Welcome To The Hotel California: FCPA Enforcement

by Thomas Fox

Hotel CaliforniaThis past weekend I saw The Eagles on their ‘History of The Eagles Tour. It truly was that, a complete musical history of the group, from the beginning in 1971 up until now. They played for well over 3 hours and it was fantastic. The Eagles were at their peak in the 70’s when I was at my peak as a rock and roller, both in high school and college, so the concert was a very memorable experience. In one interesting twist they did not allow videos to be taken of the concert with cell phones or any other types of recordings. Of course the concert ended with song Hotel California and its iconic line “You can check out but you can never leave.”

I thought about that final line and how true it was in the late 70s and how true it is now in the world of international anti-corruption enforcement when I read a front page article in Sunday’s New York Times (NYT), entitled “Eavesdropping Ensnared American Law Firm”, and an blog post by the FCPA Professor, entitled “FCPA Lawyers Would Be Wise to Review Recent Third Circuit Decision”.

We know from the American Spectator article, “Rise of the Surveillance State”, by James Bovard about the National Security Agency (NSA) program ‘Echelon’, which he described as “a spy satellite system run by the National Security Agency along with the United Kingdom, Australia, New Zealand, and Canada. Echelon reportedly scans millions of phone calls, e-mail messages, and faxes each hour, searching for key words.” Further, Bovard stated, “A February report by the European Union alleged that Echelon has been used for economic espionage. Former CIA Director James Woolsey told a German newspaper in early March that Echelon collects “economic intelligence.”” One example Woolsey gave was espionage aimed at discovering when foreign companies are paying bribes to obtain contracts that might otherwise go to American companies. Woolsey elaborated on his views in a March 17, 2001 Wall Street Journal (WSJ) Op-Ed piece, justifying Echelon spying on foreign companies because some foreigners do not obey the Foreign Corrupt Practices Act (FCPA).

After the NYT article, we know that US law firms can also fall under surveillance. The firm of Mayer Brown was monitored by the NSA’s Australian counterpart, the Australian Signals Directorate (ASD), regarding work the law firm was doing for the government of Indonesia in trade disputes with the US. It is of no consequence that it was the Australians doing the spying as under the “Five Eyes Alliance”, Australia is one of five countries the US shares intel with and agrees not to spy on. While most Americans would understand the need to place those dealing with terrorists under surveillance, the need to monitor US law firms giving legal advice in a legal trade dispute seems one or two steps past the safety of the US homeland. While only mentioned in the article, I also wonder about the effect of this surveillance on the attorney-client privilege, the basic reason that clients come to lawyers, for confidential legal advice. If you know that you are susceptible to espionage, why would a client ever trust the confidentiality of your communications or even that they are confidential to start with. Moreover, if you know you are subject to surveillance, is the privilege destroyed if a country does so and passes the information along to the US?

Equally unsettling as the revelations in the NYT article is the FCPA Professor’s report on a Third Circuit, Court of Appeals decision, entitled “In Re: Grand Jury Subpoena”. In this matter, an attorney was consulted on an international transaction, which was described as follows: “In April 2008, Client approached Attorney to discuss issues he was having with the project. Client explained that he planned on paying Banker in order to ensure that the project progressed swiftly, as Banker was threatening to slow down the approval process. Attorney did some preliminary research, found the FCPA, and asked Client whether the Bank was a government entity and whether Banker was a government official. Although Attorney could not ascertain given his limited research whether the planned action was legal or illegal, he advised Client not to make the payment. Despite this advice, Client insisted that his proposed payment did not violate the FCPA, and informed Attorney that he would go ahead with the payment. Attorney gave Client a copy of the FCPA. After this communication, Attorney and Client ended their relationship.” The opinion stated that the Client made a payment to the banker’s sister.

In other words, the client came for legal advice regarding an international transaction, the attorney advised against the transaction in question but the client did so against the advice of his attorney and the attorney thereafter terminated the relationship. There was no evidence the lawyer advised the client how to violate the FCPA or in any way helped the client ‘get around’ the law.

The attorney-client privilege is not sacrosanct. There are some limited exceptions to it and one of those is the ‘crime-fraud exception’ which the Court of Appeals explained is, “To circumvent [the attorney-client] privilege under the crime-fraud exception, the party seeking to overcome the privilege . . . must make a prima facie showing that (1) the client was committing or intending to commit a fraud or crime, and (2) the attorney-client communications were in furtherance of that alleged crime or fraud.” (All citations omitted) But, in this case, there was no evidence presented that the attorney involved gave advice that was in the furtherance of a crime but only that “The communication between Attorney and Client was brief, and consisted mainly of informing Client on the applicable law and advising that he not make the payment. However, we believe that the questions posed by Attorney to Client and the information that Client could gain from those questions are sufficient for us to conclude that the District Court did not abuse its discretion in determining that the advice was used in furtherance of a crime or fraud.”

What were the questions posed by the client or put another way, what was the legal advice sought by the client? The Court stated, the “questions about whether or not the Bank was a governmental entity and whether Banker was a government official would have informed Client that the governmental connection was key to violating the FCPA. This would lead logically to the idea of routing the payment through Banker’s sister, who was not connected to the Bank, in order to avoid the reaches of the FCPA or detection of the violation. Of course, it is impossible to know what Client thought or how he processed the information gained from Attorney. But the District Court did not abuse its discretion in determining that Client “could easily have used [the advice] to shape the contours of conduct intended to escape the reaches of the law.””

What does the spying on a US law firm and this court decision invalidating the attorney-client privilege mean for FCPA enforcement? I think that it means if you find yourself in the position of having violated the FCPA; your company now has an even greater incentive to self-disclose. If you are a non-US based company subject to the FCPA, the NSA is watching you. Further, if you are a non-US company, which seeks legal advice, you are now on notice that US laws firm are being spied on. Lastly, if you have violated the FCPA and seek legal advice; it may well come to pass that the lawyer whose advice you sought, can be compelled to testify about those conversations. So in the words of The Eagles, if you engage in conduct that arguably violated the FCPA, you can check out but you can never leave.

If you will be in Dallas this coming Thursday, February 20, I hope that you will join myself and fellow FCPA Blog Contributor Marc Bohn at the Corporate Compliance Summit on 2014 FCPA Concerns You Cannot Afford to Ignore. The event is complimentary and is sponsored by The Network. You can check it out and register by clicking here.

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.

© Thomas Fox, Compliance Evangelist | Attorney Advertising

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