Lone wolf or the start of a new pack: should the FCPA guidance represent a new paradigm in evaluating corporate criminal liability risks?

Author:Pollack, Barry J.
Position:Foreign Corrupt Practices Act of 1977 - Reducing Corporate Criminality: Evaluating Department of Justice Policy on the Prosecution of Business Organizations and Options for Reform
 
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Traditionally, companies have relied on the judicial system to determine the scope of corporate criminal liability and companies have assessed and addressed corporate criminal liability risks based on judicial determinations, but a different model appears to be emerging in the Foreign Corrupt Practice Act (FCPA) context where very little is litigated through the courts. In the past year, the Department of Justice, in conjunction with the Securities and Exchange Commission, published a comprehensive 120-page resource guide on the FCPA. The guidance reads like a legal treatise describing key areas of the law and enforcement principles, providing detailed hypotheticals, and offering practical tips for reducing liability risks and complying with the law.

This article examines the reasons behind the development of the guidance, evaluates whether this type of guidance is unique in the corporate criminal liability context, and assesses whether extra-judicial guidance is desirable in the FCPA and other criminal enforcement contexts.

  1. INTRODUCTION

    In November 2012, the Department of Justice ("DOJ"), in conjunction with the Securities and Exchange Commission ("SEC"), issued A Resource Guide to the U.S. Foreign Corrupt Practices Act ("the FCPA Guidance" or "Guide"). (1) What is most striking about the 120-page FCPA Guidance is not its content, but rather the fact that the DOJ co-issued it. The DOJ is an enforcement agency, not a regulatory agency, and typically one does not think of an enforcement agency as a guiding hand overseeing and aiding legal compliance by those who fall within its enforcement jurisdiction. This is particularly true of an agency with criminal enforcement authority. The statutory line between permissible behavior and criminal conduct is supposed to be clearly drawn. Corporations and individuals are expected to stay on the right side of the line. The DOJ is not supposed to tell them in advance what would cross the line and what would not. Rather, the way criminal enforcement works is that we should all know what is unlawful based on statutes, regulations, and court decisions, and we are all responsible for not engaging in criminal conduct. If, in the DOJ's view, a corporation or an individual has crossed the line, the DOJ will pursue criminal charges. So why has the DOJ issued the FCPA Guidance?

    As an initial matter, it is important to note that the issuance of the FCPA Guidance is not the DOJ's first foray into providing guidance to corporations and individuals on what violates the FCPA. Since its inception, the DOJ has had a process through which it issues FCPA advisory opinions. The DOJ's regulations describe the process, which was revamped in 1993, as "procedures [that] enable issuers and domestic concerns to obtain an opinion of the Attorney General as to whether certain specified, prospective--not hypothetical--conduct conforms with the Department's present enforcement policy regarding the antibribery provisions of the Foreign Corrupt Practices Act of 1977." (2) Although the current procedures have been available for almost twenty years, they have been used relatively infrequently. Indeed, the DOJ issues an average of only about two opinions per year through this process. (3) Despite the infrequency of its use, the long-standing availability of this opinion process demonstrates that the notion of a criminal enforcement agency offering guidance as to what does and what does not violate the FCPA is not entirely new.

    Advisory opinions in the criminal law enforcement context are not unique to the FCPA. The DOJ has also been issuing "business review" letters through its Antitrust Division since 1968. (4) Through this program, those concerned about the legality of a proposed business relationship may obtain guidance regarding the DOJ's enforcement intentions, should the relationship be consummated. An advisory opinion process impacting potentially criminal conduct also exists in the healthcare context where, pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Office of the Inspector General ("OIG") of the Department of Health and Human Services may issue advisory opinions about whether proposed activity would constitute grounds for criminal enforcement under the anti-kickback statute of the Social Security Act (SSA). (5)

    Despite the existence of transaction-specific guidance mechanisms, there is plainly a distinction between offering advisory opinions about specific facts presented by a party seeking such guidance and publishing 120 pages of commentary about what violates the law as the DOJ has now done with the FCPA Guidance. The FCPA Guidance appears to be an expansion of the DOJ's efforts to provide direction on what, from its perspective, violates the criminal law. It is a new type of guidance that is not intended to replace the advisory opinion process, but rather to add to the body of guidance available to corporations and individuals attempting to ensure that they do not cross the line of what the DOJ believes is criminally proscribed by the FCPA.

