There’s provocative new FCPA scholarship from Kyle Sheahen, left, UCLA Law ’10 and an incoming associate at the New York office of King & Spalding.
He told us about it in this note:
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Dear FCPA Blog,
It’s no secret that FCPA defendants fare poorly at trial. There are many reasons for that, but I wanted to look at the factor most amenable to legislative fix – the hollow nature of the FCPA’s affirmative defenses.
I recently finished an article analyzing the two affirmative defenses under the FCPA. Partly in response to the FCPA Blog’s post Calling All Pundits, I assess the promotional expenses defense in detail and also cover the local law defense (including the Southern District of New York’s decision in United States v. Kozeny).
The article concludes that after over twenty years as part of the FCPA, the two affirmative defenses added to the statute in the 1988 amendments have provided little meaningful protection for FCPA defendants. Neither defense has ever been successfully invoked by an FCPA defendant at trial.
I go on to recommend that if the right to trial by jury is to mean anything in today’s world, individual and corporate defendants must have the actual ability to raise the affirmative defenses contemplated by the statutory scheme. If Congress wants FCPA defendants to have any chance at all, it must take action to ensure that the defenses are meaningful.
The article is slated to appear in the Wisconsin International Law Journal in early 2011. In the meantime, I welcome any comments or suggestions from your readers. I can be reached at [email protected]
The current working version of the article — titled “I’m Not Going to Disneyland: Illusory Affirmative Defenses Under the Foreign Corrupt Practices Act” — can be downloaded from SSRN.
While the promotional expenses defense might not be useful at trial, it is the underpinning for a lot of companies' compliance programs around gifts. Companies must give gifts when operating internationally; it is simply too much a part of a lot of cultures to avoid. When operating in the public sector, however, these gifts present FCPA issues.
Companies use the promotional expenses defense to justify their permissive gift-giving policies.
From a compliance perspective, the problem with the defense isn't its utility—or lack thereof—at trial, but rather that it permits gifts during the course of the contracting process. When I'm analyzing a gift, I look at the potential for corrupt intent, and the affirmative defense. During the contracting process, you're more squarely under the defense, but to my mind, the optics are worse when looking at potentially corrupt intent. It looks like you're giving the gift to get the contract.
But if the gift is just to "maintain the relationship" (a phrase I hear quite often), you're less covered by the defense, but there's less chance that you're trying to get a quid pro quo.
One cannot deduce from the lack of successful uses of statutory defenses at trial the conclusion that those defenses are meaningless. In practice, trials take place in but a small subset of cases brought, cases brought are but a small subset of investigations, investigations look at but a small subset of real-life situations, and only a small subset of real-life situations are going to raise these particular factual issues in the first place. The ability of these statutory defenses to steer behavior within acceptable limits and to ward off prosecution cannot be judged by how many trial defendants get off on them. There is no need for a legislative fix just to even the odds for trial defendants.
That the law ain't broke is best exemplified by the author's dismissive discussion of OECD's suppression of affirmative defenses based on extortion. This is a considered policy choice to flush out corruption by giving no quarter to businessmen who wittingly profit from it. Permitting a defense based on extortion would simply take the heat off of businessmen to comply with the law, to report corrupt officials squeezing them, and to blow the whistle on their competitors who take the easy way. The end result of such a defense — more corruption. Admittedly, though, there may be more exciting trials for law students to follow.
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