[Senate Hearing 111-1005]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1005
EXAMINING ENFORCEMENT OF THE FOREIGN CORRUPT PRACTICES ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CRIME AND DRUGS
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
NOVEMBER 30, 2010
__________
Serial No. J-111-115
__________
Printed for the use of the Committee on the Judiciary
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20402-0001
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin JEFF SESSIONS, Alabama
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JON KYL, Arizona
RICHARD J. DURBIN, Illinois LINDSEY GRAHAM, South Carolina
BENJAMIN L. CARDIN, Maryland JOHN CORNYN, Texas
SHELDON WHITEHOUSE, Rhode Island TOM COBURN, Oklahoma
AMY KLOBUCHAR, Minnesota
EDWARD E. KAUFMAN, Delaware
ARLEN SPECTER, Pennsylvania
AL FRANKEN, Minnesota
Bruce A. Cohen, Chief Counsel and Staff Director
William D. Smith, Republican Chief Counsel
------
Subcommittee on Crime and Drugs
ARLEN SPECTER, Pennsylvania, Chairman
HERB KOHL, Wisconsin LINDSEY GRAHAM, South Carolina
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
RUSSELL D. FEINGOLD, Wisconsin CHARLES E. GRASSLEY, Iowa
CHARLES E. SCHUMER, New York JEFF SESSIONS, Alabama
RICHARD J. DURBIN, Illinois TOM COBURN, Oklahoma
BENJAMIN L. CARDIN, Maryland
AMY KLOBUCHAR, Minnesota
CHRISTOPHER COONS, Delaware
Hannibal Kemerer, Democratic Chief Counsel
Walt Kuhn, Republican Chief Counsel
C O N T E N T S
----------
STATEMENTS OF COMMITTEE MEMBERS
Page
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 2
prepared statement........................................... 74
Specter, Hon. Arlen, a U.S. Senator from the State of
Pennsylvania................................................... 1
WITNESSES
Andres, Greg, Deputy Assistant Attorney General, Criminal
Division, U.S. Department of Justice, Washington, DC........... 3
Koehler, Mike, Assistant Professor of Business Law, Butler
University, Indianapolis, Indiana.............................. 12
Volkov, Michael, Partner, Mayer Brown, LLP, Washington, DC....... 16
Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New
York........................................................... 14
QUESTIONS AND ANSWERS
Responses of Greg Andres to questions submitted by Senators Coons
and Klobuchar.................................................. 25
Responses of Mike Koehler to questions submitted by Senator
Specter........................................................ 32
SUBMISSIONS FOR THE RECORD
Andres, Greg, Deputy Assistant Attorney General, Criminal
Division, U.S. Department of Justice, Washington, DC, statement 45
Koehler, Mike, Assistant Professor of Business Law, Butler
University, Indianapolis, Indiana, statement................... 54
Volkov, Michael, Partner, Mayer Brown, LLP, Washington, DC,
statement...................................................... 75
Weissmann, Andrew, Partner, Jenner & Block, LLP, New York, New
York, statement................................................ 86
EXAMINING ENFORCEMENT OF THE FOREIGN CORRUPT PRACTICES ACT
----------
TUESDAY, NOVEMBER 30, 2010
U.S. Senate,
Subcommittee on Crime and Drugs,
Committee on the Judiciary,
Washington, DC
The Subcommittee met, pursuant to notice, at 10:21 a.m.,
Room 226, Dirksen Senate Office Building, Hon. Arlen Specter,
Chairman of the Subcommittee, presiding.
Present: Senators Leahy, Klobuchar, and Coons.
OPENING STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM
THE STATE OF PENNSYLVANIA
Senator Specter. Good morning, ladies and gentlemen. The
Criminal Law Subcommittee will now proceed with this hearing
focusing on sentencing under the Foreign Corrupt Practices Act.
I regret the delay, but we just started the third vote this
morning, and I voted at the outset so I could come and begin
this hearing. We hate to keep people waiting, but voting is our
priority activity. That comes ahead of all other items.
Less than a month ago, I noted the media reports about the
resolution of a case under the Foreign Corrupt Practices Act.
It involved six oil and gas companies and a prominent freight-
forwarding company, which agreed to pay some $236 million in
criminal and civil penalties in what was reputed to be one of
the largest corporate bribery cases ever to focus on a single
industry.
My eye was caught by that for a number of factors. One was
the concern, which I had expressed some time ago, on the
handling of a case involving Siemens AG, which was prosecuted
under the Foreign Corrupt Practices Act, with the criminal
information specifying, quote, ``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 there exists
a corporate culture in which bribery was tolerated and even
rewarded at the highest levels of the company.
The total criminal fine was $450 million. Siemens also
reached a settlement of a related civil complaint by the SEC
and agreed to pay $350 million in disgorgement of profits. When
added to fines paid in connection with related cases brought by
German officials, Siemens will pay a combined total of more
than $1.6 billion in fines, penalties and disgorgements.
Siemens enjoyed revenues that year of $105 billion and
income of approximately $8 billion. Now, while $1.6 billion is
a lot of money, it is not when you take a look at the other
figures involving Siemens.
I have been concerned about law enforcement for a long time
and have had some experience in the field and am convinced that
the only impact on matters of this sort is a jail sentence.
Fines added to the cost of doing business end up being paid by
the shareholders. Criminal conduct is individual.
Nobody likes to pay fines, but it does not amount to a
whole lot in the context of what is going on here. So I thought
it would be useful to ask the Department of Justice to come in
to see how many answers they could give.
Oversight is a major function of Congress. Oversight of the
criminal law is a major function of the Judiciary Committee;
and, with all we have to do, we do not do very much of it, do
not do very much of it at all.
Some of us have some substantial experience in this line of
work. The experience has been slightly more than doubled in the
last 10 seconds, with the arrival of Chairman Senator Leahy.
Patrick, I was making a comment about money fines, talking
about Siemens' $1.6 billion income over $100 billion profits
over $8 billion, and this hearing was motivated by an article
which appeared less than a month ago about six oil and gas
companies agreed to pay $236 million criminal and civil
penalties.
I made the point that fines come out of the corporation,
come out of the shareholders. It does not deal with the
individual conduct of violating the law, and expressed my own
view that the only effective way to deal as the deterrent is
with jail sentences.
So I was just saying, as you walked in, we brought the
Department of Justice in. Oversight is a very big function. You
are the Chairman. I was the Chairman. You were the Chairman
before that.
Senator Leahy. We have gone back and forth.
Senator Specter. Well, we do not do a whole lot of
oversight, because we have so much else to do. But I was just
on that point.
It is fairly well publicized that District Attorney Leahy
or Prosecutor Leahy in Burlington was tougher then than he is
now, which is hard to believe, but he was, and I was DA of
Philadelphia. We had been at the national DA's convention in
Philadelphia, I was the host, in 1870-1970.
[Laughter.]
Senator Specter. Patrick, I yield to you.
STATEMENT OF HON. PATRICK LEAHY, A U.S. SENATOR FROM THE STATE
OF VERMONT
Senator Leahy. Well, thank you, and I will be very brief. I
was here just to compliment Senator Specter. As he said, we
have served together almost 30 years in the Senate. We did
first meet on that national DA's meeting in Philadelphia, where
he hosted it and did, as usual, a superb job. We became friends
and have stayed friends.
There are only a handful of Senators who have served on
this committee for 30 years, five full terms, and Senator
Specter is one of them. He has been Committee Chairman. He has
been Chairman of the Juvenile Justice Subcommittee, the
Chairman of the Terrorism Technology and Government Information
Subcommittee, Chairman of the Crime and Drug Subcommittee.
