[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
FOREIGN CORRUPT PRACTICES ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
JUNE 14, 2011
__________
Serial No. 112-47
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
----------
U.S. GOVERNMENT PRINTING OFFICE
66-886 PDF WASHINGTON : 2011
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TIM GRIFFIN, Arkansas LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
[Vacant]
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Crime, Terrorism, and Homeland Security
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
LOUIE GOHMERT, Texas, Vice-Chairman
BOB GOODLATTE, Virginia ROBERT C. ``BOBBY'' SCOTT,
DANIEL E. LUNGREN, California Virginia
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
TED POE, Texas HENRY C. ``HANK'' JOHNSON, Jr.,
JASON CHAFFETZ, Utah Georgia
TIM GRIFFIN, Arkansas PEDRO PIERLUISI, Puerto Rico
TOM MARINO, Pennsylvania JUDY CHU, California
TREY GOWDY, South Carolina TED DEUTCH, Florida
SANDY ADAMS, Florida SHEILA JACKSON LEE, Texas
BEN QUAYLE, Arizona MIKE QUIGLEY, Illinois
DEBBIE WASSERMAN SCHULTZ, Florida
Caroline Lynch, Chief Counsel
Bobby Vassar, Minority Counsel
C O N T E N T S
----------
JUNE 14, 2011
Page
OPENING STATEMENTS
The Honorable F. James Sensenbrenner, Jr., a Representative in
Congress from the State of Wisconsin, and Chairman,
Subcommittee on Crime, Terrorism, and Homeland Security........ 1
The Honorable Robert C. ``Bobby'' Scott, a Representative in
Congress from the State of Virginia, and Ranking Member,
Subcommittee on Crime, Terrorism, and Homeland Security........ 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, and Ranking Member, Committee on
the Judiciary.................................................. 4
WITNESSES
Greg Andres, Deputy Assistant Attorney General, Criminal
Division, U.S. Department of Justice
Oral Testimony................................................. 6
Prepared Statement............................................. 8
The Honorable Michael Mukasey, former Attorney General, Partner,
Debevoise & Plimpton LLP
Oral Testimony................................................. 18
Prepared Statement............................................. 20
George J. Terwilliger, III, Partner, White & Case LLP
Oral Testimony................................................. 37
Prepared Statement............................................. 39
Shana-Tara Regon, Director, White Collar Crime Policy, National
Association of Criminal Defense Lawyers
Oral Testimony................................................. 46
Prepared Statement............................................. 48
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of Global Witness............................. 78
Prepared Statement of Karen Lissakers, Director, Revenue Watch
Institute...................................................... 81
Prepared Statement of Global Financial Integrity................. 84
Prepared Statement of Citizens for Responsibility and Ethics in
Washington (CREW).............................................. 87
FOREIGN CORRUPT PRACTICES ACT
----------
TUESDAY, JUNE 14, 2011
House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:03 a.m., in
room 2141, Rayburn Office Building, the Honorable F. James
Sensenbrenner, Jr. (Chairman of the Subcommittee) presiding.
Present: Representatives Sensenbrenner, Gohmert, Goodlatte,
Poe, Marino, Gowdy, Adams, Quayle, Scott, Conyers, Johnson,
Chu, Jackson Lee, and Quigley.
Staff present: (Majority) Sam Ramer, Counsel; Lindsay
Hamilton, Clerk; Joe Graupensberger, Counsel; Sam Sokol,
Counsel; and Veronica Eligan, Professional Staff Member.
Mr. Sensenbrenner. The Subcommittee will come to order.
Without objection, the Chair is authorized to declare
recesses during votes today, which I don't anticipate.
I would like to welcome the witnesses today.
In 1977, the world was a very different place. The Soviet
Union was continuing to expand its reach around the world,
China had only recently been visited by President Nixon, and
profit-making enterprises were forbidden in that country. Back
then, the concerns arose about the level of bribery that
American companies engaged in abroad. The revelations of slush
funds and secret payments by American corporations were blamed
for adversely affecting American foreign policy.
In response, Congress passed the Foreign Corrupt Practices
Act, or the FCPA. The law sent a strong signal that bribery
would not be tolerated and businesses would not be able to look
the other way. The law addressed the issue of foreign bribery
in three ways. First, it required all publicly held
corporations, whether U.S. or foreign, to keep accurate books,
records and accounts. Second, it required these issuers to
maintain a responsible internal accounting control system.
Third, it prohibited bribery of foreign officials by U.S.
corporations and issuers, and these provisions applied to
corporations as well as to individuals.
Thirty-four years later, the world has turned upside-down.
The Soviet Union is shattered, leaving in its wake autonomous
republics. China has become a global manufacturing power. The
nature of overseas businesses has changed. Many of these
countries have some degree of state control over their
businesses, bringing new relevance to the enforcement of our
foreign bribery laws.
In the last few years we have seen a dramatic increase in
the number of cases prosecuted by the Justice Department under
the FCPA, including a record number of fines with staggering
sums. The Wall Street Journal pointed out that FCPA fines made
up half of all DOJ Criminal Division penalties in fiscal year
2010. This is a considerable windfall for the Federal
Government.
Significant concerns about the FCPA and its enforcement by
the Justice Department are being expressed by the business
community, and business is already in trouble. Under the Obama
Administration, America is suffering through a severe and
prolonged economic downturn. Businesses that are trying to
comply with the FCPA assert that the law is being enforced in a
vague and impenetrable manner. Because the risks of prosecution
are so great, with million-dollar fines and possible prison
sentences, companies would rather settle with the Justice
Department than go to court.
The result is a shortage of court decisions determining the
limits of the law. Companies must then analyze cases prosecuted
by the Justice Department and the settlements reached to
determine how to do business in foreign markets.
The business community complains that the absence of case
law interpreting the breadth and scope of the FCPA inflates the
Department's prosecutorial discretion and confounds industries'
ability to conform to the law. For instance, there is no clear
rule on what qualifies as a foreign official, nor what
percentage of state ownership qualifies a company as an
instrumentality of the state. Companies lack guidance on how
expensive a gift must be to be considered a bribe.
Businesses and corporations are bracing for thousands of
new regulations from Obamacare and Dodd-Frank. The NLRB is
trying to tell companies where they are allowed to build things
in the U.S. We are expecting more onerous regulations from the
EPA as it administratively legislates where Congress has chosen
not to. It is no wonder that the business community suspects
that the Administration is hostile to free enterprise. How are
businesses supposed to hire when they do not know what their
costs or legal exposure will be?
FCPA prosecutions should be effective and fair, and they
must be predictable. The rules of the road must be communicated
clearly. Companies should have the same ability to guide
themselves as motorists do, so that business can start moving
again.
As a part of its oversight functions over the Justice
Department and the criminal laws of the United States, this
Committee is well suited to examine the impact of the FCPA and
to ask hard questions about whether the act is succeeding in
its mission or is needlessly hurting American job creation. I
look forward to hearing more about this issue and thank all of
our witnesses for participating in today's hearing.
It is now my pleasure to recognize for his opening
statement the Ranking Member of the Subcommittee, the gentleman
from Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman, and I am pleased to
join you for the Subcommittee hearing on Foreign Corrupt
Practices Act.
The Foreign Corrupt Practices Act contains provisions that
make it unlawful for individuals and corporations to make
payments or bribes to foreign officials for the purpose of
obtaining or retaining business opportunities abroad. At the
time of its passage in 1977, Congress was concerned that such
bribery harms American businesses, erodes confidence in the
economic system, rewards corruption instead of efficiency, and
creates foreign policy problems. These concerns remain.
In recent years, the Department of Justice has
substantially increased the number of prosecutions against
corporations and individual executives and has collected more
in criminal fines than any other period in the history of the
law. As a result of the collective efforts of the Department of
Justice, Department of Commerce, and the Securities and
Exchange Commission, the United States has investigated and
prosecuted many foreign bribery cases. In fact, it has
investigated and prosecuted more cases than any of the other
38-member countries of the OECD, the Organization of Economic
Cooperation and Development Convention on Combating Bribery of
Foreign Public Officials in International Business
Transactions.
