Tag Archives: Securities and Exchange Commission

After the Repeal of the U.S. Publish-What-You-Pay Rule, What Happens Next?

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As most readers of this blog are likely aware, despite the valiant lobbying efforts of a broad and bipartisan swath of the anticorruption community (as well as a last-minute plug from GAB), the United States House and Senate recently passed a joint resolution, pursuant to a statute called the Congressional Review Act (CRA), to repeal the “Publish What You Pay” (PWYP) rules for the extractive sector (oil, gas, mining) that the Securities & Exchange Commission (SEC) had promulgated pursuant to a statutory mandate contained in Section 1504 of the 2010 Dodd-Frank Act. Once President Trump signs the CRA joint resolution disapproving the PWYP rule, it is wiped off the books. Professor Bonnie Palifka’s post last week explained some of the reasons why PWYP rules are so important to fighting corruption in the extractive sector, and why this repeal is the first sign that the new administration, and the Republican-controlled Congress, threaten to undermine U.S. anticorruption efforts and leadership. (For another very good analysis along similar lines, see here.) What I want to do in this post is to consider a somewhat more specific question: What are the implications of the CRA repeal of the SEC rule for the implementation of the Dodd-Frank Act’s PWYP mandate going forward?

This turns out to be a tricky legal question, involving some unexplored and untested issues concerning the relationship between the Dodd-Frank Act, the implementing regulations, and the CRA. Let me start with a quick summary of the key legal provisions, keeping this as non-technical as possible: Continue reading →

Why the Repeal of the U.S. Publish-What-You-Pay Rule Is a Major Setback for Combating Corruption in the Extractive Sector

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

Last Friday, following the U.S. House of Representatives, the Senate voted to repeal a Securities and Exchange Commission (SEC) regulation that required oil, gas, and minerals companies to make public (on interactive websites) their payments to foreign governments, including taxes, royalties, and “other” payments. The rule was mandated by Section 1504 of the 2010 Dodd-Frank Act, but had only been finalized last year. President Trump’s expected signature of the congressional resolution repealing the rule will represent a major blow to anticorruption efforts, and a demonstration of just how little corruption matters to his administration and to Congressional Republicans.

The extractive industry had lobbied against this rule, arguing that having to report such payments is costly to firms and puts them at an international disadvantage. Some commentators have supported their efforts, arguing, for example, that the Section 1504 rules are unnecessary because the Foreign Corrupt Practices Act (FCPA) already prohibits firms under SEC jurisdiction—including extractive industry firms—from paying bribes abroad. This argument misses the mark: The extractive sector poses especially acute and distinctive corruption risks, which the FCPA alone is unlikely to remedy if not accompanied by greater transparency. Continue reading →

The Impending Repeal of the U.S. “Publish What You Pay” Rules for Extractive Industries

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As many readers of this blog are likely aware, the U.S. Congress is poised to invoke a statute called the “Congressional Review Act” to override the rules that the Securities and Exchange Commission promulgated last year to implement a provision of the Dodd-Frank Act (Section 1504) that required companies in the extractive industries (oil, gas, and mining) to publicly disclose the amounts that they pay to foreign governments in connection with projects abroad. (A timeline of the legislation and its implementing regs is here.)

The vote is scheduled for this coming Monday. Like many in the anticorruption community, I think eliminating the Publish What You Pay (PWYP) regs would be a bad idea. Alas, I don’t have time to write up a substantive discussion of the issue before the Monday vote. Fortunately, there are already a fair number of discussions of the issue elsewhere; for example, Jodi Vitori of Global Witness, who previously served as an intelligence officer in the Air Force, has a succinct explanation of why eliminating these PWYP rules would be bad for U.S. national security here.

While I usually don’t use this blog to engage in direct activism/advocacy, in this case I wanted to reach out to those GAB readers who are based in the U.S., particularly those whose representatives are Republicans, and encourage you to call your House Representative and Senator to express your opposition to the invalidation of the rules implementing Section 1504. (If you’re not sure who your House Representative is, you can find that here, and you can find a list of contact information here. Senate contact information is 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.

