Earlier this month, the DOJ's Lanny Breuer said his agency expects to release detailed new guidance on FCPA enforcement sometime in 2012. Breuer said he hopes it will be 'a useful and transparent aid.'
Entries in Expro (5)
As background, the FCPA Opinion Procedure Regulations at 28 CFR Part 80 say any issuer or domestic concern can ask the Justice Department whether a proposed transaction would violate the FCPA. Responses from the DOJ are called Opinion Procedure Releases. They create "a rebuttable presumption" that the conduct in question complies with the FCPA and with the DOJ's current enforcement practices.
Although not binding on anyone except the requesting parties, and not creating legal precedent in the strict sense for anyone else, Releases matter. There's not much FCPA-related litigation, so they're a de facto substitute for judicial interpretation. Releases don't have the force of law (except as to requestors) but they're relied on by practitioners and compliance professionals all the time.
So Releases are important. They're also rare. Since 1993, there was only one year with four Releases -- 2004. There were four years with three Releases, six years with two Releases, two years with one Release, and three years with none -- 1999, 2002, and 2005. That's 28 Releases in 16 years -- an average of less than two per year. So a twelve-month gap between Releases isn't earth-shaking.
On the other hand, two of last year's Releases caused us some alarm. Here's why.
Release 08-01 was the longest on record -- 13 pages. The requestor wanted to know whether its investment in a privatization deal would be compliant. The problem was the presence of a co-investor who was presumed to be a "foreign official." The DOJ gave its blessing. But in doing so, it published what appeared to be all the details provided by the requestor. No names were mentioned but anyone involved would easily recognize themselves.
Last year's second Release, 08-02, was worse. Halliburton was fighting to buy British firm Expro through a hostile takeover. Another group of investors called Umbrellastream was also in the hunt. Halliburton's problem was that it couldn't do any real due diligence until after the acquisition. So if it bought Expro, it might end up with a subsidiary riddled with past and ongoing compliance problems.
To protect itself, Halliburton asked the DOJ for a green light, which it got. But in return it promised to dig deep into Expro after the acquisition, and to disclose what it learned to the DOJ. And not just that. It also promised to help the DOJ prosecute anyone at Expro who might be involved in FCPA offenses. Facing that kind of threat, it surprised no one when Expro landed in the lap of Umbrellastream instead of Halliburton.
Did the two Releases scare would-be requestors? Did all that public disclosure make a difference in the marketplace? Could a new reluctance be behind the hiatus in opinion requests? We don't know the answers but we have our suspicions. And we'll welcome hearing what our readers think.
All Releases since 1993 can be found here.
In response to Halliburton’s proposed acquisition of Expro, the U.S. Department of Justice recently thrust the concept of “a risk-based approach” to the forefront of anti-bribery compliance with Opinion Procedure Release 08-02. A risk-based approach has been a regulatory expectation in anti-money laundering (AML) for years. Now, with Release 08-02, it's moving to the FCPA as well.
The concept is simple: certain customers, vendors, and intermediaries represent a higher compliance risk than others. Geography, nexus to government officials, business type, method of payment, dollar volume -- all are risk indicators. A Kazakhstan-based customs broker owned by the brother of the country’s oil minister, with million-dollar payments directed to an account in Cyprus, represents a high risk of corruption. That's clear. The hard part is making appropriate distinctions and parsing them across a global, decentralized vendor system. It's that aspect that often requires the use of sophisticated technology.
Companies looking to strengthen their FCPA compliance can learn from successful AML programs. In fact, proven AML techniques are already part of some of the more progressive FCPA programs. The key to any risk-based approach? It's the strategic use of information technology, tracking and sorting the critical elements -- including risk-ranking, as well as enhanced due diligence and ongoing monitoring of high-risk parties proportionate to their risk profiles.
To mitigate risk, the first step is knowing where it comes from. That's why the DOJ instructed Halliburton in its Opinion Procedure Release to apply a risk-based approach to due diligence. As the financial institutions have learned, deploying the right technology can be the key to making that happen.
The mailbag brings plenty of pleasant surprises -- and this morning was no exception. We received the following message (changed slightly to protect identities)
Dear FCPA Blog,
As a member of the Law Review, I am required to write a student note. I am very interested in the FCPA and would love to write a note relating to it. I was wondering if any of the contributors to the FCPA Blog had any suggestions for a topic. Specifically, I am looking to write about an issue that is both novel and non obvious and that would be useful to both scholars and practitioners in this field. Any suggestion would be most appreciated.
