Drury Stevenson and Nicholas Wagoner, who developed the case for expanded use of debarment in FCPA enforcement actions at greater length and in greater depth.

But the title of Stevenson & Wagoner’s article–“Too Big to Debar”–alludes to the main reason debarment is not used more often as a sanction in FCPA or other foreign bribery cases: Debarment, particularly for firms that do much or all of their business with governments, may be effectively a death-sentence for the firm, or at the very least inflict a level of economic loss that seems out of proportion to the wrongdoing. This concern is especially acute when much of the collateral consequences of debarment would fall on “innocent” parties (non-culpable employees and shareholders, as well as the firm’s would-be government customers). Stevenson & Wagoner’s response to this legitimate set of concerns is not all that satisfying: they emphasize the deterrent value of debarment (perhaps suggesting that debarment is a bit like a nuclear weapon, in that a credible threat to use it means in practice you won’t need to use it very much), and they suggest the government could make the threat of debarment more credible by diversifying its set of suppliers.

More recently, Richard Bistrong (a convicted FCPA defendant turned insightful FCPA consultant and commentator) has advanced what I consider a more nuanced and plausible set of proposals that could allow the government to preserve debarment as a remedy, without necessarily imposing a “corporate death sentence.”  Mr. Bistrong’s proposals all entail some form of more limited debarment: debarment only until the firm demonstrates commitment to effective corrective measures; debarment only from certain kinds of contracts; debarment only from foreign contracts requiring export licenses; or debarment only from contracting with certain governments (for instance, with the government that was the subject of the anti-bribery enforcement action). Putting the details temporarily to one side, Mr. Bistrong’s larger point, as he explains it, is as follows: “[T]here is a misperception that debarment equates to a corporate death sentence. I hope that by elevating some of the incremental enforcement and policy options which might be available in the context of [de]barment, that perhaps the ‘all or nothing’ perception might be reassessed.”

I find all of this plausible and helpful, but I think it’s worth taking a step back for a moment to consider why we might want to use debarment as a sanction in the first place. Thinking this through might be helpful in assessing Mr. Bistrong’s intriguing proposals for incremental or partial debarment, as well as the “too big to debar” problem more generally. Continue reading