We're With You On This One, Prof Koehler

Scholarship at its best can change things. It can cause judges to take a fresh look and lawmakers to fix problems. We hope Mike Koehler's new scholarship will do just that.

Koehler, an assistant professor of business law at Butler University, writes the excellent FCPA Professor blog. His latest work tackles the good faith defense for FCPA offenses.

As things now stand, the good faith defense doesn't exist. Koehler thinks it should.

Current U.S. law holds that if an employee violates the FCPA, his or her company is automatically responsible. It's called the doctrine of respondeat superior. Even if the employee went rogue, broke the company's own rules, and hid everything from others, the company is still on the hook. It can't fight and win so it settles. It may get 'sentencing credit' in the settlement for its compliance program. But it still usually has to admit wrongdoing and pay a big penalty.

Koehler wants to change that. In his opening paragraph, he gets right to it:

This article asserts that the current FCPA enforcement environment does not adequately recognize a company’s good faith commitment to FCPA compliance and does not provide good corporate citizens a sufficient return on their compliance investments. This article argues in favor of an FCPA compliance defense meaning that a company’s pre-existing compliance policies and procedures, and its good faith efforts to comply with the FCPA, should be relevant as a matter of law when a non-executive employee or agent acts contrary to those policies and procedures and in violation of the FCPA. This article further argues that a compliance defense is best incorporated into the FCPA as an element of a bribery offense, the absence of which the DOJ must establish to charge a substantive bribery offense.

We agree with Prof Koehler on the need for the good faith defense. It would give companies the best incentive to work hard at compliance. And if there's a downside to more compliance, we don't see it.

Mike Koehler's "Revisiting a Foreign Corrupt Practices Act Compliance Defense" (January 10, 2012), Wisconsin Law Review, forthcoming, can be downloaded at SSRN here.

Still No Verdict, Africa Sting Jury Off Till Monday

The jury in the second Africa sting trial didn't reach a final verdict Thursday and has gone home until Monday.

The jury today asked for records and tapes of phone calls for one of the defendants but then went silent. It started deliberating two weeks ago.

The defendants are R. Patrick Caldwell, John Mushriqui, Jeana Mushriqui, John Godsey, and Marc Morales. A sixth defendant, Stephen G. Giordanella, was acquitted in the case last month before it went to the jury.

On Tuesday, the jury told federal district judge Richard Leon that they had reached a unanimous verdict on certain counts (which means specific defendants) but were deadlocked on other counts. The judge sent the jury back for more deliberations instead of accepting a partial verdict.

The first Africa sting trial ended in September with a hung jury, forcing Judge Leon to declare a mistrial. The DOJ has said it will retry Pankesh Patel, Andrew Bigelow, John Benson Weir, and Lee Allen Tolleson.

Beyond Balance II: Rediscovering the FCPA’s Original Purpose

By Andy Spalding

To understand where the FCPA should go from here, we need to understand where, and how, it began. 

We generally think of the FCPA as a response to Watergate, and therefore designed to prevent corporations from participating in public corruption. That story is true, but it is only half the truth. We forget that the FCPA was also a response to a foreign policy crisis, and is endowed with an important foreign policy purpose.  

In the early 1970s, at about the same time the Watergate scandal was breaking, we learned that a U.S. defense contractor had bribed a number of foreign officials in Italy, Japan, and the Netherlands. The geopolitical context of the time -- particularly the Cold War -- would very much shape our response. As the legislative history reflects, we feared that such revelations confirmed the communists’ portrait of the greedy, socially-destructive capitalist. And they did. 

We further feared losing our credibility as proponents of liberal democracy and, in turn, losing allies overseas. We believed that a law prohibiting the bribery of overseas officials for business purposes -- the first law of its kind in the world -- would help build economic and political alliances with developing countries. By encouraging ethical business, we would represent the best of democratic values and, through our example, bring other nations to our side.

The FCPA, then, was an alliance-building instrument. And we believed that the instrument would work only to the extent that we remained engaged with countries in transition. We would promote transparency specifically, and democracy generally, by our ethical business practices in the developing world.

I will argue in my next post that our enforcement regime today is not fully consistent with this fundamental, and defining, policy goal.  Rather, mounting empirical data demonstrates that the FCPA now functions in a way that would surprise and disturb many of those who most forcefully advocated for its enactment. The FCPA reform debate should begin by looking at the empirical data, and then asking which reforms might enable the statute to more fully achieve its original purpose. That’s where we’ll go next.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world. He can be contacted here.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance' in a series of posts.

Beyond Balance I can be viewed here.

Busting Graft For Profit

By Benjamin Kessler

Michael Hershman, left, president of The Fairfax Group, helps public and private sector clients integrate core principles of social responsibility into their everyday practices.

