Crime, Department of Justice, In-House Counsel, Securities and Exchange Commission, Securities Law, White-Collar Crime

Reading Tea Leaves: Defense Bar Freaking Out About the Foreign Corrupt Practices Act

Nothing pisses off a lawyer more than uncertainty. Uncertainty gives rise to the risk of undermining the facade of perfect knowledge that attorneys prefer to convey to their clients. Given this character trait, it’s no surprise that the collective white-collar and corporate counsel community is freaking the hell out about every scrap of information it can glean from the Justice Department about its new Foreign Corrupt Practices Act (FCPA) enforcement policy.

So what exactly has these observant lawyers in a tizzy?

New edits to the DOJ website? What does that mean?!?!?

Speeches by former DOJ attorneys? Could they be hinting at something?!?!?

“I’m shocked, shocked to find improper payments disguised as commissions by a subsidiary to employees at state-owned companies to influence design specifications made in this establishment!

A wide swath of the legal community is grasping at straws in terror of the unknown, which is a little ridiculous because the DOJ has promised comprehensive guidance in a mere two weeks. That said, Assistant Attorney General Lanny Breuer promised guidance back in November 2011 and not much has happened since.

But white-collar defense attorneys are eager to figure out what behaviors will fill their docket for the next few years. Corporate counsel can’t go to sleep until this is resolved. And transactional attorneys should learn the contours of the law before blowing it off when a client dismisses legal obstacles from local government as something they can “just handle on our end” and then winks.

The FCPA is basically the Louis Renault law. In an effort to stifle corrupt petty officials like the former Casablanca police chief, the U.S. passed the FCPA in 1977, imposing civil and criminal sanctions on companies that bribe foreign officials and violate books and records and internal controls provisions. The DOJ and SEC have joint enforcement authority.

In a nutshell, Congress wanted to put a halt to foreign corruption stifling American businesses by holding American companies liable if they tried to game the system. Since its passage in 1977, the FCPA has… more or less done nothing. From 1977 until about eight years ago, the government did almost nothing with the FCPA. But then the government discovered the FCPA like a child rediscovering a toy from last Christmas and started aggressively playing with it, increasing the number of cases brought from 5 in 2004 to over 60 in 2010. Actions have scaled back since then, with only 13 actions brought as of July 2012, but this continues to represent an era of aggressive enforcement compared to the bulk of the statute’s 35-year history.

FCPA Enforcement Actions: The only thing growing faster than debt and Kardashian spin-offs (image via Gibson Dunn).

But as enforcement has increased, clarity has taken a nosedive — which was a common complaint during the Robespierre regime as well. Companies with multiple international subsidiaries fear prosecution for unscrupulous subordinates they barely control. The books and records and internal controls provision has expanded to include acquired companies concealing violations from their purchaser, a development bringing the law close to strict liability. The fuzzy line between “government official” and “foreign executive” in “Communist” China renders almost every gift a potential crime. When 95 percent of corporate compliance executives recently polled by Kroll Advisory Solutions believed their companies’ exposure to bribery risk has increased or held steady over the last two to three years, it’s clear that a lot of folks feel powerless to avoid the FCPA.

Lawyers seem to think the prognosis is not good for any relaxation of FCPA enforcement or the institution of a new defense to put good faith corporate clients at ease. Lanny Breuer has previously said that he has “no intention whatsoever of supporting reforms whose aim is to weaken the FCPA” and every speech and website update seems to confirm the government is just trying to provide transparency for the expansive vision of the statute they’ve carved out over the last decade.

Still, the freak-out session is entertaining to watch, and it will only be trumped by the proclamations of doom and gloom that will follow whatever formal guidance we get in October.


Joe Patrice is the author of Recess Appointment, a blog about political rhetoric, and he’ll be dropping in occasionally to write about the intersection of law and politics. To answer the question that you’re probably about to ask, he got his J.D. at NYU and spent ten years working at a Biglaw firm and a white-collar defense boutique. His favorite word is sesquipedalian.

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