That is an international agreement aimed at reducing
corruption in developing countries by encouraging sanctions
against bribery in international business transactions carried
out by companies based in the Convention member countries.
These increased enforcement efforts have raised concerns
regarding certain provisions of the statute among some in the
business and legal community. They argue that some of the
prosecutions are unfair and actually harm U.S. companies and
ultimately our economy by stifling incentives to do business
abroad. Some feel that overly-aggressive enforcement places
U.S. companies at a disadvantage in the global marketplace when
competing against companies not subject to the U.S. law.
Specifically, they cite problems with current statutory
definitions of ``foreign official'' and ``instrumentality.''
One of the problems is the contention that the Justice
Department and the SEC are interpreting the definition of
``foreign official'' too broadly, especially when it comes to
payments to companies that are state owned or state controlled.
Under those circumstances, it may not be immediately apparent
whether a manager or other employee is to be considered a
foreign official in the sense contemplated by the law.
Other recommendations for amending the law include having
the ability to cite a company's compliance program as an
affirmative defense against criminal liability. Having this
would allow companies to rebut the imposition of criminal
liability for violations if employees or contractors
responsible for the violation were found to have circumvented
compliance measures that were in place to identify and prevent
violations.
As we speak, many companies invest substantial sums,
perhaps even millions of dollars, in developing sophisticated
compliance programs in an effort to train employees and in an
effort to identify actual or potential problems and prevent
them. They may retain in-house compliance officers and
monitors, all without the ability to be certain as to what
conduct is safe and which isn't. The result may often be over-
compliance, but many feel that it is better to be safe than
sorry.
Lack of clear standards and guidance, even the availability
of the Justice Department's opinion release procedure, may
often result in companies declining to engage in an array of
legitimate business activities which not only stifles business
growth but ultimately our economy. Punishing those companies
and individuals who are acting in good faith and who are
already doing everything they can to identify and prevent
violations of the law runs counter to our basic tenets of
fairness and justice.
Another recommendation for change includes limiting
successor liability. Why should a company be held criminally
liable for actions of a company that it acquires or merges
with, especially when actions occurred prior to the acquisition
or merger and were entirely unknown to the acquiring company
which had conducted its due diligence review of the offender
company's operations? This, too, runs counter to our system of
justice and the principle for punishing only the guilty party.
Other recommendations have included adding willfulness and
materiality requirements and limiting parent liability for
subsidiary's conduct not known to the parent.
Effective enforcement of the law is crucial to protecting
and preserving the integrity of international business and
economic development. As we applaud aggressive enforcement of
our laws, we must also acknowledge the necessity of
periodically reviewing those laws in order to ensure that they
remain fair and just, as well as effective tools against crime
and corruption, and that is what our witnesses will discuss
today and why we look forward to their testimony.
Thank you, Mr. Chairman. I yield back.
Mr. Sensenbrenner. I thank the gentleman from Virginia.
The gentleman from Michigan, Mr. Conyers, the Ranking
Member of the full Committee, is recognized for 5 minutes for
an opening statement.
Mr. Conyers. Thank you, Chairman Sensenbrenner.
You observed that under the dawdling of the Obama
administration, when we went into an economic decline, I would
just like to put into the record that in the first year, the
first month of President Obama being sworn in on January 20,
2009, the unemployment rate was 598,000. I suppose you are not
going to blame him for that.
But in December, when he wasn't in office, the unemployment
rate was 524,000 people out of work; and in November, it was
584,000, the people who lost their jobs and were unemployed, a
small detail.
Now, to my tremendously competent Subcommittee on Crime
Chairman, Bobby Scott, about this overly aggressive
enforcement, there have been 140 cases in 10 years. Will
somebody explain to me what makes that overly aggressive? I
don't think so.
And so I would like to just shed a little different view
about this thing. To me, there are six points that I wanted to
mention.
First of all, I want to tell you a suggested amendment that
I can support, and that is the addition of a compliance defense
which would permit companies to fight the imposition of
criminal liability for these FCPA violations if individual
employees or agents had circumvented compliance measures that
were otherwise reasonable in identifying such violations.
But let's look at the clarification of foreign official and
instrumentality provisions. Without a clear understanding of
who is a foreign official, this could create a problem, and I
think I can support that one.
But now let's start looking at limiting successor liability
and limiting the parent company liability for acts of
subsidiary. You don't get--if you buy a house and there is a
mortgage on it that you didn't find, your liability isn't
limited. You have got to pay for it. And so why should
companies with pretty good sized legal assistance have to get
off because there was something going on that they didn't know
about? There is no such exception or modification made in the
general practice of law, and I don't see why it should be here.
Limiting the parent company liability for acts of the
subsidiary. Oh, they didn't know they were doing wrong. Yeah,
right. They have got all the lawyers that they need, and to now
tell me that they didn't know that their subsidiary was engaged
in wrongdoing is pretty hard for me to swallow this morning.
Adding a willfulness requirement for corporations, I am
against that, too. If they do something wrong, whether we can
find out who is willful or not, that is up to them to find out
in court.
Thank you, Chairman Sensenbrenner.
Mr. Sensenbrenner. Thank you very much, Mr. Conyers.
It is now my pleasure to introduce today's witnesses.
Mr. Greg Andres has served as Acting Deputy Assistant
Attorney General in the Criminal Division at the Department of
Justice since late 2009. In that capacity, he supervises the
fraud section, the appellate section, the capital case unit,
and the organized crime and racketeering section. He joined the
Division on detail from the U.S. Attorney's Office for the
Eastern District of New York, where he has been an Assistant
United States Attorney since 1999. He graduated from the
University of Notre Dame and the University of Chicago Law
School, where he was a member of the University of Chicago Law
Review.
Judge Michael Mukasey served as Attorney General of the
United States from November 2007 to January 2009. He joined
Debevoise as a partner in the litigation practice in New York
in February 2009, focusing his practice primarily on internal
investigations, independent board reviews, and corporate
governance. From 1988 to 2006, Judge Mukasey served as a
district judge in the U.S. District Court for the Southern
District of New York, becoming Chief Judge in 2000. Prior to
his work with the U.S. District Court, he was in private
practice for 11 years. From 1972 to 1976, he served as an
Assistant United States Attorney for the Southern District of
New York and chief of the Official Corruption Unit in 1975 to
1976. He received his LLB from Yale Law School in 1967, and his
B.A. from Columbia College 4 years earlier.
George Terwilliger is a senior partner at White & Case LLP
and global head of the firm's White Collar Practice Group. Mr.
Terwilliger served 15 years in public service as a Federal
prosecutor in the U.S. Justice Department. He served as U.S.
Attorney for the District of Vermont and as Deputy Attorney
General. He earned his Juris Doctor from the Antioch School of
Law in 1978, and his Bachelor's degree from Seton Hall
University in 1973.
Ms. Shana-Tara Regon serves as director of White Collar
Crime Policy for the National Association of Criminal Defense
Lawyers. She focuses on monitoring and attempting to prevent
over-criminalization and over-federalization. She also
coordinates the NACDL's strategic partnership with other
organizations on multiple Federal, legislative and agency
initiatives. Prior to joining NACDL, Ms. Regon practiced as a
white-collar defense lawyer for Shipman and Goodwin LLP in
Hartford, Connecticut, representing individual and corporate
clients in state and Federal civil and criminal investigations.
Before her work at Shipman and Goodwin, Ms. Regon clerked for
Justice Joette Katz of the Connecticut Supreme Court. She is a
former president of the District of Connecticut's chapter of
the Federal Bar Association and a former pupil of the Oliver
Ellsworth Inn of Court. She received her Juris Doctor degree
from Western New England College of Law, where she was a Note
Editor for the Law Review. She also holds a Master of Fine Arts
and Fiction Writing from the University of New Orleans and a
B.A. in English from Sweet Briar College.
