Koehler - Facade of FCPA Enforcement

THE FAC
ADE OF FCPA ENFORCEMENT

MIKE KOEHLER*
The rise in Foreign Corrupt Practices Act (FCPA) enforcement
actions has been well documented. Against the backdrop of aggressive
enforcement and the resulting multi-million dollar fines and penalties
is the undeniable fact that, in most instances, there is no judicial
scrutiny of the FCPA enforcement theories. The end result is that the
FCPA often means what the enforcement agencies say it means. Because of the carrots and sticks relevant to resolving a government
enforcement action, FCPA defendants are nudged to accept resolution
vehicles notwithstanding the enforcement agencies untested and dubious enforcement theories or the existence of valid and legitimate
defenses. The end result is often the facade of FCPA enforcement.
This article discusses various pillars that contribute to the facade of
FCPA enforcement and highlights that the FCPA, during its decade of
resurgence, is being enforced like no other law. This article does not
argue, or even suggest, that every FCPA enforcement action is unwarranted or that no company or individual has ever violated the FCPA.
Rather, this article demonstrates that a significant majority of recent
FCPA enforcement actions are a facadeincluding those that allege
clear instances of corporate briberyyet are resolved without FCPA
anti-bribery charges.
The facade of FCPA enforcement matters. Even though the resolution vehicles typically used to resolve an FCPA enforcement action are
not subject to judicial scrutiny and the vehicles do not necessarily
reflect the triumph of the enforcement agencies theories, in the
absence of substantive FCPA case law, these privately negotiated resolution vehicles have come to represent de facto FCPA case law. The facade
of FCPA enforcement also breeds inefficient overcompliance by riskaverse business actors fearful of enterprisethreatening liability because of the enforcement agencies untested and dubious theories.
Because the factors that contribute to the facade are being modeled by
* Mike Koehler is an Assistant Professor of Business Law at Butler University. Professor

Koehler runs the FCPA Professor Blog (http://fcpaprofessor.blogspot.com), and his FCPA
expertise and views are informed by a decade of legal practice experience at an international law
firm during which he conducted FCPA investigations around the world, negotiated resolutions to
FCPA enforcement actions with government enforcement agencies, and advised clients on FCPA
compliance and risk assessment. 2010, Mike Koehler.
907
Electronic copy available at: http://ssrn.com/abstract=1705517
GEORGETOWN JOURNAL OF INTERNATIONAL LAW
other nations when enforcing their own bribery laws, the facade of
FCPA enforcement is a global issue affecting a broad segment of the
marketplace.
Identifying and acknowledging the existence of a problem is a
necessary first step to crafting solutions. This article exposes the facade
of FCPA enforcement, argues that addressing the facade and subjecting FCPA enforcement actions to greater judicial scrutiny is in the
public interest, and encourages more FCPA defendants to challenge
the enforcement agencies and further expose the facade of FCPA
enforcement.
TABLE OF CONTENTS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
II. THE FCPA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Origin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Anti-bribery Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Anything of Value . . . . . . . . . . . . . . . . . . . . . . . .
2. Foreign Official . . . . . . . . . . . . . . . . . . . . . . . . . .
3. Obtain or Retain Business. . . . . . . . . . . . . . . . . .
C. Books and Records and Internal Control Provisions. . . . . . .
III. FCPA ENFORCEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A. Relevance of Carrots and Sticks . . . . . . . . . . . . . . . . . .
1. Principles of Prosecution . . . . . . . . . . . . . . . . . . . .
2. Sentencing Guidelines . . . . . . . . . . . . . . . . . . . . . .
3. SEC Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Prevalence of Resolution Vehicles Subject to Little or No
Judicial Scrutiny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. NPAs and DPAs . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Pleas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3. SEC Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . .
C. FCPA Resolution Vehicles Do Not Necessarily Reflect a
Superior Legal Position. . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Lessons from SEC v. BofA . . . . . . . . . . . . . . . . . . . .
2. The Enforcement Agencies are Vulnerable in
Contested Actions . . . . . . . . . . . . . . . . . . . . . . . . .
IV. THE FACADE OF FCPA ENFORCEMENT. . . . . . . . . . . . . . . . . . . .
A. First Pillar: Bare-Bones, Uninformative Facts, and Legal
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
B. Second Pillar: What is the Legal Support?. . . . . . . . . . . . . .
1. The Foreign Officials All Around Us? . . . . . . . . .
2. Just How Was that Business Obtained or
Retained? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
908
909
911
911
913
914
916
917
921
923
924
925
926
927
929
933
939
942
946
946
955
959
960
963
964
971
[Vol. 41
Electronic copy available at: http://ssrn.com/abstract=1705517
THE FACADE OF FCPA ENFORCEMENT
3. Strict Liability for Books and Records and

Internal Controls Violations? . . . . . . . . . . . . . . . . . 976
4. Disgorge What? . . . . . . . . . . . . . . . . . . . . . . . . . . . 981
C. Third Pillar: Same Facts, Different Results . . . . . . . . . . . . . 984
D. Fourth Pillar: Bribery, Yet No Bribery . . . . . . . . . . . . . . . . . 990
V. WHY THE FACADE OF FCPA ENFORCEMENT MATTERS. . . . . . . . . 997
A. The Absurdity of FCPA Case Law . . . . . . . . . . . . . . . . . . 998
B. The Breeding of Overcompliance . . . . . . . . . . . . . . . . . . . . 1001
C. Modeling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1005
VI. CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1009
I.
INTRODUCTION
The rise in Foreign Corrupt Practices Act (FCPA) enforcement has

been well-documented, as have the aggressive enforcement positions of
the Department of Justice (DOJ) and the Securities and Exchange
Commission (SEC)the two government agencies responsible for
enforcing the statute.1
Ordinarily, aggressive government enforcement of a statute based on
untested and dubious legal theories invites judicial scrutiny in a transparent, adversarial proceeding. Such judicial scrutiny is particularly
appropriate when enforcement theories result in multi-million dollar
corporate fines and penalties, as is often the case in FCPA enforcement
actions.
However, judicial scrutiny is virtually non-existent in the FCPA
context given the frequency with which FCPA enforcement actions are
resolved through DOJ non-prosecution agreements (NPAs), deferred prosecution agreements (DPAs), pleas, or SEC settlements.
Each of these resolution vehicles is the result of private negotiations
between the enforcement agencies and the alleged wrongdoer in the
context of the enforcement agencies dangling substantial carrots for
cooperating and agreeing to its version of the facts and interpretation
of the law. At the same time, the alleged wrongdoer is cognizant of the
enforcement agencies substantial sticks should it disagree with the
enforcement agencies.
Thus, in many instances, the FCPA means simply what the DOJ and
1. See, e.g., Philip Urofsky & Danforth Newcomb, Recent Trends and Patterns in FCPA Enforcement, SHEARMAN & STERLING LLP (Oct. 1, 2009), http://www.shearman.com/files/upload/LT100209-FCPA-Digest-Recent-Trends-and-Patterns-in-FCPA-Enforcement.pdf (noting that the SEC
and DOJ continue to adopt aggressive and potentially controversial interpretations of the FCPA
in their respective enforcement actions against individuals and corporations).
2010]
909
SEC say it means. Accordingly, FCPA law has developed through

privately-negotiated agreements, and not as in other areas of law,
through transparent, adversarial proceedings in which a judge or jury,
weighing the evidence and the parties conflicting arguments, renders
an impartial decision. It is this feature of the FCPA that distinguishes
FCPA enforcement from nearly every other area of law. This feature is
troubling enough in isolation. Even more troubling is that the enforcement agencies, in the absence of meaningful, substantive FCPA case
law, urge those subject to the FCPA to view these privately-negotiated
agreements as de facto case law and to conform conduct to the foggy
legal signposts in these privately-negotiated agreements.
The end result is a facade of FCPA enforcement and, this article
explores various pillars that contribute to the facade of FCPA enforcement. This article does not argue, or even suggest, that every FCPA
enforcement action is unwarranted or that no company or individual
has ever violated the FCPA. Rather, this article demonstrates that a
significant majority of recent FCPA enforcement actions are a facade
and argues that addressing the facade and subjecting FCPA enforcement actions to judicial scrutiny is in the public interest and of vital
importance to those subject to the FCPA as well as the broader
marketplace.
Section I of the article begins by providing a brief overview of the
FCPA.
Section II of the article provides an overview of FCPA enforcement
and demonstrates that FCPA enforcement actions are typically resolved
through NPAs, DPAs, pleas, and SEC settlements. A common thread in
all of these resolution vehicles is the absence or practical absence of
judicial scrutiny. This section also explores the motivations of settling
parties pursuant to these resolution vehicles and demonstrates that
settlement does not necessarily reflect the triumph of one partys legal
position, but rather it reflects a risk-based decision primarily grounded
in issues other than facts or the law.
Section III of the article highlights four pillars that contribute to the
facade of FCPA enforcement. The first pillar highlights the frequency
with which FCPA enforcement actions are resolved based on uninformative, bare-bones statements of facts or allegations or conclusory legal
statements. The second pillar highlights the increasing trend of FCPA
enforcement actions that are resolved based on untested and dubious
legal theories, as well as enforcement theories seemingly in direct
conflict with FCPAs statutory provisions. The third pillar highlights the
opaque nature of FCPA enforcement and how similar enforcement
actions, based on the governments own allegations, are resolved with
910
[Vol. 41
materially different charges and penalties. The fourth and most alarming pillar highlights how seemingly clear-cut instances of corporate
bribery, per the governments own allegations, are resolved without
FCPA anti-bribery charges. These enforcement actions suggest, contrary to rule of law principles, that certain companies in certain
industries are essentially immune from FCPA anti-bribery charges.
Section IV of the article demonstrates why the facade of FCPA
enforcement matters and why judicial scrutiny of FCPA enforcement
actions is in the public interest and of vital importance to those subject
to the FCPA as well as the broader marketplace.
A goal of this article is to encourage more FCPA defendants, notwithstanding the carrots and sticks present, to challenge the enforcement agencies in an FCPA enforcement action and further expose the
facade of FCPA enforcement. Exposing and addressing the facade of
FCPA enforcement is a global issue given the reach of the FCPA and
because other nations are increasingly modeling enforcement of their
own anti-bribery laws on U.S. enforcement methods and theories.
II.
THE FCPA
An understanding of the FCPA is critical to understanding the

various pillars that contribute to the facade of FCPA enforcement and
why judicial scrutiny of FCPA enforcement actions is warranted and in
the public interest. This section provides a general overview of the
FCPA, yet it provides only essential information relevant to this article.
A.
Origin
The FCPA is commonly described as an outgrowth of the Watergate

scandal.2 While such a reference is relevant to the FCPAs origins,
describing the FCPA as a singular outgrowth of Watergate misses the
historical fact that Congress was actively investigating allegations of
overseas bribery and corruption separate and apart from the Watergate
scandal.3
2. See, e.g., Carolyn Lindsey, More Than You Bargained For: Successor Liability Under the U.S.
Foreign Corrupt Practices Act, 35 OHIO N.U. L. REV. 959, 961 (2009) (The FCPA arose out of the
Watergate scandal in the 1970s. While investigating contributions to Richard Nixons re-election
campaign, Congress discovered that over 400 U.S. companies had paid bribes in excess of $300
million through offshore slush funds in order to win contracts overseas.).
3. See Andrew Brady Spalding, Unwitting Sanctions: Understanding Anti-Bribery Legislation
as Economic Sanctions Against Emerging Markets 710 (Apr. 22, 2010) (Working Paper Series,
Univ. of Mumbai, Bombay), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_
2010]
911
Allegations of U.S. companies making or offering bribe payments to

foreign government officials to secure foreign government contracts
became the focus of congressional hearings in the mid-1970s. During
the summer and fall of 1975, the U.S. House of Representatives held
hearings on The Activities of American Multinational Corporations
Abroad.4 The Chairman of the hearings noted that [d]uring the last
few weeks, charges that American corporations have maintained secret
funds for the payment of gratuities to foreign government and political
officials have been made and substantiated . . . .5
A primary focus of these hearings was the Lockheed Corporation
scandal of the early 1970s, which was a key event alert[ing] Congress
to the need for legislation prohibiting overseas payments.6 In fact,
during the same general time frame as the above U.S. House hearings,
the U.S. Senate also held hearings on Lockheed Bribery.7
Broadly speaking, the conduct of Lockheed and other U.S. companies concerned Congress because at the time, [s]uch payments to
foreign officials [were] not a violation of American law . . . notwithstanding the fact that other U.S. laws, such as the tax and securities
disclosure laws, were perhaps indirectly implicated by such conduct.
Two and a half years of Congressional hearings, a Presidential
change, and various iterations of what would become the FCPA ensued,
culminating in President Carter signing the Foreign Corrupt Practices
and Investment Disclosure Bill into law on December 20, 1977.8
President Carters signing statement states, in part:
id1429207 (arguing that scholars to date have only partially understood the historical events
that precipitated the introduction and passage of the FCPA).
4. See The Activities of American Multinational Corporations Abroad: Hearings Before the Subcomm. on
Intl Econ. Policy of the Comm. on Intl Relations, 94th Cong. 1 (1975).
5. Id. at 1 (statement of Rep. Robert N.C. Nix, Chairman, Subcomm. on Intl Econ. Policy).
6. Id. at 8 9. Broadly speaking, the Lockheed scandal involved disclosures by the company
that it had paid several multi-million dollar bribes to various developed and developing
countries, particularly the Netherlands, Japan, and Italy to assist in securing foreign government
contracts. Id. at 9. These payments drew the ire of Congress given that, during the time period the
payments were made, Lockheed was the recipient of a $250 million federal loan guarantee
designed to keep the company out of bankruptcy.
7. See Lockheed Bribery: Hearings Concerning Payments to Foreign Agents and Foreign Govt Officials by
the Lockheed Aircraft Corp., and the Emergency Loan Guar. Act Before the Senate Comm. on Banking, Hous.,
and Urban Affairs, 94th Cong. 1 61 (1975).
8. See Jimmy Carter, Foreign Corrupt Practices and Investment Disclosure Bill; Statement on
Signing S. 305 into Law, 2 Pub. Papers 2157 (Dec. 20, 1977), available at http://www.presidency.ucsb.
edu/ws/index.php?pid7036.
912
[Vol. 41
I share Congress belief that bribery is ethically repugnant and

competitively unnecessary. Corrupt practices between corporations and public officials overseas undermine the integrity and
stability of governments and harm our relations with other
countries. Recent revelations of widespread overseas bribery
have eroded public confidence in our basic institutions.9
As routinely described, FCPA enforcement was largely (yet not entirely) non-existent from 1977 until circa 2002.10 The FCPA was
amended in 1988 and 1998 and the below summary provides a general
overview of the post-1998 FCPA statute (i.e. the statute on the books
when the FCPA was resurrected from near legal extinction and the
version of the statute relevant to the current facade of FCPA enforcement).
B.
Anti-bribery Provisions
The FCPA is part of the Securities Exchange Act of 193411 and it has
two main provisions: the anti-bribery provisions and the books and
records and internal control provisions. The anti-bribery provisions
generally prohibit:
U.S. companies (whether public or private) and its personnel;
U.S. citizens; foreign companies with shares listed on a U.S.
stock exchange or otherwise required to file reports with the
SEC; or any person while in U.S. territory from:
(i) corruptly paying, offering to pay, promising to pay,
or authorizing the payment of money, a gift, or anything of value; (ii) to a foreign official; (iii) in order to
obtain or retain business.12
While routinely described as a law applicable only to U.S. companies
9. Id.
10. See, e.g., Dionne Searcey, U.S. Cracks Down on Corporate Bribes, WALL ST. J., May 26, 2009, at
A1, available at http://online.wsj.com/article/SB124329477230952689.html (noting that FCPA
enforcement was largely dormant for decades); SHEARMAN & STERLING LLP, FCPA Digest: Cases
and Review Releases Relating to Bribes to Foreign Officials under the Foreign Corrupt Practices Act of 1977
(Oct. 1, 2009), http://www.shearman.com/files/upload/fcpa_digest.pdf (chronological listing
of FCPA enforcement actions).
11. See 15 U.S.C. 78m(b), 78dd-1, 78dd-2, 78dd-3 (2006).
12. Id.
2010]
913
and citizens,13 the FCPA, as written and as enforced, can also apply to
foreign companies and foreign citizens.14 In fact, the largest ever FCPA
enforcement action (in terms of fines and penalties) is the 2008 action
against Siemens Aktiengesellschaft (Siemens), a German corporation
with shares traded on a U.S. exchange since 2001.15
As described above, the FCPAs anti-bribery provisions have three
core elements: anything of value to a foreign official in order to
obtain or retain business. These core elements are briefly described
below.
1.
Anything of Value
The term anything of value is not defined in the FCPA, nor is the
statutes legislative history illuminating. FCPA enforcement actions
suggest that the enforcement agencies perceive that there is no de
minimis value associated with this element of an FCPA anti-bribery
violation,16 and recent FCPA enforcement actions allege facts concerning things of value across a wide spectrum. For instance, in the 2009
enforcement action against Kellogg Brown & Root LLC and various
other Halliburton Company affiliates, things of value provided to
Nigerian foreign officials included cash-stuffed briefcases or cashstuffed vehicles left in hotel parking lots.17 On the other end of the
spectrum, the 2009 enforcement action against UTStarcom Inc. involved things of value provided to Chinese foreign officials including executive training programs at U.S. universities that were at-
13. See, e.g., Elizabeth Spahn, International Bribery: The Moral Imperialism Critiques, 18 MINN.
J. INTL L. 155, 157 (2009) (The U.S. Foreign Corrupt Practices Act (FCPA) criminally prohibits
U.S. corporations from bribing officials of foreign governments in order to obtain business has
been in effect for thirty years.).
14. See 15 U.S.C. 78dd-1, 78dd-3 (2006).
15. See, e.g., Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign
Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec.
15, 2008), available at http://www.fcpaenforcement.com/FILES/tbl_s31Publications/FileUpload137/5527/SiemensDOJPressRelease.pdf; Press Release, SEC, SEC Charges Siemens AG for
Engaging in Worldwide Bribery (Dec. 15, 2008), available at http://www.sec.gov/news/press/2008/
2008-294.htm.
16. See, e.g., In re Dow Chemical Co., Exchange Act Release No. 55281, 2007 WL 460872 (Feb.
13, 2007) (noting that although certain improper payments were in small amounts well under
$100 per payment the payments were numerous and frequent).
17. See United States v. Kellogg Brown & Root LLC, Case No. H-09-071 (S.D. Tex. Feb. 06,
2009), available at http://fcpaenforcement.com/documents/document_detail.asp?ID
5714&PAGE2(follow DOJ Criminal Information hyperlink) (criminal available at information
at paragraph 20).
914
[Vol. 41
tended by the foreign officials and paid for by the company even
though the programs did not specifically relate[] to [the companys]
products or business.18
The most aggressive interpretation of the anything of value element would seem to be the 2004 FCPA enforcement action against
pharmaceutical company Schering-Plough Corporation (ScheringPlough).19 In that action, the SEC alleged that Schering-Plough
violated the FCPA when its wholly-owned Polish subsidiary (S-P Poland) improperly recorded a bona fide charitable donation to a Polish
foundation where the founder/president of the foundation was also
the director of a government health fund (the Director) that provided money to hospitals throughout Poland for the purchase of
pharmaceutical products. Although the SEC and Schering-Plough
ultimately resolved the matter without any meaningful judicial scrutiny
based only on violations of the FCPAs books and records and internal
control provisions, the enforcement action is commonly viewed as
broadening the anything of value element of an FCPA anti-bribery
violation.20 The SECs tacit interpretation of the anything of value
element in the Schering-Plough matter is significant because there was
no allegation or indication that any tangible monetary benefit accrued
to the Director, an individual deemed by the SEC to be a foreign
official under the FCPA. Rather, the SEC brought the enforcement
action on the basis of its apparent conclusion that S-P Polands bona
fide charitable donations constituted a thing of value to the foreign
official because the donations were subjectively valued by the official
18. Complaint at para. 16, SEC v. UTStarcom, Inc., No. CV 09-6094 (N.D. Cal.), available at
http://www.sec.gov/litigation/complaints/2009/comp21357.pdf (filed Dec. 31, 2009).
19. See SEC v. Schering-Plough Corp., Litigation Release No. 18740, 82 SEC Docket 3732
(June 9, 2004); In re Schering-Plough Corp., Exchange Act Release No. 49,838, 82 SEC Docket
3644 (June 9, 2004).
20. See, e.g., WILMER CUTLER PICKERING HALL AND DORR LLP, Foreign Corrupt Practices Act Update,
Schering-Plough Settles FCPA Case with SEC for Payments to Charity Headed by Government Official 1 (Jun.
30, 2004), http://www.wilmerhale.com/files/Publication/360d4f59-6068-4068-9d65-a30270e
5069b/Presentation/PublicationAttachment/0be55739-9c98-4d1f-a886-dac5f2f26044/FCPA%
2006-30-04.pdf (noting that [t]he case is significant in suggesting that payments to a bona fide
charity could violate the FCPA if made to influence the actions of a government official and
pointing out that [a]lthough the SEC did not state that these payments were bribes within the
meaning of the FCPA, in charging FCPA accounting violations for these payments, the SEC
strongly signaled that it believes that charitable donations could violate the FCPA if made at the
direction of a government employee to induce official action). In other words, if the company
improperly recorded a bona fide charitable contribution not involving (even indirectly) a foreign
official, it is unlikely the SEC would have charged FCPA books and records and internal control
violations.
2010]
915
and provided him with an intangible benefit of enhanced self-worth or

prestige. In other words, the perception of the recipient and the
subjective valuation of the thing conveyed may be a key factor in the
enforcement agencies analysis of whether anything of value has been
given to a foreign official.
2.
Foreign Official
No FCPA element contributes more to the facade of enforcement

and no element is more urgently in need of judicial scrutiny than the
FCPAs foreign official element. In fact, this key FCPA element has
never been interpreted by a court. In many cases, the end result is that
foreign official element simply means what the enforcement agencies
say it means.
The FCPA defines foreign official as any officer or employee of a
foreign government or any department, agency, or instrumentality
thereof, or of a public international organization, or any person acting
in an official capacity for or on behalf of any such government or
department, agency, or instrumentality, or for or on behalf of any such
public international organization.21
There is no dispute that foreign government leaders, other foreign
heads of state, and employees of foreign government agencies such as
foreign equivalents of the U.S. Treasury Department, U.S. State Department, etcetera, are foreign officials under the FCPA.22
However, many recent FCPA enforcement actions have absolutely
nothing to do with such government officials. Rather, the alleged
21. 15 U.S.C. 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A) (2006).

22. See S. REP. NO. 95-114, at 13 (1977) (noting, in connection with the history of the bill,
that [d]uring the 94th Congress, the Committee on Banking, Housing, and Urban Affairs held
extensive hearings on the matter of improper payments to foreign government officials by
American corporations; noting, in connection with a summary of the bill, that [the bill] makes it
a crime for U.S. companies to bribe a foreign government official for the specified corrupt
purposes . . . . Taken together, the accounting requirements and criminal prohibitions of Title I
should effectively deter corporate bribery of foreign government officials) (emphasis added). See
also H.R. REP. NO. 95-640, at 4 (1977) (noting, in connection with the need for the legislation, that
[m]ore than 400 corporations have admitted making questionable or illegal payments. The
companies, most of them voluntarily, have reported paying out well in excess of $300 million in
corporate funds to foreign government officials, politicians, and political parties.) (emphasis
added). See also H.R. REP. NO. 95-831, at 12 (1977) (consolidating similar, but not identical, House
and Senate bills and noting that [b]y incorporating provisions from both bills, the conferees
clarified the scope of the prohibition by requiring that the purpose of the payment must be to
influence any act or decision of a foreign official (including a decision not to act) or to induce
such official to use his influence to affect a government act or decision . . . .) (emphasis added).
916
[Vol. 41
foreign official in many recent FCPA enforcement actions is an

employee of an alleged foreign state-owned or state-controlled enterprise (SOE). The enforcement agencies deem such individuals (regardless of rank or title23 and regardless of how such individuals may be
classified under local foreign law24) as foreign officials under the
theory that their employers (often times a company with publicly
traded stock and other attributes of private business) are instrumentalities of a foreign government. Numerous FCPA commentators have
provided various reasons why FCPA enforcement has increased in
recent years yet few attribute the increase to the enforcement agencies
untested and misguided interpretation of the FCPAs key foreign
official element. This interpretation is at the core of a significant
number of recent FCPA enforcement actions as profiled in Section III
of this article.
3.
Obtain or Retain Business
The third general element of an FCPA anti-bribery violation is

obtain or retain business.25 In other words, the thing of value
corruptly offered or paid to the foreign official must be for the
purposes of:
influencing an act or decision of the foreign official; inducing
the foreign official to do or omit to do an action in violation of
his lawful duty or inducing the foreign official to use his
influence with a foreign government or instrumentality to
affect or influence any act of decision of such government or
23. DOJ, Foreign Corrupt Practices Act Antibribery Provisions 3, available at http://
www.justice.gov/criminal/fraud/fcpa/docs/lay-persons-guide.pdf (last visited Aug. 12, 2010) (The
FCPA applies to payments to any public official, regardless of rank or position.) (emphasis
added).
24. See DOJ, Opinion Procedure Release 94-01 (May 13, 1994), available at http://
www.justice.gov/criminal/fraud/fcpa/opinion/1994/9401.pdf (opining that a general director
of a state-owned enterprise being transformed into a joint stock company is a foreign official
under the FCPA despite a foreign law opinion that the individual would not be regarded as either
a government employee or a public official in the foreign country). Pursuant to 15 U.S.C.
78dd-1(e), parties may submit contemplated actions or business activity to the DOJ and obtain a
DOJ opinion whether the contemplated action or business activity violates the FCPA. However,
the DOJs opinion has no precedential value, and its opinion that the contemplated conduct is in
conformance with the FCPA is entitled only to a rebuttable presumption should an FCPA
enforcement action be brought as a result of the conduct. See 28 C.F.R 80.1-16 (2010); 28 C.F.R.
80.10 (2010).
25. 18 U.S.C. 78dd-1(a), 78dd-2(a), 78dd-3(a) (2006).
2010]
917
instrumentality; or securing an improper advantage in order to

assist [the payer in] obtaining or retaining business for or with,
or directing business to, any person.26
In contrast to the foreign official element and many other FCPA
elements and issues, this substantive FCPA element has been subjected
to limited judicial scrutiny. However, as discussed below, the Fifth
Circuits equivocal holding in U.S. v. Kay is far from a stamp of approval
of the enforcement agencies aggressive interpretation of this element.
Yet, aggressive interpretation of this element continues post-Kay and it
is a significant driver in a number of recent FCPA enforcement actions
as profiled in Section III of this article.
Prior to Kay, the scope of the obtain or retain business element was
in flux and subject to much debate. Kay was a case of first impression
and presented the issue of whether payments to foreign officials to
avoid paying custom duties and to lower sales taxes could satisfy the
FCPAs obtain or retain business element.27 The issue presented was
in contrast to a typical FCPA scenario in which a company allegedly
makes improper payments to a foreign official to secure a foreign
government contract.28
Kay
In 2001, David Kay and Douglas Murphy (the DEFENDANTS), the
president and vice president of Houston-based American Rice, Inc.
(ARI), were criminally indicted.29 The indictment charged FCPA
anti-bribery violations and alleged that the DEFENDANTS made improper payments to Haitian foreign officials for the purpose of
reducing customs duties and sales taxes owed by ARI to the Haitian
government.30
The indictment, while specific as to other items, merely tracked the
FCPAs obtain or retain business language and did not specifically
allege how the alleged payments assisted ARI in obtaining or retaining
business in Haiti or what business was obtained or retained.31 In other
26. Id.
27. See United States v. Kay, 359 F.3d 738, 740 (5th Cir. 2004).
28. See, e.g., United Indus. Corp., Exchange Act Release No. 60005 (May 29, 2009), available at
http://www.sec.gov/litigation/admin/2009/34-60005.pdf (enforcement action concerning payments to Egyptian Air Force (EAF) officials to build a military aircraft depot for the EAF).
29. See Kay, 359 F.3d at 740.
30. See id.
31. See id.
918
[Vol. 41
words, the indictment recite[d] no facts that could demonstrate an

actual or intended cause-and-effect nexus between reduced taxes and
obtaining identified business or retaining identified business opportunities.32
The trial court granted Defendants motion to dismiss the indictment and held, as a matter of law based on the FCPAs legislative
history, that the alleged payments were not payments made to obtain
or retain business and thus did not fall within the scope of the FCPAs
anti-bribery provisions.33 The DOJ appealed the decision and one issue
on appeal was whether payments to foreign officials to obtain favorable tax and customs treatment can come within the scope of the
FCPAs anti-bribery provisions.34
The Fifth Circuit, like the trial court, concluded that the FCPAs
obtain or retain business element was ambiguous and it thus analyzed
the FCPAs legislative history.35 The Fifth Circuit focused specifically
on the U.S. Senates 1977 sponsored bill and the SEC report on which
the Senates proposal was based.36 According to the court, the SEC
report exhibited concern about a wide range of questionable payments [including those at issue in Kay] that were resulting in millions
of dollars being recorded falsely in corporate books and records.37
Although the Fifth Circuit recognized that the Senates proposal did
not expressly cover payments that seek to influence the administration
of tax laws or seek a favorable tax treatment, the Senate, in the words of
the court, was mindful of bribes that influence legislative or regulatory
actions, and those that maintain established business opportunities.38
In short, the Fifth Circuit was convinced that Congress intended to
prohibit a range of payments wider than those that only directly
influence the acquisition or retention of government contracts or
similar arrangements.39 The Fifth Circuit held that making payments to
a foreign official to lower taxes and custom duties in a foreign
country can provide an unfair advantage to the payer over competitors
and thereby assist the payer in obtaining and retaining business.40 The
32.
33.
34.
35.
36.
37.
38.
39.
40.
2010]
Id. at 741.
See id. at 741 42.
See id. at 742.
See id. at 743 44.
See id. at 746 50.
Id. at 748.
Id.
Id. at 749.
See id. at 75556.
919
court concluded that there was little difference between these type of
payments and traditional FCPA violations in which a company makes
payments to a foreign official to influence or induce the official to
award a government contract.41
However, the Kay court empathically stated that not all such payments to a foreign official outside the context of directly securing a
foreign government contract violate the FCPA; it merely held that such
payments could violate the FCPA.42 According to the court, the key
question of whether Defendants alleged payments constituted an
FCPA violation depended on whether the payments were intended to
lower ARIs costs of doing business in Haiti enough to assist ARI in
obtaining or retaining business in Haiti. The court then listed several
hypothetical examples of how a reduction in custom and tax liabilities
could assist a company in obtaining or retaining business in a foreign
country.43 On the other hand, the court also recognized that there are
bound to be circumstances in which a custom or tax reduction merely
increases the profitability of an existing profitable company and thus,
presumably, does not assist the payer in obtaining or retaining business.44 The court specifically stated:
[I]f the government is correct that anytime operating costs are
reduced the beneficiary of such advantage is assisted in getting
or keeping business, the FCPAs language that expresses the
necessary element of assisting in obtaining or retaining business would be unnecessary, and thus surplusage a conclusion
that we are forbidden to reach.45
Thus, contrary to popular misperception, Kay does not hold that all
payments to a foreign official for the purpose of avoiding customs
duties and sales taxes in a foreign country fall within the FCPAs scope.
Rather, the decision merely holds that Congress intended for the FCPA
to apply broadly to payments intended to assist the payer, directly or
indirectly, in obtaining or retaining business and that payments to a
foreign official to reduce custom and tax liabilities can, under
appropriate circumstances, fall within the statute. Given the abovedescribed facts and circumstances the Kay court found relevant, it is a
41.
42.
43.
44.
45.
920
See id. at 749.

