Magazine bashes FCPA, defends Wal-Mart
Monday, December 24, 2012 at 3:02AM
Richard L. Cassin in David Kay, Douglas Murphy, Facilitating Payments, Legislative History, Mexico, Respondeat Superior, Walmart

An article in the National Review Friday slammed the FCPA and the DOJ's enforcement of it.

And it cast Wal-Mart as a victim of an unclear law, forced to pay at least $100 million so far for an unnecessary internal investigation, and potentially on the hook for much more because of what it called facilitating payments to low-level bureaucrats in Mexico.

We're usually comfortable with the National Review's perspective. In a capitalist system, business shouldn't be shackled by too many laws, taxes shouldn't discourage innovation and productivity, and the government doesn't need to know everything everyone does, unless of course there's illegal conduct involved.

But this article missed the mark.

The FCPA, it said, is poorly written and overly broad. And the DOJ has stretched enforcement beyond reasonable bounds, turning the law 'into a costly tax on American businesses overseas, in countries where low-level administrative tasks routinely require small payments to grease the wheels of bureaucracy.'

It's early days yet for Wal-Mart. But sympathy for the retail giant may turn out to be misplaced.

Dan Newcomb of Shearman & Sterling, a dean of the FCPA bar, said last week: 'I think the [New York] Times story, if it is true, changes the perception of the Wal-Mart matter from being about facilitating payments to something larger than that.'

He's right. Facilitating payments -- the kind permitted by the FCPA -- have to be for clerical, non-discretionary acts that the payer was already entitled to.

That's not what the New York Times described:

'Thanks to eight bribe payments totaling $341,000, for example, Wal-Mart built a Sam’s Club in one of Mexico City’s most densely populated neighborhoods, near the Basílica de Guadalupe, without a construction license, or an environmental permit, or an urban impact assessment, or even a traffic permit. Thanks to nine bribe payments totaling $765,000, Wal-Mart built a vast refrigerated distribution center in an environmentally fragile flood basin north of Mexico City, in an area where electricity was so scarce that many smaller developers were turned away.'

The National Review article blamed the DOJ for stretching the meaning of the FCPA beyond what anyone originally intended. That argument has been around a long time -- the Fifth Circuit shot it down in the Kay and Murphy case in 2004 and again in 2007. The Supreme Court refused to review those decisions and no other judges have disagreed.

Speaking of judges, the National Review said the DOJ can be coercive in its enforcement of the FCPA because there's so little judicial review of the law.

Not mentioned was the DOJ's very mixed enforcement record in FCPA trials of individuals over the past few years, with some big wins but also a healthy number of losses -- some quite spectacular.

Nor did the article mention the most important reason why corporate defendants don't challenge the FCPA in court. Because they can't win. Not because of any defects in the FCPA or the way the DOJ enforces it. But because of respondeat superior, a doctrine in U.S. federal law that automatically imputes to corporations the criminal guilt of employees and agents acting within the scope of their jobs.

Respondeat superior, as we've often said, is extreme and unfair. It denies corporate criminal defendants the right to defend themselves. But the DOJ didn't invent respondeat superior. And just like corporate defendants, it has to live with it.

One way it does that is through deferred prosecution agreements. They let the feds and corporate defendants resolve FCPA (and other) offenses without a full-blown prosecution, through mostly out-of-court settlements that impose fines and require enhanced compliance. That, we think, is a lot better than killing off some of the biggest and most productive companies, which federal criminal prosecutions would do.

If the New York Times got its facts right, Wal-Mart should have done more over the past decade to teach executives, employees, and business partners how to do business overseas without bribing foreign officials. And it should have spent more time and money making sure illegal payments weren't happening.

Responsible corporations have been doing that for years now -- without complaining about it. Because the FCPA is the law. And because not paying bribes is the right thing to do.

Article originally appeared on The FCPA Blog (https://www.fcpablog.com/).
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