Beyond Balance IV: New Players, Same Playing Field

By Andy Spalding

Serendipity is a wonderful thing. What better segue from my last posting than Wednesday's announcement that Russia has signed the OECD Anti-Bribery Convention. This is a remarkable and important event. I hope we fully understand why.

When the U.S. enacted the FCPA in 1977, it was the only law of its kind in the world. And we were by and large comfortable at the time in our assumed role as the lone ranger of international commercial bribery. When the question arose in congressional debates of whether the statute would put U.S. businesses at a competitive disadvantage, many testified that it would not. Why? Because, they said, when U.S. companies do business overseas, they are only competing against other U.S. companies. We were, or so we then thought, the only game in town.

How quaint that notion now seems. And indeed, within ten years we would come to see that the U.S. had ceased to be monolithic in international business. In 1988, Congress specifically instructed the President to lobby the world’s other capital-exporting nations to adopt similar laws. We would achieve historic success in 1997 in the form of the OECD Convention. And as my prior post explained, we thought at the time that the OECD encompassed all the major players in international business: the U.S., the U.K., Germany, France, Japan.

And now that notion, too, seems quaint. Just as the global business world was once U.S.-dominated, so too was that world once OECD-dominated. But no more. A prominent Asian anti-corruption activist once described the OECD to me as a “wealthy nations club.” How many of the BRICs are full members? Answer:  none.

All the more important, then, that we bring non-member nations within the anti-bribery fold. But why is it important? We have historically spoken of “leveling the playing field,” but this metaphor is deeply business-centric. If multinational corporations are the players in this supposed game, what then are the countries in which they do business? The spectators? Or the turf?

Indeed, what the business community sees as a “competitive disadvantage” is, from the perspective of a developing country, something altogether more harmful. When companies subject to FCPA jurisdiction lose business they are out-competed, and thus displaced, by companies that are not subject to anti-bribery laws. These companies pay bribes and engage in other socially destructive forms of business conduct without fear of penalty. When companies subject to the FCPA are rendered unable to do business, we leave developing countries to be ravaged by foreign competitors whose own governments don’t much care.

But we should care; those who fought so hard to enact the FCPA in 1977, and to amend it in 1998, most certainly did. And if we do indeed care, what does it mean for FCPA reforms? We’ll go there 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.'

Beyond Balance I can be viewed here, Beyond Balance II here, and Beyond Balance III here.

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.

Bodmer Appointed To Board Of Swiss Bank

Hans Bodmer. Photo courtesy of Hyposwiss Private Bank. Bloomberg's David Glovin reported this month that Viktor Kozeny's Swiss lawyer who pleaded guilty in the U.S. to conspiracy to launder money was appointed to the board of "a Swiss bank that the government said he used in the criminal scheme."

Hans Bodmer, 56, helped FCPA fugitive Kozeny move money that was used to bribe Azeri officials. He later provided key testimony against Kozeny's co-defendant Frederic Bourke.

Seven years after pleading guilty to a money-laundering conspiracy, Bodmer is still waiting to be sentenced.

Kozeny is a fugitive living in the Bahamas. He won court decisions there blocking his extradition to the U.S. The Bahamas attorney general has appealed to the Privy Council in London, where Kozeny's extradition is now pending.

According to Bloomberg's Glovin, "Hyposwiss Private Bank Zurich announced Hans Bodmer’s appointment in a June 6 press release that didn’t mention his 2004 guilty plea in Manhattan federal court or his testimony at the 2009 bribery trial."

“Mr. Bodmer’s case, dating back nearly 10 years, did not involve any violations of Swiss law,” Bodmer’s U.S. lawyer, Saul Pilchen, told Bloomberg. “The appointment by Hyposwiss shows the bank’s well-placed confidence in his integrity as well as his business judgment.”

A bio on the bank's site says:

Hans Bodmer is a founding partner of Zurich-based law firm BodmerFischer Ltd. and his principal speciality is International Commercial Law. After studying at the University of St.Gallen as well as at the University of San Diego (Master of Law) he worked in various law firms at home and abroad. Apart from working as an attorney, he occupies various leadership roles in the field of sports. Since 2011 he has been a member of the Board of Directors of Hyposwiss Private Bank Geneva.

A New York federal grand jury indicted Bodmer in 2003 on single counts of conspiracy to violate the FCPA and to launder money. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to Bodmer, who was "a non-U.S.-resident foreign national who served as an agent of a domestic concern." After the judge dismissed the FCPA conspiracy charge, Bodmer pleaded guilty in October 2004 to conspiracy to launder money.

He was released on bail of $1.5 million and allowed to return to Switzerland.

Bodmer's detailed testimony helped a jury convict Bourke in July 2009 of conspiracy to violate the FCPA and lying to FBI agents. Bourke was sentenced to a year and a day in prison. He's free on bail while he appeals his conviction.

Bourke's lawyers have charged that prosecutors knew some of Bodmer's testimony would be false but put him on the stand anyway. In a filing asking for a new trial, Bourke's attorneys said:

The recent oral argument in [Bourke's appeal in the] Second Circuit revealed a startling fact, previously unknown to the defense: The prosecution knew before key government witness Hans Bodmer testified that flight records from Viktor Kozeny's plane refuted Bodmer's account of the February 6, 1998 "walk talk" with defendant Frederic A. Bourke, Jr. Despite this knowledge, the prosecution presented Bodmer's false testimony, buttressed it with his time records and Rolf Schmid's redacted memorandum, and built its theory of the case around a chronology it knew to be wrong.

