FCPA Developments
Introduction
The past two weeks has been an unprecedented period for FCPA enforcement. After a lengthy run as one of the most prominent and effective components of the Department of Justice, two developments have rocked DOJ’s FCPA unit and anticorruption practitioners everywhere.
The first development was one of Attorney General Bondi’s “Day One” memoranda directing the FCPA Unit to prioritize matters “related to foreign bribery that facilitates the criminal operations of Cartels and [Transnational Criminal Organizations], and shift focus away from investigations and cases that do not involve such a connection.” Historically, almost none of the DOJ’s FCPA cases have involved cartels and transnational criminal organizations and it is unclear what the pipeline for those sorts of FCPA matters would look like. It would certainly look very different than the sort of cases the DOJ has brought in recent years.
The second development was President Trump’s Executive Order imposing, among other things, a 180-day pause on new FCPA investigations. The primary purpose of the pause in enforcement is to assess whether existing FCPA enforcement disproportionately harms US business interests overseas. President Trump has long maintained that US businesses are at a competitive disadvantage to companies based in countries that do not have, or do not actively enforce, foreign bribery laws. (For a number of reasons, I do not believe that reducing FCPA enforcement is an effective way to remedy any competitive disadvantages that may exist.)
While it seems likely that FCPA enforcement will change under the Trump administration, possibly resulting in fewer cases being brought against traditional defendants, this does not mean that companies and compliance professionals should be scaling back their anticorruption compliance efforts. To the contrary, it may even be time to invest more heavily in anticorruption compliance.
Where Things Stand
First, let’s be clear: there is a lot we do not know at this point. For all the heated rhetoric of the past weeks, it is distinctly possible – perhaps even probable – that FCPA enforcement is ultimately changed only at the margins. Let’s not forget that President Trump made similar comments about the FCPA prior to his first term, which ended up being one of the most active periods of enforcement in the FCPA’s history. And the FCPA has consistently delivered the sort of front-page headlines and massive dollar resolutions that Trump covets. It is hard to imagine Trump and DOJ leadership simply walking away from those sorts of results. But let’s assume they do; what then? For five key reasons, companies’ incentive to commit to anticorruption compliance should remain as strong as ever.
First, the FCPA is just one of more than 40 laws covering foreign bribery. In 2019, Amanda Aikman and I wrote an article for the ACC Docket in which we tracked the growth of multinational enforcement of foreign bribery laws. We found that multinational enforcement of foreign bribery laws had become the norm and the US – while still by far the most active regulator and often the central player in multinational enforcement actions – no longer dominated the field. If the US were to substantially reduce its FCPA enforcement, one likely result is that other regulators would enhance their enforcement efforts to compensate for the US’s absence. After all, in ordinary business, if a profitable and influential market leader abruptly announced that it was exiting a market, we would not expect the market to disappear. Instead, we’d expect existing competitors (and perhaps new market entrants) to take advantage of the opportunity to seize that market share. And while it’s true that no other regulator has the experience and resources of the DOJ, it’s worth noting the FCPA Unit itself underwent exponential growth in size and sophistication in the first two decades of this millennium. Moreover, it’s very likely that former DOJ prosecutors, many of whom remain dedicated to eradicating foreign bribery, would be willing to lend a hand to any foreign regulators looking to boost their enforcement efforts. Finally, the World Bank and other multilateral development banks are active enforcers of anticorruption laws where their contracts are involved and will continue to be.
Second, many states already have bribery and anti-money laundering laws that might be used to reach much of the same conduct that the FCPA currently covers. States like California, New York and Illinois have already signaled a willingness to adopt new regulations if the federal government cuts back. And while no one has yet specifically mentioned foreign bribery enforcement, it’s not difficult to imagine a media-savvy governor wanting to make a splash by bringing cases that generate huge headlines and revenue. (As of this writing, the enforcement pause has not been extended to the SEC, and cartels and transnational criminal organizations are far less likely to surface in investigations of publicly traded companies. Ultimately, however, it seems unlikely that DOJ and SEC will adopt significantly divergent enforcement practices.)
Third, the FCPA remains the law of the land. The DOJ has the authority to prioritize the actions it brings, but neither the DOJ nor President Trump can change a law passed by Congress. The DOJ could, at any point during or after Trump’s term, simply reverse course and go back to aggressively prosecuting these charges. It’s worth remembering that the five-year statute of limitations on FCPA actions exceeds the four-year term of a President, and that an ongoing criminal conspiracy can extend that timeframe even further.
