Will Softer FCPA Enforcement Help or Hurt Companies?

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FCPA

Despite chatter about relaxing enforcement of the FCPA, multinational companies should neither weaken their compliance protocols nor start tolerating bribery.

Luke Aneke

By Luke Aneke

Luke Aneke is the Executive Vice President at Bachsen & Co., a New York-based consultancy. He received a Juris Doctor from Columbia and is a member of the New York bar. Mr. Aneke advises businesses on regulatory risk and resolving data privacy and security issues. He can be reached at luke.aneke@bachsen.com or 212.600.5144.

Recently, Special Counsel Robert Mueller appointed veteran prosecutor Andrew Weissmann to Mr. Mueller’s team investigating allegations against President Trump, his campaign, and associates. That appointment plucked Mr. Weissmann from the Department of Justice where he headed the Fraud Division, the arm responsible for enforcing the Foreign Corrupt Practices Act (FCPA).

His departure has sparked more discussion about the likely direction of FCPA enforcement. And that’s because, before leading the Fraud Division, the former Obama administration official had assailed the Securities and Exchange Commission’s and DOJ’s FCPA enforcement policy as unduly stringent. At the DOJ, he midwifed a much-discussed Pilot Program, which aims at “motivating companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.”

Some anticorruption cognoscenti have accused the Program of being cosmetic and far from new. But, cosmetic or not, new or not, it signaled an openness to pressing Division officials’ hands with carrots. Hitherto rampant sticks would then begin to fall. The tilt towards preventive and away from punitive measures, the rise of carrots over sticks, of sparing some rods, and of trust in companies’ good faith showed a less stringent, less adversarial outlook styled “business friendly” in regulatory lexicon. It’s a genre of regulation with impeccable pedigree and thus not to be scoffed at. Appearing, albeit inchoately, in ancient Graeco-Roman and Chinese governance, it rose in late Renaissance Europe as part of an avalanche of forces, unleashed by the Scientific Revolution, that sought to unclasp the overbearing hands of God and State. The Chicago School developed and boosted it as a counterpoint to perceived post-Depression dirigisme. Shortly thence, it soared with the Reagan-Thatcher revolution, seduced regulators (Alan Greenspan, Robert Rubin e tutti quanti), and peaked until the Great Recession prompted a rethink.

Jay Clayton, a Trump appointee and critic of aggressive FCPA enforcement, who has led the SEC since May 4, comes from this school. The journey to a “business-friendly” regime may hence accelerate, more so if one considers the president’s low opinion of the law (“horrible,” he called it) and Attorney General Jeff Sessions’ coldness to tough enforcement of it. In remarks to this year’s gathering of anticorruption professionals at the Ethics and Compliance Initiative, however, Mr. Sessions affirmed his commitment to a vigorous enforcement of the law. The wise course is to heed less his words and more his acts. After all, his words to the Initiative may have been tailored to conform to the norms expected of public servants in general and regulatory czars in particular.

Now that the quartet of FCPA critics has lost the influential Mr. Weissmann, will the SEC and the DOJ return to their “aggressive” enforcement path, fusing broad territorial reach with equally broad liability theories? Or will they continue to inch towards a laissez-faire regime? Perhaps, they’ll race to it. But, lest we end up complicit in giving the “appearance of solidity to pure wind,” we suspect that “business-friendly” enforcement means ignoring some incidences or types of bribery now prosecuted; reducing penalties imposed on culprits; and retiring purportedly expansive jurisdictional and culpability theories. If the government were to go all in on this policy, that choice should be unsurprising; indeed, it would be consistent with its overt retreat from American ideals, from norms that have made this country the cynosure of all eyes since 1945.

Still much of the evidence points in different directions and thus precludes “prophecies of what” regulators “will do in fact.” Given the administration’s deregulatory thrust, it may be tempting to begin chipping away at anti-bribery controls in expectation of slackened enforcement. But it would be imprudent to do so for three reasons.

Don’t Start Tolerating Bribery or Relaxing Compliance Protocols

First, whether agency policies change or stay the same, the ethical and legal issues that spurred the fight against corporate bribery remain. Bribery continues to immiserate lives and undermine the rule of law, the free market system, and economic development.

