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.
2 Comments
The calls for mandatory debarment/suspension would grow quieter if the government used the existing process more often. Yes, it is a discretionary, business decision. But all too often when circumstance become ripe and entirely appropriate to prevent a bad actor from receiving taxpayer dollars, the government either seemingly ignores the violations or accepts the company's compliance regime as a fix. Corporate compliance programs, however, too often serve as smokescreens. They are banners companies can display in the face of government scrutiny. They put on a concerned façade but shield a complacent, detached interior. Having a compliance program does not automatically change corporate culture or eliminate the taint associated with breaking the law. And let's not forget that FCPA violators have broken the law (whether settlement agreements admit wrongdoing or not). It absolutely is in the public interest and for the government's protection to prevent scofflaws from continuing to draw from the public fisc. That is no more punishment than the administrative revocation of a drunk driver's license or refusing to grant a clearance to someone deemed a security risk. If I hire a carpenter to build a shed in my backyard but find out he has been bribing officials, it's not punishment for me to tell him I no longer want to do business with him because he lacks a satisfactory record of integrity and business ethics. The FAR allows for similar, principled business decision making. Agency SDOs need to make those value judgments more often so they can empower contracting officers to implement the taxpayers' directives. Surrendering those principles to corporations on whom we have become all too dependent is what is wrong with this system and what leads to calls for mandatory debarment. Don't want to or logistically can't altogether debar Siemens, Halliburton, BAE, or Lockheed? Well then impose your compliance measures but debar the corporate principles, they are ultimately responsible. Debar those involved, they committed the offense. Obviously, business decisions should be made on a case-by-case basis, but I suspect that utilizing the system when it should be utilized, rather than bowing to size, influence, and compliance side-shows, will satisfy many in the mandatory debarment camp.
I'm afraid I completely disagree, and recently co-authored an academic article (To Big to Debar?) arguing that debarment is under-utilized in the FCPA arena – in fact, it has NEVER ONCE BEEN USED for an FCPA violator, and therefore is merely an empty threat. The article is available here: http://ssrn.com/abstract=1811126.
I believe it is, in fact, in the public interest to use debarment much more frequently. First, a corporation that is corrupt enough to violate the FCPA overseas is corrupt enough to use bribery to get public contracts here in the States as well, or to otherwise cheat the government (and thus the taxpayers) by cutting corners, making fraudulent misrepresentations to obtain or retain contracts, and so forth. The government should protect the taxpayers and public beneficiaries from firms with a track record of corruption. This is not punishment, nor deterrence, but simple protection or safeguarding.
Second, it is morally inconsistent for our leaders to convict and fine a company (and its managers) for FCPA violations and then turn around and reward the same firm with lucrative government contracts. Our government thus sends a tacit message that FCPA fines are just a cost ofdoing business, not a moral or ethical issue, as the reward of a multi-billion-dollar contract within weeks or months of the fine appears to be a significant endorsement.
Third, the failure to use debarment is,in itself, one cause of the "drastic consolidation" of the defense industry, reinforcing the entry barriers against new firms that could compete with the entrenched blue-chips. The large firms gain unfair market dominance partly through their overseas contracts obtained through bribes (FCPA violations), then get their contracts renewed from the US government. Debarment lasts only two years or so, and would allow new market entrants a chance to compete for those contracts. Right now, new market entrants are often shut out of the bidding process. More than 1/4 of federal contracts go to sole bidders – no competitive bidding.
Fourth, the government is now dangerously dependent on a handful of firms and simply cannot debar them – or impose much else in the way of true discipline for wrongdoing. A few large firms have their position locked in and can practically dictate terms to the agencies they hold hostage.
Fifth, the government is contracting out way too much – outsourcing reached epic proportions, completely unprecedented, during the Bush administration. Outsourcing is done reflexively, even when doing things in-house would be cheaper for the taxpayers or better for the beneficiaries of the public service. Privatization and contracting out is the biggest scam of the last decade. The government has insufficient contract managers (and insufficiently skilled ones in many cases) to monitor and enforce terms with so many outside providers, especially the slippery ones who violate the FCPA overseas. Outsourcing presents complex problems of monopsony for the agency and creates systemic monopolies among the suppliers, with no benefits or savings being passed through to taxpayers or beneficiaries of the government.
Finally, your argument that using debarment (or any stricter sanctions) might deter companies from self-reporting their wrongdoing would apply to all crimes, of all types. Of course raising the sanctions gives some perpetrators a greater to hide their wrongdoing – but that is no reason to let fraud, violence, or other harms go unpunished.
Comments are closed for this article!