    So why is such expansion necessary, or at least perceived to be necessary? Is it an implicit acknowledgement that the FCPA, even the criminal provisions of the FCPA, do not put the public on notice of what the statute forbids? If this is true, why is it true? And, is the provision of additional guidance the best way to solve the problem? Lastly, is the FCPA unique among criminal statutes? Does it make sense to have such extensive guidance for the FCPA, but not have similar guidance with respect to other criminal statutes? Can we or should we expect to see such guidance in other areas in the coming years from the DOJ? In other words, is the issuance of the FCPA Guidance the beginning of a trend, or is it merely a one-time event tailored to the idiosyncrasies of a specific criminal statute? This article explores each of these issues.

    A good place to start the discussion is to consider how corporations and individuals have historically obtained guidance regarding what conduct would be considered criminal. Historically, criminal statutes typically had extremely high mens rea requirements. Presumably, an individual knows, for example, whether or not he is acting with the intent to defraud someone. And, a corporation would only be vicariously criminally liable for its employee's fraud if the employee acted with that intent. A trend in criminalizing conduct that previously might have been deterred through only civil litigation or regulatory enforcement has eroded traditional criminal mens rea requirements. (6)

    Also, historically, the DOJ would pursue criminal charges against corporations (and more frequently individuals), and those charges would get litigated. Each of these litigated cases would provide judicial opinions regarding what conduct violates the criminal laws and what does not. Thus, in addition to the criminal statutes themselves, corporations and individuals (at least those advised by competent counsel) would have guidance available to them in the form of judicial opinions providing elaboration as to what specific fact patterns constituted criminal behavior and, likewise, what fact patterns did not.

    This historical practice has run into two different trends, at least with respect to the FCPA, which have disrupted the paradigm of informing corporate and individual behavior through judicial guidance. First, while the DOJ has routinely prosecuted individuals under other white collar criminal statutes, there have been exceedingly few individuals prosecuted for violating the FCPA. (7) Second, in recent years exceedingly few corporations have litigated criminal charges. The latter is true both because of the DOJ's reluctance to prosecute corporations, in favor of negotiating non-prosecution or deferred prosecution agreements, and because of corporations' unwillingness to accept the risk associated with litigating criminal charges. (8) While this observation about the rarity of recently litigated cases against corporations applies to white collar criminal prosecutions generally, it also applies to FCPA prosecutions in particular. (9)

    With respect to the DOJ's reluctance to litigate criminal charges against corporations, one can define the key source of reluctance easily: Arthur Andersen. After the collapse of the Enron Corporation, the DOJ brought criminal obstruction of justice charges against Enron's outside auditors, a "Big Five" accounting firm, Arthur Andersen. (10) The indictment of Arthur Andersen rapidly caused it to descend into a death spiral. The venerable, nearly ninety-year-old firm, which at one time had 28,000 employees in the United States and 85,000 employees around the globe, effectively folded. Arthur Andersen was convicted of criminal obstruction of justice in 2002. (11) The conviction was reversed three years later by a unanimous United States Supreme Court. (12) The "victory" for Arthur Andersen came far too late, however, to be anything other than a victory in name only. Not surprisingly, the DOJ came under considerable criticism for its prosecution of Arthur Andersen. (13) While the DOJ may have viewed Arthur Andersen as a repeat offender that needed to be punished with the proverbial justification of the need to "send a message," the fact of the matter is that the prosecution of Arthur Andersen harmed thousands of employees who had nothing whatsoever to do with Enron or any other work by Arthur Andersen that had drawn regulatory scrutiny. Further, the public was harmed. The once "Big Eight" accounting firms had shrunk to the "Big Five" as a result of mergers that preceded the collapse of Arthur Andersen. Arthur Andersen's failure turned the "Big Five" into the "Big Four." We can see, therefore, that the problem of auditors being too close to their corporate clients for whom they were conducting supposedly independent audits was only exacerbated by the further...

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