Chief-Compliance-OfficerAt the Opening Session of Compliance Week 2016, Stephen L. Cohen, Associate Director of Enforcement, Securities and Exchange Commission (SEC) and Andrew Weissmann, Chief of the Department of Justice (DOJ) Criminal Division’s Fraud Section, spoke about their views of what constitutes an effective compliance program under the Foreign Corrupt Practices Act (FCPA). Compliance Week’s Editor-in-Chief Bill Coffin moderated the panel. The majority of the discussion was around the Chief Compliance Officer (CCO) position; specifically the independence of the position, the authority the CCO has in an organization and the resources made available to the CCO.

Weissmann related that many presentations are made to the DOJ in the context of Filip Factors presentations, where a company generally presents evidence of the effectiveness of its compliance program at the time of the incident that led to the criminal investigation. He said that one of the things he thinks is important is how a CCO talks about the company’s compliance program.

He began by noting the initial straw poll showed that 65% of those responding to the first poll said their compliance program could probably pass DOJ muster or needs work. Weissmann viewed this as a positive sign because it demonstrated to him the ongoing evolution a company’s compliance program. He said he would often specifically delve into how a risk assessment had been done and then use that information as a springboard to inquire into whether it actually predicted the FCPA violation(s). It was not surprising to hear Weissmann basically say McNulty Maxim No. 3 (what did you do when you found out about it?) when he said that he would inquire into the company’s response and whether the response was then integrated that into the compliance function.

Cohen also said that he encourages CCOs to come and meet with him early in the SEC investigatory process. He did acknowledge that outside counsel usually hated the idea, obviously because they lose complete control, which they seek to maintain. Yet Cohen thinks that it helps him because it gives him a window into whom he is dealing with in the process. Additionally, as the CCO is generally more attuned to remediating problems, rather than simply protecting the company like outside counsel, a different view can often be obtained through such meetings. I would note from the CCO perspective, this is very valuable as it gives you the ability to begin to win an ally for your remediation program early on in the process.

One of the specific areas that Cohen wants to know about is what are the resources that have been made available to the CCO and what is the level of CCO independence? He is concerned about whether the CCO is appropriately valued and supported in the organization. He specifically asks if the CCO is on the Executive Leadership Team (ELT) or other top group of C-Suite executives. He would also inquire into whether the CCO had visibility into the transaction(s) that may have become the problem issue(s). Not necessarily whether there was a bribe authorized but if the transaction warranted someone violating the FCPA to get the deal done, did the compliance function have visibility into the matter? It is all Cohen’s way of trying to ascertain whether the CCO and compliance function have standing in company to get things done.

Weissmann was asked about individual liability for CCOs under the FCPA. I found this question propitious given my blog posts earlier this week. He said that the DOJ not going after CCOs for criminal liability unless they are a part of bribery scheme or some cover-up. He reiterated that the DOJ is trying to reduce the risk of criminality for violations under the FCPA and indeed that was one of their goals in hiring its new Compliance Counsel, Hui Chen. Chen enables the DOJ to be more robust in evaluating compliance programs of companies that come before the DOJ. He also noted that this new position works to heighten the power of CCO within companies as it gives them a specific advocate at the DOJ during enforcement actions.

Cohen took another approach to responding to the inquiry about CCO liability. He said that he believed there had been approximately 8000 SEC enforcement actions over past 10 years in regulated space involving CCOs. Of all of those cases, only five had involved individual liability actions brought against CCOs. These were along the lines of the FINRA action against Linda Busby I detailed yesterday, where the CCO had a clear regulatory responsibility to implement or enhance a compliance program and failed to do so. Cohen also made the point again that these five SEC enforcement actions were all in regulated industries only, not FCPA cases.

On the question of CCO independence, Weissmann believes this is one indicia of an effective compliance program. He reiterated yet again the DOJ’s stated position that it does not concern itself with whether the CCO reports to the General Counsel (GC) or reports independently, but he is more concerned about whether the CCO has the voice to go to the Chief Executive Officer (CEO) or Board of Directors directly, without going through the GC first. Even if the answer were yes, Weissmann would want to know if the CCO has ever exercised that right.