In developing countries, where weak institutions and entrenched corruption reinforce each other, bribes to public officials can mean a child not fed, an early death for mothers, the sick and infirm cast adrift in squalor, men and women staring at a dreadful future in which hunger ravages the body and ignorance the mind. Even a mere door-ajar policy on bribery taints perceptions of enterprise and companies’ motives and it harms, at least by association, the reputation of the U.S. It’s no wonder both plebeian and legislative discourse about bribery is suffused with moral revulsion.

Second, anticorruption enforcement has gone global. Following the Enron scandal and 9/11, the U.S. ratcheted up enforcement of the law. Other countries, especially OECD members, soon followed as more countries realized that terrorists exploit the same channels corrupt companies and politicians use to launder money. So, executives or companies that lull themselves into relaxing their vigilance because the SEC and DOJ toned down enforcement may find themselves exposed to increased prosecution risks elsewhere. After all, despite the rest of the world following the U.S.’s lead on anticorruption, there is no indication that they will mimic its choice to relax enforcement. On the contrary, other countries appear to be intensifying their pursuit of corrupt companies and individuals.

Just last December, France beefed up its anticorruption arsenal with a new, stronger law. Informally known as la loi Sapin II, the law stiffens penalties for bribery and requires large French companies to set up compliance programs. It also supplants a famously impotent and indolent body ( Le service central de prévention de la corruption) with a new enforcement agency ( l’Agence française anticorruption or AFA) armed with long, sturdy claws. Yes, the agency enjoys extraterritorial powers similar to those exercised by the DOJ and the SEC and which critics decry as legally tenuous and an invitation to activism. As if France, a laggard in prosecuting international bribery, didn’t send enough messages with these changes, it appointed Charles Duchaine—an old foe of organized crime and a man as shrewd as he is dogged and ferocious—to lead the AFA. It’s hard to imagine a more apt leader than judge Duchaine, except for Renaud Van Ruymbeke, the tireless anticorruption magistrate. Yet, we’ll soon see how these lofty ideals fare after colliding against reality. As with most laws and their enforcement, there’s a dance, sometimes intimate, at others aloof, often ill-mixed, between the duties embedded in the law and the cost-benefit calculations regulators must juggle to enforce the law.

Last year too, Colombia toughened its anticorruption law, delivering on the assurances the administration of President Juan Manuel Santos had given the OECD. The country broadened corporate liability and territorial reach, increased the statute of limitations to ten years, extended debarment periods, and raised maximum fines from less than $630,000 to about $45.7 million. In February 2016, Dutch regulators ( Openbaar Ministerie) imposed a $397.5 million penalty on the telecom giant VimpleCom, the largest by the Public Prosecutor in an anticorruption case. And two weeks ago, Israel sentenced five executives of Israel Electric Co. to prison terms for, among others, accepting bribes from Siemens. Though Israel passed an anti-bribery law in 2008, last year marked the first time it invoked the law, fining Nikuv International Projects Ltd. $1.25 million for bribery payments to Lesotho government officials. Denmark, Mexico, and myriad countries are on the same track.

Finally, a company that relaxes its compliance procedures whether or not because of the SEC and DOJ may inadvertently create a culture of tolerance for unlawful conduct. Others such as competitors or citizens of a developing country may be the initial victims of such relaxation. But the company itself would likely end up a victim too as employees and associates exploit the slack in vigilance to engage in nefarious conduct, circumvent surviving controls, and expose the company to risks. Sending the message that some bribes are acceptable gives employees license to conduct lax reviews of third parties, ignore red flags, engage in direct and indirect bribery, among others. Since the increased enforcement of the FCPA that began in 2001, companies and executives have worked hard and forgone significant profits to set up robust anticorruption cultures. Careful leaders should not undo that work.

Conclusion

While companies must remain alert to enforcement trends, they should beware of developments that may seem friendly but increase chances the companies will be entangled in illegal or unethical conduct. The pressing goal isn’t tracking the way enforcement winds blow but minimizing corruption and ensuring compliant companies do not forfeit opportunities to rogues. Achieving those goals may require raising, not reducing, noncompliance costs and strengthening, not weakening, enforcement of the law.

When nations, including reputed bastions of enlightenment, largely ignored foreign bribery, the U.S.—alone—began and led the fight against that scourge. If regulators begin to reverse that legacy, decency and wise risk management counsel that managers wash their hands of that direction.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

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