Mitigating the Harshness of FCPA Enforcement Through a Qualifying Good‐Faith Compliance Defense

• Author: Steven R. Salbu
• Published date: 01 September 2018
• Date: 01 September 2018
• DOI: http://doi.org/10.1111/ablj.12124

American Business Law Journal

Volume 55, Issue 3, 475–535, Fall 2018

Mitigating the Harshness of FCPA

Enforcement Through a Qualifying

Good-Faith Compliance Defense

Steven R. Salbu*

In recent years, the Department of Justice (DOJ) and the Securities and Exchange

Commission (SEC) have enforced the Foreign Corrupt Practices Act (FCPA) with

increasing rigor. These zealous enforcement practices have been criticized for put-

ting excessive pressure on companies to settle, often through nonprosecution or

deferred prosecution agreements. The resulting proliferation of such settlements

has created a dearth of case law interpreting the statute, resulting in legal ambigu-

ity that reinforces pressures on companies to continue to settle rather than litigate,

as uncertainty of the law adds to risk. This dynamic is exacerbated by the broad

vicarious liability that firms face for the wrongdoing of individual actors. Given

the need for government to enlist business as a partner in any effective battle

against global corruption, the current highly adversarial relationship between

enforcement agencies and firms is unreasonable and counterproductive. The law

and its enforcement agencies should go further in providing incentives for busi-

nesses to develop and implement strong good-faith FCPA compliance programs.

They should establish standards for rigorous compliance programs that would pro-

vide qualifying companies with a defense against entity liability for the corrupt

behavior of individuals. Creation of a qualifying good-faith compliance program

defense would help to prevent future FCPA violations, to recruit companies as

partners in fighting corruption, to encourage ethics-oriented corporate cultures,

and to encourage upstanding firms to do business in regimes where rectitude is

most needed.

*

Professor and Cecil B. Day Chair of Law and Ethics, Georgia Institute of Technology. B.A.,

Hofstra University; M.A., DartmouthCollege; J.D., College of William and Mary;M.A., Ph.D.,

The Wharton Schoolof the University of Pennsylvania.

©2018 The Author

American Business Law Journal ©2018 Academy of Legal Studies in Business

475

INTRODUCTION

The Foreign Corrupt Practices Act (FCPA) turned forty in 2017.

1

The

fundamental objectives of the FCPA have not changed over its four

decades: it aims to foster efficiency, investment, and growth;

2

to ensure

that resources go to the projects they are intended for, rather than into

the pockets of those with transactional decision-making power or influ-

ence;

3

and to supplant institutionalized business corruption and venality

with honesty and integrity.

4

Over these years, the FCPA has had its supporters

5

and critics

6

alike. As the FCPA’s half-century anniversary approaches over the

next decade, the Act continues to generate controversy over a variety

1

The FCPA was passed and signed into law by President Jimmy Carter on December

19, 1977. Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (1977)

(codified as amended at 15 U.S.C. §§ 78dd-1, 78dd-2, 78dd-3, 78ff, 78m(b), (d)(1), (g)–

(h) (2012)) [hereinafter FCPA], amended by Foreign Corrupt Practices Act Amendment of

1988, Pub. L. No. 100-418, 102 Stat. 1107, 1415 (1988) (codified at 15 U.S.C. §§ 78dd-1 to

78dd-3, 78ff (2006)) and International Anti-Bribery and Fair Competition Act of 1998, Pub.

L. No. 105-336, 112 Stat. 3302 (1998) (codified at 15 U.S. C. §§ 78dd-1 to 78dd-3,

78ff (2012)).

2

See, e.g., Margareta Habazin, Investor Corruption as a Defense Strategy of Host States in Interna-

tional Investment Arbitration: Investors’ Corrupt Acts Give an Unfair Advantage to Host States in

Investment Arbitration,18C

ARDOZO J. CONFLICT RESOL. 805, 807–08 (2017) (“[C]orruption has

significant and serious impacts on international business and investments and has a wide

range of harmful effects, from inefficiency to decreased investments and growth.”).

3

See George K. Foster, Combating Bribery of Indigenous Leaders in International Business,

54 COLUM.J.TRANSNAT’LL. 59, 96 (2015) (noting that the FCPA’s proscription of offers

made “corruptly” is intended to ensure that funds are not siphoned off for personal use of

government officials, instead of going toward their intended uses).

