The U.S. Government spent nearly $538 billion in Fiscal Year 2010 for goods and services provided by private contractors. The largest and most experienced Government contractors maintain sophisticated compliance programs to ensure they do not run afoul of stringent U.S. procurement requirements. As Government contractors expand their business overseas, however, they expose themselves to the risk of violating the Foreign Corrupt Practices Act (FCPA) and the extraordinary sanctions that accompany those violations.
Whenever the Government announces a large FCPA-related settlement involving a Government contractor, it is inevitably followed by cries for blacklisting these companies from the U.S. procurement system. While the attention is currently directed towards the suspension and debarment regime in the context of the FCPA, the regime itself has long been criticized as an impotent and impractical enforcement tool. The drastic consolidation of the defense industry coupled with increased outsourcing to private companies has severely limited the practical use of this administrative tool. Eliminating any of the U.S. Government’s largest contractors could have a devastating impact on the Government’s ability to provide critical goods and services.
Demands for automatic suspension or debarment are not only impractical; they demonstrate a fundamental misunderstanding of the regime. The decision to suspend or debar is a discretionary business decision—not retaliation for past misconduct. Indeed, FAR 9.402(b) expressly states that “[t]he serious nature of debarment and suspension requires that these sanctions be imposed only in the public interest for the Government’s protection and not for purposes of punishment.” (emphasis added).
Although the regulations make clear that the regime is not intended to be punitive, lawmakers continue to insist that suspension or debarment should be utilized as an additional punishment for companies that violate the FCPA—a law unrelated to U.S. Government contracts. Requiring the suspension or debarment of FCPA violators would fundamentally alter a regime that is designed to safeguard the public fisc—not to retaliate against a company or enhance the Government’s public relations.
Moreover, mandatory debarment for FCPA violations could backfire—deterring companies from disclosing wrongdoing abroad for fear of losing U.S. Government contracting revenue. All of the Government’s touted benefits associated with FCPA-related voluntary disclosure—cooperation, remediation, enhanced compliance programs, large fines benefitting the U.S. Treasury—could be eliminated (or substantially reduced) as a result of this shift in policy.
If the mandatory debarment of FCPA violators may detrimentally impact critical Government functions and chill contractor cooperation and compliance, the resulting question is obvious: why do lawmakers continue to propose it?
Jessica Tillipman, above, is the Assistant Dean for Outside Placement and a Professorial Lecturer in Law at The George Washington University Law School, where she teaches a course in anticorruption law. Her recent article, ‘The Foreign Corrupt Practices Act & Government Contractors: Compliance Trends & Collateral Consequences,’ was published in August 2011 by Thomson Reuters. It’s available at SSRN here.