Each witness will be recognized for 5 minutes to summarize
their written statement. Without objection, the full written
statements will be included in the record at the point of each
witness' testimony, and the Chair now recognizes Mr. Andres.
TESTIMONY OF GREG ANDRES, DEPUTY ASSISTANT ATTORNEY GENERAL,
CRIMINAL DIVISION, U.S. DEPARTMENT OF JUSTICE
Mr. Andres. Good morning, Chairman Sensenbrenner, Ranking
Member Scott----
Mr. Sensenbrenner. Can you pull your mic up a little bit
closer and make sure that it is turned on? We will reset the
clock.
Mr. Andres. Okay. Good morning, Chairman Sensenbrenner,
Ranking Member Scott, and distinguished Members of the
Subcommittee. Thank you for providing me with the opportunity
to speak to you today about the Department of Justice's
enforcement of the Foreign Corrupt Practices Act. I am
privileged to appear before you on behalf of the Department of
Justice.
As the FCPA's legislative history made clear, corporate
bribery is bad for business. In our free market system it is
basic that the sale of products should take place on the basis
of price, quality, and service. The Department of Justice is
committed to fighting foreign bribery through continued
enforcement of the FCPA, and by providing guidance to
corporations and others on our enforcement actions.
Foreign corruption remains a problem of significant
magnitude. The World Bank estimates that more than $1 trillion
in bribes are paid each year, roughly 3 percent of the world
economy. Some experts have concluded that bribes amount to a 20
percent tax on foreign investment. In the end, corruption
undermines efficiency and good business practices.
Recently, a Federal jury in the Central District of
California heard evidence of bribes paid by an American company
to Mexican officials. At issue were bribes, including a
$297,500 Ferrari Spyder, a $1.8 million yacht, and payments of
more than $170,000 toward one official's credit card bills.
This conduct does not amount to good business practice.
In recent years, the Department has made great strides in
prosecuting foreign corruption in all corners of the globe,
against both foreign and domestic companies. These cases have
often involved systematic, longstanding schemes in which
significant sums of money were paid. They did not involve
single bribe payments of nominal sums. For example, the
Department's prosecution of Daimler AG involved hundreds of
improper payments worth tens of millions of dollars to foreign
officials in almost two dozen countries. Similarly, the
Department's prosecution of Siemens AG, a German corporation,
and three of its subsidiaries involved over $800 million in
improper payments in a variety of countries.
When the Department seeks to enforce the FCPA against
corporate entities, we do so pursuant to the internal
procedures known as the Principles of Federal Prosecution Of
Business Organizations. These Principles require Federal
prosecutors to consider nine factors when assessing whether to
pursue charges against a business entity. Those factors include
the existence and effectiveness of a corporation's pre-existing
compliance program, as well as remedial actions and a company's
cooperation.
Many have commented about the recent increase in FCPA
enforcement actions. At least one likely cause for this
increase in cases is disclosures by companies consistent with
their obligations under the Sarbanes-Oxley Act, which requires
senior corporate officers to certify the accuracy of their
financial statements. This has led to more companies
discovering FCPA violations and making the decision to disclose
them to the SEC and the Department of Justice.
Of note, the United States' treaty obligations also impact
the Department's enforcement of the FCPA.
The Department also takes seriously our obligation to
provide guidance in this area. Our goal is not simply to
prosecute FCPA violations, but also to prevent corruption at
home and abroad and promote a level playing field in business
transactions. Senior officials from the Department and others
often speak publicly about our enforcement efforts,
highlighting relevant considerations and practices. In
addition, through our Opinion Release Procedure, the Department
advises companies on how to comply with the FCPA. This
procedure is unique in U.S. criminal law.
The Department is proud of our FCPA enforcement record, and
of our continued partnership with the SEC and the Departments
of State and Commerce. We look forward to working with Congress
as we continue our important mission to prevent, deter, and
prosecute foreign corruption.
Thank you.
[The prepared statement of Mr. Andres follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Sensenbrenner. Thank you, Mr. Andres.
Judge Mukasey?
TESTIMONY OF THE HONORABLE MICHAEL MUKASEY, FORMER ATTORNEY
GENERAL, PARTNER, DEBEVOISE & PLIMPTON LLP
Judge Mukasey. Thank you, Mr. Chairman.
Good morning, Chairman Sensenbrenner, Ranking Member Scott,
and Members of the Committee. Thank you very much for hearing
me today on behalf of the U.S. Chamber Institute for Legal
Reform on the important subject of the Foreign Corrupt
Practices Act.
I should say at the outset that none of us is against--or I
should say none of us favors the kinds of cases described by
Mr. Andres. The question is what can be done to detect, deter,
and prevent the incidence of that kind of behavior.
For all the merits of the FCPA in curbing corrupt business
practices, and they are substantial, more than 30 years of
experience have shown ways in which the law and its enforcement
can be improved. In my written testimony I describe six
possible amendments to help do that. Today I would like to
concentrate and highlight two in particular, the addition of a
compliance defense, and a clarification of the meaning of the
terms ``foreign official'' and ``instrumentality'' in the FCPA.
These improvements I think are likely to raise the standards
that businesses follow and will give more focus and certainty
to help them better comply with the FCPA.
The law does not now provide a compliance defense--that is,
an affirmative defense that would allow companies to rebut
criminal liability for violations if the people responsible
evaded compliance measures that were otherwise reasonably
designed to identify and prevent such violations. A company can
now be held liable for violations committed by rogue employees,
agents or subsidiaries even if the company has a state-of-the-
art FCPA compliance program.
It is true that the DOJ or the SEC may look more favorably
on a company with a strong FCPA compliance program when
deciding whether to charge the company or what settlement terms
to offer, and a compliance program can be taken into account by
a court at the sentencing of a corporation convicted of an FCPA
violation. But those benefits are subject to unlimited
prosecutorial discretion, or are available only after the
liability phase of a prosecution is over, or both. There is
also no guarantee that a strong compliance program will be
given the weight it deserves.
The system now in place has conflicting incentives. On the
one hand, an effective compliance program can hold out a
qualified promise of indeterminate benefit should a violation
occur and be disclosed. On the other hand, if all that can be
achieved is a qualified and indeterminate benefit, there is a
perverse incentive not to be too aggressive lest wrongdoing be
discovered, and there is a resulting tendency of standards to
sink to the level of the lowest common denominator, or at best
something that is only a slight improvement over it. This
Catch-22 policy doesn't really serve anyone's interest.
Here I think it is useful to look for guidance to another
statutory system in which companies now do have a compliance
defense under U.S. law, and I am speaking of the system we use
to combat improper workplace discrimination based on race, sex,
religion, and national origin. Under Title 7 of the Civil
Rights Act of 1964, there can be no corporate liability if a
company has an anti-discrimination policy and provides a way
for employees who have been subject to workplace discrimination
to get redress. Dozens, if not hundreds, of cases are resolved
every year based on this compliance program defense. I think
the lesson here is that having a compliance defense actually
diminishes the overall incidence of discrimination because it
encourages employers to have robust systems of compliance.
Otherwise, it would look like the interests that are served by
the FCPA are given more weight in a statutory scheme than the
interests served by the Civil Rights laws, which of course is
not the case. And I think we should draw a lesson from Title 7
on how best to achieve the goals of the FCPA statute.
The FCPA prohibits corrupt payments or offers of payment to
foreign officials, but it does not provide adequate guidance as
to who is a foreign official. The term is defined to include
any officer or employee of a foreign government or any
instrumentality thereof, but the FCPA doesn't define what an
instrumentality is. The DOJ and the SEC considers everyone who
works for an instrumentality, from the most senior executive to
the most junior mailroom clerk, to be a foreign official. Two
judges recently rejected defense motions arguing that employees
of state-owned enterprises are not foreign officials under the
FCPA, and in doing so, the courts indicated that there are
limits on the definition of instrumentality, but neither court
clarified what those limits are.
