In spite of its good intentions, the Dodd-Frank Act has created an FCPA monster.

• Author: Hansberry, Heidi L.
• Position: Foreign Corrupt Practices Act of 1977

1. INTRODUCTION

   The Foreign Corrupt Practices Act (FCPA) (1) has the noble goal of deterring corporations and individuals from engaging in corrupt dealings with foreign officials. To achieve this goal, the FCPA outlaws the bribery of foreign officials (the anti-bribery prong) and condemns deficient accounting practices (the books and records prong). (2) The FCPA empowers both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to enforce these two prongs. (3)

   The DOJ and SEC have been overwhelmingly successful in their enforcement efforts, as measured by the price tags of the settlements they have achieved. The top ten corporate FCPA settlements in the past three years alone amount to over $3.1 billion, (4) a figure that includes criminal fines, civil disgorgement, and prejudgment interest collected by both agencies. (5) These figures make it clear that the FCPA has created a high-stakes game for implicated corporations, issuers, and individuals.

   A significant development for the FCPA occurred in July 2010, when Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). (6) This act amended the Securities Exchange Act of 1934, which contains the FCPA. (7) Notably, the Dodd-Frank Act added provisions that protect whistleblowers who report Securities Exchange Act violations. The provisions mandate that whistleblowers receive a percentage of the fines resulting from government convictions or settlements. (8) Subject to certain requirements, whistleblowers are entitled to 10%-30% of the total fines imposed on companies for providing information that assists the government in its investigation of Securities Exchange Act allegations. (9)

   In addition to providing qualifying whistleblowers with a bounty, the Dodd-Frank Act protects whistleblowers in two other respects. First, it allows whistleblowers to remain anonymous up to the point of receiving their financial awards. (10) Second, the Dodd-Frank Act allows whistleblowers to redeem their bounties unless they are convicted of a crime related to the reported FCPA violations. (11)

   The Dodd-Frank Act's whistleblower bounties and enhanced whistleblower protections have strengthened the power of the FCPA. A 10%-30% minimum payout means that the Dodd-Frank Act guarantees qualifying whistleblowers multi-million dollar bounties, based on the top figures in the last few years. This financial incentive for whistleblowers, in addition to the benefit of anonymity and the policy to provide financial awards to complicit, but non-convicted, whistleblowers, is dangerous. This Comment will argue that with such a big carrot, anonymity, and a free pass for complicit behavior that does not result in a conviction, whistleblowers are more likely to submit incomplete or frivolous claims or, in the worst-case scenario, engage in behavior that encourages or brings about FCPA violations.

   The Dodd-Frank Act's whistleblower protections add to the burden on corporations, in particular. Corporations are at an extreme disadvantage because of the financial repercussions of fighting FCPA accusations, and a cost-benefit analysis nearly always results in corporations settling claims with the SEC or submitting to fines and monitoring imposed by the DOJ. (12) Once FCPA charges are brought or an FCPA investigation is initiated, corporations tend to settle or plead rather than litigate. (13) There are several reasons for this tendency. First, the FCPA provides for only two affirmative defenses. (14) Second, the FCPA imposes successor liability--liability for acquired corporations' FCPA violations, in a strict liability manner--for acts occurring prior to the entity's acquisition by the parent company. Third, the government's burden of proof has never been tested in court with regard to companies accused of FCPA violations, (15) so companies are unable to benefit from any FCPA precedent. Thus, the "feds [have] immense power.... [because] they don't have to prove their legal theories of bribery in court." (16)

   The whistleblower provisions will likely increase the number of FCPA investigations and also lessen a defendant's ability to combat the charges, given the nature of complaints from anonymous whistleblowers. Whistleblower anonymity may prevent a company from conducting a thorough internal investigation of the alleged conduct or exploring a whistleblower's potential ulterior motives. Thus, companies and individuals may more frequently choose to settle or plead guilty to FCPA charges, regardless of the legitimacy of the allegations, because of the uncertainty resulting from anonymous accusations.

