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Is There Really an “Offensive” Use of the FCPA?

By Bracewell & Giuliani LLP | September 26th, 2014

By Kedar S. Bhatia and Shamoil Shipchandler

Several months ago, as I was browsing through a forthcoming law journal article on the Foreign Corrupt Practices Act, I noticed an entry in the article’s table of contents titled: “Offensive Use of the FCPA.” I have to admit that the mere idea of an “offensive” FCPA itself sent shivers down my spine. An offensive FCPA?! Does that mean there is even more to worry about for companies then increasingly aggressive enforcement programs already instituted by the Department of Justice and the Securities and Exchange Commission? Surely there has not been a hidden FCPA lurking around the corner like some ghoul in a late-night horror movie. Like most things in life – and like most answers you get from a lawyer – the answer here is, well, sort of.

According to law professor Mike Koehler, an offensive use of the FCPA occurs when a company uses the anti-bribery statute “to achieve a business objective or to further advance a litigating position.” In its most basic form, an offensive use involves little more than a company pointing out an opponent’s FCPA violations for its own gain. Commentators and advocates have started using this term to describe this fairly specific and heretofore unidentified use of our favorite U.S.-based foreign bribery provision.

In its most basic form, an offensive use of the FCPA involves little more than a company pointing out an opponent’s FCPA violations for its own gain. For example, in 2013 when Dish Network challenged SoftBank’s bid to purchase Sprint Nextel, Dish Network cited a 2009 enforcement action against UTStarcom, a separate company, as a reason “public interest analysis” skewed against allowing the sale. Dish Network alleged that because the founder of SoftBank sat on the board of directors of UTStarcom when that company was under FCPA scrutiny, SoftBank was required to “provide a full explanation” of the incident.

Koehler and others cite several instances of offensive FCPA use. One of the most startling examples of the offensive FCPA occurred during boardroom fight between Wynn Resorts and Kazuo Okada, a large shareholder and board member. In 2011, Okada filed a civil lawsuit against Wynn, accusing the company of making an illegal, FCPA-violating contribution to the University of Macau. Of course, the lawsuit triggered DOJ and SEC scrutiny, which the company was forced to disclose in a public filing. Soon after the company disclosed the government inquiry, it countered with its own public announcement that an internal investigation by its compliance committee had revealed “three dozen instances” of possible wrongdoing by the disgruntled shareholder and director. In yet another incident, after a liquor distributor’s largest shareholder failed to gain control of the company, he retaliated by announcing that executives at the company were under FCPA scrutiny.

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Major Cases Only, Please

By Bracewell & Giuliani LLP | July 9th, 2014

By Shamoil T. Shipchandler

At the American Health Lawyers Association meeting last week, Department of Justice officials signaled that the Department may shift to a model of bringing slightly fewer health care fraud cases overall but bringing them against large corporations, their executives, and other high profile targets. According to Law360, Daniel R. Anderson, the deputy director of the commercial litigation branch in the Civil Division, said that “[c]riminal enforcement is slightly down if you look at the statistics, but I wouldn’t take too much from that. We’re finding that our criminal [prosecutor] colleagues are turning more toward institutional fraud. … The investigations that they’re opening are larger.”

Shamoil T. Shipchandler

To this I say . . . what?

Perhaps I’m skewed by my recent departure from the U.S. Attorney’s office, but it’s not all that easy to one day decide to focus on large cases instead of small cases. A federal agency supervisor once told me that he wanted his squad to work only the large mortgage fraud cases. Really? How, exactly? In the world of white collar prosecution, it’s often the small cases that turn into the large cases. For example, you usually start looking at one investor complaint, find another investor, and then you discover an extensive scheme. You ordinarily don’t get out of the shower on a Monday morning and run smack into Charles Ponzi (unless you are dreadfully unlucky). Billion-dollar schemes do not just lie in wait for you unless you really do believe that a wealthy heiress in Nigeria has willed you all of her money.

So reading between the lines, what it looks like is that the Department is increasing its scrutiny of large corporations to identify suspicious activity while declining smaller value cases because of resource issues. And in increasing its scrutiny, it is more willing to work its way up the chain to high value targets, or at least more willing than in the past.

And the question then becomes, with an increased eye towards high value targets, how aggressive will the Department be in resolving their investigations? And how exacting will that pound of flesh be when carved from a corporate entity?

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