You have all these titles, but they do not really talk
about everything he has done. He passed the Career Criminal
Act. He saved the juvenile justice program from elimination,
something that today, it is hard for anybody to think that such
a valuable piece of legislation might have disappeared. If it
had not been for his herculean efforts, it would have.
We worked closely on a bipartisan investigation on what
went wrong at Ruby Ridge. We worked together to protect
constitutional rights, those guaranteed by the First, the
Second, the Fourth, Fifth, Sixth, Eighth, Ninth Amendments,
including work on press shield legislation here.
So my point being here is just to compliment him, and I
will step out of the way, because he has chaired so many
hearings.
I found this in the archives, and this may have been the
hearing, the first hearing you ever conducted. It is a hearing
before the Subcommittee on Juvenile Justice, 97th Congress,
first session, April 1, 1981. Strom Thurmond was the Chairman.
Mac Mathias, Paul Laxalt, Bob Dole, Alan Simpson, John East,
Jeremiah Denton--I am just naming people who have left us
since--Joe Biden, Ted Kennedy, Bob Byrd, Howard Metzenbaum,
Dennis DeConcini, Max Baucus, Howell Heflin, and you and I
somewhere down near the bottom on both sides. So I just wanted
to give you that.
I want to speak more on the floor about Senator Specter,
but I just wanted to come here and compliment him.
Senator Specter. Well, thank you very much, Mr. Chairman.
Those are high words of praise and I appreciate them very much.
Senator Klobuchar, would you care to make an opening
statement?
Senator Klobuchar. No. Just that I agree with everything
that Senator Leahy said about you, Mr. Chairman.
Senator Specter. Well, thank you.
We will proceed now to the acting Deputy Assistant Attorney
General, the Criminal Division, the honorable Greg Andres. Mr.
Andres comes to this position with a very extensive background
in law enforcement. He was an assistant United States attorney
in the eastern district of New York for more than a decade;
served as chief of the criminal division there for 3 years;
previously was deputy chief of the criminal division and deputy
chief of the organized crime and racketeering section; graduate
of Notre Dame and University of Chicago Law School; Law Review
member; clerk to a Federal judge.
We welcome you here--good morning, Senator Coons--and look
forward to your testimony.
STATEMENT OF HON. GREG ANDRES, ACTING DEPUTY ASSISTANT ATTORNEY
GENERAL, CRIMINAL DIVISION, DEPARTMENT OF JUSTICE, WASHINGTON,
DC
Mr. Andres. Thank you, Chairman Specter and distinguished
members of the Subcommittee. Thank you for the opportunity to
appear before you today to discuss the Department of Justice's
enforcement of the Foreign Corrupt Practices Act.
The investigation and prosecution of transnational bribery
is an important priority for the Department of Justice, and we
have been hard at work. In particular, over approximately the
last 2 years, we have substantially increased the number of our
prosecutions against corporations and individual executives. We
have collected more in criminal fines than in any other period
in the history of our FCPA enforcement. We are proud of our
accomplishments, and others have taken note, as well.
On October 20, 2010, following a rigorous official review,
the Organization for Economic Cooperation and Development,
known as the OECD, applauded the Departments of Justice,
Commerce and State, and the SEC for our collective efforts in
the fight against foreign bribery.
In its official report, the OECD's working group on bribery
in international business transactions noted that the United
States has investigated and prosecuted the most foreign bribery
cases among the partners to the anti-bribery convention.
The OECD's report makes clear that the United States'
success in enforcing the FCPA has far outpaced any other
country's enforcement of its foreign bribery laws. We remain
committed to this effort. We are grateful for the
Subcommittee's interest and to the Chairman for inviting the
criminal division to discuss the department's progress.
FCPA enforcement is as strong today as it has ever been,
and we believe it is getting stronger. In the past year alone,
we have prosecuted and entered into corporate resolutions with
some of the world's largest corporations. But that is only part
of the story.
We are also vigorously pursuing individual defendants who
violate the FCPA, and we do not hesitate to seek jail terms for
these offenders, when appropriate. The department has made the
prosecution of individuals a critical part of its FCPA
enforcement strategy. We understand well that it is an
important and effective deterrent.
Paying large criminal penalties cannot be viewed as and is
not simply the cost of doing business. Corporate prosecutions
and resolutions do not and cannot provide a safe haven for
corporate officials. And every agreement resolving a corporate
FCPA investigation explicitly states that it provides no
protection against prosecution for individuals.
The department has charged over 50 individuals with FCPA
violations since January of 2009. Today, there are
approximately 35 defendants awaiting trial on FCPA charges in
the United States; specifically, in Houston, Miami, Los
Angeles, Santa Ana, and Washington, DC. By contrast, in 2004,
the department charged only two individuals with FCPA
violations.
FCPA enforcement has always been important and it is
particularly critical today. The World Bank estimates that more
than $1 trillion in bribes is paid each year, $1 trillion. This
amounts to approximately 3 percent of the world's economy.
As Attorney General Holder explained to an audience earlier
this year, bribery in international business transactions
weakens economic development; it undermines confidence in the
marketplace; and it distorts competition.
Thus, FCPA enforcement is vital to ensuring the integrity
of the world's markets and to ensuring sustainable development
globally. At the Department of Justice, together with our
partners at other Federal agencies and around the world, we
have made combating transnational bribery a priority.
We look forward to working with Congress as we continue our
important mission to prevent, deter, and prosecute foreign
corruption. Thank you for listening. And I will be pleased to
take any questions you may have.
[The prepared statement of Mr. Andres appears as a
submission for the record.]
Senator Specter. Mr. Andres, you talk about collecting more
in criminal fines than anyone else, prosecuted more cases than
other countries who are parties to the convention, and you say
you do not hesitate to go after individuals.
But whom have you sent to jail?
Mr. Andres. Senator, thank you for the opportunity to
address this issue. I know it is important to you and that you
have spoken forcefully about it, and it is important to the
department.
As I mentioned, since January of 2009, we have charged more
than 50 individuals. Approximately 35 of those have been----
Senator Specter. I have heard that and I have heard about
charges and I know what charges are, but come to question, who
is going to jail?
Mr. Andres. Sir, to give you specific examples, Jack
Stanley, as part of the KBR prosecution, was an officer and
director, was sentenced to 84 months imprisonment for his
involvement in the bribery of Nigerian officials to obtain
engineering, procurement and construction contracts.
John Warwick and Charles Jumet, executives in a Virginia
engineering firm, were both charged with conspiring to violate
the FCPA's anti-bribery provisions. Warwick pled guilty and was
sentenced in June of 2010 to 37 months imprisonment. Co-
defendant Charles Jumet was charged with conspiring to violate
the FCPA and making false statements to Federal agents. He was
sentenced to 87 months imprisonment.
In September 2010, three former employees and a partner of
Nexus Technologies were sentenced for their involvement in a
conspiracy to bribe officials of the Vietnamese government. One
defendant was sentenced to 16 months imprisonment, another to 9
months imprisonment.
Christian Sapsizian, from February of 2000 through
September of 2004, Sapsizian, a French national and vice
president for Latin America for Alcatel, conspired with others
to pay more than $2.5 million in bribes to senior Costa Rican
officials. On September 23, 2008, he was sentenced to 30 months
imprisonment.
There are, of course, others, as well, Senator. I am happy
to provide other examples.
I would say this, though, with respect----
Senator Specter. I wish you would. I counted up your
recitation, I get six jail sentences. Staff has prepared a long
list of prosecutions and fines, without any jail sentences at
all, from November 4, 2010.
