Tag Archives: FCPA

Revisiting the “Public International Organization” Designation for International Sports Organizations under the FCPA

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Three years have passed since U.S. federal prosecutors rocked the global sports community by indicting roughly 40 individuals in connection with an investigation into corruption at FIFA. Some preliminary commentary suggested that prosecutors in the FIFA case might bring charges under the Foreign Corrupt Practices Act (FCPA). U.S. prosecutors instead pursued cases under money laundering, racketeering, and fraud charges against the individuals—primarily officials at FIFA and other soccer organizations—who accepted the bribes. In December 2017, for example, prosecutors obtained their first convictions from jury trials in this case, as Juan Ángel Napout (former president of South American football’s governing body) and José Maria Marin (the former president of Brazil’s football federation) were found guilty of racketeering, money laundering, and fraud for accepting large sums of money in exchange for lucrative FIFA media rights deals and influence over FIFA tournament hosting decisions.

The reason that the DOJ has only targeted bribe-taking FIFA officials, and has not used the FCPA to prosecute those who paid those bribes, is that bribes paid to FIFA officials fall outside the FCPA’s scope. But that could, and perhaps should, change.

The 1998 amendments to the FCPA expanded the statute’s scope to cover bribes not just to officials of foreign governments, but to officials of “public international organizations.” An organization may be designated as a public international organization either through an executive order pursuant to an existing statute (the International Organizational Immunities Act), or—importantly for present purposes—“any other international organization that is designated by the President by Executive order[.]” Pursuant to this statutory authority, the President has the power to designate international sports governing bodies like FIFA, the International Olympic Committee (IOC) and others as “public international organizations” for FCPA purposes. (The fact that these sports bodies are nominally private does not prevent this; while most of the roughly 80 public international organizations currently covered by the FCPA are intergovernmental organizations like the World Bank and the International Monetary Fund, the list also includes some private, non-profit organizations, such as the International Fertilizer Development Center.) If the President designated international sports organizations like FIFA or the IOC as “public international organizations” for FCPA purposes, then individuals or firms that bribed officials at those organizations could be prosecuted under the FCPA, so long as the U.S. has jurisdiction over the defendants.

This is not a novel or radical idea. For decades, legislators and activists have clamored for designating sports organizations such as FIFA and the IOC as public international organizations under the FCPA. The discussion first surfaced in 1999, when U.S. Senator George Mitchell requested President Clinton to declare the IOC a public international organization following findings of a bribery-ridden culture in the Olympic movement. Senator John McCain later introduced a bill that would bring the IOC under the definition of public international organization under the FCPA, but the bill never made it out of committee. Although these past efforts proved unsuccessful, the time is ripe for revisiting this idea. Indeed, there are at least two compelling arguments for designating FIFA and the IOC as public international organizations under the FCPA.

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

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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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The Curious Absence of FCPA Trials

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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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Anticorruption Tools in the Anti-Trump Toolkit: A Primer

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[Kaitlin Beach provided helpful research and thoughtful contributions to this post.]

Since Donald Trump’s election, critics have asserted that his presidency presents unprecedented risks of corruption, cronyism, and conflict of interest. Many argue that President Trump and members of his administration are already engaging in conduct that is not only unethical, but also illegal. Because it can be hard for non-specialists to keep track of the myriad rules that have been referenced in the context, this post provides a brief, non-technical overview of the most important federal laws and regulations that are designed to prevent corruption, conflict-of-interest, and self-dealing in the U.S. government, focusing on those that have been most widely or most creatively discussed in relation to fighting a purportedly corrupt Trump administration.

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Trump Administration Backs Broad Reach of FCPA –UPDATE

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(Two days after this post appeared Washington Post columnist David Ignatius offered an important insight into where the Trump Administration policy on the FCPA is likely to end up in his March 10 column on former Exxon chief and now Trump Secretary of State Rex Tillerson:

“An example of the role Tillerson could play is an exchange in February about the Foreign Corrupt Practices Act. During a White House meeting, Trump complained that the anti-bribery statute cost the United States billions of dollars in lost sales overseas and millions of jobs. According to one insider, Tillerson dissented and described how he had walked away from an oil deal in the Middle East after a leader there demanded a payoff — but later was invited back. “You’re Exxon!” Trump countered, but the former chief executive dissented again. “No, people want to do business with America.”)

