House Hearing Suggests FCPA Amendments May Be Forthcoming

House Hearing Suggests FCPA Amendments May Be Forthcoming

Fulbright Briefing


By: Richard Craig Smith, Paul Simon and Anne Elkins Murray

On June 14, 2011, the U.S. House of Representatives Committee on the Judiciary's Subcommittee on Crime, Terrorism and Homeland Security, chaired by Congressman Jim Sensenbrenner (R., Wis.), held a hearing on the U.S. Foreign Corrupt Practices Act ("FCPA").[1]  FCPA enforcement, already at an all-time high, has been steadily increasing. Chairman Sensenbrenner stated that the business community is concerned about the lack of FCPA case law and guidance.[2]  According to Chairman Sensenbrenner, the Subcommittee is well situated to examine the FCPA's impact. It is prepared to "ask hard questions" about whether the FCPA is succeeding in preventing overseas bribery or, instead, is needlessly hurting the U.S. economy. 

This week's hearing follows a series of recent court challenges to the Department of Justice's ("DOJ") interpretation of the FCPA, including the terms "foreign official" and "instrumentality."[3]  Under the DOJ's current interpretation of these terms, employees of state-owned entities have been considered foreign officials, regardless of their role or title within such entities.  The proximity of this hearing to such challenges is unlikely a coincidence. This week's hearing also comes less than seven months after the Senate Committee on the Judiciary's Subcommittee on Crime and Drugs held a hearing to examine FCPA enforcement.[4]  During that hearing, senators expressed concern about a lack of clarity and guidance as to what activities would lead to enforcement actions. With both chambers of Congress holding hearings within several months of each other, it appears that amendments to the FCPA may be on the horizon.

Suggested Reforms

With the exception of Greg Andres (Deputy Assistant Attorney General, DOJ Criminal Division), the witnesses focused on the DOJ's expansive reading of statutory terms (e.g., "foreign official," "instrumentality," and "anything of value"). They proposed various reforms to the FCPA designed to make the statute clearer. Hon. Michael Mukasey, former Attorney General, discussed six potential amendments in his written testimony: (1) adding a compliance defense; (2) clarifying the meaning of "foreign official"; (3) improving the procedures for guidance and advisory opinions from the DOJ; (4) limiting a company's successor liability; (5) adding a "willfulness" requirement for corporate criminal liability; and (6) limiting a company's liability for acts of a subsidiary not known to the parent.  Hon. Mukasey focused his oral testimony on the need for a compliance defense and the need to adequately define "foreign official" and "instrumentality" in the statute.[5]  Specifically, he suggested that a company should be able to raise as an affirmative defense to criminal liability that rogue employees, agents, or subsidiaries were responsible for a violation and circumvented compliance measures that were otherwise reasonably designed to identify and prevent such violations.[6]  Hon. Mukasey also argued that the FCPA does not adequately define the terms "foreign official" and "instrumentality," making it impossible for businesses to determine the situations in which the FCPA applies. He recommended that the FCPA indicate: (1) the ownership percentage by a foreign government required to qualify a company as an "instrumentality"; (2) whether ownership by a foreign official necessarily qualifies a company as an "instrumentality" and, if so, whether the foreign official must be of a particular rank or the ownership must reach a certain percentage; and (3) the extent to which "control" by a foreign government or official would qualify a company as an "instrumentality."

Witnesses proposed other reforms to the FCPA, such as shielding acquirers from FCPA enforcement while they review FCPA compliance post-closing and remediate appropriately. Another suggestion was that the FCPA be amended to include a safe harbor provision for self-reporting companies. As proposed, the provision would create a presumption against criminal prosecution where companies operate robust compliance programs and self-report their own misconduct. 

Speaking on behalf of the DOJ, Mr. Andres opposed these suggested reforms. He stated that through the DOJ's Opinion Release Procedure and the availability of FCPA settlements on the DOJ's website, the DOJ provides guidance to companies on how to comply with the FCPA. Rather than narrowing the FCPA's language, Mr. Andres suggested extending the FCPA's statute of limitations given the time that it takes to investigate foreign bribery cases.

The Subcommittee's Views

Members of the Subcommittee were concerned about the FCPA's definitions of "foreign official" and "instrumentality."  In response, Mr. Andres argued that the recent decisions in district courts in California and Florida[7] have "amplified" the statutory definition of these terms. According to Mr. Andres, "if companies are not paying bribes, then they should have no fear of prosecution."  Subcommittee members also were concerned about the level of knowledge required for the government to prove that a violation had occurred. 

Subcommittee members spoke at length about the FCPA's potential for overcriminalization.  In particular, they focused on the ambiguous line between legitimate business expenses or gifts and corruption. Congressman Bobby Scott (D., Va.) asked Mr. Andres if the DOJ ever brings enforcement actions for de minimis transactions (e.g., paying for a taxi ride for a foreign official).  Mr. Andres said that while the DOJ does not typically prosecute small payments involving foreign officials, it would object to a provision excluding de minimis transactions from enforcement. Mr. Andres explained that small payments over time can amount to more significant bribes, if the intent to bribe is present. Congressman Scott stated that the statute does not make clear where the line is, so language must be put in the statute to provide clarity. 