Finally, Weissmann turned to the operationalization of compliance. Echoing the remarks of the DOJ Compliance Counsel last fall, he wants to know if the if business unit of a company is responsible for at least a part of compliance. Put in the manner of Chen, is compliance operationalized within your organization? Weissmann had an interesting angle on the real problem for a CCO if compliance is not embedded into the business; that problem is that the CCO simply becomes a policeman, telling the business unit what it cannot do. Or as I would say, being Dr. No from the Land of No.

Cohen had several questions he would ask to determine the level of CCO independence within an organization. First and foremost, is the CCO a part of the senior management or the C-Suite? Is the CCO part of regular meetings of this group? He also wanted to know who could terminate the CCO so he might inquire to see if it was the CEO, the Audit Committee of the Board or did the CCO termination require approval of the entire Board? Most importantly, could a person under investigation or even scrutiny by the CCO fire the CCO? If the answer is yes, the CCO clearly does not have requisite independence.

In addition to the foregoing, Cohen had some additional questions he would consider. The first was who could over-rule the decision by a CCO within an organization? He would also inquire into who is making the decisions around salary and compensation for the CCO? Is it the CEO, the GC, the Audit Committee of the Board or some other person or group?

The remarks of Weissmann and Cohen demonstrated the continued evolution in the thinking of the DOJ and SEC around the CCO position and the compliance function. Their articulated inquiries can only strengthen the CCO position specifically and the compliance profession more generally. The more the DOJ and SEC talk about the independence of, coupled with resources being made available and authority concomitant with the CCO position, the more corporations will see it is directly in their interest to provide the position in their organizations.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

IMG_1259Today, I continue my exploration with Joe Howell about the Public Accounting Oversight Board (PCAOB), its scrutiny of public company auditors and how its work impacts the corporate compliance function. Yesterday, I ended with a discussion about goodwill, how hard it may be to calculate, its impairment and what that might mean for a Chief Compliance Officer (CCO) and how difficult it is to test for both goodwill and a proper impairment calculation. Today I want to continue to explore why any write-downs are significant for the compliance function as it might be a mechanism to hide money to fund bribes and engage in corruption.

I asked Howell about write-downs and how they might be used to hide monies generated to fund a bribe, in the context of an acquisition. Howell noted, “anytime you have to calculate what that original value is, if you have a spin-off, if you have some sort of massive write-down, then they’re going to want to take a look at that to see, How did you do that write-down? Did you do it to dress up your balance sheet, to make it a little prettier because you got rid of some intangibles because you didn’t want to have them anymore for other purposes? Or there was some sort of thing that was out of the ordinary that you did? Then they really want to look at that to make sure that there’s support for it.”

I then inquired about joint ventures (JVs) and asked if the same or similar rules would apply. Howell began by noting that an audit is focused on the external financial statements for the company taken as a whole as presented to financial statements. While that statement is in the context of what the final opinion focuses upon, it is important to recall that an audit builds up from its parts.

That means an auditor must build up from any JVs a company has and these areas that have the opportunity to create misstatements, mistakes, or completely fraudulent statements. The issues can go so far as to include Enron type of concerns where the company used fraudulent accounting to get “bad stuff” off of their balance sheet. I asked Howell if you have a JV that has engaged in transactions that were based on fraud and the profits from that JV roll up into the parents, i.e. the US Corporation’s balance sheet, that would be an appropriate inquiry for an external auditor? He said “Absolutely. If an auditor finds fraud that’s not material to the financial statements taken as a whole, their job is not over. They don’t pass on stuff because it’s immaterial. If they find fraud, they’re obligated to report it. Also, that they find fraud, then they’re obligated to explore to see if the weaknesses and the controls that permitted that fraud are found elsewhere.”

One of the key inquiries from a Securities and Exchange Commission (SEC) Foreign Corrupt Practices Act (FCPA) investigation or enforcement action is around the issue of systemic failures of internal controls. Such failure is a sure remedy for the finding by the SEC for violation of the FCPA, even absent an affirmative finding of bribery. Howell said that a systemic inquiry from the auditing perspective is critical as well.

Howell said that if management is somehow involved in the colluding, then the auditors must “step back and take a hard look at what they’re going to be able to believe, if anything, that management has told them. If management is not involved and they have reason to believe that this is a bad actor somewhere in the organization, they’re not permitted to stop because it’s not material. They have to “move forward” with the inquiry.”