Id. at 75556. (emphasis in original).
See id. at 759 60.
Id. at 760.
Id.
[Vol. 41
highly fact-dependant analysis whether a payment to a foreign official

satisfies the obtain or retain business element outside of the context
of an actual specific contract.
Despite the equivocal nature of the Kay holding, the decision clearly
energized the enforcement agencies and post-Kay there has been an
explosion in FCPA enforcement actions where the alleged improper
payments involve customs duties and tax payments or are otherwise
alleged to have assisted the payer in securing foreign government
licenses, permits, and certifications which assisted the payer in generally doing business in a foreign country.
These enforcement actions are profiled in Section III of this article.
Because none of these actions have been challenged, it remains an
open question whether the payments at issue in these cases, if subjected
to judicial scrutiny: (i) would satisfy the FCPAs obtain or retain
business element; or (ii) were too attenuated to obtaining or retaining
business (such as merely increasing the profitability of an existing
profitable business) and thus, per the Kay holding, not a violation of
this key FCPA anti-bribery element.
In any event, the Kay series of decisions clearly show that when
subjected to judicial scrutiny: (1) a key FCPA element was found to be
vague and ambiguous; (2) the enforcement agencies interpretation of
a key FCPA element resulted in conflicting judicial decisions; and (3)
the enforcement agencies aggressive interpretation of a key FCPA
element was explicitly rejected by a circuit court.46
C.
Books and Records and Internal Control Provisions
The FCPA also contains books and records and internal control
provisions.47 In contrast to the anti-bribery provisions, the books and
records and internal control provisions only apply to an entity which
has a class of securities registered pursuant to the securities laws or an
46. Defendants did appeal their FCPA conviction to the U.S. Supreme Court. See Petition for
A Writ of Certiorari, Kay v. United States, 2008 WL 1721979 (Apr. 9, 2008) (No. 07-1281). The
questions presented in Defendants Petition for A Writ of Certiorari are both general in nature
and do not directly address the Fifth Circuits interpretation of the obtain or retain business
element. See id. at *2. Further, the Government, in its Opposition Brief , urged the Court not to
grant Defendants petition because Defendants did not challenge the sufficiency of the criminal
indictment until after the jury returned its verdict. See Brief for the United States in Opposition to
a Petition for A Writ of Certiorari, Kay v. United States, 2008 WL 2900027 (Jul. 25, 2008) (No.
07-1281). The Supreme Court, without explanation, denied Defendants Cert Petition. Kay v.
United States, 129 S. Ct. 42 (2008).
47. 15 U.S.C. 78m(b)(2)(A)-(B) (2006).
2010]
921
entity otherwise required to file reports pursuant to the securities

laws (collectively Issuers) as well as the entitys employees and agents.48
As a practical matter,49 the books and records and internal control
provisions apply only to publicly-held companies with shares traded on
a U.S. exchangea category which can include numerous foreign
companies with shares traded on a U.S. exchange.50
The books and records provisions require Issuers to make and keep
books, records, and accounts, which, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the
issuer . . . .51 The companion internal control provisions require Issuers to devise and maintain a system of internal accounting controls
sufficient to provide reasonable assurances that among other things:
(i) transactions are executed in accordance with managements general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements and to maintain
accountability for assets; and (iii) access to assets is permitted only in
accordance with managements general or specific authorization.52
These provisions have general application and, despite being part of
the FCPA, do not just apply to overseas business conduct. In fact, the
SEC charges violations of these provisions on a routine basis, yet
because the conduct at issue does not involve overseas business conduct, these non-FCPA FCPA enforcement actions are not typically
viewed as FCPA enforcement actions.53
48. Id.
49. In rare instances, a company may still be required to file periodic reports pursuant to
the securities laws, yet not have publicly traded shares. See Non-Public Issuer Discloses Investigation,
THE FCPA BLOG, http://www.fcpablog.com/blog/2010/1/10/non-public-issuer-discloses-investigation.html (Jan. 10, 2010, 10:08 AM) (noting that PBSJ Corporation, while not having any
publicly traded securities, is nevertheless required to file periodic reports with the SEC given the
extent of its shareholders, mostly current and former employees).
50. See, e.g., Press Release, DOJ, U.S. Resolves Probe Against Oil Company that Bribed
Iranian Official (Oct. 13, 2006), available at http://www.justice.gov/opa/pr/2006/October/
06_crm_700.html (Although Statoil is a foreign issuer, the Foreign Corrupt Practices Act applies
to foreign and domestic public companies alike, where the companys stock trades on American
exchanges . . . .).
51. 15 U.S.C. 78m(b)(2)(A) (2002).
52. 15 U.S.C. 78m(b)(2)(B) (2002).
53. See, e.g., SEC Charges Assurant, Inc. With Improper Reinsurance Accounting, Litigation
Release No. 21388, Accounting and Auditing Enforcement Release No. 3109, 2010 WL 236814
(Jan. 21, 2010) (charging Assurant, Inc. with violating, among other things, Section 13(b)(2)(A)
and 13(b)(2)(B) of the Exchange Act (i.e. the FCPAs books and records and internal control
provisions) for improperly accounting for a $10 million recovery it obtained under a reinsurance
policy in the aftermath of the 2004 Florida hurricane season). See also Paul Gerlach & George
922
[Vol. 41
The FCPA specifically states that when an Issuer holds 50% or less of
the voting power with respect to a domestic or foreign firm, the books
and records and internal control provisions require only that the
[I]ssuer proceed in good faith to use its influence, to the extent
reasonable under the issuers circumstances, to cause such domestic or
foreign firm to devise and maintain a system of internal accounting
controls consistent with the FCPAs provisions.54 The FCPA further
states that an Issuer which demonstrates good faith efforts to use such
influence shall be conclusively presumed to have complied with the
requirements of the FCPAs books and records and internal control
provisions.
As demonstrated in more detail in Section III of this article, the
enforcement agencies seemingly ignore this FCPA statutory provision
in bringing numerous FCPA enforcement actions against parent companies based on the conduct of indirect, multiple-tier subsidiaries or
affiliates in the absence of any allegations that the parent had knowledge of or participated in the improper conduct and in the absence of
any bad faith allegations. These numerous FCPA enforcement actions
would seem to be in direct conflict with the FCPAs statutory provisions
and contribute to the facade of FCPA enforcement.
Before discussing the pillars which contribute to the facade of FCPA
enforcement, it is necessary to understand how the FCPA is enforced
and how FCPA enforcement actions are typically resolved in the
absence or practical absence of judicial scrutiny. Both these dynamics
significantly contribute to the facade of FCPA enforcement and are
discussed in the next section.
III.
FCPA ENFORCEMENT
The FCPA is both a civil statute and a criminal statute. Like other
securities law violations (such as insider trading), the issue of intent
and a prosecutors ability to satisfy the higher burden of proof required
for a criminal conviction (beyond a reasonable doubt) may determine
whether an FCPA violation is pursued with criminal charges or merely
civil charges. In terms of which enforcement agency (DOJ or SEC) will
Parizek, The SECs Enforcement of the Foreign Corrupt Practices Act (unpublished manuscript)
(on file with author) ([T]he SEC has brought hundreds of enforcement cases since adoption of
the FCPA charging U.S. issuers with violations of the FCPAs books and records and internal
control provisions where the underlying conduct or transactions occurred solely within the U.S.
with no foreign connection.).
54. 15 U.S.C. 78m(b)(6) (2002).
2010]
923
prosecute the charges, the SEC has civil enforcement authority only,
and it may only regulate Issuers. Thus, [t]he SEC is responsible for
civil enforcement of the anti-bribery provisions with respect to [I]ssuers as well as civil enforcement of the books and records and internal
control provisions.55 The DOJ is responsible for all criminal enforcement of the statute (both the anti-bribery and books and records and
internal control provisions) and civil enforcement of the anti-bribery
provisions against non-Issuers subject to FCPA jurisdiction.56
Whether the DOJ, the SEC, or both agencies are involved in an FCPA
enforcement action, the end result is usually the same use of a
resolution vehicle that is privately negotiated and subjected to little or
no judicial scrutiny. In other words, in the majority of FCPA enforcement there is no independent analysis of whether factual evidence
exists to support the FCPAs legal elements or whether valid and
legitimate defenses are relevant to the conduct charged. Employment
of the resolution vehicles typically used to resolve an FCPA enforcement action does not occur in a vacuum. Rather, the prevalence of
these resolution vehicles is based on the carrots and sticks the
enforcement agencies possess in white-collar enforcement actions,
including FCPA enforcement actions.57
A.
Relevance of Carrots and Sticks
The carrots and sticks relevant to FCPA enforcement actions

include the DOJs Principle of Federal Prosecution of Business Organizations (Principles of Prosecution), the U.S. Sentencing Guidelines
(Sentencing Guidelines), and SEC resolution policy. As described
below, the application or potential application of these carrots and
sticks in the FCPA context routinely nudge corporate defendants and
55. Id. For a more thorough description of the SECs enforcement of the FCPA, see Paul
Gerlach & George Parizek, The SECs Enforcement of the Foreign Corrupt Practices Act
(unpublished manuscript) (on file with author) (describing how SEC FCPA investigations tend
to focus broadly on the overall integrity of the issuers financial statements and not simply on the
narrow issue of whether an FCPA prohibited payment was made and noting that SEC investigators will analyze, in addition to whether a bribe was authorized or paid, who falsely recorded the
bribe in the companys books and records, who lied or otherwise hid the bribe from the outside
auditors, why did the issuers internal controls fail to identify the bribe, whether the bribe
resulted in false public disclosures by the issuer, and whether senior management knew or
should have known of the bribe or the related improper accounting).
56. See DOJ, LAY PERSONS GUIDE TO FCPA 2, available at http://www.justice.gov/criminal/
fraud/fcpa/docs/lay-persons-guide.pdf (last visited Aug. 24, 2010).
57. Carrots and sticks is a popular idiom that refers to a policy of offering a combination
of rewards and punishment to induce behavior.
924
[Vol. 41
individuals to resolve FCPA matters, regardless of the enforcement

agencies legal theories, ambiguous facts, or the existence of valid and
legitimate defenses. The common thread in these concluding resolution vehicles is the absence or practical absence of judicial scrutiny.
Thus, FCPA enforcement actions do not necessarily reflect the triumph
of one partys legal position over the other, but rather reflect a
risk-based decision primarily grounded in issues other than facts or the
law.
1.
Principles of Prosecution
The Principles of Prosecution are found in the U.S. Attorneys

Manual and set forth the factors prosecutors should consider in
determining whether to bring criminal charges against a business
organization or negotiate a plea or other agreement (such as an NPA
or DPA) with the organization to resolve potential criminal charges.58
Relevant factors include: the corporations59 timely and voluntary
disclosure of wrongdoing and its willingness to cooperate in the
investigation of its agents, and the corporations willingness to cooperate with relevant government agencies.60 The Principles of Prosecution specifically state that [c]ooperation is a potential mitigating
factor, by which a corporation . . . can gain credit in a case that
otherwise is appropriate for indictment and prosecution.61 Under the
Principles of Prosecution, a corporations failure to cooperate does
not mean the corporation will be indicted; rather it simply means that
the corporation will not be entitled to mitigating credit for that
cooperationa statement which appears, both in writing and in
practice, to be a distinction without a difference.62
Against this backdrop and these factors, corporate defendants routinely agree to resolve FCPA matters. Simply stated, to challenge the
DOJs theories, its interpretation of facts, or to raise valid and legitimate FCPA defenses is not to cooperate with the investigationa key
factor in DOJs ultimate decision of whether to seek a criminal indict-
58. See DOJ, U.S. Attorneys Manual 9-28.000 (2008) [hereinafter Principles of Federal
Prosecution of Business Organizations], available at http://www.justice.gov/opa/documents/corpcharging-guidelines.pdf.
59. Although the Department of Justice Principles of Prosecution generally use the term
corporation, the principles apply to all types of business organizations, including partnerships,
sole proprietorships, government entities, and unincorporated associations. Id. at n.1.
60. Id. at 4
61. Id. at 7.
62. Id. at 11.
2010]
925
ment against the company.

Given that voluntary disclosure63 to the DOJ is rewarded under the
Principles of Prosecution, many corporations opt to disclose even
ambiguous conduct to the DOJ and agree to whatever settlement terms
the DOJ views proper (notwithstanding the salient fact that such
conduct may not even violate the FCPA).64 A key factor motivating this
risk-based decision is that such a course of conduct is more efficient
and certain compared to the DOJ independently finding out about the
conduct (however slight the possibility) and harshly penalizing the
company for failing to voluntarily disclose.
DOJ officials have expressed, on numerous occasions, the departments strong desire to have companies voluntarily disclose conduct
that could potentially implicate the FCPA. In a November 2009 speech
before FCPA practitioners, Assistant Attorney General Lanny Breuer (a
former FCPA practitioner at a major law firm) strongly urge[d] any
corporation that discovers an FCPA violation to seriously consider
making a voluntary disclosure and always to cooperate with the Department.65 Among other things, Breuer assured the audience of the
DOJs commitment to meaningfully reward voluntary disclosures and
[that] full and complete cooperation will continue to be honored in
both letter and spirit.66
2.
Sentencing Guidelines
The Principles of Prosecution are not the only carrot nudging

corporate defendants to resolve FCPA matters. Even if an FCPA enforcement action is resolved through an NPA, DPA, or plea, the conduct at
issue still must be run through the Sentencing Guidelines to arrive at
a penalty range.
63. Generally speaking, voluntary disclosure means a companys lawyer picks up the phone
and calls the DOJ to schedule a meeting during which the lawyer will disclose conduct that could
potentially implicate the FCPA even though the enforcement agencies, in many cases, would
never find out about the conduct.
64. For an example of a company voluntarily disclosing ambiguous conduct to the DOJ that
may not even violate the FCPA , see Voluntary Disclosures and the Role of FCPA Counsel, FCPA
PROFESSOR BLOG (Dec. 1, 2009, 2:54 PM), http://fcpaprofessor.blogspot.com/2009/12/voluntarydisclosures-and-role-of-fcpa.html. As noted in this post, there are several, significant conflicts of
interest FCPA counsel would seem to have in advising corporate clients on this voluntary
disclosure decision.
65. Another FCPA Speech, FCPA PROFESSOR BLOG (Nov. 18, 2009 12:09 PM), http://fc
paprofessor.blogspot.com/2009/11/another-fcpa-speech.html (discussing Breuers comments).
66. Id.
926
[Vol. 41
Application of the Sentencing Guidelines will result in a lower

corporate fine if the corporation reported the offense to appropriate
governmental authorities, fully cooperated in the investigation, and
clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.67 In other words, challenging the DOJ
and putting it to its burden in an adversarial proceeding to establish
factual evidence that supports the FCPAs legal elements is not affirmative acceptance of responsibility, and such a challenge will result in a
corporation being treated more severely from a penalty perspective.
Given the application of the Principles of Prosecution and the
Sentencing Guidelines in the FCPA context, it is not surprising that
every company subject to an FCPA inquiry during the facade of
enforcement era has opted to resolve such matters through an NPA,
DPA, or plea regardless of the DOJs legal theories, ambiguous facts, or
the existence of valid and legitimate defenses. Simply put, challenging
the DOJ is too risky. In fact, no company has challenged the DOJ in an
FCPA enforcement action in the last twenty years.68
3.
SEC Policy
While less tasty than the DOJs carrots, and less sharp than the
DOJs sticks, the SEC (an agency with merely civil enforcement power
and remedies) also possesses similar carrots and sticks relevant in
the FCPA context. During the facade of enforcement era, the SECs
Seaboard Report has guided companies subject to an SEC FCPA
inquiry.69 In this report, the SEC lists
some of the criteria [the SEC] will consider in determining
whether, and how much, to credit self-policing, self-reporting,
remediation and cooperationfrom the extraordinary step of
taking no enforcement action to bringing reduced charges,
seeking lighter sanctions, or including mitigating language in
67. See U.S. SENTENCING GUIDELINES MANUAL 8C2.5(g) (2009).

68. See A Gesture of Justice, http://www.fcpablog.com/blog/2010/2/10/a-gesture-of-justice.
html, THE FCPA BLOG (Feb. 9, 2010, 5:27 PM) [hereinafter Gesture] (Not a single corporate
defendant, big or small, has fought Foreign Corrupt Practices Act charges in court for the past two
decades.).
69. Report of Investigation Pursuant to Section 21(a) of the Securities Exchange Act of 1934
and Commission Statement on the Relationship of Cooperation to Agency Enforcement Decisions, Exchange Act Release No. 44969 2001 WL 1301408 (Oct. 23, 2001), available at http://
www.sec.gov/litigation/investreport/34-44969.htm.
2010]
927
documents [the SEC] use[s] to announce and resolve enforcement actions.70

Relevant criteria include: [d]id the company promptly, completely
and effectively disclose the existence of the misconduct to the public,
to regulators and to self-regulators; [d]id the company cooperate
completely with appropriate regulatory and law enforcement bodies;
and [d]id the company identify possible violative conduct and evidence with sufficient precision to facilitate prompt enforcement actions . . . .71
SEC enforcement is likely to become even more focused on cooperation and even more reliant on resolution vehicles subject to little or no
judicial scrutiny. In January 2010, the SEC announced a series of
measures to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agencys investigations and enforcement actions.72 Described as a potential game-changer by Robert Khuzami, the SECs Director of the
Division of Enforcement, the SEC announced that it was seeking new
cooperation tools that are regularly and successfully used by the
Justice Department that are not currently available to the SEC.73
These tools include:
1. Cooperation Agreements: Formal written agreements in which
the Enforcement Division agrees to recommend to the Commission that a cooperator receive credit for cooperating in investigations or related enforcement actions if the cooperator provides substantial assistance such as full and truthful information
and testimony.
2. Deferred Prosecution Agreements: Formal written agreements
in which the Commission agrees to forego an enforcement
action against a cooperator if the individual or company agrees,
among other things, to cooperate fully and truthfully and to
comply with express prohibitions and undertakings during a
period of deferred prosecution.
3. Non-prosecution Agreements: Formal written agreements, entered into under limited and appropriate circumstances, in
70. Id.
71. Id.
72. Press Release, SEC, SEC Announces Initiative to Encourage Individuals and Companies
to Cooperate and Assist in Investigations (Jan. 13, 2010), available at http://www.sec.gov/news/
press/2010/2010-6.htm.
73. Id.
928
[Vol. 41
which the Commission agrees not to pursue an enforcement

action against a cooperator if the individual or company agrees,
among other things, to cooperate fully and truthfully and
comply with express undertakings.74
These measures, applied to FCPA enforcement, will likely result in even
less judicial scrutiny of the SECs FCPA interpretations and legal
theories. In fact, the SECs Enforcement Manual states that [a]n
admission or an agreement not to contest the relevant facts underlying
the alleged offenses is a key factor the SEC will consider in determining whether a company should receive a deferred prosecution agreement.75
This SEC policy, like the DOJs Principles of Prosecution, often
causes companies subject to SEC regulation to disclose ambiguous
conduct to the SECincluding conduct that if subjected to judicial
scrutiny may not even violate the FCPAand to agree to whatever
settlement terms the SEC views proper in the hopes of receiving lenient
treatment from the SEC and avoiding a long, protracted legal dispute
with its principal regulator
The net effect of these DOJ and SEC carrots and sticks in the
FCPA context is to nudge corporate defendants and individuals to
resolve FCPA enforcement actions through the resolution vehicles
discussed in the next section. The common thread in these resolution
vehicles is the absence or practical absence of judicial scrutiny. Thus,
the untested and dubious legal theories leading to these resolution
vehicles are never questioned or examined in any meaningful way.
B. Prevalence of Resolution Vehicles Subject to Little or No Judicial Scrutiny
The resolution vehicles typically used to settle FCPA enforcement
actions include DOJ NPAs, DPAs and pleas, and SEC settled civil
complaints and consent decrees which allow a corporate defendant to
settle the charges without admitting or denying the allegations. In the
past two decades, no corporation has publicly challenged either enforcement agency in an FCPA case; thus these resolutions vehicles have been
the sole means by which corporate FCPA enforcement actions have
been resolved during the current facade era of FCPA enforcement.76
Each of these resolution vehicles is generally described below.
74. Id.
75. See OFFICE OF CHIEF COUNSEL, SEC, SEC ENFORCEMENT MANUAL 134 (2010).
76. See Gesture, supra note 68 (Not a single corporate defendant, big or small, has fought
Foreign Corrupt Practices Act charges in court for the past two decades.).
2010]
929
To assuage potential criticism of the thesis of this article, it must be

noted that not all FCPA enforcement takes place outside of the judicial
system. Although rare, jury trials of individual FCPA defendants have
occurred and there were three such trials in 2009. That year was the
most active trial period in the FCPAs history and an impulsive reaction
might be to suggest that this alone undermines the notion that FCPA
enforcement is a facade or that FCPA enforcement suffers from a lack
of judicial scrutiny. However, as explained more fully below, the results
in these trials were mixed and none involved the pillars discussed in
this article which contribute to the facade of FCPA enforcement.
William Jefferson
In June 2007, then Congressman William Jefferson was criminally
indicted on charges including substantive FCPA violations.77 As to the
FCPA charges, the indictment alleged that Jefferson violated the FCPA
by offering, promising and making payments to a foreign official to
advance the various business endeavors in which he and his family had
financial interests.78 According to the indictment, Jefferson was responsible for negotiating, offering, and delivering payments of bribes to
Nigerian Official A and Jeffersons infamous cash in the freezer was
allegedly intended as a bribe payment to the official.79 Unlike most
individual FCPA defendants, Jefferson challenged the DOJ and exercised his constitutional right to a jury trial. In August 2009, Jefferson
was found not guilty of substantive FCPA violations, yet convicted of a
variety of other charges including a general conspiracy count.80 The
nature of the conspiracy remains unclear. The indictment charged
conspiracy to solicit bribes, to commit honest services wire fraud and to
violate the FCPA. The jury was instructed that to convict on the
conspiracy charge it only needed to find Jefferson guilty on two out of
the three counts, and in announcing the jury verdict, the court did not
77. See Press Release, DOJ, Congressman William Jefferson Indicted On Bribery, Racketeering, Money Laundering, Obstruction of Justice, and Related Charges (June 4, 2007), available at
http://www.justice.gov/opa/pr/2007/June/07_crm_402.html.
78. Id.
79. Id.
80. See Press Release, DOJ, Former Congressman William J. Jefferson Convicted of Bribery,
Racketeering, Money Laundering and Other Related Charges (Aug. 5, 2009), available at
http://www.justice.gov/opa/pr/2009/August/09-crm-775.html.
930
[Vol. 41
specify which counts the jury agreed upon.81 Notwithstanding the

salient fact that Jefferson was found not guilty of substantive FCPA
charges or the ambiguous nature of the jurys conspiracy verdict, the
DOJ maintains that Jefferson was found guilty of FCPA violations.82
Gerald and Patricia Green
In January 2008, Los Angeles area film executives Gerald and Patricia
Green were criminally indicted on allegations of making corrupt
payments to a Thai government official in order to obtain lucrative
contracts to run an international film festival held annually in Bangkok
in violation of the FCPA.83 The official headed a government agency,
the Tourism Authority of Thailand, and the indictment is supported by
an FBI agent affidavit that describes, among other things, how the
agent witnessed Mr. Green meeting with the official while in Thailand.84 Despite a seemingly solid FCPA case based on the governments
allegations, the Greens challenged the DOJ and exercised their constitutional right to a jury trial. In September 2009, the Greens were found
guilty of, among other charges, substantive FCPA violations.85
Frederic Bourke
In October 2005, investor Frederic Bourke was criminally indicted in
what is arguably the most complex and convoluted case in the FCPAs
81. See Jonathan Tilove, William Jefferson Case Will Always be Remembered for Cash in the Freezer,
TIMES-PICAYUNE, Aug. 5, 2009, http://www.nola.com/news/index.ssf/2009/08/william_
jefferson_case_will_al_1.html .
82. For instance, in a November 2009 speech Assistant Attorney General Lanny Breuer
stated: In the past few months, we have the completed the trials of the Greens in California, of Mr.
Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these
cases, individuals were found guilty of FCPA violations and face jail time. Lanny A. Breuer,
Assistant Atty Gen., DOJ, Prepared Keynote Address to the 10th Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (Nov. 12, 2009), available at www.ehcca.
com/presentations/pharmacongress10/breuer_2.pdf.
83. See Press Release, DOJ, Film Executive and Spouse Indicted for Paying Bribes to a Thai
Tourism Official to Obtain Lucrative Film Festival Management Contracts (Jan. 17, 2008),
available at http://www.justice.gov/opa/pr/2008/January/08_crm_032.html.
84. See Press Release, DOJ, Film Executive and Spouse Arrested for Paying Bribes to a Thai
Tourism Official to Obtain Lucrative Film Festival Management Contracts (Dec. 19, 2007),
available at http://justice.gov/usao/cac/pressroom/pr2007/162.html.
85. See Press Release, DOJ, Film Executive and Spouse Found Guilty for Paying Bribes to Thai
Tourism Official to Obtain Lucrative Contracts (Sept. 14, 2009), available at http://justice.gov/
usao/cac/pressroom/pr2009/112.html.
2010]
931
history.86 According to the indictment, Bourke and others participated

in a massive scheme to bribe senior Azerbaijan government officials
to ensure that those officials would privatize the State Oil Company of
the Azerbaijan Republic and allow Bourke and others to share in the
anticipated profits arising from that privatization.87 The nearly decadelong investigation and legal case included dismissal of FCPA substantive charges on statute of limitations grounds, reinstatement of the
FCPA substantive charges, a superseding indictment which then
dropped the FCPA substantive charges, and a six-week jury trial on
charges that Bourke conspired with others to violate the FCPA. In July
2009, Bourke was found guilty by a federal jury of conspiracy to violate
the FCPA.88 In ruling on post-verdict motions, Judge Shira Scheindin
of the Southern District of New York rejected the governments aggressive interpretation of the FCPA knowledge element, yet still denied
Bourkes post-verdict motions.89 In seeming rejection of the DOJs
massive bribery scheme theory, Judge Scheindin sentenced Bourke
to 366 days in prison.90 In sentencing Bourke, Judge Scheindin stated,
After years of supervising this case, its still not entirely clear to me
whether Mr. Bourke is a victim or a crook or a little bit of both.91
These trials are indeed rare. The fact remains that every corporate
FCPA enforcement action over the last two decades has been resolved
through a DOJ NPA, DPA, plea (or combination thereof) or SEC
settlement, and nearly every individual FCPA enforcement action has
been resolved through a plea or SEC settlement. These resolution
vehicles and how they contribute to the facade of FCPA enforcement
86. See Andrew Longstreth, Azerbaijan Bribes Put One Mogul on Trial, Another in Exile, THE
AMERICAN LAWYER (Oct. 9, 2009), http://www.law.com/jsp/law/international/LawArticle
Intl.jsp?id1202434399273&Azerbaijan_Bribes_Put_One_Mogul_on_Trial_Another_in_Exile.
87. See Press Release, DOJ, U.S. Announces Charges in Massive Scheme to Bribe Senior
Government Officials in the Republic of Azerbaijan (Oct. 6, 2005), available at http://
www.justice.gov/usao/nys/pressreleases/October05/kozenyetalindictmentpr.pdf.
88. See Press Release, DOJ, Connecticut Investor Found Guilty in Massive Scheme to Bribe
Senior Government Officials in the Republic of Azerbaijan (July 10, 2009), available at http://
www.justice.gov/opa/pr/2009/July/09-crm-677.html.
89. See Kenneth Winer & Gregory Husisian, Recent Opinion Sheds Light on the Relevance of Due
Diligence to the FCPAs Knowledge Element, in 4 CORPORATE ACCOUNTABILITY REPORT, 1, 23 (2009)
available at http://www.foley.com/files/tbl_s31Publications/FileUpload137/6597/Corporate
Account2009.pdf (last visited Aug. 12, 2010).
90. See Press Release, DOJ, Connecticut Investor Frederic Bourke Sentenced to Prison for
Scheme to Bribe Government Officials in Azerbaijan (Nov. 11, 2009), available at http://www.
justice.gov/opa/pr/2009/November/09-crm-1217.html.
91. David Glovin, Bourke Gets One Year in Prison in Azerbaijan Bribery Case, BLOOMBERG (Nov. 11,
2009), http://www.bloomberg.com/apps/news?pid20601103&sida76j6PK3anAc.
932
[Vol. 41
are discussed next.