The Noble Corporation, fines of more than $2.5 million;
Panalpina, Inc., fines of more $70 million; Pride Forasol, more
than $32 million; Shell Nigeria, $30 million; Tidewater, $7.35
million; Transocean, $13.44 million. But nobody went to jail in
those cases.
Mr. Andres. Senator, Gerald Green and Patricia Green were
two defendants that went to trial. They were each sentenced to
6 months imprisonment, 6 months of home confinement.
Senator Specter. Are you saying that those jail sentences
were handed down from cases I just enumerated?
Mr. Andres. No. Senator, the cases that you referred to
are, obviously, corporate dispositions and in some of those,
the investigation, particularly in the Panalpina-related cases,
are ongoing. In fact, there is ongoing litigation with respect
to those employees of those corporations.
With respect to the prosecution of corporations and
individuals, it is not an either/or proposition for the
department. We seek to prosecute both corporations and
individuals who have violated the FCPA.
With respect to those cases, there are a number of
challenges for charging individuals in this particular area.
Senator Specter. My time is almost up. Did anybody go to
jail in the Siemens case?
Mr. Andres. Senator, as we have said before, in the Siemens
case, that investigation is ongoing. There are a number of
prosecutions ongoing in Germany.
Senator Specter. Are there individuals who are being
prosecuted?
Mr. Andres. That investigation is ongoing, Senator.
Senator Specter. Are there any individuals being
prosecuted?
Mr. Andres. No individuals in the United States have been
charged yet with respect to the Siemens matter. But as has been
made clear in the court documents filed, the government has
attempted to obtain information about individual defendants.
In our sentencing memoranda----
Senator Specter. Well, I am going to conclude, because I do
not want to go past the red light. I will return to this on the
second round.
Senator Klobuchar.
Mr. Andres. Thank you, Senator.
Senator Klobuchar. Thank you very much, Mr. Chairman, and
thank you for convening this important hearing and for your
skillful chairmanship of this Subcommittee over the last
several months.
Thank you, as well, Mr. Andres, for your work and your
enforcement efforts, and especially the criminal penalties in
the most egregious cases that you mentioned.
I am taking a little different tact here, because I do
appreciate that you have ramped things up with some of these
most egregious cases. And as a former prosecutor, I certainly
realize that enforcement of the law can make a difference and
it changes practices.
But, also, one of the basic principles of due process is
that people in companies have to be able to know what the law
is in order to comply with it. And I will tell you that I have
heard from many very good standing companies in my State that
they do not always know what behavior will trigger an
enforcement action.
As we know, the goal is not just to punish bad actors after
a violation is committed, but rather to prohibit actions from
happening in the first place. So a lot of my questions are
focused on how we can incentivize corporations to make sure
they have appropriate compliance procedures in place and that
they voluntarily disclose violations when a rogue employee
violates the law.
I head up the Subcommittee on Exports and Commerce, a big
believer in the President's focus of trying to double exports.
I believe this is the way that we are going to get ourselves
out of this economic downturn. And I have a State where we
truly believe in exporting all over the world and it is what I
think has given our State a leg up when you look at our
unemployment rate compared to other States.
At the same time, I have heard a lot of concerns about any
little conduct is going to trigger some kind of investigation.
So my first question is--and in your testimony, you detailed
several of the large cases that DOJ has prosecuted over the
last few years.
While many of these cases, clearly, these egregious cases
may be clear-cut, I have heard from some businesses that
additional guidelines laying out best practices would help them
operate with more certainty.
Have you given any thought to increasing the guidance you
give businesses, especially in situations covered by the FCPA
that are not so clear or fall into gray areas?
Mr. Andres. Yes, Senator. As you may know, there is a
unique procedure under the current law that allows companies to
seek an advisory opinion under the FCPA. So that allows
companies to provide facts and information to the department
and we are able to give them an advisory opinion as to specific
conduct and whether that conduct violates the FCPA.
I believe that procedure is unique among the criminal laws.
Those opinions are published and available to companies to
analyze them, to understand where the government is focusing
its enforcement, and what specifically violates the law.
One other area where the government is particularly
transparent in this area is with the publication and filing of
our non-prosecution agreements, deferred prosecution
agreements, information, and indictments. We have a Website at
the Department of Justice----
Senator Klobuchar. And do you think there is more that you
can do, though? Because this is what I keep hearing of their
concerns, of relatively minor things, and they are just not
sure if it is a gray area or not. That what you are doing is
not enough?
Mr. Andres. Again, the best procedure is the advisory
opinions, but officials from the department speak routinely
about the Foreign Corrupt Practices Act, and our filings are
rather detailed in specifically what we are looking for by way
of compliance.
The OECD's good practice guidance also provides information
about the appropriate compliance procedures, and the sentencing
guidelines also reference compliance procedures.
Senator Klobuchar. Has the department established or
considered establishing a self-disclosure program, such as is
offered by the department with the antitrust amnesty program,
to encourage those companies that discover FCPA violations
through their compliance efforts to disclose them to the
department?
It seems to me like that would be a way of advancing anti-
corruption efforts.
Mr. Andres. Many of our cases rely on the self-disclosure
and cooperation of corporations, and we encourage that. Self-
disclosure and cooperation are two of the nine factors that the
government considers as part of the principles of Federal
prosecution of business entities when we are making our
charging decisions and we are deciding how to resolve cases.
We do not believe that immunity is appropriate, just as we
do not believe that a bank robber should get immunity for
disclosing that he robbed a bank. The fact alone that a company
discloses their involvement in criminal activity or that of an
employee in criminal activity does not amount necessarily to
getting a pass for those crimes.
We think the antitrust provisions are different, because in
that field, obviously, it takes two or more competitors to
collude to fix prices. There is not the same incentives or the
same criminal conspiracies necessarily at work with respect to
the FCPA.
But I will say this. In many of the cases that we resolve,
some of which we decline to prosecute, self-disclosure is a
very important factor and we believe that the current factors
that the department follows under the principles of business
organizations give sufficient motivation to self-disclose and
cooperate.
Senator Klobuchar. Companies are obligated to disclosure,
is that right, when they hear about things?
Mr. Andres. They are not obligated to disclosure.
Senator Klobuchar. They are not.
Mr. Andres. They make a decision to disclose and in return
for their disclosing and their investigating, in large part,
their own criminal conduct, they get meaningful credit with the
department and that credit goes into the decision whether to
file an information or charge the company, whether to enter a
deferred prosecution or a non-prosecution agreement.
Senator Klobuchar. How many disclosures has the DOJ
received since 2007?
Mr. Andres. I would not know the specific number. I can get
that for you, Senator. But it is significant. We are getting a
significant number of disclosures from corporations about their
own criminal conduct. I think that, in part, relates to the
passage of the Sarbanes-Oxley legislation, which encourages
corporations to review their own books and records.
Senator Klobuchar. Well, I will look forward to getting
that, as well as working with you going forward. And I will
have some more questions for the second round.
Thank you.
Mr. Andres. Thank you, Senator.
Senator Specter. Senator Coons.
Senator Coons. Thank you, Senator Specter, and thank you
for bringing forward this important hearing today and this
focus on this important area of transnational illegal activity.
Mr. Andres, I would be interested in hearing more about the
impact on the other signatories to the anti-bribery convention
of your ramped-up enforcement efforts by the department.
I will commend you for being more aggressive in pursuing
this area, but I will also share some of the questions of
Senator Klobuchar about standards and process.
