Beruflich Dokumente
Kultur Dokumente
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other nations when enforcing their own bribery laws, the facade of
FCPA enforcement is a global issue affecting a broad segment of the
marketplace.
Identifying and acknowledging the existence of a problem is a
necessary first step to crafting solutions. This article exposes the facade
of FCPA enforcement, argues that addressing the facade and subjecting FCPA enforcement actions to greater judicial scrutiny is in the
public interest, and encourages more FCPA defendants to challenge
the enforcement agencies and further expose the facade of FCPA
enforcement.
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. THE FCPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Anti-bribery Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Anything of Value . . . . . . . . . . . . . . . . . . . . . . . .
2. Foreign Official . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Obtain or Retain Business. . . . . . . . . . . . . . . . . .
C. Books and Records and Internal Control Provisions. . . . . . .
III. FCPA ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Relevance of Carrots and Sticks . . . . . . . . . . . . . . . . . .
1. Principles of Prosecution . . . . . . . . . . . . . . . . . . . .
2. Sentencing Guidelines . . . . . . . . . . . . . . . . . . . . . .
3. SEC Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Prevalence of Resolution Vehicles Subject to Little or No
Judicial Scrutiny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. NPAs and DPAs . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Pleas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. SEC Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. FCPA Resolution Vehicles Do Not Necessarily Reflect a
Superior Legal Position. . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Lessons from SEC v. BofA . . . . . . . . . . . . . . . . . . . .
2. The Enforcement Agencies are Vulnerable in
Contested Actions . . . . . . . . . . . . . . . . . . . . . . . . .
IV. THE FACADE OF FCPA ENFORCEMENT. . . . . . . . . . . . . . . . . . . .
A. First Pillar: Bare-Bones, Uninformative Facts, and Legal
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Second Pillar: What is the Legal Support?. . . . . . . . . . . . . .
1. The Foreign Officials All Around Us? . . . . . . . . .
2. Just How Was that Business Obtained or
Retained? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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INTRODUCTION
1. See, e.g., Philip Urofsky & Danforth Newcomb, Recent Trends and Patterns in FCPA Enforcement, SHEARMAN & STERLING LLP (Oct. 1, 2009), http://www.shearman.com/files/upload/LT100209-FCPA-Digest-Recent-Trends-and-Patterns-in-FCPA-Enforcement.pdf (noting that the SEC
and DOJ continue to adopt aggressive and potentially controversial interpretations of the FCPA
in their respective enforcement actions against individuals and corporations).
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materially different charges and penalties. The fourth and most alarming pillar highlights how seemingly clear-cut instances of corporate
bribery, per the governments own allegations, are resolved without
FCPA anti-bribery charges. These enforcement actions suggest, contrary to rule of law principles, that certain companies in certain
industries are essentially immune from FCPA anti-bribery charges.
Section IV of the article demonstrates why the facade of FCPA
enforcement matters and why judicial scrutiny of FCPA enforcement
actions is in the public interest and of vital importance to those subject
to the FCPA as well as the broader marketplace.
A goal of this article is to encourage more FCPA defendants, notwithstanding the carrots and sticks present, to challenge the enforcement agencies in an FCPA enforcement action and further expose the
facade of FCPA enforcement. Exposing and addressing the facade of
FCPA enforcement is a global issue given the reach of the FCPA and
because other nations are increasingly modeling enforcement of their
own anti-bribery laws on U.S. enforcement methods and theories.
II.
THE FCPA
Origin
2. See, e.g., Carolyn Lindsey, More Than You Bargained For: Successor Liability Under the U.S.
Foreign Corrupt Practices Act, 35 OHIO N.U. L. REV. 959, 961 (2009) (The FCPA arose out of the
Watergate scandal in the 1970s. While investigating contributions to Richard Nixons re-election
campaign, Congress discovered that over 400 U.S. companies had paid bribes in excess of $300
million through offshore slush funds in order to win contracts overseas.).
3. See Andrew Brady Spalding, Unwitting Sanctions: Understanding Anti-Bribery Legislation
as Economic Sanctions Against Emerging Markets 710 (Apr. 22, 2010) (Working Paper Series,
Univ. of Mumbai, Bombay), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
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id1429207 (arguing that scholars to date have only partially understood the historical events
that precipitated the introduction and passage of the FCPA).
4. See The Activities of American Multinational Corporations Abroad: Hearings Before the Subcomm. on
Intl Econ. Policy of the Comm. on Intl Relations, 94th Cong. 1 (1975).
5. Id. at 1 (statement of Rep. Robert N.C. Nix, Chairman, Subcomm. on Intl Econ. Policy).
6. Id. at 8 9. Broadly speaking, the Lockheed scandal involved disclosures by the company
that it had paid several multi-million dollar bribes to various developed and developing
countries, particularly the Netherlands, Japan, and Italy to assist in securing foreign government
contracts. Id. at 9. These payments drew the ire of Congress given that, during the time period the
payments were made, Lockheed was the recipient of a $250 million federal loan guarantee
designed to keep the company out of bankruptcy.
7. See Lockheed Bribery: Hearings Concerning Payments to Foreign Agents and Foreign Govt Officials by
the Lockheed Aircraft Corp., and the Emergency Loan Guar. Act Before the Senate Comm. on Banking, Hous.,
and Urban Affairs, 94th Cong. 1 61 (1975).
8. See Jimmy Carter, Foreign Corrupt Practices and Investment Disclosure Bill; Statement on
Signing S. 305 into Law, 2 Pub. Papers 2157 (Dec. 20, 1977), available at http://www.presidency.ucsb.
edu/ws/index.php?pid7036.
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Anti-bribery Provisions
The FCPA is part of the Securities Exchange Act of 193411 and it has
two main provisions: the anti-bribery provisions and the books and
records and internal control provisions. The anti-bribery provisions
generally prohibit:
U.S. companies (whether public or private) and its personnel;
U.S. citizens; foreign companies with shares listed on a U.S.
stock exchange or otherwise required to file reports with the
SEC; or any person while in U.S. territory from:
(i) corruptly paying, offering to pay, promising to pay,
or authorizing the payment of money, a gift, or anything of value; (ii) to a foreign official; (iii) in order to
obtain or retain business.12
While routinely described as a law applicable only to U.S. companies
9. Id.
10. See, e.g., Dionne Searcey, U.S. Cracks Down on Corporate Bribes, WALL ST. J., May 26, 2009, at
A1, available at http://online.wsj.com/article/SB124329477230952689.html (noting that FCPA
enforcement was largely dormant for decades); SHEARMAN & STERLING LLP, FCPA Digest: Cases
and Review Releases Relating to Bribes to Foreign Officials under the Foreign Corrupt Practices Act of 1977
(Oct. 1, 2009), http://www.shearman.com/files/upload/fcpa_digest.pdf (chronological listing
of FCPA enforcement actions).
11. See 15 U.S.C. 78m(b), 78dd-1, 78dd-2, 78dd-3 (2006).
12. Id.
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and citizens,13 the FCPA, as written and as enforced, can also apply to
foreign companies and foreign citizens.14 In fact, the largest ever FCPA
enforcement action (in terms of fines and penalties) is the 2008 action
against Siemens Aktiengesellschaft (Siemens), a German corporation
with shares traded on a U.S. exchange since 2001.15
As described above, the FCPAs anti-bribery provisions have three
core elements: anything of value to a foreign official in order to
obtain or retain business. These core elements are briefly described
below.
1.
Anything of Value
The term anything of value is not defined in the FCPA, nor is the
statutes legislative history illuminating. FCPA enforcement actions
suggest that the enforcement agencies perceive that there is no de
minimis value associated with this element of an FCPA anti-bribery
violation,16 and recent FCPA enforcement actions allege facts concerning things of value across a wide spectrum. For instance, in the 2009
enforcement action against Kellogg Brown & Root LLC and various
other Halliburton Company affiliates, things of value provided to
Nigerian foreign officials included cash-stuffed briefcases or cashstuffed vehicles left in hotel parking lots.17 On the other end of the
spectrum, the 2009 enforcement action against UTStarcom Inc. involved things of value provided to Chinese foreign officials including executive training programs at U.S. universities that were at-
13. See, e.g., Elizabeth Spahn, International Bribery: The Moral Imperialism Critiques, 18 MINN.
J. INTL L. 155, 157 (2009) (The U.S. Foreign Corrupt Practices Act (FCPA) criminally prohibits
U.S. corporations from bribing officials of foreign governments in order to obtain business has
been in effect for thirty years.).
14. See 15 U.S.C. 78dd-1, 78dd-3 (2006).
15. See, e.g., Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign
Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec.
15, 2008), available at http://www.fcpaenforcement.com/FILES/tbl_s31Publications/FileUpload137/5527/SiemensDOJPressRelease.pdf; Press Release, SEC, SEC Charges Siemens AG for
Engaging in Worldwide Bribery (Dec. 15, 2008), available at http://www.sec.gov/news/press/2008/
2008-294.htm.
16. See, e.g., In re Dow Chemical Co., Exchange Act Release No. 55281, 2007 WL 460872 (Feb.
13, 2007) (noting that although certain improper payments were in small amounts well under
$100 per payment the payments were numerous and frequent).
17. See United States v. Kellogg Brown & Root LLC, Case No. H-09-071 (S.D. Tex. Feb. 06,
2009), available at http://fcpaenforcement.com/documents/document_detail.asp?ID
5714&PAGE2(follow DOJ Criminal Information hyperlink) (criminal available at information
at paragraph 20).
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tended by the foreign officials and paid for by the company even
though the programs did not specifically relate[] to [the companys]
products or business.18
The most aggressive interpretation of the anything of value element would seem to be the 2004 FCPA enforcement action against
pharmaceutical company Schering-Plough Corporation (ScheringPlough).19 In that action, the SEC alleged that Schering-Plough
violated the FCPA when its wholly-owned Polish subsidiary (S-P Poland) improperly recorded a bona fide charitable donation to a Polish
foundation where the founder/president of the foundation was also
the director of a government health fund (the Director) that provided money to hospitals throughout Poland for the purchase of
pharmaceutical products. Although the SEC and Schering-Plough
ultimately resolved the matter without any meaningful judicial scrutiny
based only on violations of the FCPAs books and records and internal
control provisions, the enforcement action is commonly viewed as
broadening the anything of value element of an FCPA anti-bribery
violation.20 The SECs tacit interpretation of the anything of value
element in the Schering-Plough matter is significant because there was
no allegation or indication that any tangible monetary benefit accrued
to the Director, an individual deemed by the SEC to be a foreign
official under the FCPA. Rather, the SEC brought the enforcement
action on the basis of its apparent conclusion that S-P Polands bona
fide charitable donations constituted a thing of value to the foreign
official because the donations were subjectively valued by the official
18. Complaint at para. 16, SEC v. UTStarcom, Inc., No. CV 09-6094 (N.D. Cal.), available at
http://www.sec.gov/litigation/complaints/2009/comp21357.pdf (filed Dec. 31, 2009).
19. See SEC v. Schering-Plough Corp., Litigation Release No. 18740, 82 SEC Docket 3732
(June 9, 2004); In re Schering-Plough Corp., Exchange Act Release No. 49,838, 82 SEC Docket
3644 (June 9, 2004).
20. See, e.g., WILMER CUTLER PICKERING HALL AND DORR LLP, Foreign Corrupt Practices Act Update,
Schering-Plough Settles FCPA Case with SEC for Payments to Charity Headed by Government Official 1 (Jun.
30, 2004), http://www.wilmerhale.com/files/Publication/360d4f59-6068-4068-9d65-a30270e
5069b/Presentation/PublicationAttachment/0be55739-9c98-4d1f-a886-dac5f2f26044/FCPA%
2006-30-04.pdf (noting that [t]he case is significant in suggesting that payments to a bona fide
charity could violate the FCPA if made to influence the actions of a government official and
pointing out that [a]lthough the SEC did not state that these payments were bribes within the
meaning of the FCPA, in charging FCPA accounting violations for these payments, the SEC
strongly signaled that it believes that charitable donations could violate the FCPA if made at the
direction of a government employee to induce official action). In other words, if the company
improperly recorded a bona fide charitable contribution not involving (even indirectly) a foreign
official, it is unlikely the SEC would have charged FCPA books and records and internal control
violations.
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23. DOJ, Foreign Corrupt Practices Act Antibribery Provisions 3, available at http://
www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf (last visited Aug. 12, 2010) (The
FCPA applies to payments to any public official, regardless of rank or position.) (emphasis
added).
24. See DOJ, Opinion Procedure Release 94-01 (May 13, 1994), available at http://
www.justice.gov/criminal/fraud/fcpa/opinion/1994/9401.pdf (opining that a general director
of a state-owned enterprise being transformed into a joint stock company is a foreign official
under the FCPA despite a foreign law opinion that the individual would not be regarded as either
a government employee or a public official in the foreign country). Pursuant to 15 U.S.C.
78dd-1(e), parties may submit contemplated actions or business activity to the DOJ and obtain a
DOJ opinion whether the contemplated action or business activity violates the FCPA. However,
the DOJs opinion has no precedential value, and its opinion that the contemplated conduct is in
conformance with the FCPA is entitled only to a rebuttable presumption should an FCPA
enforcement action be brought as a result of the conduct. See 28 C.F.R 80.1-16 (2010); 28 C.F.R.
80.10 (2010).
25. 18 U.S.C. 78dd-1(a), 78dd-2(a), 78dd-3(a) (2006).
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26. Id.
27. See United States v. Kay, 359 F.3d 738, 740 (5th Cir. 2004).
28. See, e.g., United Indus. Corp., Exchange Act Release No. 60005 (May 29, 2009), available at
http://www.sec.gov/litigation/admin/2009/34-60005.pdf (enforcement action concerning payments to Egyptian Air Force (EAF) officials to build a military aircraft depot for the EAF).
29. See Kay, 359 F.3d at 740.
30. See id.
31. See id.
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32.
33.
34.
35.
36.
37.
38.
39.
40.
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Id. at 741.
See id. at 741 42.
See id. at 742.
See id. at 743 44.
See id. at 746 50.
Id. at 748.
Id.
Id. at 749.
See id. at 75556.
