The Latest FCPA Forecast From U.S. Regulators 2

FCPA enforcement is high, but there remains very little official guidance from the government. As a result, practitioners, corporate counsel, and others following the latest FCPA developments are invariably on the edge of their seats any time an oracle from the SEC or DOJ (the latter, in particular) speaks at one of the growing number of conferences on the topic. Anne Richardson of TRACE had a chance to read the DOJ tea leaves yesterday, when Mark Mendelsohn of the DOJ, Cheryl Scarboro of the SEC, and Edward Coopers of the FBI spoke at a conference in Washington, DC. After all of the usual disclaimers by each speaker, here is the most recent summary of trends and predictions in the FCPA enforcement arena.


Heightened level of FCPA enforcement. Ten criminal prosecutions were brought in 2009, 17 in 2008, and 16 in 2007. There have been more prosecutions in the last five years than between 1977 (when the statute was passed) and 2005. These cases tend to involve grand corruption rather than petty corruption, Mark said, and criminal fines from the past five years have totaled over $1 billion. There are currently over 120 on-going DOJ criminal investigations.

Increased focus on individual prosecutions. Individual prosecutions have involved both senior executives as well as those in “gatekeeper” roles. A notable recent prosecution was that of Albert “Jack” Stanley, former chairman and CEO of KBR, and several CCI executives have been indicted and are awaiting trial. Mark noted that the increase in prosecutions of individuals, who have more to lose, has led to more FCPA trials. This year alone there have been three trials (Bourke, Jefferson, and Green). Mark commented that there would be no more trials in 2009. He welcomed the increased litigation as this would lead to more guidance from the judiciary in interpreting the FCPA (the Bourke decision, for example, commented on both the local law defense and the possibility of extortion as a defense).

Broad jurisdictional reach of the FCPA. On the civil side, foreign issuers fall under SEC jurisdiction; on the criminal side, the DOJ has jurisdiction where conduct takes place in the territory of the U.S. or a foreign company conspires with a U.S. company. Mark expects the trend of investigating and prosecuting foreign entities to continue.

Increase in multi-jurisdictional investigations. Mark said that this was “clearly the trend of the future,” as increasingly one or more foreign prosecutorial authorities are investigating the same set of conduct (as in the antitrust realm). This trend is being fuelled by other countries’ increasingly active enforcement of their own foreign bribery laws (which the DOJ has been encouraging), as well as by efforts by the U.S. authorities to develop deeper relationships with their foreign counterparts at both the prosecutor and police levels. Mark noted that other countries are also stepping up their enforcement of domestic corruption.

Increase in industry or sector-wide investigations. Mark stated that he could not emphasize enough “how important this is to [DOJ’s] enforcement strategy.” This strategy, he said, is critical to effectiveness and fairness of FCPA enforcement, as well as the efficient use of DOJ resources.

Due diligence in connection with transactional activity. Mark believes that the importance of due diligence in anti-bribery compliance programs has finally taken hold, at least among most large multinationals. He finds that practices in this area have become much more sophisticated and that many more companies are coming into the DOJ, in the M&A context, with due diligence at the top of their agenda (e.g., Opinion Procedure Release 08-02).

Other criminal violations alongside FCPA violations. Mark emphasized that the Fraud Section in the DOJ’s Criminal Division is fundamentally comprised of “fraud prosecutors,” and thus they will prosecute other instances of fraud that are uncovered in the course of FCPA investigations. Other violations include those in the areas of export control, antitrust, sanctions, commercial bribery (e.g., as in Schnitzer Steel and CCI), procurement fraud, and accounting fraud. “Process crimes,” such as obstruction of justice and false statements, will also be pursued.


The global economic crisis will increase opportunities for corruption and thus FCPA violations. Mark predicted greater competition for less business, leading to increased pressure to engage in bribery. At the same time, companies are probably spending fewer resources on their legal and compliance departments (he said he hopes companies are not cutting back, but expects that they are). Governments are injecting large amounts of money into their economies and are taking over failing firms, leading to difficult assessments of who qualifies as a “foreign official” under the FCPA (in response to a question from the audience, Mark recommended that, when in doubt about the “foreign official” status of the directors or employees in firms assisted by the government, companies should take the conservative approach and treat them as government officials). In addition, governments are directing an enormous amount of money – without a lot of corresponding controls – into infrastructure projects, which are traditionally at higher risk of corruption. Mark expressed concern about how business activity in 2009 would look from an FCPA enforcement perspective five years from now.

Enhanced resources and greater coordination among U.S. authorities. More resources in the DOJ are being devoted to white collar crime, including funds allocated to the Fraud Section generally and funds specifically designated for FCPA enforcement. The SEC is creating a specialized FCPA unit, discussed by Cheryl Scarboro in her remarks, and the DOJ hopes to benefit from even greater coordination with the SEC as a result. Mark said that they were always looking for additional FBI investigation resources as well.

