The best offense is a good defense: how the adoption of an FCPA compliance defense could decrease foreign bribery.

Author:Cassin, Shaun
Position:Foreign Corrupt Practices Act of 1977
 
FREE EXCERPT
  1. INTRODUCTION II. BACKGROUND A. History of the FCPA B. Corporate Criminality and the FCPA III. SHOULD A COMPLIANCE DEFENSE BE ADOPTED? A. Arguments Against a Compliance Defense B. Arguments For a Compliance Defense IV. A POTENTIAL SOLUTION: EXAMINING WILLIAM JACOBSON'S PROPOSAL A. Explicit, Affirmative Defense or Procedure for DOJ to Follow? B. How this Solution Could Further the Goals of the FCPA V. HOW TO MAKE A COMPLIANCE PROGRAM EFFECTIVE A. Analyzing the Top Fifty Fortune 500 Companies B. What the DOJ Considers an Effective Compliance Program C. Additional Sources that Provide Guidance as to What a Robust Compliance Program Is VI. CONCLUSION I. INTRODUCTION

    In the 2005 film Syriana, a U.S. oil company, Connex, initiates a merger with a smaller oil company, Killen, after Connex lost natural gas drilling rights in the Middle East to a Chinese company. (1) Killen had recently been awarded drilling rights in Kazakhstan. (2) However, an internal investigation quickly revealed, as the U.S. Department of Justice (DOJ) had suspected, that Killen did so by bribing Kazakh officials. (3) This conduct implicates the U.S. Foreign Corrupt Practices Act (FCPA or the Act), which prohibits bribery of foreign officials. (4) Although it was suggested in the film that both companies knew and approved of the conduct, in order to avoid prosecution by the DOJ, the companies denied knowledge about the bribe and used the employee who initiated the bribes as a fall guy. (5) When the employee was informed he would be given up to the DOJ, he ridicules the FCPA, stating: "Corruption charges! Corruption?! ... We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm.... Corruption is why we win." (6)

    Of course, because top-level managers were involved and the companies knew about the bribes yet took no action to remedy the situation, nobody would feel sorry for the companies if they were subjected to criminal penalties under the FCPA. But few FCPA cases have such egregious facts as presented in Syriana. (7) In fact, many FCPA violations are not due to executive management or a board of directors approving the bribes. (8) Rather, "[a] typical FCPA enforcement action involves allegations that a small group of people (or perhaps even a single individual) within a subsidiary or business unit of a business organization engaged in conduct in violation of the FCPA." (9) Yet because of respondeat superior principles, the company is exposed to FCPA liability even if the employee's conduct is contrary to the company's pre-existing FCPA policies and procedures. (10)

    Despite the employee's statements in Syriana, most would agree that corruption is an enormous problem in our growing global economy. In 2004, a study by the World Bank Institute found that over $1 trillion in bribes are paid each year worldwide. (11) Sadly, the victims of bribery are often trapped in poverty, despite living in developing countries with considerable resources and wealth. (12) "Corruption impedes economic growth by diverting public resources from important priorities such as health, education, and infrastructure." (13) Accordingly, the DOJ and SEC have ramped up enforcement efforts of the FCPA in recent years. (14)

    However, this has led to increased scrutiny of the Act. Although critics of the statute recognize that a U.S. anti-bribery law is necessary to prevent this conduct from occurring, they argue the statute is flawed and should be improved. (15) Supporters, on the other hand, applaud the aggressive enforcement of the FCPA, believing that aggressive enforcement is the only way to prevent substantial bribery that has crippled economies and damaged the reputation of governments. (16) Some have even called for increased enforcement against companies. (17)

    One of the most frequent proposals offered to improve the FCPA is to add a compliance defense to the statute. (18) On its face, adding a compliance defense to the FCPA seems counterintuitive to the Act's goals of preventing foreign bribery. However, this Article will conclude that adding such a defense will have a "carrot on a stick" effect on companies, thereby providing companies with a stronger incentive to put in place protections against bribery. Promoting this form of internal policing will ultimately prove to be a more effective method of detecting and preventing bribery. Part II of this Article will discuss the background and history of the FCPA. Part III will examine the arguments for and against adding a compliance defense to the FCPA. Part IV will discuss a five-part compliance defense proposed by William Jacobson, the former assistant chief of FCPA enforcement at the DOJ. Part V will then discuss various options available to a company that will help it design a compliance program that would satisfy the defense. In addition to other sources, it will use a statistical analysis of the top fifty Fortune 500 companies to help companies determine what should be included in their compliance programs.