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court concluded that there was little difference between these type of
payments and traditional FCPA violations in which a company makes
payments to a foreign official to influence or induce the official to
award a government contract.41
However, the Kay court empathically stated that not all such payments to a foreign official outside the context of directly securing a
foreign government contract violate the FCPA; it merely held that such
payments could violate the FCPA.42 According to the court, the key
question of whether Defendants alleged payments constituted an
FCPA violation depended on whether the payments were intended to
lower ARIs costs of doing business in Haiti enough to assist ARI in
obtaining or retaining business in Haiti. The court then listed several
hypothetical examples of how a reduction in custom and tax liabilities
could assist a company in obtaining or retaining business in a foreign
country.43 On the other hand, the court also recognized that there are
bound to be circumstances in which a custom or tax reduction merely
increases the profitability of an existing profitable company and thus,
presumably, does not assist the payer in obtaining or retaining business.44 The court specifically stated:
[I]f the government is correct that anytime operating costs are
reduced the beneficiary of such advantage is assisted in getting
or keeping business, the FCPAs language that expresses the
necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage a conclusion
that we are forbidden to reach.45
Thus, contrary to popular misperception, Kay does not hold that all
payments to a foreign official for the purpose of avoiding customs
duties and sales taxes in a foreign country fall within the FCPAs scope.
Rather, the decision merely holds that Congress intended for the FCPA
to apply broadly to payments intended to assist the payer, directly or
indirectly, in obtaining or retaining business and that payments to a
foreign official to reduce custom and tax liabilities can, under
appropriate circumstances, fall within the statute. Given the abovedescribed facts and circumstances the Kay court found relevant, it is a
41.
42.
43.
44.
45.
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The FCPA also contains books and records and internal control
provisions.47 In contrast to the anti-bribery provisions, the books and
records and internal control provisions only apply to an entity which
has a class of securities registered pursuant to the securities laws or an
46. Defendants did appeal their FCPA conviction to the U.S. Supreme Court. See Petition for
A Writ of Certiorari, Kay v. United States, 2008 WL 1721979 (Apr. 9, 2008) (No. 07-1281). The
questions presented in Defendants Petition for A Writ of Certiorari are both general in nature
and do not directly address the Fifth Circuits interpretation of the obtain or retain business
element. See id. at *2. Further, the Government, in its Opposition Brief , urged the Court not to
grant Defendants petition because Defendants did not challenge the sufficiency of the criminal
indictment until after the jury returned its verdict. See Brief for the United States in Opposition to
a Petition for A Writ of Certiorari, Kay v. United States, 2008 WL 2900027 (Jul. 25, 2008) (No.
07-1281). The Supreme Court, without explanation, denied Defendants Cert Petition. Kay v.
United States, 129 S. Ct. 42 (2008).
47. 15 U.S.C. 78m(b)(2)(A)-(B) (2006).
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48. Id.
49. In rare instances, a company may still be required to file periodic reports pursuant to
the securities laws, yet not have publicly traded shares. See Non-Public Issuer Discloses Investigation,
THE FCPA BLOG, http://www.fcpablog.com/blog/2010/1/10/non-public-issuer-discloses-investigation.html (Jan. 10, 2010, 10:08 AM) (noting that PBSJ Corporation, while not having any
publicly traded securities, is nevertheless required to file periodic reports with the SEC given the
extent of its shareholders, mostly current and former employees).
50. See, e.g., Press Release, DOJ, U.S. Resolves Probe Against Oil Company that Bribed
Iranian Official (Oct. 13, 2006), available at http://www.justice.gov/opa/pr/2006/October/
06_crm_700.html (Although Statoil is a foreign issuer, the Foreign Corrupt Practices Act applies
to foreign and domestic public companies alike, where the companys stock trades on American
exchanges . . . .).
51. 15 U.S.C. 78m(b)(2)(A) (2002).
52. 15 U.S.C. 78m(b)(2)(B) (2002).
53. See, e.g., SEC Charges Assurant, Inc. With Improper Reinsurance Accounting, Litigation
Release No. 21388, Accounting and Auditing Enforcement Release No. 3109, 2010 WL 236814
(Jan. 21, 2010) (charging Assurant, Inc. with violating, among other things, Section 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act (i.e. the FCPAs books and records and internal control
provisions) for improperly accounting for a $10 million recovery it obtained under a reinsurance
policy in the aftermath of the 2004 Florida hurricane season). See also Paul Gerlach & George
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The FCPA specifically states that when an Issuer holds 50% or less of
the voting power with respect to a domestic or foreign firm, the books
and records and internal control provisions require only that the
[I]ssuer proceed in good faith to use its influence, to the extent
reasonable under the issuers circumstances, to cause such domestic or
foreign firm to devise and maintain a system of internal accounting
controls consistent with the FCPAs provisions.54 The FCPA further
states that an Issuer which demonstrates good faith efforts to use such
influence shall be conclusively presumed to have complied with the
requirements of the FCPAs books and records and internal control
provisions.
As demonstrated in more detail in Section III of this article, the
enforcement agencies seemingly ignore this FCPA statutory provision
in bringing numerous FCPA enforcement actions against parent companies based on the conduct of indirect, multiple-tier subsidiaries or
affiliates in the absence of any allegations that the parent had knowledge of or participated in the improper conduct and in the absence of
any bad faith allegations. These numerous FCPA enforcement actions
would seem to be in direct conflict with the FCPAs statutory provisions
and contribute to the facade of FCPA enforcement.
Before discussing the pillars which contribute to the facade of FCPA
enforcement, it is necessary to understand how the FCPA is enforced
and how FCPA enforcement actions are typically resolved in the
absence or practical absence of judicial scrutiny. Both these dynamics
significantly contribute to the facade of FCPA enforcement and are
discussed in the next section.
III.
FCPA ENFORCEMENT
The FCPA is both a civil statute and a criminal statute. Like other
securities law violations (such as insider trading), the issue of intent
and a prosecutors ability to satisfy the higher burden of proof required
for a criminal conviction (beyond a reasonable doubt) may determine
whether an FCPA violation is pursued with criminal charges or merely
civil charges. In terms of which enforcement agency (DOJ or SEC) will
Parizek, The SECs Enforcement of the Foreign Corrupt Practices Act (unpublished manuscript)
(on file with author) ([T]he SEC has brought hundreds of enforcement cases since adoption of
the FCPA charging U.S. issuers with violations of the FCPAs books and records and internal
control provisions where the underlying conduct or transactions occurred solely within the U.S.
with no foreign connection.).
54. 15 U.S.C. 78m(b)(6) (2002).
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prosecute the charges, the SEC has civil enforcement authority only,
and it may only regulate Issuers. Thus, [t]he SEC is responsible for
civil enforcement of the anti-bribery provisions with respect to [I]ssuers as well as civil enforcement of the books and records and internal
control provisions.55 The DOJ is responsible for all criminal enforcement of the statute (both the anti-bribery and books and records and
internal control provisions) and civil enforcement of the anti-bribery
provisions against non-Issuers subject to FCPA jurisdiction.56
Whether the DOJ, the SEC, or both agencies are involved in an FCPA
enforcement action, the end result is usually the same use of a
resolution vehicle that is privately negotiated and subjected to little or
no judicial scrutiny. In other words, in the majority of FCPA enforcement there is no independent analysis of whether factual evidence
exists to support the FCPAs legal elements or whether valid and
legitimate defenses are relevant to the conduct charged. Employment
of the resolution vehicles typically used to resolve an FCPA enforcement action does not occur in a vacuum. Rather, the prevalence of
these resolution vehicles is based on the carrots and sticks the
enforcement agencies possess in white-collar enforcement actions,
including FCPA enforcement actions.57
A.
55. Id. For a more thorough description of the SECs enforcement of the FCPA, see Paul
Gerlach & George Parizek, The SECs Enforcement of the Foreign Corrupt Practices Act
(unpublished manuscript) (on file with author) (describing how SEC FCPA investigations tend
to focus broadly on the overall integrity of the issuers financial statements and not simply on the
narrow issue of whether an FCPA prohibited payment was made and noting that SEC investigators will analyze, in addition to whether a bribe was authorized or paid, who falsely recorded the
bribe in the companys books and records, who lied or otherwise hid the bribe from the outside
auditors, why did the issuers internal controls fail to identify the bribe, whether the bribe
resulted in false public disclosures by the issuer, and whether senior management knew or
should have known of the bribe or the related improper accounting).
56. See DOJ, LAY PERSONS GUIDE TO FCPA 2, available at http://www.justice.gov/criminal/
fraud/fcpa/docs/lay-persons-guide.pdf (last visited Aug. 24, 2010).
57. Carrots and sticks is a popular idiom that refers to a policy of offering a combination
of rewards and punishment to induce behavior.
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Principles of Prosecution
58. See DOJ, U.S. Attorneys Manual 9-28.000 (2008) [hereinafter Principles of Federal
Prosecution of Business Organizations], available at http://www.justice.gov/opa/documents/corpcharging-guidelines.pdf.
59. Although the Department of Justice Principles of Prosecution generally use the term
corporation, the principles apply to all types of business organizations, including partnerships,
sole proprietorships, government entities, and unincorporated associations. Id. at n.1.
60. Id. at 4
61. Id. at 7.
62. Id. at 11.
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Sentencing Guidelines
63. Generally speaking, voluntary disclosure means a companys lawyer picks up the phone
and calls the DOJ to schedule a meeting during which the lawyer will disclose conduct that could
potentially implicate the FCPA even though the enforcement agencies, in many cases, would
never find out about the conduct.
64. For an example of a company voluntarily disclosing ambiguous conduct to the DOJ that
may not even violate the FCPA , see Voluntary Disclosures and the Role of FCPA Counsel, FCPA
PROFESSOR BLOG (Dec. 1, 2009, 2:54 PM), http://fcpaprofessor.blogspot.com/2009/12/voluntarydisclosures-and-role-of-fcpa.html. As noted in this post, there are several, significant conflicts of
interest FCPA counsel would seem to have in advising corporate clients on this voluntary
disclosure decision.
65. Another FCPA Speech, FCPA PROFESSOR BLOG (Nov. 18, 2009 12:09 PM), http://fc
paprofessor.blogspot.com/2009/11/another-fcpa-speech.html (discussing Breuers comments).
66. Id.
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SEC Policy
While less tasty than the DOJs carrots, and less sharp than the
DOJs sticks, the SEC (an agency with merely civil enforcement power
and remedies) also possesses similar carrots and sticks relevant in
the FCPA context. During the facade of enforcement era, the SECs
Seaboard Report has guided companies subject to an SEC FCPA
inquiry.69 In this report, the SEC lists
some of the criteria [the SEC] will consider in determining
whether, and how much, to credit self-policing, self-reporting,
remediation and cooperationfrom the extraordinary step of
taking no enforcement action to bringing reduced charges,
seeking lighter sanctions, or including mitigating language in
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70. Id.
71. Id.
72. Press Release, SEC, SEC Announces Initiative to Encourage Individuals and Companies
to Cooperate and Assist in Investigations (Jan. 13, 2010), available at http://www.sec.gov/news/
press/2010/2010-6.htm.
73. Id.
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74. Id.
75. See OFFICE OF CHIEF COUNSEL, SEC, SEC ENFORCEMENT MANUAL 134 (2010).
76. See Gesture, supra note 68 (Not a single corporate defendant, big or small, has fought
Foreign Corrupt Practices Act charges in court for the past two decades.).
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77. See Press Release, DOJ, Congressman William Jefferson Indicted On Bribery, Racketeering, Money Laundering, Obstruction of Justice, and Related Charges (June 4, 2007), available at
http://www.justice.gov/opa/pr/2007/June/07_crm_402.html.
78. Id.
79. Id.
80. See Press Release, DOJ, Former Congressman William J. Jefferson Convicted of Bribery,
Racketeering, Money Laundering and Other Related Charges (Aug. 5, 2009), available at
http://www.justice.gov/opa/pr/2009/August/09-crm-775.html.
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81. See Jonathan Tilove, William Jefferson Case Will Always be Remembered for Cash in the Freezer,
TIMES-PICAYUNE, Aug. 5, 2009, http://www.nola.com/news/index.ssf/2009/08/william_
jefferson_case_will_al_1.html .
82. For instance, in a November 2009 speech Assistant Attorney General Lanny Breuer
stated: In the past few months, we have the completed the trials of the Greens in California, of Mr.
Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these
cases, individuals were found guilty of FCPA violations and face jail time. Lanny A. Breuer,
Assistant Atty Gen., DOJ, Prepared Keynote Address to the 10th Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (Nov. 12, 2009), available at www.ehcca.
com/presentations/pharmacongress10/breuer_2.pdf.
83. See Press Release, DOJ, Film Executive and Spouse Indicted for Paying Bribes to a Thai
Tourism Official to Obtain Lucrative Film Festival Management Contracts (Jan. 17, 2008),
available at http://www.justice.gov/opa/pr/2008/January/08_crm_032.html.
84. See Press Release, DOJ, Film Executive and Spouse Arrested for Paying Bribes to a Thai
Tourism Official to Obtain Lucrative Film Festival Management Contracts (Dec. 19, 2007),
available at http://justice.gov/usao/cac/pressroom/pr2007/162.html.
85. See Press Release, DOJ, Film Executive and Spouse Found Guilty for Paying Bribes to Thai
Tourism Official to Obtain Lucrative Contracts (Sept. 14, 2009), available at http://justice.gov/
usao/cac/pressroom/pr2009/112.html.
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86. See Andrew Longstreth, Azerbaijan Bribes Put One Mogul on Trial, Another in Exile, THE
AMERICAN LAWYER (Oct. 9, 2009), http://www.law.com/jsp/law/international/LawArticle
Intl.jsp?id1202434399273&Azerbaijan_Bribes_Put_One_Mogul_on_Trial_Another_in_Exile.
87. See Press Release, DOJ, U.S. Announces Charges in Massive Scheme to Bribe Senior
Government Officials in the Republic of Azerbaijan (Oct. 6, 2005), available at http://
www.justice.gov/usao/nys/pressreleases/October05/kozenyetalindictmentpr.pdf.
88. See Press Release, DOJ, Connecticut Investor Found Guilty in Massive Scheme to Bribe
Senior Government Officials in the Republic of Azerbaijan (July 10, 2009), available at http://
www.justice.gov/opa/pr/2009/July/09-crm-677.html.
89. See Kenneth Winer & Gregory Husisian, Recent Opinion Sheds Light on the Relevance of Due
Diligence to the FCPAs Knowledge Element, in 4 CORPORATE ACCOUNTABILITY REPORT, 1, 23 (2009)
available at http://www.foley.com/files/tbl_s31Publications/FileUpload137/6597/Corporate
Account2009.pdf (last visited Aug. 12, 2010).
90. See Press Release, DOJ, Connecticut Investor Frederic Bourke Sentenced to Prison for
Scheme to Bribe Government Officials in Azerbaijan (Nov. 11, 2009), available at http://www.
justice.gov/opa/pr/2009/November/09-crm-1217.html.
91. David Glovin, Bourke Gets One Year in Prison in Azerbaijan Bribery Case, BLOOMBERG (Nov. 11,
2009), http://www.bloomberg.com/apps/news?pid20601103&sida76j6PK3anAc.