Interestingly, Howell not only draws a line from the FCPA to the Sarbanes-Oxley Act of 2002 (SOX) to the Dodd-Frank Act of 2010; but also draws a line from the PCAOB to corruption risk because of the pronouncements from the PCAOB about what the auditors have to look for in terms of risk. This is because he believes “every PCAOB inspection report to date has mentioned fraud. That the purpose of mentioning fraud is that the failures in the accounting control environment that permitted a transaction to go unreported or misreported are the kinds of things that undermine the entire credibility of the financial statements and mean that you’re not going to be able to rely on that control environment. Fraud is central to all of this.”

Howell went on to explain that fraud usually occurs because there are weaknesses in controls which are exploited by bad actors to get the money or the resources, if not money, to actually then pay a bribe that is the focus of the FCPA. The PCAOB’s focus on fraud is because the controls need to be in place and they focus on internal controls over financial reporting. Howell noted he has not seen any FCPA settlement that did not have a material impact on the company in one way or another. He concluded by stating, “how can you say that you’’re not dealing with material misstatements of the financial statements if you fail to report something that clearly is going to result in tens or hundreds of millions of dollars of penalties, disgorgement of profits, investigations, and tearing the company inside out in order to do the final remediation?”

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Head ScratchingWhat is the interplay of two different pieces of legislation enacted almost 25 years apart in response to widely different crisis? In the case of the Foreign Corrupt Practices Act (FCPA) and Sarbanes-Oxley Act (SOX) quite a bit. Many have speculated that the passage of SOX was one of the contributing factors to the explosive growth in FCPA enforcement actions after 2004, basically because of the SOX 404 reporting requirement. However, the development of these two laws by regulators may move well beyond where the legislators who enacted them may have intended their initial reach.

The FCPA was passed in 1977 in response to US companies’ blatant use of bribery and corruption to secure business outside the US. SOX was passed in response to the financial fraud engaged in by companies such as Enron and WorldCom in the late 1990s and early 2000s. Both laws focused on robust internal controls as a part of the solution going forward. So we have the FCPA to prevent foreign bribery and SOX to prevent accounting fraud as was perpetrated by the likes of Enron and WorldCom.

Joe Howell, Executive Vice President of Workiva, has said that the FCPA and SOX are closely tied to one another. He believes that SOX is, in many ways built on a pedestal that Congress created in the FCPA. Further, he sees a clear lineation to Dodd-Frank, which he also believes in many ways, relies on much of the work done in the other areas internal controls to require that financial institutions to have sufficient controls. He said, “In my personal view, it not only is not a stretch to draw a line from the Foreign Corrupt Practices Act of 1977 to the Sarbanes-Oxley Act of 2002 up to Dodd-Frank of 2010.

As noted by Aaron Einhorn, writing in the Denver Journal of International Law & Policy, in an article entitled “The Evolution and Endpoint of Responsibility: The FCPA, SOX, Socialist-Oriented Governments, Gratuitous Promises, and a Novel CSR Code”, “Comparison of the FCPA’s and SOX’s internal controls provisions reveals the trend towards placing greater responsibilities on corporations.” While “The FCPA’s internal controls provisions, initially drafted thirty years ago, simply declare that issuers must design and maintain internal controls, but does not require evaluation or analysis.”

However, “sections 302 and 404 of SOX together require corporate executives to state their responsibility for designing internal controls, to create such controls, to assess and evaluate these controls, and to draw conclusions about their effectiveness. While the FCPA places responsibility for internal controls upon the corporation in general, SOX specifically charges executive officers with internal controls duties.” Einhorn ends this section by noting, “internal controls have been transformed from a recitation of general duties lodged upon the corporation as a whole to a statement of specific duties imposed on corporate executives in particular.”

This interplay between the FCPA and SOX around internal controls is such that Professor Stephen Bainbridge, the William D. Warren Distinguished Professor of Law at the UCLA School of Law, stated, in blog post entitled “Did Wal-Mart lawyers violate their Sarbanes-Oxley section 307 duties? Did Wal-Mart violate SOX 404?”, “How could Wal-Mart have provided a positive assessment of their internal controls in light of these problems? (around its Mexico subsidiary operations as reported in the New York Times).” He based this question on a requirement found under SOX §404 that a company must not only acknowledge its responsibility for establishing and maintaining a system of internal controls and procedures for financial reporting and an assessment, but also report on the effectiveness of the company’s internal controls.

