Maybe FCPA isn't such a slam dunk after all if you take the government to trial. Bloomberg's Businessweek has the story here. The announcement was made in open court yesterday. A written opinion is due today. The Court is apparently relying on its supervisory power, so we can expect a vigorous government appeal. The ruling covers Defendants Lindsey Manufacturing, Keith Lindsey, and Steve Lee.
Category: FCPA
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WSJ's Joe Palazzolo reports here this morning on lobbying efforts to weaken/clarify the FCPA. In yesterday's NYTimes, Gretchen Morgenson commented upon the movement to prevent the CFTC from bringing transparency to the swaps market. In a November 4 piece, WSJ's Michael Rapoport detailed Jon Corzine's successful July 2011 campaign, on behalf of MF Global Holdings, to block a CFTC proposal "that would have placed tighter restrictions on how futures-trading firms can invest cash sitting in customer trading accounts." (Prescient move, Jon.) Most or all of the GOP candidates favor repeal of Dodd-Frank. If a Martian fell to Earth he/she/it would never believe that the same financial elites who brought us to the edge of ruin are still having so much success calling the regulatory shots.
FCPA clearly needs clarification. DOJ, in typical fashion, has given the statute the broadest possible interpretation. But don't expect any significant weakening. Why? FCPA is a cash cow. Big companies, most of whom are quite vulnerable, will do anything to avoid a civil or criminal trial. FCPA becomes a cost of doing business. The money flows into the government. Many of the DOJ attorneys flow into private practice. Because big companies do not want to risk losing at trial, bringing FCPA cases and obtaining huge monetary settlements, at least against those companies, is like shooting fish in a barrel. In other words, the cases are easy to do–just like insider trading cases. They bring big headlines. So the public is diverted from thinking about DOJ's remarkable failure to systematically investigate the top tier entitities and individuals who facilitated the worst economic catastrophe since the Great Depression.
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"I don't know if there was a stench that developed in this case, but there was a bad odor at times, and so the issue that I'm inviting both sides to address is…whether either through a finding of due process violations or in the exercise of my supervisory power…something akin to the whole being greater than the sum of its parts justifies throwing out this conviction, because a lot of the parts that led up to this conviction are extremely troublesome." U.S. District Court Judge Howard Matz during 6-27-11 post-trial hearing.
The briefs are in and the hearing is set for this Tuesday at 10:00AM in the Lindsey Manufacturing FCPA prosecution. At issue is the Lindsey-Lee Defendants' Motion to Dismiss the Indictment With Prejudice Due to Repeated and Intentional Government Misconduct. A potential bad sign for the Government, as if it needed another one, is the Court's November 16th Order requiring the U.S. Attorney's Office to file certain Government and Court exhibits in the record by November 18. The Court had already publicly criticized the Government for its use and handling of some or all of these exhibits. The Government filed the exhibits in question on November 17, and they are now available through PACER.
Judge Matz has previously characterized the Government's investigation and prosecution of the case as "extraordinarily sloppy at best." He was apparently so troubled by the Government's actions that he generated and kept a post note during trial in order to keep track of them.
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I get emails almost every day touting the latest FCPA seminars, webinars, panel discussions, compliance programs, and treatises. Many of these events are no doubt helpful to the white collar practitioner. But what really happens in the trenches for the few brave individuals who take the government to trial in FCPA cases? What do the final FCPA jury instructions look like? The following links are to selected portions of actual instructions given to juries by federal district courts in some recent prominent FCPA cases. Enjoy.
Bourke_Final_Jury_Charge Selected Instructions[1]
U.S. v. Green Selected Jury Instructions
Lindsey Manufacturing Selected Jury Instructions
Hat tip to Todd Foster for the Patel instructions.
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Politico has a story about it here. The new regs implement Section 21F of the Dodd-Frank Act, which authorizes the SEC to award 10 to 30 percent of the monetary sanctions it recovers in a given case to a qualified whistleblower. What seems to most annoy the business community about the implementing regs is the SEC's insistence that whistleblowers are under no obligation to make use of a company's internal complaint procedures before running to the SEC. But the regs do say that an employee who goes through internal company whistleblower protocols is eligible for a Dodd-Frank whistleblower award if his/her employer subsequently self-reports to the SEC, based on the whistleblower's complaint, and a recovery is had. Further, an employee has a 120-day grace period after whistleblowing to his/her company, within which to bring his/her complaint to the SEC. Finally, in determining the amount of a whistleblower reward, the SEC will consider whether the whistleblower made use of his/her internal company procedures. The new regs contain enhanced anti-retaliation provisions as well, which prohibit direct or indirect retaliation for making whistleblower complaints to the SEC and other government entities.