If the definitions of these fundamental statutory terms
vary by circumstance and by case, and therefore have to be
decided by a jury rather than as a matter of law, it becomes
impossible for companies to figure out in advance what conduct
may and may not provide a meaningful risk of violating the
FCPA. This approach creates uncertainties and puts up barriers
to U.S. businesses trying to sell their goods and services
abroad, particularly in countries where many companies are
partly owned or controlled by the state. It also makes it
difficult for companies to focus their monitoring and
compliance programs on clearly identifiable situations
involving foreign officials and foreign instrumentalities.
The FCPA therefore should be amended to clarify the meaning
of ``foreign official,'' indicate the percentage of ownership
by a foreign government that would qualify the entity as an
instrumentality. We think majority ownership is the most
plausible threshold.
The reforms that I described today and in my written
testimony, by providing greater clarity and certainty to the
business community, would reinforce incentives for compliance
and help ensure that companies operating in the U.S. or listed
on its securities exchanges adhere to high legal and ethical
standards when they do business abroad. The result will be a
statute that is both stronger and fairer.
Thank you very much.
[The prepared statement of Judge Mukasey follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Sensenbrenner. Thank you, Judge Mukasey.
Mr. Terwilliger?
TESTIMONY OF GEORGE J. TERWILLIGER, III,
PARTNER, WHITE & CASE LLP
Mr. Terwilliger. Thank you, Mr. Chairman, Ranking Member
Scott, Mr. Conyers.
Mr. Sensenbrenner. Mr. Terwilliger, could you move the mic
closer and make sure it is on? And reset the clock, please.
Mr. Terwilliger. Thank you. Mr. Chairman, Ranking Member
Scott, Mr. Conyers, it is always a privilege to be asked to
join the Committee in this room. I thank you and the Committee
Members for the privilege of coming back.
At the outset, I would like to put my further remarks in
this context. I favor the fair enforcement of sensible anti-
corruption statutes because corrupt markets cannot be free
markets. In international commerce specifically, a level
playing field is essential to free market competition, and I
believe American businesses are well positioned to succeed in
free and fair competition.
Today I endeavor to bring to our discussion my experience
both in public service and in the private practice of law which
you so kindly made reference to, Mr. Chairman.
The Department of Justice and the Securities and Exchange
Commission are realizing the enforcement goal of driving
companies into far greater compliance with the FCPA than has
ever before been achieved. But there is another less desirable
effect that results from the combination of greatly stepped up
enforcement combined with the uncertainty of the precise legal
parameters of conduct subject to the requirements and
proscriptions of this statute. That hidden effect is the cost
imposed on our economic growth when companies forgo business
opportunity out of concern for FCPA compliance risk. This hurts
the creation of jobs and the ability of U.S. companies to
compete with companies elsewhere that do not have to concern
themselves with uncertainties of the terms and requirements of
the FCPA.
I and the practice group which I chair at White & Case
guide companies through comprehensive FCPA risk assessments and
counsel companies seeking to create or improve robust
compliance programs. We also advise companies on FCPA matters
in the context of contemplated or ongoing business transactions
and projects. I am able to draw on this personal experience and
with confidence convey to the Committee that there is hidden
cost borne of the uncertainties attached to FCPA compliance
risk. In calculating the risk arising from FCPA compliance
obligations against the benefits of a given business venture,
uncertainties exist as to the requirements of the FCPA and its
interpretation and application by enforcement authorities.
When faced with that uncertainty, companies sometimes forgo
deals they could otherwise do, take a pass on contemplated
projects, or withdraw from ongoing projects and ventures.
Companies making such decisions are not doing so because they
are generally risk-averse. They are doing so by the simple
reasoning that the risk of non-compliance, as defined by the
statute and those charged with its enforcement, cannot be
calculated with sufficient certainty.
Thus, I commend consideration of legislative reform that
can help to clarify ambiguity in the statute and its
application. Others, both here today and in other fora, have
suggested terms of the statute that would benefit from further
definition or clarification. I would add to those suggestions
these further considerations.
First, I believe it is worthy to consider providing by
statute a post-closing period of repose for companies involved
in acquisitions during which they would be shielded from FCPA
enforcement while undertaking a review of FCPA compliance in
the acquired business and undertaking steps to remediate
potential FCPA issues that are discovered as a result of that
review.
Providing that an acquiring company would have a period of
time from the date of acquisition to conduct a thorough
assessment, remediate existing misconduct and impose its
compliance policies upon the acquired company is consistent
with the core objectives of FCPA enforcement and presents no
hazard to the fundamental objectives of the statute itself.
Second, a statutory safe-harbor provision in the law could
provide companies that strive for anti-corruption compliance
with increased certainty that their efforts will provide them
with some level of protection from FCPA liability. Such a
provision could shield from criminal liability companies that
operate demonstrably robust compliance programs and that self-
report any misconduct that arises despite their best efforts.
It makes no sense to me to engage in criminal prosecution of a
company that operates a state-of-the-art compliance program and
that investigates, corrects and self-reports its own non-
compliant circumstances.
My written statement contains additional detail as to these
suggestions and further observations on proposals outlined by
others. I look forward to answering any questions the
Subcommittee may have and to discussing these matters with
Members today or members of staff on any other occasion.
Thank you.
[The prepared statement of Mr. Terwilliger follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Sensenbrenner. Thank you, Mr. Terwilliger.
Ms. Regon?
TESTIMONY OF SHANA-TARA REGON, DIRECTOR, WHITE COLLAR CRIME
POLICY, NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS
Ms. Regon. Thank you. Good morning, Chairman Sensenbrenner,
Ranking Member Scott, and distinguished Members of the
Subcommittee. My name is Shana Regon, and I am director of
White Collar Crime Policy for the National Association of
Criminal Defense Lawyers.
NACDL is the country's largest organization of criminal
defense lawyers, and we work to ensure justice and due process
for all of those accused of crimes.
Despite its more than 30-year history, there is vast
disagreement and uncertainty about the meaning of many of the
FCPA's key provisions. Because there has been so little
judicial scrutiny of FCPA enforcement theories, right now the
FCPA essentially means whatever the DOJ and SEC says it means.
Significantly, DOJ has been allowed to use the law as if it
were virtually a strict liability statute, meaning that actual
knowledge of wrongdoing does not need to be proved. Such an
application is inconsistent with notions of fundamental
fairness. In addition, because the reach of the FCPA is so vast
and its provisions so amorphous, DOJ now oversees and regulates
virtually all American companies and individuals seeking to do
business abroad in ways those who created the FCPA never could
have envisioned.
The purpose of the FCPA is laudable. It was originally
designed to prohibit U.S. companies and individuals from
offering bribes to foreign government officials for the purpose
of unfairly obtaining business opportunities. But explicit
commercial bribery is not the only kind of situation in which
the FCPA can be applied. Because the law vaguely prohibits
giving anything of value, it can unfortunately be used to
criminalize all kinds of perfectly legitimate business
activities.
Also, DOJ, as you have heard from my other colleagues this
morning, has taken a very broad view of who qualifies as a
foreign official. Recent prosecutions have involved payments to
mid-level employees of state-owned companies. This expansive
definition of foreign official makes doing business in many
areas of the world automatically rife with potential criminal
exposure.
Take this example. A U.S. company is trying to win a
contract with a partially state-owned Chinese hospital in order
to provide it with rubber gloves. In an effort to create
goodwill and foster a business relationship between the
parties, managers of the U.S. company take their Chinese
counterparts out to dinner to talk about the potential deal.
Maybe they pay for the car service in order to pick everyone
up. Are these FCPA violations? Perhaps they fly the Chinese
managers to the U.S. for a site visit to the factory, and
provide them with a hotel room during their stay. While they
are close by, they take their guests to visit a famous landmark
or tourist destination. What about a small gift when, months
into the negotiations, one of the Chinese managers announces
the birth of his son? What about giving a contribution to their
favorite charitable cause in China?