But, first, I just wanted to ask--a number of these very
large transnational cases have involved cooperation with
allies, Germany, Venezuela, Switzerland, others. What success
have we had in urging other signatories to step up their
activities comparable to ours? What strains has it produced on
some of our alliances? And then what impact does it have on the
activity of elected officials or government officials in other
countries?
Mr. Andres. Thank you, Senator Coons. We have made
significant efforts abroad through our participation in
international organizations, through our cooperation with other
law enforcement agencies abroad, and through our own
prosecution of foreign corporations.
First, the United States is a leader in the OECD and
particularly in the working group on bribery. The United States
has just undergone what they call the phase three review, in
which we have a peer review of our own enforcement practices.
The last stage of the review related to--or one of the
prior stages--what laws are on the books, and now the
concentration is on who is prosecuting companies.
Other countries and other signatories to that convention
will also now undergo the peer review. And through our own
efforts and the efforts of others at the OECD, pressure has
been brought upon other countries to also prosecute foreign
bribery.
I would cite to the BAE resolution and the Department of
Justice's longstanding relationship with the serious fraud
office in the United Kingdom. Also, on the Siemens matter, we
cooperated and we worked and continue to work with the German
authorities. In the Innospec matter, we also worked with the
serious fraud office.
In some cases, we are not only prosecuting foreign
companies, we are also extraditing foreign individuals to bring
them back to the United States.
So I would say that our work abroad has been important. I
would also note that the attorney general himself visited the
OECD to stress the importance of its work, as did the assistant
attorney general for the criminal division, Lanny Breuer.
We are working with our partners and, particularly through
organizations like the OECD, we think we are having an effect.
Lastly, I would just point to the recent passage of the
U.K.'s law on bribery, which is viewed as aggressive, and that,
I think, is the outgrowth, not just, obviously, of the United
States, but our work at the foreign organizations like the
OECD.
Senator Coons. Has there been any reported appreciable
change in the conduct or behavior of public officials overseas
in response to our more aggressive enforcement or, as some
companies have suggested, is this simply putting U.S.-
headquartered companies at a disadvantage in not actually
having some positive or desirable impact on the conduct of
foreign officials?
Mr. Andres. It is hard to quantify specifically what the
effect would be on foreign officials. I will say that we are
clearly prosecuting foreign companies. Approximately half the
cases that we have brought over the last 2 years have been
against foreign companies.
I will say that there is clearly an increased awareness in
places like China and Russia. We have been invited to speak and
have spoke to officials from the Department of Justice, in
China about these issues. We have also worked with the Chinese
delegation that came to the United States and, in coordination
with the Chamber of Commerce, addressed some of these issues.
So I think there clearly is a heightened awareness around
the world and people are taking notice, and, hopefully, that
will have an effect on foreign officials.
Senator Coons. And are there other remedies the department
is seeking, debarment, exclusion from government contracting or
other remedies, that are also potentially part of the solution
to the ongoing challenges you face?
Mr. Andres. Sure. With respect to debarment, I think it is
important to remember that the Department of Justice is not the
agency that is in charge of debarment; that is, it is not
within our jurisdiction.
Our role is to investigate and to prosecute violations of
the Foreign Corrupt Practices Act. Debarment decisions are made
by the officials at the various contracting government
agencies.
Secondly, debarment is not or was not intended to be
punitive or punishment, but, rather, a means for government
agencies to protect themselves against unscrupulous and poorly
performing contractors. The debarment authorities make the
decision whether the company is a presently responsible
contractor.
So the debarment decision is clearly not one within the
Department of Justice. Our job is to make sure that the facts
of our investigation are transparent and that we communicate
that information to the debarring authority so that they will
have all the available information to make their own decisions.
Again, we publish and file all of our agreements. They are
rather explicit as to the criminal conduct at issue, and,
hopefully, those allow the debarring officials to make the
appropriate decisions.
Senator Specter. Thank you, Senator Coons.
Mr. Andres, I am not going to take a second round, because
we got started late and have another panel and we are going to
be running into the later activities.
I will pursue a couple of questions with you informally,
and I am not looking for answers now. But you commented--if
there are individual prosecutions as to Siemens, I would like
to pursue that, to the extent you can tell us. Those are 2008
matters, and I would like to pursue the question as to where
you are going on this case.
It was reported less than a month ago with the fines, and I
ask you for your comments later about the deterrent effect when
you have publicity--you cannot control the publicity, but you
can control when you announce a disposition of cases.
But it certainly gives the appearance on Siemens, with
fines only, in the most recent case, with fines only, that it
is not a matter for jail sentences, and you have to find some
way to publicize your other good works on jail sentences.
Senator Klobuchar, would you care to question further?
Senator Klobuchar. I just wanted to follow-up on a few
things that--and I will try to be quick here--that Senator
Coons raised about the other countries. And I know in your
testimony, you noted that the United States' success in
enforcing the FCPA has far outpaced any other country's
enforcement of its foreign bribery laws and that you have been
working with our trading partners, as you discuss with them, to
encourage them to enhance their effort.
Again, I have heard from a number of businesses in my
State--and this was not an organized discussion, this is over a
year of people bringing up what is making it difficult for them
to export, when all we want to do is create jobs in this
country. I have heard from businesses who remain concerned that
they just want an even playing field and that not enough is
being done to ensure that some of the other countries who are
trading are also enforcing similar laws.
Can you discuss in further detail what our government is
doing to ensure a level playing field for our companies
competing overseas?
Mr. Andres. Again, it is primarily through our work in
international organizations like the OECD and our peer review
process of other countries. When our prosecutors go to the
OECD, they talk to other prosecutors from around the world
about the prosecutions in their own countries and there are
questions posed to each of those prosecutors about why they are
not prosecuting bad actors and corporations in their own
countries.
Again, we also are pursuing many foreign companies with
prosecutions here in the United States. To some extent,
underlying these criticisms about the level playing field, I
think, is the notion or the claim that our FCPA enforcement has
been bad for business in the United States.
We at the Department of Justice disagree with that. Foreign
bribery cannot be good for business, and good compliance is a
good way for companies to make sure that there is not waste,
fraud and abuse. So we think that good compliance is good for
corporations and that our enforcement is not bad for business
and that we are leveling the playing field by attacking foreign
bribery both here in the United States and abroad.
Senator Klobuchar. Well, I would never want to say that
foreign bribery and letting it go is a good thing. I do not
think that at all. And certainly, the examples of the cases you
mentioned are good examples of good work you are doing.
I just believe that there is a problem with companies not
being so afraid of what is going to happen if they disclose for
minor things. And so what I hope you are open to doing going
forward is to at least have some discussion about this. I know
you believe there is enough guidance for them. I do not think
that they think that there is.
If we could just have a discussion of that going forward
with I do not know who, but if you would be open to that, I
think that would be helpful with a number of companies and
others. Again, these are companies that they have told me that
they cannot sleep at night because they are worrying about this
and they are just trying to follow the law, but it is very
difficult for them to figure out what is following the law.
So if we could have some discussion going forward on this,
I think it would be helpful, because, again, I know we share
this mutual belief that we want our country to be strong. We do
not want bad bribery, but at the same time, we want clear
rules.
So I might have some additional questions--I know that the
Chairman wants to move on here--about Mr. Weissmann's testimony
and your response to some of his points. But I would just hope
you would be open to discussing this going forward.
Mr. Andres. We are certainly open to that, Senator. Thank
you.
Senator Klobuchar. Thank you.
Senator Specter. Thank you, Senator Klobuchar.
