Two former Justice Department officials who’ve argued to amend the Foreign Corrupt Practices Act heaped praise today on the department’s new guidance for complying with the 35-year-old foreign anti-bribery statute.
Former George W. Bush administration Attorney General Michael Mukasey, who has lobbied on behalf of the U.S. Chamber of Commerce to change the law, apologized jokingly for “turning what perhaps some people came to see as a food fight into a love fest.” He spoke at a Federalist Society event in Washington, D.C., alongside former George H.W. Bush Deputy Attorney General George Terwilliger, who testified with Mukasey in June 2011 before a House Judiciary subcommittee in favor of amending the statute.
The new 130-page guidance, written in an accessible manner for businesspeople as well as their lawyers, is a comprehensive explanation of how the department and the Securities and Exchange Commission weigh various factors when enforcing the FCPA.
It was released in response to the Chamber’s calls for more “clarity” for businesses, which have paid billions of dollars in penalties for bribery offenses and spent billions more over the last decade beefing up their programs for complying with the law. Most of those penalties have been paid under so-called “deferred prosecution agreements,” settlements that don’t require prosecutors to go before a judge and jury to prove their charges, but which companies prefer because they provide certainty to the resolution of allegations.
“The very fact, I think, that the Justice Department agreed to come up with a guide that helps people through this statute that indicates what is at the fringe, what is at the center, is enormously useful,” said Mukasey, now a partner at Debevoise & Plimpton LLP. ”It provides considerable detail in actual hypotheticals,” he said, and explains why law enforcers in some cases have declined to prosecute companies.
Appearing on behalf of the Justice Department was Assistant Attorney General Lanny Breuer, who oversees the Criminal Division and its Fraud Section, which enforces the law.
Also on the panel was Mark Mendelsohn, former head of the FCPA unit in the Fraud Section and now partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. Mendelsohn is sometimes called the “father of the modern FCPA” because he was the driving force in the mid-2000s behind ramped up enforcement of what had been a largely dormant statute.
“The guidance draws on ample precedent from DOJ’s opinion releases to its enforcement actions [and] SEC enforcement actions,” Mendelsohn said.
He acknowledged the guidance provides “few bright lines” that businesses cannot cross without risking a violation. Prosecutors have resisted the business lobby’s call for such rigid definitions, because it reduces their ability to apply judgment to individual cases based on the facts.
“But there are many useful hypotheticals, scenarios, practice tips, some general data on declinations, and some specific anonymized cases involving declinations,” Mendelsohn said, referring to instances when law enforcers declined to prosecute. “And so in my personal view the guidance has some real utility, particularly for in-house legal and compliance professionals.”
Mendelsohn continued: “I would say that the FCPA from many perspectives is not a perfect statute, but it’s a perfectly serviceable one. FCPA enforcement is not perfect either, but there’s no foreign bribery enforcement program that’s better” in any other country.
But the warm mood turned testy on the question of whether companies should be let off the hook for having good compliance programs, the so-called “compliance defense.”
Mukasey and Terwilliger argued that companies that make a strong effort to educate employees about anti-corruption procedures and put mechanisms in place to try to stop bribery before it occurs are not given enough credit by the department when enforcing the statute.
“This is not a complete love fest,” Terwilliger said. “I’ll take the position that companies are not sufficiently rewarded, or at least not sufficiently rewarded with sufficient certainty, as they should be for undertaking that kind of conduct.”
Mukasey said he understands such a change would have to come through a statutory amendment rather than Justice Department policy. The FCPA prohibits companies under U.S. jurisdiction or their employees from bribing foreign officials for business advantage. It requires prosecutors to show a “corrupt intent” in the making of such payments.
The Justice Department encourages companies to self-report violations to law enforcement that they uncover through their compliance programs. So, “they are to a certain extent at war with themselves,” Mukasey said, citing jeopardy they face from a “rogue employee” making unauthorized bribes. “And I think they would feel much more comforted by at least being able to establish a compliance defense.”
Breuer defended the department’s position.
“Were we to accede to a total compliance defense it would completely go counter to the principles that have … dictated the way we look at criminal justice and how we evaluate cases in every area of the law,” Breuer said. “And we would treat the FCPA differently than any other criminal act.”
The Criminal Division chief said the principles governing whether to prosecute have existed for many years and aren’t partisan. A compliance defense would draw the focus away from the alleged corrupt conduct, he argued.
A “race to the bottom,” could result, he said, with companies taking the position that ” ‘All we need is to have a program and then to hire good counsel who can argue in court that there’s an existing compliance program.’ And that would be the debate — what is the program and is it adequate enough?”
He added: “If you look at the guide or you look at our website, you will see companies that have good compliance programs are highly regarded. ”
Breuer cited the recent decision to decline a prosecution of financial services giant Morgan Stanley.
A Morgan Stanley real estate executive in China, Garth Peterson, pleaded guilty in April to conspiring to transfer an ownership interest in a Shanghai building to himself and a Chinese public official with whom he was personal friends.
Morgan Stanley had trained Peterson on the FCPA seven times and given him reminders about it at least 35 times. The department determined Peterson was exactly the kind of “rouge employee” that Mukasey warned about, and thus decided not to prosecute his employer. Peterson was sentenced to nine months in prison.
“We were very clear and very transparent. We didn’t bring a case against Morgan Stanley at all; Garth Peterson is sitting in jail right now,” Breuer said.
He continued: “Frankly I don’t see why we want to muck around and change the … act. I think we’ve heard about hypothetical issues here, but in reality in the implementation we have it right.”
Mendelsohn echoed Breuer.
“The department has always said there is no one-size-fits-all… So the question is how to do you set standards to apply to a small private company that is just beginning to export that has no presence outside the United States on one hand, and on the other hand a major super-multinational with a presence and operations within 120 markets around the world?”
He added: “There is no common ground in the middle there except on the most basic level. So I worry that the result will be an understanding of what a compliance program will be well below what our current practices in market places and economies is now.”