The truth is, U.S. companies and the individuals working
for them do not have any real way of knowing whether any of
these activities could expose them to criminal liability under
the FCPA. Right now, a careful criminal defense lawyer would
advise her client that it depends entirely on the opinions of
the DOJ or SEC at a particular moment in time.
It is also worth emphasizing that, although the statute
contains a willfulness requirement for individuals in the anti-
bribery provisions, the government has increasingly relied on
the willful blindness doctrine as a substitute for proving
willfulness and knowledge in FCPA prosecutions. This doctrine
has been extended to cases where no actual knowledge existed.
The practical effect of this doctrine is that the CEO of an
American company can be held personally, criminally liable for
the actions of his employee halfway across the world, whether
he knew about them or not. This doctrine dangerously
eviscerates the mens rea requirements Congress meant for the
statute to provide.
NACDL is not advocating that American companies or
individuals be permitted to bribe officials in other countries
in order to get business done. Commercial corruption is a very
real problem in the global marketplace, and advocating for
reform in the FCPA context is absolutely not advocating for
commercial bribery. But here is the reality: right now,
Americans cannot ascertain with any degree of confidence what
kinds of conduct are legal. The result is that companies are
over-complying at great cost, and individuals have no real idea
of what is prohibited and what is not.
We need more clarity in the law. While it is true that the
government has yet to prosecute someone solely for a $100
dinner, nothing in the statute prevents them from doing so, and
nothing in their own enforcement policies or procedures
prevents them from doing so. Punishing American businesses who
are acting in good faith and throwing in jail supervisors who
had no way of knowing about a payment half a world away could
not have been what Congress intended, nor can that be a
commonsense approach in this difficult economic climate that
has cost many Americans their jobs and imperiled our Nation's
status in the global economy.
The FCPA is emblematic of the general problem of over-
criminalization. While the FCPA properly seeks to prevent
serious misconduct, its language and application have led to
unintended consequences. NACDL appreciates your efforts to
consider and address these issues, and we join many
organizations, on both the left and the right, in the call for
some much-needed commonsense reform in this area, particularly
reforms that will strengthen the mens rea requirements of the
statute and bring clarity, uniformity and fairness to its
enforcement.
Thank you.
[The prepared statement of Ms. Regon follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
__________
Mr. Sensenbrenner. Thank you very much.
The Chair is going to defer his questions until the end.
And to begin, the Chair recognizes the gentleman from
Pennsylvania, Mr. Marino, for 5 minutes.
Mr. Marino. Thank you, Mr. Chairman.
Welcome, guests.
Deputy Andres, I am going to begin with you, and then we
will go to your left. What is the number one obstacle in the
way of enforcement today on corruption, and what is your
recommendation to alleviate that obstruction?
Mr. Andres. Foreign bribery cases are difficult for a
variety of reasons. Obviously, in prosecuting those cases, we
need to rely on evidence from abroad, which takes time. We make
MLAT requests from our foreign partners to get that evidence.
But they take longer, and they are harder to detect than
domestic cases, because much of the conduct often takes place
abroad.
So I think the statute of limitations, I know the
Department has discussed recommendations in the past to extend
the statute of limitations so that we had a longer period of
time to investigate those cases, so that we could root out the
problem of foreign corruption, which is a substantial problem.
There has been much discussion about the increased enforcement
of foreign bribery, but I think that discussion fails to
recognize the size and magnitude of the problem, which are
substantial.
Mr. Marino. Thank you.
General Mukasey, the same question, but could you expand a
little bit on--you brought up two points that you would like to
see implemented?
Judge Mukasey. Yes.
Mr. Marino. Please.
Judge Mukasey. I think the availability of a compliance
defense actually might help the problem that Mr. Andres just
identified by allowing companies to generate more information
on a voluntary basis to help prosecute those cases that have to
be prosecuted abroad. If companies have vigorous enforcement
and oversight mechanisms that they can rely on to avoid
prosecution themselves, they are perfectly available to provide
information with respect to foreign actors who may very well
deserve to be prosecuted.
The definition, the issue of definition I think is a major
problem for reasons that were referred to in Ms. Regon's
testimony. If we don't know who a foreign official is,
everything from providing a cab ride to somebody who worked
late on up is going to make it very difficult for a company to
function, and as she pointed out, a defense lawyer has to err
on the side of caution in advising her clients on what they can
and can't do, which inhibits the conduct of business.
Mr. Marino. Thank you.
Attorney Terwilliger, do you want me to repeat the
question? I saw you jotting some notes, so I think you know
what I am looking for.
Mr. Terwilliger. Thank you. Actually, I think a point worth
making in terms of obstacle to enforcement and achieving the
objectives of the statute is that companies are actually much
better positioned to gather more information more quickly
overseas than the Justice Department or the SEC is. And as a
result of that, policies that favor companies who do
investigate themselves and who do engage in voluntary
disclosure is an aid to enforcement rather than an obstacle.
I believe, frankly, the Justice Department could do more to
encourage such self-investigation, voluntary disclosure and so
forth. And frankly, the Congress ought to pay attention to
things like Dodd-Frank and the SEC whistleblower program, which
are undercutting internal compliance measures, including the
self-reporting which can lead to voluntary disclosure.
Mr. Marino. Thank you. And Attorney Regon, you brought out
some good points as to where this type of investigation would
go. But where do you draw the line when it comes to gifts,
between that and corruption?
Ms. Regon. Thank you, Congressman Marino. That is an
excellent question, and I think probably DOJ might know it when
they see it. I think Ferraris and water ski jets and millions
of dollars of payment for direct quid pro quo can be strong
evidence of explicit commercial bribery. But unfortunately,
with a statute that is written so broadly, all sorts of
legitimate business activities and normal legitimate business
payments can get swept into this. And I think that three out of
the four witnesses today have spoken to the Committee about our
fear that the language is providing DOJ with the ability to
bring in too much of this legitimate business activity.
Certainly, I don't think you heard any of the witnesses
today advocate on behalf of direct explicit commercial bribery.
It does harm American businesses. But there is a line, and it
is recognizable between that and perhaps giving a charitable
donation to someone because they asked and you have been in a
business dealing with them for 5 years, or giving a cab ride
home to an employee.
Mr. Sensenbrenner. The time of the gentleman has expired.
The gentleman from Virginia, Mr. Scott, is recognized for 5
minutes.
Mr. Scott. Thank you, Mr. Chairman.
Judge Mukasey, you talked about the compliance defense. Are
you asking for a total defense or required mitigation?
Judge Mukasey. I think we are asking for a defense, but it
would be an affirmative defense. Understand that the state of
play in a trial would be that there would be a proved
violation, and then the question would be whether the
compliance mechanism that the company had in place was
reasonably designed, if complied with, to have detected the
violation that took place.
It is an uphill climb for a company to establish that
defense. All that we are asking is that they should be allowed
to try.
Mr. Scott. What should be the mens rea requirement for an
individual, the CEO, and for the corporation?
Judge Mukasey. The mens rea requirement should be what it
is in connection with crimes generally, that you have to--what
I used to say when I was a prosecutor and when I was AG is you
shouldn't prosecute any case in which you can't tell yourself
that the person who is accused of committing it, when he put
his head on the pillow that night, didn't tell himself or
should not have told himself, hey, I committed a Federal crime
today. If you can't say that somebody knew that and had every
reason to know it, then the case should not be prosecuted.
That is the mens rea requirement. It has to be something
that somebody can clearly identify with a straight face as
having been a criminal act.
Mr. Scott. What about the corporation?
Judge Mukasey. The corporation, in a sense there is no such
thing as the corporation. They are just a bunch of people. So
there has got to be somebody who identifiably had the knowledge
or who knew facts to which he voluntarily and purposely closed
his eyes, and this trenches on the willful ignorance issue that
has come up recently.
Mr. Scott. You can have a rogue individual who commits the
crime. When should the corporation be responsible for that?
Judge Mukasey. When that individual is in a policymaking
position.
Mr. Scott. Mr. Andres, you have mentioned six-figure
bribery cases, and we have also heard about free meals and cab
rides. Are de minimis cases ever brought?
