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.

The Case For Optimism

Will ours be the time when international public corruption is finally tossed into the garbage can of history? There are plenty of reasons to think so.

Only five years ago, even thoughtful people believed  overseas bribery was a victimless crime -- a harmless agreement between two consulting adults.

Happily, that idea is largely gone, replaced by an awareness, still growing, that graft's victims can be counted in the billions.

What changed attitudes? Not one thing but many.

Respected NGOs are now speaking for the victims. The stories aren't pleasant (think 'Blood Diamond'), but the links between graft and human rights abuses are now in plain sight. Global Witness' briefing on illegal and exploitive logging, as one example among many, is heartbreaking.

Though the damage from corruption can be seen and felt, it's hard to measure, putting it in the realm of 'soft' science. Still, some brave academics have taken up the cause. One is Elizabeth Spahn at New England Law School ("The impact of a self-reinforcing cycle of bribes, regulations and deteriorating quality control is not limited to consumer purchases however. Even the truly wealthy consume air and water. Systemic bribery has a negative impact on environmental regulation.")

The U.N. and OECD are promoting the links between compliance, ethics, and human rights. It's one of the most important new trends of corporate citizenship.

Ordinary people have more power to fight corruption than at any time in history. There's easy access to online public and private hotlines. Cell phones record 'secret' shakedowns in the tax office, snap photos of cash-grabbing clerks, and capture videos of corrupt cops and judges that might appear on YouTube an hour later.

Through Facebook, victims find each other and lock arms. And with Twitter, a hundred thousand people can be in the streets by noon to march against sleaze.

No wonder anti-corruption enforcement is spreading beyond the United States. The U.K. is now on the front lines, Canada has joined the fight, the G-7 have more attention on enforcement than ever, and the OECD is pushing all of its members to get on board.

Sure, there's lots of work ahead. But these really are hopeful times.

James Giffen's Legal Legacy

Judge Denny ChinThe prosecution of James Giffen for violating the FCPA is a ghostlike case. As David Glovin of Bloomberg wrote earlier this month: "Oil consultant Jim Giffen was told by a U.S. judge six months after his 2003 arrest in an international bribery scheme that he would go on trial in the fall of 2004. He’s still waiting."

His trial may be on hold, but his case made legal history years ago. Professor Elizabeth Spahn, a friend of the FCPA Blog and an occasional contributor here, has published a great article on U.S. v. Giffen and the act of state doctrine -- the notion that sovereign nations engaged in domestic actions cannot be questioned in the courts of another nation.

She says:

The act of state doctrine is not typical fare for most prosecutors or judges in U.S. criminal proceedings. The first opinion addressing the act of state doctrine in a U.S. bribery case was issued in 2002 in the Giffen prosecution [when it was still before a grand jury] by Judge Denny Chin (more recently famous for sentencing white collar criminal, Ponzi scheme architect Bernie Madoff). The 2002 Chin opinion is a landmark case of first impression. It provides helpful precedent for future decisions on the most significant legal hurdle facing prosecutors developing a case—discovering the facts of complicated bribery schemes where the documents are ostensibly protected by foreign law. [footnotes omitted]

Prof Spahn describes the Giffen case as "a gripping story of alleged grand corruption bribery suitable for a Hollywood movie." What's remarkable, she says, is that despite the best efforts of powerful U.S. lobbyists and law firms in an FCPA case allegedly involving $105 million in bribes in Kazakhstan, during one of the darkest periods in the history of the U.S. Department of Justice, the case still "demonstrates the rule of law operating even handedly, even when major oil interests are at stake."

The article can be downloaded from SSRN here. The citation is Discovering Secrets: Act of State Defenses to Bribery Cases (2009), Hofstra Law Review, Vol. 38, p. 163, 2009.

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And more from Prof Spahn. We'd like to thank her for mentioning the FCPA Blog during her talk at the June 30 ABA ROLI Anti-Corruption Mini-Seminar. She referred to us as a clearinghouse serving the FCPA / compliance community. We'll do our best to live up to that role. During the last segment of her talk, Prof Spahn suggested topics for future compliance-related research. We often hear from students and others looking for ideas, so check out what she had to say here.

Everybody Gets Hurt

Click on the image for more informationProfessor Elizabeth Spahn from New England Law | Boston spoke at Georgetown's symposium in March on combating global corruption. She made the case against bribery, debunking the old excuses that sometimes graft is necessary, or culturally acceptable, or that it's a victimless crime.

Prof Spahn has seen grand and petty corruption up close, in Indonesia and China, among other places. Don't try telling her a little grease for the wheels is just fine. It isn't, and she knows it.

Her latest salvo, adapted from her symposium talk, will appear in the Georgetown International Law Journal (summer 2010). Here's a sneak preview, courtesy of that publication:

If we get rich enough, maybe we could afford to personally avoid the avalanche of toxic products descending on clueless consumers of global products. Someone else’s puppies and babies get killed. We rich, educated very much First World Americans and Europeans can afford organic, locally grown slow food; children’s toys hand carved by hippies in Vermont or Tyrol. Caveat emptor, after all.

The impact of a self-reinforcing cycle of bribes, regulations and deteriorating quality control is not limited to consumer purchases however. Even the truly wealthy consume air and water. Systemic bribery has a negative impact on environmental regulation.

Analysis of a cross section of more than 100 countries . . . finds that corruption negatively impacts pollution control. Bribery reduced the effectiveness of environmental regulation. . . .

That analogy between bribery and garbage turns out to be more than merely hypothetical. Like it or not, we are all in this together. Everybody gets hurt.

In a uranium-tipped footnote to the passage, she says: "Illegal logging in Indonesia, combined with porous bribery-infected border controls in Borneo, created a cycle of environmental degradation . . . The entire Indian tiger population at the Sariska reserve was poached in a two year period. A large ship containing hundreds of tons of chemical waste containing hydrogen sulfide in concentrated doses dumped the waste off the coast of Ivory Coast killing ten people and sending another 100,000 to the hospital with unknown long-term consequences." [citations omitted].

Prof Spahn let's the world know where she stands, and it's a good place.

To Readers, Leaders, and Hosts

Georgetown Law: Eric E. Hotung International Law BuildingThanks to those who helped with our post Where The Money Is. One reader mentioned two more pending investigations likely to result in big-money enforcement actions: Panalpina and Alcoa. Panalpina's compliance problems have been in the news for nearly three years, and Alcoa's for two. Settlements soon? Could be.

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We also want to thank the folks at the Georgetown Journal of International Law for the invitation to their 2010 Symposium: Combating Global Corruption. It's happening March 22nd from 8am to 5pm at the Hart Auditorium at Georgetown Law (600 New Jersey Avenue, NW, Washington, D.C. 20001). Admission is free. Panel topics include Origins of International Anticorruption: Policy Formation, Enforcement by U.S. Government Agencies, Quasi-Enforcement Agencies and Alternative Enforcement Channels, and East Asia: A Case Study. Mike Koehler (the FCPA Professor) and Elizabeth Spahn are among the panelists. Download the brochure here.

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And finally, we're grateful to our hosts this week who arranged the visit to the National Museum of the Marine Corps at Quantico, Virginia (here). There wasn't much discussion inside; it's hard to talk with that lump in your throat. The museum is unforgettable and the sacrifice it represents is beyond description.