Thomson Reuters Q&A "FCPA in a New Era"

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Mike Koehler
Revolving door makes FCPA compliance more complicated and costly,
says author of new book
Aug 27 2014 Julie DiMauro and Stuart Gittleman
The U.S. anti-bribery Foreign Corrupt Practices Act has spawned a revolving door
"FCPA Inc." industry since the law was passed in 1977 and grew in importance to
federal enforcement authorities over the last four years, according to the author of a
new book.
Mike Koehler is an assistant professor at Southern Illinois University College of Law
who teaches one of the first-ever courses on the Foreign Corrupt Practices Act, and in
2009 founded the FCPA Professor website, which he edits. He previously taught
business law at Butler University and practiced at the law firm Foley & Lardner LLP.
Koehler on Tuesday discussed his new book, The Foreign Corrupt Practices Act in a New Era, in an email interview with
Compliance Complete. The interview has been edited for clarity and continuity.
Compliance Complete: Why did you write the book?
Koehler: My goal was to provide detailed information on how and why the U.S. passed the FCPA; why those subject to
the FCPA find themselves in the enforcement agency-declared "new era of enforcement; what this means from a variety
of legal, practical and policy perspectives; and whether the FCPA and FCPA enforcement can be improved.
The book addresses these issues in a comprehensive manner and poses several provocative questions that readers can
answer for themselves. The book also highlights legal authority and non-legal sources of authority relevant to each
element of the FCPA and contains practical advice on managing and minimizing FCPA risk through compliance policies
and procedures.
CC: You use the term "FCPA Inc." to describe the Department of Justice and Securities and Exchange
Commission lawyers and investigators who investigate and prosecute alleged violations, and the DOJ and SEC
alumni who defend against the probes and counsel compliance.
FCPA Inc. may accurately sum up the business the law has created, but can't that be said of any challenging rule
or law such as antitrust, tax, or Bank Secrecy Act and money laundering?
MK: Several factors make the FCPA and its enforcement unique. For starters, a new era of enforcement was declared in
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2010 even though not one word of the law has changed since 1998 (when the act was amended by Congress).
Moreover, enforcement of several of the other laws mentioned, antitrust and tax, takes place against the backdrop of
dozens of Supreme Court decisions and hundreds of appeals court decisions which provide a legal framework for
enforcement. In the FCPA's 37-year history, there are basically two substantive appellate court decisions on separate
issues and that is pretty much it in terms of case law of precedent.
While non-prosecution agreements and deferred prosecution agreements – NPAs and DPAs, respectively – are used in
other contexts, in any given year, the most prominent use of such resolution vehicles tends to be in FCPA enforcement
actions. In short, the majority of FCPA enforcement occurs around conferences room tables in Washington D.C., in the
absence of judicial scrutiny, and in the general absence of judicially crafted parameters of what the law means.
Factor in the DOJ's unique enforcement policy (all enforcement actions must be approved by Main Justice) and you have
a situation, from a supervisory or discretionary standpoint, where a small handful of people control enforcement of a niche
law, and generally enforce the law in opaque ways in the general absence of judicial scrutiny.
CC: The Panalpina case involved a hefty amount of money ($27 million) allegedly being passed to foreign
officials in several countries to expedite services for a raft of companies. How are multiple, not-small payments
made to obtain special favors and competitive advantages not a violation of the FCPA?
MK: That was the policy choice Congress specifically articulated in passing the FCPA, through the facilitating payment
exception and other qualifying elements such as to obtain or retain business.
Congress specifically stated in the FCPA's legislative history that the law "would not reach all corrupt payments overseas"
such as payments to expedite shipments through customs or to secure required permits.
In a legal system based on the rule of law, the enforcement agencies are obligated to enforce only the law that Congress
actually passed.
To be clear, I am not condoning the payments referenced in your question, I am merely pointing out what Congress
intended the FCPA to capture – and not capture – and stating that in a legal system based on the rule of law, this should
matter.
Indeed, while few FCPA enforcement theories are actually subjected to judicial scrutiny, it is a fact that the government
has an overall losing record outside the context of foreign government procurement when actually put to its burden of
proof for the reasons stated above.
CC: "FCPA Inc." members warn against "giving a cup of coffee." What amount will trigger an SEC or DOJ probe,
and should it be adjusted for the recipient's cost of living?
MK: The FCPA is silent on this issue and recognizes that anything of value can mean different things to different foreign
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officials given the context of the alleged improper payments.
Guidance and policy statements from the enforcement agencies suggest that they are only interested in bribes of
consequence that fundamentally alter how business is allegedly obtained or retained. But despite such sensible guidance
and policy statements, recent FCPA enforcement actions have involved allegations about perfume; dresses and
handbags; a bottle of wine; tea sets; karaoke bars; flowers; and cigarettes.
CC: You suggest the FCPA is being exaggeratedly and inconsistently enforced. Doesn't the fact that a company
has run afoul of the FCPA suggest that it could have compliance defects that make it risky for other companies
to do business with it, and a reason firms with stronger regimes can't get ahead in the same marketplace,
potentially hurting consumers affected by a less competitive marketplace?
MK: I have long maintained that much of FCPA enforcement is not fundamentally sound and that, among other things, in
many actions it is an open question whether the enforcement agencies – if put to their burden of proof – would prevail
given actual legal authority relevant to the issues.
