Search

Editors

Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


Connect
FCPA Blog Daily News

Entries in Criminal Resource Manual (10)

Thursday
Jun232011

Out-Of-Pocket Bribes

Can a corporation be criminally responsible under the FCPA's anti-bribery provisions for payments it doesn't know about? It sounds strange but the question comes up in a common scenario.

Click to read more ...

Wednesday
Dec222010

Some Christmas Cheer

Who isn't dying for a technical explanation of the difference between conspiracy and aiding and abetting?

Click to read more ...

Thursday
Nov042010

FCPA Conspiracy Theories

Conspiracy charges aren't always used only to reward cooperating FCPA defendants. Here are some reasons why the DOJ might use the conspiracy statute instead of pressing substantive FCPA counts.

Click to read more ...

Friday
Apr092010

Question Time

Our readers aren't shy, which is nice. When something's on their mind, we hear about it (usually more than once). Like this question:

Aren't you exaggerating the impact of respondeat superior on FCPA enforcement?

Not at all. Talking specifically about the FCPA, the DOJ said: Under U.S. law, corporate liability is not predicated upon authorization by a 'superior' or manager. A corporation is liable for the acts of its employees, of whatever rank, if they act within the scope of their duties and for the benefit of the corporation. Whether the corporate management condoned or condemned the employee's conduct is irrelevant.

The U.S. Sentencing Commission said: An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.

The United States Attorneys Manual said: The existence of a corporate compliance program, even one that specifically prohibited the very conduct in question, does not absolve the corporation from criminal liability under the doctrine of respondeat superior. See United States v. Basic Constr. Co., 711 F.2d 570, 573 (4th Cir. 1983).

It's all summed up in an amicus brief from U.S. v. Ionia Management, S.A., a Second Circuit case that mounted a serious but unsuccessful challenge to respondeat superior. Written by defense lawyer Andrew Weissmann, formerly the director of the DOJ's Enron task force, it said:

A criminal indictment can be a life-or-death matter for a company. Yet, the vast sweep of the district court’s standard for the imposition of vicarious criminal liability makes corporations accountable for almost all criminal acts of any low level employees—even those acting against explicit instructions and in the face of the most robust corporate compliance program. This has caused a tremendous imbalance between the power of a prosecutor and a corporate defendant. Given the hair-trigger for corporate liability even for the most responsible corporate citizen, many corporations forego any defenses in order to resolve threatened prosecution. . . .

This imbalance and the problems it engenders are not theoretical. For example, one judge found that prosecutors violated the Constitution by causing KPMG to cut off attorneys’ fees to employees in the hope of obtaining a deferred prosecution agreement. . . . In another instance, as part of a deferred prosecution agreement, Bristol-Myers Squibb agreed to endow a professorship at Seton Hall University, the prosecutor’s alma mater.  . . . The potential for abuse is manifested as well in the then‑common requirement that corporations agree to broad waivers of attorney-client privilege as a factor to be considered for a deferred prosecution agreement.

The potential for inappropriate prosecutorial pressure is particularly heightened in the area of corporate criminal investigations that end in Draconian non-prosecution and deferred prosecution agreements, where no court has oversight authority. There, the prosecutor effectively serves as both judge and jury. Because of the disastrous consequences of a corporate indictment and the ease with which corporations may be liable under the doctrine of respondeat superior, corporations are under immense pressure to agree to almost any terms. The vast majority of these negotiations go on behind closed doors, with little public scrutiny and no judicial review. (citations omitted)

Would it even be possible for us to overstate the influence on FCPA enforcement actions of such a dogma?

*   *   *

Our favorite question this week.

Dear FCPA Blog: I am responsible for the compilation of casebooks for the Master of Law Program for the Law Faculty of the University of Auckland, New Zealand (here). This year the Faculty is offering a course called "Fraud and White Collar Crime" taught by Professor John Farrar. Professor Farrar would like to include Here Comes The SFO, Part One from the FCPA Blog in our casebook/reader which is handed out exclusively to the students attending the class. We would like to ask you for copyright permission to do so.

We answered yes.