First, Rising 2L, congratulations on making the Law Review. It's a major accomplishment and presents lots of challenges and opportunities. With that in mind, here are a few FCPA-related topics that could use some attention. We hope you'll find at least one of them worth exploring:
1. Respondeat Superior -- the legal doctrine by which corporations are held criminally responsible when an employee breaks the law. We have real difficulties with RS. For starters, it trashes the presumption of innocence.
As we said in our post titled Justice For Corporate Defendants,
If respondeat superior sounds oppressive and unbalanced, that's because it is. It becomes irrelevant to a corporation's defense that the wrongdoer isn't a high managerial official, that the corporation specifically instructed the employee not to engage in the proscribed conduct, or that the statute in question (such as the FCPA) requires willful or knowing violations. The idea, the courts say, is that criminal statutes impose a duty upon the corporation to prevent its employees from committing the statutory violations. So forget intent, mens rea, good faith and so on; think instead of strict liability for the employee's criminal conduct.
The topic is controversial and timely. There's a serious challenge to respondeat superior in a pending Second Circuit case called United States v. Ionia Management, S.A. Prof Ellen Podgor discussed the case on her White Collar Crime Prof Blog here. As she said, "This case forcefully takes on corporate criminal liability both from a policy perspective and in its application. This is clearly a case that needs to be watched." Sounds like a bull's eye, law review-wise.
2. Opinion Procedure Release No.: 08-02 (June 13, 2008). Halliburton made a hostile bid (now withdrawn) to acquire British firm Expro. But Halliburton couldn't determine whether Expro had undisclosed FCPA compliance problems. If its bid succeeded, therefore, and if Expro had compliance problems, Halliburton could be held responsible by the application of successor liability and respondeat superior. What to do?
Halliburton went to the Justice Department and proposed an aggressive post-acquisition compliance plan. In return it received a de facto non-prosecution agreement. But the cost was high. Halliburton essentially agreed to help the DOJ prosecute Expro's personnel if their pre-acquisition behavior might have violated the FCPA. While we're in favor of FCPA compliance and enforcement, we think something's wrong here.
It's easy to guess how very disturbed Expro's people must have been. Hey, if Halliburton buys us, we might be prosecuted in the U.S. We might even spend time in jail there! Let's find someone else -- anyone else -- to buy our company, and fast.
Here's the question: Should U.S. companies ever be forced to choose publicly between potential FCPA prosecutions of themselves on the one hand or of their M&A targets on the other? Does a choice like that mean Americans can never again compete fairly overseas for unfriendly acquisitions?
This topic is both "novel and non obvious" -- and needs some scholarly unscrambling. We have no idea how to approach it -- commerce clause, equal protection, due process? And that too makes it a good subject for a law review author to tackle.
3. Promotional Expenses -- an affirmative defense under the FCPA that allows businesses to pay travel-related expenses of foreign officials. But the expenses, the FCPA says, must be related directly to “the promotion, demonstration, or explanation of products or services" and must be "reasonable and bona fide.” 15 U.S.C. §§ 78dd-1(c)(2)(A) and 78dd-2(c)(2)(A).
If an expenditure is reasonable and bona fide, however, it is not a corrupt payment. And if it's not a corrupt payment, it's not prohibited by the FCPA. If it's not prohibited by the FCPA, what's the point of the affirmative defense?
The question matters. Today, when companies want to pay promotional expenses, they're forced to adopt increasingly elaborate guidelines to make sure everything is reasonable and bona fide. All the self-imposed restrictions, though, are making Americans look petty, stingy, unsophisticated and inhospitable. It's a national embarrassment, and we're hoping some law review ink will help inspire Congress to fix it.
Those are our ideas, Rising 2L. Perhaps our readers can suggest more FCPA-related law review topics -- by dropping us an email or commenting on this post. In any case, thanks for your interest in the FCPA. It's a great subject with plenty of twists and turns.
We wish you another successful and rewarding year at law school.
Halliburton's messy battle to acquire British firm Expro via a hostile takeover has been big news in the global business press, with Halliburton up one day and down the next, but fighting on and on. Now, though, the story isn't just big news in the business press. It's big news too in the FCPA press (whatever that is). So what's going on?
Halliburton is the Requestor in the Justice Department's latest Foreign Corrupt Practices Act Opinion Procedure Release No.: 08-02 (June 13, 2008). It's trying to acquire all the shares of the Target, which isn't identified in the Release but is Expro International Group PLC, a U.K.-based company traded on the London Stock Exchange. Expro -- with about 4,000 employees throughout the world -- provides well-flow management for the oil and gas industry.
