In a provocative law review article entitled "FCPA
Sanctions: Too Big to Debar?" South Texas College of Law student
Nicholas Wagoner and Professor Drury Stevenson, posit the question: "Are
certain private contractors too big to debar?" Their conclusion is "It appears
so." In the article's abstract it goes on to state:
The federal government is too dependent on a
particular set of large, private-sector corporations for equipment and
services. In addition to the virtual immunity from debarment enjoyed by these
firms when they violate the FCPA, the fines imposed for engaging in foreign
corrupt practices comprise a tiny fraction of the potential revenue generated
by lucrative contracts with the U.S. and foreign states. When discounted by the
low probability of detection, these sanctions are far too low to deter unlawful
Pretty strong stuff.
The article goes on to further opine that under the
current Department of Justice (DOJ) and Securities and Exchange Commission
(SEC) policy of corporate sanctions via fines and penalties it actually offers
"little deterrence value in the corporate setting" because corporation's are
legal fictions with "no soul to damn and no body to kick." The authors
argue that corporations view fines and penalties as simply "a cost of doing
business" because the risk of losing profitable business outweighs "the cost of
getting caught." Even if a corporation pays a large fine and penalty for a
Foreign Corrupt Practices Act (FCPA) violation the fact that the US government
would continue to do business with it sends a message that such conduct is
"excusable" as long as the company that is caught "can buy its way out of the
criminal liability." The authors' end this section by noting that they believe
the prosecutorial levying of fines and penalties is an invitation for
"prosecutorial abuse" due to the large amounts of money involved.
One solution raised by the authors for the issues
regarding fines and penalties for companies which violate the FCPA, is
debarment and suspension. They urge that debarment would be a significant
deterrent for US government contractors and would "increase compliance with the
FCPA." The authors also suggest that the threat of debarment as a penalty
would increase self-disclosure without any increased enforcement efforts if
company's received the "meaningful reward" of a lesser penalty through self-disclosure.
However, just as quickly as the authors suggest the
solution, they list several reasons that debarment has not worked in the past.
These include issues raised in the abstract cited above, that certain
contractors have simply too large a business relationship with the US
government to be debarred and that due to the loss of governmental revenues
debarment would be "a virtual death knell for the contractor-company." (Cue the
Arthur Andersen theme here.) They also raise other issues including something
they entitle "Prosecutorial Finger Pointing" which they seem to define as the
DOJ having some reluctance to debar companies and that the DOJ's testimony at
last fall's Senate hearing that debarments would have low deterrent effect but
it might well decrease voluntary disclosures.
The authors also list what they call "Collateral
Consequences" of debarment. These include the aforementioned Arthur Andersen,
loss of US government flexibility in its contracting process by the removal of
contractors through debarment, injured diplomatic relations with foreign
allies, threats to national security from the removal of key contractors, risks
that debarred companies would miss out on economic opportunities,
disproportionate harm to shareholders and other political risks.
The authors conclude by noting that fines and penalties
are but one method of FCPA enforcement. They argue that debarment can be a
"potent deterrence" and end their article by proposing that a two year
debarment for firms caught bribing foreign governmental official in violation
of the FCPA would present "remarkable opportunity costs" and would help to
foster overall FCPA compliance.
We began this posting by stating this article is
"provocative" and we hope that you gleaned some flavor of it. We urge you to
read the entire article to fully explore the author's views. Certainly the
article is useful in continuing the FCPA debate on both the appropriate
incentives for enforcement, coupled with the appropriate fines and penalties
for those companies which violate the Act. We believe the increase in
enforcement over the past five years, for both companies and individuals,
provides proper incentive for US companies to comply with US law. While we
disagree with some of the points set out by the authors in their article, we do
believe that debarment as a possible remedy or sanction is one which should be
considered as a tool which the DOJ can use in its overall FCPA enforcement
efforts. We applaud the authors for their valuable contribution.
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© Thomas R. Fox, 2011
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