The Year of the FCPA Trial:

Reflecting on Recent FCPA Developments In and Out of the Courtroom at

the ABA’s 2012 National Institute on White Collar Crime

By: A. JOSEPH JAY III

March 19, 2012

The breakout panel on developments in FCPA enforcement at the ABA’s 26^th National Institute on White Collar Crime (held in Miami, Florida from February 29 to March 2, 2012) was, as always, “standing room only” as attendees crowded the aisles to hear the latest in this perennially hot area. Moderating the panel was Mark F. Mendelsohn, the former Deputy Chief of the DOJ’s Fraud Section and now partner at Paul, Weiss, Rifkind, Wharton & Garrison LLP. The panelists included Charles Duross, the current Deputy Chief of the Fraud Section; Cadwalader, Wickersham & Taft’s Peter Clark—also a former FCPA Deputy Chief; Mary Doyle—the Global Chief Compliance & Ethics Officer at Oracle Corporation; and Vivian Robinson QC, the former General Counsel of the U.K. Serious Fraud Office and now a partner at McGuireWoods in London.

Mendelsohn opened the presentation by noting the past year’s record number of FCPA trials and commenting, as many others had, that the DOJ appeared to suffer notable setbacks in the courtroom. Clark cautioned that individual prosecutorial setbacks should be viewed with a measured perspective, pointing to the Bonny Island consortium (Technip S.A., Snamprogetti Netherlands B.V., KBR Inc., and JGC Corp.) cases as examples where the “pieces fell into place” to bring about successful enforcement actions against corporations and individuals alike. In a nod to the DOJ’s other achievements in 2011, Mendelsohn highlighted the additional indictments of seven employees (and two agents) in the Siemens cases, significant victories in the Haiti Teleco (Telecommunications d’Haiti S.A.M.) cases, as well as the Second Circuit’s affirmation of Frederic Bourke’s FCPA conviction.

Responses to the “Africa Sting” Case Dismissal

When asked to comment on DOJ’s record in 2011, Duross began his remarks with some wry humor, thanking the Institute for providing a venue for a reunion of the attorneys in the recently dismissed “Africa sting” (also referred to as the “Alternate Breach” cases), and cautioned that he was speaking solely on his behalf and not for DOJ. Duross acknowledged that the year had brought mixed results for the Fraud Section’s FCPA program, but he advised attendees not to draw too many conclusions from any single case, warning that the Alternate Breach cases would not be last time investigative tactics like undercover sting operations would be used.

Duross maintained that the outcomes in 2011 were “not so much about the FCPA” as they were about other issues—for example, the Lindsey Manufacturing Co. case appeared to turn on alleged prosecutorial conduct, and the Alternate Breach cases focused on the use of undercover sting tactics rather than on the FCPA. Duross analogized the Alternate Breach operation to undercover drug cases in which informants and agents do not use the word “cocaine” or “heroin,” but where the illegality is nonetheless clear, and argued that the same could be true in the FCPA context where the illegality could be clear without referring to the underlying payment as a “bribe.”

When questioned by Clark whether persons targeted by the sting operation walked away when approached by the undercover agents, Duross indicated that four individuals had done so. Duross acknowledged that one reason the prosecution failed may have been a sense by some jurors that the undercover FBI agents had not acted fairly, but Duross was careful to add that DOJ did not have an opportunity to present certain evidence of prior criminal or wrongful acts under Federal Rule 404(b).

Clark recalled the first Alternate Breach trial in which the judge granted a Rule 29 motion for judgment of acquittal on an FCPA count charged under 15 U.S.C. § 78dd-3. In that instance, a U.K. citizen was alleged to have sent a contract (as part of a corrupt scheme) via courier from the U.K. to the U.S. He cautioned attendees to be careful in construing the outcome, noting that some legal periodicals and blogs appeared to interpreting it more broadly than they should, cautioning that DOJ would likely not cease to bring cases on similar theories or facts.