Competition for Expro comes from a group of foreign investors. In the Release they're called the Competitor but in real life they're known more picturesquely as Umbrellastream.
Halliburton's problem is that it can't do much due diligence because of "U.K. legal restrictions inherent in the bidding process for a public U.K. company." So for FCPA compliance, it's buying a black box. And that's why it's asking the DOJ what will happen if Expro has been paying bribes to foreign officials to obtain business.
Will Halliburton be held responsible for Expro's past FCPA offenses, if there are any, or for violations after the acquisition but before Halliburton has a chance to clean up any compliance problems? Halliburton is worried -- as it should be.
Like most oil and gas services firms, Expro operates in high-risk countries and deals directly with government-owned customers. Halliburton may already have seen evidence of non-compliance but can't say anything now because it signed a non-disclosure agreement with Expro. (In a footnote, the DOJ warns would-be requestors not to limit their ability to put all the facts in an Opinion Request by signing non-disclosure agreements. But it lets Halliburton get away with it this time.)
While Halliburton would like to condition its bid on successful FCPA and anti-corruption due diligence and pre-closing remediation, it can't do that. Umbrellastream's bid is unconditional and unless Halliburton's is the same, it will automatically lose.
The DOJ says it's OK to proceed. But to get the green light, Halliburton has promised to pay a very high price. And that "price" is what makes Release 08-02 unique among all Releases.
If Halliburton wins Expro, it must meet with the DOJ right away and disclose information it has that "suggests that any FCPA, corruption, or related internal controls or accounting issues exist or existed at the Target." That's the kick-off.
Ten days later it will give the DOJ . . .
. . . a comprehensive, risk-based FCPA and anti-corruption due diligence work plan which will address, among other things, the use of agents and other third parties; commercial dealings with state-owned customers; any joint venture, teaming or consortium arrangements; customs and immigration matters; tax matters; and any government licenses and permits. Such work plan will organize the due diligence effort into high risk, medium risk, and lowest risk elements.Then there are milestones at 90, 120 and 180 days, by when Halliburton must have finished the three "risk" phases of due diligence, all the while providing periodic reports to the DOJ.
Meanwhile Halliburton will impose on Expro its Code of Business Conduct and specific FCPA and anti-corruption policies and procedures; it will give all employees compliance training; fire agents and suppliers who aren't being retained; and require agents and others being retained to sign new contracts that include FCPA and anti-corruption representations and warranties.
In another feature new to Opinion Procedure Releases, Halliburton represents that after the closing it won't divest any of Expro if the DOJ is investigating Expro or "any of its officers, directors, employees, agents, subsidiaries, and affiliates." And no matter what, Expro and all its subsidiaries and affiliates will "retain their liability for past and future violations of the FCPA, if any."
That's not an express waiver of any and all available defenses, but it's close. And anyway, Halliburton will already have given the DOJ all the evidence of Expro's FCPA violations, which the DOJ would then be able to use to charge Expro, along with its aforesaid "officers, directors, employees, agents, subsidiaries, and affiliates."
No wonder the DOJ says that giving Halliburton the go-ahead to buy Expro (and expose everyone there to criminal enforcement action after the closing) "advances the interests of the Department in enforcing the FCPA . . . ."
People from Expro reading Release 08-02 must be seriously cheesed off. Is Halliburton promising to deliver their heads to the DOJ on a platter if they've ever done anything that would or could violate the FCPA? Well . . . . So will it surprise anyone if Expro's leaders aren't overjoyed by Halliburton's bid?
View DOJ Opinion Procedure Release 08-02 here.
By Michael Kavanagh and Megan Murphy in London
Published: June 23 2008 20:32 | Last updated: June 23 2008 22:41
Halliburton locked horns with the Takeover Panel on Monday over its failed attempt to kick-start an auction for Expro International, as the High Court postponed its approval of the sale of the British oil services company to a rival bidder.
During a dramatic hearing in London, Halliburton and Mason Capital, a US hedge fund that holds a 7.1 per cent stake in Expro, won a two-day delay on efforts to gain a court sanction on the sale of the UK company to the Candover-led consortium Umbrellastream for £1.8bn. . . .
The High Court’s decision to postpone the hearing is the latest twist in a fiercely contested takeover battle. . . .
Expro says that Halliburton’s bid, while 10p higher, was inadequate given the delays and risks associated with that deal. . . .