Wal-Mart’s Victims, Part XI: Is Disgorgement the Answer?

I’ve argued in this series that freedom from bribery is a human right, and that FCPA enforcement should do more to protect those rights.

In the past two posts (here and here) we explored one mechanism under U.S. law to compensate the victims of crime: restitution. But we found that the restitution statutes don’t quite work for bribery. So if we’re going to protect the rights of bribery’s victims — the citizens of the corrupted overseas countries — we’ll have to look elsewhere.

Might disgorgement be the answer? Disgorgement, which requires corporations to forfeit any “ill-gotten gain,” does not appear in the FCPA. But from the onset of the modern FCPA enforcement era, the SEC has drawn on its broader disgorgement authority to make the remedy a regular feature of FCPA enforcement actions. Like  criminal and civil penalties generally, disgorged funds are typically deposited in the U.S. Treasury. But many of us are probably unaware of a specific statutory provision that enables some of these disgorged funds to be used for restitution.

In response to the widespread victimization of investors in the accounting scams of the late 1990s Congress created, as part of Sarbanes-Oxley, the “Fair Fund and Disgorgement Plan.” The Fair Fund provides that in lieu of depositing disgorged monies in the U.S. Treasury, those monies may become part of a “fund established for the benefit of the victims of such violation.” This provision applies to securities violations generally, but recall that the FCPA is an amendment to the principal U.S. securities statute, the 1934 Securities Exchange Act. So we’re still on all fours.

We can imagine a regime whereby a firm’s disgorged profits are regularly used to benefit bribery’s victims.  And indeed, just one year ago, a Nigerian NGO called the Socio-Economic Rights and Accountability Project (“SERAP”) sent a letter to the SEC proposing this very remedy on a case-by-case basis. The SEC responded with a polite but noncommittal letter: “We appreciate your thoughtful submission, and will give appropriate consideration to your suggestions.” And that’s probably about as much as we could reasonably expect the SEC to say.

But to this day — from the enactment of SOX in 2002, through the advent of modern FCPA enforcement, to today — the Fair Fund has never been used to compensate the overseas vicitms of bribery. And I think I know why.  We’ll explore that next post.

Wal-Mart’s Victim’s Part I can be viewed here, II here, III here, IV here, V here, VI here , VII here, VIII here, IX here, and X here.

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Andy Spalding is a senior editor of the FCPA Blog.