Fourth, many companies have made commitments to comply with the FCPA that extend beyond DOJ enforcement, particularly the sorts of multinational corporations that have been at the center of most of the largest FCPA actions. In my experience, almost every contract a sophisticated company signs today will include a representation and warranty agreeing to comply with the FCPA and other corruption laws. Many of these clauses are explicitly made material conditions of performance, with immediate termination and damages available for non-compliance. And these clauses, at least those that I’ve seen, are not dependent on whether or not the DOJ ultimately takes enforcement action. Moreover, companies may be signatories to the UN Global Compact, or the World Economic Forum’s Partnering Against Corruption Initiative. Those commitments largely overlap or exceed the requirements of the FCPA. Violating the FCPA could thus post a huge risk to a business’s reputation, client relationships, or ethical commitments, even if no enforcement action is taken. (This is especially true in the case of government contractors, who are often required to make extremely broad anti-bribery certifications as a condition of contracting.)
Fifth, the simple fact is that corruption is bad business. For decades, we have seen that companies that invest in compliance consistently outperform those who do not. And this should not come as a surprise: corruption by its very nature raises the cost of doing business. It increases the incentive and opportunity for other financial crimes, like embezzlement from the company. It promotes a culture of dishonesty and fraud while undermining confidence in a company’s financial reporting. Perhaps worst of all for would-be offenders, corruption is rarely profitable. Even if a bribe results in winning work, the company seldom finds itself better off in the long run. Instead, the company is more likely to find itself on the receiving end of a modern-day protection racket: corrupt public officials, now armed with the added ability to blackmail the company, will demand larger and larger bribes that threaten to swallow any profits. Meanwhile, the company must deal with the constant risk that the corrupt public official will be exposed by the media or their own government, at which point they may be incentivized to roll over on everyone who has ever bribed them. This is hardly a situation in which a business wants to find itself.
These five reasons constitute a powerful argument to continue investing in corruption enforcement, and yet they may overlook the single best reason to do so: in my experience, most companies want to do the right thing. Corruption is wrong. It makes the world poorer and less safe. It facilitates other crimes that people find morally reprehensible, like human trafficking. It undermines trust and reliance on government institutions. Corruption is a crime that hurts everyone. Most companies would not want to be complicit in that, even if it (temporarily) padded their bottom line.
A Reduction in FCPA Enforcement is Contrary to President Trump’s Stated Goals
For more than a decade, President Trump has argued that the FCPA hurts US companies by making them less competitive than countries with lax enforcement. But if President Trump truly wants to level the playing field for US companies, decreasing FCPA enforcement is exactly the wrong way to go about it.
Assuming, for the sake of argument, that foreign companies are outperforming US companies because they get away with paying bribes where US companies cannot, there are two ways to level the playing field: by raising the bar for non-US companies or by lowering it for US companies. Lowering the bar, as in a reduction in enforcement, is a highly speculative and difficult-to-control endeavor. In the best-case scenario, US companies are likely to find themselves in a bidding war with foreign companies, which raises costs for both sides, and does little to ensure that the US companies will prevail. If anything, sophisticated US companies who have long been subject to heavy regulation of their business practices and financial reporting are less equipped to enter this sort of an arm’s race than entrants from another country where regulation is lax and corruption is commonplace. It is asking US businesses to do something novel – and almost certainly counter to their policies and procedures – against foes who have years of experience doing it.
By contrast, raising the bar, by aggressively enforcing corruption laws like the FCPA, would favor companies with well-developed ethical business practices. It would force the companies from countries with loose regulation to elevate their compliance to a level that most US companies already have mastered. In essence, by lowering the bar instead of raising it, we would be ceding home field advantage to our opponent.
And this leads into perhaps the largest problem with the arguments against FCPA enforcement: the FCPA can and is being used to prosecute non-US companies. In fact, of the 10 largest FCPA resolutions, only one – Goldman Sachs – was imposed on a US-based company. This hardly sounds like an albatross around the neck of US business. Instead, FCPA enforcement seems like a boon to US companies because it forces all multinational corporations, or at least those that trade on US exchanges or do any business here, to elevate their business practices to a level that is commonplace among companies in the US.
Conclusion
As a longtime practitioner in the corruption space, who has conducted FCPA investigations on every continent other than Antarctica, I would be disappointed if the US were to abdicate its role as the leading enforcer of anticorruption laws. But no matter what comes of the DOJ’s enforcement of the FCPA, this is not the time for companies to pare back their anticorruption efforts. If anything, a decrease in FCPA enforcement (which would likely be coupled with increased demand for bribes from foreign officials who may feel like bribery is being tacitly encouraged) creates an incentive for responsible companies to do more than ever to ensure they are remaining on the right side of the law, their commitments to their clients, and their own ethical code. The alternative is a bad result for everyone: increased costs of doing business, increases in financial crimes and fraud in which the company itself is the victim, huge risks to a company’s reputation and client relationships, potential risks of enforcement by non-US regulators, and all of this with no guarantee that today’s DOJ policy will survive into the future. The best decision, as always, is to do the right thing: corruption is wrong, it is against the law, and no company should tolerate it.
Managing Director - Legal Senior Director of Anticorruption and Government Compliance