Karen Cascini and Alan DelFavero, in an article entitled “An Assessment of the Impact of the Sarbanes-Oxley Act on the Investigation Violations of the Foreign Corrupt Practices Act”, said, “Section 404 “requires management to annually disclose its assessment of the firm’s internal control structure and procedures for financial reporting and include the corresponding opinions by the firm’s auditor”. More particularly, “while the FCPA required public companies to institute effective internal controls to stop the bribes and make executives accountable, SOX 404 goes further, but has similar goals.”

Yet, the FCPA has language around internal controls that reads:

(B) devise and maintain a system of internal accounting controls suf­ficient to provide reasonable assurances that –

(i) transactions are executed in accordance with management’s general or specific authorization;

(ii) transactions are recorded as necessary (I) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (II) to maintain accountability for assets;

(iii) access to assets is permitted only in accordance with manage­ment’s general or specific authorization; and

(iv) the recorded accountability for assets is compared with the exist­ing assets at reasonable intervals and appropriate action is taken with respect to any differences; [emphasis supplied]

Since the Smith and Wesson (S&W) FCPA enforcement action from 2014, the Securities and Exchange Commission (SEC) has more aggressively pursued companies for violations of internal controls under the FCPA. In its administrative order, the SEC stated: “Smith & Wesson failed to devise and maintain sufficient internal controls with respect to its international sales operations. While the company had a basic corporate policy prohibiting the payment of bribes, it failed to implement a reasonable system of controls to effectuate that policy.” (It should be noted that S&W did not ‘admit or deny’ any of the allegations made against it, the company simply consented to the entry of the order.) All of this was laid out in the face of no evidence of the payment of bribes by S&W to obtain or retain business. This means it was as close to strict liability as it can be without using those words.

Yet the question remains what is ‘reasonable’? It cannot mean material as there is separate language in the FCPA about materiality so it must be assumed that if Congress intended internal controls to only have a materiality standard, Congress would have so said. However, there is no such definition for reasonable so the standard is open.

This is where I have come to believe that SOX has influenced the SEC interpretation of the FCPA. There is no reasonable or any other standard laid out in SOX. Perhaps the SEC has taken that interpretation and decided the reasonable assurances standard of the FCPA is only met if the internal controls present in a company are robust enough to demonstrate that no bribery and corruption has occurred as an affirmative finding. This may not have been where Congress intended when the FCPA was passed back in 1977 but it appears that is where we are now.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

First InningYou might figure that the year I decide to jump back on the Houston Astros bandwagon, they go back in the tank. Last year they were one game away from the American League (AL) Championship. This year they have the third worst record in the AL, with a paltry .419 winning percentage. Is it too early in the season to draw any conclusions? I will leave that one up to you. And yet…

What are the lessons to be learned from allegations of corruption in the early stages of any investigation? Indeed, are there any lessons to be learned at all? If so when should you learn them? The FCPA Professor recently explored some of these issues in a blog post, entitled “Lesson Learned…”. Proving once again that the FCPA Professor and I can look at the same event or set of facts and see different things, I see significant lessons to be learned when reviewing ongoing Foreign Corrupt Practice Act (FCPA) or other significant matters, even when reported in the press. Or to use the Professor’s analogy, I believe it is both useful and appropriate to consider the ongoing results of the National Basketball Association (NBA) playoffs, on an ongoing basis and apply those results going forward.

Why should you consider reviewing events on an ongoing basis? When I look at these, I see information that could help the Chief Compliance Officer (CCO) or compliance practitioner going forward. I think Wal-Mart is a prime example. It really does not matter if you fall into the New York Times (NYT) or Wall Street Journal (WSJ) story camps; when the world’s largest retailer is on the front page, you can and should draw lessons from this applicable to your organization.

Such public reporting is a useful teaching paradigm for the FCPA practitioner. The day after the NYT broke the story I wrote a blog post about it and I called several client types (I am a proud card carrying member of FCPA Inc.) to make sure they were aware of the matter. Was it marketing? Or perhaps something more nefarious, like business development? How about the following – I wanted to make sure they were aware of it. Or a combination of all three? Does any of that lessen the messages to be learned from the NYT story about Wal-Mart? I would answer a resounding No.

