During last week's FCPA hearing in the House, Representative John Conyers (D-MI) had a contentious Q&A exchange with Shana-Tara Regon (Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers). See here for the previous post regarding the hearing.
Conyers asked - "give me some examples of overcriminalization of the FCPA." He repeatedly interrupted Regon and asked "just give me some examples" "give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization." Conyers stated, "only 140 cases have been brought in 10 years -that averages 14 cases a year - is that overcriminalization to you?" Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occurred.
There should be plenty of concern regarding prosecutions that have already occurred, but given the glare of the cameras, the stress of testifying, and the disruption of being interrupted, it would have been difficult for any witness to retrieve from their memory bank specific FCPA enforcement actions.
This post provides a summer reading list of FCPA enforcement actions, commentary and analysis, and legal scholarship for Representative Conyers so that he can best seek answers to the question he posed to Regon.
For starters, what does overcriminalization mean?
To be sure, it can mean different things to different people in different circumstances. In "The Overcriminalization Phenomenon(here) Eric Luna provides this definition - "the overcriminalization phenomenon consists of: (1) untenable offenses; (2) superfluous statutes; (3) doctrines that
overextend culpability; (4) crimes without jurisdictional authority; (5) grossly disproportionate punishments; and (6) excessive or pretextual enforcement of petty violations. In this piece, Jeffrey Parker (while observing that "definitions of “overcriminalization” are a bit fuzzy and debatable") identifies the following as among the factors that may contribute to overcriminalization: "the vague, arcane, or trivial nature of such prohibitions, as undermining citizens ability to conform, and debasing the moral moment of the criminal sanction" and "the lack of adequate mens rea standards in criminal prohibitions."
Not all overcriminalization factors are relevant to this "new era of FCPA enforcement" (see here), but in the minds of many, several factors are.
Enforcement Actions
In the 2011 Comverse Technologies enforcement action (see here), the company paid $2.8 million in combined fines and penalties (and no doubt millions more in connection with the investigative and resolution process) to resolve a matter in which the DOJ did not allege that the company even knew about the improper payments at issue. The action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Alliance One International enforcement action (see here), the company paid approximately $20 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter in which it did absolutely nothing wrong. Rather, the entire DOJ enforcement action was based on a successor liability theory. Again, the action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Noble Corporation enforcement action (see here), the company paid approximately $8 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter involving the import and export of goods into Nigeria. When Congress passed the FCPA, its intent as to so-called facilitating or grease payments was clear. Senate Report No. 95-114 (May 2, 1977) states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs ...". The relevant House Report (No. 95-640, September 28, 1977) similarly states as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments." The Noble enforcement action was resolved via a non-prosecution agreement meaning, again, there was no judicial scrutiny of the DOJ's enforcement theory.
And then of course there is the issue of "foreign official" and the fact that most FCPA enforcement actions in this new era are based on alleged improper payments to employees of alleged state-owned or state-controlled enterprises ("SOEs") on the theory that such business entities are "instrumentalities" of a foreign government and thus all employees, regardless of rank or position, are "foreign officials" under the FCPA. Yet, (1) During its multi-year investigation of foreign corporate payments, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. (2) In certain of the bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOE entities. These bills were introduced in both the Senate and the House during both the 94th and 95th Congress. (3) Despite being aware of SOEs and despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, Congress chose not to include such definitions or concepts in what ultimately become the FCPA in 1977. See here for extensive reading on this issue.
Commentary and Analysis
In 2010, Forbes ran a feature article (here) titled "The Bribery Racket" - "How Federal Crackdown on Bribery Hurts Business And Enriches Insiders." Lucinda Low, a respected FCPA practitioner, notes in the article that "the scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it's unclear if they would prevail in court" and that "you don't have the checks and balances you would normally have if you had more litigation." Commenting on the current era of FCPA enforcement, Joseph Covington (who headed the DOJ's FCPA efforts in the 1980's) said that the current era "is good business for law firms [...] good business for accounting firms, it's good business for consulting firms, the media--and Justice Department lawyers who create the marketplace and then get yourself a job."
Here, Michael Levy (a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr.) talks about what he calls prosecutorial common law. Levy states that "prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable ...". Levy notes that "we have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA."
In this publication, an author group including Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar) noted that in several recent FCPA enforcement actions "the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear." In other cases, the author group states that in many cases critical elements of the statute were not pleaded or were pled in a way "that is not consistent with established precedent and the language of the statute."
In a September 10, 2010 interview with the Corporate Crime Reporter, Mark Mendelsohn (the former head of DOJ FCPA enforcement during this era of resurgence who departed the DOJ for private practice in 2010) stated that "some of the factors" the DOJ uses to resolve FCPA cases are transparent, but "there are other factors less easy to see from the outside." Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements (the common way FCPA enforcement actions are resolved) that the "danger" "is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don't actually constitute violations of the law."