The notion that a company which resolves an FCPA enforcement action automatically has compliance defects that make
it risky for other companies to do business with it is a position that not even the enforcement agencies would agree with.
For instance, the U.S. Attorneys Manual states: "[N]o compliance program can ever prevent all criminal activity by a
corporation’s employees …"
In their 2012 FCPA Guidance the DOJ and SEC state: "The 'in reasonable detail' qualification [of the FCPA's books and
records provisions] was adopted by Congress 'in light of the concern that such a standard, if unqualified, might connote a
degree of exactitude and precision which is unrealistic.' [...] The term 'reasonable detail' is defined in the statute as the
level of detail that would 'satisfy prudent officials in the conduct of their own affairs.' Thus, as Congress noted when it
adopted this definition, '[t]he concept of reasonableness of necessity contemplates the weighing of a number of relevant
factors, including the costs of compliance.'"
And in a January 1981 speech on the FCPA to the American Institute of Certified Public Accountants, then-SEC
Chairman Harold M. Williams said, among other things: "If a violation was committed by a low level employee, without the
knowledge of top management, with an adequate system of internal controls, and with appropriate corrective action taken
by the issuer, we do not believe that any action against the company would be called for. […] The test of a company's
internal control system is not whether occasional failings can occur. Those will happen in the most ideally managed
company."
CC: How can in-house lawyers and compliance officers best educate their company's employees and those of
their business partners located abroad on how to identify which accepted local and cultural business practices
could trigger an FCPA probe?
MK: I have devoted an entire chapter to best practices, including the targeted delivery of training to actual risk points in a
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business organization, the goal of providing training participants with "FCPA goggles" relevant to their specific job
functions so that they can spot risk, as well as other strategies to best manage and minimize risk when doing business in
the global marketplace.
CC: Can the U.S. afford to retool its approach to FCPA enforcement right now? If we moderate our approach of
meting out increasingly large fines, assigning in-house monitors even when firms have gotten credit for
assisting the government with its investigation, etc., how will this help if other countries are cracking down on
bribery and corruption in general?
MK: In my 2010 article The Façade of FCPA Enforcement, I identified various reasons why the façade matters, including
the fact that other nations are modeling enforcement of their FCPA-like laws on U.S. enforcement of the FCPA. Unless
the U.S. makes FCPA enforcement fully consistent with the rule of law, a global façade of enforcement will develop.
Guess what, that is what is happening.
Other governments, seeing how easy it is to enforce a law in the general absence of judicial scrutiny and exploiting
leverage over risk-averse corporations, are adopting or want to adopt U.S. resolution vehicles such as DPAs. Other
countries such as the U.K. have rejected U.S.-style NPAs as being inconsistent with constitutional principles. The so-
called war on bribery and corruption sort of resembles a new global arms race to see which country can collect the most
fines and penalties.
The U.S. can best assist other countries by better aligning FCPA enforcement with basic rule-of-law principles such as
transparency in enforcement, a system of checks and balances when it comes to enforcement, and diffusing power in just
one branch of government.
In the FCPA context, Lanny Breuer, then the Assistant Attorney General heading the DOJ Criminal Division, in 2010 gave
a speech on International Criminal Law Enforcement: Rule of Law, Anti-Corruption and Beyond. Breuer said the increase
in FCPA enforcement was consistent with our global approach to promote the rule of law and he asked two rhetorical
questions: Is the rule of law more than just a catchphrase? And, does the rule of law have any real meaning?
These are the right questions to ask, including as to various aspects of U.S. enforcement of the FCPA. The FCPA reform
proposals highlighted in the book are designed to ensure that the FCPA is best achieving the original goals of the law and
that FCPA enforcement is transparent and otherwise consistent with the rule of law.
CC: Approving a DOJ or SEC settlement is a function of the directors, who are supposed to look at the forest,
not just the trees. Journalists as well as academics are frustrated by bare-bones documents that don't say much,
but companies want to avoid creating a treasure map for plaintiffs' lawyers. As long as a federal judge doesn't
get in their way, why shouldn't these "neither admit nor deny, or even say anything" deals continue to be the
norm?
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MK: For starters, because of the prominence of NPAs and DPAs -- as well as the growing trend of increased use of SEC
administrative actions -- federal judges are not even given the opportunity to "get in the way," and this is problematic.
You are correct that business leaders are afforded wide latitude under the business judgment rule to make decisions
consistent with their fiduciary duties. Yet that reality should not justify abrogating rule-of-law principles and due process
rights when it comes to enforcement of a criminal law. If it did, criminal law enforcement, in the FCPA context and
otherwise, would merely become a game of risk aversion.
Call me old-fashioned, but it should not be easy for a government to accuse any person, whether a legal person or a
natural one, of a crime. Our founding fathers intended the opposite and put various speed bumps in the criminal law
enforcement process, recognizing that the absence of such speed bumps would lead to an all-powerful government.
While it is true that plaintiffs' lawyers are increasingly bringing FCPA-related civil claims in the aftermath of scrutiny or
enforcement, I think you vastly overstate the issue by suggesting that opaque criminal law enforcement in the general
absence of judicial scrutiny is somehow justified because of potential impacts on collateral civil litigation, the vast majority
of which in the FCPA context never gets past the motion to dismiss stage.