There is an inherent tension between the anti-retaliation provisions and the SEC's and DOJ's often-emphasized warnings to companies that they should have vigorous and authentic internal whistleblower procedures. What if a company's pre-existing compliance policy requires the prompt internal reporting of whistleblower complaints? Can a company punish an employee who ignores such a provision and goes straight to the SEC? What if the employee declines to internally report, even after going to the SEC, because he/she feels that the company procedure is a sham? My guess is that such punishments will occur and that they will be deemed to run afoul of the anti-retaliation provisions. The retaliatory response is an instinctiual, persistent, and virtually universal impulse. It is really hard to eradicate.
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It isn't all about the budget. And perhaps this one is ironic in many ways. But there have been some interesting hearings that are well worth noting. NACDL has a press release on the "Clean Up the Government Act" here. Also they have a Section-by-Section Analysis of the Clean Up the Government Act of 2011 (HR 2572). The hearing can be found here. And don't miss Tim P. O'Toole's (Miller & Chevalier) testimony before the House Committee on the Judiciary, Subcommittee on Crime, Terrorism & Homeland Security – Download OTooleTestimony_07262011
There also was a hearing on the FCPA (here). Check out the testimony of Shana-Tara Regon (Director – White Collar Policy- NACDL) – Download FCPA Regon Testimony
(esp) (blogging from Ottawa)
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This weekend saw something unusual in the nation's elite newspapers. Three detailed stories about white collar crime issues.
WSJ Weekend carried this in-depth and outstanding piece by Gary Fields and John R. Emshwiller about overcriminalization–the proliferation of criminal statutes, particularly at the federal level, covering more and more aspects of everyday life. The article also focused on Congress's increasing enactment of statutes that dispense with any meaningful mens rea element. Although both of these problems have been around for years, and the article makes no effort to treat the matter historically, it does a generally good job of framing the issues.
Fields and Emshwiller detail how the Idaho U.S. Attorney's Office successfully prosecuted a father and son for attempting "to take artifacts off federal land without a permit" under the Archaeological Resources Protection Act of 1979. They were out camping and looking for arrowheads, which they failed to find, and apparently did not know that the law existed. According to Fields and Emshwiller, the Act "doesn't require criminal intent." This is true of the Act on its face, but the father and son clearly intended to search for arrowheads and did not have a permit. This case is really more an example of obscure administrative criminal statutes that no normal person can be expected to master. Hence it is terribly unfair in such circumstances to apply the old saw that "ignorance of the law is no excuse." But don't tell that to Idaho U.S. Attorney Wendy Olson. She will just answer that "[f]olks do need to pay attention to where they are."
The article also details how Olson's office convicted an inventor for abandoning covered chemicals under the Resource Conservation and Recovery Act. This was after the inventor had been acquitted in an Alaskan federal court for illegally shipping the same chemicals without proper labeling. Would this have been the proper occasion for the exercise of prosecutorial discretion? Not a chance. According to Ms. Olson, her "office will continue to aggressively prosecute" such crimes.
Meanwhile, on Friday, the Washington Post's David Hilzenrath wrote a story with the headline, Quandary for U.S. companies: Whom to Bribe? The piece purported to give both sides of the FCPA debate, but I found it slanted towards the DOJ view. While discussing the recent convictions in the Lindsey Manufacturing case, Hilzenrath never mentions that the Lindsey guilty verdicts are in serious doubt post-trial, with further briefing due from the parties and a federal district judge who has questioned the case and is angry at the government. Even more amazingly, Hilzenrath nowhere references the recently concluded 10-week jury trial in D.C. against the first wave of defendants in DOJ's heavily publicized African Sting FCPA bribery case. The trial resulted in a hung jury mistrial. According to one of the defense attorneys, Todd Foster, the main theme of the defense was that the FCPA was too complicated to be understood by the defendants. Yet this trial, occurring right under the Post's nose, was not deemed worthy of mention. Hat tip to Todd for bringing the article to my attention.