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tions, the lions share of these agreements are used to resolve FCPA
enforcement actions.98 For instance, in 2008, seven of the sixteen NPAs
or DPAs were used to resolve FCPA enforcement actions.99 FCPA
enforcement actions in 2009 resolved through NPAs or DPAs included:
UTStarcom, Inc. and Helmerich & Payne, Inc.100 This contrasts
brightly with the fact that prior to December 2004, prosecutors appear
never to have resolved a corporate FCPA case through an agreement
such as an NPA or DPA.101
An NPA is not filed with a court, but instead is a privately negotiated
agreement between the DOJ and a business entity. These agreements
often take the form of letter agreements from the DOJ to the entitys
lawyer and generally include a brief often times bare-bones
statement of facts replete with legal conclusions that the entity acknowledges responsibility for, as well as a host of compliance undertakings
that the entity agrees to implement.102
A DPA, on the other hand, is filed with a court and thus has a look
and feel much like a pleading, although the factual allegations also are
often bare-bones and replete with legal conclusions. Like NPAs, DPAs
are also the result of privately negotiated agreements between the DOJ
and a business entity. In exchange for the DOJ agreeing to defer
prosecution of the entity (usually for a two to four-year period), the
entity acknowledges responsibility for the conduct described in the
allegations and agrees to a host of compliance undertakings it agrees to
implement.103 Other than what happens with the agreement (i.e.
whether it is filed with a court or not) there is very little difference
between an NPA and a DPA.104
98. Lawrence D. Finder et al., Betting the Corporation: Compliance or Defiance? Compliance
Programs in the Context of Deferred and Non-Prosecution Agreements - Corporate Pre-Trial Agreement Update 2008, in CORPORATE COUNSEL REVIEW, SOUTH TEXAS COLLEGE OF LAW, Vol. XXVIII, No. 1, May 2009,
at 9.
99. See id. at 1.
100. See Press Release, DOJ, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of
Foreign Bribery in China (Dec. 31, 2009), available at http://www.justice.gov/opa/pr/2009/
December/09-crm-1390.html; see also Press Release, DOJ, Helmerich & Payne Agrees to Pay $1
Million Penalty to Resolve Allegations of Foreign Bribery in South America (July 30, 2009),
available at http://www.justice.gov/opa/pr/2009/July/09-crm-741.html.
101. Peter Spivak & Sujit Raman, Regulating the New Regulators: Current Trends in Deferred
Prosecution Agreement, 45 AM. CRIM. L. REV. 159, 176 (2008).
102. See Prosecution Agreements, VIRGINIA LAW SCHOOL http://www.law.virginia.edu/html/
librarysite/garrett_bycompany.htm (last visited Aug. 24, 2010) (listing examples of various NPAs).
103. See id.
104. Lawrence D. Finder & Ryan D. McConnell, Devolution of Authority: The Department of
Justices Corporate Charging Policies, 51 ST. LOUIS U. L.J. 1, 17 (2006) (Our review of the published
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pre-trial agreements reveals, however, that NPAs do not necessary reveal more favorable terms
than DPAs.).
105. Spivak & Raman, supra note 101, at 188 89.
106. See 18 U.S.C. 3161(h)(2) (2000).
107. See GAO-10-110, supra note 97, at 25.
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108. Id. at 8.
109. Id. at 25.
110. Id. at 2528.
111. Brandon L. Garrett, Structural Reform Prosecution, 93 VA. L. REV. 853, 893 (2007).
112. See Candace Zierdt & Ellen S. Podgor, Corporate Deferred Prosecutions Through the Looking
Glass of Contract Policing, 96 KY. L.J. 1, 14 (2007) (Deferred and non-prosecution agreements often
occur without judicial oversight or participation. This is because the agreement may be reached
prior to an indictment, and thus no court case will have been filed, or because the government
may reach a settlement with a company that is entered into outside of the criminal justice system.
Even in the rare case that has court participation, it is usually a mere formality of the document
being filed in the court. It may be presented to the court to satisfy the statutory provision that
exempts the deferral of criminal matters from the speedy trial constraints.). See also Joan McPhee,
Deferred Prosecution Agreements: Ray of Hope or Guilty Plea By Another Name, INSIDE LITIG., 4Winter
2006, available at http://www.ropesgray.com/files/Publication/a6d348fd-f6fd-4f4a-b38bbd6de98836b7/Presentation/PublicationAttachment/4d1fdc14-3bcf-463a-b2b0-76204fc7f316/
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Given the lack of judicial scrutiny of NPAs and DPAs, some question
whether these agreements are even agreements at all. David Pitofsky,
a former DOJ prosecutor and Principal Deputy Chief of the Criminal
Division of the United States Attorneys Office for the Eastern District
of New York,113 notes:
One of the problems with the process of negotiating a deferred
prosecution agreement is that it is not really a negotiation. Any
push back by the company on a provision that the government
requests is not only going to be shot down, but the government
may see it as a reflection that the companys claimed contrition
is not genuine. So, you dont even want to make the argument
for fear that it will cause the government to look at you
differently and decide that a deferral isnt appropriate.114
Professors Candace Zierdt and Ellen Podgor note:
These agreements are made under duress. There is a threat of
government indictment and resulting destruction of the entire
business that induces the manifestation of assent to the deferred prosecution agreement. But for the threat of possible
prosecution by the government and its resulting consequences,
these terms would not normally be agreed to by the corporation . . . . In addition to the elements of classic duress, these
provisions should be removed because they are agreed to under
economic duress. The economic reality is that if the corporation refuses to assent to the deferred prosecution agreement,
the result will likely be the death of the corporation or alterna-
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Pleas
120. See Principles of Federal Prosecution of Business Organizations, supra note 58.
121. Id. at 19 20.
122. See e.g., Press Release, DOJ, Latin Node Inc., Pleads Guilty to Foreign Corrupt Practices Act
Violation and Agrees to Pay $2 Million Criminal Fine (Apr. 7, 2009), available at http://www.justice.gov/
opa/pr/2009/April/09-crm-318.html.
123. MILLER CHEVALIER, BAE Settles Protracted, Controversial Bribery Case with U.S. and U.K.
Authorities, http://www.millerchevalier.com/Publications/MillerChevalierPublications?find26504
(last visited Aug. 24, 2010).
124. Podgor, supra note 119, at 78 79.
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NPA or DPA, there are obvious incentives for the company to accept
the dealno matter how untested or dubious the DOJs legal theory
may be and notwithstanding the fact that the company may have valid
and legitimate defenses to the alleged conduct. Again, the Sentencing
Guidelines are relevant because, by accepting a plea, the company will
have clearly demonstrated recognition and affirmative acceptance of
responsibility for its criminal conduct.125 In other words, challenging
the DOJ and putting it to its burden to establish factual evidence that
supports the FCPAs legal elements in an adversarial proceeding is not
affirmative acceptance of responsibility and will result in more severe
treatment should a company be convicted. A company that rejects a
DOJ plea and tests its innocence claim, while courageous, would be
foolish against the backdrop described above.
Plea dynamics are not just present in corporate criminal enforcement actions, but individual enforcement actions as well. For individuals, testing an innocence claim is even more risky because an individual, unlike a company, can be put in jail. Thus, given the prospect of
perhaps missing out on a son or daughters childhood, or at least
growing old in jail, many white collar individual defendants choose the
lesser of two evils, accept a plea, and play a game in which innocence
and guilt no longer become the real considerations.126
Case in point is the near tragedy of Dr. Henry Samueli, the cofounder and former chief technical officer of Broadcom, who pleaded
guilty to making false statements in testimony before the SEC relating
to its investigation of the alleged stock-options backdating at Broadcom.127 Under a grant of immunity, Samueli testified as a government
witness at the trial of another Broadcom executive, and after hearing
Samueli testify, Judge Cormac Carney (Central District of California)
took the highly unusual step of vacating Samuelis prior guilty plea and
dismissing the criminal charges against him.128 According to media
reports, Judge Carney concluded that even though Samuelis answers
to the SEC may have been ambiguous, evasive and arguably nonrespon-
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sive they were not materially falsethe legal basis for his criminal
charge and guilty plea.129 A few days later, Judge Carney noted:
There was no evidence at trial to suggest that Dr. Samueli did
anything wrong, let alone criminal. Yet, the government embarked on a campaign of intimidation and other misconduct to
embarrass him and bring him down including crafting an
unconscionable plea agreement pursuant to which Dr. Samueli
would plead guilty to a crime he did not commit and pay a
ridiculous sum of $12 million to the United States Treasury.130
In pleading guilty, Samueli did what a disturbing number of other
people have done: pleaded guilty to a crime they didnt commit or at
least believed they didnt commit for fear of exercising their constitutional right to a jury trial, losing, and getting stuck with a long prison
sentence.131
Criminal pleas are common in the FCPA context. Corporate pleas in
2009 include: Control Components, Inc.,132 Latin Node, Inc.,133 and
Kellogg Brown & Root LLC.134 Recent individual pleas include: John
Warwick and Charles Paul Edward Jumet,135 Paul Novak,136 and Leo
Winston Smith.137 The motivations of these corporations and individu-
129. Id.; see also John Emshwiller and Nathan Koppel, Plea Bargain Get Renewed Scrutiny, WALL
STREET JOURNAL, Dec. 19, 2009, at A4.
130. Reporters Transcript of Proceedings at 5197-98, U.S. v. Nicholas, No. 8:08-CR-00139
(D.C.D. Cal. Dec. 15, 2009), available at http://www.dandodiary.com/2009/12/articles/optionsbackdating/mr-ruehle-you-are-a-free-man-judge-carneys-dramatic-dismissal-of-the-broadcombackdating-criminal-case/ (last visited Aug. 12, 2010) [hereinafter Ruehle Transcript].
131. See Emshwiller and Koppel, supra note 129.
132. See Press Release, DOJ, supra note 122.
133. See Press Release, DOJ, Latin Node Inc., Pleads Guilty to Foreign Corrupt Practices Act
Violation and Agrees to Pay $2 Million Criminal Fine (Apr. 7, 2009), available at http://
www.justice.gov/opa/pr/2009/April/09-crm-318.html.
134. See Press Release, DOJ, Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery
Charges and Agrees to Pay $402 Million Criminal Fine (Feb. 11, 2009), available at http://
www.justice.gov/opa/pr/2009/February/09-crm-112.html.
135. See Press Release, DOJ, Virginia Resident Pleads Guilty to Bribing Former Panamanian
Government Officials in Connection with Maritime Contract (Feb. 10, 2010), available at http://
www.justice.gov/opa/pr/2010/February/10-ag-134.html.
136. See Press Release, DOJ, Former Willbros International Consultant Pleads Guilty to $6
Million Foreign Bribery Scheme (Nov. 12, 2009), available at http://www.justice.gov/opa/pr/2009/
November/09-crm-1220.html.
137. See Press Release, DOJ, Former Pacific Consolidated Industries LP Executive Pleads
Guilty in Connection with Bribes Paid to U.K. Ministry of Defense Official (Sept. 3, 2009), available
at http://www.justice.gov/opa/pr/2009/September/09-crm-928.html.
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als to agree to these pleas and the answer to the question of whether the
conduct at issue actually violated the FCPA will likely never be publicly
known.
Individual FCPA defendants face a particularly difficult decision in
deciding to accept a criminal plea or exercise their constitutional right
to a jury trial. Because all corporate FCPA enforcement actions have
been resolved through NPAs, DPAs, or pleas, and given that a common
feature of these agreements is the company accepting and acknowledging responsibility for the improper conduct of its employees, these
agreements put individual FCPA defendants in an almost impossible
situation. Thus, it is no surprise that the four individuals in 2009 who
exercised their constitutional right to a jury trial and thus challenged
the DOJ in an FCPA case did so in situations where there was no
parallel NPA, DPA, or plea with a corporate entity.
Given the carrots and sticks the DOJ possesses, NPAs, DPAs, and
pleas are typically used to resolve FCPA enforcement actions, and the
effect of these resolution vehicles not being subject to any meaningful
judicial scrutiny is more pronounced in the FCPA enforcement than
any other area of law.
The typical method of resolving an SEC FCPA enforcement action
also has an equally troubling feature in that corporate and individual
defendants are able to resolve the enforcement action without admitting or denying the SECs allegations. This central feature of an SEC
FCPA enforcement action also contributes to the facade of FCPA
enforcement and is described more fully below.
3.
SEC Settlements
If the SEC concludes that a securities law has been violated, the
Commission may bring an action in federal court or in an administrative proceeding against the purported violators.138 Federal court
actions are generally perceived as more severe than administrative
proceedings and thus the decision of whether to file an administrative proceeding or a federal district court action is often a point of
negotiation between the SEC and a company.139 As acknowledged by
the SEC in a recent high-profile case, when filing a federal court action,
the burden is on the SEC to establish a prima facie case of a legal
138. See Paul S. Atkins & Bradley J. Bondi, Evaluating the Mission: A Critical Review of the History
and Evolution of the SEC Enforcement Program, 13 FORDHAM J. CORP. & FIN. L. 367, 372 (2008).
139. Kevin J. Harnishch & Natasha Colton, When the SEC Comes Knocking, 15 ABA Sec. Bus. L.
1 (2005), available at http://www.abanet.org/buslaw/blt/2005-09-10/colton.shtml.
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violation before charging any party and the SEC must allege facts
supporting the legal charge that, at a minimum, are sufficient to survive
a motion to dismiss.140
The SEC is empowered to seek a variety of sanctions in an enforcement action such as monetary penalties, disgorgement of ill-gotten
gains, an injunction, or a cease and desist order prohibiting current
and future violations of the securities law provision at issue.141 The
SEC is not required to go to federal court to get an order preventing
future violations of the federal securities laws, although in more serious
cases, resorting to the court packs more punch because a contempt act
can be pursued for any future violation.142
If the SEC seeks civil monetary penalties, an action must be filed in
federal court.143 As explained by Atkins and Bondi, both former SEC
officials, Congress took comfort in the fact that federal judges would
operate as an independent check to the Commissions decision to seek
an issuer penalty and the amount sought to be recovered.144 In
practice, however, this independent check is largely absent from SEC
enforcement actions because those pursued by the SEC seldom choose
to litigate with the SEC, and settled injunctive actions rarely receive any
judicial scrutiny.145 The SEC is not shy in extolling the virtues of
settlement. The Commission recently stated:
Settlements are an important tool for the Commissions enforcement program and enable the Commission to leverage and
efficiently maximize the impact of its limited resources. During
the last three years, for example, at least 75 percent of the
Commissions enforcement actions were concluded with some
form of settlement at the time they were filed.146
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147. Id.
148. SEC v. Clifton, 700 F.2d 744, 748 (D.D.C. 1983).
149. Consent Decrees in Judicial or Administrative Proceedings, Securities Act Rel. No.
33-5337. (Nov. 28, 1972).