  2. BACKGROUND

    1. History of the FCPA

      The United States has long prohibited domestic bribery of federal officials. Indeed, "[a]mong the first laws adopted after the ratification of the Constitution was a provision making it a federal crime to bribe customs officers and federal judges." (19) U.S. law later expanded in 1853 to cover all federal officers, "making it a crime to offer or give a thing of value to any federal officer 'with intent to influence his vote or decision' on an official action." (20) However, anti-bribery laws did not cover bribes to foreign officials until the passage of the FCPA in 1977. (21) The FCPA was passed following an investigation by the U.S. Securities and Exchange Commission (SEC), which resulted in over four hundred U.S. companies admitting to have paid questionable or illegal payments in excess of $300 million to foreign officials, politicians, and political parties. (22) These payments, along with being morally suspect, hurt the image of the U.S. political and economic system and resulted in numerous foreign policy problems. (23) Congress acted quickly to address these problems, enacting the FCPA through an amendment to the Securities Exchange Act of 1934. (24) In doing so, the United States became the first country to prohibit bribery committed abroad. (25)

      The FCPA seeks to accomplish its goal of preventing foreign bribery through two principle provisions. The anti-bribery provisions make it unlawful to pay or offer to pay anything of value to a foreign official in order to obtain or retain business. (26) These provisions are far-reaching, as they apply not only to U.S. residents and companies, but also to foreign persons and companies if they have publicly traded securities in the United States or if they take any act in furtherance of a corrupt payment while in the United States. (27) Violations of these provisions are likewise costly. (28) Corporations are subject to criminal fines up to $2 million. (29) Individuals are subject to criminal fines up to $100,000 and imprisonment up to five years for willful violations. (30) Additionally, these fines may be even higher under the Alternative Fines Act--"the actual fine may be up to twice the benefit that the defendant sought to obtain by making the corrupt payment." (31) Along with criminal fines, violations can result in being debarred from conducting business with the Federal government, civil fines following SEC actions, and even private civil causes of action. (32) The other set of provisions, the accounting provisions, (33) were designed to work "in tandem with the anti-bribery provisions." (34) They require companies to keep accurate books and records and implement internal accounting controls to combat foreign bribery. (35)

      Even at the time of its creation, the FCPA was a controversial statute. (36) Attention given to the statute waned over time, likely due to the fact that "[f]ew individuals or organizations ... were prosecuted in the first two decades after the FCPA was enacted." (37) However, controversy surrounding the statute resurfaced as the DOJ and SEC began drastically increasing enforcement efforts following the 1998 Amendment to the FCPA. (38) In just a three-year period between 2007 and 2009, the DOJ and SEC nearly doubled the number of enforcement actions brought in the Act's first twenty-eight years of existence. (39) Accompanying the greater number of enforcement actions are increasingly severe fines. (40) For example, in 2009, the Houston-based engineering firm Kellogg Brown & Root (KBR) was hit with a $402 million criminal fine in connection with bribery of Nigerian officials. (41) Likewise, in 2010, BAE Systems, the British multinational defense contractor, was sentenced to pay a $400 million fine. (42) Currently, the largest monetary fine for FCPA violations is $800 million, imposed in 2008 against the German company Siemens AG. (43) Massive fines such as these, combined with the increased enforcement effort, has put a spotlight on some of the deficiencies in the FCPA, particularly with regard to the liability of corporations under the Act. (44)

    2. Corporate Criminality and the FCPA

      Despite disagreement on how to punish and the reasons for punishment, there is virtually no debate about the need for a set of criminal laws that applies to conduct of individuals. Corporate criminal liability, on the other hand, is more contested. (45) Indeed, some scholars suggest that companies should have a compliance defense that would apply in all situations. (46)

      Although there are strong arguments for and against adopting a general compliance defense for companies, it is apparent that the FCPA is unique and should be considered separately. (47) First of all, the conduct that the FCPA seeks to restrict can at times be nearly indistinguishable from conduct that is legal. For instance, campaign contributions are not only legal in this...

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