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.

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

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

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

Guest Post: What’s the Problem with Out-of-Court Settlements for Foreign Bribery? A Reply to Stephenson

GAB is delighted to welcome back Susan Hawley, policy director of Corruption Watch, for further discussion and debate regarding the proposal to create global standards for out-of-court settlements in foreign bribery cases:

Matthew Stephenson has devoted three successive blog posts (see here, here, and here) to critiquing the position that we outlined in our report, Out of Court, Out of Mind, calling for global standards for corporate settlements on corruption cases. NGOs, including we at Corruption Watch, along with Transparency International, Global Witness, and the UNCAC Coalition, outlined this position in a letter to the OECD. I am delighted that our report and the joint letter has triggered such interest and discussion. This is a hugely important debate: it cuts to the heart of how countries enforce their anticorruption laws and what constitutes effective enforcement.

We wrote our letter to the OECD and released our report precisely to stimulate this kind of debate at a time when:

  • a number of countries are looking at whether to introduce Deferred Prosecution Agreements (DPAs) and/or Non-Prosecution Agreements (NPAs) specifically to improve their track record of dealing with overseas corruption and
  • many countries in Europe appear to be choosing to resolve the few enforcement actions that they are taking through out-of-court settlements.

This post offers a riposte to Professor Stephenson’s criticisms of our case for global standard for corporate settlements in these cases. The fact that Professor Stephenson devoted three blog posts to the subject shows how meaty it is, and it won’t be possible in a single reply post to go into all of his criticisms, but this post replies to some of the most essential points. Continue reading

Against Global Standards in Corporate Settlements in Transnational Anti-Bribery Cases

A couple weeks ago, Susan Hawley, the policy director of the UK-based NGO Corruption Watch, published a provocative post on this blog calling for the adoption of “global standards for corporate settlements in foreign bribery cases.” Her post, which drew on a recent Corruption Watch report on the use (and alleged abuse) of the practice of resolving foreign bribery enforcement actions through pre-indictment diversionary settlements—mainly deferred-prosecution and non-prosecution agreements (DPAs/NPAs)—echoed similar arguments advanced in a joint letter sent by Corruption Watch, Transparency International, Global Witness, and the UNCAC Coalition to the OECD, on the occasion of last month’s Ministerial meeting on the OECD Anti-Bribery Convention.

A central concern articulated in Ms. Hawley’s post, as well as the CW report and the joint letter, is the fear that corporate settlements too often let companies off too easily–and let responsible individuals off altogether–thus undermining the deterrent effect of the laws against transnational bribery. I’m sympathetic to the concern about inadequate deterrence, but unconvinced by the suggestion that over-reliance on DPAs/NPAs is the real problem. (Indeed, I tend to think that under-use of these mechanisms in other countries, such as France, is a far greater concern.) My last post took up that set of issues. But, as I noted there, the question whether the U.S. use of settlements is (roughly) appropriate is conceptually distinct from the question whether there ought to be global standards (or guidelines) on the use of such settlements. After all, while one could object to U.S. practices and call for (different) global guidelines—as Corruption Watch does—one could also object to U.S. practices but still resist attempts to develop global guidelines. Or one could not only endorse current U.S. practices, but also call for global guidelines that similarly endorse those practices. And then there’s my position: basically sympathetic to the general U.S. approach to corporate settlements in FCPA cases, and generally skeptical of the case for global guidelines.