Defining the Scope of “Foreign Official”

Clark addressed the series of recent defense challenges to DOJ’s interpretation of “foreign official” in cases tried over the last twelve months, with defendants contending that employees of state-owned enterprises or other entities were not “foreign officials” under the FCPA. Duross indicated that ownership, control, and the nature of the relevant entity’s creation are among the factors DOJ considers in assessing whether a person is a foreign official, and further highlighted the series of opinions and decisions on the various challenges as an area where DOJ’s view has prevailed. Clark remarked that, at least in one case, the question was left for the jury to decide, and Duross added that DOJ is looking forward to an appellate decision on the topic, noting the Haiti Telco prosecution presently on appeal in the Eleventh Circuit.

Forthcoming FCPA Guidance from the DOJ

The non-DOJ panelists pressed Duross for information about the eagerly anticipated forthcoming DOJ guidance on the FCPA (first announced by Assistant Attorney General Lanny Breuer in November 2011). When asked what, if anything, the government’s recent setbacks at trial might portend for the guidance, Duross appeared dismissive, reiterating his view that the trial issues were not unique to the FCPA. For example, Duross suggested that any change to respondeat superior—the doctrine holding corporations liable for the actions of their employees—in the FCPA context would necessarily involve a change in the broader criminal law. When asked about the timing of the forthcoming guidance, Duross declined to announce a date, and Clark interjected with “sooner rather than later,” which Duross repeated with a smile.

Factoring in the U.K. Bribery Act

McGuireWoods’ Robinson offered a view from the other side of the Atlantic, focusing on enforcement of the U.K. Bribery Act. Robinson reported that a number of major cases remain under active investigation, but suggested that now was “not an easy time” for the Serious Fraud Office, given that the Crown Prosecution Service is moving to take on the prosecution of bribery cases, which could possibly result in a split between investigation and prosecution of such cases.

Robinson cautioned attendees to expect a “bullish” approach from the SFO in the future, as the office seeks to demonstrate that the Bribery Act is “not just a paper tiger.” He pointed to a trend in which parent corporations are required to repay dividends received from subsidiaries, insofar as they are attributable to criminal acts. Robinson acknowledged criticism that such an approach unfairly penalizes ordinary shareholders lacking knowledge of the underlying criminal activity, and suggested that the “right balance” is yet to be realized. Lastly, Robinson noted that U.K. authorities continue to explore the possibility of using deferred prosecution agreements to resolve corporate cases.

Oracle’s Chief Compliance Officer Doyle emphasized that she could not understate the import of the U.K. Bribery Act, noting that Oracle had updated its anticorruption policies to prohibit both private sector bribery as well as receipt of bribes by employees. Doyle noted that, per Oracle’s revised policies, all gifts in excess of $100 (and any hospitality expenditure over $150) must now be approved by the company’s ethics and compliance personnel. Doyle explained that Oracle’s current emphasis was not solely focused on promulgating compliance policies and training under those policies, but also in detecting potential problems through measures such as internal audits as part of the compliance process.

Conclusion

As the “year of the FCPA trial” drew to a close, the FCPA break-out panel focused on both DOJ’s successes and setbacks. Although Duross maintained that the set-backs were not related to the FCPA itself (but instead were related to other issues), panelists and attendees focused on what lessons, if any, could be had. And though Duross made clear that DOJ would continue its vigorous enforcement of the FCPA, Robinson emphasized that the new U.K. Bribery Act modified the landscape of global anticorruption laws. Finally, the perceived adequacies and inadequacies of DOJ’s new FCPA guidance is expected to be a central topic of discussion at next year’s FCPA panel, and those who follow the FCPA are eagerly anticipating the results.

[1] A. Joseph Jay III is an associate in the Business Fraud and Complex Litigation group at Cadwalader, Wickersham & Taft LLP, resident in the Washington, D.C. office. He regularly advises corporations with regard to anticorruption compliance and enforcement matters. The views expressed here are those of the individual author writing in his individual capacity and are not necessarily those of the ABA or the Task Force.

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A Joseph Jay III

A Joseph Jay III