150. Id.
151. 17 C.F.R. 202.5(e) (2010).
152. See Richard J. Morvillo et al., To Neither Admit Nor Deny: SEC Litigation Position Reiterates
Need to Examine Standard Provisions in SEC Settlements, CROWELL & MORING (April 2001), http://
www.crowell.com/pdf/Consents.pdf (describing a case in which the authors participated, in
which a former Chief Financial Officer of a publicly-held company consented (without admitting
or denying the SECs allegations) to entry of final judgment of permanent injunction barring
violation of the securities laws and then in a separate proceeding, when called as a witness, the
CFO testified that the reasons he settled with the SEC was that he lacked the financial
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It is against this backdrop that the SEC enforces the FCPA. Consistent with the above framework, the SEC has the option of pursuing an
FCPA case either as a civil injunction action in federal court or as a
cease and desist proceeding in front of an administrative law judge.153
As Paul Gerlach and George Parizek, both former SEC enforcement
officials note:
The serious nature of an illicit payments violation and the fact that
fines against issuers and their employees are only available in a
federal court action suggests that most, if not all, of the SECs illicit
payments cases are likely to be filed in federal court.154
While filed in federal court, it is common SEC practice, including in
the FCPA context, merely for the settled civil complaint to be filed and
for a resolution to be announced on the same day of the filing.155
Recent FCPA enforcement actions resolved through a settled SEC
complaint and related SEC consent decree prohibiting future violations include: UTStarcom, Inc.156 and Natures Sunshine Products,
Inc.157 Recent FCPA enforcement actions resolved through the less
severe SEC administrative route, in which the SEC issues a cease and
desist order, include: Helmerich & Payne, Inc.158 and United Industrial
Corp.159 Common features of both SEC resolution vehicles are little or
no judicial scrutiny and the defendant being able to settle the FCPA
matter without admitting or denying the SECs allegations. Thus SEC
wherewithal and the stamina to fight the SEC and decided to settle because he was not required to
admit the allegations).
153. Paul Gerlach & George Parizek, The SECs Enforcement of the Foreign Corrupt
Practices Act (unpublished manuscript) (on file with author).
154. Id.
155. See, e.g., SEC Files Settled Civil Action Charging NATCO Group Inc. with Violations of
the Foreign Corrupt Practices Act, Litigation Release No. 21374 (Jan. 11, 2010), available at
http://www.sec.gov/litigation/litreleases/2010/lr21374.htm.
156. See SEC Charges California Telecom Company With Bribery and Other FCPA Violations, Litigation Release No. 21357 (Dec. 31, 2009), available at http://www.sec.gov/litigation/
litreleases/2009/lr21357.htm.
157. See SEC Charges Natures Sunshine Products, Inc. with Making Illegal Foreign Payments, Litigation Release No. 21162 (July 31, 2009), available at http://www.sec.gov/litigation/
litreleases/2009/lr21162.htm.
158. See, In the Matter of Helmerich & Payne, Inc., Exchange Act Release No. 60400, 2009
WL 2341649 (July 30, 2009), available at http://www.sec.gov/litigation/admin/2009/3460400.pdf.
159. See In the Matter of United Industrial Corp., Exchange Act Release No. 60005, 2009 WL
1507586 (May 29, 2009), available at http://www.sec.gov/litigation/admin/2009/34-60005.pdf .
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ment action.160 Although not an FCPA case, the scrutiny of Judge Jed
Rakoff of the Southern District of New York with regard to a negotiated
settlement between the SEC and Bank of America (BofA) provides
valuable insight into the same SEC enforcement procedures used in
FCPA enforcement actions. The case also provides a rare public
glimpse into what is often not aired in publicthe motivations of
settling parties in a government enforcement action, including the
motivations of a corporate litigant to settle a dispute with a primary
regulator for reasons of ease and efficiencynot necessarily because of
the legal viability of the SECs claims. Thus, while outside the FCPA
context, an extended discussion of SEC v. BofA is warranted and
instructive.
In August 2009, the SEC filed a civil suit against BofA charging it with
securities law violations based on allegations that it mislead investors
about billions of dollars in bonuses paid to Merrill Lynch executives at
the time of BofAs $50 billion acquisition of Merrill Lynch.161 As is
customary SEC practice, the charges were filed with a court on the
same day the SEC and BofA settled the charges.162 As is also customary
SEC practice, BofA agreed to resolve the SEC charges without admitting or denying the allegations in the complaint. BofA consented to
the entry of a final judgment, which (i) permanently enjoined it from
violating the specific proxy solicitation rules at issue, and (ii) ordered it
to pay a $33 million civil penalty.163 Wow, that was quick, noted the
Wall Street Journal, as media headlines quickly switched from the
SECs complaint against BofA to BofA agreeing to pay a $33 million
fine to scratch the suit from its to-do list.164
Ordinarily, settlement of a civil lawsuit is subject to little, if any,
judicial scrutiny. However, courts are empowered to scrutinize consent
judgments, such as the one at issue in the BofA case, because a consent
judgment seeks to prospectively invoke a courts contempt power by
having a court impose injunctive prohibitions on the defendant.165
160. SEC v. Bank of America Corp., 653 F. Supp. 2d 507 (S.D.N.Y. 2009) (mem. order). Cf.
SEC, Litigation Release No. 21164 (Aug. 3, 2009), available at http://www.sec.gov/litigation/
litreleases/2009/lr21164.htm.
161. See Litigation Release No. 21164, supra note 160.
162. See id.
163. Id.
164. Ashby Jones, Over Before It Starts: SEC, BofA Settle Suit Over Merrill Bonuses, WALL ST. J. L.
BLOG, Aug. 3, 2009, http://blogs.wsj.com/law/2009/08/03/over-before-it-starts-sec-bofa-settle-suitover-merrill-bonuses/.
165. See, e.g., SEC v. Randolph, 736 F.2d 525, 529 (9th Cir. 1984); SEC v. Wang, 944 F.2d 80,
85 (2d Cir. 1991).
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Such consent judgments are also often at issue in SEC FCPA enforcement actions.166
Enter Judge Rakoff, a former prosecutor, who was unwilling to
accept the pre-packaged settlement negotiated between the SEC and
BofA. He quickly ordered the parties to appear before him to better
explain the factual evidence leading to the proposed settlement. In his
written order, Judge Rakoff noted, [d]espite the public importance of
this case, the proposed Consent Judgment would leave uncertain the
truth of the very serious allegations made in the Complaint.167 Judge
Rakoffs order was unusual given the extent to which federal judges
routinely rubber stamp such consent decrees and his order set the
stage for a high-profile test of SEC enforcement policies and procedures.168
During the hearing, Judge Rakoff expressed continued misgivings
about the proposed settlement and sought more information about,
among other things, the basis for the settlement itself and whether an
evidentiary hearing should be held to weigh the facts of the case.169
Judge Rakoff also chastised the SEC for filing a rather uninformative,
bare-bones complaint; lamented that the settlement seemed to be
lacking, for lack of a better word, transparency; and ordered the
parties to submit additional briefing.170 The SEC and BofA thus
proceeded down the seldom-traveled path of publicly explaining and
defending the reasons for a negotiated settlement in a government
enforcement action. This is a path that has never been traveled in an
FCPA enforcement action.
In its brief, the SEC argued that the proposed settlement [was] fair,
166. See, e.g., SEC, Litigation Release No. 21357 (Dec. 31, 2009), available at http://
www.sec.gov/litigation/litreleases/2009/lr21357.htm (UTStarcom agreed, without admitting or
denying the charges, to the entry of a permanent injunction against FCPA violations . . . .).
167. Order at 1-2, SEC v. Bank of America Corp., 09 Civ. 6829 (S.D.N.Y. Aug. 5, 2009). See
also, e.g., Jess Bravin, Judge Calls Hearing in SEC Case Against BofA, WALL ST. J., August 6, 2009; Ashby
Jones, Rakoff on BofA, SEC Settlement: Not So Fast, Fellas, WALL ST. J., Aug. 6, 2009.
168. See Michael Corkery & Susanne Craig, Judge Forces SEC to Defend Its Tougher Tack, WALL ST.
J., Aug. 7, 2009, at C3; Ashby Jones, Rakoff on BofA/SEC Kerfuffle: Everything Needs to Be Public, WALL
ST. J. L. BLOG, Aug. 24, 2009, http://blogs.wsj.com/law/2009/08/24/rakoff-on-bofasec-kerfuffleeverything-needs-to-be-public/; Zachary A. Goldfarb, SECs About-Face on Bank of America Raises
Eyebrows, WASH. POST, Aug. 28, 2009 at A18 (noting that [i]t is unusual for judges to intervene as
Rakoff has done in the Bank of America case).
169. Chad Bray, BofA Judge Seeks More Data on SEC Bonus Deal, WALL ST. J., Aug. 11, 2009, at C1.
170. Id.; see also Louise Story, Judge Attacks Merrill Pre-Merger Bonuses, N.Y. TIMES, Aug. 11, 2009,
at B1; A Ghost or a Human Being?: Rakoff Hands it to BofA, the SEC, WALL ST. J., Aug. 11, 2009,
http://blogs.wsj.com/law/2009/08/11/a-ghost-or-a-human-being-rakoff-hands-it-to-bofa-the-sec/
tab/article/.
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tors. . . .177
BofAs brief was chiefly supported by the Affidavit of Joseph A.
Grundfest, a Stanford Law School professor and former SEC Commissioner with substantial experience in reviewing and approving hundreds of settled administrative and injunctive enforcement proceedings while on the Commission.178 The picture Professor Grundfest
paints of the SEC enforcement process is not pretty if one considers
transparency and credibility a fine art.179 Professor Grundfest explains
in detail the mechanics of the SEC enforcement process and how it is
common practice in settled proceedings for the Commission to file
complaints that cast defendants actions in a harsh light and then to
prohibit defendants from challenging the Commissions rendition of
facts and law as articulated in the complaint.180 Professor Grundfest
further stated that SEC complaints: typically omit mention of valid
defenses and of countervailing facts or mitigating circumstances that, if
proven at trial, could cause the Commission to: (i) lose its case . . . ; (ii)
prevail on grounds narrower than those alleged; or (iii) obtain relief
950
[Vol. 41
less onerous than imposed through the settled action.181 The natural
result of these dynamics, stated Professor Grundfest, is a one-sided
record in which the Commission asserts its version of the facts and the
law, and the settling defendants commit not to challenge that rendition.182 Professor Grundfest then sets forth the powerful claims BofA
would have against the SECs charges should the matter be litigated.183
Yet, despite these powerful claims, Professor Grundfest states that it is
nonetheless rational for a defendant in Bank of Americas position to
settle the Commissions allegations because, among other things,
BofA is a highly regulated entity and [i]t can be imprudent for
regulated entities to engage in protracted litigation with their regulators.184
Judge Rakoff was not impressed by the parties explanations or the
picture painted of the SEC enforcement process. He immediately
drafted an order that, while expressing gratitude to counsel for the
parties for their helpful responses, noted that the initial submissions
raised a few additional issues.185 Among those was BofAs seemingly
180-degree reversal. Judge Rakoff wrote:
The Court recognizes that the Bank of America, having previously been precluded by its tentative settlement with the SEC
from denying the Complaints assertions, has now, in response
to the Courts direction to provide the Court with the Banks
own version of the facts, asserted that the proxy statement was
neither false nor misleading. Its position, however, is that
rather than put its assertions of innocence to the test, it decided
to spend $33 million of shareholders money to settle the case
so that Bank of America would not face the unnecessary distraction of a protracted dispute with one its principal regulators at a
time when the financial industry continues to face difficult
challenges stemming from uncertain and turbulent conditions . . . Whatever this chain of vague expressions may mean, if
it is intended to suggest that Bank of America settled this case to
181.
182.
183.
184.
185.
2009).
2010]
Id.
Id. at 9.
Id. at 15 41.
Id. at 43 44.
See SEC v. Bank of America, No. 09 Civ. 6829, 2009 WL 2842940 at *1 (S.D.N.Y Aug. 25,
951
curry favor with the SEC or to avoid retaliation by the SEC, the
court needs to know the specifics.186
Thus, not once, but twice, Judge Rakoff expressed his disapproval and
remained puzzled by the parties explanations of the settlement
agreement.187 Judge Rakoff again ordered the parties to file additional
briefs and the parties again proceeded down the seldom-traveled path
of publicly explaining and defending the reasons for a negotiated
settlement and the evidence supporting the settled charges.188
The Wall Street Journal analogized the situation to having one of
those teachers or professors who would let you submit an assignment
over and over again until it was worthy of an A grade.189 The New
York Times said that it was sad that Rakoffs refusal to sign off on the
settlement has caused controversy, and that probing questions like
Judge Rakoffs should be heartily encouraged.190
The SECs second bite at the apple was much like its first; again it
argued that the proposed disposition is fair, reasonable, adequate and
in the public interest and should be entered by the Court.191 The SEC
argued that Bank of America and its experts greatly exaggerate the
potency and appeal of its purported defenses and that it was also clear
that Bank of America had ample motivation to settle this case and pay
a substantial penalty due to the merits of the Commissions claim.192
In the SECs estimation, Bank of America no doubt understood that
their position carried significant litigation risk, which is a reason
sophisticated parties often choose to settle rather than defend difficult
claims.193
BofAs re-write was also much like its first attempt to convince Judge
Rakoff to approve the settlement. In its reply brief, BofA stated:
952
[Vol. 41
194. Reply Memorandum of Law on Behalf of Bank of America Corp. at 3, SEC v. Bank of
America Corp., No. 09 Civ. 6829 (S.D.N.Y Sept. 9, 2009), available at http://www.scribd.com/doc/
19581786/Reply-to-Judge-Rakoff-From-Bank-of-America.
195. Id. at 12.
196. Id. at 28. In a footnote to its conclusion, BofA noted that it was not given the option to
settle or litigate for nothing. Because of the SECs decision to bring charges, Bank of America
would have to spend corporate funds whether or not it settled. Bank of America determined for
the reasons stated that it was preferable to spend its money to settle this action than to incur
additional litigation expenses. See id. at 28 n.20.
