I've talked about the challenges of doing business in Kazakhstan because of its high levels of corruption and rapidly changing legal environment. In this post, I'd like to provide some tips to American companies contemplating potential investments in Kazakhstan or other emerging markets.
Entries in local law (10)
This is the final post in my series analyzing IKEA’s charitable contributions in Russia in the 1990s and early 2000s. I haven’t presumed IKEA was subject to the FCPA when the events happened or that any FCPA violations might have occurred. Instead, I’ve looked at IKEA’s Russia experience to learn more about charitable giving under the FCPA and how to manage giving programs.
In its disclosure yesterday, Avon provided a glimpse into what it means to be cooperating with the DOJ and SEC.
Ohio-based glassmaker Owens-Illinois said certain of its overseas operations may have violated the FCPA and local laws.
The company has joint ventures in China, Italy, Malaysia, and Vietnam.
Want to read the anti-corruption laws for all those countries? And 150 more?
They're available in English right now from the FCPA Blog members area.
Many multinationals operating in China focus on compliance with the FCPA -- and rightly so, given the intersection of expanding business opportunities, corruption risks, and the broad range of “foreign officials” present in China.
Long before the agencies have closed this enforcement action, the market doled out its own unique kind of punishment yesterday. Wal-Mart's stock value declined by almost 5%, reducing the company's market capitalization by no less than $10 billion. We, the public, are sensing potentially vast liability here.
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,
On Monday, Kyle Sheahen told us how useless the FCPA's two affirmative defenses are. He suggested that Congress fix the local-law and promotional-expenses defenses.
But at least two readers, one from the private sector and another from the DOJ (apparently), dissented. Both believe the defenses work, just not at trial. Here's what they had to say.
From Compliance Officer, August 16:
While the promotional expenses defense might not be useful at trial, it is the underpinning for a lot of companies' compliance programs around gifts. Companies must give gifts when operating internationally; it is simply too much a part of a lot of cultures to avoid. When operating in the public sector, however, these gifts present FCPA issues.
Companies use the promotional expenses defense to justify their permissive gift-giving policies.
From a compliance perspective, the problem with the defense isn't its utility---or lack thereof---at trial, but rather that it permits gifts during the course of the contracting process. When I'm analyzing a gift, I look at the potential for corrupt intent, and the affirmative defense. During the contracting process, you're more squarely under the defense, but to my mind, the optics are worse when looking at potentially corrupt intent. It looks like you're giving the gift to get the contract.
But if the gift is just to "maintain the relationship" (a phrase I hear quite often), you're less covered by the defense, but there's less chance that you're trying to get a quid pro quo.
And from Federal Prosecutor, August 17:
One cannot deduce from the lack of successful uses of statutory defenses at trial the conclusion that those defenses are meaningless.
In practice, trials take place in but a small subset of cases brought, cases brought are but a small subset of investigations, investigations look at but a small subset of real-life situations, and only a small subset of real-life situations are going to raise these particular factual issues in the first place. The ability of these statutory defenses to steer behavior within acceptable limits and to ward off prosecution cannot be judged by how many trial defendants get off on them. There is no need for a legislative fix just to even the odds for trial defendants.
That the law ain't broke is best exemplified by the author's dismissive discussion of OECD's suppression of affirmative defenses based on extortion. This is a considered policy choice to flush out corruption by giving no quarter to businessmen who wittingly profit from it. Permitting a defense based on extortion would simply take the heat off of businessmen to comply with the law, to report corrupt officials squeezing them, and to blow the whistle on their competitors who take the easy way. The end result of such a defense -- more corruption. Admittedly, though, there may be more exciting trials for law students to follow.
There's provocative new FCPA scholarship from Kyle Sheahen, left, UCLA Law '10 and an incoming associate at the New York office of King & Spalding.
He told us about it in this note:
* * *
Dear FCPA Blog,
It’s no secret that FCPA defendants fare poorly at trial. There are many reasons for that, but I wanted to look at the factor most amenable to legislative fix – the hollow nature of the FCPA’s affirmative defenses.
I recently finished an article analyzing the two affirmative defenses under the FCPA. Partly in response to the FCPA Blog’s post Calling All Pundits, I assess the promotional expenses defense in detail and also cover the local law defense (including the Southern District of New York’s decision in United States v. Kozeny).
The article concludes that after over twenty years as part of the FCPA, the two affirmative defenses added to the statute in the 1988 amendments have provided little meaningful protection for FCPA defendants. Neither defense has ever been successfully invoked by an FCPA defendant at trial.
I go on to recommend that if the right to trial by jury is to mean anything in today’s world, individual and corporate defendants must have the actual ability to raise the affirmative defenses contemplated by the statutory scheme. If Congress wants FCPA defendants to have any chance at all, it must take action to ensure that the defenses are meaningful.
The article is slated to appear in the Wisconsin International Law Journal in early 2011. In the meantime, I welcome any comments or suggestions from your readers. I can be reached at email@example.com
The current working version of the article -- titled "I'm Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act" -- can be downloaded from SSRN.
Thank you very much,
There was an outstanding post last week over at the White Collar Crime Prof Blog (here). It was written by Matthew Reinhard, left, a litigator and FCPA practitioner based in the District of Columbia. Like us, he thinks Frederic Bourke's chances on appeal are pretty good. In the post, he talked about the mens rea element at the center of Bourke's trial. That issue culminated in Judge Scheindlin's "conscious avoidance" instruction to the jury, followed by post-trial comments from jury members indicating they didn't grasp the judge's meaning. The jury foreman was quoted in the New York Law Journal as saying about Bourke: "We thought he knew and he definitely should have known."
Hey, Reinhard said, that's not "conscious avoidance." He explained:
The Government did not create the "conscious avoidance" standard out of whole cloth. Indeed, it is defined within the FCPA’s broader knowledge standard, which states that "when knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless he actually believes the circumstance does not exist." 15 U.S.C. § 78dd-1(f)(2)(B) (2004) (emphasis added). When the government indicated its intention to travel on this standard, Judge Scheindlin appropriately ruled that to prevail on such a theory the Government would need to prove that Bourke decided not to learn a key fact, not that he was merely negligent in failing to learn it. To a lay-person (and perhaps even to many lawyers) that may seem like a tough distinction to make, but it is also the bright line that separates civil liability from criminal activity.
We let Matt know how much we liked his post. And we asked if he thought any other issues on appeal might work for Bourke. He said:
Judge Scheindlin issued a series of important rulings surrounding the "local law" defense contained in the FCPA. The court rejected Bourke's argument that the payments were permissible under local Azeri law because they were the product of extortion, concluding that the initial payments were not lawful, only that the Azeri law in question allowed a person to avoid prosecution for payments obtained through extortion. The court concluded that the affirmative defense was not available to Bourke where, as here, local prosecution was avoided due to a "technicality" or a local law that otherwise relieved a person of criminal liability. It will be interesting to see if Bourke's lawyers press this issue further on appeal.
Jury verdicts, Matt wrote, are notoriously difficult to overturn. But we're letting ourselves be a little excited at the prospect, however slim, that in a year or so the influential Second Circuit might make new white-collar criminal law in an FCPA-related case.