On June 14, 2011, the Crime, Terrorism and Homeland Security Subcommittee of the House Judiciary Committee, held a hearing on the Foreign Corrupt Practices Act ("FCPA"). Congressman Jim Sensenbrenner presided over the hearing, which included four witnesses: Greg Andres, Deputy Assistant Attorney General of the Criminal Division of the United States Department of Justice; the Honorable Michael B. Mukasey, Partner at Debevoise & Plimpton LLP and former Attorney General of the United States; George J. Terwilliger, Partner at White & Case LLP; and Shana-Tara Regon, Director of White Collar Crime Policy of the National Association of Criminal Defense Lawyers.
The focus of the hearing centered around five possible reforms to the FCPA: (1) clarification of the definition of "instrumentality;" (2) clarification of what constitutes benign facilitation payments; (3) whether a state-of-the-art compliance program may provide an affirmative defense against criminal liability; (4) raising the mens rea requirement for companies from "willful blindness" to "willful;" and (5) limiting successor liability.
- Clarification of the Definition of "Instrumentality"
The FCPA currently defines "foreign official" to be "any officer or employee of a foreign government or any department, agency, or instrumentality thereof, or of a public international organization, or any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization." However, the FCPA does not define "instrumentality," making it difficult to determine whether an employee or officer of a state-affiliated foreign company qualifies as a "foreign official." Both the Department of Justice ("DOJ") and the Securities Exchange Commission ("SEC") interpret the terms broadly, forcing companies to accept the imposition of hefty fines or risk criminal indictment.
Three of the four witnesses—Mukasey, Terwilliger, and Regon—advocated for the clarification of these broadly-interpreted terms. Specifically, Mukasey proposed that the FCPA include a provision indicating the percentage of ownership by a foreign government that will result in a company being considered an "instrumentality" of that government.
Andres countered that courts have already established a bright-line test to determine whether a company qualifies as an "instrumentality." Andres contended that providing a statutory definition of the term would not be more helpful in clearing up the ambiguity because there can be no uniform definition of the term—e.g., an "instrumentality" of a foreign government in China might be different from an "instrumentality" of a foreign government in Brazil—and thus, a case-by-case interpretation by courts would be more effective. Should companies still find the term ambiguous, Andres noted that the DOJ currently makes available detailed plea agreements and other guidelines on how to comply with the FCPA on its website.
- Clarification of Facilitation Payments
Terwilliger and Regon sought clarification as to what qualifies as a benign facilitation payment. Currently, the line separating bribes and permissible facilitation payments is not clearly defined. For instance, Regon noted that a company may hesitate before providing its Chinese counterparts with hotel accommodations while on a business trip to its factories in the United States. According to Regon, absent clarification regarding acceptable facilitating payments, companies will continue to have no real way of knowing which activities constitute a violation under the FCPA, because it largely depends on the wide prosecutorial discretion of the DOJ and the SEC.
In response, Andres referred the subcommittee's attention to the DOJ's FCPA-dedicated website, which provides several advisory opinions on which types of payments qualify as benign facilitation payments. Andres noted that companies should not find it difficult to differentiate benign facilitation payments from bribery because the advisory opinions provide examples of what constitutes excessive travel and entertainment costs for foreign officials. Andres assured the subcommittee that the DOJ only pursues allegations of clear and egregious cases of criminal conduct.
- State-of-the-Art Compliance Program as an Affirmative Defense
Currently, the FCPA does not provide for a compliance program defense. Mukasey proposed that a company be excused from criminal liability if its rogue employees, who were responsible for the FCPA violations, circumvented the company's compliance program, which was reasonably designed to identify and prevent such violations. Mukasey recommended that the subcommittee consult Section 6 of the Bribery Act of 2010, which was passed by the British Parliament to become effective on July 1, 2011. The Bribery Act provides an affirmative defense to liability if the company can demonstrate that it has "adequate procedures" in place to detect and prevent unlawful conduct.
Terwilliger did not go as far as Mukasey to suggest complete amnesty for companies operating with robust compliance programs and voluntarily reporting their own misconduct. Still, Terwilliger urged that the FCPA provide more clarity and incentives to companies to self-report. Specifically, Terwilliger proposed that the FCPA inform companies of any reduction in penalties beforehand to encourage companies to self-report. Terwilliger contended that companies are in a better position to gather evidence overseas, and therefore, the DOJ should encourage companies to self-invest and engage in voluntary disclosure, as it would be an aid to enforcement that would save both the government and the companies from conducting cost-intensive investigations.
Andres countered that the DOJ already takes into account companies' compliance programs when making a determination to not prosecute certain companies with actual, strong, rigorous compliance programs, as opposed to mere paper compliance. Andres was skeptical about adopting provisions from the Bribery Act of 2010 because the provisions have not yet come into force, and thus, the effectiveness of such provisions has not been proven.
- Mens Rea: Raising the Mens Rea from "Willful Blindness" to "Willful"
The FCPA currently limits criminal liability for individuals to "willful" violations. However, the FCPA does not contain such a limitation for companies. Companies essentially operate under a "willful blindness" standard, which attributes liability to a company as long as the company knew about the unlawful conduct, but refrained from taking remedial action. Under this regime, a company is liable under the FCPA as long as the violating individual was an employee of the company at the time the violation occurred.
Regon recommended that the FCPA adopt a tougher "willful" standard for companies. In support of her argument, Regon cited an instance where the jury found a company liable under the willful blindness standard, even when the company had no actual knowledge of its employee's violation. Regon further criticized the current mens rea requirement for resulting in overcriminalization. Although Congressman Conyers disagreed with Regon by noting that there have only been 140 cases in the last ten years, Regon opined that the DOJ and the SEC are currently criminalizing "vast swaths of activity" to create an "unduly inhospitable regulatory environment."
Mukasey similarly noted that only violations committed by corporate officers with policy-making power should subject the company to FCPA liability because the company otherwise did not "willfully" commit such violations.
- Limiting Successor Liability
Currently, even when an acquiring company has conducted due diligence and immediately disclosed any suspected violations to the DOJ, the DOJ may still choose to prosecute the acquiring company under the FCPA.
Mukasey and Terwilliger both propounded that an acquiring company should not be culpable for pre-acquisition violations by the acquired company, as long as the acquiring company promptly discloses and remedies any unlawful conduct discovered through a thorough investigation of the acquired company's compliance history. Terwilliger expressed concern that successor liability would continue to discourage mergers and acquisitions because many would forego a merger with another company if it meant facing the threat of criminal prosecution. Mukasey contended that criminal successor liability is at odds with the basic principles of criminal law because the DOJ would not be punishing culpable conduct or deterring future violators of the FCPA.
While the Chairman, the experts, and the members of the House Judiciary Committee all seemed to acknowledge the value of the FCPA as a necessary tool to combat corruption in the marketplace, many also seemed open to the idea of reform. Chairman Sensenbrenner, joined by his Republican colleagues and Democratic Congressman Bobby Scott, resonated with the growing concern of the business community in recent years stemming from the DOJ's wide prosecutorial discretion in its enforcement of FCPA violations. According to Chairman Sensenbrenner, the subcommittee will work in the coming months to propose substantive changes to the FCPA with respect to the following areas: (1) clarification of the definition of "instrumentality;" (2) clarification of what constitutes benign facilitation payments; (3) whether a state-of-the-art compliance program may provide an affirmative defense against criminal liability; (4) raising the mens rea requirement for companies from "willful blindness" to "willful;" and (5) limiting successor liability.