197. See SEC v. Bank of America, 653 F. Supp. 2d 507, 508 (S.D.N.Y. 2009).
2010]
953
and instructed the parties to prepare for a trial. [E]ven upon applying
the most deferential standard of review, Rakoff concluded that the
proposed Consent Judgment [was] neither fair, nor reasonable, nor
adequatenor even remotely . . . fair.198
In his order, Judge Rakoff did not mince words as he explained that
the parties positions leave the distinct impression that the proposed
Consent Judgment was a contrivance designed to provide the SEC with
the facade of enforcement and the management of [BofA] with a quick
resolution of an embarrassing inquiryall at the expense of the sole
alleged victimsthe shareholders.199 Judge Rakoff concluded that the
proposed Consent Judgment suggests a rather cynical relationship
between the parties in that the SEC gets to claim that it is exposing
wrongdoing on the part of [BofA] in a high-profile merger and
[BofAs] management gets to claim that they have been coerced into
an onerous settlement by overzealous regulators.200 According to
Judge Rakoff, all this is done at the expense, not only of the shareholders, but also of the truth.201
Judge Rakoffs order was viewed as a rare scuttling of an SEC
settlement, an unprecedented rejection of an SEC settlement,202
and an unusual ruling that casts doubts about how the agency handles
probes of major U.S. companies.203 Others noted that Judge Rakoff
shined a light on what is a puzzling, if not harmful, prosecutorial
discretion on the part of the SEC.204 Judge Rakoffs order was viewed
as a strong, blistering decision and a critique, not just of this case,
but of a long-standing practice at the SEC, which effectively allowed
corporate managers to buy immunity with their shareholders
money.205
In the end, Judge Rakoff did approve the SEC v. BofA settlement,
albeit one containing additional substantive charges and materially
different termsmost notably, a $150 million fine compared to the
954
[Vol. 41
original $33 million fine.206 However, his February 2010 order approving the settlement is grounded in judicial restraint and deference to an
administrative agency and should not be viewed as judicial approval of
the troubling features of SEC enforcement highlighted abovethe
same features present in the SECs enforcement of the FCPA.207 Again,
Judge Rakoff did not mince words as he reluctantly approved the
settlement and stated that the settlement, [w]hile better than nothing, remained half-baked justice, at best.208
2.
Judge Rakoff is not the only federal court judge to recently criticize a
government enforcement agency. While it is beyond the scope of this
article to detail each and every DOJ/SEC litigation defeat, and while it
is indeed true that these agencies do possess a decent batting average
in contested litigation, the agencies have nonetheless suffered several
notable litigation defeats. These recent defeats, often times at the
initial motion to dismiss stage, demonstrate that the enforcement
agencies are vulnerable when their extreme legal positions, such as
those commonly found in FCPA enforcement actions, are contested in
an adversary proceeding and actually subjected to judicial scrutiny.
Mark Cuban
In November 2008, the SEC filed insider trading charges against
Mark Cuban, the flamboyant owner of the National Basketball Associations Dallas Mavericks.209 The SECs complaint alleged that Cuban
violated the securities laws by selling his entire stake in publicly traded
Mamma.com while in the possession of material, non-public information concerning the company.210 In announcing the charges, SEC
officials noted that the case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs,
and that [i]t is fundamentally unfair for someone [like Cuban] to use
206. See Opinion and Order, SEC v. Bank of America Corp., No. 09 Civ. 6829 (S.D.N.Y. Feb.
22, 2010).
207. Id. at 14 15.
208. Id. at 12; 1314.
209. See Complaint, SEC v. Mark Cuban, No. 3-08CV2050-D (N.D. Tex. Nov. 17, 2008),
available at http://www.sec.gov/litigation/complaints/2008/comp20810.pdf; SEC Files Insider
Trading Charges Against Mark Cuban, Litigation Release No. 20810, 94 SEC Docket 1889 (Nov.
17, 2008), available at http://www.sec.gov/litigation/litreleases/2008/lr20810.htm.
210. See Litigation Release No. 20810, supra note 209.
2010]
955
211. Id.
212. SEC Charges Madoff Solicitors With Fraud, Litigation Release No. 21095, 96 SEC
Docket 537 (June 22, 2009), available at http://www.sec.gov/litigation/litreleases/2009/
lr21095.htm; see also Complaint, SEC v. Cohmad Securities Corp., No. 09 Civ. 5680, 2010 WL
363844 (S.D.N.Y. 2010), available at http://www.sec.gov/litigation/complaints/2009/
comp21095.pdf.
213. SEC Charges Madoff Solicitors and Feeder With Fraud, Release No. 2009-141 (June 22,
2009), available at http://www.sec.gov/news/press/2009/2009-141.htm.
214. See Opinion and Order, SEC v. Cohmad Securities Corp., No. 09 Civ. 5680 (S.D.N.Y.
Feb. 1, 2010), available at http://graphics8.nytimes.com/packages/pdf/business/cohmad_order.
pdf.
215. See id. at 4, 9 11.
956
[Vol. 41
216. Press Release, DOJ, Former Broadcom CEO Henry Nicholas and Former CFO
Indicted in Massive Stock-Options Backdating Case (June 5, 2008), available at http://
www.justice.gov/usao/cac/pressroom/pr2008/078.html (last visited Aug. 12, 2010).
217. Id.
218. Id.
219. Ex-CEO of Broadcom Pleads Not Guilty, MSNBC (June 16, 2008), http://www.msnbc.msn.com/id/25195928/ns/business-corporate_scandals/.
220. Nicholas trial was previously delayed until February 2010. See, e.g., E. Scott Reckard,
Trial Begins for Former Broadcom Finance Chief, L.A. TIMES, Oct. 24, 2009, available at http://
articles.latimes.com/2009/oct/24/business/fi-broadcom24; Stuart Pfeifer, Nicholas Trial Delayed
Until 2010, L.A. TIMES, Feb. 3, 2009, available at http://articles.latimes.com/2009/feb/03/business/
fi-nicholas3.
2010]
957
guilty plea and dismissing the criminal charges against him.221 However, he was not yet finished. On December 15, 2009, Judge Carney
read into the record his decision on Ruehles request to enter a
judgment of acquittal because of insufficient evidence and prosecutorial misconduct. Like Judge Rakoff, Judge Carney did not mince words.
He stated:
Based on the complete record now before me, I find that the
government has intimidated and improperly influenced the
three witnesses critical to Mr. Ruehles defense. The cumulative
effect of that misconduct has distorted the truth-finding process and compromised the integrity of the trial. To submit this
case to the jury would make a mockery of Mr. Ruehles constitutional right to compulsory process and a fair trial.222
Accordingly, Judge Carney dismissed the indictment against Ruehle
and entered a judgment of acquittal.223 Judge Carneys decision was
based on two separate, but related groundsthe governments misconduct and insufficient evidence to sustain a conviction.224 Judge
Carney ended the hearing by saying, Mr. Ruehle, you are a free
man.225 Yet, Judge Carney still was not finished. Even though Nicholass trial was a few months away and even though there was no pending
motion to dismiss the charges against him, Judge Carney also dismissed
the indictment against Nicholas.226 Judge Carney was troubled by the
very notion that stock options backdating was even a crime. He stated:
The accounting standards and guidelines were not clear, and
there was considerable debate in the high-tech industry as to
the proper accounting treatment for stock option grants. Indeed, Apple and Microsoft were engaging in the exact same
practices as those of Broadcom.227
In closing, Judge Carney stated:
221.
222.
223.
224.
225.
226.
227.
958
See Pfeifer, supra note 128; see N.Y. Times, supra note 128.
Ruehle Transcript, supra note 130, at 5195.
Id. at 5199.
Id.
Id. at 5209.
Id. at 5199.
Id. at 5201.
[Vol. 41
Now, Im sure there are going to be many people who are going
to be critical of my decision in this case and argue that Im
being too hard on the government. I strongly disagree. I have a
solemn obligation to hold the government to the constitution.
Im doing nothing more and nothing less. And I ask my critics
to put themselves in the shoes of the accused.228
This rather extensive discussion of non-FCPA cases provides a rare
public glimpse into the motivations of settling parties in a government
enforcement action and further assists in understanding the motivations that lead to FCPA resolution vehicles. This discussion of nonFCPA cases also demonstrates that, in the rare instances in which
government enforcement agencies are challenged, the agencies are
vulnerable in contested actions.
Section III of this article returns to the FCPA and highlights four
pillars that contribute to the facade of FCPA enforcement. When
reading of these pillars ask yourself how a Judge Rakoff or a Judge
Carney would view the uninformative, bare-bones statement of facts or
allegations typically found in FCPA enforcement actions, the untested
and dubious legal theories typically found in FCPA enforcement actions, and the lack of transparency and accountability typically found in
FCPA enforcement actions. Ask yourself as well how a Judge Rakoff or
a Judge Carney would react upon learning that seemingly clear-cut
instances of corporate bribery and corruption are resolved without
FCPA anti-bribery charges. In other words, ask yourself how a Judge
Rakoff or a Judge Carney, if given the opportunity, would view the
facade of FCPA enforcement.
IV.
228. Id.
2010]
959
has never violated the FCPA. Rather, this section demonstrates that a
significant majority of recent FCPA enforcement actions are a facade.
The entire universe of FCPA enforcement actions that could contribute to a particular pillar are not discussed, but demonstrative examples
are profiled to support each pillar. Further, many FCPA enforcement
actions could contribute to several pillars, but may only be discussed in
connection with one.229
The first pillar highlights the frequency in which FCPA enforcement
actions are resolved based on uninformative, bare-bones, conclusory
statements of facts or allegations or conclusory legal statements. The
second pillar highlights the increasing trend of FCPA enforcement
actions resolved based on untested and dubious legal theories, as well
as enforcement theories seemingly in direct conflict with the FCPAs
statutory provisions. The third pillar highlights the opaque nature of
FCPA enforcement and how similar enforcement actions, based on the
governments own allegations, are resolved with materially different
charges and penalties. The fourth and most alarming pillar highlights
how seemingly clear-cut instances of corporate bribery, per the governments own allegations, are resolved without FCPA anti-bribery charges.
A. First Pillar: Bare-Bones, Uninformative Facts, and Legal Conclusions
Given the typical resolution vehicles used to resolve FCPA enforcement actions, and the absence or practical absence of any judicial
scrutiny of these vehicles, it is not surprising that public documents
associated with FCPA enforcement actions often contain little more
than uninformative, bare-bones statements of facts replete with legal
conclusions. This is one pillar where picking just a few FCPA enforcement actions to profile is difficult because nearly all FCPA enforcement
actions suffer from such deficiencies.
For instance, in May 2009, the SEC found that United Industrial
Corporation (UIC), a Maryland-based defense firm, violated the
FCPA anti-bribery provisions.230 Even for corporations, the FCPA requires proof of corrupt knowledge and intent for an anti-bribery
violation to be charged.231 However, the SEC findings are entirely
229. The information in this article regarding certain FCPA enforcement actions and related
issues is current as of March 2010.
230. See Corrected Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21c
of the Securities and Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist
Order, Exchange Act Release No. 60005, 95 S.E.C. Docket 2659 (May 29, 2009), available at
http://www.sec.gov/litigation/admin/2009/34-60005.pdf.
231. See 15 U.S.C. 78dd-1(a) (2006); Urofsky & Newcomb, supra note 1, at 14.
960
[Vol. 41
devoid of any suggestions that UIC itself had any involvement in the
foreign payments which were allegedly made by its wholly-owned
subsidiary, ACL, to Egyptian Air Force officials through an agent.232 As
Philip Urofsky and Danforth Newcomb note, although this theory is
not spelled out in the pleadings, the SEC seems to have concluded that
the involvement of ACLs senior executive, Thomas Wurzel (also
charged) and assorted internal control failures that allowed the payments to go forward without significant review by the parent company
was sufficient to establish constructive knowledge by the parent company.233 However, the SECs apparent theory was not tested in court
because the company settled, without admitting or denying the SECs
findings, by agreeing toamong other thingspay approximately
$350,000 in disgorgement (and prejudgment interest).234 This enforcement action suggests that not even the absence of a key FCPA antibribery element will derail a settlement.
The most common and troubling use of bare-bones, uninformative,
legal conclusory statements of facts or allegations is when the enforcement agencies describe the foreign officials involved in the alleged
conduct giving rise to the FCPA violation. As alluded to earlier, and as
described more fully below, the enforcement agencies interpretation
of this key FCPA element to include employees of SOEs is dubious and
has never been subjected to judicial scrutiny. For present purposes,
even if this interpretation would be subjected to judicial scrutiny and
upheld by a court, the vast majority of FCPA enforcement actions still
fail to identify or describe why certain commercial enterprises are
instrumentalities of a foreign government or why certain individuals
are foreign officials under the FCPA.
For instance, in the July 2009 enforcement action against Control
Components, Inc. (CCI) charging anti-bribery violations, the criminal information contains this statement full of legal conclusions:
Defendant CCIs state-owned customers included, but were not
limited to, Jiangsu Nuclear Power Corporation (China), Guohua Electric Power (China), China Petroleum Materials and
Equipment Corporation, PetroChina, Dongfang Electric Corporation (China), China National Offshore Oil Company, Korea
Hydro and Nuclear Power, Petronas (Malaysia), and National
232. Id.
233. Id.
234. Id.
2010]
961
235. Complaint at 5, United States v. Control Components, Inc., No. SACR09-00162 (C.D.
Cal. July 22, 2009), available at http://www.justice.gov/criminal/pr/documents/07-31-09controlguilty-information.pdf.
236. See Press Release, DOJ, Control Components, Inc. Pleads Guilty to Foreign Bribery
Charges and Agrees to Pay $18.2 Million Criminal Fine, (July 31, 2009), available at http://
www.justice.gov/opa/pr/2009/July/09-crm-754.html.
237. PETRONAS, http://www.petronas.com.my/about_us.aspx (last visited Aug. 24, 2010).
238. Id.
962
[Vol. 41
Chinese state-owned or state-controlled telecommunications enterprises . . . .239 Likewise, the SECs complaint charging Oscar Meza, a
former employee of Faro Technologies, Inc., with FCPA anti-bribery
violations is silent as to any factual evidence supporting the theory that
employees of unidentified Chinese state-owned companies are foreign
officials.240
Numerous other examples abound and because there is generally no
threat that these bareboned, uninformative facts or legal conclusions
will ever be subject to meaningful judicial scrutiny, those subject to the
FCPA find little tangible guidance from these settled enforcement
actions. This pillar of the facade of FCPA enforcement matters, because
as discussed in Section IV of this article, enforcement officials routinely
encourage those subject to the FCPA to carefully review FCPA resolution vehicles for insight into the FCPA in order to conform conduct to
the guidance that can be derived (at least in the eyes of the enforcement agencies) from these vehicles.
Bareboned, uninformative facts and legal conclusions are but one
pillar contributing to the facade of FCPA enforcement. This pillar,
while significant, seems small compared to the second pillarthe
increasing and alarming trend of FCPA enforcement actions resolved
based on untested and dubious legal theoriesas well as enforcement
theories seemingly in direct conflict with the FCPAs statutory provisions.
B.