Presented with a first opportunity to narrow the reach of the Foreign Corrupt Practices Act, the Trump Administration refused, choosing instead to back the Obama Administration’s view that the act reaches those who help bribe an official of a third country no matter whether the defendant ever steps foot in the United States or works or acts for a U.S. company.  In endorsing this broad reading of the act, the Administration rejected pleas from FCPA defense lawyers that such a reading was an “unwarranted” and “unprecedented attempt to … ensnare foreign individuals who fall outside the carefully-delineated categories of principals covered by the FCPA.”  To the contrary, its lawyers told an appeals court, if the act were read to exclude these individuals, executives of non-U.S. companies could orchestrate foreign bribery schemes involving American companies with impunity.

The case arose from allegations that executives of the American subsidiary of the French firm Alstom had bribed Indonesian officials to win a $118 million contract to build power plants for the government.  Among those the Justice Department charged with FCPA violations was Lawrence Hoskins, a citizen of the United Kingdom working for the Alstom parent in Paris. His role, if any, in the bribe scheme remains to be established at trial, but one possibility is he orchestrated or facilitated it from his Paris perch though never traveling to the U.S. nor working or acting for the American subsidiary. If these facts are proved at trial, the Department asserts Hoskins is guilty of violating the FCPA as an accomplice, either because he aided and abetted those who actually paid the bribe or conspired with them to do so.

The trial court rejected both theories, however.  It ruled that an accomplice to an FCPA violation is beyond the act’s reach if the accomplice remained outside the U.S. while the act was violated and did not work or act directly for the U.S. entity that violated it.   The Department appealed and written arguments were submitted before the Trump Administration took office.  The appeals court did not hear the case until March 2, giving the Trump Administration time to ask for a delay to reconsider the Obama Administration’s position.  It could have also backed away from the Obama Administration’s interpretation of the law at the March 2 hearing (as it has done twice in hearings involving civil rights cases) and endorsed the trial court’s narrow reading of the act.

That it did not pursue either option is another signal, like that recently sent by the Trump official immediately responsible for FCPA enforcement, that whatever changes the Administration has planned elsewhere, a more relaxed view of the reach of U.S. antibribery laws is not one of them.

(The FCPA Professor Blog excerpts the appeal briefs of the Justice Department and Hoskins as well as the friend of the court brief by FCPA defense counsel arguing the view of the act the Trump Administration is defending is “unwarranted” and “unprecedented” here.)

Trump Official: Fighting Foreign Bribery “Solemn Duty” of Justice Department “Regardless of Party Affiliation”

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The Trump Administration official with immediate responsibility for overseeing enforcement of the Foreign Corrupt Practices Act suggested yesterday there would be little change in the act’s enforcement under the new administration.  Trevor N. McFadden, newly-installed as Deputy Assistant Attorney General in the Criminal Division of the Department of Justice, told a Washington audience that while it would be “hard to predict exactly” how enforcement will evolve, “some common themes are clear.”  The three he identified:

1)  FCPA enforcement will continue to be a priority.  “The FCPA has been and remains an important tool in this country’s fight against corruption.”  McFadden underlined that at his confirmation hearing incoming Attorney General Jeff Sessions “explicitly noted his commitment to enforcing the FCPA, and to prosecuting fraud and corruption more generally.”  McFadden went on to stress that “The fight against official corruption is a solemn duty of the Justice Department, emphasizing that “each generation of Department leaders and line prosecutors takes up this mantel from their predecessors, regardless of party affiliation.”

2)  Prosecution of individuals remains a priority.  In a September 2015 Memo to Justice Department prosecutors, “Individual Accountability for Corporate Wrongdoing,” then Obama Administration Deputy Attorney General Sally Yates stressed the importance of prosecuting individual corporate executives and employees for corporate crimes. In his remarks McFadden not only seconded this effort but suggested that the growing cooperation between the Department and foreign law enforcement authorities would lead to its expansion. “The Criminal Division will continue to prioritize prosecutions of individuals who have willfully and corruptly violated the FCPA. … Indeed, our partnerships with foreign authorities are increasingly allowing us to ensure that even individuals living abroad are held accountable for their actions.”