1.
NPAs and DPAs
The Principles of Prosecution state that: [i]n certain instances, it

may be appropriate . . . to resolve a corporate criminal case by means
other than indictment and that NPAs and DPAs occupy an important
middle ground between declining prosecution and obtaining the
conviction of a corporation.92 Per the Principles of Prosecution, NPAs
and DPAs are intended to be a third option for DOJ prosecutors
besides a criminal indictment, on the one hand, and a declination, on
the other.93 The Principles of Prosecution recognize that [d]eclining
prosecution may allow a corporate criminal to escape without consequences whereas [o]btaining a conviction may produce a result that
seriously harms innocent third parties who played no role in the
criminal conduct.94 Thus, the Principles of Prosecution authorize DOJ
prosecutors, under appropriate circumstances to use NPAs and DPAs
given that they can help restore the integrity of a companys operations and preserve the financial viability of a corporation that has
engaged in criminal conduct while still preserving the governments
ability to prosecute a recalcitrant corporation that materially breaches
the agreement.95
The DOJs use of NPAs and DPAs has exploded in recent years.
Professor Peter Henning, a former DOJ prosecutor and SEC enforcement official, recently noted that NPAs and DPAs have become almost
the accepted norm and there is even an expectation that companies
will receive them.96 The Government Accountability Office (GAO)
notes in a recent report that the DOJ has made more frequent use of
DPAs and NPAs in recent years and the report analyzes 152 NPAs and
DPAs that the DOJ negotiated with business entities through September 2009.97
While NPAs and DPAs are utilized in non-FCPA enforcement ac-
92. Principles of Federal Prosecution of Business Organizations, supra note 58, at 2.

93. Id. at 18.
94. Id.
95. Id.
96. See Henning on the White Collar Watch at the New York Times, 24 CORPORATE CRIME REPORTER 6
(Feb. 7, 2010), available at http://corporatecrimereporter.com/henning020710.htm. 12, 2010).
97. See U.S. GOVERNMENT ACCOUNTABILITY OFFICE, Corporate Crime: DOJ Has Taken Steps to Better
Track Its Use of Deferred and Non-Prosecution Agreements, But Should Evaluate Effectiveness,5, 13 (2009),
http://www.gao.gov/new.items/d10110.pdf (last visited Aug. 12, 2010) [hereinafter GAO-10110].
2010]
933
tions, the lions share of these agreements are used to resolve FCPA
enforcement actions.98 For instance, in 2008, seven of the sixteen NPAs
or DPAs were used to resolve FCPA enforcement actions.99 FCPA
enforcement actions in 2009 resolved through NPAs or DPAs included:
UTStarcom, Inc. and Helmerich & Payne, Inc.100 This contrasts
brightly with the fact that prior to December 2004, prosecutors appear
never to have resolved a corporate FCPA case through an agreement
such as an NPA or DPA.101
An NPA is not filed with a court, but instead is a privately negotiated
agreement between the DOJ and a business entity. These agreements
often take the form of letter agreements from the DOJ to the entitys
lawyer and generally include a brief often times bare-bones
statement of facts replete with legal conclusions that the entity acknowledges responsibility for, as well as a host of compliance undertakings
that the entity agrees to implement.102
A DPA, on the other hand, is filed with a court and thus has a look
and feel much like a pleading, although the factual allegations also are
often bare-bones and replete with legal conclusions. Like NPAs, DPAs
are also the result of privately negotiated agreements between the DOJ
and a business entity. In exchange for the DOJ agreeing to defer
prosecution of the entity (usually for a two to four-year period), the
entity acknowledges responsibility for the conduct described in the
allegations and agrees to a host of compliance undertakings it agrees to
implement.103 Other than what happens with the agreement (i.e.
whether it is filed with a court or not) there is very little difference
between an NPA and a DPA.104
98. Lawrence D. Finder et al., Betting the Corporation: Compliance or Defiance? Compliance
Programs in the Context of Deferred and Non-Prosecution Agreements - Corporate Pre-Trial Agreement Update 2008, in CORPORATE COUNSEL REVIEW, SOUTH TEXAS COLLEGE OF LAW, Vol. XXVIII, No. 1, May 2009,
at 9.
99. See id. at 1.
100. See Press Release, DOJ, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of
Foreign Bribery in China (Dec. 31, 2009), available at http://www.justice.gov/opa/pr/2009/
December/09-crm-1390.html; see also Press Release, DOJ, Helmerich & Payne Agrees to Pay $1
Million Penalty to Resolve Allegations of Foreign Bribery in South America (July 30, 2009),
available at http://www.justice.gov/opa/pr/2009/July/09-crm-741.html.
101. Peter Spivak & Sujit Raman, Regulating the New Regulators: Current Trends in Deferred
Prosecution Agreement, 45 AM. CRIM. L. REV. 159, 176 (2008).
102. See Prosecution Agreements, VIRGINIA LAW SCHOOL http://www.law.virginia.edu/html/
librarysite/garrett_bycompany.htm (last visited Aug. 24, 2010) (listing examples of various NPAs).
103. See id.
104. Lawrence D. Finder & Ryan D. McConnell, Devolution of Authority: The Department of
Justices Corporate Charging Policies, 51 ST. LOUIS U. L.J. 1, 17 (2006) (Our review of the published
934
[Vol. 41
Because an NPA is not filed with a court, there is absolutely no

judicial scrutiny of these agreements, including the statement of facts
and legal conclusions that serve as the foundation of the agreement. In
other words, there is no independent review of the statement of facts to
determine if evidence exists to support the essential elements of the
crime alleged or to determine whether valid and legitimate defenses
are relevant to the alleged conduct. In fact, credible evidence
suggests that NPAs or DPAs are offered to companies even before the
elements of a crime have been proven beyond a reasonable doubt.
Peter Spivak and Sujit Raman, lawyers in private practice at a major law
firm, report as follows:
We have heard from colleagues in the defense bar of prosecutors who, in their haste to compel the companys cooperation in
pursuit of individuals, have pressed the entity to enter into a
diversion agreement before any particulars guilt could definitively be established. In such cases, the company is essentially
forced to accept the filing of criminal charges (and all the
related consequences, including negative publicity); to waive a
host of its defenses; to admit to certain facts; to undertake costly
remedial measure; and perhaps even to pay serious criminal
penalties all before the elements of the claim(s) against it can
be proven beyond a reasonable doubt.105
Because a DPA is generally filed with a court, these agreementsat
least in theory could be subject to judicial scrutiny. However, the
GAO report found judicial scrutiny of DPAs to be essentially nonexistent as well. In a separate section of the report titled Judges
Reported Limited Involvement in the DPA Process, it is noted that the
Speedy Trial Act106 allows judges to approve the deferral of prosecution pursuant to a written agreement between the government and the
defendant, for the purpose of allowing the defendant to demonstrate
his good conduct; however, the law does not otherwise specify judicial
involvement in the DPA process.107 To assess what role the courts
have played in the DPA process, GAO obtained written responses to
structured interview questions from twelve of the fourteen judges who
pre-trial agreements reveals, however, that NPAs do not necessary reveal more favorable terms
than DPAs.).
105. Spivak & Raman, supra note 101, at 188 89.
106. See 18 U.S.C. 3161(h)(2) (2000).
107. See GAO-10-110, supra note 97, at 25.
2010]
935
had overseen DPAs in federal courts.108 Based on these responses,

GAO found that judges reported that they were generally not involved in the DPA process.109 Specifically, the GAO found that:
Nine of the 12 judges stated that they did not hold a hearing to
review the DPA or its terms, while the 3 remaining judges held
hearings. One of these judges did so in the context of a plea
hearing. Another judge held a hearing to arraign the company;
at which time, the company and DOJ informed the judge that
they intended to enter into a DPA. The judge then had a
second hearing to approve the DPA. The third judge conducted a hearing to arraign the company and verify that the
companys decision to enter into the DPA was informed and
voluntary. Ten of the 12 judges reported that they relayed their
decision approving the DPA through a written order. One
judge relayed the decisions orally at a hearing, and one judge
did both.110
Thus, while DPAs could, in theory, be subject to judicial scrutiny, the
first-of-its-kind GAO report found that judges routinely rubber-stamp
DPAs without inquiring into whether factual evidence exists to support
the essential elements of the crime alleged or to determine whether
valid and legitimate defenses are relevant to the alleged conduct. In
fact, no court has ever rejected an NPA or DPA and all have been
approved without judicial modification.111
The GAOs findings are consistent with the observations of several
practitioners and scholars who have experience with NPAs and DPAs.112
108. Id. at 8.
109. Id. at 25.
110. Id. at 2528.
111. Brandon L. Garrett, Structural Reform Prosecution, 93 VA. L. REV. 853, 893 (2007).
112. See Candace Zierdt & Ellen S. Podgor, Corporate Deferred Prosecutions Through the Looking
Glass of Contract Policing, 96 KY. L.J. 1, 14 (2007) (Deferred and non-prosecution agreements often
occur without judicial oversight or participation. This is because the agreement may be reached
prior to an indictment, and thus no court case will have been filed, or because the government
may reach a settlement with a company that is entered into outside of the criminal justice system.
Even in the rare case that has court participation, it is usually a mere formality of the document
being filed in the court. It may be presented to the court to satisfy the statutory provision that
exempts the deferral of criminal matters from the speedy trial constraints.). See also Joan McPhee,
Deferred Prosecution Agreements: Ray of Hope or Guilty Plea By Another Name, INSIDE LITIG., 4Winter
2006, available at http://www.ropesgray.com/files/Publication/a6d348fd-f6fd-4f4a-b38bbd6de98836b7/Presentation/PublicationAttachment/4d1fdc14-3bcf-463a-b2b0-76204fc7f316/
936
[Vol. 41
Given the lack of judicial scrutiny of NPAs and DPAs, some question
whether these agreements are even agreements at all. David Pitofsky,
a former DOJ prosecutor and Principal Deputy Chief of the Criminal
Division of the United States Attorneys Office for the Eastern District
of New York,113 notes:
One of the problems with the process of negotiating a deferred
prosecution agreement is that it is not really a negotiation. Any
push back by the company on a provision that the government
requests is not only going to be shot down, but the government
may see it as a reflection that the companys claimed contrition
is not genuine. So, you dont even want to make the argument
for fear that it will cause the government to look at you
differently and decide that a deferral isnt appropriate.114
Professors Candace Zierdt and Ellen Podgor note:
These agreements are made under duress. There is a threat of
government indictment and resulting destruction of the entire
business that induces the manifestation of assent to the deferred prosecution agreement. But for the threat of possible
prosecution by the government and its resulting consequences,
these terms would not normally be agreed to by the corporation . . . . In addition to the elements of classic duress, these
provisions should be removed because they are agreed to under
economic duress. The economic reality is that if the corporation refuses to assent to the deferred prosecution agreement,
the result will likely be the death of the corporation or alterna-
Article_Winter_2006_Deferred_Prosecution_Agreements_McPhee.pdf (last visited Aug. 24, 2010)

(Given the breadth of the corporate criminal liability doctrine and the potentially devastating
consequences of a criminal conviction or even indictment, it is the rare corporation today that has
a meaningful right to a jury trial in the resolution of its corporate criminal disputes with the
government. While a criminal plea necessarily entails relinquishment of the right to a jury trial,
DPAs are even further removed from the salutary environment of the public courtroom.
Negotiated as they typically are in a conference room between a federal prosecutor and corporate
counsel, DPAs are entered into by and large without benefit of any judicial oversight or other
mechanism for ensuring prosecutorial accountability.).
113. See David B. Pitofsky Biography, GOODWIN PROCTER, http://www.goodwinprocter.com/
People/P/Pitofsky-David.aspx (last visited Aug. 24, 2010).
114. CORPORATE CRIME REPORTER, Interview with David Pitofsky, 19 CORP. CRIME REP. 46 (8)
(Nov. 28, 2005), available at http://www.corporatecrimereporter.com/pitofskyinterview
010806.htm.
2010]
937
tively, severe financial consequences that will gravely injure the

corporation. These consequences may result from an indictment even if the corporation is later declared innocent.115
Even though the Principles of Prosecution specifically note that NPAs
and DPAs are intended to be a third option between criminal
indictment and declination, many observers believe that NPAs and
DPAs have taken the place of declinations altogether.116 Professor
Henning asks:
I wonder is this the best thing? I dont think it has been
thought through on any real level. It has just become not the
flavor of the month but this is the way we can resolve these
cases and not be too heavily criticized one way or the other.
That sometimes is what ends up happening in the government.
If you can find a way to do something that doesnt draw too
much fire, then that becomes the accepted method of operation.117
Because neither NPAs nor DPAs are subject to any meaningful judicial
scrutiny, many also believe that use of these agreements give a prosecutor unchecked power subject to abuse.118
NPAs and DPAs may indeed be a useful tool for avoiding another
Arthur Anderson situation (i.e., a company that died upon criminal
conviction notwithstanding the fact that the U.S. Supreme Court later
reversed its conviction119). However, these agreements seem to have
115. See Zierdt & Podgor, supra note 112, at 38 40.

116. See, e.g., Benjamin M. Greenblum, What Happens to a Prosecution Deferred? Judicial Oversight
of Corporate Deferred Prosecution Agreements, 105 COLUM. L. REV. 1896, 1903 (2005) (noting that
deferral has replaced declination in the corporate context).
117. CORPORATE CRIME REPORTER, Henning on the White Collar Watch at the New York Times, 24
CORP. CRIME REP. 6 (Feb. 7, 2010), available at http://corporatecrimereporter.com/
henning020710.htm.
118. See, e.g., Greenblum, supra note 116, at 1898. See also Erik Paulsen, Imposing Limits on
Prosecutorial Discretion in Corporate Prosecution Agreements, 82 N.Y.U. L. REV. 1434, 1436, 1457, 1459
(2007) (It has become increasingly clear that the government holds all the cards in negotiations
over these agreements. As long as the threat of prosecution lingers over a company, the
corporation is compelled to agree to the prosecutors terms, vesting nearly absolute power in the
governments hands . . . . Without the threat of trial, however, there is no assurance that the
prosecutor is acting in a judicious manner.).
119. Ellen S. Podgor, White Collar Innocence: Irrelevant in the High Stakes Risk Game, 85 CHI.-KENT
L. REV. 77, 79 (2010).
938
[Vol. 41
traded one negative externality of white-collar criminal prosecution for

a host of others, including the alarming lack of any meaningful judicial
scrutiny to ensure that NPAs and DPAs are truly based on facts and
appropriate legal theories to support the charges alleged.
Given the prevalence of NPAs and DPAs in the FCPA context,
coupled with the general lack of substantive FCPA case law (an issue
discussed in more detail in Section IV of this article), the effect of these
non-judicial resolution vehicles is more pronounced in FCPA enforcement than any other area of law.
2.
Pleas
The Principles of Prosecution state that [p]rosecutors may enter

into plea agreements with corporations for the same reasons and under
the same constraints as apply to plea agreements with natural persons.120 In negotiating plea agreements with corporations, as with
individuals, prosecutors should generally seek a plea to the most
serious, readily provable offense charged.121
Even though corporate pleas are technically subject to judicial
scrutiny, this too is an area of criminal prosecution in which judges
generally do not employ a high degree of scrutiny. Rather, judges
commonly rubber-stamp the plea deal negotiated by the DOJ and a
business entity.122 In plea negotiations parties can seek to achieve
their respective objectives through a process of give-and-take that may
affect the language of the agreements, the nature and amount of the
penalties imposed, and the charges to which a company will agree to
plead guilty or otherwise accept responsibility.123 Our existing legal
system places the risk of going to trial, and in some cases even being
charged with a crime so high, that innocence and guilt no longer
become the real considerations; rather, maneuvering the system to
receive the least onerous consequences may ensure the best result for
the accused party, regardless of innocence.124
If the DOJ offers a company a plea deal outside the context of an
120. See Principles of Federal Prosecution of Business Organizations, supra note 58.
121. Id. at 19 20.
122. See e.g., Press Release, DOJ, Latin Node Inc., Pleads Guilty to Foreign Corrupt Practices Act
Violation and Agrees to Pay $2 Million Criminal Fine (Apr. 7, 2009), available at http://www.justice.gov/
opa/pr/2009/April/09-crm-318.html.
123. MILLER CHEVALIER, BAE Settles Protracted, Controversial Bribery Case with U.S. and U.K.
Authorities, http://www.millerchevalier.com/Publications/MillerChevalierPublications?find26504
(last visited Aug. 24, 2010).
124. Podgor, supra note 119, at 78 79.
2010]
939
NPA or DPA, there are obvious incentives for the company to accept
the dealno matter how untested or dubious the DOJs legal theory
may be and notwithstanding the fact that the company may have valid
and legitimate defenses to the alleged conduct. Again, the Sentencing
Guidelines are relevant because, by accepting a plea, the company will
have clearly demonstrated recognition and affirmative acceptance of
responsibility for its criminal conduct.125 In other words, challenging
the DOJ and putting it to its burden to establish factual evidence that
supports the FCPAs legal elements in an adversarial proceeding is not
affirmative acceptance of responsibility and will result in more severe
treatment should a company be convicted. A company that rejects a
DOJ plea and tests its innocence claim, while courageous, would be
foolish against the backdrop described above.
Plea dynamics are not just present in corporate criminal enforcement actions, but individual enforcement actions as well. For individuals, testing an innocence claim is even more risky because an individual, unlike a company, can be put in jail. Thus, given the prospect of
perhaps missing out on a son or daughters childhood, or at least
growing old in jail, many white collar individual defendants choose the
lesser of two evils, accept a plea, and play a game in which innocence
and guilt no longer become the real considerations.126
Case in point is the near tragedy of Dr. Henry Samueli, the cofounder and former chief technical officer of Broadcom, who pleaded
guilty to making false statements in testimony before the SEC relating
to its investigation of the alleged stock-options backdating at Broadcom.127 Under a grant of immunity, Samueli testified as a government
witness at the trial of another Broadcom executive, and after hearing
Samueli testify, Judge Cormac Carney (Central District of California)
took the highly unusual step of vacating Samuelis prior guilty plea and
dismissing the criminal charges against him.128 According to media
reports, Judge Carney concluded that even though Samuelis answers
to the SEC may have been ambiguous, evasive and arguably nonrespon-
125. See U.S. SENTENCING GUIDELINES MANUAL 8C2.5(g) (2009).

126. Podgor, supra note 119, at 78.
127. See Press Release, DOJ, Broadcom Co-Founder Pleads Guilty to Making False Statement
to the SEC in Backdating Investigation (June 23, 2008), available at http://losangeles.fbi.gov/
dojpressrel/pressrel08/la062308busa.htm.
128. See Stuart Pfeifer, Testimony ends in trial of Broadcom ex-CFO; William Ruehle had pleaded not guilty
to 14 criminal counts in the stock-options backdating case., L.A. TIMES, Dec. 11, 2009, at B2; Broadcom
Co-Founder Cleared in Backdating Probe, N.Y. TIMES DEALBOOK BLOG, Dec. 10, 2009, http://
dealbook.blogs.nytimes.com/2009/12/10/broadcom-co-founder-cleared-in-backdating-probe.
940
[Vol. 41
sive they were not materially falsethe legal basis for his criminal
charge and guilty plea.129 A few days later, Judge Carney noted:
There was no evidence at trial to suggest that Dr. Samueli did
anything wrong, let alone criminal. Yet, the government embarked on a campaign of intimidation and other misconduct to
embarrass him and bring him down including crafting an
unconscionable plea agreement pursuant to which Dr. Samueli
would plead guilty to a crime he did not commit and pay a
ridiculous sum of $12 million to the United States Treasury.130
In pleading guilty, Samueli did what a disturbing number of other
people have done: pleaded guilty to a crime they didnt commit or at
least believed they didnt commit for fear of exercising their constitutional right to a jury trial, losing, and getting stuck with a long prison
sentence.131
Criminal pleas are common in the FCPA context. Corporate pleas in
2009 include: Control Components, Inc.,132 Latin Node, Inc.,133 and
Kellogg Brown & Root LLC.134 Recent individual pleas include: John
Warwick and Charles Paul Edward Jumet,135 Paul Novak,136 and Leo
Winston Smith.137 The motivations of these corporations and individu-
129. Id.; see also John Emshwiller and Nathan Koppel, Plea Bargain Get Renewed Scrutiny, WALL
STREET JOURNAL, Dec. 19, 2009, at A4.
130. Reporters Transcript of Proceedings at 5197-98, U.S. v. Nicholas, No. 8:08-CR-00139
(D.C.D. Cal. Dec. 15, 2009), available at http://www.dandodiary.com/2009/12/articles/optionsbackdating/mr-ruehle-you-are-a-free-man-judge-carneys-dramatic-dismissal-of-the-broadcombackdating-criminal-case/ (last visited Aug. 12, 2010) [hereinafter Ruehle Transcript].
131. See Emshwiller and Koppel, supra note 129.
132. See Press Release, DOJ, supra note 122.
133. See Press Release, DOJ, Latin Node Inc., Pleads Guilty to Foreign Corrupt Practices Act
Violation and Agrees to Pay $2 Million Criminal Fine (Apr. 7, 2009), available at http://
www.justice.gov/opa/pr/2009/April/09-crm-318.html.
134. See Press Release, DOJ, Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery
Charges and Agrees to Pay $402 Million Criminal Fine (Feb. 11, 2009), available at http://
www.justice.gov/opa/pr/2009/February/09-crm-112.html.
135. See Press Release, DOJ, Virginia Resident Pleads Guilty to Bribing Former Panamanian
Government Officials in Connection with Maritime Contract (Feb. 10, 2010), available at http://
www.justice.gov/opa/pr/2010/February/10-ag-134.html.
136. See Press Release, DOJ, Former Willbros International Consultant Pleads Guilty to $6
Million Foreign Bribery Scheme (Nov. 12, 2009), available at http://www.justice.gov/opa/pr/2009/
November/09-crm-1220.html.
137. See Press Release, DOJ, Former Pacific Consolidated Industries LP Executive Pleads
Guilty in Connection with Bribes Paid to U.K. Ministry of Defense Official (Sept. 3, 2009), available
at http://www.justice.gov/opa/pr/2009/September/09-crm-928.html.
2010]
941
als to agree to these pleas and the answer to the question of whether the
conduct at issue actually violated the FCPA will likely never be publicly
known.
Individual FCPA defendants face a particularly difficult decision in
deciding to accept a criminal plea or exercise their constitutional right
to a jury trial. Because all corporate FCPA enforcement actions have
been resolved through NPAs, DPAs, or pleas, and given that a common
feature of these agreements is the company accepting and acknowledging responsibility for the improper conduct of its employees, these
agreements put individual FCPA defendants in an almost impossible
situation. Thus, it is no surprise that the four individuals in 2009 who
exercised their constitutional right to a jury trial and thus challenged
the DOJ in an FCPA case did so in situations where there was no
parallel NPA, DPA, or plea with a corporate entity.
Given the carrots and sticks the DOJ possesses, NPAs, DPAs, and
pleas are typically used to resolve FCPA enforcement actions, and the
effect of these resolution vehicles not being subject to any meaningful
judicial scrutiny is more pronounced in the FCPA enforcement than
any other area of law.
The typical method of resolving an SEC FCPA enforcement action
also has an equally troubling feature in that corporate and individual
defendants are able to resolve the enforcement action without admitting or denying the SECs allegations. This central feature of an SEC
FCPA enforcement action also contributes to the facade of FCPA
enforcement and is described more fully below.
3.
SEC Settlements
If the SEC concludes that a securities law has been violated, the
Commission may bring an action in federal court or in an administrative proceeding against the purported violators.138 Federal court
actions are generally perceived as more severe than administrative
proceedings and thus the decision of whether to file an administrative proceeding or a federal district court action is often a point of
negotiation between the SEC and a company.139 As acknowledged by
the SEC in a recent high-profile case, when filing a federal court action,
the burden is on the SEC to establish a prima facie case of a legal
138. See Paul S. Atkins & Bradley J. Bondi, Evaluating the Mission: A Critical Review of the History
and Evolution of the SEC Enforcement Program, 13 FORDHAM J. CORP. & FIN. L. 367, 372 (2008).
139. Kevin J. Harnishch & Natasha Colton, When the SEC Comes Knocking, 15 ABA Sec. Bus. L.
1 (2005), available at http://www.abanet.org/buslaw/blt/2005-09-10/colton.shtml.
942
[Vol. 41
violation before charging any party and the SEC must allege facts
supporting the legal charge that, at a minimum, are sufficient to survive
a motion to dismiss.140
The SEC is empowered to seek a variety of sanctions in an enforcement action such as monetary penalties, disgorgement of ill-gotten
gains, an injunction, or a cease and desist order prohibiting current
and future violations of the securities law provision at issue.141 The
SEC is not required to go to federal court to get an order preventing
future violations of the federal securities laws, although in more serious
cases, resorting to the court packs more punch because a contempt act
can be pursued for any future violation.142
If the SEC seeks civil monetary penalties, an action must be filed in
federal court.143 As explained by Atkins and Bondi, both former SEC
officials, Congress took comfort in the fact that federal judges would
operate as an independent check to the Commissions decision to seek
an issuer penalty and the amount sought to be recovered.144 In
practice, however, this independent check is largely absent from SEC
enforcement actions because those pursued by the SEC seldom choose
to litigate with the SEC, and settled injunctive actions rarely receive any
judicial scrutiny.145 The SEC is not shy in extolling the virtues of
settlement. The Commission recently stated:
Settlements are an important tool for the Commissions enforcement program and enable the Commission to leverage and
efficiently maximize the impact of its limited resources. During
the last three years, for example, at least 75 percent of the
Commissions enforcement actions were concluded with some
form of settlement at the time they were filed.146
140. Reply Memorandum of Plaintiff Securities and Exchange Commission in Support of