Senator Coons, do you have any further questions?
Mr. Coons. I will simply, if I might, add I have some
personal experience from private practice in exactly this
issue. Working for an excellent company, trying to deliver good
compliance was, at times, a challenge, because of the moving
target of knowing exactly what the compliance standards were.
This was a number of years ago. Your advisory opinions, I
think, have helped significantly. But I think we will listen
attentively to the other panels for some clarity about what the
current challenges are and would welcome an opportunity to
continue to work with you and the department on helping clarify
exactly what constitutes good compliance so that in-house
counsel can sleep at night and compliant companies can more
actively and effectively export.
Mr. Andres. Thank you, Senator.
Senator Coons. Thank you.
Senator Specter. Thank you very much, Mr. Andres.
We call the second panel now, Professor Koehler, Mr.
Weissmann, Mr. Volkov.
Our first witness is Michael Koehler, Assistant Professor
of Business Law at Butler University in Indianapolis; expertise
in the Foreign Corrupt Practices Act evidenced by his
publications in the Georgetown Journal of International Law and
the Indiana Law Review.
He practiced law in this area; graduate of the University
of Wisconsin Law School and the University of South Dakota.
Thank you for appearing as a witness today, Professor
Koehler, and the floor is yours.
STATEMENT OF MIKE KOEHLER, ASSISTANT PROFESSOR OF BUSINESS LAW,
BUTLER UNIVERSITY, INDIANAPOLIS, INDIANA
Mr. Koehler. Thank you, Senator Specter, other members of
the subcommittee. Thank you for that introduction.
I also run a Website called fcpaprofessor, and part of my
mission with that Website is to ask the ``why'' questions that
are increasingly present in this era of aggressive enforcement.
So given that mission, I, obviously, commend Chairman Specter
for calling this hearing and I am grateful to have this
opportunity to participate.
The FCPA is a fundamentally sound statute that was passed
by Congress in 1977 for a very specific and valid reason, and
my prepared statement provides a brief overview of the
legislative history on that issue.
That the FCPA is a fundamentally sound statute does not
mean that FCPA enforcement is fundamentally sound. And the
recent article I wrote in the Georgetown Journal of
International Law, ``The Facade of FCPA Enforcement,'' details
several pillars which constitute this current facade
environment that exists.
One pillar that I would like to talk about today is the
pillar which is very frequent, that is where seemingly clear-
cut cases of corporate bribery, per the Department of Justice's
own allegations, are not resolved with FCPA anti-bribery
charges, and it is this facade pillar that I would like to talk
about today, because I really think it undermines the rhetoric
that DOJ uses when it describes its FCPA enforcement program
and it undermines the deterrence that proper FCPA enforcement
can achieve.
So despite numerous public statements during this era of
the FCPA's resurgence that the DOJ will vigorously pursue
violators and that paying bribes to get foreign contracts will
not be tolerated, the undeniable fact is that in the most
egregious cases of corporate bribery, the DOJ does not charge
FCPA anti-bribery violations. And the Siemens and the BAE
enforcement actions that have already been alluded to here
today are perfect examples of those.
Not only is it that these companies were not charged with
FCPA anti-bribery violations, but the deterrence message is
also undermined when one analyzes the extent of U.S. Government
business these companies have done in the immediate aftermath
of the bribery scandals.
Using recovery.gov, one will find that Siemens alone has
been awarded numerous Federal Government contracts with U.S.
stimulus dollars in the immediate 12 months after the bribery
scandal. And one will also find that BAE, this month alone--not
only was BAE not charged with FCPA anti-bribery violations, but
this month alone, BAE, according to its Website, has secured
$50 million in U.S. Government contracts, including, in
September 2010, securing a $40 million contract from the FBI,
the same exact government agency that investigated BAE for its
improper conduct.
So deterrence is not achieved when a company that bribes is
not charged with FCPA anti-bribery violations. Deterrence is
not achieved when a company settles a matter for an amount less
than the business gained through bribery, nor is deterrence
achieved when the U.S. Government continues to award
multimillion dollar contracts to the same companies that are
engaged in these bribery schemes.
There has been a bit of discussion today about a potential
debarment penalty. I believe that a debarment penalty in
egregious cases of corporate bribery that legitimately satisfy
the FCPA's anti-bribery elements should be considered, and I
would note that H.R. 5366 recently passed the House. That is
now in the Senate.
However, because of the facade of FCPA enforcement, this
bill, as currently drafted, will, in my opinion, be an impotent
bill.
I would next like to discuss the prosecution of individuals
rather quickly. The key to achieving deterrence in the FCPA
context is prosecuting individuals, again, to the extent the
individuals' conduct legitimately satisfies the elements of an
FCPA anti-bribery violation.
For corporate employees with job duties providing an
opportunity to violate the FCPA, it is easy to dismiss
corporate money being spent on fines and penalties. It is not
easy to dismiss hearing of an employee with your same job
background being sent to Federal prison for violating the FCPA.
So during this era of the FCPA's resurgence, clearly, the
DOJ has prosecuted more individuals, but, again, a ``why''
question needs to be asked, and Chairman Specter has asked many
of these ``why'' questions already when it comes to the lack of
individual prosecutions in Siemens, BAE, Daimler and some other
cases.
I would also like to note that just because prosecuting
individuals adequately deters and could, thus, be a cornerstone
of the DOJ's FCPA enforcement program, when one looks at the
numbers that the DOJ has cited, i.e., 50 individual
prosecutions over the last couple of years, one will find the
following: 24 individuals are in one case, the so-called Africa
Sting case, where FBI agents posing as a president of Gabon,
had largely owners of small companies engaged in fictitious
business transactions; and, another 22 individuals are in a
group of cases where the foreign officials are employees of
state-owned or----
Senator Specter. Professor Koehler, how much more time will
you need?
Mr. Koehler. Just about 30 seconds, Chairman. Another 22
individuals are in cases where the so-called foreign officials
are employees of state-owned or controlled companies, and
interpretation, I believe, is contrary to the intent of
Congress in enacting the FCPA.
The issue is not whether FCPA enforcement is good or bad
for any one constituency, but whether the DOJ, in many cases,
is enforcing the FCPA consistent with its provisions.
So these are some of the issues I think that need to be
examined, and the time to examine them is now. So thank you for
the opportunity to participate in these hearings, and I would
be happy to take any questions.
[The prepared statement of Mr. Koehler appears as a
submission for the record.]
Senator Specter. Thank you, Professor Koehler. Our next
witness is Mr. Andrew Weissmann, co-chair of the white collar
defense investigation practice at Jenner & Block. Mr. Weissmann
had been director of the Enron task force and the chief of the
criminal law division of the United States Attorney's office
for the eastern district of New York, has been chief of the
criminal division there; has overseen a wide array of white
collar crime investigations.
We thank you for joining us, Mr. Weissmann, and the floor
is yours.
STATEMENT OF ANDREW WEISSMANN, PARTNER, JENNER & BLOCK, LLP,
NEW YORK, NY
Mr. Weissmann. Good morning, Chairman Specter, members of
the committee, and staff. I testify today on behalf of the
United States Chamber of Commerce and the Chamber's Institute
for Legal Reform.
I do not take issue with the basic premise of the FCPA. The
original goals of the FCPA, that is, to deter and punish
corrupt transactions overseas that undermine public confidence
in business and government alike remain important.
Rather, I suggest improvements to that statute that will
provide greater notice of what is prohibited, greater
incentives to organizations to have robust compliance programs,
and be fairer in implementation.