In this Q&A exchange, Martin Weinstein (a former DOJ FCPA attorney who prosecuted the Lockheed case in the mid-1990's and is now a prominent FCPA practitioner) stated as follows. "The last decade of FCPA enforcement has seen extraordinary evolution, and I think you have to say that when Congress passed the law in 1977, they did not envision the wide reach of enforcement today and the types of things that the government gets involved in, such as transactions, joint ventures, and successor liability."
Legal Scholarship
In "Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act" (here), Amy Westbrook (Washburn University School of Law) argues that the recent "transformation of the FCPA has been brought about by ad hoc enforcement actions, rather than legislation, judicial decision, or regulation" and that "in the absence of formal process or reasoned articulation, the actual scope of the law is unclear."
In "The Facade of FCPA Enforcement" (here), I argue that "the FCPA often means what the enforcement agencies say it means" and that "even though the resolution vehicles typically used to resolve an FCPA enforcement action are not subject to judicial scrutiny and [thus] the vehicles do not necessarily reflect the triumph of the enforcement agencies’ theories, in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law" which breed "inefficient overcompliance by risk averse business actors fearful of enterprise - threatening liability because of the enforcement agencies’ untested and dubious theories."
Conyers asked - "give me some examples of overcriminalization of the FCPA." He repeatedly interrupted Regon and asked "just give me some examples" "give me an instance of where one case was ever brought by the DOJ that would constitute overcriminalization." Conyers stated, "only 140 cases have been brought in 10 years -that averages 14 cases a year - is that overcriminalization to you?" Regon stated that overcriminlization occurs when a statute provides no reasonable limits and that she is concerned more about prosecutions that may occur in the future more so than prosecutions that have already occurred.
There should be plenty of concern regarding prosecutions that have already occurred, but given the glare of the cameras, the stress of testifying, and the disruption of being interrupted, it would have been difficult for any witness to retrieve from their memory bank specific FCPA enforcement actions.
This post provides a summer reading list of FCPA enforcement actions, commentary and analysis, and legal scholarship for Representative Conyers so that he can best seek answers to the question he posed to Regon.
For starters, what does overcriminalization mean?
To be sure, it can mean different things to different people in different circumstances. In "The Overcriminalization Phenomenon(here) Eric Luna provides this definition - "the overcriminalization phenomenon consists of: (1) untenable offenses; (2) superfluous statutes; (3) doctrines that
overextend culpability; (4) crimes without jurisdictional authority; (5) grossly disproportionate punishments; and (6) excessive or pretextual enforcement of petty violations. In this piece, Jeffrey Parker (while observing that "definitions of “overcriminalization” are a bit fuzzy and debatable") identifies the following as among the factors that may contribute to overcriminalization: "the vague, arcane, or trivial nature of such prohibitions, as undermining citizens ability to conform, and debasing the moral moment of the criminal sanction" and "the lack of adequate mens rea standards in criminal prohibitions."
Not all overcriminalization factors are relevant to this "new era of FCPA enforcement" (see here), but in the minds of many, several factors are.
Enforcement Actions
In the 2011 Comverse Technologies enforcement action (see here), the company paid $2.8 million in combined fines and penalties (and no doubt millions more in connection with the investigative and resolution process) to resolve a matter in which the DOJ did not allege that the company even knew about the improper payments at issue. The action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Alliance One International enforcement action (see here), the company paid approximately $20 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter in which it did absolutely nothing wrong. Rather, the entire DOJ enforcement action was based on a successor liability theory. Again, the action was resolved via a non-prosecution agreement meaning there was no judicial scrutiny of the DOJ's enforcement theory.
In the 2010 Noble Corporation enforcement action (see here), the company paid approximately $8 million in combined fines and penalties (and millions more in connection with the investigative and resolution process) to resolve a matter involving the import and export of goods into Nigeria. When Congress passed the FCPA, its intent as to so-called facilitating or grease payments was clear. Senate Report No. 95-114 (May 2, 1977) states, in pertinent part, as follows. “The statute does not […] cover so-called ‘grease’ payments such as payments for expediting shipments through customs ...". The relevant House Report (No. 95-640, September 28, 1977) similarly states as follows. “The language of the bill is deliberately cast in terms which differentiate between [corrupt payments] and facilitating payments, sometimes called ‘grease payments.’ […] For example, a gratuity paid to a customs official to speed the processing of a customs document would not be reached by this bill. Nor would it reach payments made to secure permits, licenses, or the expeditious performance of similar duties of an essentially ministerial or clerical nature which must of necessity be performed in any event. While payments made to assure or to speed the proper performance of a foreign official’s duties may be reprehensible in the United States, the committee recognizes that they are not necessarily so viewed elsewhere in the world and that it is not feasible for the United States to attempt unilaterally to eradicate all such payments." The Noble enforcement action was resolved via a non-prosecution agreement meaning, again, there was no judicial scrutiny of the DOJ's enforcement theory.