Wednesday
Feb182009

Waters So Deep

There are things we know we don't know, said the former boss at the Pentagon. But then again, he added, there are things we don't know we don't know. That distinction came to mind as we read the latest email from a correspondent who always holds us to a high standard. He said this:

"I, and other readers of the blog, could benefit from a discussion of what distinguishes a criminal violation of the FCPA's antibribery provisions brought by the DOJ from a civil violation of the antibribery provisions brought by the SEC. Of course, prosecutorial discretion is relevant, but I do not see in the statute any distinction between the two (i.e. no additional elements necessary for a criminal charge vs. a civil charge). Compare this to the books and records and internal control provisions which state at 15 USC 78m(b)(4) that 'no criminal liability shall be imposed' for violation of the books and records and internal control provisions except for 'knowing circumvention' or 'knowingly failing' to implement a system of internal controls or 'knowing falsification' of books and records."

Our correspondent said he'd been thinking about this since the SEC charged Halliburton Company and KBR Inc. with civil antibribery violations, while the DOJ charged only Kellogg Brown and Root LLC with criminal violations, even though the SEC's complaint sets forth all the "criminal" elements of an antibribery violation.

So what's the story?

Well, we're stumped. As we told our correspondent, we've read the U.S. Attorney’s Manual 9-28.000 / Principles of Federal Prosecution of Business Organizations (here). But we still don't know how decisions get made by the folks at the DOJ and SEC about who to charge with criminal or civil antibribery offenses. To which our correspondent replied, "From a policy standpoint, you hate to think that whether behavior x is charged civilly or criminally depends on the whim of a prosecutor and not proving additional elements needed to charge a crime."

So here's an invitation to all readers. Tell us, if you know, how decisions are made to charge companies or individuals under the Foreign Corrupt Practices Act with violations of the antibribery provisions either criminally or civilly. Is everything left to prosecutorial discretion? Are there published guidelines? How about unpublished guidelines? Secret handshakes?

To promote this discussion, we've adopted our own Stimulus Plan. The best response -- make that the best several responses -- will earn a copy of Bribery Abroad.

Download the DOJ's criminal information against Kellogg Brown and Root LLC here.

Download the SEC's February 11, 2009 civil complaint against KBR Inc. and Halliburton Company here.
.

Thursday
Dec182008

Foreign Affairs

Our singular focus over the past week moved our spouse to ask whether we also plan to redo the walls in Siemens Blue. We're considering it. But what really comes to mind after the biggest FCPA enforcement action in history is that it involves not a U.S. company -- not a Boeing or an Exxon or a GE -- but "a corporation organized under the laws of Germany with its principal offices in Berlin and Munich." It was snared by the FCPA because, as the Justice Department's Information put it: "As of March 12, 2001, Siemens was listed on the New York Stock Exchange and was an 'issuer' as that term is used in the FCPA. 15 U.S.C. § 78dd-1(a). By virtue of its status as an issuer, Siemens was required to comply with the provisions of the FCPA."

We shouldn't be too surprised that the big hammer fell on a foreign company. Since 1998, the pace of investigations and enforcement actions involving foreign companies has accelerated. In addition to Siemens, overseas names in the FCPA news include ABB Ltd (Switzerland), Vetco Gray UK Ltd, Akzo Nobel, NV (the Netherlands), Statoil ASA (Norway), AstraZeneca (UK-Sweden), BAE Systems (UK), DaimlerChrysler (Germany), Innospec (UK), Magyar Telekom (Hungary), Norsk Hydro (Norway), Novo Nordisk (Denmark), Panalpina (Switzerland), Smith & Nephew (UK) and Total (France), among others.

Outside America's borders, its globo-cop role may not sit well with everyone (it makes a lot of Americans uneasy, too). But the FCPA's long reach and sharp teeth are changing global business practices. Our favorite pundit said it was probably the threat of criminal prosecution under the FCPA that finally scared Siemens enough to come clean. That's what Congress had in mind in 1998 when it expanded the FCPA to cover foreign companies that weren't issuers when they act unlawfully while within the territory of the U.S. ; American businesses needed a more level playing field.