The judge hasn't ruled on Bourke's request for a new trial.

Bodmer faces ten years in prison on the money-laundering conspiracy charge. Because of his guilty plea and cooperation with the DOJ in Bourke's prosecution, his sentence will likely be much lighter. He's expected to be a key witness if Kozeny is extradited and tried in the U.S.

If The FCPA Is Sick, Judicial Review Is The Medicine

Professor Ellen S. Podgor: Give corporate defendants a good-faith defenseThe hearing in the House about the FCPA on Tuesday was a testy affair, with some serious debate and some less serious political theater.

Mike Koehler's excellent coverage is here. As he said, "It bears noting that the last time Congress enacted significant FCPA amendments, the process took eight years and the statute was amended, not through a stand-alone bill, but through Title V, Subtitle A, Part I of the Omnibus Trade and Competitiveness Act of 1988."

Our view? Business people and lawyers have a legitimate gripe. But as we said three years ago, the problem isn't the FCPA or the DOJ. It's respondeat superior -- the legal doctrine by which companies are strictly liable for crimes committed by most employees acting within the scope of their employment. 

That doctrine prevents corporations from mounting serious defenses against enforcement. That's why there hasn't been a public-company defense against the FCPA in more than twenty years.

Without judicial review, the DOJ calls all the enforcement shots. That's unfair and inconsistent with our criminal justice system. It's also why problems with the text and interpretation of the FCPA are never solved. Instead they fester, causing frustration in the business and legal communities.

Three years ago this week, we said as long as respondeat superior is the law of the land, corporations won't be mounting any defense to potential criminal charges under the FCPA. They can't win in court so they won't even try. That puts the prosecutors in full control. They know an FCPA criminal indictment waved in front of a defenseless corporation inevitably leads to a plea deal -- usually a hefty financial penalty and a deferred or non-prosecution agreement on terms dictated by the DOJ.

As we said then, the fix is easy. Professor Ellen Podgor proposed a "good faith" defense for corporations charged for criminal acts of rogue employees. That, she said, would be similar to the application of the analogous civil-law defense. It would let corporations defend themselves based on their own good-faith compliance efforts. That would allow them a measure of justice and give them the strongest possible incentive to maintain an effective compliance program. Everyone would win.

One of the six amendments to the FCPA the U.S. Chamber of Commerce wants would create a "compliance defense." That's Podgor's idea.

Congress should make that change and forget the rest. Letting companies defend themselves would bring fairness to FCPA enforcement. It would also give the courts a chance to solve the other problems with the statute's words. And that's what courts are for.

Bourke Witness Faces Sentencing

Hans Bodmer, a key witness against Frederic Bourke, faces sentencing today in federal court in Manhattan for conspiracy to launder money. Photo by edenpicturesHans Bodmer, the Swiss lawyer who once represented Viktor Kozeny and provided key testimony against Frederic Bourke, may learn his sentence today. He's scheduled to appear in U.S. federal district court in Manhattan before Judge Shira A. Scheindlin, who oversaw Bourke's trial last summer.

Bodmer was indicted by a New York federal grand jury in August 2003 on single counts of conspiracy to violate the Foreign Corrupt Practices Act and to launder money. A copy of the indictment can be downloaded here. The court dismissed the FCPA charge, ruling that before being amended in 1998, the FCPA didn't apply to non-U.S.-resident foreign nationals who served as agents of domestic concerns. Bodmer then pleaded guilty in October 2004 to conspiracy to launder money.

He was released on bail of $1.5 million, including $1.45 million in cash first held at the Royal Bank of Scotland in London and later transferred with Judge Scheindlin's consent to Thurgauer Kantonalbank in Switzerland.

Bodmer faces ten years in prison on the money-laundering conspiracy charge. Because of his guilty plea and cooperation with the DOJ in the prosecution of Frederick Bourke, his sentence will be much lighter.

Bloomberg's David Glovin gave this account of Bodmer's June 2009 appearance for the prosecution at Bourke's trial:

Bodmer, who is testifying for prosecutors in exchange for leniency and admits knowing of the bribery scheme, testified yesterday that he told Bourke about the payments. . . .

[S]peaking methodically through a thick German accent, [he] told jurors he was surprised when Bourke asked him about the “arrangement” [to pay Azeri officials bribes] because it was a “sensitive matter.” After getting permission from Kozeny, Bodmer said he outlined the scheme. Justice Department lawyer Robertson Park asked Bodmer how Bourke responded.

“No specific response,” Bodmer testified.

Bourke was convicted in July 2009 of conspiracy to violate the FCPA and lying to FBI agents. Judge Scheindlin sentenced him to a year and a day in prison. He's free on bail while he appeals his conviction.

Bodmer's one-time client, Czech-born Victor Kozeny, is the best-known FCPA fugitive. Last month he won a decision in a Bahamas appellate court that continues to block his extradition to the U.S. He's lived in the Bahamas for about ten years. A federal grand jury in Manhattan indicted Kozeny in May 2005 for a plot to bribe Azeri leaders to gain control of the state oil company. His co-defendant Bourke was accused of investing in the scheme despite knowing Kozeny planned to use bribes.

[Editor's note: Bodmer's sentencing was postponed today until August 23, 2010.]