The thing that struck me when I called around was how many CCOs had used the NYT front-page story about Wal-Mart as a teachable moment for several internal constituencies. These constituencies started with the C-Suite and the message was along the lines of this is what can happen if you do not have an effective compliance program in place. Several others used the Wal-Mart story as an opportunity to consider their internal use of facilitation payments; to explain to employees how they are defined under the FCPA and also to make sure they were properly recorded on the company’s books and records.

Was this in the first inning of Wal-Mart’s long trek FCPA investigation? Most probably, yet these CCOs were able to use this very public event as lessons learned for their organizations in a powerful and current events manner to help educate or reinforce.

What about the Unaoil matter? Once again, can the reported story provide anything worth writing about or commenting upon? I would certainly urge the answer is Yes. How could a CCO use the information in the Huffington Post story in the everyday doing of compliance? I can think of three immediate lessons to be learned that every compliance practitioner should take to heart and use going forward.

First and foremost, did your organization use Unaoil in any manner? If your organization has contracted with or has any contact with Unaoil in any company files you need to find out now as a Department of Justice (DOJ) subpoena could well be on its way. Second, as with Wal-Mart, can you utilize the discussion around Unaoil internally to educate senior management or others? Once again I think the answer is Yes and the most obvious way would be to discuss your risk management lifecycle of your third parties. Use this as an opportunity to explain that it is the management of the relationship which may well be the key element so that even if your due diligence was faulty you can demonstrate effective compliance. Finally, it is a very good reminder to review all of your third parties files to make sure they contain the required documentary evidence to support your compliance program. All of these lessons can be learned now, at the very beginning of the matter (first inning yet again).

Next, the Panama Papers. What can you draw from this event; even at the very beginning of what may be a very long slog? (Probably the top of the first inning.) As of today, you can review the 214,000 entities with offshore entities, in a searchable database. This is more than a lesson to be learned or even a teachable moment. This is a new resource available to anyone to use to find out if an entity their company is doing business with is who they say the are or even might be. This is information that is in the public domain, made available by the International Consortium of Investigative Journalism. You can search by jurisdiction or by country. It is axiomatic that when information becomes available a compliance practitioner should not only use it going forward but also use it to see if any third parties or counter-parties might need updating in your risk ranking.

As for the lesson to be learned, once again does your compliance department know with whom you are doing business with? Are you managing the relationship after the contract was signed? Have you Documented, Documented, and Documented the files and the relationship? When was the last time your business sponsor visited high-risk third parties to discuss your anti-corruption compliance program?

Information is critical to any best practices compliance program. Usually that information comes internally. Yet that information can also come from outside the organization. How many CCOs knew about Unaoil before the Huffington Post story? Or had thought about their company’s recordation of facilitation payments? Or had considered what it might mean if a third party was incorporated in Panama? I do not find any of the above to be scare mongering or even inappropriate questions to ask. For I have found it is always how you use information that forms the key inquiry; not when you obtain the information.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2016

Quid Pro QuoYesterday on the podcast, the FCPA Compliance and Ethics Report, I posted the full oral argument from the Supreme Court in the case of McDonnell v. US (shout out to Web Hull for sending it to me), which is the appeal of the former governor of Virginia Bob McDonnell of his conviction for public corruption under the Hobbs Act. McDonnell and his wife, Maureen, were convicted in 2014 of public corruption, charges stemming from $177,000 in gifts, luxury vacations and loans they accepted from Jonnie R. Williams Sr. The former Chief Executive Officer (CEO) of Star Scientific Inc., Williams was a wealthy Virginia businessman who wanted the governor and his wife to promote his tobacco-based dietary supplement business.

Many have asked me about this case and whether it might impact enforcement of the Foreign Corrupt Practices Act (FCPA) going forward. For reasons I will lay out in this post, I think both the law and facts are sufficiently different that, whatever the outcome in McDonnell, it will not impact FCPA enforcement going forward.