Mr. Andres. They are not, sir. And just to clear the
record, the Department of Justice has never prosecuted somebody
for giving a cup of coffee to a foreign official, a martini,
two martinis, a lunch, a taxi ride, or anything like that. And
it is not clear that those acts in and of themselves would
evidence an intent to bribe somebody.
If one looks at the Department's actions----
Mr. Scott. Would you object to a provision excluding de
minimis transactions?
Mr. Andres. I would, for a few reasons. One, small de
minimis payments paid over time on multiple occasions can
amount to a more significant bribe if, in fact, there is an
intent to bribe. I think the relevant consideration is not the
amount of the bribe but rather the intent, whether it is an
intent to bribe. I think that both the Department of Justice
and the government need to be clear that all bribery, just as
in domestic bribery, is inappropriate.
So I don't think it is appropriate to have an exception for
a smaller bribe. But I would also note that this talk of taxis
and meals is not reflected in our enforcement actions. The
cases that we have prosecuted----
Mr. Scott. But one of the things we are hearing is people
don't know where the line is, and if you were to put something
in the code to help people ascertain where that line is, it
would be helpful. That is why I asked about a de minimis, and
you have suggested you don't want that in there, which brings
the cab rides and meals back in play.
Mr. Andres. I believe that a reflection of the Department's
enforcement actions, our public comments on our website provide
adequate guidance with respect to the statute. I don't think
anybody seriously believes that providing a taxi ride to
somebody is, in fact, a violation of the Foreign Corrupt
Practices Act. We have prosecuted cases in which people have
turned over suitcases full of cash, hundred-dollar bills
amounting to a million dollars. How someone would have the
impression that we are prosecuting----
Mr. Scott. Well, let me have Judge Mukasey comment on it.
Judge Mukasey. The taxi ride example is for real. It
occurred at a company in which somebody worked overtime, was
given a taxi because the trains had stopped running, and then
some nervous counsel found out about it, reported it to the
Justice Department and was told that it probably wasn't a
violation but to go back and investigate the entire
circumstances of the relationship with that company and come up
with a result of that investigation to determine that no
illegal payments had been made. A couple of hundred thousand
dollars later it was determined that, in fact, there had been
no violation. But that couple of hundred thousand dollars could
have been used for a lot better purposes than conducting an
unnecessary investigation.
Mr. Sensenbrenner. The gentleman's time has expired.
The Vice-Chairman of the Committee, the gentleman from
Texas, Mr. Gohmert?
Mr. Gohmert. Thank you, Mr. Chairman.
I would like to follow-up on that, General Mukasey. One of
the problems that I hear--and, of course, you have been a
judge, and you listen for little words that prick up your ears.
When I hear words like ``I don't think that would be a
violation,'' that doesn't give companies much assurance if
somebody in a legal position with the government says I don't
think it is, or I think it is. It seems like we ought to have a
clear enough line that people don't have to think. They can say
yes, it is or it isn't.
And I appreciate the statement that all bribery is illegal,
Mr. Andres, and there should not be an exception for smaller
bribery. The thing is, we can define bribery. And as in the
example that General Mukasey has mentioned, a taxi ride, if you
say, for heaven's sake, anything under this amount obviously is
not bribery, then that gives companies a clear line where they
know they can do this and not have to spend $200,000 because
there may be a young prosecutor or a young FBI agent that
thinks I can make a name going after this big company.
And, of course, we know that because of the Director's 5-
year up or out policy, we eliminated thousands and thousands of
years of experience in the FBI supervisory positions. So like
in many cases, or some cases at least, you go from people with
25 years or more to 5 or 6 years being the supervisor. When you
had experienced people in charge they would say, ``Give me a
break. You know, a $10 taxi ride is not bribery. We are not
going to do that.'' When you have got a 5-year supervisor going
I have got a career in front of me, I want to get the
Director's attention, then it seems like there is more room to
have FBI agents or prosecutors more aggressive than they should
be.
I am for punishing crime. I was known as a hang 'em high-
type judge. But I do believe in having the law clear enough so
people don't have to worry about it.
General Mukasey, let me ask you. If the DOJ doesn't give
information about how it is making charging decisions, is that
in effect treating every company as a potential law breaker
where they can't make adequate plans for the future?
Judge Mukasey. Obviously, I think the more information that
is available on how these decisions are made, the easier it is
for people to function. But there is a difference between
saying this is how we do it on a general and non-binding basis,
and actually having a legal provision in the statute that is
clear to everybody as a basis for governing your behavior going
forward. It is one thing for somebody like Mr. Andres, who is
very experienced and makes sane and rational decisions, to say,
well, this is not the way I would do it, but that doesn't
necessarily govern the behavior of everybody out there, and it
certainly doesn't control what goes through the mind of a
corporate attorney who is worrying about the possibilities for
his company going forward.
Mr. Gohmert. Have you ever drafted specific language that
you think would help make the law tighter?
Judge Mukasey. I believe the Chamber has submitted a bill.
Mr. Gohmert. Did you participate in that?
Judge Mukasey. I did not participate in it. I reviewed it.
Mr. Gohmert. Okay. Saying you reviewed it doesn't tell me
anything.
Judge Mukasey. Well, it says----
Mr. Gohmert. You can review it and think it is crazy.
Judge Mukasey. The language is that $250 is presumptively
proper.
Mr. Gohmert. So you like the language?
Judge Mukasey. Which seems about right. I do.
Mr. Gohmert. Okay. Thank you.
Mr. Andres, why should a company ever be criminally
prosecuted if it does a compliance program that meets all the
reasonable standards of Chapter 8 guidance? I mean, obviously
they can have rogue people that do things, but I believe in
holding the people accountable that commit crimes and make
mistakes. But if the company has done everything appropriately
and legally, why not go after individuals instead of a company
that didn't know about the incident? It seems like it is a
strict liability standard. Please.
Mr. Andres. Congressman, the Department does not prosecute
corporations based on the acts of a single rogue employee. It
hasn't, certainly not in this field. And again, when you----
Mr. Gohmert. But it could.
Mr. Andres. Not under the guidelines that are provided
under the Principles of Federal Prosecution of Business
Organizations. We look at how pervasive the conduct is. If the
employee is a high-ranking official in the company, that is a
different issue. But if it is a rogue employee on a lower
level, we would not prosecute that under our own principles.
Let me address your point about the compliance defense. The
Department would oppose an affirmative compliance defense for a
few reasons. First, we already take into consideration a
company's compliance program. We take it into consideration and
review it, and it is a serious consideration. Over the last 20
years the Department has developed a series of broader factors
that we consider that includes compliance, that includes
cooperation and self-disclosure. To review only compliance
would be a substantial change in the way that the Department
has done business over several Attorney Generals for more than
20 years.
The affirmative defense of compliance is also a novel
concept. It is not one that is well defined, either here or
otherwise, and it could lead to paper compliance; that is, a
company having a compliance program on paper that is not
rigorous and that doesn't help to prevent bribery.
And one last point. Critics or proponents of the compliance
defense have relied on foreign law to support that position.
They have turned to the UK Bribery Act, which has been
criticized by many in the business community here in the United
States. But more importantly, it is not yet in effect. So there
is no precedent to follow to say that the UK Bribery Law and
its affirmative compliance defense would be effective here in
the United States.
Secondly, they point to Italian law and their Foreign
Corrupt Practices Act, which also has a compliance defense.
That provision has been roundly criticized in the international
circles. The OECD said that that defense provided little
assistance in determining what an acceptable model is in a
particular case. That defense has actually never been applied
in practice.
So if we take on this affirmative compliance defense, we,
in effect, create a loophole, because as even the proponents of
the defense say, no compliance program is perfect. It would
allow necessarily for some bribery to occur. So I think that
given that it is a novel and somewhat risky approach, the time
is not right to adopt such a compliance defense.
Mr. Gohmert. Thank you, Mr. Chairman.
Mr. Sensenbrenner. The gentleman from Michigan, Mr.