Because the resolution vehicles typically used to resolve FCPA enforcement actions are subject to little or no scrutiny and because of the carrots
and sticks and motivations nudging FCPA defendants to accept these
resolution vehicles, FCPA enforcement actions are routinely resolved even
though many of the enforcement agencies legal theories are untested and
dubious. In addition, as demonstrated fully below, in some cases, the
enforcement theories seem to be in direct conflict with the statute.
Why arent the enforcement agencies untested and dubious legal
theories challenged? Quite simply, businesses subject to the FCPA are
not in the business of setting legal precedent, and for these companies
to even attempt to set legal precedent will result in painful pokes by the
DOJs sticks. As a practical matter, to challenge a DOJ legal interpre-
239. Complaint at 1, SEC v. Lucent Tech., Inc., (Dec. 21, 2007), available at http://
www.sec.gov/litigation/complaints/2007/comp20414.pdf.
240. See Complaint, SEC v. Meza, No. 1:09-CV-01648, 2009 WL 2875827 (D.C. Cir. Aug. 28,
2009), available at http://www.sec.gov/litigation/complaints/2009/comp21190.pdf.
2010]
963
It may surprise many that the majority of recent FCPA enforcement actions have absolutely nothing to do with government officials. Rather, the alleged foreign official is an employee of an
alleged SOE who is deemed a foreign official by the enforcement
agencies. This designation rests on the theory that the foreign
officials employer (even if it is a company with publicly traded
stock and other attributes of private business) is an instrumentality
of a foreign government.
The DOJ has publicly acknowledged that there can be difficult
241. See, e.g., Kenneth Winer & Gregory Husisian, The Knowledge Requirement of the FCPA
Anti-Bribery Provisions: Effectuating or Frustrating Congressional Intent?, 24 WHITE COLLAR CRIME 1, 10
(2009), available at http://www.foley.com/files/tbl_s31Publications/FileUpload137/6535/
FCPAWinerHusisian2009.pdf (Even if the governments application of the anti-bribery provisions of the FCPA is excessively aggressive, no company or individual wants to have to test the
governments application in court.).
964
[Vol. 41
242. See Alexandra A. Wrage, The Latest FCPA Forecast From U.S. Regulators, WRAGEBLOG (Sept. 17,
2009, 2:26 PM), http://wrageblog.org/2009/09/17/the-latest-fcpa-forecast-from-u-s-regulators/.
243. See Breuer, supra note 57.
244. Id.
245. See, e.g., Joel Cohen, Michael Holland & Adam Wolf, Under the FCPA, Who is a Foreign
Official Anyway?, 63 BUS. LAW 1243, 1243 (2008) (Despite the marked increase in high-profile
2010]
965
Foreign Official(s)
Chinese foreign officials including: Traffic
Management Research Institute under the
Ministry of Public Security located in Wuxi,
Jiangsu Province; an official at Henan
Luqiao, a state-owned enterprise; and a
state-owned end user.
Indonesian customs and tax officials.
Pakistani customs officials.247
[FCPA] enforcement activity, it remains unsettled whether the FCPAs definition of foreign
official includes employees of foreign companies that are owned or controlled by those companies governments.).
246. Excluded from the chart are two Iraqi-Oil-For Food enforcement actions involving
AGCO Corporation and Novo Nordisk A/S. See, e.g., Press Release, DOJ, AGCO Corp. to Pay $1.6
Million in Connection with Payments to the Former Iraqi Government under the U.N. Oil-forFood Program (Sept. 30, 2009), available at http://www.foley.com/files/DOJagcopenalty.pdf;
Press Release, DOJ, Novo Nordisk Agrees to Pay $9 Million Fine in Connection with Payment of
$1.4 Million in Kickbacks Through the United Nations Oil-for-Food Program (May 11, 2009),
available at http://www.foley.com/files/NovoDOJRelease.pdf. These actions involved kickback
payments to the Iraqi government not to any particular foreign official and thus the conduct
was not actionable under the FCPAs anti-bribery provisions. Even so, the payments and recording
of the payments still resulted in an enforcement action for FCPA books and records and internal
control violations as well as conspiracy.
247. Complaint at 1, 3-6, SEC v. Avery Dennison Corp., CV09-5493 (C.D. Cal. Jul. 28, 2009),
available at http://www.sec.gov/litigation/complaints/2009/comp21156.pdf.
966
[Vol. 41
Foreign Official(s)
Control Components,
Inc.
ITT Corp.
KBR/Halliburton Co.
The most aggressive application of the enforcement agencies foreign official interpretation would seem to be in the KBR / Halliburton
248. Complaint at 5, United States v. Control Components, Inc., supra note 234.
249. Non-Prosecution Agreement from DOJ Crim. Div. to Kimberley A. Parker, Esq., regarding
Helmerich & Payne, Inc. (Jul. 29, 2009), available at http://www.law.virginia.edu/pdf/faculty/garrett/
helmerich.pdf; SEC Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21c of the
Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, In re
Helmerich & Payne, Inc., Exchange Act Release No. 60,400, 96 S.E.C. Docket 1446 (July 30, 2009) at 3,
available at http://www.sec.gov/litigation/admin/2009/34-60400.pdf.
250. Complaint at 1, 3 4, SEC v. ITT Corp., No. 1:09-CV-00272 (D.D.C. Feb. 11, 2009),
available at http://www.sec.gov/litigation/complaints/2009/comp20896.pdf.
2010]
967
251. United States v. Kellogg Brown & Root LLC, supra note 17, at 6, 7, 10; Complaint at 3-5,
8, SEC v. Halliburton Co., No. 4:09-399 (S.D. Tex. Feb. 11, 2009), available at http://www.sec.gov/
litigation/complaints/2009/comp20897.pdf.
252. Complaint at 2-3, United States v. Latin Node, Inc., No. 09-20239 (S.D. Fla. Mar. 24,
2009), available at http://fcpaenforcement.com/FILES/tbl_s31Publications/FileUpload137/5945/
Item1LatinNode.pdf .
968
[Vol. 41
Foreign Official(s)
Natures Sunshine
Products, Inc.
UTStarcom, Inc.
253. Complaint at 2, SEC v. Natures Sunshine Prods., Inc., No. 2:09CV0672 (D. Utah Jul. 31,
2009), available at http://www.sec.gov/litigation/complaints/2009/comp21162.pdf.
254. SEC Exchange Act Release No. 60005, supra note 28.
255. Non-Prosecution Agreement from the DOJ Crim. Div. to Leo Cunningham, Esq.,
regarding UTStarcom, Inc. (Dec. 31, 2009), available at http://www.law.virginia.edu/pdf/faculty/
garrett/utstarcom.pdf.
256. See NIGERIA LNG LIMITED, http://www.nlng.com/NR/exeres/F48DE9A7-F3F3-4A8E929A-0C34F1CFF92B%2Cframeless.htm (last visited Aug. 12, 2010).
2010]
969
970
[Vol. 41
Section I of this article noted that prior to Kay, the FCPAs key
obtain or retain business element was in flux and subject to much
debate. Section I also examined the equivocal Kay holding and that,
contrary to popular misperception, Kay does not hold that all payments
to foreign officials for the purpose of avoiding customs duties and
2010]
971
sales taxes in a foreign country fall within the FCPAs scope. In fact, the
Kay court specifically noted that payments to secure lower customs and
tax duties, which do not suggest an actual or intended cause-and-effect
nexus to business obtained or retained, or payments that merely
increase the profitability of an existing profitable company, presumably
do not satisfy the obtain or retain business element.
Despite Kays equivocal holding, there has since been an explosion in
FCPA enforcement actions where the improper payments are alleged not
to obtain or retain any particular business, but rather, involve customs
duties and tax payments, or payments alleged to have assisted the payer in
securing foreign government licenses, permits, and certifications. According to the enforcement agencies, such payments generally assisted the
payer in doing business in a foreign country,269 even if only with strictly
private parties. These recent cases are profiled in the chart below.
RECENT FCPA ENFORCEMENT ACTIONS CONCERNING FOREIGN LICENSES,
PERMITS, APPLICATIONS, CERTIFICATIONS, AND CUSTOMS AND TAX DUTIES
Date
Company
Allegation
July 2009
Natures Sunshine
Products, Inc.
July 2009
Helmerich &
Payne, Inc.
269. See, e.g., Urofsky & Newcomb, supra note 1 at 18. (Noting that the Kay holding has set a
powerful precedent that has allowed the government to bring a number of cases against
companies that paid bribes to customs officials to reduce or eliminate duties and taxes in ways that
facilitated the companies ability to do business with private parties in a foreign country.).
270. See Natures Sunshine Complaint, supra note 251, at 1.
271. See Non-Prosecution Agreement, supra note 247 , at 4; Cease and Desist Order at
5-8, In re Helmerich & Payne, Inc., Exchange Act Release No. 60400, 2009 WL 2341649 (June 30,
2009), available at http://www.sec.gov/litigation/admin/2009/34-60400.pdf .
972
[Vol. 41
Company
Allegation
Nov. 2008
Aibel Group
Limited
Participation in a scheme to
make payments to Nigeria
Customs Service officials to
induce those officials to
provide preferential treatment
in the customs clearance
process.272
Aug. 2008
Con-Way Inc.
June 2008
AGA Medical
Corp.
272. U.S. v. Aibel Group Ltd., No. CR H-07-005 22 (S.D. Tex. 2008).
273. See SEC v. Con-Way Inc., Exchange Act Release No. 2866, 2008 WL 3925208 (Aug. 27, 2008);
Cease and Desist Order at 7-10, In re Con-Way Inc., Exchange Act Release No. 58433, 2008 WL
3925200 (Aug. 27, 2008), available at http://www.sec.gov/litigation/admin/2008/34-58433.pdf.
274. Deferred Prosecution Agreement at 4-19, U.S. v. AGA Medical Corp., No. CR
08-172JMR (D. Minn. June 3, 2008), available at http://www.law.virginia.edu/pdf/faculty/garrett/
agamedical.pdf.
2010]
973
Company
Allegation
Feb. 2008
Westinghouse Air
Brake
Technologies
Corp.
Sept. 2007
Bristow Group
Inc.
July 2007
Feb. 2007
The Dow
Chemical Corp.
275. See Non-Prosecution Agreement from DOJ to Eric A. Dubelier, Esq. at 4, regarding
Westinghouse Air Brake Tech. Corp. (Feb. 8, 2008), available at http://www.law.virginia.edu/pdf/
faculty/garrett/wabtec.pdf .
276. Cease and Desist Order, In re Bristow Group Inc., Exchange Act Release No. 56533, 2007
WL 2790630 (Sept. 26, 2007), available at http://www.sec.gov/litigation/admin/2007/34-56533.pdf.
277. See Complaint at 4, SEC v. Delta & Pine Land Co., 2007 WL 2137185 (July 26, 2007) (No.
1:07-CV-01352), available at http://www.sec.gov/litigation/complaints/2007/comp20214.pdf; Cease
and Desist Order at 2-3, In re Delta & Pine Land Co., Exchange Act Release No. 56138, 2007 WL
2140170 (July 26, 2007), available at http://www.sec.gov/litigation/admin/2007/34-56138.pdf.
278. See Complaint at 2, SEC v. The Dow Chemical Co., (D. N.H. Feb. 9, 2007), available at
http://www.sec.gov/litigation/complaints/2007/comp20001.pdf.
974
[Vol. 41
Company
Vetco Gray
Controls, Inc.,
Vetco Gray UK
Limited, Vetco
Gray Controls
Limited
Allegation
Participation in a scheme to
make payments to Nigeria
Customs Service officials to
induce the officials to provide
preferential treatment in
connection with the customs
clearance process and the
avoidance of Nigerian customs
duties and tariffs.279
279. Cease and Desist Order at 2, In re The Dow Chemical Co., Exchange Act Release No.
55281, 2007 WL 460872 (Feb. 13, 2007), available at http://www.sec.gov/litigation/admin/2007/
34-55281.pdf; see Please Agreement at 30, U.S. v. Vetco Gray Controls, Inc., No. 4:07-cr-00004
(S.D. Tex. Feb. 6, 2007), available at http://www.justice.gov/criminal/fraud/fcpa/cases/docs/0206-07vetcogray-plea.pdf.
280. 15 U.S.C. 78dd-1(b), 78dd-2(b), 78dd-3(b) (2000).
2010]
975
281. See, e.g., Good News at Todays OECD Celebration, WRAGEBLOG (Dec. 9, 2009, 2:21 PM),
http://wrageblog.org/2009/12/09/good-news-at-todays-oecd-celebration.
282. See UROFSKY & NEWCOMB, supra note 1, at 13.
976
[Vol. 41
Natures Sunshine
In July 2009, the SEC filed a settled FCPA enforcement action against
Natures Sunshine Products, Inc. (NSP), a Utah-based company that
sells herbal supplements and health products, its CEO, Douglas Faggioli, and former CFO, Craig Huff.283 The SECs complaint alleged that
NSP, through its wholly-owned subsidiary in Brazil, made payments to
customs agents to import certain unregistered products into Brazil,
thereby assisting NSP in obtaining or retaining business in Brazil.284
According to the SEC, the payments were improperly booked by the
subsidiary as importation advances, but without supporting documentation.285 Based on this alleged conduct, the SEC charged NSP with
FCPA anti-bribery and books and records and internal control violations.286
The SEC also charged Faggioli and Huff, as control persons of
NSP, with violating the FCPAs books and records and internal control
provisions even though the SEC did not allege that Faggioli or Huff
directly or indirectly knew of the payments at issue.287 In language sure
to induce a cold sweat for any executive, the SEC merely alleged that
both Faggioli and Huff had supervisory responsibilities over NSPs
senior management and policies; yet, as control persons, they failed
to make and keep books, records, and accounts which, in reasonable
detail, accurately and fairly reflected the transactions of NSP and
failed to devise and maintain an adequate system of internal accounting controls.288
Without admitting or denying the SECs charges, Faggioli and Huff
resolved the matter by agreeing to pay a $25,000 civil penalty.289 A
company press release issued in connection with the settlement states
that no current NSP officers, directors, or employees are alleged to
have participated in or had knowledge of any of the improper conduct
alleged in the SEC complaint.290 The press release notes that NSP,
which agreed to settle the SECs charges without admitting or denying
the allegations by paying a $600,000 civil penalty, voluntarily disclosed
the conduct at issue to both the SEC and DOJ and fully cooperated with
283.
284.
285.
286.
287.
288.
289.
290.
2010]
977
978
[Vol. 41
2010]
979
299. Id. at 8.
300. Id.
301. See SEC Files Settled Enforcement Action Against The Dow Chemical Company for
Foreign Corrupt Practices Act Violations, Litigation Release No. 20000 (Feb. 13, 2007), available at
http://www.sec.gov/litigation/litreleases/2007/lr20000.htm.
