Solving The Problem of Gifts, Meals, and Entertainment Expenses

By Michael Volkov

Last week on Corruption, Crime & Compllance, I wrote that the increase in FCPA enforcement has led to 'mass hysteria,' whipped up by lawyers and others.

But there's a shortage of practical solutions, especially when it comes to gifts, meals and entertainment expenses.

In my post, I suggested an approach that is less technical and more common-sense based. 'Negligent conduct,' I said, 'does not mean criminal conduct. Mistakes are not criminal.'

I hope readers of the FCPA Blog will find the post useful.

It can be found here.

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Michael Volkov is the primary contributor to Corruption, Crime & Compliance. He's a former federal prosecutor and now a partner at Mayer Brown LLP in Washington, D.C. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

Scholarship That Rocked The Boat

A few years ago, after a dozen or so enterprising law students asked me what FCPA-related topics were ripe for research, I answered with a post on the FCPA Blog.

My suggestions included: (1) respondeat superior—the legal doctrine imputing to corporate employers the criminal acts of employees; (2) the sad state of the Department of Justice’s Opinion Procedure Releases; and (3) the confusing condition of the FCPA’s promotional-expenses affirmative defense.

That was in the summer of 2008, six months before the blockbuster Siemens enforcement action and before the general explosion of FCPA enforcement. But law students, especially those editing and writing for law reviews, are always ahead of the curve. They can somehow sniff out the next big practice area. This time they were right again.

By the end of 2010, FCPA enforcement had increased tenfold and criminal penalties in FCPA-related cases amounted to half of all criminal penalties collected by the DOJ that year. . . .

-- From Courageous Correspondents: Recent Foreign Corrupt Practices Act-Related Scholarship that Rocked the Boat by Richard L. Cassin, 46 New Eng. L. Rev. On Remand 21 (2011), © 2011 New England School of Law, Boston, Massachusetts, available here.

Amend The FCPA Or Leave It Alone? Game On

By Elizabeth K. Spahn

A powerful, detailed rebuttal to the U.S. Chamber of Commerce’s proposals to amend the U.S. FCPA  launched this month. Professorial powerhouses David Kennedy (Harvard Law School) and Dan Danielsen (Northeastern School of Law) issued their 84 page analysis, Busting Bribery: Sustaining the Global Momentum of the Foreign Corrupt Practices Act.

“At no time since the passage of the FCPA has global [anti-bribery] support …been as strong. This is not the time to turn back.” (p. 5. Also see table of global laws p. 21.) Their primary thesis is that the Chamber’s proposals would create massive loopholes, setting back decades of global anti-bribery progress, signaling that the U.S. commitment to bribery reform is wavering just as the rest of the world is beginning to take effective measures against corruption. (p. 27 – 28) 

The Chamber’s 6 proposals are analyzed in depth, complete with detailed rebuttals and ample citations.  Allegations of prosecutorial overreach are deemed speculative (p. 28), chimerical (p. 29) and supported by no actual evidence (p. 28). Busting Bribery rebuts allegations of excessive fines, showing that average fines have remained stable over the last decade with the exceptions of the Siemens and Halliburton cases (p. 15). Claims that U.S. corporations are victims of excessive prosecutorial zeal are rebutted  by evidence that 8 out of the top 10 FCPA settlements were against foreign corporations (Table, p. 12) accounting for 80% of the penalties. (p. 25)

Claims by the Chamber that the FCPA is overly strict as compared to other anti-bribery laws, particularly the new U.K. Bribery Act, are also very thoroughly examined. “..our FCPA is no longer the most restrictive national statute. Indeed, the only point on which the FCPA is broader that the OECD Convention is its inclusion of corrupt payments made to candidates for office or to political parties.” (p. 23)

In fact, the U.K. law is substantially more rigorous as well as broader in coverage than the FCPA. The U.K. law criminalizes receiving bribes (as well as paying bribes), criminalizes bribery to private parties (as well as public officials), and has no exception for facilitation payments, promotional or hospitality expenses. (p. 23 – 24).

The much ballyhooed compliance defense under the U.K. law should not be incorporated in the FCPA, according to the Busting Bribery report. Under the U.K. act, “…the affirmative defense of ‘adequate’ compliance procedures is only available with respect to a new and very broad strict criminal liability offense…” (p. 31). The FCPA does not currently have strict liability for bribery offenses, instead requiring proof of mens rea. Busting Bribery has a thorough discussion of the various mens rea requirements under current FCPA law at pages 38 – 42. “Any compliance program that knowingly permitted…or turned a blind eye to corrupt, intentional violations of the FCPA must be either per se inadequate or not undertaken in good faith.” (p. 30). The U.K. act does not provide a compliance affirmative defense for those offenses which include a mens rea requirement equivalent to the FCPA. (p. 31). Furthermore the U.S. FCPA already factors in good compliance programs at every stage, from investigations through the Sentencing Guidelines. (p. 29 – 33)

Busting Bribery takes on the Chamber’s proposal at every level from parsing the most technical legal analysis to challenging the Chamber’s hyperbole based on exaggerated evidence. Kennedy and Danielsen are both very serious long established legal scholars with impressive analytical horsepower. This is going to be quite a show. Game On.