But fighting public graft is also the right thing to do. A. A. Sommer, Jr., a commissioner of the SEC, said in 1976, a year before enactment of the FCPA, that "there are moral problems as well as legal problems that go far beyond simply the question of illegal payoffs to foreign officials. There are questions concerning the role of multi­national corporations, the extent to which they have obligations to the countries in which they conduct their business, the extent to which they should seek to raise the standards of conduct there, the respect which they should show the laws of other countries." Thirty-two years later the Wall Street Journal could say that the quixotic Foreign Corrupt Practices Act had turned into one of Congress's finer moments.

The DOJ's Matthew Friedrich summed up the case this week with these words:

For let there be no doubt that corruption is not a victimless offense. Corruption is not a gentlemen's agreement where no one gets hurt. People do get hurt. And the people who are hurt the worst are often residents of the poorest countries on the face of the earth, especially where it occurs in the context of government infrastructure projects, contracts in which crucial development decisions are made, in which a country will live by those decisions for good or for bad for years down the road, and where those decisions are made using precious and scarce national resources.
That's why the fight against international public corruption is worthwhile, and why the FCPA makes sense.
.

Sunday
Sep282008

Kay Day At The Court's Conference

I have a question for anyone on the FCPA blog, a reader wrote ten days ago: Are there any known cases where an individual was prosecuted allegedly for bribing a foreign official where the "donor" did not ask for anything from the foreign official and where he received nothing?

Can there be a crime without criminal intent? We assume the question is sincere and not a send up related to the Kay case. The petition for cert in Kay is on the docket of the Justice's opening conference today for the Supreme Court's October 2008 term. Part of the defendants - appellants' argument is that bribes to reduce company taxes aren't paid to "assist in obtaining or retaining business," and therefore don't satisfy the FCPA's business nexus element.

Pushing their argument further, the U.S. Chamber of Commerce says in its amicus brief that the Fifth Circuit's decisions in Kay have obliterated the business nexus element, exposing U.S. executives to potential prosecution for nearly any contact with a foreign official. That argument sounds like the question posed by our reader -- Have there been any FCPA prosecutions based on donations to a foreign official where there was no quid pro quo?

The Fifth Circuit itself says in Kay that an FCPA offense requires a corrupt intent. The elements, it says, are (1) to willfully (2) make use of the mails or any means or instrumentality of interstate commerce (3) to corruptly (4) in furtherance of an offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to (5) any foreign official (6) for purposes of either influencing any act or decision of such foreign official in his official capacity or inducing such foreign official to do or omit to do any act in violation of the lawful duty of such official or securing any improper advantage (7) in order to assist in obtaining or retaining business for or with, or directing business to, any person. See the Fifth Circuit's Opinion in U.S. v. Kay (October 24, 2007) here.

And while the U.S. Chamber of Commerce warns that the government's view of "obtaining or retaining business" is so broad and vague that it could mean anything or nothing, the cases it cites don't say that. Instead they show that the government has taken action not only against bribes related directly to obtaining or retaining business but also against bribes paid for a quid pro quo intended to produce an indirect commercial advantage. The list below from the amicus brief is annotated with links to our posts where available or with original citations:

(1) Government inspection reports and laboratory certifications. See SEC v. Delta & Pine Land Co. at our post here.

(2) Reductions in annual employment tax obligations. See In the Matter of Bristow Group Inc. at our post here.

(3) Reductions in general tax obligations. In the Matter of Baker Hughes Inc., SEC Admin. Proceeding File No. 3-10572, Cease & Desist Order (Sept. 12, 2001), available at http://www.sec.gov/litigation/admin/34-44784.htm; SEC v. KPMG Siddharta Siddharta & Harsono, No. H-01-3105 (S.D. Tex. filed Sept. 11, 2001); SEC v. Mattson, No. H-01-3106 (S.D. Tex. filed Sept. 11, 2001).

(4) Refunds on previous tax payments. SEC v. Triton Energy Corp., No. 97-cv-00401-RMU (D.D.C. filed Feb. 27, 1997).