   Corporations have much to lose by taking FCPA allegations to trial. The mere fact that a corporation is under investigation by the government has reliably damaging results on shareholder confidence and stock prices. (17) One would imagine that litigation would only exacerbate this negative economic effect, due to the increase in publicity at the trial phase. While companies face such significant economic risk, they might never call the bluff of the government, who may rely upon whistleblowers with frivolous claims, albeit unknowingly. Corporations' cost-benefit analyses, therefore, lead them to abandon the idea of litigating FCPA allegations. (18)

   With the added muscle that the Dodd-Frank Act's whistleblower provision provides, the FCPA has become a monster. This Comment suggests ways to temper the FCPA in order to preserve its worthwhile goals of punishing and deterring bribery of foreign officials while reducing the chances of companies being unfairly punished and whistleblowers being improperly incentivized and rewarded. These proposed changes to the FCPA fall into two categories: the prevention of whistleblower abuse and the strengthening of a corporation's ability to defend itself. The specific proposals include the following: (1) the addition of language that warns whistleblowers about prosecution for the provision of false information, (2) the elimination of the anonymity privilege, (3) a cap on the whistleblower's bounty, and (4) the creation of additional defenses.

   Following this introduction, Part II of this Comment provides an overview of the history and anatomy of the FCPA. Part HI explains the Dodd-Frank Act's applicability to the FCPA. Part IV critiques the Dodd-Frank Act's whistleblower provisions in the context of the FCPA. Part V outlines policy issues and proposals for amendments to the Dodd-Frank Act and the FCPA. Part VI contains concluding remarks.

2. THE HISTORY AND ANATOMY OF THE FCPA

   The FCPA was passed in 1977 as a reaction to a series of scandals. (19) Data revealed that approximately 400 American companies admitted to making corrupt or "questionable" payments to foreign officials, amounting to over $300 million, in the 1970s. (20) Theodore Sorensen described the policy rationale underpinning the creation of the FCPA:

   It is unethical for a corporation to pay bribes or kickbacks to foreign officials to induce them to violate their duty--a practice subversive of sound government, sound business and sound relations between the two, no matter how deeply entrenched it may have become in the host country; a costly, wasteful interference with the free competitive market system; and a cynical, shabby technique of getting business which usually rewards the richest, most reckless and ruthless while passing on the cost to those who can afford it least. (21) In this climate, Congress enacted the FCPA in an attempt to "restore public confidence in the integrity of the American business system." (22)

   In addition to serving important policy objectives, the FCPA filled a significant gap in the law concerning bribery. Bribery within U.S. territory is punishable by several different laws. (23) Bribery of foreign officials outside of the U.S. was formerly punishable only indirectly by tax and securities law violations, specifically if companies (1) failed to report payments to foreign government officials to the SEC, (2) deducted corrupt payments as a business expense on a tax return, or (3) financed corrupt payments with secret funds or phony entities. (24) As noted by Sorensen in 1976, bribery of a foreign official was not illegal if it occurred outside U.S. territory. (25) Thus, Congress enacted the FCPA in order to directly criminalize the act of bribery of a foreign official in foreign territory. (26)

   The FCPA was groundbreaking for its time, as it was the first international anti-bribery statute of its type and scope in the world. (27) The U.S. made efforts to spread its gospel as well, and it played a leading role in creating the Organization for Economic Cooperation and Development's Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, which was signed by thirty-four countries in 1997. (28)

   1. THE STRUCTURE AND EVOLUTION OF THE FCPA

      The FCPA is part of the Securities Exchange Act of 1934. (29) Generally speaking, the FCPA prohibits companies, including their employees and agents, from engaging in corrupt conduct with foreign officials. (30) The FCPA applies to issuers, which include any U.S. or foreign company registered with or required to file reports to the SEC, (31) and "domestic concerns." (32) The FCPA penalizes offering anything of value to a foreign official in an attempt to influence that official or to secure an advantage in obtaining or retaining business. (33) The FCPA also targets the circumstances that allow bribery to go undetected by imposing standards for book- and recordkeeping and penalizing the failure to meet these standards. (34)

      Two amendments to the FCPA mark its trend of becoming stricter and wider in scope over time. In 1988, Congress raised the amount it could fine both companies and individuals for FCPA violations. (35) The 1988 amendment also imposed liability for acts of third parties (36) and expanded the anti-bribery prong to include...