Entry of the Proposed Consent, SEC v. Bank of America Corp., No. 09 Civ. 6829 (S.D.N.Y. Feb. 4,
2010), available at http://amlawdaily.typepad.com/SEC%20Brief%209-9-09%5B3%5D.pdf (last
visited Aug. 24, 2010).
141. Id.
142. Peter Henning, Whats Next for S.E.C. and Bank of America NEW YORK TIMES DEALBOOK
BLOG (Sept. 21, 2009, 10:00 EST), http://dealbook.blogs.nytimes.com/2009/09/21/the-sec-andbofa-whats-next/.
143. See Atkins & Bondi, supra note 138, at 372.
144. Id. at 393.
145. Id. at 394.
146. SEC, Strategic Plan for Fiscal Years 2010 2015; Draft for Comment at pg. 9, available at
http://www.sec.gov/about/secstratplan1015.pdf (last visited Aug. 24, 2010).
2010]
943
In virtually every case, the SEC is prepared to negotiate some form

of both its charges and the relief it will seek and many of the
concessions the SEC is willing to offer a prospective defendant in
exchange for settling the proposed action . . . are more a matter of
perception than reality.147 Given the frequency in which SEC enforcement actions are settled, one unfortunate result is the lack of court
opinions clearly establishing the reasons for the result in a particular
case.148
A unique feature of the SEC settlement process is that defendants are
allowed to settle an enforcement action without admitting or denying
the SECs allegations. This policy149 was adopted in 1972 and states:
The Commission has adopted the policy that in any civil lawsuit
brought by it or in any administrative proceeding of an accusatory nature pending before it, it is important to avoid creating,
or permitting to be created, an impression that a decree is
being entered or a sanction imposed, when the conduct alleged
did not, in fact, occur. Accordingly, it hereby announces its
policy not to permit a defendant or respondent to consent to a
judgment or order that imposes a sanction while denying the
allegations in the complaint or order for proceedings. In this
regard, the Commission believes that a refusal to admit the
allegations is equivalent to a denial, unless the defendant or
respondent states that he neither admits nor denies the allegations.150
This policy remains in effect today151 and there has been surprisingly
little judicial or scholarly analysis of this central feature of SEC enforcement actions even though it can lead to absurd results.152
147. Id.
148. SEC v. Clifton, 700 F.2d 744, 748 (D.D.C. 1983).
149. Consent Decrees in Judicial or Administrative Proceedings, Securities Act Rel. No.
33-5337. (Nov. 28, 1972).
150. Id.
151. 17 C.F.R. 202.5(e) (2010).
152. See Richard J. Morvillo et al., To Neither Admit Nor Deny: SEC Litigation Position Reiterates
Need to Examine Standard Provisions in SEC Settlements, CROWELL & MORING (April 2001), http://
www.crowell.com/pdf/Consents.pdf (describing a case in which the authors participated, in
which a former Chief Financial Officer of a publicly-held company consented (without admitting
or denying the SECs allegations) to entry of final judgment of permanent injunction barring
violation of the securities laws and then in a separate proceeding, when called as a witness, the
CFO testified that the reasons he settled with the SEC was that he lacked the financial
944
[Vol. 41
It is against this backdrop that the SEC enforces the FCPA. Consistent with the above framework, the SEC has the option of pursuing an
FCPA case either as a civil injunction action in federal court or as a
cease and desist proceeding in front of an administrative law judge.153
As Paul Gerlach and George Parizek, both former SEC enforcement
officials note:
The serious nature of an illicit payments violation and the fact that
fines against issuers and their employees are only available in a
federal court action suggests that most, if not all, of the SECs illicit
payments cases are likely to be filed in federal court.154
While filed in federal court, it is common SEC practice, including in
the FCPA context, merely for the settled civil complaint to be filed and
for a resolution to be announced on the same day of the filing.155
Recent FCPA enforcement actions resolved through a settled SEC
complaint and related SEC consent decree prohibiting future violations include: UTStarcom, Inc.156 and Natures Sunshine Products,
Inc.157 Recent FCPA enforcement actions resolved through the less
severe SEC administrative route, in which the SEC issues a cease and
desist order, include: Helmerich & Payne, Inc.158 and United Industrial
Corp.159 Common features of both SEC resolution vehicles are little or
no judicial scrutiny and the defendant being able to settle the FCPA
matter without admitting or denying the SECs allegations. Thus SEC
wherewithal and the stamina to fight the SEC and decided to settle because he was not required to
admit the allegations).
153. Paul Gerlach & George Parizek, The SECs Enforcement of the Foreign Corrupt
Practices Act (unpublished manuscript) (on file with author).
154. Id.
155. See, e.g., SEC Files Settled Civil Action Charging NATCO Group Inc. with Violations of
the Foreign Corrupt Practices Act, Litigation Release No. 21374 (Jan. 11, 2010), available at
http://www.sec.gov/litigation/litreleases/2010/lr21374.htm.
156. See SEC Charges California Telecom Company With Bribery and Other FCPA Violations, Litigation Release No. 21357 (Dec. 31, 2009), available at http://www.sec.gov/litigation/
litreleases/2009/lr21357.htm.
157. See SEC Charges Natures Sunshine Products, Inc. with Making Illegal Foreign Payments, Litigation Release No. 21162 (July 31, 2009), available at http://www.sec.gov/litigation/
158. See, In the Matter of Helmerich & Payne, Inc., Exchange Act Release No. 60400, 2009
WL 2341649 (July 30, 2009), available at http://www.sec.gov/litigation/admin/2009/3460400.pdf.
159. See In the Matter of United Industrial Corp., Exchange Act Release No. 60005, 2009 WL
1507586 (May 29, 2009), available at http://www.sec.gov/litigation/admin/2009/34-60005.pdf .
2010]
945
FCPA enforcement actions also contribute to the facade of FCPA

enforcement.
The net effect of the DOJ and SEC resolution vehicles typically used
to settle FCPA enforcement actions is that, in many cases, the corporate
or individual defendant is nudged to accept a resolution vehicle
notwithstanding the enforcement agencies untested or dubious legal
theories, ambiguous facts, or the existence of valid and legitimate
defenses.
The next section explores how both parties in a government enforcement action are largely motivated by issues other than facts or the law
in resolving a matter. Thus, FCPA enforcement actions resolved through
any of the above-described resolution vehicles do not necessarily reflect
the triumph of one partys legal position over the other or necessarily
lead to the conclusion that the conduct at issue violated the FCPA.
C.
FCPA Resolution Vehicles Do Not Necessarily Reflect a Superior Legal

Position
This section provides a rare public glimpse into the motivations of

settling parties in a government enforcement action. Because no
corporate litigant has recently challenged the government in an FCPA
enforcement action, this glimpse, unfortunately, is not of an FCPA
enforcement action. Yet, this glimpse provides valuable insight relevant
to all government enforcement actions, including FCPA enforcement
actions.
This section highlights that government enforcement agencies, when
challenged, are vulnerable in contested actions in the hope that more
FCPA defendants will challenge the many untested and dubious legal
theories common in FCPA enforcement. Indeed, if anything, the FCPA
trials in 2009 and the Kay decision demonstrate that the DOJ is not
infallible when enforcing the FCPA, that its aggressive interpretations
of the statute will not be accepted when challenged, and that even
judges remain uncertain as to the dividing line between aggressive
business conduct and conduct that violates the FCPA.
1.
Lessons from SEC v. BofA
In Fall 2009, a rare event occurred as a federal district court judge

used the legal tools at his disposal to scrutinize a settled SEC enforce-
946
[Vol. 41
ment action.160 Although not an FCPA case, the scrutiny of Judge Jed
Rakoff of the Southern District of New York with regard to a negotiated
settlement between the SEC and Bank of America (BofA) provides
valuable insight into the same SEC enforcement procedures used in
FCPA enforcement actions. The case also provides a rare public
glimpse into what is often not aired in publicthe motivations of
settling parties in a government enforcement action, including the
motivations of a corporate litigant to settle a dispute with a primary
regulator for reasons of ease and efficiencynot necessarily because of
the legal viability of the SECs claims. Thus, while outside the FCPA
context, an extended discussion of SEC v. BofA is warranted and
instructive.
In August 2009, the SEC filed a civil suit against BofA charging it with
securities law violations based on allegations that it mislead investors
about billions of dollars in bonuses paid to Merrill Lynch executives at
the time of BofAs $50 billion acquisition of Merrill Lynch.161 As is
customary SEC practice, the charges were filed with a court on the
same day the SEC and BofA settled the charges.162 As is also customary
SEC practice, BofA agreed to resolve the SEC charges without admitting or denying the allegations in the complaint. BofA consented to
the entry of a final judgment, which (i) permanently enjoined it from
violating the specific proxy solicitation rules at issue, and (ii) ordered it
to pay a $33 million civil penalty.163 Wow, that was quick, noted the
Wall Street Journal, as media headlines quickly switched from the
SECs complaint against BofA to BofA agreeing to pay a $33 million
fine to scratch the suit from its to-do list.164
Ordinarily, settlement of a civil lawsuit is subject to little, if any,
judicial scrutiny. However, courts are empowered to scrutinize consent
judgments, such as the one at issue in the BofA case, because a consent
judgment seeks to prospectively invoke a courts contempt power by
having a court impose injunctive prohibitions on the defendant.165
160. SEC v. Bank of America Corp., 653 F. Supp. 2d 507 (S.D.N.Y. 2009) (mem. order). Cf.
SEC, Litigation Release No. 21164 (Aug. 3, 2009), available at http://www.sec.gov/litigation/
161. See Litigation Release No. 21164, supra note 160.
162. See id.
163. Id.
164. Ashby Jones, Over Before It Starts: SEC, BofA Settle Suit Over Merrill Bonuses, WALL ST. J. L.
BLOG, Aug. 3, 2009, http://blogs.wsj.com/law/2009/08/03/over-before-it-starts-sec-bofa-settle-suitover-merrill-bonuses/.
165. See, e.g., SEC v. Randolph, 736 F.2d 525, 529 (9th Cir. 1984); SEC v. Wang, 944 F.2d 80,
85 (2d Cir. 1991).
2010]
947
Such consent judgments are also often at issue in SEC FCPA enforcement actions.166
Enter Judge Rakoff, a former prosecutor, who was unwilling to
accept the pre-packaged settlement negotiated between the SEC and
BofA. He quickly ordered the parties to appear before him to better
explain the factual evidence leading to the proposed settlement. In his
written order, Judge Rakoff noted, [d]espite the public importance of
this case, the proposed Consent Judgment would leave uncertain the
truth of the very serious allegations made in the Complaint.167 Judge
Rakoffs order was unusual given the extent to which federal judges
routinely rubber stamp such consent decrees and his order set the
stage for a high-profile test of SEC enforcement policies and procedures.168
During the hearing, Judge Rakoff expressed continued misgivings
about the proposed settlement and sought more information about,
among other things, the basis for the settlement itself and whether an
evidentiary hearing should be held to weigh the facts of the case.169
Judge Rakoff also chastised the SEC for filing a rather uninformative,
bare-bones complaint; lamented that the settlement seemed to be
lacking, for lack of a better word, transparency; and ordered the
parties to submit additional briefing.170 The SEC and BofA thus
proceeded down the seldom-traveled path of publicly explaining and
defending the reasons for a negotiated settlement in a government
enforcement action. This is a path that has never been traveled in an
FCPA enforcement action.
In its brief, the SEC argued that the proposed settlement [was] fair,
166. See, e.g., SEC, Litigation Release No. 21357 (Dec. 31, 2009), available at http://
www.sec.gov/litigation/litreleases/2009/lr21357.htm (UTStarcom agreed, without admitting or
denying the charges, to the entry of a permanent injunction against FCPA violations . . . .).
167. Order at 1-2, SEC v. Bank of America Corp., 09 Civ. 6829 (S.D.N.Y. Aug. 5, 2009). See
also, e.g., Jess Bravin, Judge Calls Hearing in SEC Case Against BofA, WALL ST. J., August 6, 2009; Ashby
Jones, Rakoff on BofA, SEC Settlement: Not So Fast, Fellas, WALL ST. J., Aug. 6, 2009.
168. See Michael Corkery & Susanne Craig, Judge Forces SEC to Defend Its Tougher Tack, WALL ST.
J., Aug. 7, 2009, at C3; Ashby Jones, Rakoff on BofA/SEC Kerfuffle: Everything Needs to Be Public, WALL
ST. J. L. BLOG, Aug. 24, 2009, http://blogs.wsj.com/law/2009/08/24/rakoff-on-bofasec-kerfuffleeverything-needs-to-be-public/; Zachary A. Goldfarb, SECs About-Face on Bank of America Raises
Eyebrows, WASH. POST, Aug. 28, 2009 at A18 (noting that [i]t is unusual for judges to intervene as
Rakoff has done in the Bank of America case).
169. Chad Bray, BofA Judge Seeks More Data on SEC Bonus Deal, WALL ST. J., Aug. 11, 2009, at C1.
170. Id.; see also Louise Story, Judge Attacks Merrill Pre-Merger Bonuses, N.Y. TIMES, Aug. 11, 2009,
at B1; A Ghost or a Human Being?: Rakoff Hands it to BofA, the SEC, WALL ST. J., Aug. 11, 2009,
http://blogs.wsj.com/law/2009/08/11/a-ghost-or-a-human-being-rakoff-hands-it-to-bofa-the-sec/
tab/article/.
948
[Vol. 41
reasonable, adequate and squarely in the public interest.171 The SEC

maintained that the proposed resolution was the result of an armslength negotiation between itself and BofA and that the level of
evidentiary detail in the Complaint . . . and the parties differing views
on liability, do not furnish a basis for overriding the negotiated
disposition or the Commissions assessment of the public interest.172
The SEC admitted that its complaint was concise, but noted that the
violation at issue was straightforward and that an evidentiary hearing
was unnecessary because such a hearing would undercut the principle purpose of entering into a settlement, i.e., to avoid the costs and
risk of litigation in favor of a negotiated disposition.173 In concluding
the introductory section of its brief, the SEC stated:
The Commission has a solid proxy violation claimindeed,
one that is potentially susceptible of summary judgment but
the proffered defenses, while unavailing, are not facially frivolous. There is litigation risk on both sides, and that is why [sic]
the parties choose to settle rather than litigate, and why the
terms of a reasonable settlement do not necessarily reflect the
triumph of one partys position over the other.174
In its brief, BofA urged the court to accept the negotiated settlement,
including the $33 million civil penalty. BofA noted, in no uncertain
terms, that the proposed settlement should be approved and that the
proposed settlement represented a constructive conclusion to the
matter.175 Yet, at the same time and in the same document, BofA went
to great lengths to describe how, if the case were to be litigated in a
transparent, adversary proceeding, BofA would have powerful and
successful defenses to the SECs charges.176 Notwithstanding its repeated assertions that it had powerful and successful defenses to the
SECs charges, BofA also repeatedly explained that it opted to reach a
settlement with the SEC, so that [BofA] would not face the unnecessary
distraction of a protracted dispute with one of its principal regula-
171. Memorandum of Plaintiff Securities and Exchange Commission in Support of Entry of

the Proposed Consent at 2, SEC v. Bank of America Corp., No. 09 Civ. 6829 (S.D.N.Y. Feb. 4,
2010).
172. Id. at 3.
173. Id. at 4 5.
174. Id. at 6.
175. Id. at 1, 2.
176. Id. at 1.
2010]
949
tors. . . .177
BofAs brief was chiefly supported by the Affidavit of Joseph A.
Grundfest, a Stanford Law School professor and former SEC Commissioner with substantial experience in reviewing and approving hundreds of settled administrative and injunctive enforcement proceedings while on the Commission.178 The picture Professor Grundfest
paints of the SEC enforcement process is not pretty if one considers
transparency and credibility a fine art.179 Professor Grundfest explains
in detail the mechanics of the SEC enforcement process and how it is
common practice in settled proceedings for the Commission to file
complaints that cast defendants actions in a harsh light and then to
prohibit defendants from challenging the Commissions rendition of
facts and law as articulated in the complaint.180 Professor Grundfest
further stated that SEC complaints: typically omit mention of valid
defenses and of countervailing facts or mitigating circumstances that, if
proven at trial, could cause the Commission to: (i) lose its case . . . ; (ii)
prevail on grounds narrower than those alleged; or (iii) obtain relief
177. Id. at 23, 19 20, 26, 28, 31.

178. Affidavit of Joseph A. Grundfest at 1-2, SEC v. Bank of America Corp., 09-CV-6829
(S.D.N.Y. Aug. 21, 2009) [hereinafter Grundfest Affidavit].
179. Professor Grundfest certainly is not the only former SEC official to openly criticize the
SEC enforcement process. Danne Johnson is a former Branch Chief, Senior Counsel, and Staff
Attorney for the SEC Division of Enforcement and a current Assistant Professor of Law at
Oklahoma City University School of Law. See OCU Law - Faculty - Danne L. Johnson, http://
law.okcu.edu/index.php/faculty-staff/full-time-faculty/johnson-danne-l/ (last visited Aug. 24,
2010). Professor Johnson argues that SEC settlements should be scrutinized more closely to
examine whether such settlements are supported by public policy. See Danne L. Johnson, SEC
Settlement: Agency Self-Interest or Public Interest, 12 FORDHAM J. CORP. & FIN. L. 627, 632 (2007).
Professor Johnson also paints a harsh picture of the SEC enforcement process. Among other
things, she notes: In any civil lawsuit brought by the Commission, or in any administrative
proceeding of an accusatory nature pending before the Commission, the SEC attempts to avoid
creating, or allowing to be created, an impression that a decree is being entered or a sanction
imposed when the conduct alleged did not, in fact, occur. Accordingly, the Commission has a
policy not to allow a defendant or respondent to consent to a judgment or order that imposes a
sanction while denying the allegations in the complaint or order for proceedings. In this regard,
the Commission equates a refusal to admit the allegations with a denial, unless the defendant or
respondents states that he neither admits nor denies the allegations. The Division, in accordance
with this policy, has developed language attempting to prevent a respondent from consenting to
an order imposing sanctions while denying the findings in the order. Id. at 649 50. Professor
Johnson also notes that SEC settlements are not agreements between equals, and that the SEC
coercively exerts pressure on industry participants to settle in the name of cooperation and to
avoid negative labeling. Id. 660 62.
180. Grundfest Affidavit, supra note 178, at 5.
950
[Vol. 41
less onerous than imposed through the settled action.181 The natural
result of these dynamics, stated Professor Grundfest, is a one-sided
record in which the Commission asserts its version of the facts and the
law, and the settling defendants commit not to challenge that rendition.182 Professor Grundfest then sets forth the powerful claims BofA
would have against the SECs charges should the matter be litigated.183
Yet, despite these powerful claims, Professor Grundfest states that it is
nonetheless rational for a defendant in Bank of Americas position to
settle the Commissions allegations because, among other things,
BofA is a highly regulated entity and [i]t can be imprudent for
regulated entities to engage in protracted litigation with their regulators.184
Judge Rakoff was not impressed by the parties explanations or the
picture painted of the SEC enforcement process. He immediately
drafted an order that, while expressing gratitude to counsel for the
parties for their helpful responses, noted that the initial submissions
raised a few additional issues.185 Among those was BofAs seemingly
180-degree reversal. Judge Rakoff wrote:
The Court recognizes that the Bank of America, having previously been precluded by its tentative settlement with the SEC
from denying the Complaints assertions, has now, in response
to the Courts direction to provide the Court with the Banks
own version of the facts, asserted that the proxy statement was
neither false nor misleading. Its position, however, is that
rather than put its assertions of innocence to the test, it decided
to spend $33 million of shareholders money to settle the case
so that Bank of America would not face the unnecessary distraction of a protracted dispute with one its principal regulators at a
time when the financial industry continues to face difficult
challenges stemming from uncertain and turbulent conditions . . . Whatever this chain of vague expressions may mean, if
it is intended to suggest that Bank of America settled this case to
181.
182.
183.
184.
185.
2009).
2010]
Id.
Id. at 9.
Id. at 15 41.
Id. at 43 44.
See SEC v. Bank of America, No. 09 Civ. 6829, 2009 WL 2842940 at *1 (S.D.N.Y Aug. 25,
951
curry favor with the SEC or to avoid retaliation by the SEC, the
court needs to know the specifics.186
Thus, not once, but twice, Judge Rakoff expressed his disapproval and
remained puzzled by the parties explanations of the settlement
agreement.187 Judge Rakoff again ordered the parties to file additional
briefs and the parties again proceeded down the seldom-traveled path
of publicly explaining and defending the reasons for a negotiated
settlement and the evidence supporting the settled charges.188
The Wall Street Journal analogized the situation to having one of
those teachers or professors who would let you submit an assignment
over and over again until it was worthy of an A grade.189 The New
York Times said that it was sad that Rakoffs refusal to sign off on the
settlement has caused controversy, and that probing questions like
Judge Rakoffs should be heartily encouraged.190
The SECs second bite at the apple was much like its first; again it
argued that the proposed disposition is fair, reasonable, adequate and
in the public interest and should be entered by the Court.191 The SEC
argued that Bank of America and its experts greatly exaggerate the
potency and appeal of its purported defenses and that it was also clear
that Bank of America had ample motivation to settle this case and pay
a substantial penalty due to the merits of the Commissions claim.192
In the SECs estimation, Bank of America no doubt understood that
their position carried significant litigation risk, which is a reason
sophisticated parties often choose to settle rather than defend difficult
claims.193
BofAs re-write was also much like its first attempt to convince Judge
Rakoff to approve the settlement. In its reply brief, BofA stated:
186. Id. at *2.

187. Louise Story, Scrutiny for S.E.C. on Merrill Bonuses, N.Y. TIMES, Aug. 26, 2009, at B1; Jess
Bravin, Judge Rips SEC on BofA Pact, WALL ST. J., Aug. 26, 2009, at C3.
188. Id. at C5.
189. Rakoff to SEC, BofA: Thanks For This. Now Try Again, WALL ST. J., Aug. 26, 2009,
http://blogs.wsj.com/law/2009/08/26/rakoff-to-sec-bofa-thanks-for-this-now-try-again/tab/
article/.
190. Some Good Names in a Year Gone Bad, N.Y. TIMES, Sept. 10, 2009, at B2.
191. Reply Memorandum of Plaintiff Securities and Exchange Commission in Support of
Entry of the Proposed Consent Judgment at 1, 4, 12, SEC v. Bank of America Corp., No. 09 Civ.
6829 (S.D.N.Y. Feb. 4, 2010).
192. Id. at 1112.
193. Id. at 12.
952
[Vol. 41
The SEC made clear that, in the absence of a settlement, the

SEC was prepared to go forward with the Complaint. Given the
available options, and the prospect of facing a protracted and
public dispute with one of its principal regulators at a time of
uncertain and difficult market conditions, Bank of America
determined that the $33 million penaltywhile at the high end
of the rangewas not unacceptable. There is nothing nefarious about that. It is rational for a company in Bank of Americas
position to settle the SECs allegations despite the substantial
possibility it could prevail if the matter were litigated.194
BofA argued that the Court need not predict the winner of such a
contest; it need only conclude, as it should, that the settlement constitutes a fair and reasonable resolution to a dispute between parties with
firmly held beliefs that each contends is based in fact.195 In conclusion, BofA stated:
Despite what it believes to be significant weaknesses in the
SECs case, Bank of America remains committed to the proposed settlement, which it agreed to in the hopes of avoiding a
very public dispute with one of its principal regulators and the
negative publicity that such a dispute would entail. While the
civil penalty agreed to in this settlement was indeed large
especially given the lack of merit of the SECs casethe settlement would not unfairly harm innocent shareholders and was
determined by Bank of America for the reasons stated to be
preferable to litigating the case.196
In September 2009, Judge Rakoff issued a scathing order. It began by
noting the considerable deference a court must accord the parties
proposal for a consensual resolution of the case.197 Yet, the order
denied the consent judgment negotiated between the SEC and BofA
194. Reply Memorandum of Law on Behalf of Bank of America Corp. at 3, SEC v. Bank of
America Corp., No. 09 Civ. 6829 (S.D.N.Y Sept. 9, 2009), available at http://www.scribd.com/doc/
19581786/Reply-to-Judge-Rakoff-From-Bank-of-America.
195. Id. at 12.
196. Id. at 28. In a footnote to its conclusion, BofA noted that it was not given the option to
settle or litigate for nothing. Because of the SECs decision to bring charges, Bank of America
would have to spend corporate funds whether or not it settled. Bank of America determined for
the reasons stated that it was preferable to spend its money to settle this action than to incur
additional litigation expenses. See id. at 28 n.20.
197. See SEC v. Bank of America, 653 F. Supp. 2d 507, 508 (S.D.N.Y. 2009).
2010]
953
and instructed the parties to prepare for a trial. [E]ven upon applying
the most deferential standard of review, Rakoff concluded that the
proposed Consent Judgment [was] neither fair, nor reasonable, nor
adequatenor even remotely . . . fair.198
In his order, Judge Rakoff did not mince words as he explained that
the parties positions leave the distinct impression that the proposed
Consent Judgment was a contrivance designed to provide the SEC with
the facade of enforcement and the management of [BofA] with a quick
resolution of an embarrassing inquiryall at the expense of the sole
alleged victimsthe shareholders.199 Judge Rakoff concluded that the
proposed Consent Judgment suggests a rather cynical relationship
between the parties in that the SEC gets to claim that it is exposing
wrongdoing on the part of [BofA] in a high-profile merger and
[BofAs] management gets to claim that they have been coerced into
an onerous settlement by overzealous regulators.200 According to
Judge Rakoff, all this is done at the expense, not only of the shareholders, but also of the truth.201
Judge Rakoffs order was viewed as a rare scuttling of an SEC
settlement, an unprecedented rejection of an SEC settlement,202
and an unusual ruling that casts doubts about how the agency handles
probes of major U.S. companies.203 Others noted that Judge Rakoff
shined a light on what is a puzzling, if not harmful, prosecutorial
discretion on the part of the SEC.204 Judge Rakoffs order was viewed
as a strong, blistering decision and a critique, not just of this case,
but of a long-standing practice at the SEC, which effectively allowed
corporate managers to buy immunity with their shareholders
money.205
In the end, Judge Rakoff did approve the SEC v. BofA settlement,
albeit one containing additional substantive charges and materially
different termsmost notably, a $150 million fine compared to the
198. Id. at 509 10.

199. Id. at 510.
200. Id. at 512.
201. Id.
202. Marcy Gordon, SEC Will Go to Trial Against BofA Over Bonuses, LAW.COM (Sept. 22, 2009),
http://www.law.com/jsp/article.jsp?id1202433971105.
203. Kara Scannell et al., Judge Tosses Out Bonus Deal, WALL ST. J., Sept. 15, 2009, at A1.
204. Kara Scannell, BofA Ruling Questions an SEC Weapon, WALL ST. J., Sept. 16, 2009, at C1.
(quoting James Cox, a law professor at Duke University School of Law).
205. Zachery Kouwe, Judge Rejects Settlement Over Merrill Bonuses, N.Y. TIMES, Sept. 14, 2009, at
A1 (quoting John C. Coffee, a law professor at Columbia University).
954
[Vol. 41
original $33 million fine.206 However, his February 2010 order approving the settlement is grounded in judicial restraint and deference to an
administrative agency and should not be viewed as judicial approval of
the troubling features of SEC enforcement highlighted abovethe
same features present in the SECs enforcement of the FCPA.207 Again,
Judge Rakoff did not mince words as he reluctantly approved the
settlement and stated that the settlement, [w]hile better than nothing, remained half-baked justice, at best.208
2.
The Enforcement Agencies are Vulnerable in Contested Actions
Judge Rakoff is not the only federal court judge to recently criticize a
government enforcement agency. While it is beyond the scope of this
article to detail each and every DOJ/SEC litigation defeat, and while it
is indeed true that these agencies do possess a decent batting average
in contested litigation, the agencies have nonetheless suffered several
notable litigation defeats. These recent defeats, often times at the
initial motion to dismiss stage, demonstrate that the enforcement
agencies are vulnerable when their extreme legal positions, such as
those commonly found in FCPA enforcement actions, are contested in
an adversary proceeding and actually subjected to judicial scrutiny.
Mark Cuban
In November 2008, the SEC filed insider trading charges against
Mark Cuban, the flamboyant owner of the National Basketball Associations Dallas Mavericks.209 The SECs complaint alleged that Cuban
violated the securities laws by selling his entire stake in publicly traded
Mamma.com while in the possession of material, non-public information concerning the company.210 In announcing the charges, SEC
officials noted that the case demonstrates yet again that the Commission will aggressively pursue illegal insider trading whenever it occurs,
and that [i]t is fundamentally unfair for someone [like Cuban] to use
206. See Opinion and Order, SEC v. Bank of America Corp., No. 09 Civ. 6829 (S.D.N.Y. Feb.
22, 2010).
207. Id. at 14 15.
208. Id. at 12; 1314.
209. See Complaint, SEC v. Mark Cuban, No. 3-08CV2050-D (N.D. Tex. Nov. 17, 2008),
available at http://www.sec.gov/litigation/complaints/2008/comp20810.pdf; SEC Files Insider
Trading Charges Against Mark Cuban, Litigation Release No. 20810, 94 SEC Docket 1889 (Nov.
17, 2008), available at http://www.sec.gov/litigation/litreleases/2008/lr20810.htm.
2010]
955
access to non-public information to improperly gain an edge on the

market.211 Yet, when the SECs fraud allegations were challenged and
actually subjected to judicial scrutiny, they were dismissed. In the
opinion and order dismissing the fraud charges, the judge noted,
among other things, that the SECs complaint was legally deficient
and insufficient.
Cohmad Securities Corp.
In June 2009, the SEC charged Cohmad Securities Corporation, as
well as its chairman, chief operating officer and registered representative with securities fraud for actively marketing investment opportunities with [Bernard] Madoff while knowingly or recklessly disregarding
facts indicating that Madoff was operating a fraud.212 In announcing
the charges, an SEC official noted that, [t]hese Madoff solicitors
collectively received several hundred million dollars in fees over the
past few decades while Madoff ruined the finances of countless investors.213 Yet, when the SECs fraud allegations were challenged and
actually subjected to judicial scrutiny, they were dismissed.214 In the
opinion and order dismissing the fraud charges, the judge noted,
among other things, that the SEC has failed to allege facts giving rise
to a plausible inference . . . of fraudulent intent, and that the SECs
allegations were otherwise speculative and flimsy.215
These recent SEC litigation defeats at the initial motion to dismiss
stage demonstrate that SEC legal positions, when subjected to judicial
scrutiny, have failed when dubious or lacking in factual support.
The SEC is not alone in having its extreme legal theories dismissed
when such theories are challenged. With increasing and alarming
frequency, the DOJ has also suffered several high-profile defeats when
its legal theories are actually subjected to judicial scrutiny or its
211. Id.
212. SEC Charges Madoff Solicitors With Fraud, Litigation Release No. 21095, 96 SEC
Docket 537 (June 22, 2009), available at http://www.sec.gov/litigation/litreleases/2009/
lr21095.htm; see also Complaint, SEC v. Cohmad Securities Corp., No. 09 Civ. 5680, 2010 WL
363844 (S.D.N.Y. 2010), available at http://www.sec.gov/litigation/complaints/2009/
comp21095.pdf.
213. SEC Charges Madoff Solicitors and Feeder With Fraud, Release No. 2009-141 (June 22,
2009), available at http://www.sec.gov/news/press/2009/2009-141.htm.
214. See Opinion and Order, SEC v. Cohmad Securities Corp., No. 09 Civ. 5680 (S.D.N.Y.
Feb. 1, 2010), available at http://graphics8.nytimes.com/packages/pdf/business/cohmad_order.
pdf.
215. See id. at 4, 9 11.
956
[Vol. 41
enforcement tactics examined. The most recent, high profile example