(5) Customs clearance for goods or equipment that were improperly or illegally imported. In the Matter of BJ Servs. Co., SEC Admin. Proceeding File No. 3-11427, Cease & Desist Order (Mar. 10, 2004), available at http://www.gov/litigation/admin/34-49390.htm.

(6) Customs clearance for goods delayed due to the failure to post bonds with sufficient funds to cover duties and tariffs. United States v. Vetco Gray Controls Inc., No. 07-cr-004 (S.D. Tex. filed Jan. 5, 2007).

(7) Encourage the repeal or amendment of national regulations limiting foreign investments. SEC v. BellSouth Corp., No. 02-cv-00113-ODE (N.D. Ga. filed Jan. 15, 2002).

(8) Repeal of a government decree requiring an environmental impact study to be conducted. See News Release, Monsanto Announces Settlements With DOJ and SEC Related to Indonesia (Jan. 6, 2005), available at http://Monsanto.mediaroom.com/index.php?s=43&item=278.

(9) Expedited government registration certifications required by law to produce, warehouse, or market products in the country. See SEC v. Dow Chem. Co., No. 07-cv-336 (D.D.C. filed Feb. 12, 2007).

(10) Beneficial changes to laws and regulations relating to land development. United States v. Halford, No. 01-cr-00221-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. Reitz, No. 01-cr-00222-SOW-1 (W.D. Mo. filed Aug. 3, 2001); United States v. King, No. 01-cr-0190-DW (W.D. Mo. filed June 27, 2001).

The United States Attorneys' Manual hasn't been changed since the Fifth Circuit's opinions in Kay. It says there is no criminal violation without a corrupt intent.
Under the FCPA, the person making or authorizing the payment must have a corrupt intent. The payment must be intended to induce the recipient to misuse his official position to direct business wrongfully to the payer or to any other person. The FCPA prohibits any corrupt payment intended to influence any act or decision of a foreign official in his or her official capacity, to induce the official to do or omit to do any act in violation of his or her lawful duty, to obtain any improper advantage, or to induce a foreign official improperly to use his or her influence with other government officials or agencies to affect or influence any act or decision. Where such intent is present, the FCPA prohibits paying, offering, promising to pay (or authorizing to pay or offer) money or anything of value. The FCPA does not require that a corrupt act succeed in its purpose. The offer or promise of a corrupt payment can constitute a violation of the statute.
See Title 9, Criminal Resource Manual §1018 “Prohibited Foreign Corrupt Practices” (November 2000), available here.

If there is an example of an antibribery prosecution based on a "donation" without a quid pro quo, the Chamber of Commerce would have headlined it. Nothing would better support its argument that U.S. executives should be fearful of criminal prosecution under the FCPA for conduct that is either innocent or at least not expressly prohibited by the statute.

The business nexus element of an offense has been broadened through aggressive enforcement. In the government's view, bribes to foreign officials intended to assist a company to obtain or retain business by giving it an unfair commercial advantage are consistent with the words and history of the statute and fair game for punishment. And so far, at least, there hasn't been a criminal prosecution based on bribes to foreign officials -- or, as our reader puts it, based on donations -- where nothing was asked for or given in return.

The Kay petition for certiorari and all cert-stage briefs including the U.S. Chamber of Commerce's amicus brief are available at scotusblog.com here.

View our prior post about Kay here.

.

Tuesday
Aug122008

A Question Of Knowledge

The mailbag this week brought the following question from KER:

The FCPA prohibits payments to a third party while "knowing" that all or a portion of the payment will go directly or indirectly to a foreign official. The FCPA defines "knowing" as "highly probably" when it it forms an element of the offense and only "substantially certain to occur" with respect to conduct, a circumstance, or a result.

Is it correct that the highly probable standard applies to the books and records provision (triggering criminal as opposed to civil sanctions) and that the "substantially certain to occur standard applies to third party payments"?

At the start, we need to know the statutory basis for criminal violations of the books and records provisions. Section 78m sets out the accounting standards and says in part:
(4) No criminal liability shall be imposed for failing to comply with the requirements of paragraph (2) of this subsection except as provided in paragraph (5) of this subsection.

