Sometimes a bad idea just will not die. Sometime commentators like to return to simplistic solutions that sound good on paper. These same commentators have failed to address the practical concerns that outweigh any possible rational for enacting the so-called FCPA compliance defense.
This debate has been going on for a while and I expected the idea to die out. Recently, I saw renewed discussion of the idea. Yikes!! Here we go again.
As an alternative, I have proposed a different solution – offer companies a declination with disgorgement on condition that it presents and turns over all evidence to support indictment of culpable individuals. Companies would have to turn over evidence needed to prosecute these individuals. Companies would have an incentive to disclose an FCPA violation to avoid indictment and limit financial exposure to disgorgement of ill-gotten gains. My proposal is not much different than the current FCPA Pilot Program except that instead of a 50 percent reduction from the bottom of the sentencing guideline range applicable to a cooperating company, the company could earn a declination.
Going back to the FCPA compliance defense – as I understand the proposal, a company could raise the defense at a criminal trial for FCPA violations. The company would be indicted and have to spend the money, suffer the reputational harm, and then raise the defense at trial as a full defense to criminal liability.
Unfortunately, the proposal suffers from a number of serious infirmities.
First, companies do not want to wait to raise a defense at trial. Companies often settle criminal cases pre-indictment, and prosecutors have been regularly avoiding trials for fear of what is called the ”Arthur Andersen” effect, referring to the conviction of Arthur Anderson which resulted in the collapse of the company and loss of thousands of jobs in the Houston, Texas community.
Compliance defense proponents respond that the compliance defense is only intended to provide companies with increased leverage during pre-indictment negotiations with the government. In this scenario, proponents claim that the compliance defense will not necessarily mean increased criminal trials of corporations but more reasonable settlements. Such a claim borders on pure speculation since government prosecutors may be inclined to test the corporation’s compliance defense.
Second, from a practical standpoint, if there is a compliance defense, prosecutors will be more likely to conduct grand jury investigations that focus on a company’s compliance program. Companies will rue the day when they receive a grand jury subpoena requesting broad access and review of documents and witnesses relating to the operation of a company’s compliance program.
In this situation, prosecutors may learn about other corporate violations and internal investigations in order to assess the overall performance of a company’ compliance program. A grand jury investigation focused on FCPA violations could quickly uncover corporate misconduct resulting in separate criminal investigations. In this situation, companies will be reluctant to raise the compliance defense for fear of the government discovering separate but unrelated criminal violations (e.g. antitrust) that the company uncovered in an internal investigation or internal enforcement matter.
Third, it is not clear how the compliance defense would work. In order to raise the defense and secure a jury instruction on the issue, how much and what type of evidence would a company be required to raise? If a company raised the compliance defense would it have to show that its compliance program was ”effective” and only as to FCPA violations or as a whole as to all or some potential risks? These issues can be resolved but it is not clear that proponents have thought through how these issues would be resolved. Proponents who argue for the defense have an obligation to address these specific issues.