I briefly discuss here two possible reforms. The first is
to add an affirmative compliance defense that would be
available to companies that maintain rigorous FCPA-compliant
systems. Such a defense is already included in the new anti-
bribery law in the United Kingdom.
Second, it would be important to clarify the definition of
a, quote, ``foreign official,'' unquote, within the meaning of
the FCPA. As the law does not make clear who qualifies as a
foreign official, it is, thus, not clear to which transactions
the statute will apply.
One of the reasons it is important to have a clearer
statute, particularly in the FCPA arena, is that corporations
cannot typically take the risk of going to trial and, thus,
there is a dearth of legal rulings on the provisions of the
FCPA as it applies to organizations.
Thus, the government's interpretation can be the first and
the last word on the scope of the statute as it applies to a
company. The lack of judicial oversight, expansive government
interpretation of the FCPA, and the increased enforcement that
you heard about from Mr. Andres have led to considerable
concern and uncertainty about how and when the FCPA applies to
overseas business activities. And the solution is not to do
away with the FCPA.
Rather, it is to think about whether there are ways to
modify it to make it clear what is and is not prohibited and to
enact legislation that encourages businesses to be vigilant and
compliant.
So to address the first idea, which is a compliance
defense, the problem with the existing FCPA statute is that it
does not provide for a defense if individual employees
circumvent compliance measures that are reasonably calculated
to identify and prevent FCPA violations.
Currently, companies may receive credit from the Department
of Justice for a compliance program, but that would be only at
the discretion of the government and unclear up front how that
discretion will be exercised; or, at sentencing, it can be a
factor to be given a reduced sentence under the United States
sentencing guidelines.
That is not sufficient. The statute should be modified, as
it is in the United Kingdom, to mandate consideration of
compliance programs during the liability discussion of an FCPA
prosecution. For instance, a company that has done due
diligence before it acquires another company and discovers an
historic FCPA issue at that acquired company should not bear
criminal responsibility for that other company's actions.
Similarly, as another hypothetical, which I think is quite
real in practice, an organization that has an ideal compliance
program has done nothing wrong as a company, when an employee
nevertheless flouts that program a bride. The company, as
opposed to an individual, has committed no wrong that we, as a
society, want to deter or punish. But that is the current state
of the law.
Remember that it will only take--for the Department of
Justice to bring an FCPA case--one employee at any level of the
organization to bring a case regardless of the diligence of
that company.
Such a defense will bring the FCPA in line with a series of
Supreme Court cases in the civil context, where the Court has
placed limitations on the application of respondent superior
and determined that it should not apply where the company can
show that it took specific steps to prevent the offending
employee's actions.
Having such a defense would incentivize companies to deter
FCPA violations, identify FCPA violations, and self-report such
violations. It will also serve to make companies not victims of
rogue employees. And to be clear, such a defense distinguishes
responsible companies from irresponsible companies.
It would do nothing, for instance, in the next Enron. The
next bad company that comes along is not going to be helped one
iota by having such a defense.
Then just briefly, since I see I am over time, the statute
as currently written provides no meaningful way of identifying
who an instrumentality of a foreign government is. In my
written testimony, I provide examples of how that particular
provision could be rectified to provide clear guidance to make
the statute fairer; so that companies that are bent on applying
the law and staying on the right side of the law can do so in
advance, without having to worry about being prosecuted.
Thank you.
[The prepared statement of Mr. Weissmann appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Weissmann.
Our final witness is Mr. Michael Volkov, litigation partner
at Mayer Brown; has an extensive background in law enforcement;
was an assistant U.S. attorney for 17 years here in DC and,
before that, worked on this Committee with Senator Hatch and
chief counsel of the Crime, Terrorism and Homeland Security
Committee.
Thank you very much for joining us, Mr. Volkov, and we look
forward to your testimony.
STATEMENT OF MICHAEL VOLKOV, PARTNER, MAYER BROWN, LLP,
WASHINGTON, DC
Mr. Volkov. Thank you, and good morning, Chairman Specter
and members of the committee. Thank you for this opportunity to
discuss with you the enforcement of the Foreign Corrupt
Practices Act.
At the outset, I want to say that it is an honor to appear
before the Subcommittee for the first time since I left the
Judiciary Committee staff in 2005. I have many, many fond
professional and personal memories of the work I was able to do
here as part of the Committee staff, and it is nice to return.
In the last 5 years, FCPA enforcement has risen to
unprecedented levels. The Justice Department has sent a very
strong message and the business community is well aware of the
need for compliance.
But to increase compliance, the Justice Department needs to
review and modify its voluntary disclosure process. For most
corporations, the decision to make a voluntary disclosure is
complicated by the uncertainty of the ultimate punishment or
the benefit of making such a disclosure.
The Justice Department provides no clarity as to that
point. There simply is no guarantee for what benefits a
corporation will earn for voluntary disclosure. Now, you do not
need an economist or you do not need any smart person to know
that in the absence of clarity and transparency, companies may
not accurately weigh the pros and cons of voluntary disclosure;
hence, the sleepless nights of company officials.
What I am proposing is a more balanced enforcement
approach. One is to increase the incentive to comply with the
law and to distinguish between corporations that engage in
flagrant violations, like Siemens, like Daimler, of the FCPA
and those that seek to comply in good faith, but, nonetheless,
as Mr. Weissmann was outlining, can be held liable for the
actions of a few employees.
In my view, these two goals can be accomplished by adopting
a corporate self-compliance limited amnesty program. Now, I
want to acknowledge here that former Federal Judge Stanley
Sporkin is a mentor and the so-called father of the FCPA, who
comes from Pennsylvania, has articulated a very similar
proposal for many years.
He is no shrinking violet when it comes to enforcement
matters. Judge Sporkin's proposal consists of the following
elements: a participating company agrees to conduct a full and
complete review of the company's compliance with the FCPA for
the 5 previous years; the internal review is then conducted
jointly by a major accounting firm, law firm, or with a
specialized accounting firm; the company further agrees to
disclose the results, to come into the Justice Department and
the SEC and say what it found, disclose it to the investors,
and disclose it to the public.
If the company discovers any violations in the audit, the
company agrees to take all steps necessary to eliminate the
problems and implement the appropriate controls to prevent
future violations. The company would then subject itself to an
annual review for 5 years to ensure that compliance was being
maintained.
The company would then also be required to retain an FCPA
compliance monitor, who would annually certify--certify, under
oath, under penalty of perjury, to the SEC and the DOJ that the
company was in compliance.
Now, in exchange for these actions, the SEC and DOJ would
agree not to initiate an enforcement action against the company
during this period, except--and this is a big exception--for
those flagrant or egregious violations, meaning where a
company's culture, like Siemens, where a company's business
depends upon and was built upon a bribery scheme; not in a
situation where companies are trying in good faith to comply
and are not--and make a mistake, make a mistake as to what
their interpretation of the law is.
Now, I wanted to turn to one other issue, which two of the
Senators or two of the members had referred to, and that is the
international efforts against bribery and corruption. One
glaring omission in this overall enforcement scheme is that the
bribe-takers themselves, the people taking the money in the
government are not prosecuted.
Could you imagine here in the United States if we had that
situation, where people taking the bribes would not be
prosecuted? At its inception, the FCPA was the only statute of
its kind anywhere in the world, but we live in a different
place now.
The United Kingdom recently enacted the Anti-Bribery Act,
which will become effective in April 2011. I was surprised to
learn that Italy, in 2001, had enacted an anti-bribery act very
similar in terms of being strict in terms of enforcement.
