In-sourcing corporate responsibility for enforcement of the Foreign Corrupt Practices Act.

• Author: Thompson, Larry D.
• Position: Reducing Corporate Criminality: Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform

1. INTRODUCTION

   The World Bank estimates that more than $1 trillion in bribes are paid each and every year to government officials who demand that they be given something extra simply for performing their public duties. (1) Bribery supplants the rule of law with the rule of naked will--indeed, of naked greed--and turns many countries into kleptocracies. (2) In the words of former Assistant Attorney General Lanny Breuer, "everyone--from the fruit stand owner in Tunisia, to the oil rig worker in Nigeria, to the punk rock musician in Russia--knows how pernicious corruption can be; and we in the United States are in a unique position to spread the gospel of anti-corruption, because there is no country that enforces its anti-bribery laws more vigorously than we do." (3) Former U.N. Secretary General Kofi Annan characterizes bribery as '"an insidious plague that has a wide range of corrosive effects on societies. It undermines democracy and the rule of law, leads to violations of human rights, distorts markets, erodes the quality of life, and allows organized crime, terrorism, and other threats to human security to flourish.'" (4) Public corruption "creates gaps in government structures that organized criminal groups and terrorist networks can exploit. In short, corruption is a 'gateway crime.'" (5) The problems of government and business corruption that are addressed by the Foreign Corrupt Practices Act ("FCPA") (6) therefore cannot be overstated.

   Compounding the problem of enforcing the FCPA is the daunting chasm between the size and complexity of global multinational corporations and the limited resources that America's enforcement agencies, the Department of Justice ("DOJ") and the Securities Exchange Commission ("SEC"), can bring to bear. The only way to level the playing field, at least a bit, is to enlist the businesses themselves in FCPA enforcement. That is, we must create an incentive structure that drives corporations to establish internal compliance programs and to root out foreign corruption within their own organizations. Only those businesses themselves have the resources to conduct the global investigations that the FCPA requires.

   To accomplish this end, I believe that we need to do two things: first, we must give businesses clear and predictable guidance on what sort of compliance programs they must establish; second, we must give them powerful incentives to engage in self-investigation and self-reporting of the bribery they uncover or suspect. The incentives I suggest are two: (1) businesses must be assured that a strong compliance program and prompt and full self-disclosure will ensure that the company itself will not be subject to criminal prosecution under the FCPA, and (2) such self-disclosure will also prevent the company from being debarred from doing business with the federal government or being denied government permits or licenses necessary for the company's operations.

   In this article I first review our nation's long-standing and active aversion to corporate corruption overseas, as principally embodied in the FCPA. I then explain how achievement of the FCPA's goals is undermined by the uncertainty in current federal enforcement policies and the consequent ambivalence toward self-disclosure exhibited by multinational corporations. Finally, I argue that the only realistic way to make up the shortcomings in FCPA enforcement that flow from the Justice Department's limited resources is to motivate corporations themselves to police corruption in their foreign subsidiaries by giving them a concrete incentive in the form of guaranteed immunity from corporate criminal liability, and by assuring them that the company will not be debarred from doing business with one of the largest of all potential clients--the United States government. This proposed policy of inducing corporations to be responsible for policing themselves in the public interest would be merely another instance of America's historical practice of yoking the corporation to society's plough.

2. AMERICAN LEADERSHIP IN ADDRESSING FOREIGN CORRUPTION

   Although enactment of the FCPA was driven largely by the American conviction that "[c]orporate bribery is bad business," (7) subsequent international efforts to suppress bribery have recognized that the threat goes beyond capitalism and "jeopardizes 'sustainable development and the rule of law.'" (8) As usual, the toxic effects of any international problem are always most acute in the underdeveloped portions of the world.

