Known as “The FCPA Professor” for his highly trafficked blog, Southern Illinois University Law Professor Mike Koehler spoke in Washington, DC on October 2, 2014 about what he sees as flaws in the way FCPA enforcement is carried out.
In his latest book, The Foreign Corrupt Practices Act in a New Era, Koehler dissects recent developments and trends related to the U.S. Foreign Corrupt Practices Act (FCPA) and its enforcement. Although often a critic of FCPA prosecutions, Koehler maintains that the law itself is sound and apt – even for today’s globalized corporate environment.
He submits, however, that a gap exists between the text of the FCPA statute and current DOJ and SEC enforcement. Koehler ties this gap to the large number of corporate actions, which almost always lead to out-of-court settlements, as opposed to actions against individuals which would require greater judicial review.
In his recent amicus brief supporting a petition to reconsider whether State Owned Enterprise employees can be treated as “foreign officials” in FCPA actions, Koehler argues that the absence of previous rulings on the topic is itself indicative of the problematic way the FCPA enforcement is being carried out:
“The vast majority of FCPA investigations are resolved through out-of-court settlements including non-prosecution agreements (“NPAs”), deferred prosecution agreements (“DPAs”), and other administrative settlements not subject to judicial scrutiny. As a result, courts rarely construe the FCPA.”
The argument gets at the heart of the U.S. judicial system, which requires prosecutors to carry the burden of proof in order to obtain convictions. In the case of bribery, Koehler argues that this standard would be difficult to meet for the majority of FCPA actions if they actually went to trial. He says that the “know it when you see it” test is inadequate for defining bribery and that additional court decisions are required to answer difficult questions about responsibility, justice, and compliance.
In a recent article for the White Collar Crime Report, Koehler explains that “because of the ‘carrots’ and ‘sticks’ relevant to resolving a government enforcement action, FCPA defendants are often nudged to accept resolution vehicles notwithstanding the enforcement agencies’ untested and dubious enforcement theories or the existence of valid and legitimate defenses.” In other words, a company decides to settle out of court even when they believe their case will triumph simply because the cost – reputational, stock value, and market capitalization – of being entangled in legal arbitration with a federal agency outweighs the cost of settling.
Koehler’s presentation, held at the offices of law firm King & Spalding, was provocative. Instead of accepting FCPA enforcement actions because the law behind them is sound, he charges the FCPA community – enforcers, firms representing violators, and Congress – to question whether its implementation is effective: do corporate actions actually help enforce the law? Is it fair to not bring individual actions? Is this strategic avoidance of judicial overview?
Koehler assured his audience that he has read every FCPA case and guideline in their entirety multiple times and implored those that might take issue with his positions to also read the 1981 FCPA Guidance document, which has not been abrogated and therefore remains the authoritative guidance on the Act. The Q&A session of Koehler’s presentation ended with his assertion that a compliance defense – that is, allowing a corporation to argue that it did everything it could to avoid the breach of FCPA regulations – would incentivize stronger anti-corruption programs and more voluntary disclosure.
Sarah Ali is a Program Assistant for the Middle East & North Africa at CIPE.