Having spent my last post elaborating some of the reasons for my former instinct, let me now say a bit about the reasons I’m unconvinced by the call for global guidelines on corporate settlements (or at least why I think such calls are premature): Continue reading

The Case for Corporate Settlements in Foreign Bribery Cases

Although 41 countries have signed onto the OECD Anti-Bribery Convention, the United States remains the most active enforcer—by a lot. Two salient facts about the U.S. strategy for enforcing its Foreign Corrupt Practices Act (FCPA) are often noted: Sanctions against corporations are more common than cases targeting individuals, and most of these corporate cases are resolved by settlements—often pre-indictment diversionary agreements known as deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Both of these facts are sometimes exaggerated a bit: According to the OECD’s most recent composite data (for enforcement actions from 1999-2014), the U.S. imposed sanctions on 58 individuals (compared to 92 corporations or other legal persons), and of those 92 legal persons sanctioned, 57 reached a settlement via a DPA or NPA (meaning that 35 of them were sanctioned through a post-indictment plea agreement or—much more rarely—a trial). Still, it’s true that the U.S. enforcement strategy makes extensive use of pre-indictment settlements with corporate defendants, and that fact has attracted its share of criticism.

While most of that criticism (at least in the FCPA context) has come from the corporate defense bar and others opposed to aggressive FCPA enforcement, the use of DPAs/NPAs has been questioned by anticorruption advocates as well. Recently, the UK-based anticorruption NGO Corruption Watch (CW) published a report entitled “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail To Deter Overseas Corruption”; shortly thereafter, CW, along with several other leading NGOs (Global Witness, Transparency International, and the UNCAC Coalition) sent a letter to the OECD expressing “concern that the increasing use of corporate settlements in the way they are currently implemented as the primary means for resolving foreign bribery cases may not offer ‘effective, proportionate and disuasive’ sanctions as required under the Convention,” and “urg[ing] the OECD Working Group on Bribery to develop as a matter of priority global standards for corporate settlements based on best practice.” Last week, here on GAB, CW’s policy director Susan Hawley provide a succinct summary of the case for greater skepticism of the practice of resolving foreign bribery cases through DPAs/NPAs, and the need for some sort of global standard.

I disagree. While I have the utmost respect for Corruption Watch and the other NGOs that sent the joint letter to the OECD, and I sympathize with many of their concerns, I find most of the criticisms of the DPA/NPA mechanism, particularly as deployed by U.S. authorities in FCPA cases, wide of the mark. I also remain unconvinced that there is a pressing need for “global standards” for corporate settlement practices, and indeed I think that pushing for such standards may raise a host of problems. These issues—whether DPAs/NPAs are sufficiently effective sanctions, and whether we need common global standards regulating their use—are quite different, so I will address them separately. In this post, I will respond to the main criticisms of the U.S. practice of using DPAs/NPAs to resolve FCPA cases, focusing on the concerns emphasized in the CW report. In my next post, I will turn to the question whether the OECD, the UN Convention Against Corruption, or some other international agreement or body ought to try to establish global standards regulating the use of corporate settlements.

So, what’s wrong with the analysis in the CW critique of corporate settlements? Lots of things—so many that it’s hard to know where to begin. But before turning to my criticisms, it’s worth starting out by re-stating some of the main reasons why it might make sense to resolve some anti-bribery cases via corporate settlements: Continue reading

Guest Post: Time for Global Standards on Corporate Settlements in Transnational Bribery Cases

Susan Hawley, Policy Director of Corruption Watch, a UK-based anticorruption organization, contributes the following guest post:

Earlier this month, the OECD held a Ministerial meeting on its Anti-Bribery Convention, which culminated with Ministers from 50 countries signing a Declaration that reaffirmed their commitment to fighting transnational bribery. Despite that statement of renewed commitment, however, the fact remains that only four countries out of the 41 signatories have shown any attempt at actively enforcing the Convention, and pressure is rightly mounting on countries to show they are taking some kind of action. As a result, an increasing number of countries are looking to deferred prosecution agreements (DPAs), non-prosecution agreements (NPAs), and similar forms of pre-indictment corporate settlements as a way to achieve better results. The United States—by far the most active enforcer of its law against foreign bribery—has used such agreements to produce its impressive enforcement record over the last 10 years. The OECD Foreign Bribery Report noted that 69% of foreign bribery cases have been resolved through some form of settlement since 1999. And it’s not just the US. Various European countries have used some form of out-of-court settlement procedure as a way of dealing with the few cases against companies that they have brought. The UK has recently introduced DPAs, based on the U.S. model (though with some important differences), and countries like Australia, France, Ireland, and Canada are all considering doing something similar.