   Corruption ... has particularly negative effects on emerging economies. When a developing country's public officials routinely abuse their power for personal gain, its people suffer. At a concrete level, roads are not built, schools lie in ruin and basic public services go unprovided. At a more abstract, but equally important, level, political institutions lose legitimacy and people lose hope that they will ever be able to improve their lot. (9) "Companies that routinely engage in corrupt business practices abroad play an active role in helping maintain the 'ungovemed states' that 'continue to export poverty and serve as havens for all sorts of gangsters, pirates and terrorists.'" (10)

   As long as there has been anything approximating organized government, there have been apparatchiks with their hands held out, demanding that their palms be greased before public services are provided or the public's work gets done. Yet for more than two decades, the United States was alone in prohibiting the bribery of the officials of other nations. (11) The FCPA was enacted in 1977 in the wake of an SEC report that more than 400 American companies--including many of the largest corporations in the nation--had made more than $300 million in "questionable payments" to foreign officials with whom they were doing business. (12) At the time, many foreign governments saw the FCPA as yet another pointless and annoying instance of American economic imperialism, and widely dismissed it as naive or even "quixotic." (13) Indeed, in many nations, bribes paid to foreign officials were tax-deductible as a routine business expense. (14) But the rest of the world slowly recognized that such corruption was bad for everyone's business: the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions ("OECD Convention") was ratified and took effect on February 15, 1999. (15) Other international efforts emerged from the Organization of American States, the United Nations, and the World Bank. (16)

   The Justice Department has recently made enforcement of the FCPA its top priority--"second only to fighting terrorism." (17) Between 2007 and 2009 the DOJ and the SEC brought roughly twice as many FCPA cases as they had in the statute's entire prior twenty-eight years of existence. (18) And in 2010 there were more FCPA prosecutions than ever before, with fines regularly topping hundreds of millions of dollars. (19) There are at least 200 FCPA investigations currently pending; plainly, FCPA enforcement is at its zenith and is unlikely to diminish in the foreseeable future. (20) Last year former Assistant Attorney General Lanny Breuer gave a speech lauding the Justice Department's FCPA docket--more trials than in any year in the history of the Act--and the fact that the DOJ had just secured the longest prison sentence--fifteen years--ever imposed under the FCPA. (21)

   Thus, FCPA enforcement has been nearing a fever pitch and nine-figure penalties are no longer novelties. (22) For example, in December 2008, Siemens AG and several subsidiaries pled guilty to FCPA crimes and paid a total of $1.6 billion in fines to the U.S. and German governments for a scheme that involved more than $1.3 billion in bribes or other improper payments in at least ten different countries. (23) To put that $1.6 billion fine in perspective, the highest previous FCPA sanction had been $44 million. (24) In March 2010, BAE Systems pic, one of the world's largest defense contractors, entered a guilty plea under the FCPA and paid a $400 million criminal fine to the United States and a fine of $50 million to the United Kingdom's Serious Fraud Office on charges involving corrupt arms trafficking to Saudi Arabia. (25) The following month, Daimler AG and its Chinese, Russian, and German national subsidiaries paid $185 million to settle FCPA charges involving payoffs in twenty-two countries--about half of that sum in criminal fines to the DOJ and half in disgorgement of profits to the SEC. (26) In February of 2009, Kellogg Brown & Root LLC--the engineering subsidiary that Halliburton spun off in the wake of its prolonged and unwelcome time in the public spotlight--settled charges (involving allegations of a decade of bribing Nigerian officials to gamer $6 billion in construction contracts) with DOJ and SEC for $579 million. (27)

   In 2010, the OECD officially congratulated the United States for investigating and prosecuting more foreign bribery cases than any other signatory to the OECD Convention. (28) And companies are not the only targets. Lanny Breuer, former chief of DOJ's Criminal Division, announced in November of 2011 that his office's admirable Kleptocracy Asset Recovery Initiative had filed complaints seeking forfeiture of $70 million from Teodoro Nguema Obiang Mangue, a minister for Equatorial Guinea and son of that nation's president. (29) It is little wonder that the FCPA has become perhaps "the most ... feared statute)] for companies operating abroad." (30)

3. THE FCPA IS UNDERMINED BY THE ABIDING UNCERTAINTY AND OPACITY OF U.S. ENFORCEMENT PRACTICES

   Despite this account of recent vigorous enforcement, my view is that the statute is feared less because of what is known about the FCPA's power and the DOJ's zeal to enforce it, than because of what is unknown about the scope of the FCPA's prohibitions and how, when, and where the DOJ and SEC...