Continue reading →

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

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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 →

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 →

The “FCPA Cash Cow” Story Is Bull: Why Vigorous Enforcement Is Not About Raising Revenue

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Occasionally one hears—particularly though not exclusively from the U.S. business community and corporate defense bar—the assertion that aggressive U.S. enforcement of the Foreign Corrupt Practices Act (FCPA) is the result, at least in part, of the desire to raise revenue for the U.S. government. (See here, here, here, and here.) This claim that the FCPA is a government “cash cow” is sometimes offered as a knowing (or cynical) explanation for why the government is allegedly “over-enforcing” the statute. Even among some scholars with less of a personal or professional stake in criticizing the U.S. government’s motives, the idea that FCPA enforcement advances the U.S. national interest by increasing U.S. government revenues seems to be occasionally finding its way into the discourse.

There are, to be sure, lots of legitimate questions about the motives and wisdom of the U.S. government’s current approach to enforcing the FCPA. But the notion that FCPA enforcement is driven by the desire to raise revenue (from beleaguered, helpless multinational corporations) is just implausible. Indeed, I’m surprised so many extremely intelligent people seem to entertain this argument rather than dismissing it outright.

Why do I think it’s so implausible? Two main reasons: Continue reading →

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

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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.

Continue reading →

Private FCPA Enforcement: Some Troubling Trade-Offs

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In my last post, I suggested that one possible drawback to dramatically ramping up enforcement of the Foreign Corrupt Practices Act against individuals (from the perspective of those who, like me, favor aggressive FCPA enforcement) is that individual defendants are relatively more likely to litigate than are corporate defendants. This not only might entail a greater drain on the resources of the government enforcement agencies—a familiar and well-understood concern—but it could also lead to adverse appellate rulings on the meaning of key FCPA provisions (particularly if the targeting of more individuals also entails the targeting of relatively more sympathetic individuals). In this post, I want to raise a similar concern in connection with a prominent proposal for increasing the FCPA’s deterrent effect: the addition of a private right of action under the statute.

The FCPA in its current form does not authorize private individuals to sue defendants for alleged violations of the statute. Although some other statutes might authorize certain forms of private FCPA enforcement—for example, in the form of shareholder derivative suits, or suits alleging violations of the antitrust laws or the RICO Act—these forms of private recourse are quite limited in their availability. (I won’t go into all the reasons in this post—Professor Gideon Mark has a nice discussion in his paper on the topic.) Yet many people (including Professor Mark) have advocated the addition of an express FCPA private right of action which, in the view of its proponents, would substantially enhance FCPA deterrence. This idea has attracted at least some interest in the U.S. Congress, though the proposed bills to add an FCPA private right of action have not yet gone anywhere.

My natural instincts are to support a proposal along these lines, both because I’m more of a “hawk” when it comes to FCPA enforcement, and because I’m generally an enthusiast for the “private attorney general” model for enforcing public law. And I could still be persuaded that a private FCPA action is a good idea. But I have concerns similar to those I raised in my last post about greater targeting of individuals, as well as some additional, closely related worries. Here are the main worries, as I see them: Continue reading →

Bribery in the Boardroom: Implications for Internal Reporting Programs

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Early last month, the OECD released its first Foreign Bribery Report. According to Angel Gurria, the organization’s Secretary-General, the report “endeavors to measure, and to describe, transnational corruption based on data from the 427 foreign bribery cases that have been concluded since the entry into force of the OECD Anti-Bribery Convention in 1999.” The report as a whole is quite interesting, but I would like to hone in on the OECD’s findings regarding who engages in bribery, and how this should change how we approach arguments on whistleblower internal reporting requirements.

The report found that, contrary to popular belief, in the majority of cases senior management were aware of or endorsed the payment of whatever bribe occurred (in 41% of the cases senior management was implicated, in 12% even the highest level executives were aware of the bribe being paid). As the report notes, this “debunk[s] the “rogue employee” myth,” and this, I would argue, calls into question internal reporting requirements as a means of combating foreign bribery. Continue reading →