3) Cooperating defendants will be rewarded.  Seconding a long-standing DoJ policy, the newly appointed Deputy Assistant Attorney General said a corporation’s voluntary disclosure of violations coupled with its cooperation and remedial efforts will remain an important factor when making charging decisions.  “These principles continue to guide our prosecutorial discretion determinations, and they further our ultimate goal of compliance with the law.”

McFadden spoke to a group of lawyers, accountants, and others involved in counseling corporations on FCPA issues at a conference organized by Global Investigations Review, perhaps the leading global news service on the enforcement of corporate criminal law.  Previously a partner at a major American law firm, McFadden brings a background both in public service, as an aide to the Deputy Attorney General in the George W. Bush Administration, and in private practice where he specialized in FCPA compliance work.  From all accounts a mainstream Republican who could well have been appointed to the same position by any Republican president, McFadden’s remarks strongly suggest that whatever changes the Trump Administration may have in store elsewhere, it will not back off vigorous enforcement of the FCPA. The full text of his remarks are here.

Why Does the SEC Enforce the FCPA?

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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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Equitable Sharing, Not Deference: How US FCPA Enforcers Should Accommodate Foreign Interests

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Frederick Davis recently published two guest posts (see here and here) emphasizing some of the risks that arise when the US government pursues FCPA prosecutions against foreign corporations. He notes that European anticorruption administrators are regularly irritated by aggressive US action in this field and by the apparent discrepancy in the treatment of US and non-US corporations. He also notes that foreign corporations are reasonably worried about being charged twice for the same transgression: While European countries have addressed this concern through an international version of the double jeopardy bar (also known as ne bis in idem), that bar does not protect a corporation against a subsequent US prosecution. Moreover, as Mr. Davis notes, US enforcement agencies (as compared to their counterparts in Europe) have wider authority to charge, are more willing to assert power abroad, wield more procedural tools, and are less subject to judicial supervision in their charging and settlement decisions. To address these problems, Mr. Davis recommends, among other measures, that the US DOJ issue guidelines for when to defer to foreign judgments.

However, US deference to foreign judgments may not be the best solution. It could be true, as Mr. Davis worries, that US prosecutors are “becoming the ultimate arbiters” of foreign bribery cases (at least those involving multinational corporations). But if the US standard is indeed more stringent, then US hegemony could lead to more aggressive anticorruption prosecution across the board, a boon for anticorruption advocates. Since in certain situations competition among administrative and enforcement agencies can create a de facto “race to the top” in terms of standards, it might not be such a good idea for the US to adopt a more deferential posture toward foreign judgments in transnational bribery cases.

That’s not to ignore the significant problems that Mr. Davis describes. Given that the fines and other monetary penalties for corrupt business behavior can be enormous, US FCPA counterparts in other nations would be rightly dismayed if they lost out on the potential recoveries. If a Danish corporation listed on a US exchange bribes an official in Gambia, all three countries should be able to penalize the wrongdoers and share—though not necessarily equally—in the fines and other penalties recovered. If the penalties are appropriately distributed, we need not sacrifice the aggressive anticorruption regime of US hegemony. My response to Mr. Davis is that we need guidelines for distribution of recoveries, not necessarily guidelines for deferral to foreign judgments operating under differing, and less aggressive, standards.

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Watching the Watchmen: Should the Public Have Access to Monitorship Reports in FCPA Settlements?

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When the Department of Justice (DOJ) settles Foreign Corrupt Practices Act (FCPA) cases with corporate defendants, the settlement sometimes stipulates that the firm must retain a “corporate monitor” for some period of time as a condition of the DOJ’s decision not to pursue further action against the firm. The monitor, paid for by the firm, reports to the government on whether the firm is effectively cleaning up its act and improving its compliance system. While lacking direct decision-making power, the corporate monitor has broad access to internal firm information and engages directly with top-level management on issues related to the firm’s compliance. The monitor’s reports to the DOJ are (or at least are supposed to be) critically important to the government’s determination whether the firm has complied with the terms of the settlement agreement.