302. Complaint at 2, SEC v. The Dow Chem. Co., No. 07-cv-00336 (D.D.C. Feb. 12, 2007).
303. See id.
980
[Vol. 41
Disgorge What?
2010]
981
982
[Vol. 41
314. See Complaint at 1, SEC v. ITT Corp., 1:09-CV-00272 (D.D.C. Feb. 11, 2009), available
at http://www.sec.gov/litigation/complaints/2009/comp20896.pdf.
315. Id.
316. Id. at 7.
317. See SEC Litigation Release 20896, supra note 311.
318. See, e.g., SEC v. First City Fin. Corp. Ltd., 890 F.2d 1215, 1230 31 (D.D.C. 1989).
319. Id. (citations omitted).
2010]
983
984
[Vol. 41
Lucent Technologies, Inc. (Lucent) and the December 2009 enforcement action against UTStarcom, Inc. (UTSI). As explained below,
both enforcement actions involved telecommunications companies,
principally concerned business conduct in China, involved payment of
excessive travel and entertainment expenses, and were resolved through
a DOJ NPA and an SEC settled civil complaint and consent decree.
Despite these similarities, the end results were materially different.
Lucent
In December 2007, the DOJ announced that Lucent had entered an
agreement with the Department of Justice and ha[d] agreed to pay a $1
million fine to resolve allegations that it violated the Foreign Corrupt
Practices Act.324
The agreement was an NPA, which included this statement of
facts;325
From at least 2000 to 2003, Lucent provided approximately 315
trips for Chinese government officials that included primarily
sightseeing, entertainment and leisure. These trips were requested and approved with the consent and knowledge of the
highest Lucent China officials and with the assistance of Lucent
employees in the United States, including at corporate headquarters in Murray Hill, New Jersey. Lucent improperly recorded expenses for these trips in its books and records and
failed to provide adequate internal controls to monitor the
provision of travel and other things of value to Chinese government officials.326
According to the statement of facts, these trips included at least
sixty-five visits to the U.S. by senior level government officials, including the heads of state-owned telecommunications companies . . . and the
leaders of provincial telecommunications subsidiaries.327 These presale trips lasted for two weeks and included brief stops at certain Lucent
324. See Lucent Technologies Inc. Agrees to Pay $1 Million Fine to Resolve FCPA Allegations,
DOJ Release No. 07-1028 (Dec. 21, 2007), available at http://www.justice.gov/opa/pr/2007/
December/07_crm_1028.html.
325. Non-Prosecution Agreement from the U.S. D.O.J Crim. Div. to Martin J. Weinstein,
Esq., Regarding Lucent Technologies (Nov. 14, 2007), available at http://www.law.virginia.edu/
pdf/faculty/garrett/lucent.pdf.
326. Id. app. A at 12.
327. Id. at 2.
2010]
985
facilities, but the majority of the trips consisted of visiting Boston, Las
Vegas, the Grand Canyon and Hawaii for strictly entertainment, travel
and leisure purposes.328 Nevertheless, the trips were entirely paid for
by Lucent at a total expense of $1.3 million.329
Other trips included hosting a Chinese foreign official in California
for two and a half days of sightseeing, entertainment and leisure,
approved by the company after learning of the past and future
revenues associated with this customer and [the] officials decision
making role.330 Another trip included paying for a Chinese foreign
official and his wife and daughter to travel to Thailand and Hong
Kong for a seven-day vacation and the planning for this trip indicated
that the vacation was aimed at influencing the [foreign official] and
strengthening the customer relationship to expand the business
relationship with the customer.331 Other trips included post-sale visits
dubbed factory tours which consisted primarily or entirely of sightseeing to locations such as Disneyland, Los Angeles, San Francisco,
Universal Studios, the Grand Canyon, Las Vegas, tours of Washington
D.C., tours of New York City, and stop-overs in Hawaii.332 According to
the statement of facts, these trips typically lasted fourteen days, cost
Lucent between $25,000 $55,000 per trip, and the officials received a
$500 to $1,000 a day in per diem.333
The statement of facts describes yet additional trips by foreign
officials paid for by the company and cites internal company e-mails
suggesting that the foreign officials employer was a very special case
in light of the fact that Lucent had already received $50 million in sales
from the company and additional business opportunities totaling $2
billion $3 billion existed for the future.334
The statement of facts also indicates that Lucent: (i) paid or offered
to pay for educational opportunities for relatives or associates of
Chinese government officials, some of whom were in a position to
influence Chinas use of Lucent-compatible technologies; (ii) approved payments totaling over $71,000 to cover the tuition and living
expenses of an employee of a Chinese government ministry, who was
obtaining a masters degree in international management when that
328.
329.
330.
331.
332.
333.
334.
986
Id.
Id. at 23.
Id. at 3.
Id.
Id. at 4 5.
Id. at 5.
Id. at 6.
[Vol. 41
335. Id. at 8 9.
336. See Complaint at 1, SEC v. Lucent Tech. Inc., No. 1:04CV01141 (D.D.C. Dec. 21,
2007), available at http://www.sec.gov/litigation/complaints/comp18775.pdf.
337. Id. at 15, 20, 23.
338. See SEC Files Settled Action Against Lucent Technologies Inc. in Connection With
Payments of Chinese Officials Travel and Entertainment Expenses; Company Agrees to Pay $1.5
Million Civil Penalty, SEC Litigation Release No. 20414 (Dec. 21, 2007), available at http://
www.sec.gov/litigation/litreleases/2007/lr20414.htm.
2010]
987
339. See Press Release, DOJ, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of
Foreign Bribery in China (Dec. 31, 2009), available at http://www.justice.gov/opa/pr/2009/
December/09-crm-1390.html.
340. Non-Prosecution Agreement from the U.S. DOJ Crim. Div. to Leo Cunningham, Esq.,
regarding UTStarcom, Inc. (Dec. 31, 2009), available at http://www.law.virginia.edu/pdf/faculty/
garrett/utstarcom.pdf.
341. Id. at app. A at 2.
342. Id. at app. A at 2.
343. Id. at app. A at 1.
344. Complaint at . 2, SEC v. UTStarcom, Inc., No. CV 09-6094 (N.D. Cal.), available at,
http://www.sec.gov/litigation/complaints/2009/comp21357.pdf.
988
[Vol. 41
2010]
989
The fact that the carbon-copy Lucent and UTSI enforcement actions
resulted in materially different charges and penalties contributes to the
facade of FCPA enforcement by suggesting that FCPA charging decisions are not based solely on the facts and law, but less transparent
factors as well.
Both the Lucent and UTSI enforcement actions could also support
the second pillar of the facade of FCPA enforcement given that both
actions involved employees of Chinese SOEs, and thus the individuals
receiving the things of value were foreign officials only under the
enforcement agencies untested interpretation of that term.
Thus far, the pillars contributing to the facade of FCPA enforcement
have primarily focused on enforcement actions where the conduct at
issue is arguably not even an FCPA violation. That there is no judicial
scrutiny of these enforcement actions is troubling. However, even more
troubling and most alarming is the fourth pillar that contributes to the
facade of FCPA enforcement and that is where seemingly clear-cut
instances of corporate bribery, per the governments own allegations,
are resolved without FCPA anti-bribery charges.
D.
347. See DOJ Office of Pub. Affairs, Principles of Federal Prosecution of Business Organizations, Title 9, Chp. 9-28.000, 9-28.1300(B), available at http://www.justice.gov/opa/documents/
corp-charging-guidelines.pdf.
348. Id. at 9 28.1300(A).
990
[Vol. 41
Siemens
In December 2008, the DOJ announced the filing of a criminal
information against Siemens Aktiengesellschaft (Siemens).
Despite being a German company with principal offices in Berlin
and Munich, Siemens became subject to the FCPA because, since
March 2001, its shares have been listed on the New York Stock
Exchange, making it an issuer for purposes of the FCPA.349 Furthermore, as described below, certain Siemens subsidiary companies with
offices in the U.S. participated in the bribery scheme, thus providing an
independent U.S. nexus for FCPA anti-bribery charges.350
According to the DOJ release announcing the charges, over a
six-year period:
Siemens AG made payments totaling approximately $1.36 billion through various mechanisms. Of this amount, approximately $554.5 million was paid for unknown purposes, including approximately $341 million in direct payments to business
consultants for unknown purposes. The remaining $805.5 million of this amount was intended in whole or in part as corrupt
payments to foreign officials through the payment mechanisms, which included cash desks and slush funds.351
The DOJs Acting Assistant Attorney General stated in the release that
the charges make clear that for much of its operations across the
globe, bribery was nothing less than standard operating procedure for
Siemens.352 The Director of the SECs Division of Enforcement stated
in the release that the pattern of bribery by Siemens was unprecedented in scale and geographic reach and the corruption involved
more than $1.4 billion in bribes to government officials in Asia, Africa,
Europe, the Middle East and the Americas.353
At the press conference announcing the charges, senior government
enforcement officials stated that Siemens engaged in a systematic and
widespread effort to make and hide hundreds of millions of dollars in
349. See Complaint at 2, U.S. v. Siemens Aktiengesellschaft (D.D.C. Dec. 12, 2008), available
at http://www.justice.gov/opa/documents/siemens-ag-info.pdf.
350. See id. at 6.
351. See Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign
Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec.
15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.
352. Id.
353. Id.
2010]
991
354. Id.
355. See Siemens Complaint, supra note 348, at 23.
356. Sentencing Memorandum at 11, United States v. Siemens Aktiengesellschaft (D.D.C.
Dec. 12, 2008) available at http://www.justice.gov/opa/documents/siemens-sentencing-memo.pdf.
357. See id. at 12.
358. DOJ Siemens Press Release, supra note 350.
359. The SEC, which also had jurisdiction over Siemens given its issuer status also filed a
settled civil complaint against the company alleging violations of the FCPAs anti-bribery provi-
992
[Vol. 41
considered in resolving the case against Siemens in the way it did was
the collateral consequences that could have resulted from criminal
anti-bribery charges including the risk of debarment and exclusion
from government contracts.360
The DOJ release notes that Siemens, along with its above referenced
subsidiaries, agreed to pay $450 million in criminal fines.361 The SEC
release notes that Siemens, without admitting or denying the allegations, agreed to pay $350 million in disgorgement.362 The combined
$800 million in U.S. fines and penalties, a record in an FCPA case, was
in addition to fines and penalties Siemens paid to settle German
enforcement actions based on the same core conduct.363 Even so, the
total amount of fines and penalties Siemens paid in the U.S. is
substantially less than the fine range allowed under the Sentencing
Guidelines, substantially less than the amount of business Siemens
obtained or retained because of its corrupt conduct, and substantially
less than the bribe amounts Siemens paid.
Although Siemens dodged the more serious criminal FCPA antibribery charges, the company clearly did not escape liability for its
egregious, staggering, and brazen, conduct. Yet the lack of criminal FCPA anti-bribery charges against a company that engaged in a
pattern of bribery unprecedented in scale and geographic reach,
and a company in which bribery was nothing less than standard
operating procedure is startling. If ever a company deserved to be
prosecuted for FCPA anti-bribery violations, it would seem to Siemens.
Yet, the Siemens matter is not the only enforcement action contributing to this fourth pillar of the facade of FCPA enforcement.
BAE
For years, BAE Systems (BAE), a British defense contractor, had
been under intense scrutiny concerning allegations that it had engaged
sions, as well as the FCPAs books and records and internal control provisions. See SEC Files Settled
FCPA Act Charges Against Siemens AG for Engaging in Worldwide Bribery with Total Disgorgement and Criminal Fines of Over $1.6 Billion, Litigation Release No. 20829 (Dec. 15, 2008),
available at http://www.sec.gov/litigation/litreleases/2008/lr20829.htm.
360. See Sentencing Memorandum, supra note 355, at 13.
361. DOJ Siemens Press Release, supra note 350.
362. See Litigation Release No. 20829, supra note 358.
363. Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt
Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15,
2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.
2010]
993
364. See e.g., Frontline: Black Money (PBS television broadcast Apr. 7, 2009), available at
http://www.pbs.org/wgbh/pages/frontline/blackmoney/view/.
365. Complaint at 41, United States v. BAE Sys., No. 1:10-cr-00035-JDB (D.D.C. Feb. 4, 2010),
available at http://www.justice.gov/criminal/fraud/fcpa/cases/docs/02-01-10baesystems-info.pdf.
366. Id.
367. Id. at 43.
368. 15 U.S.C. 78dd-3. BAE does have a wholly owned U.S. subsidiary, BAE Systems, Inc. a
company headquartered in Rockville, Maryland, and thus a domestic concern under the FCPA
and independently subject to the FCPA regardless of any U.S. nexus test being met. See
Complaint, supra note 364, at 2. However, the information alleges that none of the facts in
the information relate or represent any conduct of BAE Systems, Inc. See id.
369. BAE Complaint, supra note 364, at 44.
370. Id. at 45.
994
[Vol. 41
2010]
995
375. Id. at 5.
376. Id. at 9.
377. See Press Release, DOJ (Feb. 5, 2010) (on file with author).
378. Robert Stein, Rule of Law: What Does it Mean? 18 MINN. J. INTL L. 292, 298 99 (2009).
379. See Siemens . . . the Year After, FCPA PROFESSOR BLOG (Dec. 14, 2009, 12:12 EST),
http://fcpaprofessor.blogspot.com/2009/12/siemens-year-after.html.
380. See Sentencing Memorandum, supra note 355, at 11.
381. See Press Release, supra note 377, at 1.
996
[Vol. 41
V.
997
large and small companies in all industries face FCPA risk and exposure.382 Further, given the FCPAs broad reach and applicability to
certain foreign companies and citizens, the facade of FCPA enforcement is a global issue affecting a broad segment of the marketplace.
These are general reasons why the facade of FCPA enforcement
matters are troubling enough in isolation. Yet these reasons pale in
comparison to the specific reasons why the facade of FCPA enforcement matters. This article concludes by identifying three specific
reasons why the facade of FCPA enforcement matters: the absurdity of
resolution vehicles serving as de facto case law; the breeding of overcompliance; and the increasing frequency by which other nations are
modeling enforcement of their own bribery laws on U.S. enforcement
methods and theories.
A. The Absurdity of FCPA Case Law
The facade of FCPA enforcement results in the absurd result that
privately negotiated settlements subject to little or no judicial scrutiny
serve as de facto case law. This negative byproduct of the facade of FCPA
enforcement is problematic to those subject to the FCPA who face a
triple legal whammy in trying to comply with the law in an aggressive
enforcement environment.