(5) No person shall knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account described in paragraph (2).

And § 78ff of the FCPA says:
(a) Willful violations; false and misleading statements

Any person . . . who willfully and knowingly makes, or causes to be made, any statement in any application, report, or document required to be filed under this chapter or any rule or regulation thereunder or any undertaking contained in a registration statement as provided in subsection (d) of section 78o of this title, or by any self-regulatory organization in connection with an application for membership or participation therein or to become associated with a member thereof, which statement was false or misleading with respect to any material fact, shall upon conviction be fined not more than $5,000,000, or imprisoned not more than 20 years, or both, except that when such person is a person other than a natural person, a fine not exceeding $25,000,000 may be imposed; but no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation.

The anti-bribery provisions contain the following definitions of "knowing" and "knowledge:"
(2) (A) A person’s state of mind is “knowing” with respect to conduct, a circumstance, or a result if--

(i) such person is aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or

(ii) such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.

(B) When knowledge of the existence of a particular circumstance is required for an offense, such knowledge is established if a person is aware of a high probability of the existence of such circumstance, unless the person actually believes that such circumstance does not exist.

The problem, however, is that the above definitions of "knowing" and "knowledge" apply to the anti-bribery provisions but not to the accounting standards. And as we've discussed before, a criminal books and records offense can occur with or without an anti-bribery offense. Said another way, the FCPA's anti-bribery provisions and its accounting standards can work together or separately. So an intentional ("knowing") violation of the accounting standards can be a criminal offense “whether or not such falsification is related to a foreign corrupt practice proscribed by the FCPA.” See the United States Attorneys' Criminal Resource Manual (Title 9, Section 1017, FCPA Corporate Recordkeeping).

So the question, as KER makes clear, is what is "willful and knowing" under the accounting standards?

Because there is no definition of "knowing" in the accounting standards, we need to look to case law in the respective federal circuits (and up to the Supreme Court). We can also rely on criminal jury instructions, which are usually based on the relevant case law.

For example, the First Circuit's pattern (standard) criminal jury instructions explain "knowingly" this way:

The word “knowingly,” as that term has been used from time to time in these instructions, means that the act was done voluntarily and intentionally and not because of mistake or accident.
The First Circuit's comment to this instruction also explains how other circuits define "knowingly":
In United States v. Tracy, 36 F.3d 187, 194-95 (1st Cir. 1994), cert. denied, 115 S. Ct. 1717 (1995), the First Circuit acknowledged a split of authority over how to define the term “knowingly.” The Fifth and Eleventh circuits use the instruction stated above, emphasizing the voluntary and intentional nature of the act. Id. at 195. The Sixth, Seventh and Ninth circuits, on the other hand, embrace an instruction to the effect that “‘knowingly’ . . . means that the defendant realized what he was doing and was aware of the nature of his conduct, and did not act through ignorance, mistake or accident.” Id. (quoting Seventh Circuit Instruction 6.04); see also Model Penal Code § 2.02(2)(b)(i).

Although the First Circuit in Tracy approved of the trial court’s “voluntary and intentional” instruction under the circumstances of the case, it did not expressly adopt or reject either definition of “knowingly.” Id. There may be cases when, given the evidence, the alternative instruction will be more helpful to the jury. But the term “nature” in the alternative instruction might incorrectly suggest to the jury that the actor must realize that the act was wrongful.

The Seventh Circuit's equivalent pattern criminal jury instruction on "knowingly" says this:
When the word “knowingly” [the phrase “the defendant knew”] is used in these instructions, it means that the defendant realized what he was doing and was aware of the nature of his conduct, and did not act through ignorance, mistake or accident. [Knowledge may be proved by the defendant's conduct, and by all the facts and circumstances surrounding the case.]

[You may infer knowledge from a combination of suspicion and indifference to the truth. If you find that a person had a strong suspicion that things were not what they seemed or that someone had withheld some important facts, yet shut his eyes for fear of what he would learn, you may conclude that he acted knowingly, as I have used that word. {You may not conclude that the defendant had knowledge if he was merely negligent in not discovering the truth.}]The second paragraph quoted above describes a defendant's willful blindness.

