This article was reprinted with permission
from FCPA Professor
Although economic analysis is not my field, I have long
been interested in basic economic theory as it applies to Foreign Corrupt
Practices Act fine and penalty amounts, specifically disgorgement.
In my opening remarks at the World Bribery and Corruption
Compliance Forum in London in September 2010 (see here),
I observed as follows.
"Another issue in need of deeper analysis is the commonly
held enforcement view that the contract (and thus net profits of the contract)
at issue was secured solely because of the alleged improper payments made by
the corporate. This ignores the fact that most of the companies settling
enforcement actions are otherwise viewed as industry leaders presumably because
they offer the best product or service for the best price. With such companies,
can it truly be said that the alleged improper payments were the sole reason
the company secured the contract at issue, thus justifying the company being
forced to disgorge all of its net profits associated with the contract? Does a
but for analysis have a place in bribery laws - in other words should the
enforcement agency have to prove that but for the improper payment, the company
would not have secured the contract at issue?"
In the context of the recent Pfizer enforcement action, I
again highlighted here
some basic economic issues when thinking about the disgorgement penalty in that
previous post highlighted the work of Dr. Patrick Conroy (here) and Dr. Graeme Hunter
(here) - both of Nera
Economic Consulting. In their thoughtful article
titled "Economic Analysis of Damages under the Foreign Corrupt Practices
Act," the authors note that "to date there has been little consideration
of the true benefit of the bribe," but "with fines in the hundreds of millions
of dollars and increasing enforcement, it is necessary to clearly understand
what effect a bribe had on profits and to carefully establish what the but-for
profits would have been without the bribe."
I recently came across a similar article by Mark Gueck (here) and
Jeff Armstrong (here) -
both of Finance Scholars Group. Their article "Competition Principles
Applied to FCPA Damages" (here),
rightly notes that "disgorgement is complex and may put the firm [resolving an
FCPA enforcement action] in the position of forfeiting some legally earned
profits as well." The authors "propose strengthening
FCPA disgorgement with robust economic analysis, in particular, applying
principles of market competition in ways that are accepted in other areas
of government oversight so that the proper balance between penalty, incentive
and opportunity is achieved." Among other things, the authors point out,
as I frequently have as well, that "companies fined under the FCPA are industry
leaders" and that "customers can be expected to purchase from the firm in the
absence of a bribe."
Even if a company is found to have violated the Foreign
Corrupt Practices Act, the law nevertheless demands that fine and penalty
amounts are fair and just. The time has come for basic economic
principles, accepted in other areas of law, to be accepted in
FCPA enforcement actions. FCPA counsel would be wise to
consider such issues, and engage such expertise, when negotiating
resolutions to FCPA enforcement actions with the DOJ and SEC.
Read more articles on the FCPA by Mike
Koehler at FCPA
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