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.

Year's First DOJ Opinion Deals With Promotional Expenses

In its first FCPA Opinion Procedure Release of 2011, the DOJ confirmed what should be obvious -- that the promotional expenses affirmative defense can be used to pay travel expenses of government officials who are being shown a company's products.

The defense appears in the FCPA. But companies have been reluctant to rely on it because of its ambiguous wording.

Last year, Kyle Sheahen said in a guest post that "while the promotional expenses defense is a useful (albeit flawed) compliance tool, it offers little protection for FCPA defendants facing an enforcement action. . . . 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."'

Opinion Procedure Release 11-01 has the virtue of brevity, not seen in most recent Releases. All of them can be found here.

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Here's the full text of Release 11-01:

U.S. Department of Justice
Criminal Division
Washington, D.C. 20530

No.: 11-01

Date: June 30, 2011

Foreign Corrupt Practices Act Review
Opinion Procedure Release

The Department has reviewed the FCPA Opinion Procedure request of a U.S. adoption service provider (the “Requestor”) that was submitted on May 25, 2011. The company is a “domestic concern” under 15 U.S.C. § 78dd-2(h)(1)(B) of the FCPA and therefore is eligible to submit an opinion procedure request.

The Requestor proposes to pay certain expenses for a trip to the United States by one official from each of two foreign government agencies to learn more about the services provided by the Requestor. The two officials will be selected by their agencies, without the involvement of the Requestor, to travel to the United States.

The Requestor has no non-routine business pending before the foreign government agencies that employ these officials. The sponsored program will last for approximately two days (not including travel time). The Requestor intends to pay for economy class air fare, domestic lodging, local transport, and meals. The Requestor has asked for a determination of the Department’s present enforcement intention under the FCPA.

The Requestor has represented, among other things, that:

• The Requestor has no non-routine business (e.g., licensing or accreditation) under consideration by the relevant foreign government agencies.

• The Requestor’s routine business before the relevant foreign government agencies consists primarily of seeking approval of pending adoptions. Such routine business is guided by international treaty and administrative rules with identified standards.

• The Requestor will not select the particular officials who will travel. That decision will be made solely by the foreign government agencies.

• The Requestor will host only the designated officials, and not their spouses or family members.

• The Requestor intends to pay all costs directly to the providers. No cash will beprovided directly to the officials.

• Any souvenirs that the Requestor gives the visiting officials would reflect Requestor’s business and/or logo and would be of nominal value.

• Apart from the expenses identified above, the Requestor will not compensate the foreign government agencies or the officials for their visit, nor will it fund, organize, or host any other entertainment, side trips, or leisure activities for the officials, or provide the officials with any stipend or spending money.

• The visit will be for a two-day period (exclusive of travel time), and costs and expenses will be only those necessary and reasonable to educate the visiting officials about the operations and services of U.S. adoption service providers.

• The Requestor has invited another adoption service provider to participate in the visit.

In the following instances, with appropriate protections, the Department has recently issued favorable Opinion Releases with respect to sponsoring travel and related expenses for foreign officials:

• In FCPA Opinion Release 07-02, the Department issued an opinion in response to a private insurance company in the United States, declining to take enforcement action if the company proceeded with sponsoring domestic expenses for a trip by six officials from an Asian government for an educational program at the company’s U.S. headquarters. The company represented that the purpose of the visit would be to
familiarize the officials with the operation of a U.S. insurance company; that it would not select the officials who would participate; that it would pay costs directly to providers; and that it has no non-routine business pending before the agency that employs the officials.

• In FCPA Opinion Release 07-01, the Department issued an opinion in response to a private company in the United States, declining to take enforcement action if the company proceeded with sponsoring domestic expenses for a trip by a six-person delegation from an Asian government. The company represented that the purpose of the visit would be to familiarize the delegates with the nature and extent of the company’s
business operations; that it would not select the delegates; it would pay all costs directly to providers; and it did not currently conduct operations in the foreign country at issue.

Based upon all of the facts and circumstances, as represented by the Requestor, and consistent with these prior opinions, the expenses contemplated are reasonable under the circumstances and directly relate to “the promotion, demonstration, or explanation of [the Requestor’s] products or services.” 15 U.S.C. § 78dd-2(c)(2)(A). Therefore, the Department does not presently intend to take any enforcement action with respect to the planned program and proposed payments described in this request. The FCPA Opinion Release has no binding application to any party which did not join in the request, and can be relied upon by the Requestor only to the extent that the disclosure of facts and circumstances in its request is accurate and complete and continues to accurately and completely reflect such facts and circumstances. Additionally, this Opinion Release does not purport to endorse the adequacy of the Requestor's anti-corruption policies and procedures.

Bigger And Better: Hughes Hubbard's 2011 Spring Alert

Hughes Hubbard's annual FCPA reviews are new kids on the block. But we don't know a better source for FCPA and compliance-related information.

Last year's version, we said, was both a quick desk reference and -- at 241 pages -- an authoritative collection of FCPA resources. This year's edition -- at 349 pages, and still free of charge -- sets a new standard for FCPA-related discussion. It's a combination of exposition, opinion piece, and encyclopedia -- all of it top notch in content and presentation.

