The Senate’s version of the financial reform bill can be downloaded here. Under the bill, which still needs to be reconciled with the House version and signed into law, FCPA whistleblowers could receive from 10% to 30% of amounts recovered through enforcement actions. The SEC would decide the final amount based on the originality and value of the information provided and how directly it led to the financial penalty against the defendant.
As we said last month, paying FCPA whistleblowers will increase enforcement actions. But will justice be served?
The way U.S. law now works in most places, organizations are strictly liable for crimes committed by employees who are doing their jobs. Even if a company has an effective compliance program and has done everything possible to prevent violations, that’s no defense under respondeat superior. When the DOJ and SEC find an employee’s FCPA violation, the company is presumed guilty and forced to settle the case, usually by paying a big penalty.
Beyond that, most FCPA settlements require the company to help prosecutors make cases against employees and agents. The companies may have to disclose to the feds documents and conversations the individuals probably thought were privileged. So the presumption of guilt and denial of legal protections spreads from the company to its people.
Someone in government asked us not long ago if we’re in favor of private enforcement of the FCPA — civil suits by private litigants against FCPA violators — as happens with antitrust, RICO, and securities law violations, among others. We said no. Private FCPA enforcement sounds good but because of respondeat superior, it’s also worrying.
Companies facing FCPA allegations are forced to settle with the DOJ and SEC. Those settlements and the admissions leading to them — whether supported by trial-worthy evidence or not — could put corporations at an extreme disadvantage in follow-on civil suits. Private FCPA enforcement would magnify the injustice caused by the undiluted application of respondeat superior.
What’s the fix? Give organizations the right to defend themselves against criminal charges. Let them show that they tried to prevent the bribery. The good-faith defense would be a powerful incentive for companies to have strong compliance programs. It would give them their day in court if they want it, and relieve pressure for shot-gun settlements that can rob both the company and its people of a fair trial. The only thing that might be lost is the DOJ’s perfect batting average in FCPA cases against organizations — a legal anomaly that’s a symptom not of health in the criminal justice system but disease.
Enforcement of the FCPA is a good thing. But not when the price is fundamental fairness for corporate and individual defendants.
1 Comment
As someone who has yet to begin his practice, my understanding is that most FCPA actions are self-disclosed. It seems to me that the same employees that under the proposed bill would be rewarded for their whistleblowing, now would be the ones to report internally the problem. So it seems that by allowing them to recover, you further decrease the company’s ability to ever adequately address the problem, without paying a potentially massive fine; exacerbated by the fact that it didn’t "voluntarily" disclose the problem first. I guess there could be an argument made for that, but I’m curious what people’s opinion are on that particular issue. Thanks.
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