Top U.S. Department of Justice officials are preparing to issue new guidance about the government’s enforcement of foreign bribery laws, as members of Congress and business advocates press for sweeping changes of their own.
Federal prosecutors and the U.S. Securities and Exchange Commission want to bring greater transparency to the Foreign Corrupt Practices Act (FCPA), a powerful tool that has generated more than $2 billion in criminal fines since 2009. But DOJ officials, cutting back against the growing calls for FCPA reform, said they have no interest in minimizing the ability to punish corrupt individuals and corporations.
"This is exactly the wrong time to water down a statute and water down our efforts to fight corruption," Assistant Attorney General Lanny Breuer, the head of the DOJ Criminal Division, said last week in an interview. "If you look at our prosecutions, we do them appropriately. We do them in cases where we allege major crimes. I think we have it about right, but obviously I’m always delighted to engage in responsible dialogue." On Capitol Hill, an expensive lobbying effort from the U.S. Chamber of Commerce starting in late 2010 encouraged Congress to work on drafting legislation to change the FCPA — or "bring this law up to date," as one congressman put it. Both Democrats and Republicans have supported proposals to amend the law.
But the legislative effort fizzled when Breuer announced last November the government was planning to issue new rules of the road for FCPA enforcement. The Hill’s most vocal proponents of changing FCPA now want to review what DOJ has to say before any new congressional push. Two bills to change the FCPA are pending, but neither addresses the most pressing concerns from businesses.
Those concerns, as the U.S. Chamber of Commerce has expressed to DOJ, include giving credit to companies for timely disclosure and cooperation, clarifying the definition of "foreign official" and requiring an intent standard for corporate criminal liability. In February, the Chamber and other groups, including the National Association of Criminal Defense Lawyers, outlined their proposal in a letter to Breuer and Robert Khuzami, the U.S. Securities and Exchange Commission director of enforcement.
Several white-collar defense lawyers who defend companies and individuals against bribery allegations said that while they generally support the effort to reform the law, they do not expect the government to substantively change the enforcement landscape.
"I don’t see this guidance coming out in a way that relieves the fundamental problem," Reed Smith litigation partner Eric Dubelier said. "The fundamental problem is that these are very challenging markets, and if you did things the way the government wants you to do them, you cannot compete."
A FAILED STING
Critics calling for FCPA reform contend the patchwork of legal opinions around the country do not give companies a clear scope on prohibited behavior. Questions abound in FCPA cases about the extent to which a foreign company qualifies as an "instrument" of a foreign government and the definition of a foreign official.
"Some judges have found that issue is a jury issue. Other judges have decided it’s a question of law," said Eric Bruce, a Kobre & Kim litigation partner in the firm’s New York and Washington offices. "You don’t have clarity on who the decision-maker is, never mind the factors that will go into it. That is an area the Justice Department can give some concrete guidance without too much difficulty."
Enforcement of the foreign bribery laws against individuals ramped up in recent years, a hallmark of the Criminal Division under Attorney General Eric Holder Jr. Since 2009, DOJ has secured more than 40 guilty pleas in FCPA cases. Three companies alone — Johnson & Johnson, Daimler A.G. and BAE Systems PLC — paid more than $500 million combined in criminal penalties.
Recent botched prosecutions, however, have made the calls for reform all the more urgent, proponents of reform said. Several high-profile cases faltered since December, leaving federal prosecutors in California, Texas and Washington stunned.
The government’s first trial conviction against a company, Lindsey Manufacturing, vanished in December amid a Los Angeles trial judge’s concern about prosecutorial misconduct. DOJ wants the U.S. Court of Appeals for the Ninth Circuit to revive the prosecution.
Then, in late February, prosecutors in Washington’s U.S. attorney’s office and at Main Justice abandoned a landmark FCPA case: a prosecution built on a lengthy undercover sting targeting executives in the military and law enforcement equipment industry. Prosecutors alleged 22 people participated in a $15 million conspiracy to bribe the defense minister of Gabon.