Finally, the Sunday New York Times focuses on Murdoch's Unlikely Ally, former New York City schools chancellor and DOJ Antitrust Chief Joel Klein, in an article by Jeremy Peters, Michael Barbaro, and Javier Hernandez. It is a very good story and remarkable for its focus on the mechanics of News Corporation's internal investigation. Instead of following the "best practice" and hiring an outside law firm to conduct the investigation and report to an audit or special committee controlled by independent outsiders, News Corporation is employing something of a hybrid. It has appointed Lord Anthony Grabiner as the internal investigation's "Independent Chairman." But Grabiner sat behind, and presumably advised, the Murdochs during last week's parliamentary testimony. Grabiner will report to Klein, a News Corporation executive and trusted Murdoch adviser who also sat behind the Murdochs. Klein will report to Viet Dinh, "an independent director on the News Corporation board," for whom I have enormous respect. The article quotes University of Delaware corporate governance expert Charles Elson to the effect that this arrangement "is not standard practice." It may be more standard than Professor Elson realizes. It is obviously not the best practice for ensuring a truly independent investigation. Virtually by definition, there is no way that such an investigation can be wholly and truly independent.
By the way, even an investigation conducted by outside counsel and reporting to the audit committee (or a specially created independent committee) may only be independent up to a point. Let's say that the investigation is completed and outside counsel submits a report to the audit or independent committee. What happens next? Is the Board of Directors required to follow the recommendations of the independent committee? If not, then what is the point of the process in the first place? But that is a topic for another day.
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Many are talking about whether the U.S. should investigate Murdoch's News Corp for FCPA violations. Obviously no one has a crystal ball to predict whether this will or will not happen, but one thing is for sure – lodging an investigation would be like entering a minefield.
The obstacles facing prosecutors will be enormous, as they should be. Here are a few:
- Stretching the Statute– The FCPA, enacted in 1977, came on the heels of the Watergate Investigation that revealed extensive bribery by U.S. companies to foreign officials. Major corporations had paid foreign officials huge sums of money in order to obtain contracts and other business abroad. The "integrity of the free market" was a key aspect in the passage of the Act. Does this really sound like the allegations here?
- Extraterritoriality – A key concern has always been whether prosecuting extraterritorial conduct was proper. For example, in one FCPA case (Castle), the DOJ was barred from using conspiracy to violate the FCPA when it attempted to circumvent the prohibition against charging foreign officials. Would this really be a case of policing U.S. actors?
- Rogue Employees - Many companies have employees who break the rules. Companies with strong compliance programs have faced prosecution when individuals within the company exceed the boundaries of acceptable conduct. Unfortunately, Congress and the Court have failed to accept a good faith defense when a company tries to comply with the law. This case may present a testing ground for the importance of this principle that applies in many civil areas like harassment cases.
- Overcriminalization – Many are crying for "smart on crime" approaches to crime. Most importantly it is needed with a Congress that reacts to every public outcry with a responsive statute, irrespective of whether the conduct is already covered under law. Here the issue is more pronounced from a different perspective. Do we really need to prosecute what is occurring on the other side of the pond?
- Due Process – Contributing blogger Lawrence S. Goldman said it better than I could, "As much as I would enjoy seeing Murdoch in the dock, so to speak, I think it would be a terrible stretch to punish conduct committed in Britain by British citizens bribing British citizens to invade the privacy of British citizens in Britain. Even Murdoch and News Corp. deserve due process."
- Economics – If everything that is alleged to happen did in fact happen, it sure sounds pretty sad and it needs to get fully exposed and punished. But unless it will provide us with jobs, assist our budget, and not deplete from our precious prosecutorial resources, let's think twice about this one.
And we haven't even gotten to a discussion of all the procedural issues (e.g., getting the witnesses, evidence, and potential defendants to the U.S.)
(esp)
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Gotta be careful about those compromised informants in front of DC juries. Main Justice has the story here.
(wisenberg)
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Chris Johnson, law.com, U.K. Bribery Act Finally Takes Effect
Michael Volkov, T-Minus 32 hours and Counting — The UK Bribery Act Becomes Effective
(esp)
MattBray.net 