The Singular Case of Facilitating Payments in Thailand 2

For a long time, we at TRACE have railed against statements at conferences and in articles that facilitation payments are illegal in almost every country in which they’re paid. We’ve done a lot of research on this issue over the years and had concluded that there wasn’t any country anywhere with written laws permitting bribery of its government officials. Until now. After we began hearing rumors about Thailand, we asked David Lyman of TRACE’s partner firm in Bangkok, Tilleke & Gibbins and he responded with this summary of Thailand’s surprising bribery law.

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“In Thailand, the practical reason typically invoked for paying and accepting facilitating payments is that the salaries received by civil servants, the police and the military are often substantially lower than those of the private sector, and this additional “pocket money” is a source of additional revenue. If you will, it is seen as a form of taxation. The second cultural reason that such payments may not be seen as bribes per se, and hence illegal, is that the money received would be viewed as an enticement to speed up a process, or reward for doing so, without guaranteeing a favorable outcome for the payer. Thus the payment will not actually provide an advantage to the payer or a disadvantage to a third party. In view of this cultural consideration in this society, the Thai government has provided guidelines on what it deems acceptable conduct and permissible incentives, which we describe as facilitating payments.

Various laws and regulations have been implemented in order to deal with the payment of bribes and other incentives. It is clear that Thai law in this area is most concerned with clamping down on inappropriate gifts or payments, namely those with the purpose of inducing an official to commit an illegal act or to refrain from doing a lawful act. In order to determine the conditions under which such payments would be deemed appropriate in this country, the Notification of the Office of National Counter Corruption Commission Concerning the Provisions of the Acceptance of Property or Any Other Benefit on an Ethical Basis by State Officials B.E. 2543 (AD 2000) deems that officials are entitled to receive benefits in a customary or traditional manner if the amount thereof does not exceed THB 3,000 (about US$90) for each person and on each occasion.

Facilitating payments made in Thailand which are below the limit of THB 3,000 are authorized under Thai laws, but only if the intent in making the same is not illegal. Nevertheless, we recommend that any transfers of cash directly to civil servants, police or military by non-Thai individuals or entities should be avoided due to the risk that the anti-corruption regimes in other countries may view such transactions as improper or illegal bribes under the laws and practices of their own jurisdictions.”

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It seems that the Thai government could have collected the fee officially for the service rendered instead of turning the country’s officials into a teams of entrepreneurs. Once cash transactions between citizens and their public officials are permitted, it’s difficult to imagine monitoring and containing them. US$90 seems an awful lot to pay for expedited handling of a matter with no guaranteed outcome, especially in a country with relatively low per capita incomes. It would be interesting to hear whether anyone had ever paid the permitted fee for, for example, faster handling of a visa application – and then received an expedited denial of that service. We’ll ask David to key an eye on the situation in Thailand for us. And, in the meantime, we’ll all have to get used to saying that these payments are illegal in every country in which they’re paid … except Thailand.

How to Kill a Code of Conduct Reply

A Code of Conduct that is done well sets forth your company’s values and priorities in a way that makes employees and stakeholders understand the type of behavior that won’t be tolerated and the consequences for violations.

Here’s how to produce a worthless Code, together with a few suggestions about how to get it right.


Silence: Many employees won’t have the time or the interest to read the Code of Conduct. This disinclination can be exacerbated by keeping the rollout quiet. Even those who want to read it won’t look for it if they don’t know it exists.

Fanfare is the cure. A new Code should be rolled out with some fanfare: Its importance is reinforced on the company intranet and in printed materials, and it is incorporated into and referred to often in subsequent training programs.


Hard to Find: Post the Code of Conduct on a bulletin board in a back hall. Store the other copies in a drawer somewhere. Let someone who wants to read it badly enough track down the person whose job it was to file it away. A Code of Conduct that is not readily accessible to all employees—when they need to refer to it—is virtually useless and poses no threat to the current corporate culture. Employees faced with questionable situations won’t seek guidance from a Code of Conduct that they have to request from another office… often in a different time zone. Burying the Code of Conduct on the company website three levels down with obscure links helps too. Busy employees in
the business development office are unlikely to take 15 or 20 minutes out of their day to dig through the company website looking for a Code of Conduct that they think they recall hearing about during annual training a few months back.

The cure is access. Make the Code easy to access by providing printed copies for employees and placing a link to it on the intranet.


Legalese: First, make sure the Code is only available in English. Second—and this is the most important part—make sure it’s in the kind of English that only a lawyer would understand. If your Code of Conduct does not exist in Chinese or in Russian, your employees in those countries will behave as though it doesn’t exist at all. They will have gotten the message: the local workforce was not worth the expense of translation. Regardless of your efforts to provide translations of the Code, using dense and overly legalistic terminology is guaranteed to confuse and exhaust your employees.

The cure is to speak plainly. Ideally, the Code will be written in a style appropriate for a general audience and it will be translated into all applicable local languages.


