Can an employee be charged with a criminal violation of the Foreign Corrupt Practices Act even if his or her company isn't convicted of an FCPA offense? Yes. An employee can be prosecuted under the FCPA even if the employer hasn't been convicted. But -- and this is why the question is still asked -- the answer hasn't always been yes. Here's the story.
When Congress first debated criminalizing overseas public bribery, there was concern, especially at the Securities and Exchange Commission, that employees would become scapegoats for bribe-paying corporations. Congressman Bob Eckhardt championed the issue, and in 1977 called for testimony from Harvey Pitt, who was then general counsel of the SEC. Pitt, using the term "agent" to mean "employee," explained the SEC's concern this way:
"Indeed, the corporation's interest might even be in conflict with that of the agent. The corporation might desire to have Joe Bloke found to have intentionally engaged in bribery and to have been the sole moving agent, that is, the company never agreed to it and the quicker they can convict Joe Bloke, the better off the company is. It is relieved of responsibility and it has a sacrificial lamb in Rome and everybody forgets about the activity."
Congressman Eckhardt responded by inserting into the FCPA language requiring the government to convict an issuer or domestic concern of violating the FCPA's antibribery provisions as a condition precedent for holding any employee responsible. When the FCPA became law, it included at Section 78ff(c)(3) the following italicized language (known as the Eckhardt Amendment): "Whenever an issuer is found to have violated section 78dd-1(a) of this title, any employee or agent of such issuer who is a United States citizen, national, or resident or is otherwise subject to the jurisdiction of the United States (other than an officer, director, or stockholder of such issuer), and who willfully carried out the act or practice constituting such violation shall, upon conviction, be fined not more than $10,000, or imprisoned not more than five years or both."
That solved the problem for the SEC. For the Department of Justice, however, the seemingly simple fix had disastrous consequences -- first seen publicly in a case called U.S. v. McLean, 738 F.2d 655 (5th Cir. 1984), cert. denied, 470 U.S. 1050 (1985). George McLean's employer, International Harvester Company, was the dominant worldwide supplier of turbine equipment for the oil and gas industry. After a U.S. grand jury's investigation into overseas bribery, McLean was charged in 1982 with conspiring to bribe officials at Mexico's state-owned Petroleos Mexicanos ("Pemex") and with 43 substantive FCPA counts of aiding and abetting the bribery. Also in 1982, Harvester entered into a plea agreement with the DOJ, admitting to one count of conspiracy to violate the FCPA. In the plea agreement, the government stipulated that Harvester wouldn't face further charges related to the sales to Pemex.
McLean, in his trial, then moved to dismiss all the charges against him. He said that under the Eckhardt Amendment, the government's failure to convict Harvester of any substantive FCPA violation barred his prosecution for any FCPA-related offenses. The federal district court agreed as to the 43 substantive counts against McLean, which were dismissed, but denied his motion to dismiss the conspiracy charge. Harvester, the trial court said, had pleaded guilty to conspiracy to violate the FCPA; therefore the government could prosecute McLean for conspiracy as well.
On appeal (in which McLean represented himself), the Fifth Circuit disagreed. It said the conspiracy count must also be dismissed. That ended the government's case against McLean. "[I]n order to convict an employee under the FCPA for acts committed for the benefit of his employer," the appellate court said, "the government must first convict the employer. Because the government failed to convict Harvester [of a substantive FCPA count] and under the plea agreement will be unable to indict Harvester and try it with McLean, the [FCPA] bars McLean's prosecution."
The DOJ faced an awful dilemma. It now had to obtain criminal convictions against companies for substantive FCPA offenses before it could bring FCPA charges against their employees. But even in the early 1980s, the DOJ recognized and feared the disproportionate damage corporate prosecutions could unleash -- best illustrated some 20 years later by Arthur Andersen's demise after a felony conviction (later overturned) and the loss of some 85,000 jobs. Clearly the Eckhardt Amendment -- intended to fix one problem for the SEC -- had caused an even worse problem for the DOJ. The fix needed to be fixed.
Relief came through the Trade and Competitiveness Act /Foreign Corrupt Practices Act Amendments of 1988. It repealed the Eckhardt Amendment language, and from then till now there's been no "condition precedent" to the government's prosecution of employees for FCPA offenses. What about the SEC's fear that employees would become sacrificial lambs for bribe-paying companies?
Some white collar criminal defendants will always feel sacrificed. That's unavoidable. But have corporations really slipped the noose for their FCPA violations by selling out their employees? Well, lots of companies have escaped criminal conviction through deferred prosecution agreements, and those agreements typically do require cooperation with the DOJ's efforts to prosecute employees. But are the companies getting off lightly? Not really.
Deferred prosecution agreements usually impose stringent compliance obligations, some of which -- like the appointment of monitors, waiver of attorney-client privilege, periodic reporting to the DOJ, and the like -- are financially burdensome and even punitive, as well as intrusive. They're also generally effective at preventing recidivism. At the same time, while individuals have been prosecuted for FCPA violations, there's been no flood of cases against employees in lieu of corporate enforcement actions.
The balance, then, seems healthy. Bribe-paying companies are being punished (if not convicted) for their criminal behavior, but they're also being allowed to survive. Meanwhile, employees who blatantly flout the FCPA are also held accountable for their crimes.
View the Foreign Corrupt Practices Act Amendments of 1988 here.
View U.S. v. McLean, 738 F.2d 655 (5th Cir. 1984), cert. denied, 470 U.S. 1050 (1985) in the Public Library of Law (by free registration) here.