Yet the widespread use of DPAs and NPAs has prompted concerns. The OECD Working Group on Bribery, in its reviews on implementation of the Convention, has sometimes questioned whether these settlements are sufficiently transparent and effective, and whether they instill public confidence. My own organization, Corruption Watch, recently produced a report on corporate settlements in foreign bribery cases, “Out of Court, Out of Mind: Do Deferred Prosecution Agreements and Corporate Settlements Fail to Deter Overseas Corruption?” that raised similar questions. Corruption Watch, along with Global Witness, Transparency International, and the UNCAC Coalition (a network of over 350 civil society organisations across the world) wrote a joint letter to the OECD Secretary General ahead of the Ministerial meeting urging the Working Group on Bribery to assess whether corporate settlements have sufficient deterrent effect, and to develop global standards for corporate settlements in foreign bribery cases.

Why the need for greater scrutiny, and the call for global standards? Several reasons:

  • First, these sorts of settlements allow culpable individuals off the hook, undermine the deterrent effect of the law by shielding companies from debarment from public contracting, and more generally fail to deter economic crime and prevent recidivism. The concern is that the fines and other penalties associated with DPAs/NPAs are just seen by firms a “cost of doing business,” rather than an impetus for meaningful change. Recent research by Karpoff, Lee, and Martin (discussed previously on this blog) suggests that in the US, which has imposed the highest fines and taken the most enforcement actions globally, detection would have to increase by 58.5% or fines increase by 9.2 times to offset the incentive to bribe. Indeed, there are signs that the U.S., despite having relied so extensively on diversionary corporate settlements, has recognized some of these weaknesses: The introduction of the Yates memo, with its emphasis on individual accountability, and the beefing up of the FBI’s resources for investigating corruption (and thus reducing the government’s reliance on corporate self-reporting), are examples of how the U.S. is taking note of the criticism of its reliance on DPAs and NPAs.
  • Second, in addition to their inadequacy for deterring foreign bribery, in many countries the negotiation of corporate settlements lacks adequate regulation or oversight.
  • Third, these corporate settlement agreements rarely provide any sort of compensation for victims of corruption.
  • Fourth, clear discrepancies are emerging about how different countries use corporate settlements to deal with foreign bribery, creating an uneven enforcement playing field.

Proponents of settlements argue that they are necessary because corruption cases are incredibly difficult and costly to investigate and prosecute; unless enforcement authorities encourage companies to come forward with evidence of their wrongdoing, the argument goes, enforcement rates will remain low and corruption will go undetected. Clearly encouraging companies, who often hold all the information required as to whether wrongdoing was committed, to report their own wrongdoing by offering some form of incentive needs to be a part of any enforcement strategy. But there are serious questions as to whether relying solely on settlements to deal with foreign bribery cases can provide real deterrence. Unless enforcement bodies beef up their ability to detect corruption and are willing to prosecute, there is little incentive for companies to report wrongdoing that they might otherwise get away with.

So what would global standards for corporate settlements look like? The NGOs’ joint letter to the OECD, referenced above, suggested 14 standards to the OECD. At the top of the agenda were the following:

  1. Settlements should be one tool in a broader enforcement strategy in which prosecution also plays an important role;
  2. Settlements should only be used where a company has genuinely self-reported, and cooperated fully;
  3. Judicial oversight which includes proper scrutiny of the evidence and a public hearing should be required;
  4. Prosecution of individuals should be standard practice;
  5. Settlements should only be used where a company is prepared to admit wrongdoing;
  6. Compensation to victims, based on the full harm caused by the corruption, must be an inherent part of a settlement.

These are high standards, but unless settlements are based on such standards, and unless they are used as part of a broader enforcement strategy which ensures that companies that don’t cooperate or self-report do get prosecuted, public confidence that justice is really being done when it comes to corporate bribery is going to be undermined.