Vague Directions: Keep the Code vague. Lay on the grand statements of good intent, and then pair them up with dark hints of consequences. A Code of Conduct that is too detailed or overly legalistic will confuse your employees, but too little guidance also presents problems. If your Code consists of one page full of grand aspirations it will be of little help to the employees who should depend on it. Principles of honesty, integrity and sound business ethics are laudable, but they are subjective. For the earnest employees trying to get things right, such language is not very helpful. For more devious employees, intent on inappropriate activities, such exhortations can be ignored or manipulated easily.

Clarity it the cure. An ideal Code will not only inspire people to uphold high standards, but also provide clear guidelines on what to do, what not to do when and where to seek guidance. No Code will ever answer all questions. Codes of Conduct should provide contact information for resources that can answer employee questions about gray areas. The Code should be the beginning, not the end, of ethics and compliance discussions.


Bottoms Up: If everyone at the top ignores the Code, you can be sure everyone below them will too. If senior management never mentions the Code, everyone else will conclude that it isn’t worth mentioning.

The cure is a top-down approach. An effective Code sets the company’s ethics and compliance tone and includes strong buy-in from senior management. If you expect your employees to comply with a Code of Conduct, let them hear from the top why the Code is important to your company and what it should mean to them.


Hollow Threats: You may think it’s enough just to omit mention of enforcement altogether, but you can do better: make some vague references to dire consequences, and then do absolutely nothing when employees are called out.

The cure is consequences. In order to be effective, a Code of Conduct needs to set forth how it will be enforced, and then the company needs to follow through and enforce it. Employees notice when nothing happens to those who commit violations, even when consequences have been clearly specified. They’ll assume the Code is for show, and they’ll be right.


Static: You’ve drafted your Code of Conduct, translated it, launched it, distributed it, publicized it, endorsed it, explained it and enforced it … Time to move on to other projects.

Sure. But don’t miss one final chance to sabotage the whole enterprise.
Resolve to do nothing further, and permit the Code to drift out of date and into irrelevance.

The cure is to ensure the code evolves over time. Codes of Conduct should continue to evolve as your company does. New languages should be rolled out as you enter new markets. New marketing strategies may require extension of the Code to commercial third parties. New risks may arise and new regulations may apply. An effective Code is an evolving document that expands to meet the current compliance environment.

So there you have it: recommendations that will kill your Code of Conduct (and a few steps that might save it).

This article was originally published by Alexandra Wrage in Ethisphere magazine in December 2008.

International Corruption: Squarely on the Foreign Policy Agenda Reply

It has been a long time since a president shouldered a major new issue onto the foreign policy agenda. Five presidents back, Jimmy Carter committed the vast political capital that it took to make human rights, as he put it , “the soul” of his foreign-policy. Since then, there have been few attempts at the difficult feat of changing a major contour of American foreign policy.

It seems to be happening now, however. President Obama has placed anti-corruption efforts high among his foreign policy goals. He has done it more subtly and with more success than Carter managed, but he is being as deliberate and comprehensive as Carter ever was. In his Inaugural Speech, and in Russia and Ghana in July, (and, it is safe to predict, in Asia in November at the APEC meetings), the President has kept corruption near the center of every meeting.

President Carter was criticized for making his human rights campaign too much of a one-man show, and it was. For him, it was a campaign issue and a way to create an identity as a candidate. President Obama has not spoken alone. He has made sure that his Departments of State, Commerce, Justice and Defense are pulling with him. The conversation about corruption has changed.

In Russia, President Obama sought out an audience of business school students and told them corruption will stunt their careers and their country’s prospects by deterring foreign investment and the growth and technology it brings. In Africa, Secretary of State Clinton spoke out against rampant graft on every stop of her seven-country tour. Secretary of Defense Gates, General Odierno and General McChrystal have said corruption makes cooperation difficult and good governance impossible. Odierno even called corruption a second front in the war in Iraq. Attorney General Eric Holder and Securities and Exchange Chairman Mary Schapiro have made prosecutions for payments to the officials of other governments under the Foreign Corrupt Practices Act a priority.

Jimmy Carter was first mocked, then later imitated, both by American politicians and foreign governments. Every Western country now features human rights in its foreign policy and every subsequent American president has as well. This is often the case with the progress of an unassailable idea: its proponents are ignored or resisted until, finally, their programs are adopted, entrenched and hailed as self evident.

The timing is right for Obama. Other countries are poised to follow suit. The UN and OECD have conventions fashioned after the U.S. Foreign Corrupt Practices Act and both continue to gain momentum. Prosecutions are increasing everywhere, fines have grown to the hundreds of millions of dollars.

This will prove to be a signature issue for President Obama. Corruption has long been ignored or dismissed as a fact of life or mislabeled as a victimless crime. President Obama and his administration are sweeping aside those pretexts. They are talking about the schools that collapse, the tainted pharmaceutical products that are shipped, the security measures that are breached and the drugs and humans that are trafficked because bribery makes it all possible. They are voicing the connections between transparency and the legitimacy of governments and they are making corporations and foreign officials understand that corruption will cost them. Already the validity of putting corruption high on the foreign policy agenda is self evident, and, as with human rights, it will prove permanent.