DOJ gave up after two mistrials. The department did not land a single conviction. Three defendants who had earlier pleaded guilty were allowed to back out of their deals.
Morrison & Foerster partner Paul Friedman in San Francisco, who co-leads the firm’s FCPA practice, said in commentary in February that "the dismissal of the indictments in the African Sting case represents a dramatic stumbling block in DOJ’s greatly publicized efforts to prosecute individuals for FCPA violations."
Jenner & Block partner Joseph Cov­ington, who co-chairs the firm’s white-collar defense and investigations practice, said he’s not optimistic DOJ will provide the clarity the defense bar is seeking. "Their guidance, I suspect, at the margins might tweak a few things," he said. "But they are pretty well set in their outlook. They’ve said it over and over again, ‘Corruption is a bad thing and we will lead the world in the fight against it.’ I don’t think that’s going to change."
The U.S. Chamber’s legal arm, the Institute for Legal Reform, urged Con­gress to change the FCPA in a lengthy paper published in October 2010 titled "Restoring Balance: Proposed Amend­ments to the Foreign Corrupt Practices Act." Then-Jenner & Block partner Andrew Weissmann, now the FBI general counsel, was the lead author.
Weissmann said, among other things, that the business community "lacks confidence" that DOJ and securities regulators will give enough consideration to a company’s compliance program when making enforcement decisions.
During the next 15 months, the institute spent $1 million on outside lobbying related to the FCPA, paying a team that included former Attorney General Michael Mukasey, former Rep. Victor Fazio (D-Calif.) of Akin Gump Strauss Hauer & Feld, and William Hollier, former chief of staff for Sen. Mike Crapo (R-Idaho).
Harold Kim, the institute’s executive vice president, said the Chamber remains fully committed "for the long term" to pursuing legislative changes.
"We still believe legislation remains the best solution for giving the needed clarity and guidance to the business community, because amendments to a statute give defendants in court an enforceable right," Kim said. "And the level of certainty in the guidance, while possibly helpful, doesn’t provide the type of assurance a federal statute would provide."
But the legislative option, at least in the short term, remains unlikely, LeClairRyan white-collar defense partner Michael Volkov said. "The guidance that is supposed to come out from the DOJ has taken the heat off of them to act, and gave them an excuse to wait and see," said Volkov, who writes a blog about corruption and compliance.
Still, proponents of FCPA reform have won supporters from Republicans and Democrats, setting up the potential for bipartisan legislation. Sen. Amy Klobuchar (D-Minn.) and Sen. Chris Coons (D-Del.) in February championed the stepped-up fight against corruption.
"[I]t has become apparent that too many companies are devoting a disproportionate amount of resources to FCPA compliance and internal investigations," the senators said in a letter to Holder.
While it is "necessary and desirable" for companies to adopt compliance efforts, Coons and Klobuchar said, "over-compliance, however, can have a negative effect on product development, export promotion and workforce expansion."
On the House side, Rep. Jim Sensen­brenner (R-Wis.) said at a hearing in June that "there is no question in my mind that we have to bring this law up to date." When a top Criminal Division supervisor said the department is more than willing to work with Congress on possible changes, Sensenbrenner replied: "Well, the invitation is there, and we are going to be drafting a bill. So, see you later."
But there still has been no bill. Sensenbrenner, an aide said, has no timetable for introducing that legislation as he awaits the FCPA guidance. A spokesman for Coons said he is "waiting until that guidance is issued before deciding whether legislative action is necessary."
Two House bills to amend the FCPA have been referred to subcommittees. Rep. Peter Welch (D-Vt.) introduced a bill in December to prevent any person who violated the FCPA from ever getting another federal contract or grant. And a bill Rep. Ed Perlmutter (D-Colo.) sponsored in November would give American companies the right to recover damages when they lose business because a foreign company violates anti-bribery provisions.
"There’s a lot of skullduggery and bribery and chicanery going on to the disadvantage of U.S. businesses," Perlmutter said. The ultimate goal, he continued, is that "American companies are able to export goods and employ American workers based on a level playing field."