Conyers, is recognized for 5 minutes.
Mr. Conyers. Thank you, Chairman Sensenbrenner.
Welcome back to the Committee, General Mukasey.
Judge Mukasey. It is a pleasure to be here.
Mr. Conyers. You have a few more lawyers than you had when
we last saw you before us. Let's see, you are down to only 700
now. And you were up over 100,000 the last time I saw you here.
Judge Mukasey. I had the benefit of 100,000 then, only 700
now.
Mr. Conyers. Yeah. Let me ask you, was it during--was it
when you were Attorney General that we had this taxi ride case
happen that cost a couple of hundred thousand bucks?
Judge Mukasey. I don't know precisely when that happened.
Mr. Conyers. But it could have been during your watch.
Judge Mukasey. It is conceivable.
Mr. Conyers. Okay. Now, of all people, I know you are not
telling us here today that ignorance of the law is an excuse.
If you don't know that it is against the law, if you don't know
that something you are doing is against the law, does that
excuse you?
Judge Mukasey. No. The----
Mr. Conyers. Right. Ignorance of the law is no excuse. So
how can you say that you didn't prosecute anybody if they went
to bed at night and they didn't know they were violating the
law? You ask people before they are indicted whether they ever
went to bed and thought they were violating the law?
Judge Mukasey. That they either knew or should have known
by the standards of society as we accept them. We didn't----
Mr. Conyers. Right. So ignorance of the law is no excuse.
Judge Mukasey [continuing]. Is okay to sell drugs or rob
banks.
Mr. Conyers. Yeah. Ignorance of the law is no excuse, is
it?
Judge Mukasey. No.
Mr. Conyers. All right. Now, why in the cases of bribery do
we need to have a de minimis rule? In local law enforcement,
prosecutors statewide, Feds--look, you mean that if there is
just a little bit of bribery and it is really low, that we
ought to have a threshold? What on earth--corporations have
more lawyers than anybody else, the ones sitting here. What do
they need to know how low the crime has got to be before it is
prosecutable? I don't think that they deserve to know that.
Nobody is prosecuting people for how many drinks or a meal that
you brought them, or gave them a ride. Everybody knows that
that doesn't have any logic.
And so I ask the Association of Criminal Defense Lawyers
witness, give me some examples of over-criminalization of the
Foreign Corrupt Practices Act.
Ms. Regon. Certainly, Mr. Conyers. I think the problem that
we all----
Mr. Conyers. Just give me the examples.
Ms. Regon. Sure. The example is that the law is written so
expansively that----
Mr. Conyers. No. Give me the examples. Give me an instance
of where one case was ever brought by the Department of Justice
which it would constitute over-criminalization.
Ms. Regon. Respectfully, sir, I am probably not aware of
absolutely every single----
Mr. Conyers. No, of course you are not. I will tell you why
you are not.
Ms. Regon. A number of them--they have increased their
enforcement.
Mr. Conyers. I will tell you why you are not, is because
only 140 cases have been brought in 10 years.
Ms. Regon. And they have increased their enforcement 10-
fold in the last 5 years, and so I did not----
Mr. Conyers. And that averages 14 cases a year. Is that
over-criminalization to you?
Ms. Regon. A statute that allows the government to
prosecute someone as broadly as the statute currently allows
is----
Mr. Conyers. I said is 14 cases a year over-prosecution to
you?
Ms. Regon. A statute with no reasonable limitation is over-
criminalization.
Mr. Conyers. Just answer my question, okay?
Ms. Regon. I am, sir. A statute that provides no reasonable
limitation to prosecutorial discretion is over-criminalization.
I have testified here today that I am concerned more about the
prosecutions to come than the prosecutions----
Mr. Conyers. You haven't----
Mr. Sensenbrenner. The gentleman's time has expired.
The Chair recognizes the gentleman from Texas, Mr. Poe?
Mr. Poe. Thank you, Mr. Chairman.
Thank you for being here.
Similar to my friend, Mr. Gohmert, in my other life I was a
felony court judge for 22 years in Texas, heard everything from
stealing to killing, and several death penalty cases, and I
don't like crooks. But on this situation, I want to talk about
the world as it is, not the way that we wish that it were.
Let me start with China. China seems to have, to me,
through their government, a systematic philosophy of
corruption. They will do anything they can, anywhere in the
world, to get their way. They will steal from the United
States. They will pay bribes. They will do it all. They are
dealing with a philosophy that any means necessary to get it
the Chinese way.
We, on the other hand, believe in the rule of law, that
some things are actually things we shouldn't do, like bribery.
The Chinese are effective in their philosophy. Here we are
building the nation of Iraq. Just got back from Iraq last
night, and when I was there I learned that, of course, the
Chinese are going to rebuild their oil drilling system. I
suspect--my opinion--maybe some money changed hands for the
Chinese to be doing that instead of American oil companies. I
don't know.
And compliance seems to be part of the issue here. We want
our American companies to operate within the law. We set the
law, and we need to make sure that it is effective. It disturbs
me that we give the Justice Department too much discretion on
who they want to go after and who they don't want to go after.
There doesn't seem to be a rule of thumb except they use their
discretion whenever they want to. I think that is a universal
problem. I was a prosecutor for 8 years, and I see that that is
a problem with the prosecution side.
Ms. Regon, I am going to let you finish your answer that
ran out of time. Tell me why compliance is a better idea than
what we have under the current system, from your point of view.
Ms. Regon. Thank you, sir, for the opportunity to answer
that question. And I think it is because what the criminal law
really seeks to do is try to prevent misconduct from occurring
in the first place, and to deter those individuals and
corporations who would engage in crimes otherwise not to do so.
And so I think a robust compliance program protects companies
and individuals from engaging in misconduct because it educates
them about what that misconduct would be. It trains them to
avoid it. It trains them to identify it. And it also provides a
reporting mechanism when misconduct does occur, even if it is
perhaps on the other side of the ocean, not from the American
employees.
And it also--usually a good compliance program will provide
an opportunity for a whistleblower to say safely, without
retaliation, there is some misconduct happening. And then it
provides the company with a nice structure about what to do if
that kind of thing happens.
That seems to me a commonsense way of both preventing these
kinds of misconduct from happening and also for providing
remedial measures when it does happen. You end up deterring the
conduct from happening to begin with. You--individuals don't
end up being sort of surprised in a gotcha game about what was
prohibited and what wasn't if there is a good, robust
compliance program.
Mr. Poe. Follow-up question. The global economy where we
have U.S. companies trying to compete worldwide, especially
with companies or countries that don't follow any rules except
to win, do you think that that would help international
competition? Would it hurt as far as United States companies
go, Ms. Regon?
Ms. Regon. Well, I think that the Department of Justice
should be congratulated on being the world's enforcer on
foreign corruption. I think other countries look at our
international corruption laws and think that we are doing the
best job. And so I congratulate them on that.
I think the discussion here today has been not to sort of
make it easier for anyone, including American businesses or
anyone internationally, to bribe in order to get business done.
I think the discussion here today is how to give individuals
and companies clarity about what the law means and what it
doesn't so that we can all go out and conduct business,
stimulate our economy, stimulate economic growth throughout the
globe without engaging in corruption or without being fearful
that a cab ride or other legitimate business activities could
be criminalized, and that clarification is needed today.
Mr. Poe. I agree with you on that. I am certainly not
advocating that we loosen the standards for American companies.
They just need to have some absolute certainty as to what is a
violation, what is not, and when they will be prosecuted, and
if they do something this will happen, as opposed to too much
discretion on the part of what something means and what a bribe
happens to be. Maybe Congress has a responsibility to define
what bribery is, although we all know what it is. It needs to
be somewhat definite.
Thank you, Mr. Chairman. I yield back the remainder of my
time.
Mr. Sensenbrenner. Thank you.
The gentlewoman from California, Ms. Chu?
Ms. Chu. Thank you, Mr. Chair.