concerns the criminal prosecutions of several Broadcom Corporation
executives for stock-options backdating.
Broadcom Executives
In June 2008, the DOJ announced the unsealing of a criminal
indictment against Dr. Henry Nicholas III, a co-founder and former
chief executive officer of Broadcom, and William Ruehle, the former
chief financial officer of Broadcom, charging the individuals with
engaging in a stock-option backdating scheme that forced Broadcom
to write-down $2.2 billion in profits.216 The twenty-one-count indictment charged conspiracy, securities fraud, false certification of financial reports, false statements in reports filed with the SEC, lying to
accountants, falsification of corporate books and records, and honest
services mail and wire fraud. It alleged that Nicholas and Ruehle
engaged in a scheme from 1999 to 2005 to fraudulently backdate
millions of stock option grants, failed to record stock-based compensation expenses, and falsified documents to further the fraud.217 A
DOJ official stated that Nicholas and Ruehle were involved in a
wide-ranging fraud, and an FBI official stated that the defendants
stand accused of deliberately manipulating their companys public
filings, and by their failure to remain accountable, contributed to a
degree of mistrust in the marketplace.218
Nicholas and Ruehle pleaded not guilty.219 Ruehles trial began in
October 2009 before Judge Cormac Carney220 and the DOJs case soon
began to unravel in dramatic fashion. First, after hearing Dr. Henry
Samueli testify as a witness in Ruehles trial under a grant of immunity,
Judge Carney took the highly unusual step of vacating Samuelis prior
216. Press Release, DOJ, Former Broadcom CEO Henry Nicholas and Former CFO
Indicted in Massive Stock-Options Backdating Case (June 5, 2008), available at http://
www.justice.gov/usao/cac/pressroom/pr2008/078.html (last visited Aug. 12, 2010).
217. Id.
218. Id.
219. Ex-CEO of Broadcom Pleads Not Guilty, MSNBC (June 16, 2008), http://www.msnbc.msn.com/id/25195928/ns/business-corporate_scandals/.
220. Nicholas trial was previously delayed until February 2010. See, e.g., E. Scott Reckard,
Trial Begins for Former Broadcom Finance Chief, L.A. TIMES, Oct. 24, 2009, available at http://
articles.latimes.com/2009/oct/24/business/fi-broadcom24; Stuart Pfeifer, Nicholas Trial Delayed
Until 2010, L.A. TIMES, Feb. 3, 2009, available at http://articles.latimes.com/2009/feb/03/business/
fi-nicholas3.
2010]
957
guilty plea and dismissing the criminal charges against him.221 However, he was not yet finished. On December 15, 2009, Judge Carney
read into the record his decision on Ruehles request to enter a
judgment of acquittal because of insufficient evidence and prosecutorial misconduct. Like Judge Rakoff, Judge Carney did not mince words.
He stated:
Based on the complete record now before me, I find that the
government has intimidated and improperly influenced the
three witnesses critical to Mr. Ruehles defense. The cumulative
effect of that misconduct has distorted the truth-finding process and compromised the integrity of the trial. To submit this
case to the jury would make a mockery of Mr. Ruehles constitutional right to compulsory process and a fair trial.222
Accordingly, Judge Carney dismissed the indictment against Ruehle
and entered a judgment of acquittal.223 Judge Carneys decision was
based on two separate, but related groundsthe governments misconduct and insufficient evidence to sustain a conviction.224 Judge
Carney ended the hearing by saying, Mr. Ruehle, you are a free
man.225 Yet, Judge Carney still was not finished. Even though Nicholass trial was a few months away and even though there was no pending
motion to dismiss the charges against him, Judge Carney also dismissed
the indictment against Nicholas.226 Judge Carney was troubled by the
very notion that stock options backdating was even a crime. He stated:
The accounting standards and guidelines were not clear, and
there was considerable debate in the high-tech industry as to
the proper accounting treatment for stock option grants. Indeed, Apple and Microsoft were engaging in the exact same
practices as those of Broadcom.227
In closing, Judge Carney stated:
221.
222.
223.
224.
225.
226.
227.
958
See Pfeifer, supra note 128; see N.Y. Times, supra note 128.
Ruehle Transcript, supra note 130, at 5195.
Id. at 5199.
Id.
Id. at 5209.
Id. at 5199.
Id. at 5201.
[Vol. 41
Now, Im sure there are going to be many people who are going
to be critical of my decision in this case and argue that Im
being too hard on the government. I strongly disagree. I have a
solemn obligation to hold the government to the constitution.
Im doing nothing more and nothing less. And I ask my critics
to put themselves in the shoes of the accused.228
This rather extensive discussion of non-FCPA cases provides a rare
public glimpse into the motivations of settling parties in a government
enforcement action and further assists in understanding the motivations that lead to FCPA resolution vehicles. This discussion of nonFCPA cases also demonstrates that, in the rare instances in which
government enforcement agencies are challenged, the agencies are
vulnerable in contested actions.
Section III of this article returns to the FCPA and highlights four
pillars that contribute to the facade of FCPA enforcement. When
reading of these pillars ask yourself how a Judge Rakoff or a Judge
Carney would view the uninformative, bare-bones statement of facts or
allegations typically found in FCPA enforcement actions, the untested
and dubious legal theories typically found in FCPA enforcement actions, and the lack of transparency and accountability typically found in
FCPA enforcement actions. Ask yourself as well how a Judge Rakoff or
a Judge Carney would react upon learning that seemingly clear-cut
instances of corporate bribery and corruption are resolved without
FCPA anti-bribery charges. In other words, ask yourself how a Judge
Rakoff or a Judge Carney, if given the opportunity, would view the
facade of FCPA enforcement.
IV.
This section highlights four pillars that contribute to the facade of

FCPA enforcement. The fact that this section highlights only four
pillars should not be interpreted to mean that these are the only pillars
that contribute to the facade of FCPA enforcement. Indeed, in an area
of law seemingly enforced like no other, where private agreements
subject to little or no judicial scrutiny are viewed as de facto case law, and
where untested and dubious legal theories are the foundation for most
settlements, other pillars could also be highlighted.
This section does not argue, or even suggest, that every FCPA
enforcement action is unwarranted or that no company or individual
228. Id.
2010]
959
has never violated the FCPA. Rather, this section demonstrates that a
significant majority of recent FCPA enforcement actions are a facade.
The entire universe of FCPA enforcement actions that could contribute to a particular pillar are not discussed, but demonstrative examples
are profiled to support each pillar. Further, many FCPA enforcement
actions could contribute to several pillars, but may only be discussed in
connection with one.229
The first pillar highlights the frequency in which FCPA enforcement
actions are resolved based on uninformative, bare-bones, conclusory
statements of facts or allegations or conclusory legal statements. The
second pillar highlights the increasing trend of FCPA enforcement
actions resolved based on untested and dubious legal theories, as well
as enforcement theories seemingly in direct conflict with the FCPAs
statutory provisions. The third pillar highlights the opaque nature of
FCPA enforcement and how similar enforcement actions, based on the
governments own allegations, are resolved with materially different
charges and penalties. The fourth and most alarming pillar highlights
how seemingly clear-cut instances of corporate bribery, per the governments own allegations, are resolved without FCPA anti-bribery charges.
A. First Pillar: Bare-Bones, Uninformative Facts, and Legal Conclusions
Given the typical resolution vehicles used to resolve FCPA enforcement actions, and the absence or practical absence of any judicial
scrutiny of these vehicles, it is not surprising that public documents
associated with FCPA enforcement actions often contain little more
than uninformative, bare-bones statements of facts replete with legal
conclusions. This is one pillar where picking just a few FCPA enforcement actions to profile is difficult because nearly all FCPA enforcement
actions suffer from such deficiencies.
For instance, in May 2009, the SEC found that United Industrial
Corporation (UIC), a Maryland-based defense firm, violated the
FCPA anti-bribery provisions.230 Even for corporations, the FCPA requires proof of corrupt knowledge and intent for an anti-bribery
violation to be charged.231 However, the SEC findings are entirely
229. The information in this article regarding certain FCPA enforcement actions and related
issues is current as of March 2010.
230. See Corrected Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21c
of the Securities and Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist
Order, Exchange Act Release No. 60005, 95 S.E.C. Docket 2659 (May 29, 2009), available at
http://www.sec.gov/litigation/admin/2009/34-60005.pdf.
231. See 15 U.S.C. 78dd-1(a) (2006); Urofsky & Newcomb, supra note 1, at 14.
960
[Vol. 41
devoid of any suggestions that UIC itself had any involvement in the
foreign payments which were allegedly made by its wholly-owned
subsidiary, ACL, to Egyptian Air Force officials through an agent.232 As
Philip Urofsky and Danforth Newcomb note, although this theory is
not spelled out in the pleadings, the SEC seems to have concluded that
the involvement of ACLs senior executive, Thomas Wurzel (also
charged) and assorted internal control failures that allowed the payments to go forward without significant review by the parent company
was sufficient to establish constructive knowledge by the parent company.233 However, the SECs apparent theory was not tested in court
because the company settled, without admitting or denying the SECs
findings, by agreeing toamong other thingspay approximately
$350,000 in disgorgement (and prejudgment interest).234 This enforcement action suggests that not even the absence of a key FCPA antibribery element will derail a settlement.
The most common and troubling use of bare-bones, uninformative,
legal conclusory statements of facts or allegations is when the enforcement agencies describe the foreign officials involved in the alleged
conduct giving rise to the FCPA violation. As alluded to earlier, and as
described more fully below, the enforcement agencies interpretation
of this key FCPA element to include employees of SOEs is dubious and
has never been subjected to judicial scrutiny. For present purposes,
even if this interpretation would be subjected to judicial scrutiny and
upheld by a court, the vast majority of FCPA enforcement actions still
fail to identify or describe why certain commercial enterprises are
instrumentalities of a foreign government or why certain individuals
are foreign officials under the FCPA.
For instance, in the July 2009 enforcement action against Control
Components, Inc. (CCI) charging anti-bribery violations, the criminal information contains this statement full of legal conclusions:
Defendant CCIs state-owned customers included, but were not
limited to, Jiangsu Nuclear Power Corporation (China), Guohua Electric Power (China), China Petroleum Materials and
Equipment Corporation, PetroChina, Dongfang Electric Corporation (China), China National Offshore Oil Company, Korea
Hydro and Nuclear Power, Petronas (Malaysia), and National
232. Id.
233. Id.
234. Id.
2010]
961
Petroleum Construction Company (United Arab Emirates).

Each of these state-owned entities was a department, agency, or
instrumentality of a foreign government, within the meaning of
the FCPA, Title 15, United States Code, Section 78dd-2(h)(2)(A).
The officers and employees of these entities, including but not
limited to the Vice-Presidents, Engineering Managers, General
Managers, Procurement Managers, and Purchasing Officers,
were foreign officials within the meaning of the FCPA, Title
15, United States Code, Section 78dd-2(h)(2)(A).235
Because CCI pleaded guilty,236 these key legal conclusions were
never tested and the public will likely never know what attributes of
these entities, such as Petronas (Malaysia), made them an instrumentality of a foreign government in the eyes of the enforcement agencies.
In addition, whether the enforcement agencies conduct any meaningful investigation prior to making the significant legal conclusion that a
seemingly commercial enterprise is nevertheless an instrumentality
of a foreign government remains an open question. For instance,
Petronas is a fully-integrated oil and gas corporation237 and is ranked
among FORTUNE Global 500s largest corporations in the world; it
has four subsidiaries listed on a stock exchange; and it has ventured
globally into more than [thirty-two] countries worldwide in its aspiration to be a leading oil and gas multinational of choice.238 Would a
court conclude that such a profit-seeking enterprise, one of the largest
in the world, and one that does business all over the world, is truly an
instrumentality of the Malaysian government? Because of the facade of
FCPA enforcement, the answer to this question, like so many other
core FCPA questions, is unknown.
Even so, the description of the foreign officials in the CCI action
seems clear, at least from a comparative standpoint, to the description
often found in FCPA enforcement, actions. For instance, the SECs
complaint against Lucent Technologies Inc. contains this wonderfully
descriptive statement: the Chinese foreign officials were employees of
235. Complaint at 5, United States v. Control Components, Inc., No. SACR09-00162 (C.D.
Cal. July 22, 2009), available at http://www.justice.gov/criminal/pr/documents/07-31-09controlguilty-information.pdf.
236. See Press Release, DOJ, Control Components, Inc. Pleads Guilty to Foreign Bribery
Charges and Agrees to Pay $18.2 Million Criminal Fine, (July 31, 2009), available at http://
www.justice.gov/opa/pr/2009/July/09-crm-754.html.
237. PETRONAS, http://www.petronas.com.my/about_us.aspx (last visited Aug. 24, 2010).
238. Id.
962
[Vol. 41
Chinese state-owned or state-controlled telecommunications enterprises . . . .239 Likewise, the SECs complaint charging Oscar Meza, a
former employee of Faro Technologies, Inc., with FCPA anti-bribery
violations is silent as to any factual evidence supporting the theory that
employees of unidentified Chinese state-owned companies are foreign
officials.240
Numerous other examples abound and because there is generally no
threat that these bareboned, uninformative facts or legal conclusions
will ever be subject to meaningful judicial scrutiny, those subject to the
FCPA find little tangible guidance from these settled enforcement
actions. This pillar of the facade of FCPA enforcement matters, because
as discussed in Section IV of this article, enforcement officials routinely
encourage those subject to the FCPA to carefully review FCPA resolution vehicles for insight into the FCPA in order to conform conduct to
the guidance that can be derived (at least in the eyes of the enforcement agencies) from these vehicles.
Bareboned, uninformative facts and legal conclusions are but one
pillar contributing to the facade of FCPA enforcement. This pillar,
while significant, seems small compared to the second pillarthe
increasing and alarming trend of FCPA enforcement actions resolved
based on untested and dubious legal theoriesas well as enforcement
theories seemingly in direct conflict with the FCPAs statutory provisions.
B.
Second Pillar: What is the Legal Support?
Because the resolution vehicles typically used to resolve FCPA enforcement actions are subject to little or no scrutiny and because of the carrots
and sticks and motivations nudging FCPA defendants to accept these
resolution vehicles, FCPA enforcement actions are routinely resolved even
though many of the enforcement agencies legal theories are untested and
dubious. In addition, as demonstrated fully below, in some cases, the
enforcement theories seem to be in direct conflict with the statute.
Why arent the enforcement agencies untested and dubious legal
theories challenged? Quite simply, businesses subject to the FCPA are
not in the business of setting legal precedent, and for these companies
to even attempt to set legal precedent will result in painful pokes by the
DOJs sticks. As a practical matter, to challenge a DOJ legal interpre-
239. Complaint at 1, SEC v. Lucent Tech., Inc., (Dec. 21, 2007), available at http://
www.sec.gov/litigation/complaints/2007/comp20414.pdf.
240. See Complaint, SEC v. Meza, No. 1:09-CV-01648, 2009 WL 2875827 (D.C. Cir. Aug. 28,
2009), available at http://www.sec.gov/litigation/complaints/2009/comp21190.pdf.
2010]
963
tation in an FCPA enforcement action, a company would first need to

be criminally indicted, something no member of a board of directors is
going to let happen regardless of the ultimate criminal fine or penalty
the DOJ is seeking.241 If any of the resolution vehicles discussed in
Section II above is offered by the DOJ, the conduct at issue will likely be
resolved by the company through one of those vehicles. Lost in this
process, however, is the salient question of whether the conduct at issue
in many cases even violated the FCPA.
Thus, the enforcement agencies many dubious FCPA legal theories
remain untested. It is this feature of FCPA enforcement that distinguishes the FCPA from nearly every other area of law, and it significantly contributes to the facade of FCPA enforcement.
Four dubious legal theories are discussed below: (i) the theory that
seemingly private, profit-seeking enterprises are instrumentalities of
a foreign government and the related theory that all employees of such
entities are foreign officials under the FCPA; (ii) misapplication of
the Kay holding and the explosion in FCPA enforcement actions
involving foreign licenses, permits, applications, certifications, and
customs and tax duties; (iii) strict liability theories for FCPA books and
records and internal control violations; and (iv) the theory that disgorgement is an appropriate remedy when only FCPA books and records and
internal control violations are charged.
1.
The Foreign Officials All Around Us?
It may surprise many that the majority of recent FCPA enforcement actions have absolutely nothing to do with government officials. Rather, the alleged foreign official is an employee of an
alleged SOE who is deemed a foreign official by the enforcement
agencies. This designation rests on the theory that the foreign
officials employer (even if it is a company with publicly traded
stock and other attributes of private business) is an instrumentality
of a foreign government.
The DOJ has publicly acknowledged that there can be difficult
241. See, e.g., Kenneth Winer & Gregory Husisian, The Knowledge Requirement of the FCPA
Anti-Bribery Provisions: Effectuating or Frustrating Congressional Intent?, 24 WHITE COLLAR CRIME 1, 10
(2009), available at http://www.foley.com/files/tbl_s31Publications/FileUpload137/6535/
FCPAWinerHusisian2009.pdf (Even if the governments application of the anti-bribery provisions of the FCPA is excessively aggressive, no company or individual wants to have to test the
governments application in court.).
964
[Vol. 41
assessments of who qualifies as a foreign official under the FCPA.242

Despite this difficult assessment and despite the lack of any FCPA
case law to support its position, the DOJ continues to aggressively
interpret the foreign official element and has steadfastly refused
to provide useful guidance on this issue to those subject to the
FCPA.
For instance, in November 2009, Assistant Attorney General Lanny
Breuer gave a keynote address to the Tenth Annual Pharmaceutical
Regulatory and Compliance Congress and Best Practices Forum.243 In
his address, Breuer rhetorically asked . . . who exactly qualifies as a
foreign official in the context of a public health system, and what
constitutes a corrupt offer or payment that violates the FCPA? Of
course, the answers to those questions depends on the facts and
circumstances of every case, and I cant give you binding guidance from
the podium today. Nevertheless, Breuer continued to tell the audience:
. . . consider the possible range of foreign officials who are
covered by the FCPA. Some are obvious, like health ministry
and customs officials of other countries. But some others
may not be, such as the doctors, pharmacists, lab technicians
and other health professionals who are employed by stateowned facilities. Indeed, it is entirely possible, under certain
circumstances and in certain countries, that nearly every
aspect of the approval, manufacture, import, export, pricing,
sale and marketing of a drug product in a foreign country
will involve a foreign official within the meaning of the
FCPA.244
Thus, Breuer and other DOJ officials continue to publicly proclaim
that such non-core government officials are covered by the FCPA
and that such individuals fall within the meaning of the FCPA
when the truth is it is merely the DOJs interpretation of the foreign
official element, an interpretation that has never been subjected to
judicial scrutiny and an interpretation that is widely disputed.245
242. See Alexandra A. Wrage, The Latest FCPA Forecast From U.S. Regulators, WRAGEBLOG (Sept. 17,
2009, 2:26 PM), http://wrageblog.org/2009/09/17/the-latest-fcpa-forecast-from-u-s-regulators/.
243. See Breuer, supra note 57.
244. Id.
245. See, e.g., Joel Cohen, Michael Holland & Adam Wolf, Under the FCPA, Who is a Foreign
Official Anyway?, 63 BUS. LAW 1243, 1243 (2008) (Despite the marked increase in high-profile
2010]
965
No enforcement agency interpretation contributes more to the

facade of FCPA enforcement and no FCPA element is more urgently in
need of judicial scrutiny than the FCPAs foreign official element. Far
from being an academic hypothetical, the enforcement agencies
untested and dubious legal interpretation was at the core of 66% (six
out of nine) of the 2009 FCPA enforcement actions against business
entities as demonstrated by the chart below.246 Also, because many of
the enforcement actions (most notably the CCI action) resulted in
several related actions against company employees where the foreign
officials were exactly the same, the impact of this untested and
dubious legal interpretation extends far beyond the enforcement
actions profiled below.
2009 CORPORATE FCPA ENFORCEMENT ACTIONS THE FOREIGN
OFFICIALS
Company
Avery Dennison Corp.
Foreign Official(s)
Chinese foreign officials including: Traffic
Management Research Institute under the
Ministry of Public Security located in Wuxi,
Jiangsu Province; an official at Henan
Luqiao, a state-owned enterprise; and a
state-owned end user.
Indonesian customs and tax officials.
Pakistani customs officials.247
[FCPA] enforcement activity, it remains unsettled whether the FCPAs definition of foreign
official includes employees of foreign companies that are owned or controlled by those companies governments.).
246. Excluded from the chart are two Iraqi-Oil-For Food enforcement actions involving
AGCO Corporation and Novo Nordisk A/S. See, e.g., Press Release, DOJ, AGCO Corp. to Pay $1.6
Million in Connection with Payments to the Former Iraqi Government under the U.N. Oil-forFood Program (Sept. 30, 2009), available at http://www.foley.com/files/DOJagcopenalty.pdf;
Press Release, DOJ, Novo Nordisk Agrees to Pay $9 Million Fine in Connection with Payment of
$1.4 Million in Kickbacks Through the United Nations Oil-for-Food Program (May 11, 2009),
available at http://www.foley.com/files/NovoDOJRelease.pdf. These actions involved kickback
payments to the Iraqi government not to any particular foreign official and thus the conduct
was not actionable under the FCPAs anti-bribery provisions. Even so, the payments and recording
of the payments still resulted in an enforcement action for FCPA books and records and internal
control violations as well as conspiracy.
247. Complaint at 1, 3-6, SEC v. Avery Dennison Corp., CV09-5493 (C.D. Cal. Jul. 28, 2009),
available at http://www.sec.gov/litigation/complaints/2009/comp21156.pdf.
966
[Vol. 41

OFFICIALS
Company
Foreign Official(s)
Control Components,
Inc.
Vice President, Engineering Managers, General

Managers, Procurement Managers, and Purchasing
Officers at state-owned entities including, but not
limited to: Jiangsu Nuclear Power Corporation
(China), Guohua Electric Power (China), China
Petroleum Materials and Equipment Corporation,
PetroChina, Dongfang Electric Corporation
(China), China National Offshore Oil Company,
Korea Hydro and Nuclear Power, Petronas
(Malaysia), and National Petroleum Construction
Company (United Arab Emirates).248
Helmerich & Payne Inc.
Various officials and representatives of the

Argentine and Venezuelan customs services.249
ITT Corp.
Employees of numerous Chinese state-owned

entities; thirty-two different SOE customers;
employees of Design Institutes (some of which
were SOEs) that assisted in the design of large
infrastructure projects in China.250
KBR/Halliburton Co.
High-level Nigerian government officials;

Nigerian government officials; The Nigerian
National Petroleum Corporation (NNPC), a
Nigerian government-owned company charged
with development of Nigerias oil and gas wealth
and regulation of the countrys oil and gas
industry. NNPC was a shareholder in certain joint
ventures with multinational oil companies. NNPC
The most aggressive application of the enforcement agencies foreign official interpretation would seem to be in the KBR / Halliburton
248. Complaint at 5, United States v. Control Components, Inc., supra note 234.
249. Non-Prosecution Agreement from DOJ Crim. Div. to Kimberley A. Parker, Esq., regarding
Helmerich & Payne, Inc. (Jul. 29, 2009), available at http://www.law.virginia.edu/pdf/faculty/garrett/
helmerich.pdf; SEC Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21c of the
Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, In re
Helmerich & Payne, Inc., Exchange Act Release No. 60,400, 96 S.E.C. Docket 1446 (July 30, 2009) at 3,
available at http://www.sec.gov/litigation/admin/2009/34-60400.pdf.
250. Complaint at 1, 3 4, SEC v. ITT Corp., No. 1:09-CV-00272 (D.D.C. Feb. 11, 2009),
available at http://www.sec.gov/litigation/complaints/2009/comp20896.pdf.
2010]
967

OFFICIALS
Company
Foreign Official(s) entity and instrumentality

was an entity and instrumentality of the
Government of Nigeria . . . Nigeria LNG
Limited (NLNG) created by the Nigerian
government [. . .] and was the entity that
awarded the related EPC contracts. The
largest shareholder of NLNG was NNPC,
which owned 49% of NLNG. The other
owners of NLNG were multinational oil
companies. Through the NLNG board
members appointed by NNPC, among other
means, the Nigerian government exercised
control over NLNG [. . .] NLNG was an entity
and instrumentality of the Government of
Nigeria . . .251
Latin Node Inc.
Hondutel, the Honduran government-owned

telecommunications company headquartered
in Tegucigalpa, Honduras, an
instrumentality of the Honduran
government, and thus its employees and
directors were foreign officials under the
FCPA.
TeleYemen, the Yemeni government-owned
telecommunications company headquartered
in Sanaa, Yemen, an instrumentality of the
Yemeni government, and thus its employees
and directors were foreign officials under the
FCPA.252
enforcement action. The enforcement agencies asserted that officers

and employees of Nigeria LNG Limited (NLNG) were foreign
officials despite the fact that NLNG is owned 51% by a consortium
251. United States v. Kellogg Brown & Root LLC, supra note 17, at 6, 7, 10; Complaint at 3-5,
8, SEC v. Halliburton Co., No. 4:09-399 (S.D. Tex. Feb. 11, 2009), available at http://www.sec.gov/
litigation/complaints/2009/comp20897.pdf.
252. Complaint at 2-3, United States v. Latin Node, Inc., No. 09-20239 (S.D. Fla. Mar. 24,
2009), available at http://fcpaenforcement.com/FILES/tbl_s31Publications/FileUpload137/5945/
Item1LatinNode.pdf .
968
[Vol. 41

OFFICIALS
Company
Foreign Official(s)
Natures Sunshine
Products, Inc.
Brazilian customs officials.253
United Industrial Corp.
Active [Egyptian Air Force] officials.254
UTStarcom, Inc.
Government-controlled municipal or provincial

telecommunications companies; employees
of Chinese government-controlled
telecommunications companies; managers
and other employees of 9 government
customers in China; a Chinesegovernment-controlled telecommunications
company. A government-controlled
telecommunications company in Thailand;
One Mongolian government official to help
UTSI obtain a favorable ruling in a dispute
over its license.255
of private multinational oil companiesShell, Total, and Eni.256 In

other words, even if an entity is undeniably majority owned by
private companies, the enforcement agencies will not retreat from
its dubious legal interpretation that employees of that entity are
foreign officials under the FCPA.
It is beyond the scope of this article to set forth the detailed
arguments why profit-seeking enterprises should not be deemed instrumentalities of a foreign government and why employees of alleged
SOEs should not be deemed foreign officials under the FCPA. For
purposes of this article, the salient facts are these: there is no judicial
approval of this interpretation; there is no support in the FCPAs
extensive legislative history for this interpretation; and there is no
analogous case law support for this interpretation. Further, the enforce-
253. Complaint at 2, SEC v. Natures Sunshine Prods., Inc., No. 2:09CV0672 (D. Utah Jul. 31,
2009), available at http://www.sec.gov/litigation/complaints/2009/comp21162.pdf.
254. SEC Exchange Act Release No. 60005, supra note 28.
255. Non-Prosecution Agreement from the DOJ Crim. Div. to Leo Cunningham, Esq.,
regarding UTStarcom, Inc. (Dec. 31, 2009), available at http://www.law.virginia.edu/pdf/faculty/
garrett/utstarcom.pdf.
256. See NIGERIA LNG LIMITED, http://www.nlng.com/NR/exeres/F48DE9A7-F3F3-4A8E929A-0C34F1CFF92B%2Cframeless.htm (last visited Aug. 12, 2010).
2010]
969
ment agencies interpretation of the key foreign official element of

an FCPA anti-bribery violation leads to several absurd results.
For instance, Dubai World is a wholly-owned investment vehicle of
Dubai, one of seven emirates that comprise the United Arab Emirates (UAE).257 According to Dubai Worlds website, it owns a host
of real estate, leisure and financial services assets both inside and
outside of Dubai.258 In fact, according to its website, the sun never
sets on Dubai World and its investment portfolio extends across 100
cities worldwide.259 Many of Dubai Worlds entities bear all the
resemblances of a private sector business, such as public stock
offerings and loan agreements with private banks.260 One of Dubai
Worlds main holdings is Nakheel, the worlds largest privately held
real estate company,261 and its CEO is an Australian citizen.262
Likewise, Istithmar World is an investment house wholly owned by
Dubai World,263 and its CEO is an American citizen.264 Under the
enforcement agencies interpretation, the Australian citizen and the
American citizen would be considered UAE foreign officials simply because they work for Dubai World.
Similarly absurd would be application of the enforcement agencies
interpretation to CITGO Petroleum Corporation (CITGO). CITGO
is a Delaware corporation based in Houston, Texas and its logo is an
iconic backdrop to historic Fenway Park, home of the Major League
257. See Dubai World (Aug. 24, 2010), http://www.dubaiworld.ae.