4

See Jeremy Clemens, Note, Cracking Down on Bribery Without Cracking Down on Competition:

Implementing a Foreign Corrupt Practices Act Three-Strike Rule,33R

EV.BANKING &FIN. L. 381,

383 (2013) (observing that the FCPA and its progeny in other countries strive “for a com-

mon, fair approach to international business dealings”).

5

See, e.g., Matt A. Vega, Balancing Judicial Cognizance and Caution: Whether Transnational Cor-

porations Are Liable for Foreign Bribery Under the Alien Tort Statute,31M

ICH.J.INT’LL. 385,

405 (2010) (noting that the FCPA, including its amendments, has “largely succeeded”).

6

See, e.g., Kristin Isaacson, Note, Minimizing the Menace of the Foreign Corrupt Practices Act,

2014 U. ILL.L.REV. 597 (2014) (discussing the FCPA’s shortcomings and recommending

either its clarification or its repeal).

476 Vol. 55 / American Business Law Journal

of issues. These broadly fall under the categories of fairness,

7

quality

of statutory language and construction,

8

negative impact on

U.S. companies in the competition for global market opportunities,

9

and effectiveness.

10

The competitiveness concern, and some of the fairness concerns, ini-

tially resulted from the FCPA’s uniqueness when originally enacted.

11

No

other country at the time subjected its businesses to similar legislation.

12

Recently, although more countries around the world have enacted simi-

lar extraterritorial anticorruption laws, the competitiveness concerns lin-

ger, largely due to a disparity in enforcement rigor across developed

countries—and, in particular, the relatively aggressive enforcement pos-

ture of the United States.

13

7

Id.;see also Joseph W. Yockey, Solicitation, Extortion, and the FCPA,87NOTRE DAME L. REV.

781, 828 (2011) (raising “normative fairness” questions around the FCPA).

8

See, e.g., Ezekiel K. Rediker, The Foreign Corrupt Practices Act: Judicial Review, Jurisdiction, and

the “Culture of Settlement,” 40 SETON HALL LEGIS. J. 53, 56 (2015) (noting a lack of clarity in

the FCPA’sstatutory language around whether acts are illegal).

9

See Vivian Grosswald Curran, Harmonizing Multinational Parent Company Liability for Foreign

Subsidiary Human Rights Violations,17C

HI.J.INT’LL. 403, 420 (2017) (“The Foreign Cor-

rupt Practices Act of 1977 (FCPA) is an established U.S. statute with extraterritorial applica-

tion that has raised concerns … that the law renders national companies less competitive in

a global business environment.”) (citations omitted).

10

See David Hess, Enhancing the Effectiveness of the Foreign Corrupt Practices Act Through Corpo-

rate Social Responsibility,73O

HIO St. L.J. 1121, 1122 (2012) (noting that most of the debate

around the FCPA has been around effectiveness and fairness).

11

See Rebecca Koch, Note, The Foreign Corrupt Practices Act: It’s Time to Cut Back the Grease

and Add Some Guidance, 28 B.C. INT’L&COMP.L.REV. 379, 382–83 (2005) (noting that when

the FCPA criminalized bribery of foreign officials, “U.S. businesses consequently suffered a

competitive disadvantage to foreign businesses that were uninhibited by laws proscribing

bribery in international markets.”).

12

See Eric C. Chaffee, From Legalized Business Ethics to International Trade Regulation: The Role

of the Foreign Corrupt Practices Act and Other Transnational Anti-Bribery Regulations in Fighting

Corruption in International Trade,65M

ERCER L. REV. 701, 703–04 (2014) (“When Congress

enacted the FCPA in 1977, it was the first statute of its kind in the world.”) (citation

omitted).

13

See Maya Steinitz & Paul Gowder, Transnational Litigation as a Prisoner’s Dilemma,94

N.C. L. REV. 751, 808 (2016) (“American corporations … contend that the high enforcement

of the American FCPA coupled with the low or no enforcement of anticorruption laws in

other developed countries puts them at a competitive disadvantage.”) (citations omitted).

2018 / Mitigating the Harshness of FCPA 477