In a 2010 talk to law students at Pepperdine University, Hershman described an instructive experience he had at Siemens AG in the late nineties:

They asked me to come in and talk about how they could do business going forward…I met with 20 of their top executives, and I gave what I thought was a rousing lecture for two hours…At the end, I asked for questions. There were none. Of the 20 people seated around that table, half went to jail.

After the Siemens bribery scandal broke, the company appointed Hershman to assist in the creation of its anti-corruption program.

The Virginia-based Fairfax Group has a network of staff and contacts that extends to more than ninety countries.

In addition to taking a direct role in influencing public policy, Hershman believes that pressure from for-profit institutions can be crucial to defeating corruption. He said,

Corporations are better positioned to deal with corruption than governments, particularly publicly listed multinationals. They have lots of checks and balances that should prevent corruption. When we bring multinationals together with other private sector companies to work in collaboration, we can start putting pressure on governments to help lower their risk of corruption.

Hershman’s CV includes work as a counterterrorism agent with U.S. Military Intelligence in the late 1960s, as well as a senior staff investigator for the Senate Watergate Committee. Immediately prior to founding The Fairfax Group in 1983, Hershman served as deputy auditor general for the Foreign Assistance Program of the U.S. Agency for International Development (AID).

His public-sector work continues today. In 2011, he traveled to Malaysia four times to supervise the implementation of groundbreaking initiatives such as an online database of corruption offenders and new whistleblower-protection legislation.

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Benjamin Kessler is an editor and writer for Ethics 360. He can be contacted here.

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This post is part of our series profiling global compliance leaders. Most appear on our sponsor Ethisphere’s annual list of the 100 Most Influential People in Business Ethics.

Beyond Balance: Reframing the FCPA Reform Debate

By Andy Spalding

Thanks again to the FCPA Blog for sharing its space with me at this, a crucial point in FCPA history. Readers of this blog well know that since enacting the statute in 1977, we have amended it only twice -- in 1988 and 1998. We may now be gearing up to do so again. 

But the current FCPA reform debate is hindered, indeed paralyzed, by a false dichotomy -- namely, the dichotomy between the dual goals of combating corruption and encouraging international business. An enforcement regime that is carefully tailored to the world in which we now do business, and that achieves the FCPA’s underlying purpose, requires finding a way out of this dichotomy.

Leading the reform movement, the U.S. business community contends that the scale which balances the interests of business against the goals of anti-corruption reform has tipped too far.  Specifically, they complain that an unpredictable and unfair enforcement regime is increasingly causing them to forgo otherwise profitable opportunities. Their declared aim in reforming the FCPA is “restoring balance” to that supposed scale.

The anti-corruption camp retorts that any such reforms would merely scale back anti-bribery enforcement, compromising ethics and good governance for the sake of mere profits. They contend that measures to make the FCPA less hostile to business, thereby freeing up corporations to do business in bribery-prone countries, will tend to undermine the anti-corruption effort.  Lurking behind the pleas for due process, they see thinly-veiled profiteering. This camp will generally deny that the FCPA is causing losses to U.S. business; but if forced to concede it, they’ll argue that the business we lose is business we shouldn’t be engaged in at all.

Both sides thus tend to suggest that the reform debate is a zero-sum game. If we amend the FCPA to make it more business-friendly, we’re compromising the cause of combating corruption; if we support anything like the proposed amendments, we are tipping the scale in favor of business at the expense of the anti-corruption effort.  This metaphor of the scale now controls the debate; all we seem to talk about is what constitutes the right “balance.”

This dichotomy between the interests of business and the goals of anti-corruption reform is false, in two ways. It is inconsistent with the original vision of the FCPA, which most certainly was not premised on some sort of balancing act between combating corruption and encouraging international business. And it is inconsistent with a realistic understanding how anti-bribery laws now function in the world -- a world that has changed dramatically and irreversibly since 1977 or even 1998. A more effective debate on FCPA reforms requires moving beyond the metaphor of a balanced scale. To begin, we should go back to the historical context that first gave rise to the FCPA, where we’ll rediscover the statute’s founding purpose. If we start there, we will find ourselves in a different place than we are now. 

And as I will endeavor to show, it is a better place. More to come.

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Andy Spalding teaches international business law at the Chicago-Kent College of Law; effective June 1, he’ll be an Assistant Professor at the University of Richmond School of Law. A former Fulbright Senior Research Scholar and lawyer at a major international firm, he has lectured and conducted research on anti-corruption law throughout the developing world.

We're grateful to Professor Spalding for allowing us to serialize 'Beyond Balance' in a series of posts, beginning with this one.