Bruce Hinchey, a lawyer who’s not afraid of math, had some surprising news last week about the fine-to-bribe ratio of self-reporting companies. This week he responds to suggestions and concerns raised here and by our readers.
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Dear FCPA Blog,
My thanks to you and your readers for all the great feedback. I couldn’t have guessed so many would be interested in a number-crunching comparison of recent FCPA enforcement actions. And I’m grateful to those who took the time to email me and post comments. I intend to use this feedback to refine my work. I also wanted to address some of the concerns raised.
First, about disgorgement as a type of penalty. In my thesis I tried to include as much data as possible, including how much companies forfeit. My objective was to show what the average total payments were for an FCPA action based on bribes. For that reason I chose to include disgorgement in the data and it naturally increased the fine-to-bribe ratio for both voluntary and involuntary disclosure groups.
Because of suggestions from readers, however, I have since created a second chart without disgorgement and interest payments. While removing them may shrink total payments by companies, it does so for both voluntarily and involuntarily disclosing groups. I’m disappointed to report that even with those alterations, the total ratios were still disproportionate. Without disgorgement and interest in the mix, the voluntary disclosure group appeared to face a 2.45 fine-to-bribe ratio while the involuntary disclosure group faced only a 1.70 fine-to-bribe ratio.
I also took another look at the data without disgorgement and interest using regression analysis. The new ratios now match up even more closely with the coefficients and the statistical model linking bribes with fines is still sound.
I intend to add the new charts and corresponding discussion to my thesis draft soon. Those changes should be visible in my thesis draft, available on the SSRN, sometime this week.
Some also expressed interest in a calculation of fines based on the net profit resulting from bribes. In my thesis I address these very concerns in detail. There are at least three problems associated with focusing on net profit comparisons with bribes. Foremost, there are an insufficient number of cases that have published such information to conduct broad data comparisons. Second, it is often difficult to correlate bribes with profit. Finally, the source of net profit data calls its accuracy into question.
A principal goal of my thesis is to prove statistically that there is a relationship between bribes and subsequent fines. Because the regression analysis demonstrates this, I believe that discussing bribes in relation to fines is a valid approach and contributes to the discussion and analysis of current FCPA enforcement. Nevertheless, I appreciate these concerns and perhaps in the future I’ll separately consider cases where net profit is published in relation to bribes.
Some expressed concern about not accounting for cases where the DOJ declines to charge a company that has voluntarily disclosed. While this is a legitimate point, as I mention in my thesis, my statistical comparison focuses solely on published cases. Promised tangible benefits for voluntary disclosure, if there are any, should appear in published cases.
The analysis and issues raised in my thesis naturally lend themselves to further inquiry. I certainly have future research goals and I look forward to sharing them when appropriate. Until then, I sincerely hope my ideas will contribute to further discussion about recent FCPA trends. I also hope my ideas will spur further inquiry and greater transparency.
I appreciate the great feedback and welcome more comments. I can be reached at [email protected].