Now, look, the United Kingdom's act is even more stringent
than the FCPA. But international efforts against bribery and
corruption need to increase. There is just no question about
it.
You cannot be the only enforcer in the world and expect to
clean up the world. That is not our role. We need to put more
emphasis on helping other countries improve their enforcement
programs.
Next week, I am participating in a conference here at the
World Bank, titled ``The International Corruption Hunters
Alliance,'' at which all the countries, many, many countries
are sending representatives, prosecutors, investigators, and
public officials to try and put together some meaningful
enforcement programs. This is a good thing and we should
support it as much as we can.
It is important to note that if all the signatories, 39
signatories, to the anti-bribery convention----
Senator Specter. Mr. Volkov, how much more time will you
need?
Mr. Volkov. This is my last point. If all the signatories
to the anti-bribery convention enforced the law, that is 75
percent of the world's exports would be under that type of
enforcement regime.
Thank you, and look forward to answering your questions.
[The prepared statement of Mr. Volkov appears as a
submission for the record.]
Senator Specter. Thank you, Mr. Volkov.
Professor Koehler and Mr. Volkov, you have both zeroed in
on Siemens. Mr. Volkov, do you think that there ought to be
individual jail sentences in Siemens?
Mr. Volkov. Well, Mr. Chairman, I think you have raised a
really important point with the department, which is--and this
may be against my client's interests, but I will tell you,
quite honestly, that if I were a prosecutor and I have the
corporation's cooperation, the first thing I am going to do is
find the five worst actors in that corporation.
The corporation is what had handed me all the evidence that
I need, and I am going to have them indicted. I do not
understand why that did not happen. I cannot give you an
explanation for that. But you have certainly made a very
important point.
Why, in the most significant cases, is nobody going to
jail? And I cannot say that I disagree with your concern.
Senator Specter. When you see all the publicity on Siemens,
a big fine and $100 billion in revenues, $8 billion in profits,
and no jail sentence, what effect does that have? Is this not
really a signal that you can violate the act and pay a fine?
Mr. Volkov. Well, I would hope that that is not the result.
I will tell you, in terms of counseling clients, I get the
sleepless calls that Senator Klobuchar referred to, which was I
have people who call me very, very in good faith, who want to
comply, but yet have difficulty because of the uncertainties
surrounding the law or the absence of clear statements.
I would say that there has been a shockwave sent through
the world community by the Siemens case. On the other hand, I
know from my experience as a prosecutor, when somebody goes to
jail and you are a high level executive--when Bernie Ebbers
went to jail or when any of those officials went to jail, that
was a big deal when he went to jail for life.
When Bernie Madoff goes to jail for 50 years, that is a big
deal. That sends a message. You are right. I cannot say what
the marginal difference would be, but I will tell you this. The
size of the fine in that case was no laughing matter in terms
of many companies.
Senator Specter. Professor Koehler, you talked at some
length about Siemens. Have you become conversant with the facts
and what individuals did in that case?
Mr. Koehler. Yes, very much so. One of the things I do as
an academic is I analyze every single FCPA enforcement action
there is. So I am very familiar with the facts of that case.
The DOJ's----
Senator Specter. What do you think about a 2008 case----
Mr. Koehler. Well, it is ironic that in the case----
Senator Specter. I am not finished with my question.
Mr. Koehler. Sorry.
Senator Specter. With a 2008 case and the giant fines and
those characterizations which I read earlier out of the
indictment and no jail?
Mr. Koehler. It is highly ironic in the case that the
Department of Justice terms the most egregious case of
corporate bribery the FCPA has ever seen, that there is no
individual prosecutions.
I guess it would be one thing if these prosecutions were
just commenced, as in the Panalpina cases last month, but as
you know, we have been going on nearly 2 years now.
The DOJ's sentencing memorandum says that compliance,
legal, internal audit, and corporate finance departments all
played a significant role in the conduct at issue.
Now, for foreign nationals, there are some jurisdictional
issues that must be met, but the Department of Justice has
never shied away from pursuing incredibly broad----
Senator Specter. I will not ask you to be specific in the
open hearing, although you are not subject to liability for
what you testify at a hearing, but we will proceed with you
privately as to the inquiries you have made and what you know.
What I intend to do is to confront the department with that
and see if we can get answers. We do not have their files and
the inquiries you made look to be promising and we would like
to have the benefit of that, if you would be willing to give us
a hand on that. Would you?
Mr. Koehler. I would be happy to assist, yes.
Senator Specter. Mr. Weissmann, overall, I have listened
with care to your recommendations for modifications and I think
you make some good points when you talk about a compliance
defense, talk about rogue employees.
There, you have the totality of the conduct of the
corporation exonerated. Before my red light goes on, I will ask
you the question. That is, overall, do you think that the act
is fairly well balanced and fairly well enforced or too tough?
Mr. Weissmann. I think there is no question that many of
the cases that were brought up today, such as Siemens, fall
far, far, far into the--that it is amply warranted for the
application of the statute.
The problem is that every company in America and many
companies overseas worry about the statute daily. And so
regardless of what the Department of Justice is doing, people
think about the statute and could their conduct fall on one
side of it versus the other and will they be subject to an
investigation.
So it is a difficult question to answer, because I have
seen many prosecutions where you say, of course, that seems
like a just result and should have been warranted, but there
are many companies that are hurt by the ambiguities in the
statute and what I think is the over-breadth of some of its
provisions on a daily basis.
Senator Specter. Thank you, Mr. Weissmann.
Senator Klobuchar.
Senator Klobuchar. Thank you very much, Mr. Chairman. It
has been an interesting discussion. And since I brought up the
sleepless nights, I want to point out this is not my major
concern here.
When I have sleepless nights about legislation, I do not
think my constituents feel sorry for me. But I used it as an
example that there are companies that are trying to comply.
My major concern is if we have an uneven playing field that
is hurting American business while we balance the obvious need
to have this law on the books and to enforce it and to go after
egregious bribery.
So I guess my first question is of you, Mr. Volkov. You
brought up how we get other countries to also enforce their
statute. How do you think we do that? You said you were going
to this conference, but what would be the best way, whether it
is with agreements we have with those countries, conventions?
How do you think we do that?
Mr. Volkov. Well, already, some issues have been raised in
terms of our mutual assistance treaties and the process being
very difficult to secure evidence or share information back and
forth. That is one issue.
There also is just a lack of basic information on
prosecution and expertise. What happens frequently is that our
government ends up training people. It had to prosecute and
investigate corruption-type cases and those folks then go out,
somewhat like here, into the private sector and they go out and
they go and make more money and do not stay as government
prosecutors in these other countries.
I think it requires the efforts that the Administration has
already done, which is to work with the other countries, but I
think there is also some basic groundwork that needs to be
done.
For example, they do not even know--countries do not even
know how to share information across law enforcement agencies.
They do not know who to contact. They do not know who are even
the points of contact among various countries. And I think we
have to continue to encourage those types of efforts.
Senator Klobuchar. And when Senator Specter was asking you
about the compliance ideas and you mentioned the judge's ideas,
is it your argument that, in fact, if you made some changes to
the statute to better encourage compliance, that it would be
easier, in fact, to root out some of the bad actors who could
then be prosecuted criminally in an easier fashion?
Mr. Volkov. Absolutely. And I think that Mr. Weissmann's
points are all good, particularly with regard to the foreign
officials.
Senator Klobuchar. And that was my next question, is if you
agreed with some of his proposals, as well.
Mr. Volkov. Absolutely. Here is one of the ironies, to Mr.