258. See id.
259. See Neil Hume, The Sun Never Sets on Dubai World. Really? FT.COM/ALPHAVILLE (Nov. 25,
2009, 3:46 PM), http://ftalphaville.ft.com/blog/2009/11/25/85291/the-sun-never-sets-on-dubaiworld-really/?sourcerss.
260. Some Dubai World Creditors Said to Seek Loan Sale, THE NEW YORK TIMES DEALBOOK (Jan. 19,
2010, 4:35 AM), http://dealbook.blogs.nytimes.com/2010/01/19/some-dubai-world-creditorsmay-sell-loans-report-says/; Emirates NBD, One of Major Dubai World Creditors, Expects Deal Soon on
Debt with Conglomerate BUSINESS NEWS (Apr. 26, 2010), http://blog.taragana.com/business/2010/
04/26/emirates-nbd-one-of-major-dubai-world-creditors-expects-deal-soon-on-debt-with-conglomerate-54062/.
261. Nakheel and Bharat Hotels Announce Joint Hotel Venture in Dubai, NAKHEEL (Feb. 5, 2007),
http://www.nakheel.com/en/news/Bharat-Hotel.
262. Nakheel appoints new Chief Executive Officer, AMEINFO.COM (March 2, 2006, 12:42 PM),
http://www.ameinfo.com/79283.html.
263. See ISTITHMAR WORLD, http://www.istithmarworld.com/index.php?optioncom_content&
viewarticle&id22&Itemid48 (last visited Aug. 24, 2010).
264. See Rachna Uppal, Dubai Worlds Istithmar CEO Resigns, ARABIANBUSINESS.COM (Jan. 20,
2010), http://www.arabianbusiness.com/579412-dubai-worlds-istithmar-ceo-resigns.
970
[Vol. 41
Baseball Boston Red Sox.265 Yet, in a little known fact, CITGO is a

wholly owned subsidiary of Petroleos de Venezuela S.A. (PDVSA)266
the state-owned oil company of Venezuela.267 Thus, all employees of
CITGO will be Venezuelan foreign officials under the enforcement
agencies interpretation, notwithstanding the salient fact that CITGO is
a Delaware corporation based in Houston.
The enforcement agencies interpretation of the key foreign official element seems even more absurd if applied in an intellectually
honest manner to determine who is a U.S. official. It is ridiculous to
think that a person you play softball with on Thursday nights or a
person you sing with in the church choir could be a U.S. official
merely because that person (regardless of rank, title or position) works
for General Motors or American International Group. Yet the enforcement agencies interpretation, if applied to the U.S., would compel
such a conclusion given that these two companies are majority owned
and controlled by the U.S. government.
With foreign government owned sovereign wealth funds making
investments around the world (including in U.S. companies)268 and
with SOEs listing public shares on various exchanges and otherwise
doing business around the world, there has never been a more critical
time for the enforcement agencies to make clear their legal reasoning
and support for this untested and dubious foreign official interpretation. Before another company or individual is subject to an FCPA
enforcement action based on this legal theory, shouldnt there at least
be some judicial acceptance of the theory?
2.
Just How Was that Business Obtained or Retained?
Section I of this article noted that prior to Kay, the FCPAs key
obtain or retain business element was in flux and subject to much
debate. Section I also examined the equivocal Kay holding and that,
contrary to popular misperception, Kay does not hold that all payments
to foreign officials for the purpose of avoiding customs duties and
265. See The Boston CITGO Sign, http://www.citgo.com/AboutCITGO/BostonSign.jsp (last

266. See Company History, http://www.citgo.com/AboutCITGO/CompanyHistory.jsp (last
267. See PDVSA, http://www.pdvsa.com/ (last visited Aug. 12, 2010).
268. See e.g., Dinny McMahon, China Gives Glimpse of U.S. Holdings, WALL STREET JOURNAL, Feb.
9, 2010 at C1 (noting that stated-owned China National Investment Corporation has a combined
$9.63 billion in equity stakes in various U.S. companies including American International Group,
Inc., Apple, Inc., and News Corp.).
2010]
971
sales taxes in a foreign country fall within the FCPAs scope. In fact, the
Kay court specifically noted that payments to secure lower customs and
tax duties, which do not suggest an actual or intended cause-and-effect
nexus to business obtained or retained, or payments that merely
increase the profitability of an existing profitable company, presumably
do not satisfy the obtain or retain business element.
Despite Kays equivocal holding, there has since been an explosion in
FCPA enforcement actions where the improper payments are alleged not
to obtain or retain any particular business, but rather, involve customs
duties and tax payments, or payments alleged to have assisted the payer in
securing foreign government licenses, permits, and certifications. According to the enforcement agencies, such payments generally assisted the
payer in doing business in a foreign country,269 even if only with strictly
private parties. These recent cases are profiled in the chart below.
RECENT FCPA ENFORCEMENT ACTIONS CONCERNING FOREIGN LICENSES,
PERMITS, APPLICATIONS, CERTIFICATIONS, AND CUSTOMS AND TAX DUTIES
Date
Company
Allegation
July 2009
Natures Sunshine
Products, Inc.
Payments to Brazilian customs

agents to import certain
unregistered products into
Brazil.270
July 2009
Helmerich &
Payne, Inc.
Payments to various officials

and representatives of the
Argentine and Venezuelan
customs services in connection
with the importation and
exportation of goods and
equipment related to H&Ps
business operations in those
countries.271
269. See, e.g., Urofsky & Newcomb, supra note 1 at 18. (Noting that the Kay holding has set a
powerful precedent that has allowed the government to bring a number of cases against
companies that paid bribes to customs officials to reduce or eliminate duties and taxes in ways that
facilitated the companies ability to do business with private parties in a foreign country.).
270. See Natures Sunshine Complaint, supra note 251, at 1.
271. See Non-Prosecution Agreement, supra note 247 , at 4; Cease and Desist Order at
5-8, In re Helmerich & Payne, Inc., Exchange Act Release No. 60400, 2009 WL 2341649 (June 30,
2009), available at http://www.sec.gov/litigation/admin/2009/34-60400.pdf .
972
[Vol. 41

Date
Company
Allegation
Nov. 2008
Aibel Group
Limited
Participation in a scheme to
make payments to Nigeria
Customs Service officials to
induce those officials to
provide preferential treatment
in the customs clearance
process.272
Aug. 2008
Con-Way Inc.
Payments, through a shipping

and freight firm, to
Philippine customs officials to
induce the officials to allow
the firm to store shipments
longer than otherwise
permitted and to settle
disputes with the Philippine
Bureau of Customs, as well as
payments to employees of
state-owned airlines to induce
the officials to improperly
reserve space on airplanes.273
June 2008
AGA Medical
Corp.
Payments, through a distributor,

to physicians employed by
Chinese hospitals to cause
them to purchase company
product and to officials in the
Chinese State Intellectual
Property Office in order to
cause that office to approve
the companys patent
applications.274
Because none of these enforcement actions were challenged, it
272. U.S. v. Aibel Group Ltd., No. CR H-07-005 22 (S.D. Tex. 2008).
273. See SEC v. Con-Way Inc., Exchange Act Release No. 2866, 2008 WL 3925208 (Aug. 27, 2008);
Cease and Desist Order at 7-10, In re Con-Way Inc., Exchange Act Release No. 58433, 2008 WL
3925200 (Aug. 27, 2008), available at http://www.sec.gov/litigation/admin/2008/34-58433.pdf.
274. Deferred Prosecution Agreement at 4-19, U.S. v. AGA Medical Corp., No. CR
08-172JMR (D. Minn. June 3, 2008), available at http://www.law.virginia.edu/pdf/faculty/garrett/
agamedical.pdf.
2010]
973

Date
Company
Allegation
Feb. 2008
Westinghouse Air
Brake
Technologies
Corp.
Payments to various agents of

the Indian government to assist
the company in obtaining
business, to schedule
pre-shipping product
inspections, to have certificates
of product delivery issued, and
to curb excise tax audits.275
Sept. 2007
Bristow Group
Inc.
Payments, through a Nigerian

affiliate, to tax officials in two
Nigerian states to influence them
to improperly reduce the amount
of expatriate employment
taxes.276
July 2007
Delta & Pine Land

Co. / Turk
Deltapine, Inc.
Payments to officials of the

Turkish Ministry of Agricultural
and Rural Affairs to obtain
government reports and
certifications that were necessary
to operate in Turkey.277
Feb. 2007
The Dow
Chemical Corp.
Payments, through a fifth tier

subsidiary, to Indian
government officials to register
several agro-chemical products
slated for marketing in time for
Indias growing season.278
remains an open question whether the payments at issue in these
275. See Non-Prosecution Agreement from DOJ to Eric A. Dubelier, Esq. at 4, regarding
Westinghouse Air Brake Tech. Corp. (Feb. 8, 2008), available at http://www.law.virginia.edu/pdf/
faculty/garrett/wabtec.pdf .
276. Cease and Desist Order, In re Bristow Group Inc., Exchange Act Release No. 56533, 2007
WL 2790630 (Sept. 26, 2007), available at http://www.sec.gov/litigation/admin/2007/34-56533.pdf.
277. See Complaint at 4, SEC v. Delta & Pine Land Co., 2007 WL 2137185 (July 26, 2007) (No.
1:07-CV-01352), available at http://www.sec.gov/litigation/complaints/2007/comp20214.pdf; Cease
and Desist Order at 2-3, In re Delta & Pine Land Co., Exchange Act Release No. 56138, 2007 WL
2140170 (July 26, 2007), available at http://www.sec.gov/litigation/admin/2007/34-56138.pdf.
278. See Complaint at 2, SEC v. The Dow Chemical Co., (D. N.H. Feb. 9, 2007), available at
http://www.sec.gov/litigation/complaints/2007/comp20001.pdf.
974
[Vol. 41

Date
Jan. 2007
Company
Vetco Gray
Controls, Inc.,
Vetco Gray UK
Limited, Vetco
Gray Controls
Limited
Allegation
Participation in a scheme to
make payments to Nigeria
Customs Service officials to
induce the officials to provide
preferential treatment in
connection with the customs
clearance process and the
avoidance of Nigerian customs
duties and tariffs.279
actions, if subjected to judicial scrutiny, would satisfy the obtain or

retain business element as interpreted in Kay. Many of these payments
would appear attenuated to any specific cause-and-effect business
nexus or otherwise would appear to have merely increased the profitability of an existing profitable business. The payments would thus
presumably not satisfy the FCPAs obtain or retain business element
per the Kay holding. In many respects, the FCPAs key obtain or retain
business element remains as murky today as it did before Kay.
The lack of clarity of this key FCPA element matters because, unlike
offering a suitcase full of cash to a government leader to obtain a
government contract, nearly every business operating internationally
must make payments to get products in and out of the country and to
secure foreign licenses, permits, applications, and the like. When
confronted by a low-level foreign government bureaucrat with an open
hand, it is an open question whether such payments violate the FCPA
or fall within the FCPAs express exception for so-called facilitating
payments. The exception states that the anti-bribery prohibitions shall
not apply to any facilitating or expediting payment to a foreign official,
political party, or party official the purpose of which is to expedite or to
secure the performance of a routine governmental action by a foreign
official, political party, or party official.280
279. Cease and Desist Order at 2, In re The Dow Chemical Co., Exchange Act Release No.
55281, 2007 WL 460872 (Feb. 13, 2007), available at http://www.sec.gov/litigation/admin/2007/
34-55281.pdf; see Please Agreement at 30, U.S. v. Vetco Gray Controls, Inc., No. 4:07-cr-00004
(S.D. Tex. Feb. 6, 2007), available at http://www.justice.gov/criminal/fraud/fcpa/cases/docs/0206-07vetcogray-plea.pdf.
280. 15 U.S.C. 78dd-1(b), 78dd-2(b), 78dd-3(b) (2000).
2010]
975
While some find facilitating payments to be a corrupt payment under

a different name,281 the fact remains that the FCPA contains an express
exception for facilitating payments. It is this statute that the enforcement agencies are obligated to enforce, and this express exception
would certainly appear relevant to the above-described actions; however, because these enforcement actions were not challenged, this
obviously relevant defense was not explored in these post-Kay cases. Yet,
these post-Kay cases stand as de facto FCPA case law, notwithstanding the
fact that the alleged conduct in question may have been excused by the
FCPAs facilitating payment exception. Thus, these numerous enforcement actions also contribute to the facade of FCPA enforcement.
The FCPAs key obtain or retain business element concerns more
than just suitcases full of cash to a foreign government leader to secure
a foreign government contract. But just how much more remains a
mystery given the equivocal holding of Kay and the fact that none of the
above enforcement actions were challenged. Before another company
or individual is subject to an FCPA enforcement premised on such
attenuated payments, should there not at least be some legal support,
besides an equivocal holding from one circuit court, for the enforcement agencies expansive interpretation?
3.
Strict Liability for Books and Records and Internal Controls

Violations?
The facade of FCPA enforcement is not just limited to the FCPAs

anti-bribery provisions, but is also found in the SECs enforcement of
the FCPAs books and records and internal control provisions. With
increasing frequency, the SEC has charged FCPA books and records
and internal control violations based on untested and dubious legal
theories, as well as theories seemingly in direct conflict with the FCPAs
statutory provisions.
On its face, the FCPA appears to require some degree of scienter, or
culpable knowledge, even for books and records or internal controls
violations.282 Yet, in the Natures Sunshine Products, Inc. enforcement action, the SEC charged company executives without pleading
any evidence to suggest that the executives knew of or participated in
the conduct giving rise to the FCPA violations.
281. See, e.g., Good News at Todays OECD Celebration, WRAGEBLOG (Dec. 9, 2009, 2:21 PM),
http://wrageblog.org/2009/12/09/good-news-at-todays-oecd-celebration.
282. See UROFSKY & NEWCOMB, supra note 1, at 13.
976
[Vol. 41
Natures Sunshine
In July 2009, the SEC filed a settled FCPA enforcement action against
Natures Sunshine Products, Inc. (NSP), a Utah-based company that
sells herbal supplements and health products, its CEO, Douglas Faggioli, and former CFO, Craig Huff.283 The SECs complaint alleged that
NSP, through its wholly-owned subsidiary in Brazil, made payments to
customs agents to import certain unregistered products into Brazil,
thereby assisting NSP in obtaining or retaining business in Brazil.284
According to the SEC, the payments were improperly booked by the
subsidiary as importation advances, but without supporting documentation.285 Based on this alleged conduct, the SEC charged NSP with
FCPA anti-bribery and books and records and internal control violations.286
The SEC also charged Faggioli and Huff, as control persons of
NSP, with violating the FCPAs books and records and internal control
provisions even though the SEC did not allege that Faggioli or Huff
directly or indirectly knew of the payments at issue.287 In language sure
to induce a cold sweat for any executive, the SEC merely alleged that
both Faggioli and Huff had supervisory responsibilities over NSPs
senior management and policies; yet, as control persons, they failed
to make and keep books, records, and accounts which, in reasonable
detail, accurately and fairly reflected the transactions of NSP and
failed to devise and maintain an adequate system of internal accounting controls.288
Without admitting or denying the SECs charges, Faggioli and Huff
resolved the matter by agreeing to pay a $25,000 civil penalty.289 A
company press release issued in connection with the settlement states
that no current NSP officers, directors, or employees are alleged to
have participated in or had knowledge of any of the improper conduct
alleged in the SEC complaint.290 The press release notes that NSP,
which agreed to settle the SECs charges without admitting or denying
the allegations by paying a $600,000 civil penalty, voluntarily disclosed
the conduct at issue to both the SEC and DOJ and fully cooperated with
283.
284.
285.
286.
287.
288.
289.
290.
2010]
See SEC Litigation Release No. 21162, supra note 157.

See Natures Sunshine Complaint, supra note 251.
Id. at 23 42.
Id. at 49 51, 60 65.
See id. at 43 48.
Id.
See SEC Litigation Release No. 21162, supra note 157.
See id.
977
the governments investigation.291

Philip Urofsky, a former DOJ FCPA prosecutor who is currently in
private practice, notes that the NSP enforcement action is the first
FCPA action in which the SEC has charged individuals under the
Exchange Acts control liability theory and that this action depart[ed] from the [SECs] former practice in that previous SEC FCPA
enforcement actions included direct allegations that the individuals . . . charged were involved in the action, in creating the false books
and records or creating controls or authorizing payment of the
bribes.292 Urofsky calls the SECs use of control person liability in the
FCPA context unique and unprecedented.293 Commenting generally
on the SECs use of control person liability, and specifically on the
control person liability in the NSP action, Kenneth Winer, a former
SEC Division of Enforcement attorney currently in private practice,
noted that the statutory language, and legislative history, of the
relevant provisions of the Exchange Act and public policy do not
support the application of Section 20(a) [control person liability] to
SEC enforcement actions.294 Winer and his co-author note that the
legislative history indicates that Congress intended Section 20(a) to
apply to private actions by injured investors, and not to either enforcement actions by the SEC or criminal prosecutions by the Department of
Justice.295
However, because neither NSP nor Faggioli nor Huff challenged the
SECs allegations, there was no judicial scrutiny of this novel control
person liability theory in the FCPA context. Nor has the propriety of
charging individuals for FCPA books and records and internal control
violations, without any allegation that the individual directly or indirectly knew of the payments at issue, received judicial scrutiny. Further,
because NSP settled the matter without contesting the SECs FCPA
anti-bribery charges, it remains an open question whether, if challenged, the SECs anti-bribery charges would have fit within the Kay
courts interpretation of the obtain or retain business element or
291. See id.

292. Amanda Bronstad, SEC Trots Out a New Weapon: Control Person Liability, NATL L. J., Aug.
20, 2009, http://www.law.com/jsp/cc/PubArticleCC.jsp?id1202433157801.
293. Id.
294. Kenneth Winer & Kimberly Shur, A Mighty Sword: Should the SEC Bring Enforcement Actions
Solely on the Basis of Control Person Liability?, 41 SEC. REG. & LAW REP. 1686 at *2 (Sept. 14, 2009),
available at http://www.foley.com/files/tbl_s31Publications/FileUpload137/6411/winer
shurbna91409.pdf.
295. Id.
978
[Vol. 41
whether the alleged payments would have implicated the FCPAs

exception for facilitating payments. Thus, in just the Natures Sunshine
enforcement action alone, three key unsettled enforcement theories
escaped judicial scrutiny.
It is one thing to base an enforcement action on an untested or
dubious legal theory. It is quite another to base an enforcement action
on a theory directly in conflict with the FCPAs statutory provisions. Yet,
that is what the SEC routinely does when it charges parent companies
with FCPA books and records and internal control violations based
solely on the conduct of indirect subsidiaries or affiliates in the absence
of any allegation that the parent company participated in, or had
knowledge of, the conduct at issue.
As described in Section I of this article, the FCPA specifically states
that when an issuer holds 50% or less of the voting power with respect
to a domestic or foreign firm, the books and records and internal
control provisions require only that the issuer proceed in good faith to
use its influence, to the extent reasonable under the issuers circumstances, to cause a domestic or foreign firm to devise and maintain a
system of internal accounting controls consistent with the provisions.296 The FCPA further states that an issuer which demonstrates
good faith efforts to use such influence shall be conclusively presumed
to have complied with the requirements of the provisions.
Yet, in direct conflict with the FCPAs statutory provisions, the SEC
routinely charges parent companies for the books and records and
internal control violations of its indirect subsidiaries and affiliates
under what can only be called a strict liability theory.
For instance, in July 2009, the SEC filed a settled civil complaint
against Avery Dennison, a California-based manufacturer of selfadhesive materials and products (Avery), charging it with violations
of the FCPAs books and records and internal control provisions.297
The conduct at issue involved its indirect subsidiary Avery (China)
Co. Ltd. (Avery China). Avery China allegedly provided things of
value to Chinese foreign officials in seeking business opportunities
with Chinese state-owned entities.298 According to the SEC, the things
of value were improperly recorded in Avery Chinas books and records.
296. 15 U.S.C. 78m(b)(6) (2000).

297. See SEC Files Settled Charges Against Avery Dennison Corporation for Violating the
Books and Records and Internal Controls Provisions of the Foreign Corrupt Practices Act,
Litigation Release No. 21156 (Jul. 28, 2009), available at http://www.sec.gov/litigation/litreleases/
2009/lr21156.htm.
298. See SEC v. Avery Dennison Corp. Complaint, supra note 245.
2010]
979
The SEC alleged that Avery China is wholly-owned by Avery Dennison

Hong Kong BV, which in turn is wholly-owned by Avery Dennison
Group Danmark ApS, which in turn is wholly-owned by Avery.299
Despite these legally significant facts, without making a single allegation as to the absence of Averys good faith, and without alleging in any
way that Avery participated in or had knowledge of the conduct at issue,
the SEC charged Avery with violating the FCPAs books and records
and internal control provisions.300
Similarly, in February 2007, the SEC filed a settled civil complaint
against The Dow Chemical Company (Dow), a large manufacturer
and seller of chemicals, plastic materials, and agricultural and other
specialized products and services, charging it with violations of the
FCPAs books and records and internal control provisions.301 The
conduct at issue involved Dows fifth-tier subsidiary and payments it
allegedly made to Indian government officials to register several
agro-chemical products slated for marketing in time for Indias growing season.302 Again, without making a single allegation as to the
absence of Dows good faith, and without alleging in any way that Dow
participated in or had knowledge of the conduct at issue, the SEC
charged Dow with violating the FCPAs books and records and internal
control provisions.303
Whether the FCPAs books and records and internal controls provisions as applied to issuers and indirect subsidiaries and affiliates are in
the public interest is a debatable issue. However, it is beyond dispute
that the FCPA passed by Congress and signed by the President specifically states that issuers that demonstrate good faith efforts to cause
indirect subsidiaries and affiliates to devise and maintain effective
internal controls shall be conclusively presumed to have complied
with the FCPAs applicable requirements. It is this statute that the
enforcement agencies are obligated to enforce. Yet, the Avery and Dow
(and numerous other) FCPA enforcement actions charging parent
companies for the books and records and internal control violations of
indirect subsidiaries or affiliates, in the absence of any allegation that
the parent company lacked good faith or participated in or had
299. Id. at 8.
300. Id.
301. See SEC Files Settled Enforcement Action Against The Dow Chemical Company for
Foreign Corrupt Practices Act Violations, Litigation Release No. 20000 (Feb. 13, 2007), available at
http://www.sec.gov/litigation/litreleases/2007/lr20000.htm.
302. Complaint at 2, SEC v. The Dow Chem. Co., No. 07-cv-00336 (D.D.C. Feb. 12, 2007).
303. See id.
980
[Vol. 41
knowledge of the conduct at issue, seem to be in direct conflict with the

FCPAs specific statutory provision.
Because the Avery and Dow (and numerous other FCPA enforcement actions based on this same theory) were not challenged, this
theory of parent company liability, seemingly in direct conflict with the
FCPA, has never been subjected to judicial scrutiny. Before another
parent company is subjected to liability for the books and records and
internal control violations of its indirect subsidiaries or affiliates,
should not this strict liability theory have judicial approval?
4.
Disgorge What?
The facade of FCPA enforcement is evident not only in connection

with the FCPAs substantive provisions, but also in the remedies the
enforcement agencies typically pursue in an FCPA enforcement action.
The FCPA contains specific penalty provisions for both violations of the
anti-bribery and books and records and internal control provisions.304
Yet, during the current facade era of FCPA enforcement, there has
been a dramatic shift away from the FCPAs statutory penalties in nearly
every enforcement action towards disgorgement, which is the forfeiture of ill-gotten gains from illegal activity.
The 2004 FCPA enforcement action against ABB Ltd. (ABB) is
believed to be the first use of the disgorgement remedy in an FCPA
enforcement action.305 The action involved both a DOJ and SEC
component.306 The SEC enforcement action, in which the disgorgement remedy was pursued, generally alleged that ABB, a Swiss power
and automation technology company, violated the FCPA when its U.S.
and foreign based subsidiaries allegedly made illicit payments totaling
over $1.1 million to foreign officials in Nigeria, Angola, and Kazakhstan
to influence the acts and decisions of those officials in order to assist
ABB in obtaining and retaining business.307 The SECs complaint
specifically alleged that the payments to the various officials yielded
or generated more than $5 million in profits for the company.308
Without admitting or denying the SECs allegations, ABB consented to
entry of a final judgment that, among other things, ordered it to pay
304. See 15 U.S.C. 78dd-2(g), 78dd-3(e), 78ff (2000).

305. See SEC Sues ABB Ltd in Foreign Bribery Case, Litigation Release No. 18775 (July 6,
2004), available at http://www.sec.gov/litigation/litreleases/lr18775.htm.
306. See id.
307. See id.
308. See Complaint at 11, 18, 22, SEC v. ABB Ltd., No. 1:04CV01141 (D.D.C. Jul. 6, 2004),
available at http://www.sec.gov/litigation/complaints/comp18775.pdf .
2010]
981
5.9 million in disgorgement.309

Since the ABB enforcement action in 2004, the SEC has sought
disgorgement in virtually every FCPA enforcement action it has
brought.310 Use of the disgorgement remedy in these FCPA enforcement actions raises significant questions.311 As David Weiss notes:
The history surrounding the passage of the FCPA indicates that
it is unclear whether Congress intended that the SEC pursue
disgorgement in FCPA enforcement. This fact alone should at
least give pause to question the normative function of disgorgement . . . Neither the reports of the House or Senate floor
discussion of the FCPA or its subsequent amendments, nor the
1981 follow-up report from the U.S. General Accounting Office
on corporate bribery and the FCPA, mention disgorgement as a
remedy.312
Even with a less than enlightening legislative history, disgorgement of
ill-gotten gains would seem to have an intuitive appeal in an FCPA
enforcement action charging violations of the anti-bribery provisions,
given that a company may have obtained or retained business because
of the improper payment. However, as demonstrated below, the SECs
use of the disgorgement remedy has not been limited to cases involving
anti-bribery charges. Rather, the SEC also routinely seeks a disgorgement remedy when only charging violations of the FCPAs books and
records and internal control provisions.
For instance, in February 2009, the SEC filed a settled civil complaint
against ITT Corporation (ITT), a New York-based multi-industry
company, charging it with FCPA books and records and internal
control violations.313 The complaint alleged that ITT violated the
FCPAs books and records and internal control provisions based on
payments to Chinese government officials by ITTs wholly-owned
Chinese subsidiary, Nanjing Gould Pumps Ltd. (NGP) and that
309. See SEC Litigation Release 18775, supra note 303.

