The DOJ China Initiative and the Shifting Policy Goals for the FCPA

Last November, then-US Attorney General Jeff Sessions announced the creation of a new Department of Justice (DOJ) “China Initiative.” The main focus of this initiative is not corruption, but rather the theft of intellectual property by Chinese corporations, as detailed in a 200-page report published by the Office of the U.S. Trade Representative in March 2018, as well as a subsequent report from the White House Office of Trade and Manufacturing Policy. But while most of the DOJ’s China Initiative focuses on this issue, the memorandum describing the initiative listed a number of additional goals, one of which caught the attention of the anticorruption community: “Identify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”

This reference to enforcing the FCPA against companies from a particular country is quite unusual. According to Eric Carlson at the FCPA Blog, “No one with whom I have spoken can recall another situation where the DOJ has announced that it would target companies headquartered in a specific country for FCPA enforcement.” This aspect of the China Initiative has provoked a strong and generally negative response from members of the anticorruption community. For example, former State Department attorney Kate Hamann worried that the China Initiative exposed the US government to the accusation of “unfairly targeting Chinese individuals and companies.” This concern was echoed by Professor Stephenson, who argued that the project sets a “bad precedent” by explicitly using the FCPA as a tool to protect U.S. companies from foreign competition.

One largely overlooked aspect of the FCPA component of the China Initiative is the degree to which it contradicts one of the main policy goals of the Congress that enacted the FCPA back in 1977. That Congress viewed the FCPA as a way to improve relations with foreign countries, a policy goal that has largely disappeared in subsequent decades. In its place, enforcement agencies (and Congress, in amendments to the FCPA) have developed a theory in which the primary purposes of the FCPA are to protect businesses that “play fair,” and to promote good business practices more generally. (This shift in policy goals was largely made possible by a revision in the text of the FCPA which allowed US enforcement agencies to bring enforcement actions against a wider range of foreign entities.)

In this post, I trace the changing policy objectives of the FCPA to demonstrate the degree to which the Act has historically served a wide range of sometimes contradictory policy goals. I then draw upon that history to suggest two reasons that the China Initiative’s combative posture may be cause for concern.

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Guest Post: How Will Nationalist Election Outcomes in the US and UK Affect Foreign Anticorruption Enforcement?

Professor Rachel Brewster of Duke Law School and Mat Tromme, Project Lead & Senior Research Fellow at the Bingham Centre for the Rule of Law, contribute today’s guest post, which is based on discussions at a recent Bingham Center-Duke Law School FCPA Roundtable:

In the past year, we have twice seen voters make a significant turn toward nationalism. In June 2016, in a move that was largely motivated by protectionist views, the UK voted to leave the EU, and in November, the United States elected Donald Trump, who campaigned on an “America First” promise. What do these developments mean for US and UK enforcement of their respective laws against overseas bribery (the Foreign Corrupt Practices Act (FCPA) and UK Bribery Act (UKBA), respectively)? Many worry that, insofar as government leaders view anticorruption laws as harming their country’s international competitiveness (a dubious assumption), then nationalistic fervor can lead to weaker enforcement. This is a reasonable concern in both countries—but a more careful analysis of the situation suggests uncertainty is greater in the UK than it is in the US.

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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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Guest Post: Living in a Kleptocracy–What to Expect Under President Trump

Bonnie J. Palifka, Assistant Professor of Economics at Mexico’s Tecnológico de Monterrey (ITESM) contributes today’s guest post:

The news regarding President Donald Trump appointments and nominations, and the increase in foreign governments’ business at Trump properties, has caused considerable concern regarding possible conflicts of interest, nepotism, insider trading, and other types of grand corruption. Many are worried about what this means—if President Trump’s tendencies toward crony capitalism, or quasi-kleptocracy, are as serious as his critics fear, what can we expect will happen over the next four or eight years?

While grand corruption among the political elite may be new for US citizens, this challenge is all too familiar in many other parts of the world. As a long-time resident of Mexico and corruption scholar, I have some insight regarding life in a relatively corrupt environment, which might be relevant to what the US is about to face: Continue reading

How Much Should FCPA Hawks Worry About Trump’s Pick for SEC Chair?

Every time I write about the impact that the Trump Administration will have on FCPA enforcement, I’m reminded of the old joke about the actor hired to play the gravedigger in a production of Hamlet: When his wife asks what the play is about, he replies, “Well, it’s about this gravedigger, who meets a prince….” Even if we limit our focus to corruption-related issues, FCPA enforcement might not crack the top-5 in terms of high-priority concerns in the Trump Administration. Nonetheless, since the FCPA is one of the things I follow, and one of the things that a big chunk of the US anticorruption community spends a lot of time thinking about, I suppose it’s worth continuing to comment on this issue from time to time.

As regular GAB readers likely know, I’m both something of an “FCPA Hawk” (see here and here), and something of a pessimist when it comes to the likely consequences of a Trump presidency for FCPA enforcement (see here and here). Now that we know President-Elect Trump’s picks to head the two agencies responsible for FCPA enforcement—the Department of Justice and the Securities & Exchange Commission—how much should FCPA Hawks like me worry that these appointees will significantly scale back and/or politicize FCPA enforcement efforts?

The confirmation hearings for Jeff Sessions, Trump’s nominee for Attorney General, are going on today, and for now I don’t have much to say about how his appointment might impact FCPA enforcement. (With respect to the DOJ, I’m actually much more interested in, and concerned about, who’s appointed to head the DOJ’s Criminal Division and the Fraud Section.) Let me instead say a few words about Trump’s pick for SEC Chair, Jay Clayton, currently a partner at Sullivan & Cromwell, a prestigious US law firm.

There’s already been quite a bit of commentary about the Clayton pick, both generally and with respect to the FCPA specifically. I’ll confess right up front that I know very little about Mr. Clayton; I’d never heard of him before Trump picked him for SEC Chair, and I haven’t yet had time to do any detailed research. Based solely on preliminary media reports and some of the discussion that’s already happened, I’d say there’s (1) at least one good reason that FCPA Hawks should be concerned about the choice; (2) at least one not-good reason that some FCPA Hawks (and others) are concerned about the choice; and (3) at least one reason to be maybe cautiously optimistic, or at least relieved. Let me touch on each in turn: Continue reading