And then of course there is the issue of "foreign official" and the fact that most FCPA enforcement actions in this new era are based on alleged improper payments to employees of alleged state-owned or state-controlled enterprises ("SOEs") on the theory that such business entities are "instrumentalities" of a foreign government and thus all employees, regardless of rank or position, are "foreign officials" under the FCPA. Yet, (1) During its multi-year investigation of foreign corporate payments, Congress was aware of the existence of SOEs and that some of the questionable payments uncovered or disclosed may have involved such entities. (2) In certain of the bills introduced in Congress to address foreign corporate payments, the definition of “foreign government” expressly included SOE entities. These bills were introduced in both the Senate and the House during both the 94th and 95th Congress. (3) Despite being aware of SOEs and despite exhibiting a capability for drafting a definition that expressly included SOEs in other bills, Congress chose not to include such definitions or concepts in what ultimately become the FCPA in 1977. See here for extensive reading on this issue.
Commentary and Analysis
In 2010, Forbes ran a feature article (here) titled "The Bribery Racket" - "How Federal Crackdown on Bribery Hurts Business And Enriches Insiders." Lucinda Low, a respected FCPA practitioner, notes in the article that "the scope of things companies have to worry about is enlarging all the time as the government asserts violations in circumstances where it's unclear if they would prevail in court" and that "you don't have the checks and balances you would normally have if you had more litigation." Commenting on the current era of FCPA enforcement, Joseph Covington (who headed the DOJ's FCPA efforts in the 1980's) said that the current era "is good business for law firms [...] good business for accounting firms, it's good business for consulting firms, the media--and Justice Department lawyers who create the marketplace and then get yourself a job."
Here, Michael Levy (a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr.) talks about what he calls prosecutorial common law. Levy states that "prosecutors don’t set out deliberately to interpret criminal statutes in ways that convict hundreds of people on the basis of a standard that not a single Supreme Court Justice finds supportable ...". Levy notes that "we have seen this before in connection with the interpretation of the honest services fraud and obstruction of justice statutes, and it is certainly happening today with the FCPA."
In this publication, an author group including Philip Urofsky (former Assistant Chief of the DOJ Fraud Section responsible for FCPA enforcement) and Danforth Newcomb (a dean of the FCPA bar) noted that in several recent FCPA enforcement actions "the theories used to hold parents accountable for the acts of subsidiaries and vice versa appear to be unclear." In other cases, the author group states that in many cases critical elements of the statute were not pleaded or were pled in a way "that is not consistent with established precedent and the language of the statute."
In a September 10, 2010 interview with the Corporate Crime Reporter, Mark Mendelsohn (the former head of DOJ FCPA enforcement during this era of resurgence who departed the DOJ for private practice in 2010) stated that "some of the factors" the DOJ uses to resolve FCPA cases are transparent, but "there are other factors less easy to see from the outside." Mendelsohn also noted, in connection with non-prosecution and deferred prosecution agreements (the common way FCPA enforcement actions are resolved) that the "danger" "is that it is tempting for the Department, or the SEC [to use these vehicles] to seek to resolve cases through DPAs or NPAs that don't actually constitute violations of the law."
In this Q&A exchange, Martin Weinstein (a former DOJ FCPA attorney who prosecuted the Lockheed case in the mid-1990's and is now a prominent FCPA practitioner) stated as follows. "The last decade of FCPA enforcement has seen extraordinary evolution, and I think you have to say that when Congress passed the law in 1977, they did not envision the wide reach of enforcement today and the types of things that the government gets involved in, such as transactions, joint ventures, and successor liability."
Legal Scholarship
In "Enthusiastic Enforcement, Informal Legislation: The Unruly Expansion of the Foreign Corrupt Practices Act" (here), Amy Westbrook (Washburn University School of Law) argues that the recent "transformation of the FCPA has been brought about by ad hoc enforcement actions, rather than legislation, judicial decision, or regulation" and that "in the absence of formal process or reasoned articulation, the actual scope of the law is unclear."
In "The Facade of FCPA Enforcement" (here), I argue that "the FCPA often means what the enforcement agencies say it means" and that "even though the resolution vehicles typically used to resolve an FCPA enforcement action are not subject to judicial scrutiny and [thus] the vehicles do not necessarily reflect the triumph of the enforcement agencies’ theories, in the absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law" which breed "inefficient overcompliance by risk averse business actors fearful of enterprise - threatening liability because of the enforcement agencies’ untested and dubious theories."
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