Taking Aim at the Foreign Corrupt Practices Act

May 1, 2012

The New York Times on April 30, 2012 released the following:

“BY PETER J. HENNING

The Foreign Corrupt Practices Act has been at the center of a tug of war between business interests and federal authorities.

The United States Chamber of Commerce has led efforts to change the law, in response to ramped up prosecutions by the Justice Department and the Securities and Exchange Commission in the last few years. While the proposed changes are described as a means to “improve” the law, they would also make it more difficult to pursue cases.

But the revelations in The New York Times that Wal-Mart Stores squelched an investigation into bribery at its Mexican subsidiary may impel prosecutors to be even more forceful in applying the law and put legislative efforts to change it on the back burner.

Business leaders have long contended that the law is overly broad and too aggressively enforced, while federal authorities view it as a powerful means to police the overseas conduct of American companies.

The Foreign Corrupt Practices Act was adopted in 1977 in the wake of revelations of bribery of foreign officials by more than 400 United States companies. This was a time when misconduct by the Central Intelligence Agency and the Watergate scandal were still fresh in the public consciousness, so efforts to clean up business and government were paramount.

The law contains two parts: it prohibits bribing a foreign official for the purpose of “obtaining or retaining business,” and it requires that public companies file proper financial statements and maintain a system of internal controls.

The books and records provision is enforced regularly, most recently in the conspiracy prosecution of a former managing director of Morgan Stanley for hiding deals with a Chinese official. The Justice Department and the S.E.C. share authority over enforcement, which means companies have to deal with two sets of investigators whenever a potential violation comes to light.

For the first 30 years or so after its enactment, the antibribery portion of law was used sporadically. Only a handful of cases were brought each year against companies, almost always ending in settlements involving a modest fine, and even fewer involved individuals.

Prosecutors have now made enforcement of the law a priority, and more industries have been caught up in investigations. The Justice Department has filed cases against pharmaceutical manufacturers, like Pfizer, for dealings with state-run health care programs, and is reported to be pursuing an investigation into the dealings of American movie studios in China.

The push for changes in the statute coincided with its expanded enforcement as companies now have to deal with the vagaries of the law once viewed as a mild nuisance at best.

At a hearing before a House subcommittee last year, a former attorney general, Michael B. Mukasey, represented the United States Chamber of Commerce in supporting changes to restrain use of the law because “more expansive interpretations of the statute may ultimately punish corporations whose connection to improper acts is attenuated or, in some cases, nonexistent.”

The revelations about Wal-Mart’s conduct, however, shows the law’s importance as an anticorruption tool for policing large businesses.

Tinkering with the law could send the wrong signal to other countries about the importance of curbing bribery. Support among Congressional leaders for revisions that would make it harder to prosecute companies may dissolve if they could easily be portrayed as being soft on bribery — something that would become fodder for an opponent in an election campaign.

The Justice Department’s increased enforcement of the Foreign Corrupt Practices Act has also included more charges against individuals rather than just companies. But that shift has also led to problems. In one of its most prominent cases, prosecutors dismissed charges against 22 defendants from the “Africa Sting” case in which the government used an undercover informant to entice suppliers into agreeing to pay bribes to receive contracts with an African government, all of which was fictitious.

The charges foundered over issues regarding the conduct of the informant that raised questions about whether individuals were unfairly enticed into the deals. Federal juries could not reach a verdict after two trials of a group of the defendants, and the Justice Department decided to forgo further prosecutions.

As James B. Stewart wrote in a New York Times column last week, there has been a noticeable absence of corporate employees charged with violations even when it appears that the company condoned foreign bribery.

But while companies have been much more amenable to settling investigations rather than challenging charges in court, prosecuting individuals faces a number of hurdles. Corrupt payments are often made by foreign intermediaries acting on behalf of the company, many of whom have no ties to the United States. It does little good to charge someone when there is not a realistic prospect that the person can be brought to the United States.

Pursuing a case against senior executives for turning a blind eye to questionable payments can be quite difficult. The notion that management “had to be aware of what was going on” may well be true in some instances, but that perception alone is not enough to prove any individual corruptly and willfully violated the Foreign Corrupt Practices Act, which is the required legal intent standard for a conviction.

Foreign bribery can takes years to come to the government’s attention, so the five-year statute of limitations can preclude prosecuting those involved in the payments. As I discussed in an earlier piece, the Wal-Mart payments to Mexican officials from 2003 to 2005 probably cannot be pursued against individuals at the company unless something more recent occurred.

Interestingly, in the Dodd-Frank Act, Congress extended the statute of limitations for securities fraud crimes to six years, apparently leaving out violations of the Foreign Corrupt Practices Act. Even that small increase in the time available to pursue a case can help prosecutors in putting together charges. Congress can alter the limitations period for any offense, and the Justice Department may point to Wal-Mart to ask Congress to extend the time frame in which foreign bribery charges can be filed.