311. See David Weiss, The Foreign Corrupt Practices Act, SEC Disgorgement of Profits, and the
Evolving International Bribery Regime: Weighing Proportionality, Retribution, and Deterrence, 30 MICH.
J. INTL L. 471, 474 (2009).
312. Id. at 496 97.
313. See SEC Filed Settled Charges Against ITT Corporation for Violations of the Books and
Records and internal Controls Provisions of the Foreign Corrupt Practices Act, Litigation Release
No. 20896 (Feb. 11, 2009), available at http://www.sec.gov/litigation/litreleases/2009/lr20896.htm.
982
[Vol. 41
[f]rom 2001 through 2005, NGPs illicit payments to employees of

numerous Chinese state-owned entities totaled approximately
$200,000.314 Although the complaint does not charge anti-bribery
violations, the SEC nevertheless alleged that the SOE customers
associated with those illicit payments generated over $4 million in sales
to NGP, from which ITT realized improper profits of more than $1
million.315 Despite the lack of an anti-bribery charge, the complaint
sought an order requiring ITT to disgorge profits derived from
contracts resulting from its inappropriate payments to SOEs during the
years 2001 through 2005 as well as the payment of prejudgment
interest on those amounts.316 In resolving the matter, ITT, without
admitting or denying the allegations, consented to entry of a final
judgment ordering it to pay disgorgement of $1,041,112 together with
prejudgment interest thereon of $387,538.11 and a $250,000 civil
penalty.317
The ITT enforcement action, just one of many such enforcement
actions where the SEC has sought such a disgorgement remedy,
demonstrates the increasing trend of the SEC seeking disgorgement
remedies in cases only charging books and records and internal
controls violations. It also demonstrates that the disgorgement remedy
typically exceeds the statutory penalty amount.
Non-FCPA disgorgement case law clearly holds that because disgorgement primarily serves to prevent unjust enrichment a court may
exercise its equitable power only over property causally related to the
wrongdoing.318 This case law also makes clear that while the remedy of
disgorgement may well be a key to the SECs efforts to deter others
from violating the securities laws . . . disgorgement may not be used
punitively.319
It is difficult to see how a disgorgement remedy premised solely on
an FCPA books and records and internal controls case is not punitive. It
is further difficult to see how the mis-recording of a payment (a
payment that the SEC does not allege violated the FCPAs anti-bribery
provisions) can properly give rise to a disgorgement remedy. As Urofsky and Newcomb state: [w]hether or not a false entry in a companys
314. See Complaint at 1, SEC v. ITT Corp., 1:09-CV-00272 (D.D.C. Feb. 11, 2009), available
at http://www.sec.gov/litigation/complaints/2009/comp20896.pdf.
315. Id.
316. Id. at 7.
317. See SEC Litigation Release 20896, supra note 311.
318. See, e.g., SEC v. First City Fin. Corp. Ltd., 890 F.2d 1215, 1230 31 (D.D.C. 1989).
319. Id. (citations omitted).
2010]
983
books and records (or a failure to implement adequate internal

controls) truly results in increased profits is open to question.320
However, the propriety and legality of this remedy has not been
tested in the courts,321 and to date, no FCPA defendant has publicly
challenged the SEC on whether disgorgement is appropriate when the
sole charge is false books and records.322 Before the SEC seeks
disgorgement against another company based only on FCPA books and
records and internal control violations, should not the propriety of this
remedy have judicial approval?
This section has highlighted four untested and dubious legal theories seen with increasing and alarming frequency in FCPA enforcement
actions. Yet these four legal theories are just some of the questionable
and aggressive legal theories common in FCPA enforcement.323 Because those subject to the FCPA are not in the business of setting legal
precedent, and because of the resolution vehicles typically used to
resolve FCPA enforcement actions, these legal theories, and in some
cases enforcement theories in direct conflict with the FCPAs statutory
provisions, remain untested. It is this feature of the FCPA that distinguishes FCPA enforcement from nearly every other area of law and
why, as explained in more detail in Section IV of this article, the facade
of FCPA enforcement matters.
Bareboned, uninformative facts and legal conclusions, and enforcement based on untested and dubious legal theories are just two of the
pillars that contribute to the facade of FCPA enforcement. The facade of
FCPA enforcement is also present when the same core set of governmentalleged facts lead to materially different charges and penalties.
C.
Third Pillar: Same Facts, Different Results
If two FCPA enforcement actions were ever carbon-copies of each

other, they would be the December 2007 enforcement action against

321. See David Weiss, supra note 309, at 486.
323. Other aggressive, untested prosecution theories include: whether U.S. dollar denominated
transactions through correspondent bank accounts in U.S. intermediary banks, whether intended or
unintended, standing alone and without any traditional [U.S.] territorial act, is sufficient to confer
U.S. jurisdiction over foreign individuals or entities. UROFSKY & NEWCOMB, supra note 1, at 14 15. See
also Winer & Husisian, supra note 239 (The DOJ and SEC . . . now interpret the knowledge
requirement [of the FCPA] so broadly that they have effectively eviscerated the 1988 statutory changes,
thereby raising an important question: Are the DOJ and SEC frustrating the intent of Congress by
ignoring the reason that Congress amended the FCPA?).
984
[Vol. 41
Lucent Technologies, Inc. (Lucent) and the December 2009 enforcement action against UTStarcom, Inc. (UTSI). As explained below,
both enforcement actions involved telecommunications companies,
principally concerned business conduct in China, involved payment of
excessive travel and entertainment expenses, and were resolved through
a DOJ NPA and an SEC settled civil complaint and consent decree.
Despite these similarities, the end results were materially different.
Lucent
In December 2007, the DOJ announced that Lucent had entered an
agreement with the Department of Justice and ha[d] agreed to pay a $1
million fine to resolve allegations that it violated the Foreign Corrupt
Practices Act.324
The agreement was an NPA, which included this statement of
facts;325
From at least 2000 to 2003, Lucent provided approximately 315
trips for Chinese government officials that included primarily
sightseeing, entertainment and leisure. These trips were requested and approved with the consent and knowledge of the
highest Lucent China officials and with the assistance of Lucent
employees in the United States, including at corporate headquarters in Murray Hill, New Jersey. Lucent improperly recorded expenses for these trips in its books and records and
failed to provide adequate internal controls to monitor the
provision of travel and other things of value to Chinese government officials.326
According to the statement of facts, these trips included at least
sixty-five visits to the U.S. by senior level government officials, including the heads of state-owned telecommunications companies . . . and the
leaders of provincial telecommunications subsidiaries.327 These presale trips lasted for two weeks and included brief stops at certain Lucent
324. See Lucent Technologies Inc. Agrees to Pay $1 Million Fine to Resolve FCPA Allegations,
DOJ Release No. 07-1028 (Dec. 21, 2007), available at http://www.justice.gov/opa/pr/2007/
December/07_crm_1028.html.
325. Non-Prosecution Agreement from the U.S. D.O.J Crim. Div. to Martin J. Weinstein,
Esq., Regarding Lucent Technologies (Nov. 14, 2007), available at http://www.law.virginia.edu/
pdf/faculty/garrett/lucent.pdf.
326. Id. app. A at 12.
327. Id. at 2.
2010]
985
facilities, but the majority of the trips consisted of visiting Boston, Las
Vegas, the Grand Canyon and Hawaii for strictly entertainment, travel
and leisure purposes.328 Nevertheless, the trips were entirely paid for
by Lucent at a total expense of $1.3 million.329
Other trips included hosting a Chinese foreign official in California
for two and a half days of sightseeing, entertainment and leisure,
approved by the company after learning of the past and future
revenues associated with this customer and [the] officials decision
making role.330 Another trip included paying for a Chinese foreign
official and his wife and daughter to travel to Thailand and Hong
Kong for a seven-day vacation and the planning for this trip indicated
that the vacation was aimed at influencing the [foreign official] and
strengthening the customer relationship to expand the business
relationship with the customer.331 Other trips included post-sale visits
dubbed factory tours which consisted primarily or entirely of sightseeing to locations such as Disneyland, Los Angeles, San Francisco,
Universal Studios, the Grand Canyon, Las Vegas, tours of Washington
D.C., tours of New York City, and stop-overs in Hawaii.332 According to
the statement of facts, these trips typically lasted fourteen days, cost
Lucent between $25,000 $55,000 per trip, and the officials received a
$500 to $1,000 a day in per diem.333
The statement of facts describes yet additional trips by foreign
officials paid for by the company and cites internal company e-mails
suggesting that the foreign officials employer was a very special case
in light of the fact that Lucent had already received $50 million in sales
from the company and additional business opportunities totaling $2
billion $3 billion existed for the future.334
The statement of facts also indicates that Lucent: (i) paid or offered
to pay for educational opportunities for relatives or associates of
Chinese government officials, some of whom were in a position to
influence Chinas use of Lucent-compatible technologies; (ii) approved payments totaling over $71,000 to cover the tuition and living
expenses of an employee of a Chinese government ministry, who was
obtaining a masters degree in international management when that
328.
329.
330.
331.
332.
333.
334.
986
Id.
Id. at 23.
Id. at 3.
Id.
Id. at 4 5.
Id. at 5.
Id. at 6.
[Vol. 41
employee was an assistant to a committee chairman at the ministry

and the committee was at least partially responsible for choosing
which mobile telecommunications platform China would adopt; (iii)
paid, upon the request of a foreign official, approximately $22,000 so
that the individual could obtain an MBA; and (iv) provided a paid
internship to the daughter of a Chinese government official working at
the Chinese embassy in the United States because it [was] very
important for Lucent to continue building a good relationship with the
Chinese embassy, which has close ties to leaders in China when it comes
to wireless standards and vendor selections.335
The SECs settled civil complaint and consent decree concerned the
same core set of facts, but provided a bit more specificity in that it
alleged that [f]rom at least 2000 to 2003, Lucent spent over $10
million for approximately 1,000 Chinese officials employed by government enterprises that were either entities to which Lucent was
seeking to sell its equipment and services or existing Lucent customers
to travel to the U.S. and elsewhere for predominately leisure purposes.336 The SEC complaint alleged that these foreign officials were
associated with contracts Lucent obtained worth a reported $428
million, a customer Lucent estimated was worth $500 million in
revenues in potential business, a contact valued at $23 million and a
customer with which Lucent had $23 billion in potential business
opportunities.337
The SEC release accompanying the settled civil complaint indicates
that Lucent agreed to settle the matter, without admitting or denying
the allegations, by paying $1.5 million in civil penalties.338
UTStarcom
In December 2009, the DOJ announced that UTSI had entered an
agreement with the Department of Justice, agreeing to pay a $1.5
million fine for violations of the Foreign Corrupt Practices Act by
providing travel and others things of value to foreign officials, specifically, employees at state-owned telecommunications firms in the Peo-
335. Id. at 8 9.
336. See Complaint at 1, SEC v. Lucent Tech. Inc., No. 1:04CV01141 (D.D.C. Dec. 21,
2007), available at http://www.sec.gov/litigation/complaints/comp18775.pdf.
337. Id. at 15, 20, 23.
338. See SEC Files Settled Action Against Lucent Technologies Inc. in Connection With
Payments of Chinese Officials Travel and Entertainment Expenses; Company Agrees to Pay $1.5
Million Civil Penalty, SEC Litigation Release No. 20414 (Dec. 21, 2007), available at http://
www.sec.gov/litigation/litreleases/2007/lr20414.htm.
2010]
987
ples Republic of China.339

The agreement, like the Lucent agreement, was an NPA. Its statement of facts read:340
Between 2002 and 2007, UTSI spent nearly $7 million on
approximately 225 trips for customer employees pursuant to
training provisions in systems contracts entered into between
UTS-China and government-controlled municipal or provincial
telecommunications companies.341
According to the statement of facts, these trips, like the Lucent trips,
were to places such as Hawaii, Las Vegas and New York, and company
senior management believed that these trips were necessary in order
to obtain and retain the systems contracts.342 The statement of facts
does not specify the dollar value associated with these contracts, but it
does state that China historically had been UTSIs most important
market.343 In fact, unlike the Lucent statement of facts, which is a full
nine pages, the statement of facts in the UTSI NPA is approximately
two pages. This enforcement action could thus also support the first
pillar of the facade of FCPA enforcement in that it involved bareboned
uninformative facts and legal conclusions.
The SECs settled civil complaint and consent decree against UTSI
concerned the same core set of facts, but like the Lucent matter,
contained additional allegations that UTSI provided other gifts and
benefits to foreign government customers, including paying for them
to attend executive training programs at U.S. universities and that
UTSI provided foreign government customers or their family members with work visas and purportedly hired them to work for UTSI in
the U.S., when in reality they did not work for the company.344
The SEC settled civil complaint also alleged that: (i) UTSIs general
manager in Thailand spent nearly $10,000 on French wine as a gift to
339. See Press Release, DOJ, UTStarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of
Foreign Bribery in China (Dec. 31, 2009), available at http://www.justice.gov/opa/pr/2009/
December/09-crm-1390.html.
340. Non-Prosecution Agreement from the U.S. DOJ Crim. Div. to Leo Cunningham, Esq.,
regarding UTStarcom, Inc. (Dec. 31, 2009), available at http://www.law.virginia.edu/pdf/faculty/
garrett/utstarcom.pdf.
341. Id. at app. A at 2.
344. Complaint at . 2, SEC v. UTStarcom, Inc., No. CV 09-6094 (N.D. Cal.), available at,
http://www.sec.gov/litigation/complaints/2009/comp21357.pdf.
988
[Vol. 41
agents of the government customer, including rare bottles that cost

more than $600 each and that the manager also spent $13,000 for
entertainment expenses for the same customer in an attempt to secure
the contract; (ii) a UTSI employee authorized payment to a Mongolian company pursuant to a purported consulting agreement while
knowing that the Mongolian company intended to use a portion of the
money to make payments to at least one Mongolian government
official to help UTSI obtain a favorable ruling in a dispute over its
license; and (iii) UTSIs former Executive Vice President and CEO of
UTS-China authorized a $200,000 payment to a Chinese company
pursuant to a purported consulting agreement when [i]n reality it
was a sham consulting company and the payment was made as part of
an effort to obtain a contract from a Chinese government customer.345
The SEC release accompanying the settlement indicates that UTSI
agreed to settle the matter, without admitting or denying the allegations, by paying $1.5 million in civil penalties.346
Thus, both the Lucent and UTSI matters, per the governments
statements of facts and allegations, involved payment of money and
other things of value (primarily excessive travel and entertainment
expenses) to foreign officials to obtain or retain business.
Yet, the outcomes of these carbon-copy enforcement actions were
materially different. UTSI settled its matter by agreeing to pay $3
million in total fines and penalties for FCPA anti-bribery, books and
records and internal control violations. However, Lucent settled its
matter by agreeing to pay $2.5 million in total fines and penalties for
merely FCPA books and records and internal controls violationsthat
is, no anti-bribery violations. This, despite the fact that, per the governments statement of facts and allegations, Lucent sponsored more trips
than UTSI (315 compared to 225) and spent more money on the
problematic trips than UTSI ($10 million compared to $7 million) to
influence more foreign officials in the hopes of winning billion dollar
and multi-million dollar contracts. Also relevant is that UTSI was
charged with anti-bribery violations and paid a higher combined
fine/penalty amount than Lucent based on less severe allegations,
despite the fact that UTSI, per the DOJs release, voluntarily disclosed
the conduct at issue. Notably, the DOJs Lucent release is silent as to
voluntary disclosure.
345. Id. at 22-28.

346. See SEC Charges California Telecom Company with Bribery and Other FCPA Violations,
Litigation Release No. 21357 (Dec. 31, 2009), available at http://www.sec.gov/litigation/litreleases/
2009/lr21357.htm.
2010]
989
The fact that the carbon-copy Lucent and UTSI enforcement actions
resulted in materially different charges and penalties contributes to the
facade of FCPA enforcement by suggesting that FCPA charging decisions are not based solely on the facts and law, but less transparent
factors as well.
Both the Lucent and UTSI enforcement actions could also support
the second pillar of the facade of FCPA enforcement given that both
actions involved employees of Chinese SOEs, and thus the individuals
receiving the things of value were foreign officials only under the
enforcement agencies untested interpretation of that term.
Thus far, the pillars contributing to the facade of FCPA enforcement
have primarily focused on enforcement actions where the conduct at
issue is arguably not even an FCPA violation. That there is no judicial
scrutiny of these enforcement actions is troubling. However, even more
troubling and most alarming is the fourth pillar that contributes to the
facade of FCPA enforcement and that is where seemingly clear-cut
instances of corporate bribery, per the governments own allegations,
are resolved without FCPA anti-bribery charges.
D.
Fourth Pillar: Bribery, Yet No Bribery
The Principles of Prosecution state that [p]rosecutors may enter

into plea agreements with corporations347 but that [i]n negotiating
plea agreements with corporations, as with individuals, prosecutors
should generally seek a plea to the most serious, readily provable
offense charged.348 In the most high-profile and egregious instances
of corporate bribery, the DOJ seemingly violated this principle by
agreeing to plea agreements with Siemens and BAE Systems (BAE)
that did not include FCPA anti-bribery charges. Resolution of these
enforcement actions, whichper the governments allegations
involved clear-cut instances of corporate bribery, certainly suggests
that, contrary to rule of law principles, certain companies in certain
industries are essentially immune from FCPA anti-bribery charges.
Thus, these enforcement actions further contribute to the facade of
FCPA enforcement.
347. See DOJ Office of Pub. Affairs, Principles of Federal Prosecution of Business Organizations, Title 9, Chp. 9-28.000, 9-28.1300(B), available at http://www.justice.gov/opa/documents/
corp-charging-guidelines.pdf.
348. Id. at 9 28.1300(A).
990
[Vol. 41
Siemens
In December 2008, the DOJ announced the filing of a criminal
information against Siemens Aktiengesellschaft (Siemens).
Despite being a German company with principal offices in Berlin
and Munich, Siemens became subject to the FCPA because, since
March 2001, its shares have been listed on the New York Stock
Exchange, making it an issuer for purposes of the FCPA.349 Furthermore, as described below, certain Siemens subsidiary companies with
offices in the U.S. participated in the bribery scheme, thus providing an
independent U.S. nexus for FCPA anti-bribery charges.350
According to the DOJ release announcing the charges, over a
six-year period:
Siemens AG made payments totaling approximately $1.36 billion through various mechanisms. Of this amount, approximately $554.5 million was paid for unknown purposes, including approximately $341 million in direct payments to business
consultants for unknown purposes. The remaining $805.5 million of this amount was intended in whole or in part as corrupt
payments to foreign officials through the payment mechanisms, which included cash desks and slush funds.351
The DOJs Acting Assistant Attorney General stated in the release that
the charges make clear that for much of its operations across the
globe, bribery was nothing less than standard operating procedure for
Siemens.352 The Director of the SECs Division of Enforcement stated
in the release that the pattern of bribery by Siemens was unprecedented in scale and geographic reach and the corruption involved
more than $1.4 billion in bribes to government officials in Asia, Africa,
Europe, the Middle East and the Americas.353
At the press conference announcing the charges, senior government
enforcement officials stated that Siemens engaged in a systematic and
widespread effort to make and hide hundreds of millions of dollars in
349. See Complaint at 2, U.S. v. Siemens Aktiengesellschaft (D.D.C. Dec. 12, 2008), available
at http://www.justice.gov/opa/documents/siemens-ag-info.pdf.
350. See id. at 6.
351. See Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign
Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec.
15, 2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.
352. Id.
353. Id.
2010]
991
bribe payments across the globe; Siemens employees sometimes

carried . . . cash in suitcases across international borders to pay bribes;
Siemens received billions of dollars worth of government contracts
because of these payments; Siemens conduct was egregious, staggering, brazen, and systematic; and that there existed a corporate
culture in which bribery was tolerated and even rewarded at the highest
levels of the company.354
The egregious nature of Siemens conduct is specifically alleged in the
criminal information. Among other allegations, the information details
how Siemens paid out, through various mechanisms, $805.5 million in
corrupt payments to foreign officials, including: (i) payments made by
various subsidiaries, including those with offices in the U.S., to purported
business consultants, knowing that at least some or all of those funds
would be passed along to foreign government officials; (ii) money
withdrawn from cash desks within Siemens offices for corrupt payments; and (iii) slush funds to generate cash for corrupt payments.355
As to the amount of business Siemens obtained or retained because
of these corrupt payments to foreign officials, the DOJs sentencing
memorandum states that calculating a traditional loss figure under the
Sentencing Guidelines would be overly burdensome, if not impossible given the literally thousands of contracts over many years.356
The fine range under the Sentencing Guidelines for the conduct
charged in the information was $1.35 billion to $2.70 billion.357
Based on the above information, the Siemens bribery scheme would
seem to be a clear-cut case of an FCPA anti-bribery violation. Yet, the
DOJs criminal information against Siemens charges only FCPA internal control and books and records violations. While the DOJ also did
charge Siemens S.A. Argentina, Siemens Bangladesh Limited and
Siemens S.A. Venezuela with conspiracy to violate the FCPAs antibribery provisions and/or violating the FCPAs books and records and
internal control provisions,358 Siemens, the entity that orchestrated the
entire bribery scheme according to the DOJs allegations, escaped the
more serious criminal anti-bribery charges.359 A key factor the DOJ
354. Id.
355. See Siemens Complaint, supra note 348, at 23.
356. Sentencing Memorandum at 11, United States v. Siemens Aktiengesellschaft (D.D.C.
Dec. 12, 2008) available at http://www.justice.gov/opa/documents/siemens-sentencing-memo.pdf.
357. See id. at 12.
358. DOJ Siemens Press Release, supra note 350.
359. The SEC, which also had jurisdiction over Siemens given its issuer status also filed a
settled civil complaint against the company alleging violations of the FCPAs anti-bribery provi-
992
[Vol. 41
considered in resolving the case against Siemens in the way it did was
the collateral consequences that could have resulted from criminal
anti-bribery charges including the risk of debarment and exclusion
from government contracts.360
The DOJ release notes that Siemens, along with its above referenced
subsidiaries, agreed to pay $450 million in criminal fines.361 The SEC
release notes that Siemens, without admitting or denying the allegations, agreed to pay $350 million in disgorgement.362 The combined
$800 million in U.S. fines and penalties, a record in an FCPA case, was
in addition to fines and penalties Siemens paid to settle German
enforcement actions based on the same core conduct.363 Even so, the
total amount of fines and penalties Siemens paid in the U.S. is
substantially less than the fine range allowed under the Sentencing
Guidelines, substantially less than the amount of business Siemens
obtained or retained because of its corrupt conduct, and substantially
less than the bribe amounts Siemens paid.
Although Siemens dodged the more serious criminal FCPA antibribery charges, the company clearly did not escape liability for its
egregious, staggering, and brazen, conduct. Yet the lack of criminal FCPA anti-bribery charges against a company that engaged in a
pattern of bribery unprecedented in scale and geographic reach,
and a company in which bribery was nothing less than standard
operating procedure is startling. If ever a company deserved to be
prosecuted for FCPA anti-bribery violations, it would seem to Siemens.
Yet, the Siemens matter is not the only enforcement action contributing to this fourth pillar of the facade of FCPA enforcement.
BAE
For years, BAE Systems (BAE), a British defense contractor, had
been under intense scrutiny concerning allegations that it had engaged
sions, as well as the FCPAs books and records and internal control provisions. See SEC Files Settled
FCPA Act Charges Against Siemens AG for Engaging in Worldwide Bribery with Total Disgorgement and Criminal Fines of Over $1.6 Billion, Litigation Release No. 20829 (Dec. 15, 2008),
available at http://www.sec.gov/litigation/litreleases/2008/lr20829.htm.
360. See Sentencing Memorandum, supra note 355, at 13.
361. DOJ Siemens Press Release, supra note 350.
363. Press Release, DOJ, Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt
Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines (Dec. 15,
2008), available at http://www.justice.gov/opa/pr/2008/December/08-crm-1105.html.
2010]
993
in widespread bribery and corruption.364

In February 2010, the DOJ announced the filing of a criminal
information against BAE. Among other allegations, the information
charges that BAE served as the prime contractor to the U.K. government following the conclusion of a Formal Understanding between the
U.K. and the Kingdom of Saudi Arabia (KSA) in which BAE sold
several Tornado and Hawk aircraft, along with other military hardware, training and services to the U.K. government, which sold the
material and services to the Saudi government.365 The information
refers to these frequent arrangements as the KSA Fighter Deals.366
In connection with these deals, the information alleges that BAE
provided substantial benefits to one KSA public official, who was in a
position of influence regarding the KSA Fighter Deals (the KSA
Official), and to the KSA Officials associates.367 According to the
indictment, BAE provided these benefits through various payment
mechanisms both in the territorial jurisdiction of the U.S. and elsewhere. This allegation is important from an FCPA perspective because
the FCPA only applies to a company like BAE (a foreign company with
no shares listed on a U.S. exchange) if conduct in furtherance of the
bribery scheme has a U.S. nexus.368
The information contains additional allegations that clearly demonstrate that BAEs bribery scheme had a U.S. nexus. For instance, the
information alleges that BAE provided support services to [the] KSA
Official while in the territory of the U.S. and that these benefits
included the purchase of travel and accommodations, security services, real estate, automobiles and personal items.369 The information
alleges that a single BAE employee during one year submitted over $5
million in invoices for benefits provided to the KSA Official.370
The information also alleges that BAE used intermediaries and shell
364. See e.g., Frontline: Black Money (PBS television broadcast Apr. 7, 2009), available at
http://www.pbs.org/wgbh/pages/frontline/blackmoney/view/.
365. Complaint at 41, United States v. BAE Sys., No. 1:10-cr-00035-JDB (D.D.C. Feb. 4, 2010),
available at http://www.justice.gov/criminal/fraud/fcpa/cases/docs/02-01-10baesystems-info.pdf.
366. Id.
367. Id. at 43.
368. 15 U.S.C. 78dd-3. BAE does have a wholly owned U.S. subsidiary, BAE Systems, Inc. a
company headquartered in Rockville, Maryland, and thus a domestic concern under the FCPA
and independently subject to the FCPA regardless of any U.S. nexus test being met. See
Complaint, supra note 364, at 2. However, the information alleges that none of the facts in
the information relate or represent any conduct of BAE Systems, Inc. See id.
369. BAE Complaint, supra note 364, at 44.
370. Id. at 45.
994
[Vol. 41
entities to conceal payments to certain advisors who were assisting in

the solicitation, promotion and otherwise endeavoring to secure the
conclusion or maintenance of the KSA Fighter Deals.371 Specifically,
the information alleges that in connection with the KSA Fighter Deals,
BAE agreed to transfer sums totaling more than 10,000,000 and more
than $9,000,000 to a bank account in Switzerland controlled by an
intermediary. According to the information, BAE was aware that
there was a high probability that the intermediary would transfer part
of these payments to the KSA Official.372 Though unnamed in the
DOJ information, the Saudi intermediary is widely reported to be
Saudi Prince Bandar bin Sultanat the time the Saudi Ambassador to
the U.S.373
The above language (i.e., a company being aware that there was a
high probability that an intermediary would transfer improper payments to a foreign official) is frequently used by the DOJ in charging
companies with FCPA violations. For instance, in the InVision FCPA
enforcement action, the investigations by the DOJ and SEC revealed
that InVision, through the conduct of certain employees, was aware of a
high probability that its agents or distributors in Thailand, China and
the Philippines had paid or offered to pay money to foreign officials or
political parties in connection with transactions or proposed transactions for the sale by InVision of its airport security screening machines.374
Yet, the DOJs criminal information against BAE merely charges one
count of conspiracy; it lacks any FCPA anti-bribery charges. Moreover,
the conspiracy charge relates only to making certain false, inaccurate
and incomplete statements to the U.S. government and failing to
honor certain undertakings given to the U.S. government, thereby
defrauding the United States and caus[ing] to be filed export license
applications with [various U.S. government entities] that omitted a
371. Id. at 46.

372. Id. at 47.
373. MILLER & CHEVALIER , BAE Settles Protracted, Controversial Bribery Case with U.S. and U.K.
Authorities (Feb. 11, 2010), http://www.millerchevalier.com/Publications/MillerChevalierPublications?find26504. As noted in the alert, [t]wo years ago, the U.S. television program Frontline
re-broadcast an earlier interview with Prince Bandar in which he shrugged off $50 billion of
corrupt payments in a hypothetical $400 billion transaction with a so what?, adding that this was,
in his view, human nature. See Frontline: Black Money, supra note 363.
374. See Press Release, DOJ, InVision Technologies Inc. Enters Into Agreement with the
United States (Dec. 6, 2004), available at http://www.justice.gov/opa/pr/2004/December/
04_crm_780.htm.
2010]
995
material fact concerning fee and commission payments.375 Among the

false statements BAE is alleged to have made to the U.S. government is
its commitment to not knowingly violate the FCPA.376 That is the only
mention of the FCPA in the information despite the above allegations
concerning the KSA Fighter Dealsfacts that clearly implicate the
FCPAs anti-bribery provisions.
The DOJ release accompanying announcement of the information
states that BAE is expected to plead guilty and pay a $400 million
fine.377 Thus, BAE clearly did not escape liability for its egregious
conduct, but the lack of FCPA anti-bribery violations against BAE is just
as startling as in the Siemens matter.
Under the rule of law, facts are to be applied to the law, and the law is
to be applied equally to all those subject to the law.378 However,
Siemens and BAE are no ordinary companies. Siemens is a major U.S.
government contractor and its diverse business units have contracts
with a wide range of U.S. government agencies, including Department
of Defense, Department of the Air Force, Department of the Army,
Department of Transportation, Department of Health and Human
Services, Department of Energy, Department of Commerce, Department of Housing and Urban Development, and the General Services
Administration.379 The DOJ stated specifically in its sentencing memorandum that it chose to resolve the Siemens matter the way it did to
avoid collateral consequences that could have resulted from criminal
FCPA anti-bribery charges including the risk of debarment and exclusion from government contracts.380 Likewise, BAE is a major U.S.
government contractor. The DOJ criminal information specifically
states that in 2008, BAE was the largest defense contractor in Europe
and the fifth largest in the . . . U.S. as measured by sales.381
The message the DOJ sent in the Siemens and BAE enforcement
actions is that certain companies in certain industries, particularly those
that sell certain products to certain customers, are essentially immune
from FCPA anti-bribery charges. The Siemens and BAE enforcement
actions thus also contribute to the facade of FCPA enforcement.
375. Id. at 5.
376. Id. at 9.
377. See Press Release, DOJ (Feb. 5, 2010) (on file with author).
378. Robert Stein, Rule of Law: What Does it Mean? 18 MINN. J. INTL L. 292, 298 99 (2009).
379. See Siemens . . . the Year After, FCPA PROFESSOR BLOG (Dec. 14, 2009, 12:12 EST),
http://fcpaprofessor.blogspot.com/2009/12/siemens-year-after.html.
380. See Sentencing Memorandum, supra note 355, at 11.
381. See Press Release, supra note 377, at 1.
996
[Vol. 41
V.
WHY THE FACADE OF FCPA ENFORCEMENT MATTERS
This article first provided an overview of FCPA enforcement and

