Private FCPA Enforcement

• DOI: http://doi.org/10.1111/j.1744-1714.2012.01137.x
• Author: Gideon Mark
• Published date: 01 September 2012
• Date: 01 September 2012

Private FCPA Enforcement

Gideon Mark*

INTRODUCTION

This article argues for recognition of a private right of action in the

Foreign Corrupt Practices Act1(FCPA), either judicially—on an implied

basis—or legislatively—by amendment of the FCPA. The FCPA, enacted

in 1977, prohibits companies and individuals from corruptly providing,

offering, or promising anything of value to foreign off‌icials to obtain or

retain a business advantage.2The FCPA also has accounting provisions

that require issuers to maintain books and records that accurately and

fairly ref‌lect their transactions and to devise and maintain a system of

internal accounting controls to ensure the accuracy of such books and

records.3

There is no express private right of action for violations of either the

antibribery or the accounting provisions. In 1990 the U.S. Court of

Appeals for the Sixth Circuit held in Lamb v. Phillip Morris, Inc.4that there

is no implied private right of action.5Every federal court to consider the

*Assistant Professor of Business Law, University of Maryland School of Business. Professor

Mark holds degrees from Brandeis University, Columbia University, Harvard University,

New York University, and the University of California. Many thanks to the American Business

Law Journal (ABLJ) and Academy of Legal Studies in Business (ALSB) for helpful comments

on a prior version of this paper presented at the ABLJ Invited Scholars Colloquium during

the 2011 ALSB Annual Conference in New Orleans. That version earned the ALSB’s Ralph

J. Bunche Award for best paper on international law.Thanks also to W. Stephen Smith for his

review and insight.

1Foreign Corrupt Practices Act of 1977, Pub. L. No. 95-213, 91 Stat. 1494 (1977) (codif‌ied as

amended in scattered sections of 15 U.S.C.).

215 U.S.C. §§ 78dd-1(a), -2(a), -3(a) (2006).

3Id. § 78d.

4915 F.2d 1024 (6th Cir. 1990).

5See id. at 1027–30.

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American Business Law Journal

Volume 49, Issue 3, 419–506, Fall 2012

© 2012 The Author

American Business Law Journal © 2012 Academy of Legal Studies in Business

419

issue since then has held in accord with that decision.6This article argues

that such decisions are incorrect and courts should recognize an implied

private right of action, at least for violations of the antibribery provisions of

the FCPA. The article further argues that if courts continue to hold in

accord with the Sixth Circuit and refuse to recognize an implied right,

Congress should amend the FCPA to create a broad express private right.

The article proceeds in six parts. Parts I through III provide an

introduction to the FCPA, summarizing the original legislation and its

1988 and 1998 amendments and analyzing enforcement trends. Enforce-

ment during the f‌irst three decades of the FCPA was sporadic at best, but

that situation has changed. In the last few years the Department of Justice

(DOJ) and Securities and Exchange Commission (SEC) have signif‌icantly

stepped up enforcement,7and this trend has been a major contributing

factor in the recent phenomenon of collateral civil litigation. Such litiga-

tion now frequently follows enforcement actions.8The litigation is predi-

cated on facts virtually identical to those alleged by the DOJ and SEC, but

the FCPA is not cited in complaints as the basis for a damage award.

Instead, plaintiffs assert alleged violations of federal securities laws,9the

Racketeer Inf‌luenced and Corrupt Organizations Act (RICO),10 antitrust

laws,11 state laws proscribing tortious interference with prospective con-

tractual relations or unfair competition,12 and other statutes. The cases are

often pursued as class actions or shareholder derivative actions.13

6See Scientif‌ic Drilling Int’l, Inc. v.Gyrodata Corp., Nos. 99-1077, 99-1084, 1999 WL 674511,

at *3 (Fed. Cir. Aug. 30, 1999) (referenced in table of unreported decisions in 215 F.3d 1351

(1999)); Castellanos v.Pf‌izer, Inc., 2008 WL 2323876, at *2 (S.D. Fla. May 29, 2008); J.S. Serv.

Center Corp. v.General Elec. Tech. Serv.Co., 937 F. Supp. 216, 226 (S.D.N.Y.1996); Citicorp

Int’l TradingCorp. v. W.Oil & Ref. Co., 771 F. Supp. 600, 606–07 (S.D.N.Y. 1991); cf.McL ean

v. Int’l Harvester Co., 817 F.2d 1214, 1219 (5th Cir. 1987) (holding that there is no private

right of action in connection with a since-repealed section of the FCPA providing that an

employee could not be convicted of criminal offense unless the employer was also convicted).

7See infra text accompanying notes 65–121.

8See infra Part V.

9See infra Part V.A.

10See infra Part V.B.

11See infra Part V.C.

12See infra Part V.E.

13See infra Part V.D.

420 Vol. 49 / American Business Law Journal

Part IV examines whether the Sixth Circuit and the federal courts

that subsequently relied on Lamb erred when they concluded there is no

implied private right of action in the FCPA. Part IV begins with a brief

history of the implication doctrine in the United States, with a focus on the

creation by the Supreme Court of the four-factor implication test in Cort v.

Ash14 and the Court’s subsequent abandonment of that test in favor of

exclusive reliance on congressional intent.15 Part IV then analyzes the line

of federal cases rejecting an implied private right of action under the

FCPA, in light of the evolved implication doctrine, and concludes that the

line of cases has been wrongly decided.16

Part V examines whether available theories of recovery in collateral

civil litigation provide a viable alternative to a private right of action under

the FCPA. Part V analyzes the recent wave of cases alleging violations of the

statutes identif‌ied above and concludes that such theories fail to provide a

viable alternative to a private right of action.

Part VI critiques recent proposed federal legislation to provide a

limited private right of action and sets forth an alternative, more expansive

proposal. The recent legislation authorizes issuers, domestic concerns, and

other “United States persons” to sue foreign concerns that cause damage

to domestic business. It does not authorize plaintiffs to sue U.S. companies

or individuals.17 Part VI contends that the proposed legislation is much too

restrictive and Congress should amend the FCPA to provide a broad

private right of action that permits plaintiffs to sue U.S. companies and

individuals, as well as foreign concerns, for violations of the FCPA’s

antibribery provisions.

A number of signif‌icant advantages will f‌low from recognition of a

broad private right of action. First, victims of FCPA violations will be

compensated, consistent with one of the primary objectives of the civil

14422 U.S. 66 (1975).

15See infra text accompanying notes 157–64.

16See infra Part IV.B.

17See infra Part VI.A. The legislation assigns to the term “United States person” the meaning

given such term in section 104(i)(2) of the FCPA,15 U.S.C. § 77dd-2(i)(2), which is a national

of the United States or any corporation, partnership, association, joint-stock company, busi-

ness trust, unincorporated organization, or sole proprietorship organized under the laws of

the United States or any state or territory of the United States.

2012 / Private FCPA Enforcement 421