The investigation of Wal-Mart has brought the Foreign Corrupt Practices Act to the attention of the public in a way not seen since the 1970s scandals that led to its adoption. Congress may find it politically impossible to adopt changes to the statute that would arguably make it more difficult to pursue cases as long as the allegations of foreign bribery by a leading American company remain in the headlines.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


U.S. Sentencing Commission Promulgates Amendment to the Federal Sentencing Guidelines Responding to the Dodd-Frank Act

April 13, 2012

U.S. Sentencing Commission on April 13, 2012 released the following:

U.S. SENTENCING COMMISSION PROMULGATES AMENDMENT TO THE FEDERAL SENTENCING GUIDELINES RESPONDING TO THE DODD-FRANK ACT

Also promulgates amendments regarding human rights, drug, and other offenses

WASHINGTON, D.C.― Today the United States Sentencing Commission promulgated amendments to the federal sentencing guidelines responding to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) regarding securities fraud, mortgage fraud, human rights offenses, drug offenses, and other offenses.

The Dodd-Frank Act contained directives to the Commission to review the fraud guideline with respect to securities fraud, fraud on financial institutions, and mortgage fraud. Judge Patti B. Saris, chair of the Commission, noted “Fraud offenses represent almost ten percent of the federal criminal docket annually, and have been the focus of congressional attention as evidenced by the directives to the Commission.” Judge Saris explained, “The Commission’s action today increases penalties for insider trading cases and ensures that no defendant will receive a reduced penalty because of a federal intervention, such as a bailout. The Commission also adopted presumptive rules governing the calculation of loss in mortgage and securities fraud cases.”

“This is the first step in a multi-year review of the fraud guideline,” stated Judge Saris. “We have received feedback from a number of stakeholders that broader review of the operation of the fraud guideline should be undertaken. Specifically, we have heard from the courts, defense attorneys, and prosecutors that the interaction of the loss attributed to an offense and the number of victims in an offense (the loss and victims tables in the guidelines), particularly in high-loss fraud cases, may result in disproportionate or disparate sentences. This is an area of the guidelines that the Commission must continue to review in a comprehensive manner.” More than 30 other federal sentencing guidelines (such as those covering money laundering, public corruption and identity theft offenses) either reference the fraud guideline or have a proportional relationship with it. Therefore, any change to the loss or victims calculations in the fraud guidelines must be undertaken comprehensively.

The Commission also promulgated an amendment to the federal sentencing guidelines to cover substantive human rights violations. First, the Commission promulgated new sentencing enhancements that would apply to a defendant convicted of committing a serious human rights offense, including genocide, torture, war crimes, and the use or recruitment of child soldiers. Second, the Commission promulgated an amendment to the guideline covering immigration offenses to provide a penalty enhancement if a defendant committed the instant offense to conceal or attempt to conceal their role in a serious human rights offense. “These amendments will ensure appropriate penalties for those who commit serious human rights offenses,” explained Judge Saris. “Human rights violations are an important issue to Congress and the Commission shares this concern.”

The Commission also promulgated an amendment to the federal sentencing guidelines to address the growing number of federal drug cases involving the stimulant “BZP.” BZP is a Schedule I stimulant used both alone and in combination with other chemicals to produce effects that mimic those of the drug “Ecstasy,” and promoted as such to the youth population, particularly for use during all night “raves.” The proposed amendment adds BZP to the list of chemicals covered by the federal sentencing guidelines in a manner consistent with available scientific literature. Judge Saris noted, “The Second Circuit Court of Appeals brought this important matter to our attention. The Commission is pleased to have addressed concerns about the growing prevalence of this drug in the Second Circuit and elsewhere by providing appropriate coverage under the federal sentencing guidelines.” The Commission also promulgated an amendment that provides a sentence reduction under the guidelines for certain low-level, non-violent offenders convicted of offenses involving precursor chemicals, which parallels provisions already in the federal sentencing guidelines for low-level, non-violent drug offenders who meet certain criteria.

The Commission also resolved a circuit conflict by confirming that for purposes of calculating a defendant’s criminal history under the federal sentencing guidelines, driving while intoxicated, driving under the influence and similar offenses are, without exception, always counted. The Commission’s actions today also resulted in amendments to the guidelines covering contraband cell phones in prison, cigarette offenses, trafficking in fake Indian goods, and animal crush videos.

The Commission must submit its 2011-2012 amendment package to Congress by May 1, 2012. Congress has 180-days to review the amendments submitted by the Commission. The amendments have a designated effective date of November 1, 2012, unless Congress affirmatively acts to modify or disapprove them.

More information on the amendments promulgated today may be found on the Commission’s website, http://www.ussc.gov.

The United States Sentencing Commission, an independent agency in the judicial branch of the federal government, was organized in 1985 to develop national sentencing policy. The resulting federal sentencing guidelines provide the starting point for the court’s consideration of a sentence and help ensure that similar offenders who commit similar offenses receive similar sentences.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.