demonstrated how FCPA enforcement actions are typically resolved
through resolution vehicles subject to little or no judicial scrutiny. This
article then explored the various carrots and sticks motivating
FCPA defendants to accept these resolution vehicles notwithstanding
untested and dubious enforcement theories and noted that resolution
vehicles in DOJ or SEC enforcement actions do not necessarily reflect
the triumph of one partys legal position over the other. Because of
these dynamics, FCPA enforcement is often a facade, and this article
then highlighted four pillars that contribute to the facade of FCPA
enforcement. This article now concludes by demonstrating why the
facade of FCPA enforcement matters and why judicial scrutiny of FCPA
enforcement actions is in the public interest and of vital importance to
those subject to the FCPA as well as the broader marketplace.
As a matter of general jurisprudence, it is troubling when any area of
law largely develops outside of the judicial process. The judicial process
facilitates the thoughtful presentation of opposing views, mitigating
facts and circumstances, and potential defenses in an adversarial
proceeding culminating in an impartial decision-maker weighing the
facts and applying the law in rendering a decision in a transparent
manner.
These fundamental hallmarks are largely missing in FCPA enforcement. Rather, the enforcement agencies, occupying positions of advocate, judge, and rule-maker, induce settlement through the carrots
and sticks they possess even though many of the enforcement theories leading to these resolutions are untested and dubious, and in some
case in direct conflict with the FCPAs statutory provisions. The end
result is resolution vehicles that do not facilitate the thoughtful presentation of opposing views, mitigating facts and circumstances, potential
defenses, or testing of legal theories. Yet, these resolution vehicles
largely define the FCPA. When the parameters of any law develop
through such an opaque process, public confidence in that law, as well
as the rule of law, suffers.
Even more troubling is that the FCPA is the most important U.S. law
governing international commerce. For much of the FCPAs history,
the statute was viewed as a law that largely applied to large companies
often resource extraction companies doing business in emerging
markets. However, with the increase in globalization and the saturation
of domestic markets, it is no longer just large resource extraction
companies that are doing business in overseas markets. If the increase
in FCPA enforcement over the last decade has taught anything, it is that
2010]
997
large and small companies in all industries face FCPA risk and exposure.382 Further, given the FCPAs broad reach and applicability to
certain foreign companies and citizens, the facade of FCPA enforcement is a global issue affecting a broad segment of the marketplace.
These are general reasons why the facade of FCPA enforcement
matters are troubling enough in isolation. Yet these reasons pale in
comparison to the specific reasons why the facade of FCPA enforcement matters. This article concludes by identifying three specific
reasons why the facade of FCPA enforcement matters: the absurdity of
resolution vehicles serving as de facto case law; the breeding of overcompliance; and the increasing frequency by which other nations are
modeling enforcement of their own bribery laws on U.S. enforcement
methods and theories.
A. The Absurdity of FCPA Case Law
The facade of FCPA enforcement results in the absurd result that
privately negotiated settlements subject to little or no judicial scrutiny
serve as de facto case law. This negative byproduct of the facade of FCPA
enforcement is problematic to those subject to the FCPA who face a
triple legal whammy in trying to comply with the law in an aggressive
enforcement environment.
The first legal whammy is that several of the FCPAs key elements
are vague and ambiguous. In a rare instance in which an FCPA
enforcement action did result in a judicial decision, the Kay court
found the key obtain or retain business element of an FCPA antibribery violation to be vague and ambiguous.383 As to the FCPAs key
foreign official element, the DOJ has publicly acknowledged that
there can be difficult assessments of who qualifies as a foreign official
under the FCPA.384 Should this element ever be subjected to judicial
scrutiny, it is likely that a court would find it to be vague and ambiguous
as well.
The second legal whammy is the dearth of substantive FCPA case
law. A judge put in the rare position of deciding an FCPA issue recently
noted the surprisingly few decisions throughout the country on the
382. FCPA enforcement actions in 2009 ranged from KBR/Halliburton an oil and gas
company concerning conduct in Nigeria to Natures Sunshine Products Inc., - a nutritional
supplement company concerning conduct in Brazil. See DOJ Press Release, supra note 134.
383. See Kay, 359 F.3d at 743 44.
384. See WRAGEBLOG, supra note 240.
998
[Vol. 41
FCPA over the course of the last thirty years.385 FCPA practitioners,
who must tell clients that, in many cases, the FCPA means what the
enforcement agencies say it means, have noted the lack of substantive
FCPA case law on numerous occasions as demonstrated below:
Although the [FCPA] was enacted more than thirty years ago,
there is little case law addressing many of the FCPAs most
important elements.386 One of the problems with trying to nail
down the requirements of the FCPA is that there is so little
judicial precedent because most companies and individuals
choose to avoid the embarrassment and expense of trial.387
Because of the dearth of adjudicated court decisions related
to the FCPA, settlement agreements containing compromises
that may be acceptable to both sides are also frequently cited as
precedents, including by U.S. enforcement agencies. As a result, terms accepted as conditions of settlement become part of
FCPA jurisprudence, but may not always reflect how a court or
jury would have decided the same issue.388
Unfortunately . . . some of the governments more interesting theories have been announced in settled cases, providing
no opportunity to test the validity of those theories in court.389
Against the backdrop of a largely vague and ambiguous statute and a
dearth of substantive FCPA case law, the gap is filled with the resolution
vehicles typically used to resolve FCPA enforcement actions. The third
whammy then is that the gap filler is a resolution vehicle that is:
privately negotiated; entered into in the context of the enforcement
agencies possessing substantial carrots and sticks; motivated by
issues other than law and facts; and subject to little or no judicial
scrutiny.
Although FCPA resolution vehicles are not legal precedent, and
although they do not necessarily represent the triumph of one partys
legal position over the other, the unfortunate reality in the FCPA
385. See U.S. v. Kozeny, 493 F.Supp. 2d 693, 697 (S.D.N.Y. 2007).
386. Kenneth Winer & Gregory Husisian, Recent Opinion Sheds Light on the Relevance of Due
Diligence to the FCPAs Knowledge Requirement, BNA CORP. ACCOUNTABILITY REP. (Nov. 13, 2009),
http://www.foley.com/publications/pub_detail.aspx?pubid6597.
387. WINER & HUSISIAN, supra note 239.
388. MILLER & CHEVALIER, supra note 372.
389. UROFSKY & NEWCOMB, supra note 1.
2010]
999
context is that they do serve as de facto case law.390 In fact, the

enforcement agencies specifically endorse viewing NPAs and DPAs as
evidence of improper conduct. For instance, the GAO report, described in Section II of this article, includes a DOJ letter explaining, in
DOJs view, why NPAs/DPAs are beneficial including the statement
that DPAs and NPAs benefit the public and industries by providing
guidance on what constitutes improper conduct.391
While FCPA resolution vehicles may, in certain instances, represent
evidence of improper conduct, that conclusion is not warranted in
most FCPA enforcement actions given the resolution vehicles are
privately negotiated agreements based on untested and dubious enforcement theories, subject to little or no judicial scrutiny, and executed
under circumstances in which one of the signatories to the agreement
(i.e., the enforcement agency) wields a massive, sharp stick.
Even if one accepts the premise that FCPA resolution vehicles do
always reflect conduct that actually violates the lawand thus should
serve as de facto case law to which those subject to the FCPA should
conformthe additional absurdity then is that the de facto case law is
largely opaque and thus not illuminating. As discussed in Section III
above, a common feature of FCPA resolution vehicles is that they often
contain little more than bare-bones, uninformative facts and legal
conclusions. For instance, it is difficult to see how one could glean
anything as to the meaning of the key foreign official element from
the CCI or Lucent enforcement actions, given that the resolution
vehicles used to resolve these FCPA enforcement actions lack any
clarity or guidance on this key element.
Compounding the problem of FCPA resolution vehicles serving as de
facto case law is that seemingly carbon-copy facts lead to materially
different results, as demonstrated in Section III above when discussing
the Lucent and UTSI FCPA enforcement matters.
Even if FCPA resolution vehicles should be viewed as de facto case law,
it is incumbent on the enforcement agencies to provide sufficient
clarity and guidance in the resolution vehicles as to the specific facts
and circumstances that support essential elements of the FCPA provisions charged. For instance, what are the specific facts and circumstances leading the enforcement agency to conclude that a seemingly
390. See The Foreign Corrupt Practices Act: Enforcement Trends in 2010 and Beyond , JONES DAY (Jan.
2010), http://www.jonesday.com/newsknowledge/publicationdetail.aspx?publication7005 (The
best method for predicting future enforcement is to undertake a thorough analysis of past FCPA
investigations, prosecutions, and settlements.).
391. See GAO-10-110, supra note 97.
1000
[Vol. 41
profit-seeking commercial enterprise with shareholders is nevertheless

an instrumentality of a foreign government and that therefore all of
its employees are foreign officials under the FCPA? Similarly, what
are the specific facts and circumstances to support the theory that an
attenuated payment had the actual or intended cause-and-effect nexus
to a specific identified business opportunity necessary to support the
FCPAs obtain or retain business element, as interpreted in Kay?
The absurdity of FCPA resolution vehicles serving as de facto case law
is just one direct result of the facade of FCPA enforcement and why the
facade of FCPA enforcement matters. Yet this absurdity leads to an
equally absurd result and that is the tendency of businesses subject to
the FCPA to model FCPA compliance policies and procedures, not on
what the law actually says, but rather on what the enforcement agencies
say the law saysto the extent one can extract such guidance from the
typical resolution vehicle used to resolve an FCPA enforcement action.
Thus, the facade of FCPA enforcement also matters because it breeds
overcompliance.
B.
The Breeding of Overcompliance
Any company conducting business or seeking business opportunities

in a foreign market should address legal risk and develop and implement effective FCPA compliance policies and procedures specifically
tailored to the companys unique FCPA risk profile. However, the
facade of FCPA enforcement has bread overcompliance because most
risk-averse companies calibrate FCPA compliance policies and procedures to whatever legal signpost may be gleaned from a typical FCPA
resolution vehicle. However, these vehicles, as discussed throughout
this article, are not subject to any meaningful judicial scrutiny and do
not, because of the carrots and sticks which nudge FCPA defendants to accept these vehicles, necessarily reflect the triumph of one
partys legal position over the other. Yet companies nevertheless calibrate FCPA compliance to these resolution vehicles.
The facade of FCPA enforcement also contributes to overcompliance by prompting risk-averse companies to reflexively launch expensive and time-consuming internal investigations when the alleged
conduct at issue may not even violate the FCPA.
Compliance based on the law is wise and cost-effective from the
standpoint of reducing legal exposure. However, compliance based
solely on an enforcement agencys untested or dubious interpretation
of a law is wasteful and diverts limited corporate resources from other
value-added endeavors. The substantial and wasteful costs that flow
from the facade of FCPA enforcement are discussed below.
2010]
1001
Much has been written how statutes with uncertain terms and
uncertain defenses, coupled with sparse judicial interpretation, can
result in overdeterrence.392 When the statute with uncertain terms and
defenses is a criminal statute, such as the FCPA, the risk of overcompliance is greatest. As Professor Miriam Baer (an individual with DOJ,
private practice, and in-house compliance experience393) notes:
Because the current corporate criminal liability standard is so
broad and the collateral consequences of a criminal indictment
are so devastating, entities will attempt to avoid formal charges
ex ante by investing in compliance products intended to impress prosecutors in the future, even if these programs are
more costly than effective. Risk averse corporate managers may
further attempt to avoid entity-based criminal liability by declining beneficial investments simply because they seem too risky.394
The FCPA is Exhibit A for how a criminal law with vague terms and
defenses, coupled with little judicial scrutiny can result in overcompliance. During the facade era of FCPA enforcement, FCPA compliance
has exploded. Seemingly every major law and accounting firm has
FCPA-specific practice groups and an entire compliance industry has
suddenly appeared on the business landscape. These groups are effectively able to market and sell their FCPA compliance services to
business consumers across a wide industry spectrum.395 Seemingly lost
in the aggressive marketing of FCPA Inc., however, is that many of the
compliance services are based merely on the enforcement agencies
392. See, e.g., Mark Lillie & D. Joseph Piech, State Price Gouging Legislation: Compliance
Difficulties and Counterproductive Overdeterrence, THE ENERGY ANTITRUST NEWS (Fall 2009), available at
http://www.kirkland.com/sitecontent.cfm?contentID223&itemId2857 (By combining uncertain standards and unclear defenses with significant potential exposure, many price gouging
statutes create a serious risk of overdeterrence.).
393. See Biography of Miriam Baer, THE BROOKLYN LAW SCHOOL, http://www.brooklaw.edu/
Faculty/Directory/FacultyMember/Biography.aspx?idmiriam.baer (last visited Aug. 12, 2010).
394. Miriam Baer, Insuring Corporate Crime, 83 IND. L.J. 1035, 1036 (2008), available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id982594.
395. See Steven Pearlstein, Cashing in on Corruption, WASHINGTON POST, April 25, 2008, available
at http://www.washingtonpost.com/wp-dyn/content/article/2008/04/24/AR2008042403461.html
(For most of the 30 years since the passage of the Foreign Corrupt Practices Act, advising
companies on compliance and, on rare occasions, defending them against prosecution, has been
a niche business in most corporate law firms, part-time work for a partner or two. But these days,
FCPA business is booming, a welcome growth area for Washington law offices just as work on
mergers and securities offerings has begun to wane.).
1002
[Vol. 41
untested and dubious interpretations of the FCPA.

For instance, because of the enforcement agencies interpretation of
the key foreign official element to include all employees of SOEs (see
Section I and III above), companies spend significant time and money
investigating the ownership structure of foreign customers and potential customers for any trace of foreign government ownership or
control. Such a costly investigation, often involving lawyers and other
investigative firms, is not motivated by the companys desire to make
improper payments to the foreign customer or potential customer to
obtain or retain business should the investigation reveal no foreign
government ownership or control. Rather, the costly investigation is
often motivated for the simple reason that the company wants to treat
these foreign customers the same as it treats its other customers. That
means hosting such customers at corporate events in which some fun
may take place (e.g., golf) or inviting such customers to an industry
trade show events that often take place in tourist locations. Companies fear providing such things of value to a foreign official (under
the enforcement agencies interpretation) even though the company is
legitimately and legally providing the exact same thing to its nonforeign official customers or potential customers.
It is highly questionable whether Congress foresaw company lawyers
being involved in the simple decision of whether to invite a particular
customer to the companys golf outing or trade show. Yet because of
the facade of FCPA enforcement, specifically the enforcement agencies untested and dubious interpretation of the foreign official
element to include SOE employees, this is exactly what has occurred
even though there is no judicial support for the enforcement agencies
interpretation that such SOE employees are even foreign officials
under the FCPA.
Similarly, because of the enforcement agencies aggressive post-Kay
interpretation of the FCPAs key obtain or retain business element,
companies spend significant time and money policing business segments that have little or no contact with foreign government decision
makers. These business segments may be involved in paying foreign
taxes, helping secure foreign licenses, or simply tasked with moving
product into and out of a country. Monitoring the activity of these
business segments, if done on a rational risk-basis, makes sense. However, it is wasteful to over-monitor the activity of these business segments based on a paranoia induced by the post-Kay explosion in FCPA
enforcement actions involving foreign licenses, permits, and certifications discussed in Section III of this article. None of these enforcement
actions were subject to judicial scrutiny, many of the payments involved
2010]
1003
would not appear to fall within the FCPAs scope per the Kay holding,
and many of these payments, in fact, would appear to fall within the
FCPAs express exception for so-called facilitating payments. Yet despite these legally relevant qualifications, because of the facade of
FCPA enforcement, companies fear enterprise-threatening liability
should such seemingly benign payments be made in the abovedescribed circumstances. Risk-averse companies thus respond with
fear-based, not risk-based, FCPA compliance measures.
Another area in which the facade of FCPA enforcement significantly
increases FCPA compliance costs is third-party due diligence. A company can be exposed to FCPA anti-bribery liability indirectly based on
the conduct of its foreign agents under the FCPAs so-called third-party
payment provisions.396 Under these provisions, liability hinges on the
company knowing that a thing of value will be given to a foreign
official by the third-party. Because of the enforcement agencies
controversial application of this knowing standard,397 companies seeking to engage or retain a foreign agent often start from the mind-set
that the foreign agent is corrupt and is an FCPA violation waiting to
happen. Thus, companies often engage in extensive and expensive due
diligence and monitoring of the agent in an attempt to prove the
negative so that if the enforcement agencies ever come calling, the
company can turn over an extensive due diligence file to negate any
knowledge finding.
Such paranoia is unwarranted, yet facilitated by the facade of FCPA
enforcement. No doubt some level of third-party due diligence is
prudent, and if a red-flag does appear as to a foreign agent, companies
should react in an effective and responsible manner. However, the
steroid version of third-party due diligence that many risk-averse
companies have adopted and deployed during the facade era of FCPA
enforcement is simply wasteful. Companies should ask themselves, in
the absence of red flags, why the same level of due diligence for an
agent in Boise is also not effective for an agent in Beijing.398
The increased costs that directly flow from the facade of FCPA
396. See 15 U.S.C. 78dd-1(a)(3), 78dd-2(a)(3) (2006).

397. See Winer & Husisian, supra note 239, at 3. (The DOJ and SEC [. . .] now interpret the
knowledge requirement [of the FCPA] so broadly that they have effectively eviscerated the 1988
statutory changes, thereby raising an important question: Are the DOJ and SEC frustrating the
intent of Congress by ignoring the reason that Congress amended the FCPA?).
398. See id. at 10 (noting that typical foreign agent red flags such as the agent wanting a
large commission payment or the agent having governmental contacts may arise in many
perfectly benign contexts and often can never be truly resolved).
1004
[Vol. 41
enforcement are not only front-end FCPA compliance costs, but also
costs associated with how a typical company reacts to ambiguous,
internal allegations of conduct that could potentially implicate the
FCPA.
Because of the carrots offered to a company in an FCPA enforcement action (a topic discussed in great detail in Section II), the typical
path of a corporate FCPA enforcement action is a company voluntarily
disclosing conduct to the DOJ after an extensive and costly internal
investigation. Many of these internal investigations and voluntary disclosures are premised on conduct involving SOE foreign officials or
attenuated payments made to secure foreign licenses, permits, and
certifications.399 Thus, for the reasons stated elsewhere in this article,
the conduct giving rise to the investigation and disclosure may not even
violate the FCPA. However, because of the carrots offered to a
company to voluntarily disclose, and because of the fear of enterprisethreatening liability for perhaps failing to disclose, risk-averse companies routinely disclose conduct to the enforcement agencies notwithstanding the fact that the potential FCPA liability may only be based on
an untested or dubious enforcement theory and regardless of the
existence of ambiguous facts or valid and legitimate defenses. The end
result, in many instances, is that a company deploys teams of lawyers,
forensic accountants, and other professional experts around the world,
at a cost of several million dollars, to investigate conduct or allegations
of conduct that may not even violate the FCPA. In many cases, the cost
of investigating the conduct that may not even violate the FCPA bears
no rational relationship to the underlying conduct.400
The absurdity of FCPA resolution vehicles serving as de facto case law
and the breeding of overcompliance are not the only reasons why the
facade of FCPA enforcement matters.
C.
Modeling
The final reason highlighted in this article for why the facade of
FCPA enforcement matters relates to the increasing frequency by
399. For an example of a company voluntarily disclosing ambiguous conduct to the DOJ that
may not even violate the FCPA, see, FCPA PROFESSOR BLOG, supra note 64.
400. See Team of Plenty, FCPA PROFESSOR BLOG (Jan. 6, 2010, 03:23 PM), http://fcpaprofessor.
blogspot.com/2010/01/team-of-plenty.html (noting that, in connection with one FCPA internal
investigation, the total professional costs exceeded $3 million, even though the conduct at issue
concerned non-material payments made by a companys branch office that represented less than
one-half of one percent of the companys annual consolidated revenue under circumstances that
may not even violate the FCPA).
2010]
1005
which other nations are modeling enforcement of their own bribery

laws on U.S. enforcement methods and theories. These methods and
theories, unless addressed and corrected here in this country, will
continue to be replicated elsewhere, perhaps leading to a global facade
of enforcement.
Case in point is the United Kingdom (U.K.), a country that has
long been subject to criticism for lax enforcement of its hodgepodge
collection of antiquated bribery statutes. This year, the U.K. is widely
expected to enact into law a new Bribery Bill that will likely result in
significantly more bribery prosecutions in that country.401 The Serious
Fraud Office (SFO), the U.K. lead agency for investigating and
prosecuting cases of domestic and overseas corruption and an agency
functionally similar to the DOJ, will be responsible for enforcing the
Bribery Bill and the U.K.s other similar laws.402
The SFO has publicly stated its intention to model its enforcement of
the U.K.s bribery laws on the DOJs enforcement of the FCPA, including use of NPAs and DPAs. In a July 2009 release titled, Approach of
the Serious Fraud Office to Dealing With Overseas Corruption, the
SFO sets forth several DOJ-style enforcement factors, such as voluntary
disclosure and a preference for negotiated settlements, that it will
consider when determining how to resolve a potential corporate bribery matter.403 Most alarming, despite being an investigative agency, the
Director of the SFO recently stated the agencys strong preference is
that corporations come to it with pre-packaged evidence of wrongdoing so that it is not necessary for the SFO to conduct any investigation
itself.404 The Director of the SFO also recently indicated that he wants
to borrow from the U.S. justice system by encouraging companies to
voluntarily report corruption problems and strike plea deals to resolve
them rather than face prosecution.405 The Director further noted that
401. See, e.g., U.K. Parliaments Joint Committee on the Draft Bribery Bill, available at
http://www.parliament.uk/business/committees/committees-archive/joint-committee-on-thedraft-bribery-bill/ (last visited Aug. 24, 2010).
402. Bribery & Corruption, SERIOUS FRAUD OFFICE, http://www.sfo.gov.uk/bribery
corruption/bribery corruption.aspx (last visited Aug. 24, 2010).
403. Approach of the Serious Fraud Office to Dealing with Overseas Corruption, SERIOUS FRAUD
OFFICE (July 21, 2009), http://www.sfo.gov.uk/media/28313/approach%20of%20the%20sfo%
20to%20dealing%20with%20overseas%20corruption.pdf.
404. See Letter from Richard Alderman, SFO Director, to Marcus A. Asner, Arnold & Porter
LLP (Dec. 7, 2009), available at http://www.arnoldporter.com/resources/documents/
FINAL_ASNER_LETTER.pdf.
405. Cassell Bryan-Low, U.K. Fraud Office Upgrades Foreign-Corruption Fight, The Wall Street
Journal European Edition, Jan. 20, 2010 at 6.
1006
[Vol. 41
he has pushed the SFO to move more quickly on cases and sought to
settle deals as an alternative to prosecutions. He is also encouraging
companies to come forward with problems in exchange for more
lenient treatment.406 Thus, one of the pillars contributing to the
facade of FCPA enforcementthe prevalence of NPAs, DPAs, and
pleas, as well as the carrots offered to corporations to enter into such
resolution vehiclesis clearly being constructed on the other side of
the Atlantic as well.
Even more concerning is the clear presence in the U.K. of the fourth
pillar contributing to the facade of enforcement bribery, yet no
bribery given the SFOs recent handling of the BAE matter. By way of
short summary, in 2004 the SFO began investigating whether BAE
made bribe payments to secure the KSA Fighter Deals.407 However, in
late 2006, the SFO was forced to halt its investigation under pressure
from the U.K. government, which cited national security concerns with
the investigation.408
Because BAE also allegedly made bribe payments in numerous other
countries to secure business, the SFO, under a new Director, revived its
investigation of BAE, at least as to non-Saudi issues, including whether
the company paid bribes to secure contracts in various European and
African countries.409 After settlement talks stalledthe conventional
wisdom is that BAE was unwilling to plead guilty to bribery-related
offenses given the collateral effect of the mandatory European Union
debarment provisionsthe SFO pressed ahead with the case.410 The
SFO Director stated in January 2010 that BAE is clearly a very important case and that it is very important that we get it right.411
In late January 2010, the SFO issued a release stating that a former
BAE agent was criminally charged with conspiracy to corrupt and for
conspiring with others to give or agree to give corrupt payments . . .
to officials and other agents of certain Eastern and Central European
governments, including the Czech Republic, Hungary, and Austria as
inducements to secure, or as rewards for having secured, contracts
from those governments for the supply of goods to them, namely
406. Id.
407. See id. For more extensive coverage of the SFOs bungled BAE investigation see Frontline:
Black Money, supra note 363.
408. Id.
409. Id. It was widely reported that the Saudi government threatened to cease its cooperation
on terrorism issues should the investigation of BAEs relationship with Saudi officials go forward.
410. Id.
411. Id.
2010]
1007
SAAB/Gripen fighter jets, by BAE Systems Plc.412

Then in early February 2010, the SFO announced its long-awaited
resolution of the BAE matter. Despite allegations of widespread bribery
on a global scale, and despite BAEs agent being criminally indicted a
few days earlier in connection with bribe payments, the SFO resolution
related solely to BAEs failure to keep reasonable and accurate accounting records in relation to its activities in Tanzania.413 The SFO release
notes that BAE will pay a 30 million penalty comprising a fine to be
determined by the Court with the balance paid as a charitable payment
for the benefit of Tanzania.414
The companys press release responding to the SFO charges noted
that:
In connection with the sale of a radar system by the Company to
Tanzania in 1999, the Company made commission payments to
a marketing adviser and failed to accurately record such payments in its accounting records. The Company failed to scrutinize these records adequately to ensure that they were reasonably accurate and permitted them to remain uncorrected. The
Company very much regrets and accepts full responsibility for
these past shortcoming.415
Most dramatic, and in a strange turn of events, the SFO announced
that it had withdrawn the criminal charges filed days earlier against
BAEs agent.416 The SFO release also notes that [t]his decision brings
to an end the SFOs investigations into BAEs defense contracts.417
Thus, in a matter of days, allegations of BAEs bribery in several
countries disappeared. The SFOs multi-year investigation of BAE
412. See Press Release, Serious Fraud Office, Former BAE Agent Charged with Corruption
(Jan. 29, 2010), available at http://www.sfo.gov.uk/press-room/latest-press-releases/press-releases2010/former-bae-agent-charged-with-corruption.aspx.
413. BAE Systems Plc, SERIOUS FRAUD OFFICE (Feb. 5, 2010), http://www.sfo.gov.uk/pressroom/latest-press-releases/press-releases-2010/bae-systems-plc.aspx.
414. Id.
415. Press Release, BAE Systems, BAE Systems Announces Global Settlement With United
States Department of Justice and United Kingdom Serious Fraud Office (Feb. 5, 2010), available at
http://www.baesystems.com/Newsroom/NewsReleases/autoGen_1101517013.html.
416. See Press Release, Serious Fraud Office, SFO Withdraws Proceeding Against Count
Alfons Mensdorff-Pouilly (Feb. 5, 2010), available at http://www.sfo.gov.uk/press-room/latest-pressreleases/press-releases-2010/sfo-withdraws-proceedings-against-count-alfons-mensdorff-pouilly.
aspx (last visited Aug. 12, 2010).
417. Id.
1008
[Vol. 41
ended with a whimper. Just like the message the DOJ sent in resolving
its BAE investigation without any anti-bribery charges, the SFOs message was also that certain companies in certain industriesparticularly
those that sell certain products to certain customersare essentially
immune from bribery charges.
The SFOs handling of the BAE matter and its stated intention of
adopting DOJ enforcement strategies and procedures common in
FCPA enforcement is just one example of why addressing the facade of
FCPA enforcement has global implications.
VI.
CONCLUSION
The FCPA is enforced like no other law. Against the backdrop of an

often times vague and ambiguous statute and general lack of substantive FCPA case law, the FCPA is aggressively enforced based on untested
and dubious theories. Because of the carrots and sticks the FCPA
enforcement agencies possess, FCPA defendants are often nudged to
resolve FCPA enforcement actions notwithstanding such questionable
legal theories and without consideration of mitigating factors or relevant defenses. Thus, in many instances, the FCPA simply means what
the DOJ and SEC say it means and FCPA law largely develops through
privately-negotiated agreements, subject to little or no judicial scrutiny.
The end result is often the facade of FCPA enforcement. This article
has highlighted four pillars that contribute to the facade of FCPA
enforcement and demonstrated certain reasons why the facade of
FCPA enforcement matters. Identifying and acknowledging the existence of a problem is a necessary first step to crafting solutions. This
article exposes the facade of FCPA enforcement, argues that addressing the facade and subjecting FCPA enforcement actions to greater
judicial scrutiny is in the public interest, and encourages more FCPA
defendants to challenge the enforcement agencies and further expose
the facade of FCPA enforcement.
2010]
1009

Koehler - Facade of FCPA Enforcement

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Koehler - Facade of FCPA Enforcement

Uploaded by

Copyright:

Available Formats

THE FAC

ADE OF FCPA ENFORCEMENT

* Mike Koehler is an Assistant Professor of Business Law at Butler University. Professor

Electronic copy available at: http://ssrn.com/abstract=1705517

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

Electronic copy available at: http://ssrn.com/abstract=1705517

THE FACADE OF FCPA ENFORCEMENT

3. Strict Liability for Books and Records and

The rise in Foreign Corrupt Practices Act (FCPA) enforcement has

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

SEC say it means. Accordingly, FCPA law has developed through

THE FACADE OF FCPA ENFORCEMENT

An understanding of the FCPA is critical to understanding the

The FCPA is commonly described as an outgrowth of the Watergate

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

Allegations of U.S. companies making or offering bribe payments to

THE FACADE OF FCPA ENFORCEMENT

I share Congress belief that bribery is ethically repugnant and

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

THE FACADE OF FCPA ENFORCEMENT

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

and provided him with an intangible benefit of enhanced self-worth or

No FCPA element contributes more to the facade of enforcement

21. 15 U.S.C. 78dd-1(f)(1)(A), 78dd-2(h)(2)(A), 78dd-3(f)(2)(A) (2006).

THE FACADE OF FCPA ENFORCEMENT

foreign official in many recent FCPA enforcement actions is an

Obtain or Retain Business

The third general element of an FCPA anti-bribery violation is

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

instrumentality; or securing an improper advantage in order to

THE FACADE OF FCPA ENFORCEMENT

words, the indictment recite[d] no facts that could demonstrate an

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

See id. at 749.

THE FACADE OF FCPA ENFORCEMENT

highly fact-dependant analysis whether a payment to a foreign official

Books and Records and Internal Control Provisions

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

entity otherwise required to file reports pursuant to the securities

THE FACADE OF FCPA ENFORCEMENT

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

Relevance of Carrots and Sticks

The carrots and sticks relevant to FCPA enforcement actions

THE FACADE OF FCPA ENFORCEMENT

individuals to resolve FCPA matters, regardless of the enforcement

The Principles of Prosecution are found in the U.S. Attorneys

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

ment against the company.

The Principles of Prosecution are not the only carrot nudging

THE FACADE OF FCPA ENFORCEMENT

Application of the Sentencing Guidelines will result in a lower

67. See U.S. SENTENCING GUIDELINES MANUAL 8C2.5(g) (2009).

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

documents [the SEC] use[s] to announce and resolve enforcement actions.70

THE FACADE OF FCPA ENFORCEMENT

which the Commission agrees not to pursue an enforcement

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

To assuage potential criticism of the thesis of this article, it must be

THE FACADE OF FCPA ENFORCEMENT

specify which counts the jury agreed upon.81 Notwithstanding the

GEORGETOWN JOURNAL OF INTERNATIONAL LAW

history.86 According to the indictment, Bourke and others participated

THE FACADE OF FCPA ENFORCEMENT

are discussed next.