Hughes Hubbard's Kevin T. Abikoff is Innospec’s compliance monitor under its global settlement with U.S. and U.K. authorities. He leads the anti-corruption and internal investigations team at Hughes Hubbard, a long-time sponsor and supporter of the FCPA Blog.

The 2011 Alert starts with a summary and analysis of enforcement trends and lessons to be learned from settlements. Then comes a review of focus issues, a description of FCPA settlements and criminal matters from 2010 and early 2011, and a discussion of selected recent FCPA and related developments. That's Part I.

Part II opens with with the statutory requirements and penalties under the FCPA, followed by a description of FCPA settlements and criminal matters from 2005 through 2009, and closing with a knock-out summary of each DOJ Review and Opinion Procedure Release issued from 1980 to now.

The 2011 Spring Alert can be found here, on the top right of the page.

It's a resource that'll be an important addition to any FCPA library.

Former AG Wants 'Meaningful' FCPA Advice From Feds

In his testimony last week before the House committee investigating the FCPA, former U.S. Attorney General Michael Mukasey (left) proposed improving the procedures for federal guidance and advisory opinions. He said the current practice is inadequate and little used. 

He's right.

Since 1993, the DOJ has issued only 33 opinions, an average of about 1.8 opinions per year. The SEC doesn't even have a process for issuing FCPA-related guidance and has never given advisory opinions.

"This near-absence of a meaningful advisory opinion process," Mukasey told the House hearing, "represents a lost opportunity for the enforcement agencies to provide practical guidance to the business community and thereby enhance FCPA compliance."

The FCPA is seldom litigated, so the DOJ's Opinion Procedure Releases are a de facto substitute for judicial interpretation. They don't have the force of law behind them (except as to requestors), but Releases are cited all the time by practitioners and compliance professionals as "official" guidance from the government.

"An active advisory opinion process and robust guidelines from the enforcement agencies would likely result in a higher level of compliance by companies subject to the FCPA," Mukasey said.

Testifying on behalf of the U.S. Chamber of Commerce, Mukasey told Congress the overwhelming majority of businesses subject to the FCPA "seek in good faith" to ensure compliance and would be helped by "meaningful advisory opinions and guidelines from both the DOJ and the SEC."

The Opinion Procedure Regulations appear in 28 CFR Part 80. They say, among other things, that a request must come from an issuer or domestic concern, must be in writing and must contain all details of the transaction. A DOJ opinion, the law stipulates, creates "a rebuttable presumption" that the conduct in question complies with the FCPA and with the DOJ's current enforcement practices.  15 U.S.C. § 78dd-1(e) [Section 30A of the Securities & Exchange Act of 1934] and § 78dd-2(f).

Where Is Canada, Really?

Canada has the Corruption of Foreign Public Officials Act (CFPOA). It has signed three international anti-corruption treaties -- the OECD Convention, the OAS Inter-American Convention Against Corruption, and the U.N. Convention Against Corruption. And it has incorporated its international obligations into Canadian law.

Despite all that, there's only been one case decided under the CFPOA, and that's Hydro Kleen Group. There's one case known to be pending involving Nazir Karigan. And Niko Resources, a publicly listed firm,  disclosed it's being investigated under the CFPOA.

That's it.

So why does it appear Canada is moving against international graft at barely a crawl?

The answer, according to a great post yesterday by Cyndee Todgham Cherniak on the Trade Lawyers Blog, may be found not in the similarities between U.S. and Canadian enforcement, but in the differences.

Among the facts she mentioned were these:

1. Canada's CFPOA was enacted in 1999 and therefore is only 11 years old. The first 11 years of the FCPA also saw a small number of prosecutions. [Editor's note: By our count, there were about six DOJ and / or SEC enforcement actions per year on average from 1978 through 1989.]

2. Canada has a population of about 34 million; the U.S. about 310 million. The volume of Canada's business in foreign jurisdictions is proportionately lower than U.S. business overseas.

3. The CFPOA doesn't contain internal controls and accounting requirements like those in the FCPA. Cases don't arise from company reports to Canada's equivalent of the SEC.

4. Canada doesn't have voluntary disclosure for companies and company officials. There isn't a mechanism to negotiate the payment of a fine without going through a prosecution.

5. When there's a Canadian investigation, the Royal Canadian Mounted Police, International Anti-Corruption Unit (RCMP, IACU) don't talk about it. And they don't organize "perp walks" or publicize active investigations.

6. Canada's criminal justice system doesn't include grand juries. The RCMP gather information and the Crown decides whether to prosecute.

7. Canadian law doesn't permit tax authorities to share information received during an income tax, sales tax, or other tax audit.

8. The CFPOA doesn't apply where the bribery has no "real and substantial connection" to Canada. In 2009, the Minister of Justice tabled legislation (Bill C-31) to incorporate a nationality principle in Canada's CFPOA. It didn't pass and hasn't been re-introduced.

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Cyndee Todgham Cherniak's post was adapted from an October 2, 2010 presentation she gave at the University of Windsor, Center for Transnational Law and Justice. Our special thanks to her for allowing us to summarize it.

She can be reached by email here.