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FCPA Blog Daily News

Entries in Legislative History (62)


Frontline: Birth Of The FCPA

Why and how did the FCPA become law? Here's a great clip from PBS featuring some eyewitnesses to the events.

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On News Corp, Some Recommended Reading

Ellen Podgor on her White Collar Crime Prof Blog posted commentary called Murdoch and the Foreign Corrupt Practices Act: A Minefield.

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'Foreign Official' Challenge Fails Again

Judge James V. Selna yesterday denied the Carson defendants motion to dismiss ten FCPA-related counts in the indictment against them based on the definition of "foreign official" in the Foreign Corrupt Practices Act.

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What Is An 'Instrumentality Thereof'? Let’s Keep It Real

We finally have an opportunity to resolve what many commentators suggest is an intractable issue -- the definition of “instrumentality thereof” as used in the FCPA, and as applied to foreign state-owned-enterprises.

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'Instrumentalities' And The New World Order

Sovereigns have corporatized and globalized and become the biggest financial players on the planet. It's the governments themselves that have redefined their "instrumentalities" -- the DOJ didn't need to lift a finger.

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A Missing Cornerstone Of Enforcement?

A look behind the DOJ's tally of individual prosecutions under the FCPA.

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Doing Better For The World

Professor Andy Spalding: The Giffen prosecution shows why FCPA enforcement is a foreign policy debacle.

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Let's Keep Talking

The debate about the FCPA is natural and healthy, and it isn't going away any time soon. It's also guaranteed to trigger a lot of emotion.

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News From The Neighborhood

We check in with the D&O Diary, the FCPA Prof,, and the WSJ online.

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'I'm Not Going To Disney Land'

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

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,
Kyle Sheahen


Financial Reform School

Two parts of the Financial Reform Bill passed last week by the Senate and which the President has said he'll sign concern us. The first is the whistleblower bounty for securities-law recoveries, including FCPA-related settlements, that exceed $1 million.

The bounty program will result in more FCPA cases against corporations. It won't matter if they have robust compliance programs. Organizations are strictly liable for crimes committed by employees who are doing their jobs. So even if a company has an effective compliance program and has done everything possible to prevent violations, that's no defense under respondeat superior.

When the DOJ and SEC find an employee's FCPA violation, the company is presumed guilty and forced to settle the case, usually by paying a big penalty.

Companies trying to settle are also forced to help the government make cases against employees and other individuals. The companies might have to disclose information to prosecutors that the employees thought was privileged. So the rules of privilege and the right against self incrimination are short-circuited.

Before so-called financial reform creates whistleblower bounties for FCPA-related recoveries, the law of respondeat superior needs to be reformed. Corporations should be given the chance to defend themselves by showing good-faith efforts at compliance. 

The second part of the financial reform bill that concerns us is Section 1504, "Disclosure of Payments by Resource Extraction Issuers." It requires public companies involved in oil and gas and mineral development to disclose in their annual reports all extraction-related payments they or their controlled subsidiaries make to foreign governments.

The FCPA already covers illegal payments to foreign government officials. This new law covers legal payments to governments themselves.

We'll stipulate that some natural resource companies do business with corrupt overseas governments. That's because not all hydrocarbons and minerals are found under land controlled by saintly regimes. But what will happen when the payments are disclosed? Will governments and private groups mount PR campaigns against companies doing business with unpopular overseas governments? Will "extraction issuers" lose their freedom to go where the natural resources are? Will doing business with regimes that can't pass someone's smell test trigger political attacks that punish companies for legal activities that bring needed products to the rest of the world?

There's always tension between big oil and the U.S government. That's natural. They both control vast resources that can be used to influence domestic and foreign policy. But the government shouldn't impose disclosure requirements on businesses that the government itself isn't willing or able to meet.

For more on Section 1504, see Mike Koehler's excellent discussion here


Sorry For The Harm

The World Bank last week debarred a U.K subsidiary of Macmillan Publishers for six years (reviewable after three years) after the parent company self-reported to the bank corrupt payments to public officials in Sudan. The bribes were unsuccessful in landing sales of textbooks under the World Bank-administered Sudan Multi-Donor Trust Fund.

The company also announced last week that it self-disclosed the payments to the U.K.'s Serious Fraud Office.

Graft is always bad. In a country like Sudan, its impact is magnified. After 20 years of civil war and lawlessness, Sudan ranks fourth worst on the Corruption Perception Index and third worst on the Failed States Index, trailed only by Somalia and Zimbabwe. Its people can expect to live about 52 years, compared with 62 in Cambodia, 72 in Indonesia, and 82 in Japan. Per capita gross domestic product (purchasing power) for its 41 million people is $2,300 while the world average is $10,500.

Millions there struggle every day for shelter, drinkable water, food, medicines, and education. Public corruption diverts money from basic necessities. It literally takes food off the table and textbooks out of the hands of children.

The World Bank's press release about the debarment was all business but Macmillan's was different, carrying a hint of sadness that was entirely fitting. In her public statement, Annette Thomas, Macmillan's chief executive, did something rare in the business world: she acknowledged the victims of corruption and the harm inflicted on them (even unsuccessful bribes help perpetuate corrupt systems and rulers).

Awareness of that harm was a factor leading to enactment of the Foreign Corrupt Practices Act. Although this case doesn't involve the FCPA, it's a reminder of why the FCPA and laws like it matter.

When A. A. Sommer, Jr. was a commissioner of the SEC in 1976, a year before the FCPA became law, he said: "[T]here are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multi­national corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Three decades later the once skeptical Wall Street Journal could say the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.

Corruption ruins millions, maybe billions of lives. Those who say graft is a crime against humanity are more right than the rest of us like to admit. The DOJ, SEC, Serious Fraud Office, and World Bank should use all available tools to pursue and punish those who commit public bribery anywhere. Prosecutors shouldn't be diverted by the weird corporatization of government services that blurs the distinction of who's a "foreign official." And they shouldn't compromise ethics because "black knights" will rush in where honest companies fear to tread. That's a short-term and short-sighted view of the world and the marketplace.

Macmillan didn't say how much it paid Sudanese officials. But a bribe of any size that could have deprived a child of a textbook would be disturbing. CEO Annette Thomas said, "We are deeply shocked to have discovered these issues, and are sorry for the harm that such behaviour will have done."

The World Bank's April 30, 2010 announcement of Macmillan (U.K.) Limited's debarment is here.

Macmillan Publisher's May 6, 2010 announcement is here.