Recent initiatives by transparency advocates and other civil society groups have raised a question that had not previously attracted much attention: Should the public have access to these monitor reports? Consider the efforts of 100Reporters, a news organization focused on corruption issues, to obtain monitorship documents related to the 2008 FCPA settlement between Siemens and the DOJ. Back in 2008, Siemens pleaded guilty to bribery charges and agreed to pay large fines to the DOJ and SEC. As a condition of the settlement, Siemens agreed to install a corporate monitor, Dr. Theo Waigel, for four years. That monitorship ended in 2012, and the DOJ determined Siemens satisfied its obligations under the plea agreement. Shortly afterwards, 100Reporters filed a Freedom of Information Act (FOIA) request with the DOJ, seeking access to the compliance monitoring documents, including four of Dr. Waigel’s annual reports. After the DOJ denied the FOIA request, on the grounds that the documents were exempt from FOIA because they comprised part of law enforcement deliberations, 100Reporters sued.

The legal questions at issue in this and similar cases are somewhat complicated; they can involve, for example, the question whether monitoring reports are “judicial records”—a question that has caused some disagreement among U.S. courts. For this post, I will put the more technical legal issues to one side and focus on the broader policy issue: Should monitor reports be available to interested members of the public, or should the government be able to keep them confidential? The case for disclosure is straightforward: as 100Reporters argues, there is a public interest in ensuring that settlements appropriately ensure future compliance, as well as a public interest in monitoring how effectively the DOJ and SEC oversee these settlement agreements. But in resisting 100Reporters’ FOIA request, the DOJ (and Siemens and Dr. Waigel) have argued that ordering public disclosure of these documents will hurt, not help, FCPA enforcement, for two reasons:  Continue reading →

Welcome (Back) to The Jungle: Why Privatization of Meat Inspections Will Increase Corruption and Threaten Food Safety

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Over a century ago, the tales of squalid meat production in Upton Sinclair’s famous novel The Jungle shocked the United States, contributing to a public outcry that ultimately led to regulations requiring a government inspector to examine every single meat carcass intended for human consumption. The U.S. Department of Agriculture’s FSIS (Food Safety Inspection Service) is responsible for the inspection regime. The established assessment program requires multiple FSIS inspectors to be on-site, performing a process of continual, carcass-by-carcass inspection during slaughter. The system is far from perfect and has never been a stranger to scandal (see here, here, and here). Yet it has been seen as vital to safeguarding public health from foodborne illnesses, including e.coli and salmonella outbreaks. It is also backed by a robust legal regime designed to insulate the inspectors from bribery and other forms of improper influence.

Unfortunately, throughout its history, FSIS has faced pressure to favor in-house inspectors over government inspectors in the name of creating a “flexible, more efficient” system. The most recent experiment with limiting the role of FSIS inspectors is HIMP (Hazard Analysis and Critical Control Point-Based Inspection Management Program), a program being piloted in a handful of pork plants and set to be proposed as a final regulation soon. (The related New Poultry Inspection System is being phased in now despite legal challenges.) HIMP uses in-house staff to conduct most of the inspections, particularly early on. A limited number of FSIS personnel do paperwork oversight and spot checks at particular points on the line.

However one chooses to balance competing calls for efficiency and safety, this is a short-sighted idea. Government inspectors and regulatory personnel are not perfect, but they are covered by anti-bribery laws and whistleblower protections that in-house inspectors are not, making them a safer bet for the safety of the meat supply. Filth and disease garner headlines, but civil society should continue to fight for an active role for government inspectors for another reason—public corruption is easier to fight than private influence. Even if one agrees that government inspectors are less efficient (a questionable proposition, despite how often it’s repeated), there are a number of laws and regulations in place designed to prevent (or expose) the corruption of these inspectors by the meat industry; there is no comparable regulatory regime in place to prevent equivalent corruption, or other forms of more subtle improper influence, from distorting the decisions of in-house private inspectors. Consider a few key areas of separation:

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