Dahlia Lithwick, writing in an article for the online publication Slate, entitled “The Everybody Does It Defense, said the former governor is urging that his conviction be overturned because “definition of having done “official actions” in exchange for gifts under the Hobbs Act and the honest services statute be limited to exercising actual governmental power or pressuring others to use government power. The Hobbs Act was established in 1946 and has been used to criminalize acts of robbery or extortion that affect interstate commerce, basically the equivalent of bribery. The honest services statute used to apply to a broad range of fraud, but in 2010 in Skilling v. United States, the Supreme Court limited the statute to bribery or kickbacks.”

The Hobbs Act also reaches acts by public officials acting in their official capacity. A public official commits a crime when he obtains a payment to which he is not entitled knowing that it was made in exchange for official acts. The statute is not limited to federal officials (that is how it was used to convict McDonnell) and unlike the FCPA; the payor is not liable under the law. Basically the government need only prove a public official agreed to take some official action in exchange for payment as opportunities arose to do so to be convicted under the Hobbs Act.

At oral argument in the McDonnell case, the Roberts court focused on the quo of quid pro quo or the action taken by the former government and not the $177,000. In briefing and before the Court in oral argument, the government conceded the amount of the quid was not determinative of a violation of the law. Chief Justice Roberts was probably the most circumspect in oral argument with his questioning to indicate that (1) he believed responding to citizen’s petitions and requests for government action was the basic function of a government official and (2) unless there was a bag of cash paid directly for a decision; there was no violation of the Hobbs Act.

The Justices also were very concerned about the vagueness of the Hobbs Act and the discretion it gave to prosecutors to bring political corruption charges. Lithwick wrote, “Breyer worries the Department of Justice will have too much power in determining what is and isn’t corruption for officials across the country. “As you describe it,” he says, “for better or for worse, it puts at risk behavior that is common, particularly when the quid is a lunch or a baseball ticket …””

Both of these positions are antithetical to an analysis under the FCPA. The FCPA prohibits actions which “(A) (i) influencing any act or decision of such foreign official in his official capacity, (ii) inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official, or (iii) securing any improper advantage; or (B) inducing such foreign official to use his influence with a foreign government or instrumentality thereof to affect or influence any act or decision of such government or instrumentality, in order to assist such issuer in obtaining or retaining business for or with, or directing business to, any person;”.

Clearly the focus of the FCPA is the quid part of defendant’s actions. Even if you applied the Roberts Court discomfort with the vagueness of the FCPA language of “influencing any act or decision” it seems clear that the language “securing an improper advantage” and “in obtaining or retaining business” is sufficiently clear to pass even the scrutiny of this current Supreme Court. Indeed I am not aware of any FCPA criminal enforcement resolution, by the Department of Justice (DOJ), where the standard was not met at trial where a conviction resulted, or not agreed to by the defendant in the settlement resolution such as a criminal plea or Deferred Prosecution Agreement.

Why does all of this matter? As Lithwick notes, “It will be an amazing thing if – in a year when voters across the spectrum are infuriated and sickened by the influence of money in politics – the Supreme Court decides that poor Bob McDonnell should be let off the hook because he only did what every politician does every day: Take a lot of money to open doors for a rich guy. But maybe the line between money and influence is too fuzzy and ubiquitous to even be said in words anymore.”

Yet at the federal level, our rights as citizens to petition our government for redress is enshrined in the 1st Amendment to the US Constitution and reads, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.[emphasis supplied] With the adoption of the 14th Amendment, through the incorporation doctrine, this protection of the right to redress was expanded to cover all state and federal courts and legislatures, and the executive branches of the state governments. In other words, what the Roberts Court seems to be saying is you can pay any amount you want as a gift, as long as the government official does not engage in a official act to award a benefit based upon the payment.

It is good thing that is not what the FCPA states. Moreover, as the Fifth Circuit Court of Appeals, in the decision Kay v. US, 359 F.3d 738, 750-51 (5th Cir. 2004), held “Congress intended for the FCPA to apply broadly to payments intended to assist the payor, either directly or indirectly, in obtaining or retaining business for some person”. The Court also noted, “Congress’s intention to implement the [OECD] Convention, a treaty that indisputably prohibits any bribes that give an advantage to which a business entity is not fully entitled, further supports our determination of the extent of the FCPA’s scope.”[emphasis supplied]

At least one Court got it right.

 

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.