The second paragraph above mentions the Seventh Circuit's view of "willful blindness," an important concept in FCPA enforcement.

The First Circuit also talks about "willful blindness" as a way of satisfying "knowingly" and recommends the following pattern jury instruction:

In deciding whether [defendant] acted knowingly, you may infer that [defendant] had knowledge of a fact if you find that he/she deliberately closed his/her eyes to a fact that otherwise would have been obvious to him/her. In order to infer knowledge, you must find that two things have been established.

First, that [defendant] was aware of a high probability of [the fact in question].

Second, that [defendant] consciously and deliberately avoided learning of that fact. That is to say, [defendant] willfully made himself/herself blind to that fact.

It is entirely up to you to determine whether he/she deliberately closed his/her eyes to the fact and, if so, what inference, if any, should be drawn. However, it is important to bear in mind that mere negligence or mistake in failing to learn the fact is not sufficient. There must be a deliberate effort to remain ignorant of the fact.

So KER is mostly correct -- but for reasons not cited in the original question. The "highly probable standard" comes from the courts' discussion of "willful blindness" and can apply to the books and records provisions (triggering criminal prosecution as opposed to civil sanctions). Similarly, the "substantially certain to occur standard" might also be used by courts to explain "willful blindness." The courts, however, would be relying not on the anti-bribery provisions of the FCPA but on case law and trial practice within their circuit.

Our thanks to KER for the excellent question. And if any readers can add their experience and insights about criminal enforcement of the accounting standards, please drop us a line.

.

Friday
Jun202008

Putting Compliance Programs To The Test

How do you know if your company has an effective compliance program? The answer is crucial. If rogue employees violate the Foreign Corrupt Practices Act, having an effective compliance program becomes a factor in whether the company will face a criminal enforcement action and, if it does, whether it will be rewarded with reduced penalties. So what does an effective compliance program look like?

The FCPA doesn't answer the question, and the Federal Sentencing Guidelines are short on details. That's because all organizations have a different structure and no two operate the same way. So each one needs its own tailor-made program. The Federal Sentencing Guidelines describe hallmarks of an effective compliance program and what it should accomplish. And some features show up in FCPA Opinion Procedure Releases and deferred prosecution agreements. But the burden is always on each organization to figure out for itself how best to prevent, detect and respond to FCPA offenses.

So who finally decides what an effective compliance program looks like? Well, for better or worse, that's left to the people at the Justice Department. They decide which organizations will face FCPA criminal enforcement actions, and part of their decision should involve evaluating whether the company has an effective compliance program. And how do prosecutors do that? They look to the U.S. Attorneys' Criminal Resource Manual.

Relevant sections from the CRM appear between the lines below, with footnotes omitted and a couple of new paragraph breaks inserted, but otherwise unchanged. The provocative narrative is best read without our editorial filter -- at least for anyone curious to know how their own compliance program might someday be judged.

The DOJ's test of effectiveness, by the way, is consistent with the you'll-know-it-when-you-see-it-approach in the Federal Sentencing Guidelines. And it comes with an even clearer message of encouragement and warning: honest compliance, even if it doesn't prevent every FCPA violation, will be rewarded, while phony gestures will only multiply everyone's troubles.

Here's what the DOJ has to say to its U.S. Attorneys:

_____________

While the Department [of Justice] recognizes that no compliance program can ever prevent all criminal activity by a corporation's employees, the critical factors in evaluating any program are whether the program is adequately designed for maximum effectiveness in preventing and detecting wrongdoing by employees and whether corporate management is enforcing the program or is tacitly encouraging or pressuring employees to engage in misconduct to achieve business objectives.

The Department has no formal guidelines for corporate compliance programs. The fundamental questions any prosecutor should ask are: "Is the corporation's compliance program well designed?" and "Does the corporation's compliance program work?" In answering these questions, the prosecutor should consider the comprehensiveness of the compliance program; the extent and pervasiveness of the criminal conduct; the number and level of the corporate employees involved; the seriousness, duration, and frequency of the misconduct; and any remedial actions taken by the corporation, including restitution, disciplinary action, and revisions to corporate compliance programs. Prosecutors should also consider the promptness of any disclosure of wrongdoing to the government and the corporation's cooperation in the government's investigation.

