By Brett Wolf
The U.S. Justice Department has suffered a string of setbacks in its efforts to enforce the Foreign Corrupt Practices Act, including two this week, but it retains sufficient leverage to persuade companies to settle bribery allegations without a legal fight, sources said.
“I think companies should be emboldened, but I doubt they will,” said Mike Koehler, an assistant professor of business law at Butler University. “After all, to challenge the Justice Department and to put it to its burden of proof requires a company to be criminally indicted.” Indictment would not only open up a long legal battle, it would also threaten a company’s reputation. “So long as alternative resolutions vehicles like non-prosecution agreements or deferred prosecution agreements are offered, companies will continue to agree to these resolutions regardless of whether the law or facts support a clear FCPA violation,” Koehler said.
On Tuesday, federal prosecutors moved to dismiss charges against more than a dozen defendants in a major bribery case involving military equipment sales, after they were unable to convince two juries that what the executives did was illegal.
Hours later, Reuters revealed that the Justice Department had closed its FCPA probe of Allianz SE’s insurance business in Indonesia and did not plan to bring charges.
In December 2011, a U.S. District Court judge in Los Angeles dismissed the FCPA conviction against Lindsey Manufacturing Co., the first company to go to trial to challenge such as charge, and found that prosecutors engaged in “flagrant” misconduct.
“The big picture theme – that defendants prevailed when mounting an actual legal defense – is likely to be carried forward by future FCPA defendants,” Koehler said, referring to individuals charged under the statute.
The Justice Department’s “aggressive approach” has led to roughly fifty indictments of individuals of late, said Richard Cassin, a lawyer who helps clients comply with the FCPA and runs a blog dedicated to the statute. He added that Justice seemed caught off guard by the fact that many of the cases went to trial, and as a result, its resources “were spread too thin.”
“Unless it adds more prosecutors, it won’t be able to keep up with the FCPA case load it is creating,” he said.
He added: “The trial losses might slow down FCPA enforcement against individuals.”
Cassin said “very senior” people at the Justice Department will likely begin scrutinizing potential indictments and asking more questions before granting approval to move forward.
“Does the government have evidence to support the charges? Are there reliable, knowledgeable witnesses who can and will testify at trial? What does the documentary evidence really mean?” he said.
AMENDMENTS AND GUIDANCE
The Chamber of Commerce, the largest U.S. business lobby, has been vocal in its criticism of the FCPA. It believes the law is making U.S. businesses less competitive. In March, it hired former U.S. Attorney General Michael Mukasey to lobby for amendments to the law.
The Justice Department has avoided efforts to amend the 1970s-era law, but last year pledged to provide enforcement guidance. The Securities and Exchange Commission is working with the Justice Department to develop that guidance. A Justice Department spokeswoman declined comment when asked when the guidance would be issued.
Koehler said he does not expect the guidance to provide any important information that is not already public, however. He said the positions it is expected to present have already been elaborated upon in court documents, speeches and elsewhere.
“If you want to know the Justice Department’s position on [the definition of] foreign officials, all you have to do is look to its briefing in the foreign official challenges of 2011. If you want to know what it believes is an effective compliance program, look at the appendices of every single non-prosecution agreement or deferred prosecution agreement,” he said.
“I mean the Justice Department’s guidance, its position, is not going to change. What is needed is not non-binding Justice Department guidance, but limited amendments and structural reforms.”
Koehler noted that U.S. Senators Chris Coons of Delaware and Amy Klobuchar of Minnesota and Representative Bobby Scott of Virginia have all expressed interest in FCPA amendments, but have indicated they will take no action until the Justice Department issues its guidance.
He said that if the Justice Department delays until mid-year, presidential and congressional reelection campaigns will have “heated-up” enough that the political will to act may not exist. And with a new Congress, anything could happen, he said.
“Reforming the FCPA has always been difficult. It’s a political hot potato because anyone who introduces a reform bill is going to be attacked by people saying ‘They’re in favor of bribery.’ Conceivably the deeper we get into election season, there may be less of less enthusiasm for introducing a reform bill,” he said.