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Elizabeth K. Spahn is a professor at New England Law Boston, where she's been on the faculty since 1978. She spent eighteen months as a Fulbright professor at Peking University Law School and the Beijing Foreign Studies University in China during 1999–2000. In 2005, she received a Fulbright senior specialist grant to lecture in Chongqing, China. She has written on international bribery, corruption, and money laundering, international women’s issues, and the development of Chinese law. She attended the United Nations Population Conference in Cairo, Egypt, in 1994 and represented the Feminist Majority Foundation at the United Nations Fourth World Conference on Women in Beijing, China, in 1995. Professor Spahn can be contacted here.

Legislative Changes to the FCPA: What Can We Expect?

Michael Volkov testifies before the Senate Judiciary Committee on FCPA EnforcementBy Michael Volkov
 
At the November 30, 2010 hearing before the Senate Judiciary Committee on FCPA Enforcement, Senators Klobuchar (D-MN) and Coons (D-DE) both indicated their intent to work on modifications to the Foreign Corrupt Practices Act to address some of the concerns raised by the business community.
 
They are close to introducing a bill. What will the bill do?  It may be a mixed bag of modifications, some that business like and some they may not. I expect the bill to include: (1) a “de minimis” exception for in-kind  gifts or other benefits which would create some type of safe harbor for gifts and hospitality; (2) a clarification of the term “instrumentality” as part of the definition of “foreign official” to reduce the application of the FCPA to private businesses which are partially owned by foreign governments.
 
Senators Klobuchar and Coons have indicated their concern that companies convicted of FCPA “conduct (not necessarily the specific offense to which they plead guilty (e.g. BAE’s plea to a false statement offense).  Congress has proposed modifications of the law to provide mandatory debarment of companies convicted of an FCPA offense. The House passed such a bill last year but the proposal died in the Senate. Senators Klobuchar and Coons may include such a proposal in their bill. 
 
What are the prospects for Congress to enact the bill? I think extremely low. Senate Judiciary Committee Chairman Leahy is unlikely to push such a bill.  Business may get more traction in the House, and I expect the House Judiciary Committee to hold a hearing on the subject. Whether it will turn into legislation or not, is not clear. Nor is the prospect for such a change likely to occur in the House.
 
The proposed legislation, however, is intended for another audience – the Justice Department. The hope is that as support gathers behind legislation and hearings that the Justice Department may address some of the problems identified by business by clarifying and changing its prosecution policies.  I will keep you posted on developments in this fast changing area.
 
Michael Volkov is a partner at Mayer Brown LLP in Washington, D.C. His practice focuses on white collar defense, compliance and litigation. He regularly counsels and represents clients on FCPA and UK Anti-Bribery Act issues. He can be contacted here.

Promotional Expenses: Corrupt But Reasonable?

When Kyle Sheahen wrote in this space about how useless the FCPA's two affirmative defenses are, he kicked up a storm, especially about promotional expenses. Some readers agreed and others didn't (here and here). Here's Kyle's reply:

Dear FCPA Blog,

My thanks to everyone who responded with posts and comments. As Tom Fox thoughtfully said, the debate about promotional expenses is both useful and important, particularly because many corporations construct compliance programs in accordance with the language of the defense.  

My article attempts to identify the parameters of permissible conduct as defined by enforcement actions and DOJ opinions. But as another commenter said, determining what payments are “reasonable” for purposes of the defense remains an open question for individuals and corporations seeking to comply with the FCPA.

Further, while the promotional expenses defense is a useful (albeit flawed) compliance tool, it offers little protection for FCPA defendants facing an enforcement action. As I asked in my article, how would a defense permitting only “reasonable and bona fide” payments help FCPA defendants when the government must allege that the payments were made corruptly? Or as one commenter put it, “it is a non-sequitur to say that defenses ‘work’ – just not ‘at trial.’ Defenses that do not work ‘at trial’ are not defenses at all.”  

While the promotional expenses defense provides some inconclusive guidelines for compliance with the FCPA, it doesn't provide a meaningful defense to an enforcement action. That's the problem Congress should fix.

Thanks again for providing a forum for this debate and I welcome any further comments or emails.

All the best,
Kyle Sheahen
sheahen2010@lawnet.ucla.edu