Other congressmen expressed concerns that even if the DOJ does not prosecute "cup of coffee" cases, it could.  For example, Congressman Louie Gohmert (R., Tex.) stated that all bribery is illegal, but bribery can be defined to say that something under a certain monetary threshold does not qualify as bribery. This would provide companies with a clear line, and prevent overly aggressive enforcement. Congressman Ted Poe (R., Tex.) agreed, stating that the DOJ has too much prosecutorial discretion and that the FCPA needs to provide certainty without loosening standards. Mr. Andres argued that the FCPA's affirmative defense for reasonable and bona fide business expenses means that a case could not be filed without an intent to bribe.  Congressman John Conyers (D., Mich.) argued that there is no need for a de minimis exception. He stated that there have been only 140 FCPA cases in the past 10 years, and argued that such a low number indicates there has been no overcriminalization.  Congressman Hank Johnson (D., Ga.) largely agreed.

Chairman Sensenbrenner stated there was "no question in [his] mind" that the FCPA must be brought "up to date."  He emphasized the need for more certainty in the law, stating that everyone has the right to know what is and is not illegal.  In particular, he called for: (1) a better definition of "foreign official"; (2) clarity in how to delineate between legitimate business activities and bribery; (3) clarity on the mens rea requirement; (4) an affirmative defense for corporate compliance; (5) a defense for de minimis expenditures; and (6) making the DOJ's opinions released under the Opinion Release Procedure precedential.  Chairman Sensenbrenner said that he was particularly concerned about the de minimis defense and the Opinion Release Procedure, noting that an advisory opinion that can take up to 30 days is not always useful.

Conclusion

Chairman Sensenbrenner concluded the hearing by saying that the current state of  FCPA enforcement requires counsel to advise corporations in the most narrow way possible, exercising the greatest amount of caution. This, according to Chairman Sensenbrenner, is quashing legitimate business activity and putting U.S. companies at a disadvantage to their foreign competitors. Although it remains to be seen how long it will take and what proposals will be included, amendments to the FCPA appear likely. The FCPA was last amended in 1998, to implement the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (the "OECD Convention").  Prior to that, Congress made substantive amendments to the FCPA in 1988. That amendment process took several years.  Now, as in the past, striking the appropriate balance between clarifying statutory language and maintaining the focus on criminalizing bribery is likely to take time.     

This article was prepared by Richard C. Smith (rcsmith@fulbright.com or 202 662 4795), Paul Simon (psimon@fulbright.com or 202 662 4632) and Anne Elkins Murray (amurray@fulbright.com or 202 662 4529) from Fulbright's White Collar Crime Practice Group, Fulbright's FCPA and International Anti-Corruption Practice Group and Fulbright's Investigations Practice Group.

Fulbright's White Collar Crime, FCPA and International Anti-Corruption and Investigations Practice Groups
Attorneys in Fulbright's White Collar Crime, FCPA and International Anti-Corruption and Investigations Practice Groups are experienced in all phases of governmental investigations and criminal and civil litigation. They routinely handle the management of complex federal and state civil and criminal litigation on behalf of U.S. companies, including Fortune 500 corporations, their officers and directors, international corporations and entities, and individuals. Our attorneys are also experienced in the practice of preventative counseling and compliance programs. From a strategic perspective, this is important for reducing the risk of civil and criminal litigation.

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[1] The FCPA is codified at 15 U.S.C. §§ 78dd-1, et seq. The FCPA generally prohibits the bribery of foreign officials in order to obtain or retain business. It also imposes accounting and internal controls requirements on companies that trade on U.S. exchanges.

Greg Andres (Deputy Assistant Attorney General, Criminal Division, U.S. Department of Justice), Michael Mukasey (Former Attorney General; Partner, Debevoise & Plimpton LLP), George Terwilliger (Partner, White & Case LLP), and Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers) testified at the hearing.  The witnesses' written testimony and a video webcast of the hearing are available at:  http://judiciary.house.gov/hearings/hear_06142011.html.

[2] Notably, the first corporate defendant was convicted of violating the FCPA on May 10, 2011. See Marsha Z. Gerber, Richard C. Smith, and Paul Simon, "Federal Jury Convicts FCPA Defendants, Including First Corporate FCPA Defendant To Be Convicted," Fulbright Alert, May 11, 2011, available at http://www.fulbright.com/index.cfm?fuseaction=publications.detail&pub_id=4871&site_id=494&detail=yes.

[3] See U.S. v. Noriega, et al., No. 2:10-cr-01031 (C.D. Cal.) (commonly referred to as the Lindsey Manufacturing case); U.S. v. Nguyen, No. 08-cr-00522 (E.D. Pa.); U.S. v. Esquenazi, No. 1:09-cr-21010 (S.D. Fla.).  Two other challenges remain pending.  See U.S. v. O'Shea, No. 4:09-cr-00629 (S.D. Tex.); U.S. v. Carson, No. 8:09-cr-00077 (C.D. Cal.).

[4] The Senate hearing took place on November 30, 2010.

[5] The FCPA defines "foreign official" as "any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization."  15 U.S.C. §§ 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A).  The FCPA does not define "department," "agency," or "instrumentality."

[6] Hon. Mukasey urged that the Subcommittee look to Title VII of the Civil Rights Act of 1964for guidance, as Title VII provides there be no corporate liability for workplace discrimination when an effective policy is in place. See 42 U.S.C. §§ 2000e, et seq.

[7] See note 3, supra.

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