Weissmann's point. One of the hardest countries to go into and
to conduct business is China, because, basically, all of my
clients assume that everybody they deal with there is a foreign
official, because they are a state-owned enterprise under this
broad definition.
I do not think that was the intent when the FCPA was
passed, to prevent--to put businesses----
Senator Klobuchar. What year was it passed?
Mr. Volkov. That was 1977 was the original.
Senator Klobuchar. That was before we were doing a lot of
business----
Mr. Volkov. With China.
Senator Klobuchar.--in these countries.
Mr. Volkov. Right.
Senator Klobuchar. Mr. Weissmann, if we could just follow-
up on that point. I was looking at your testimony here and you
talked about some of the issues that arise, like is a payment
to a professor to speak at a conference for prospective clients
an FCPA violation. What if the professor works at a university
that receives public grants or is state-run? What if the
professor works for a Chinese company that is owned, in part,
by the state?
For example, I heard about what if a nurse attends a
conference and then gets some money for a cab ride home because
the metro has stopped, is she a state official for those
purposes. Could you elaborate on some of the issues and how we
could try to fix that to make it clearer?
Mr. Weissmann. Sure. It is important to note that the FCPA
has no materiality requirement and no de minimis exception. So
$10 can be enough. And there is no balancing as there is in SEC
rules to determine whether the violation was material to the
company. So it is really a broad statute.
One of the things, to address your prior question, that
could be done to help put people on an even playing field is to
look at the U.K. bill and realize that there are two provisions
that it has that we do not have. One, there is the compliance
defense, which I will not bore you with; and, the other is that
the U.K. bill actually punishes the foreign officials and
imposes liability for soliciting abroad.
That does not exist in the United States. And if you are
trying to figure out ways to put America on an even playing
field, one is to have similar laws. And since often what you
see in these cases is not that companies are actively trying to
solicit, but they are, in many ways, the victim of the company
saying--the country saying this is what you need to do. If
there was greater enforcement, including in the United States,
on those people, that would help, as well.
In terms of who a foreign official is, the statute provides
some guidance, but gives no guidance on the ambiguous word,
which is an instrumentality of a foreign government. So one
example that I think is useful is to think about if that were
applied here, potentially, anybody who works for Bloomberg
Media or, potentially, General Motors could be considered a
public official for the purposes of the FCPA.
Senator Klobuchar. Why is that?
Mr. Weissmann. Because in Bloomberg Media, since my
hometown is New York, the mayor of New York has a substantial
stake in that company, and so it could be considered a public
company, in which case, all employees of that instrumentality
would be covered by the FCPA.
Similarly, General Motors, if you take it a month ago,
would have been majority owned by the public. And even now,
with a non-majority stake, the Department of Justice has taken
the view that even in cases where it is a non-majority
ownership, that that is sufficient to trigger being a foreign
official for the purposes of the FCPA.
So what could help is having actual rules. And one example
of how this could be solved is in the accounting literature,
there are strict rules about when you are a third party for
purposes of accounting, whether you are actually controlled by
the company, what percentage ownership you have for determining
whether you are dealing with a third party or whether you are
going to be determined to be dealing with yourself,
essentially. And those kinds of analogies could be used to
provide clear guidance, particularly in an area where there is
criminal liability at stake.
So, ironically, you have very clear rules for SEC and
accounting literature, but not in the case of the criminal
statute, such as the FCPA.
Senator Klobuchar. Thank you.
Senator Specter. Thank you, Senator Klobuchar.
Senator Coons.
Senator Coons. Thank you, Senator. I just simply wanted to
commend you, Senator Specter, for pursuing aggressively, in
egregious cases such as Siemens, where there is a failure to
charge individually or pursue individually, to thank the
members of the Committee who have--the members of the
testifying panel today for your input.
I would welcome an opportunity to work with the Committee
on potential amendments to the act that would allow
clarification on the definition of foreign official, the
creation of a compliance defense.
There are egregious offenders and we do need to continue to
pursue aggressively foreign corruption. I am interested in what
might someday happen as our allies begin to join us, the
Italians, the U.K. government, others, and then how we would
begin to harmonize the actual enforcement.
Today, we are the only nation that is extending an
extraterritorial reach and going after the citizens of other
countries, we may someday find ourselves on the receiving end
of such transnational actions.
If I might, just one last question, Mr. Volkov. Any
suggestions about what we might be doing to strengthen our
regime in terms of its effectiveness for transnational
jurisdiction and how we might harmonize it with what we see the
U.K. doing, and, yes, I was surprised to learn, as well, Italy?
Mr. Volkov. Yes. Well, I think there is a lot going on
already. I think that the 36 other signatories need to be
cajoled, be whatever needs to be done to try to persuade them
to adopt some kind of law.
The extraterritorial reach that you mention with regard to
the United States law is very significant, but wait until you
see what happens in England. In England, all you have to do is
be doing business, in quotes, meaning--and what that means, you
do not have to have a principal place of business, you do not
have to be doing anything.
If you sell your product in England, you are subject to
their anti-corruption and anti-bribery restrictions, which are
much stricter with regard to--are about to be--with regard to
hospitality and just providing, let us say, food at an event or
whatever. It makes it much more difficult.
The one point I wanted to go back to, which I did not have
a chance to clarify, is that Judge Sporkin's proposal is--and I
have nothing against Mr. Weissmann. He is a colleague and I
love him, but I do not favor creating a defense, because the
defense requires the corporation to go to trial. The defense
requires the corporation to get indicted.
We have already seen what happened with Arthur Andersen and
the demise of a company, the demise of hundreds of thousands of
jobs in the Houston community. What we are saying with Judge
Sporkin's proposal is let us do it up front, do the compliance,
certify to it, and we will give you this--you have to report to
us on a yearly basis, and I bet you almost--many of my clients
would choose that option, because they would rather be safe
than sorry. And so they want to have a compliance program that
does not require them to get indicted and then raise it as a
defense.
That is the difference that we have, because we are trying
to distinguish between good faith actors and those that are the
egregious, flagrant cases.
Senator Coons. What would be the mechanism for actually
acting on Judge Sporkin's proposal?
Mr. Volkov. Well, it could be done--in other words, how
could it get implemented?
Senator Coons. Right.
Mr. Volkov. Well, the Department of Justice--and you will
notice this in reaction to a lot of the criticism coming from
Chairman Specter and others--has said, ``Oh, well, now we are
going to take a look and see if there should be some kind of
leniency program like the antitrust division's leniency
program.''
They can implement this on their own. They could do it
tomorrow. This is an exercise of prosecutorial discretion. They
could do it tomorrow.
Now, to the extent they need statutory changes, obviously,
they would have to come to Congress. But they could do it right
now and there is no reason for them to not do it right now,
because like I said, I mean, it is good for business, for me,
but it is not good for the country in terms of American
business and making it competitive, because we are spending
more and more time with clients, dedicating hours and hours to
just these types of questions.
I have a nurse. Can I give her a sandwich to eat at a
conference? Can I do that? And they have to call up the law
firm and ask them.
Senator Coons. Well, I appreciate the Chamber's advocacy on
this and the testimony of every member of the panel, and thank
you for that clarification.
Thank you very much, Mr. Chairman, for the chance to ask
questions.
Senator Specter. Thank you, Senator Coons.
Anything further?
[No response.]
Senator Specter. Thank you very much, Professor Koehler,
Mr. Weissmann, and Mr. Volkov.
That concludes the hearing.
[Whereupon, at 11:42 a.m, the hearing was adjourned.]
[Questions and answers and submissions for the record
follow.]
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