DOJ Fraud Official Offers An Insider’s View Of The FCPA Resource Guide

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Charles Duross, deputy chief of the Department of Justice’s (DOJ) Criminal Division, Fraud Section, offered white collar crime practitioners rare insight into the DOJ’s and the Security and Exchange Commission’s (SEC) recently released Resource Guide to the U.S. Foreign Corrupt Practices Act at the American Bar Association’s (ABA) 27th Annual National Institute on White Collar Crime, held in Las Vegas from March 6 to 8, 2013.  Although making the obligatory disclaimer that the views he expressed were his own and not those of the DOJ, Duross defended the Resource Guide against criticism that it lacked depth in several key areas of vaguely defined provisions of  the U.S. Foreign Corrupt Practices Act (FCPA).   

Duross, as part of a panel of former government officials and in-house counsel, also weighed in on several key FCPA case developments from 2012 and the government’s evolving FCPA enforcement priorities moving forward.

Behind the Scenes of the FCPA Resource Guide

The Resource Guide was released on November 14, 2012, following what Duross described as a year “dominated” by the writing of the Guide.  He explained that the primary impetus for creating the Guide was the United States’ treaty obligations under the Organisation for Economic Co-Operation and Development (OECD) Convention.  The United States was explicitly called on by the OECD Working Group to consolidate and summarize publicly available information on the application of the FCPA, including recent opinion releases and enforcement actions, as part of the OECD’s report on implementation and enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.  This OECD push came amid other calls for clarity and reform from the U.S. Chamber of Commerce, certain members of Congress, the defense bar and other members of the business community.   The proposed reforms include creating a “compliance defense” to criminal liability when a company’s employees or agents circumvent compliance measures to violate the FCPA; limiting liability for prior acts of an acquired company; and requiring “willfulness” for corporate criminal liability.

Duross reported that the government had consulted with a number of outside constituencies in drafting and finalizing the Guide, including lawyers from the ABA, corporations, non-government organizations, the U.S. Chamber of Commerce and investor groups.  For example, one outgrowth of meeting with in-house counsel from various corporations was the illustrative hypotheticals contained in the Guide.  Duross also explained that the Guide was not intended to create a so-called “compliance defense”—which does not exist under the FCPA.  In fact, the Guide was designed to generally be helpful to small and medium-sized companies that do not have the internal or external resources at their disposal that large companies typically can rely on when seeking to comply with the terms of the FCPA.  Duross also stated that another goal behind the Guide was to close what he described as the gap between public perception of the government’s FCPA enforcement efforts and the reality, going so far as to say that such enforcement is not so puritanical as to prohibit businesses from having any business-related entertainment or hospitality.

When asked whether the government intends to release an updated version of the Guide on any periodic basis, Duross reported that there were currently no such plans, but that at some point the government may need to consider updating the Guide, given the number of significant cases playing out in the courts. 

Praise for and Criticism of the Resource Guide

Commentators have praised the Guide for being a valuable collection of previously dispersed information on FCPA prosecutions, SEC dispositions, and the government’s view of what makes a good anticorruption compliance program.  Companies have even started to build the Guide’s examples into their own compliance programs.  However, some conference panelists echoed the criticism of the Guide that followed its issuance, including that it failed to adequately address several core issues such as jurisdiction over foreign parties and parent liability for the acts of foreign subsidiaries.  The Guide was also criticized for including sample declinations that were premised on “pretty obvious” fact patterns that failed to meaningfully advance the FCPA dialogue.  Duross noted that the general reaction to the Guide has been “very positive,” but acknowledged that, in the face of such criticism, especially as to the Guide’s failure to shed light on several ill-defined FCPA provisions, it just “cannot please everyone.” 

“Reasonable” Promotional Expenses to Remain Undefined

Touching on one such widely vocalized criticism, Duross was questioned about the utility of the Guide’s use of examples such as a $12,000 birthday trip for a foreign official, a $20,000 automobile and $1,000 allowances of “pocket money” to illustrate what would constitute unreasonable travel and entertainment expenses—given that such lavish expenditures are unlikely to be the type over which companies have any uncertainty.  Rather, companies struggle to understand the lower limits of what constitutes a reasonable promotion expense.  For example, the Guide lists as improper “$10,000 spent on dinners, drinks and entertainment for a government official,” but does not provide details such as the period of time over which the expenses could be incurred, or how many transactions could make up the $10,000 total.  

Duross responded by indicating that, in drafting the Guide, the government did not want to “set any kind of a floor” with regard to promotional expenses, suggesting that doing so would “send the wrong signal.”  Duross also implied that the government’s 120-page effort in compiling this resource provided much more insight than is typically provided in explaining a criminal statutory scheme.  Of course, members of the defense bar would be quick to note that the FCPA, unlike other criminal offenses, has heretofore undergone little judicial scrutiny and therefore presents unique circumstances not fairly drawn as akin to other criminal offenses.  

The Morgan Stanley Declination

While not going so far as to endorse a corporate “compliance defense,” Duross pointed to the DOJ’s April 2012 declination on the Morgan Stanley case as showing its willingness to look beyond the bad conduct of a rogue employee and to not always hold the parent corporation responsible where the company had in place a strong compliance program and internal controls.   In the press release announcing the declination, the DOJ reported that Morgan Stanley had constructed and maintained a system of internal controls “which provided reasonable assurances that its employees were not bribing government officials,” and that it was thus declining to bring any enforcement action against Morgan Stanley related to the misconduct of its former managing director in China.  The press release further noted that Morgan Stanley had voluntarily disclosed the matter and had cooperated throughout the DOJ’s investigation. 

However, judging by Duross’ remarks, the limits of the DOJ’s magnanimity regarding the acts of errant employees remain decidedly murky, as Duross was skeptical as to how legitimate the “rogue employee” defense would be were a company to report upwards of seven such offenders.  Given that many multinationals now employ thousands of individuals around the world, Duross’ narrow views will likely provide small comfort that even this limited “compliance defense” holds any water with the DOJ.

Conclusion

The commentary offered by Deputy Chief Duross suggests that the government’s Resource Guide—rather than being an outgrowth of mounting criticism from the business community, defense bar and other legal commentators concerning the FCPA’s troubling ambiguity and opaque enforcement policies—was more a product of the government’s treaty obligations under the OECD Anti-Bribery Convention.  Duross’ remarks further indicate that the government does not have any plans to provide updates to the Resource Guide (although he did not foreclose that possibility) and that it will continue to defend the Guide sufficiently to satisfy any obligations it had to identify the guiding principles underlying FCPA enforcement.  Observers seeking a more granular and critical treatment of the FCPA’s provisions are better left to await the increasing number of FCPA cases being brought to trial, as judicial scrutiny appears to be the most promising venue for shedding light on boundaries of FCPA enforcement, compliance and defense.

Topics:  Declination, DOJ, FCPA, FCPA Resource Guide, Morgan Stanley, Reasonable Promotional Expenses, SEC

Published In: General Business Updates, Criminal Law Updates, Finance & Banking Updates, International Trade Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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