Creating a Private Right of Action under the FCPA
The Department and the Securities and Exchange Commission (the “SEC”) have overlapping jurisdiction to bring enforcement actions under the FCPA. Currently, there is no private right of action available under the FCPA. Consequently, only the Department may initiate criminal charges and the SEC a civil action for violations of the FCPA. To remedy this, United States Representative Ed Perlmutter introduced the Fair Foreign Business Bribery Prohibition Act of 2009 (H.R. 2152), which would amend the FCPA to permit private parties to bring a civil action if certain requirements are satisfied.
The Proposed Act17 would allow “authorized plaintiffs” to bring “certain private rights of action by under the [FCPA] for violations by foreign concerns that damage domestic businesses.”18 The Act defines “authorized plaintiffs” as “issuers,” “domestic concerns” and “United States persons,” in the same manner as the FCPA. It is unclear what other persons would be included within the class of authorized plaintiffs beyond those already covered as “issuers” or “domestic concerns.” Significantly, the Act would exclude as prospective plaintiffs companies that are the foreign subsidiaries of US firms while permitting foreign companies which are “issuers” to bring actions against non-US companies, including foreign subsidiaries of US firms - a serious, yet obviously unintended, consequence.
The Proposed Act requires the plaintiff to prove that (a) the defendant made a prohibited payment to a government official in violation of the FCPA; (b) the violation prevented the plaintiff from obtaining or retaining business; and (c) the violation assisted the foreign concern in obtaining and retaining such business. 19 By requiring a plaintiff to prove that a violation of § 78dd-3 occurred, the plaintiff would also have to establish that an act in furtherance of the bribery of a foreign official occurred “within the territory” of the United States under section § 78dd-3).
The legislation also provides for damages equal to the greater of (a) the total value of the “contract or agreement that the defendant gained in obtaining or retaining business” or (b) the total value of the “contract or agreement that the plaintiff failed to gain because of the defendant’s obtaining or retaining business” by violating the FCPA, as well as treble damages.20 By permitting treble damages, based upon the total value of the relevant contract and not the actual profit under that contract, a recovery could lead to a very significant windfall to plaintiffs and thus create a substantial financial incentive to bring such suits.
Background and Potential Impact on Companies
The creation of a private right of action under the FCPA would be a critical departure from the historical interpretation of the congressional purpose for enacting the FCPA, and could have an important impact on prosecutions under the FCPA.21 Private litigants have unsuccessfully sought to convince courts to interpret a private right of action under the FCPA. In 1990, the Sixth Circuit held that such a “post-violation enforcement” by private plaintiffs, as opposed to “pre-violation compliance,” would “hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”22 Without such a private right of action, the U.S. government has maintained exclusive jurisdiction to bring FCPA charges and to shape enforcement policy under the statute. Similarly, the SEC, has been active in protecting shareholders and others by seeking civil disgorgement of profits resulting from an FCPA violation. Furthermore, it is unclear whether private right of action plaintiffs will have the ability to gather evidence necessary to prove their claims, as much of the evidence of violations of the FCPA, even in the case of U.S. firms, is located outside the territory of the United States.
Consistent with this judicial interpretation, the Department and the SEC widely and publicly encourage companies to voluntarily report findings of suspicious activities and to take remedial measures within their organizations. For example, Mark Mendelsohn, Deputy Chief of the Fraud Section of the Criminal Division of the Department, recently stressed the benefits of voluntary disclosure to companies, ranging from reduced criminal charges, obtaining and reducing the fines imposed on a company, a nonprosecution or deferred prosecution agreement, rather than obtaining an indictment.
The addition of more litigation will further increase the substantial financial and operational risks that companies already face. FCPA enforcement efforts by U.S. and foreign authorities, the significant penalties and fines imposed, in addition to the high cost of both internal and government investigations, and the need to implement rigorous FCPA compliance programs are already significant without a private right of action.
Providing for a private right of action under the FCPA also raises important policy considerations. The potential damages that could be awarded may lead to companies seeking bankruptcy or reorganization to avoid financially disastrous consequences. Such actions will also effectively place industry regulation in the hands of private litigants rather than the U.S. government.
Unless some legislation is enacted, private litigants have limited options under the FCPA and can only seek relief under other statutes such as the securities law, common law fraud, the mail and wire fraud provisions, the Racketeer Influenced and Corrupt Organizations Act (RICO), or a shareholder derivative suit.
Links to Relevant Documents: