Editor’s note: In May, FCPA Blog Contributing Editor Philip Fitzgerald was invited to speak at a conference in Malta organized by the European Anti-Fraud Office and the Academy of European Law. The topic was ‘Making the Fight Against Corruption in the EU More Effective.’ The following is adapted from Fitzgerald’s presentation.
* * *
What makes enforcement of foreign bribery in the U.S. so effective? While there is no simple answer, there is little doubt that the breadth of FCPA enforcement is aided by the doctrine of respondeat superior.
Under this doctrine, once an employee admits to a FCPA violation or is found guilty, the company has strict liability. The OECD Working Group has stated (.pdf) that this standard of liability is “simple and direct, and has resulted in an impressive record of law enforcement actions.”
However, what can be seen as one of the main pillars of the success of U.S. enforcement has often been criticized as being unfair to corporations.
Under respondeat superior, “Criminal liability can attach to an organization whenever an employee of the organization commits an act within the apparent scope of his or her employment, even if the employee acted directly contrary to company policy and instructions. An entire organization, despite its best efforts to prevent wrongdoing in its ranks, can still be held criminally liable for any of its employees’ illegal actions.”
As a result, as the FCPA Blog has often pointed out, it impossible for a corporation to defend itself once the relevant employee has admitted an offense or been found guilty.
It is therefore no surprise that respondeat superior has been challenged before the American courts, perhaps most notably — although ultimately unsuccessfully — during the Ionia affair and its widely debated amicus brief.
A good-faith compliance defense has been considered for some time as a potential counterweight to respondeat superior. The incentives for effective compliance programs if corporations accused of violating the FCPA could mount a defense based on their efforts to prevent the bribery are evident. Corporations accused of violating the FCPA would have access to courts and jury trials to contest and challenge FCPA allegations, would probably be encouraged to discover and self-report overseas bribery, and may not feel compelled to enter into settlements with enforcement agencies that can prejudice the rights of both the organizations and their employees.
U.S. law could find inspiration in Section 7 of the UK Bribery Act. It creates a strict liability offense for organizations if a person associated with the organization bribes another person with the intent of benefiting the organization. According to this statute, however, companies have a defense if they can show they have in place “adequate procedures” to prevent bribery. The statute effectively mandates compliance programs to create controls against improper payments and rewards organizations for their good-faith compliance efforts.
A similar compliance defense can be found in the statute proscribing foreign bribery passed by the Italian government in 2001. This can be found in articles 6 and 7 of the statute which permit a company to avoid liability if it can demonstrate that, before employees of the company engaged in a specific crime (e.g., bribery), it (1) adopted and implemented a model of organization, management and control (the “Organizational Model”) designed to prevent that crime, (2) engaged an autonomous body to supervise and approve the model, and (3) the autonomous body adequately exercised its duties.
And as in Italy and the UK, other OECD countries have also adopted a similar compliance defense, namely Australia, Chile, Germany, Hungary, Japan, Korea, Poland, Portugal, Sweden, and Switzerland.
Comparable principles are already taken into account in U.S. law but only during the sentencing phase. As the U.S. Chamber of Commerce (.pdf) has recommended, considering these principles during the liability phase of an FCPA prosecution would align U.S. law with the approaches of a number of major exporting nations.
But there’s a caveat: such a defence can be seen as sluice-gate enabling companies to avoid prosecution through well-managed compliance program. Companies may be tempted to consider their compliance programs a “papal bull” which lets them “sin” safely, as one commentator put it (.pdf). When the public prosecutors appear, it is enough to show the “bull,” pick an employee as a scapegoat, and avoid liability.
Opposition to the good-faith defense appears to emanate from the DOJ itself, based on the words of Lanny Breuer, head of its Criminal Division from 2009 to March 2013. At the press conference for the release of the 2012 Guidance, Breuer stated that the DOJ was opposed to the “good faith defense,” and that it was “dangerous” and would trigger a “race to the bottom.”
Professor Mike Koehler, on the other hand, points out that the “DOJ’s opposition to a compliance defense stands in contrast to several former attorney generals and other former high-ranking DOJ officials who have publicly supported a compliance defense.”
The 10 Hallmarks of Compliance in the Guidance provide companies with innovative tools to prevent and detect corruption and use a recent declination as an example of solid compliance influencing the outcome of a FCPA related investigation.
While the Guidance does not name Morgan Stanley specifically, it is evident that the “Compliance Program Case Study” on p. 61 refers to this well-publicized affair. The Morgan Stanely declination illustrated, according to the Guidance, “the benefits of implementing and enforcing a comprehensive risk-based compliance program.”
The DOJ and SEC decision not to bring an enforcement action against Morgan Stanley is not codified and sets no binding legal precedent. The message is therefore mitigated: while there appears to be signs that effective compliance saved Morgan Stanley from prosecution, the strength of the message is illusive and still frustratingly questionable.
No good-faith defense should shield a company from liability for the destruction and harm that its own corruption can cause. Indeed, the manner in which respondeat superior can be seen as unfair and therefore open to criticism and reform must never distance us from the fact that the fight is against corruption and not a legal doctrine.
Yet in terms of foreign bribery, normative developments in a number of OECD countries indicate growing recognition of good faith or compliance based defenses. Such a defense would appear to be a suitable development in U.S. federal law, providing companies with some protection with regard to the daunting doctrine of respondeat superior.
Reform of this nature would in any event give immense and sustained weight to the influence of compliance. As Professor Nieto Martin (.pdf) has said, “[T]he formula is easy: greater participation means greater legitimacy of any system of rules. And legitimacy increases the efficiency and credibility of any control system.”
______________
Philip Fitzgerald is a Contributing Editor of the FCPA Blog. In 2011, the Scotland native completed his Docteur en droit (doctor of laws) in France at the Université du Sud Toulon Var. His 400-page thesis was titled “The International Normative Framework Combating the Corruption of Foreign Public Officials.” It’s available on SSRN here. He also holds an LL.B in Law and French from the University of Edinburgh. He can be contacted here.
Comments are closed for this article!