In evaluating compliance programs, prosecutors may consider whether the corporation has established corporate governance mechanisms that can effectively detect and prevent misconduct. For example, do the corporation's directors exercise independent review over proposed corporate actions rather than unquestioningly ratifying officers' recommendations; are the directors provided with information sufficient to enable the exercise of independent judgment, are internal audit functions conducted at a level sufficient to ensure their independence and accuracy and have the directors established an information and reporting system in the organization reasonably designed to provide management and the board of directors with timely and accurate information sufficient to allow them to reach an informed decision regarding the organization's compliance with the law. In re: Caremark, 698 A.2d 959 (Del. Ct. Chan. 1996).

Prosecutors should therefore attempt to determine whether a corporation's compliance program is merely a "paper program" or whether it was designed and implemented in an effective manner. In addition, prosecutors should determine whether the corporation has provided for a staff sufficient to audit, document, analyze, and utilize the results of the corporation's compliance efforts. In addition, prosecutors should determine whether the corporation's employees are adequately informed about the compliance program and are convinced of the corporation's commitment to it. This will enable the prosecutor to make an informed decision as to whether the corporation has adopted and implemented a truly effective compliance program that, when consistent with other federal law enforcement policies, may result in a decision to charge only the corporation's employees and agents.

Compliance programs should be designed to detect the particular types of misconduct most likely to occur in a particular corporation's line of business. Many corporations operate in complex regulatory environments outside the normal experience of criminal prosecutors. Accordingly, prosecutors should consult with relevant federal and state agencies with the expertise to evaluate the adequacy of a program's design and implementation. . . .

_______________

View the United States Attorneys' Criminal Resource Manual, Title 9, Section 162 (Federal Prosecution of Business Organizations) here.
.

Wednesday
Oct172007

One Law,Two Parts

The question comes from Pune, India: Can a payment that is not a bribe – such as a facilitating payment – be the basis for a criminal violation of the U.S. Foreign Corrupt Practices Act if the accounting for the payment is intentionally misleading?

The answer is yes, and here's how. The FCPA has two parts – the anti-bribery provisions and the accounting standards. They're supposed to work together and often do, but they can also work separately. The anti-bribery provisions are a stand-alone federal criminal statute enforced by the Department of Justice. They reach all U.S. companies and their personnel. In contrast, the accounting standards do not stand alone. They're part of the Securities Exchange Act of 1934. The accounting standards do not apply to everyone, just SEC-reporting companies, called "issuers," and their employees.

While the anti-bribery provisions are a pure criminal statute, the accounting standards – as part of the SEC’s regulatory scheme for public companies – are both administrative rules and a criminal statute. As administrative rules, the accounting standards can be violated by accident. When a “technical violation” happens, the SEC can sanction the violator, but only with civil or administrative penalties and not with criminal fines or jail time. The accounting standards become a criminal matter, however, when a violation happens “knowingly.” In that case, the offense is punishable by up to 20 years in prison and fines. By the way, the possible jail time for violating the anti-bribery provisions is "only" five years, not 20, and proving an accounting offense is simpler than an anti-bribery charge. That's why the Department of Justice favors FCPA accounting prosecutions when there's a choice.

But we're getting ahead of ourselves. Because the anti-bribery provisions and the accounting standards can work separately, an intentional violation of the accounting standards can be a criminal offense “whether or not such falsification is related to a foreign corrupt practice proscribed by the FCPA.” See the United States Attorneys' Criminal Resource Manual (Title 9, Section 1017, FCPA Corporate Recordkeeping). To paraphrase Uncle Sam, then, you can take the fcp out of the FCPA and still commit a criminal offense under the accounting standards. All that's required is for an issuer to cook the books. Therefore, a lawful facilitating payment that is knowingly accounted for in a misleading way can be the basis for a criminal violation of the FCPA.

View the United States Attorneys' Criminal Resource Manual, Title 9, Section 1017 Here.