FCPA enforcement distorts intent of law, expert says

Oct 07, 2014
<p>By settling for fines instead of prosecutions, the Justice Department is failing to discourage bribery</p>

Current enforcement practices of the Foreign Corrupt Practices Act are distorting the legal process and reducing the effectiveness of the law, a legal expert told a high-powered group of Washington attorneys last week.

‘The FCPA is a fundamentally sound statute,’ said Mike Koehler, a professor at the Southern Illinois University School of Law and author of the widely read blog FCPA Professor. ‘But the SEC and Department of Justice have failed to put it to its burden of proof.’

In his new book, The Foreign Corrupt Practices Act in a New Era, Koehler reviews the enforcement actions and court cases of the law since its enactment in 1977. He found there were very few cases that actually went to trial, and only two that reached an appellate court.

‘This is a highly distorted rule of law,’ Koehler told several dozen senior lawyers in the Washington offices of King & Spalding on October 2. ‘It has highly distorted the whole process.’

Most cases have been settled with non-prosecution agreements (NPAs) and deferred prosecution agreements (DPAs), essentially letting companies off the hook with payment of a fine.

But, Koehler notes, any time a company violates the law, some individual must have violated the law. And yet 80 percent of the corporate enforcement actions lack any related prosecution of individual perpetrators, he said.

‘These crimes must have been engaged in by ghosts,’ he quipped.

This enforcement practice, particularly evident in the past 10 years, reduces the effectiveness of the law and keeps it from attaining its goal of stopping bribery.

‘Enforcement with corporate fines is not effective,’ he said. ‘Prosecution is the cornerstone of the FCPA strategy.’

He said lawmakers were careful to craft the law narrowly enough and carve out enough real-world exceptions that the law could be effective if properly enforced.

The SEC and DOJ seem to be more focused on the quantity of enforcement actions rather than the quality, Koehler said.

‘Isn’t quality of enforcement more important than quantity?’ he asked rhetorically, arguing that testing the case in court would make enforcement more effective.

The involvement of the SEC, a regulatory agency designed to protect investors, is an accident of history in any case. ‘The legislators at the time did not trust the Department of Justice,’ Koehler said.

The SEC has no prosecutorial powers but can make referrals to DOJ for prosecution.

King & Spalding partner Zack Harmon faulted enforcement agencies for bringing cases against companies for failure to observe every one of their own compliance rules, which in some instances can be extensive.

‘If you have a firm that has the gold standard of compliance with 28 rules and they miss one of them, they get hit with a fine,’ he said. ‘Another firm might have only six rules and be in compliance.’

In Koehler’s view, the result of these enforcement practices has been that the FCPA has strayed from its original objective of defining what bribery is and stopping it.

‘What is bribery?’ Koehler asked. Beyond the obvious case of a satchel full of cash handed over to a government official, the history of enforcement of the FCPA has not made that clear.

‘Their attitude seems to be I know it when I see it,’ Koehler said, paraphrasing the famous remark by Supreme Court Justice Potter Stewart regarding pornography. That is not sufficient, however, for rule of law principles, he adds.

‘The lawmakers qualified the definition in many respects,’ he said, but FCPA enforcement has muddied the waters.

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