The first legal whammy is that several of the FCPAs key elements
are vague and ambiguous. In a rare instance in which an FCPA
enforcement action did result in a judicial decision, the Kay court
found the key obtain or retain business element of an FCPA antibribery violation to be vague and ambiguous.383 As to the FCPAs key
foreign official element, the DOJ has publicly acknowledged that
there can be difficult assessments of who qualifies as a foreign official
under the FCPA.384 Should this element ever be subjected to judicial
scrutiny, it is likely that a court would find it to be vague and ambiguous
as well.
The second legal whammy is the dearth of substantive FCPA case
law. A judge put in the rare position of deciding an FCPA issue recently
noted the surprisingly few decisions throughout the country on the
382. FCPA enforcement actions in 2009 ranged from KBR/Halliburton an oil and gas
company concerning conduct in Nigeria to Natures Sunshine Products Inc., - a nutritional
supplement company concerning conduct in Brazil. See DOJ Press Release, supra note 134.
383. See Kay, 359 F.3d at 743 44.
384. See WRAGEBLOG, supra note 240.
998
[Vol. 41
FCPA over the course of the last thirty years.385 FCPA practitioners,
who must tell clients that, in many cases, the FCPA means what the
enforcement agencies say it means, have noted the lack of substantive
FCPA case law on numerous occasions as demonstrated below:
Although the [FCPA] was enacted more than thirty years ago,
there is little case law addressing many of the FCPAs most
important elements.386 One of the problems with trying to nail
down the requirements of the FCPA is that there is so little
judicial precedent because most companies and individuals
choose to avoid the embarrassment and expense of trial.387
Because of the dearth of adjudicated court decisions related
to the FCPA, settlement agreements containing compromises
that may be acceptable to both sides are also frequently cited as
precedents, including by U.S. enforcement agencies. As a result, terms accepted as conditions of settlement become part of
FCPA jurisprudence, but may not always reflect how a court or
jury would have decided the same issue.388
Unfortunately . . . some of the governments more interesting theories have been announced in settled cases, providing
no opportunity to test the validity of those theories in court.389
Against the backdrop of a largely vague and ambiguous statute and a
dearth of substantive FCPA case law, the gap is filled with the resolution
vehicles typically used to resolve FCPA enforcement actions. The third
whammy then is that the gap filler is a resolution vehicle that is:
privately negotiated; entered into in the context of the enforcement
agencies possessing substantial carrots and sticks; motivated by
issues other than law and facts; and subject to little or no judicial
scrutiny.
Although FCPA resolution vehicles are not legal precedent, and
although they do not necessarily represent the triumph of one partys
legal position over the other, the unfortunate reality in the FCPA
385. See U.S. v. Kozeny, 493 F.Supp. 2d 693, 697 (S.D.N.Y. 2007).
386. Kenneth Winer & Gregory Husisian, Recent Opinion Sheds Light on the Relevance of Due
Diligence to the FCPAs Knowledge Requirement, BNA CORP. ACCOUNTABILITY REP. (Nov. 13, 2009),
http://www.foley.com/publications/pub_detail.aspx?pubid6597.
387. WINER & HUSISIAN, supra note 239.
388. MILLER & CHEVALIER, supra note 372.
389. UROFSKY & NEWCOMB, supra note 1.
2010]
999
390. See The Foreign Corrupt Practices Act: Enforcement Trends in 2010 and Beyond , JONES DAY (Jan.
2010), http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication7005 (The
best method for predicting future enforcement is to undertake a thorough analysis of past FCPA
investigations, prosecutions, and settlements.).
391. See GAO-10-110, supra note 97.
1000
[Vol. 41
1001
Much has been written how statutes with uncertain terms and
uncertain defenses, coupled with sparse judicial interpretation, can
result in overdeterrence.392 When the statute with uncertain terms and
defenses is a criminal statute, such as the FCPA, the risk of overcompliance is greatest. As Professor Miriam Baer (an individual with DOJ,
private practice, and in-house compliance experience393) notes:
Because the current corporate criminal liability standard is so
broad and the collateral consequences of a criminal indictment
are so devastating, entities will attempt to avoid formal charges
ex ante by investing in compliance products intended to impress prosecutors in the future, even if these programs are
more costly than effective. Risk averse corporate managers may
further attempt to avoid entity-based criminal liability by declining beneficial investments simply because they seem too risky.394
The FCPA is Exhibit A for how a criminal law with vague terms and
defenses, coupled with little judicial scrutiny can result in overcompliance. During the facade era of FCPA enforcement, FCPA compliance
has exploded. Seemingly every major law and accounting firm has
FCPA-specific practice groups and an entire compliance industry has
suddenly appeared on the business landscape. These groups are effectively able to market and sell their FCPA compliance services to
business consumers across a wide industry spectrum.395 Seemingly lost
in the aggressive marketing of FCPA Inc., however, is that many of the
compliance services are based merely on the enforcement agencies
392. See, e.g., Mark Lillie & D. Joseph Piech, State Price Gouging Legislation: Compliance
Difficulties and Counterproductive Overdeterrence, THE ENERGY ANTITRUST NEWS (Fall 2009), available at
http://www.kirkland.com/sitecontent.cfm?contentID223&itemId2857 (By combining uncertain standards and unclear defenses with significant potential exposure, many price gouging
statutes create a serious risk of overdeterrence.).
393. See Biography of Miriam Baer, THE BROOKLYN LAW SCHOOL, http://www.brooklaw.edu/
Faculty/Directory/FacultyMember/Biography.aspx?idmiriam.baer (last visited Aug. 12, 2010).
394. Miriam Baer, Insuring Corporate Crime, 83 IND. L.J. 1035, 1036 (2008), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id982594.
395. See Steven Pearlstein, Cashing in on Corruption, WASHINGTON POST, April 25, 2008, available
at http://www.washingtonpost.com/wp-dyn/content/article/2008/04/24/AR2008042403461.html
(For most of the 30 years since the passage of the Foreign Corrupt Practices Act, advising
companies on compliance and, on rare occasions, defending them against prosecution, has been
a niche business in most corporate law firms, part-time work for a partner or two. But these days,
FCPA business is booming, a welcome growth area for Washington law offices just as work on
mergers and securities offerings has begun to wane.).
1002
[Vol. 41
1003
would not appear to fall within the FCPAs scope per the Kay holding,
and many of these payments, in fact, would appear to fall within the
FCPAs express exception for so-called facilitating payments. Yet despite these legally relevant qualifications, because of the facade of
FCPA enforcement, companies fear enterprise-threatening liability
should such seemingly benign payments be made in the abovedescribed circumstances. Risk-averse companies thus respond with
fear-based, not risk-based, FCPA compliance measures.
Another area in which the facade of FCPA enforcement significantly
increases FCPA compliance costs is third-party due diligence. A company can be exposed to FCPA anti-bribery liability indirectly based on
the conduct of its foreign agents under the FCPAs so-called third-party
payment provisions.396 Under these provisions, liability hinges on the
company knowing that a thing of value will be given to a foreign
official by the third-party. Because of the enforcement agencies
controversial application of this knowing standard,397 companies seeking to engage or retain a foreign agent often start from the mind-set
that the foreign agent is corrupt and is an FCPA violation waiting to
happen. Thus, companies often engage in extensive and expensive due
diligence and monitoring of the agent in an attempt to prove the
negative so that if the enforcement agencies ever come calling, the
company can turn over an extensive due diligence file to negate any
knowledge finding.
Such paranoia is unwarranted, yet facilitated by the facade of FCPA
enforcement. No doubt some level of third-party due diligence is
prudent, and if a red-flag does appear as to a foreign agent, companies
should react in an effective and responsible manner. However, the
steroid version of third-party due diligence that many risk-averse
companies have adopted and deployed during the facade era of FCPA
enforcement is simply wasteful. Companies should ask themselves, in
the absence of red flags, why the same level of due diligence for an
agent in Boise is also not effective for an agent in Beijing.398
The increased costs that directly flow from the facade of FCPA
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enforcement are not only front-end FCPA compliance costs, but also
costs associated with how a typical company reacts to ambiguous,
internal allegations of conduct that could potentially implicate the
FCPA.
Because of the carrots offered to a company in an FCPA enforcement action (a topic discussed in great detail in Section II), the typical
path of a corporate FCPA enforcement action is a company voluntarily
disclosing conduct to the DOJ after an extensive and costly internal
investigation. Many of these internal investigations and voluntary disclosures are premised on conduct involving SOE foreign officials or
attenuated payments made to secure foreign licenses, permits, and
certifications.399 Thus, for the reasons stated elsewhere in this article,
the conduct giving rise to the investigation and disclosure may not even
violate the FCPA. However, because of the carrots offered to a
company to voluntarily disclose, and because of the fear of enterprisethreatening liability for perhaps failing to disclose, risk-averse companies routinely disclose conduct to the enforcement agencies notwithstanding the fact that the potential FCPA liability may only be based on
an untested or dubious enforcement theory and regardless of the
existence of ambiguous facts or valid and legitimate defenses. The end
result, in many instances, is that a company deploys teams of lawyers,
forensic accountants, and other professional experts around the world,
at a cost of several million dollars, to investigate conduct or allegations
of conduct that may not even violate the FCPA. In many cases, the cost
of investigating the conduct that may not even violate the FCPA bears
no rational relationship to the underlying conduct.400
The absurdity of FCPA resolution vehicles serving as de facto case law
and the breeding of overcompliance are not the only reasons why the
facade of FCPA enforcement matters.
C.
Modeling
The final reason highlighted in this article for why the facade of
FCPA enforcement matters relates to the increasing frequency by
399. For an example of a company voluntarily disclosing ambiguous conduct to the DOJ that
may not even violate the FCPA, see, FCPA PROFESSOR BLOG, supra note 64.
400. See Team of Plenty, FCPA PROFESSOR BLOG (Jan. 6, 2010, 03:23 PM), http://fcpaprofessor.
blogspot.com/2010/01/team-of-plenty.html (noting that, in connection with one FCPA internal
investigation, the total professional costs exceeded $3 million, even though the conduct at issue
concerned non-material payments made by a companys branch office that represented less than
one-half of one percent of the companys annual consolidated revenue under circumstances that
may not even violate the FCPA).
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401. See, e.g., U.K. Parliaments Joint Committee on the Draft Bribery Bill, available at
http://www.parliament.uk/business/committees/committees-archive/joint-committee-on-thedraft-bribery-bill/ (last visited Aug. 24, 2010).
402. Bribery & Corruption, SERIOUS FRAUD OFFICE, http://www.sfo.gov.uk/bribery
corruption/bribery corruption.aspx (last visited Aug. 24, 2010).
403. Approach of the Serious Fraud Office to Dealing with Overseas Corruption, SERIOUS FRAUD
OFFICE (July 21, 2009), http://www.sfo.gov.uk/media/28313/approach%20of%20the%20sfo%
20to%20dealing%20with%20overseas%20corruption.pdf.
404. See Letter from Richard Alderman, SFO Director, to Marcus A. Asner, Arnold & Porter
LLP (Dec. 7, 2009), available at http://www.arnoldporter.com/resources/documents/
FINAL_ASNER_LETTER.pdf.
405. Cassell Bryan-Low, U.K. Fraud Office Upgrades Foreign-Corruption Fight, The Wall Street
Journal European Edition, Jan. 20, 2010 at 6.
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he has pushed the SFO to move more quickly on cases and sought to
settle deals as an alternative to prosecutions. He is also encouraging
companies to come forward with problems in exchange for more
lenient treatment.406 Thus, one of the pillars contributing to the
facade of FCPA enforcementthe prevalence of NPAs, DPAs, and
pleas, as well as the carrots offered to corporations to enter into such
resolution vehiclesis clearly being constructed on the other side of
the Atlantic as well.
Even more concerning is the clear presence in the U.K. of the fourth
pillar contributing to the facade of enforcement bribery, yet no
bribery given the SFOs recent handling of the BAE matter. By way of
short summary, in 2004 the SFO began investigating whether BAE
made bribe payments to secure the KSA Fighter Deals.407 However, in
late 2006, the SFO was forced to halt its investigation under pressure
from the U.K. government, which cited national security concerns with
the investigation.408
Because BAE also allegedly made bribe payments in numerous other
countries to secure business, the SFO, under a new Director, revived its
investigation of BAE, at least as to non-Saudi issues, including whether
the company paid bribes to secure contracts in various European and
African countries.409 After settlement talks stalledthe conventional
wisdom is that BAE was unwilling to plead guilty to bribery-related
offenses given the collateral effect of the mandatory European Union
debarment provisionsthe SFO pressed ahead with the case.410 The
SFO Director stated in January 2010 that BAE is clearly a very important case and that it is very important that we get it right.411
In late January 2010, the SFO issued a release stating that a former
BAE agent was criminally charged with conspiracy to corrupt and for
conspiring with others to give or agree to give corrupt payments . . .
to officials and other agents of certain Eastern and Central European
governments, including the Czech Republic, Hungary, and Austria as
inducements to secure, or as rewards for having secured, contracts
from those governments for the supply of goods to them, namely
406. Id.
407. See id. For more extensive coverage of the SFOs bungled BAE investigation see Frontline:
Black Money, supra note 363.
408. Id.
409. Id. It was widely reported that the Saudi government threatened to cease its cooperation
on terrorism issues should the investigation of BAEs relationship with Saudi officials go forward.
410. Id.
411. Id.
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412. See Press Release, Serious Fraud Office, Former BAE Agent Charged with Corruption
(Jan. 29, 2010), available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases2010/former-bae-agent-charged-with-corruption.aspx.
413. BAE Systems Plc, SERIOUS FRAUD OFFICE (Feb. 5, 2010), http://www.sfo.gov.uk/pressroom/latest-press-releases/press-releases-2010/bae-systems-plc.aspx.
414. Id.
415. Press Release, BAE Systems, BAE Systems Announces Global Settlement With United
States Department of Justice and United Kingdom Serious Fraud Office (Feb. 5, 2010), available at
http://www.baesystems.com/Newsroom/NewsReleases/autoGen_1101517013.html.
416. See Press Release, Serious Fraud Office, SFO Withdraws Proceeding Against Count
Alfons Mensdorff-Pouilly (Feb. 5, 2010), available at http://www.sfo.gov.uk/press-room/latest-pressreleases/press-releases-2010/sfo-withdraws-proceedings-against-count-alfons-mensdorff-pouilly.
aspx (last visited Aug. 12, 2010).
417. Id.
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ended with a whimper. Just like the message the DOJ sent in resolving
its BAE investigation without any anti-bribery charges, the SFOs message was also that certain companies in certain industriesparticularly
those that sell certain products to certain customersare essentially
immune from bribery charges.
The SFOs handling of the BAE matter and its stated intention of
adopting DOJ enforcement strategies and procedures common in
FCPA enforcement is just one example of why addressing the facade of
FCPA enforcement has global implications.
VI.
CONCLUSION
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