Mr. Andres, you clearly articulated the reason that the
Department of Justice doesn't agree with passing statutory
language authorizing a compliance defense. However, is it my
understanding that you consider a compliance program a factor
in determining a company sentence for bribery offenses?
Mr. Andres. Both at the sentencing phase and at the
charging phase, that is, a decision whether or not to enter
into--charge a company, to enter in some resolution, or to
decline prosecution in the first place. We certainly take into
consideration a company's compliance program.
And just to amplify that a little, there are, of course,
cases where we decide not to prosecute or not to require a
company to enter into a resolution, because they have strong
compliance programs. You don't read about those because we
don't issue a press release when we decide not to prosecute. So
there is certainly--that certainly is an important factor that
we take into consideration.
Ms. Chu. Are there currently any guidances that are
available to companies that articulate or describe what you
believe to be a strong compliance program?
Mr. Andres. Sure. There are a variety of different
reference materials, including the United States Sentencing
Guidelines, and OECD good practice guides that dictate or
describe things that are important for a valid and robust
compliance program. They talk about things such as having an
articulated policy against foreign bribery, having standards
and procedures designed to reduce violations of their policies,
to have senior officials charged with implementation and
oversight, and a variety of other factors that are detailed in
those various resources.
Ms. Chu. If--well, are those guidelines readily available?
Mr. Andres. They are readily available. I think another
point with respect to guidance, every time the Department has
entered into a resolution with a company dating back to, I
believe, 1988, we published those detailed plea agreements,
resolutions and other documents on our website. So you could go
back and look on our website and see, for example, in the
Daimler case, what the specific resolution was, what issues
there were with compliance, what modifications we may have
asked from that company or any of the other companies that we
prosecuted. All those documents are available on the
Department's website.
Ms. Chu. How could we incentivize corporations to have
these kinds of compliance programs, then?
Mr. Andres. I think we incentivize companies by giving them
credit for their compliance programs, which, as I said, we do.
As I mentioned, there are instances where we decide not to
prosecute a company because of compliance. There are other
factors that go into the mix as well, such as cooperation,
self-disclosure, and remediation. But clearly, by making
decisions based on compliance factors, which we do, and to the
extent that we can publicize that and make the business
community aware of the fact that we take that into
consideration, I think we provide the right incentives.
Ms. Chu. Let me ask about something else, which is that in
2004 DOJ initiated two FCPA investigations, and SEC initiated
three. However, last year DOJ brought 48 investigations, and
the SEC brought 26 investigations. I am trying to get the
reason for this, get an understanding of what is the problem.
Is the problem bigger, or is the enforcement greater?
Mr. Andres. I think the problem is as big as it has ever
been, if not bigger. I think we have become aware of more cases
for a variety of different reasons.
One, the world is smaller. We can communicate with our
foreign law enforcement partners through emails and otherwise
much more easily than previously.
Secondly, at least one reason why there are more cases--I
don't think it is the sole reason--is that CEOs of corporations
are complying with other laws such as the Sarbanes-Oxley law,
which requires them to verify their financial statements. In
doing that and getting confidence as to the credibility of
those financial statements, they are detecting problems with
foreign bribery, and in many instances they are disclosing that
to the Department of Justice.
So I think, again, the problem is a substantial one. That
certainly has led to more enforcement. But there is a variety
of factors which has led to the increase.
Ms. Chu. And how would these new proposals address this
trend?
Mr. Andres. The proposals?
Ms. Chu. Yeah.
Mr. Andres. Well, again, the Department is concerned about
the proposals with respect to a compliance defense or another
definition of a foreign official, because they provide some
possibility for loopholes, that some bribery becomes
acceptable. And I think just as in domestic bribery, the Unites
States needs to send a clear message that bribery is
unacceptable.
Ms. Chu. Thank you. I yield back.
Mr. Sensenbrenner. The gentleman from South Carolina, Mr.
Gowdy, is recognized for 5 minutes.
Mr. Gowdy. Thank you, Mr. Chairman.
Mr. Andres, you are not suggesting that current DOJ has
placed more of an emphasis or is more concerned about these
prosecutions than predecessor DOJs, are you?
Mr. Andres. Far from it. Many of the investigations that
are now coming to resolution have been ongoing for some time.
So I think it is not necessarily an appropriate barometer to
say that if we have had X number of resolutions in this year,
it is because there is more enforcement now. Those
investigations take time.
Mr. Gowdy. Right. Just like when other witnesses have come
before Judiciary and we have noticed a downturn in
investigations and prosecutions, it would also be unfair for us
to suggest that the current DOJ isn't concerned about those
lines of cases, right?
Mr. Andres. Again, it is hard to comment on these things
generally. But suffice to say, at least with respect to the
FCPA prosecutions, those investigations are often longstanding.
They take some time. So it may be that prosecutions resulting
in resolutions now have gone on for years.
Mr. Gowdy. All right. In response to an earlier question,
you said DOJ isn't prosecuting cup of coffee cases, or that is
at least a pretty good paraphrase of what you said. And my
concern isn't whether or not you are or are not prosecuting cup
of coffee cases. The question is whether or not you can,
because one is a declination issue and the other is a
jurisdictional issue, and I think those are very, very
different and require a different analysis.
So can you prosecute cup of coffee cases?
Mr. Andres. Just so I am clear, with respect to whether or
not we can, there are within the statute exceptions for
reasonable and bona fide promotional expenses. There are also
other exceptions that cover legitimate business expenses. So if
a cup of coffee is given to a foreign official without an
intent to bribe that individual, we would not be able to bring
that case because there is not the requisite intent to bribe.
Mr. Gowdy. What do you do with a different standard, the
different mens rea standard for corporations and individuals?
Do you support having a willful requirement for corporations,
or not?
Mr. Andres. Well, with respect to that distinction, I would
say that in our enforcement, I am not aware of any cases where
companies have complained that they have been held accountable
for any conduct that is other than willful conduct. But I think
it is also important to recognize that in the FCPA, in the
legislation, the statute, the standard with respect to
corporations talks about corruptly. So the word ``willfully''
is replaced by the word ``corruptly,'' and I think those two
words are very similar. In large part they encompass the same
type of conduct.
Mr. Gowdy. Professor Terwilliger, do you see any issues
with not having a willful requirement for corporations in
conjunction with not also affording them a compliance defense?
Mr. Terwilliger. Certainly, sir. And I have been accused of
a lot of things, but being an academic is not one of them. It
is a pleasure to be here with you today.
The problem with a willfulness requirement for corporations
is just what General Mukasey mentioned. Corporations can't
think; only individuals can think. And therefore any ascribing
of an intent to a corporation is really artificial because the
corporation itself is artificial.
It seems to me that all of that kind of debate surrounds
much more the question of definitions of the statute than it
does the exercise of prosecutorial discretion. I think the
Justice Department generally does a fairly good job of
exercising its discretion.
What the Congress' job is, if I may, is to define the
parameters in which that discretion is exercised, and that is
where there is uncertainty. And when and under what
circumstances a corporation itself and its shareholders should
be penalized because employees go off on some bribery scheme
that, in spite of having a good compliance program, in spite of
having complete buy-in by a CEO and so forth, that to me is an
enforcement policy question that rests right here, not in the
Justice Department.
Mr. Gowdy. Ms. Regon, there are other crimes that are
strict liability crimes, but you don't think this should be
added to the list? There are contraband cases, child
pornography, under-age sex cases that are strict liability
crimes. Why is this different?
Ms. Regon. Well, I think it is up to the Congress to
determine which crimes are or are not strict liability crimes,
and I do believe that 30 years ago the Congress who created the
FCPA did not intend it to be so. It is certainly within your
province to decide when that is appropriate and when that
isn't.
I think the problem here is you have a statute where that
was not the intent. It does contain a willfulness requirement,
at least for individuals, in the anti-bribery provisions. I
think that when the Congress included that word, I think that
they meant it, and I think that, unfortunately, because the
statute is otherwise written fairly expansively, it does allow
DOJ and SEC to treat the statute as if it is a little bit--to
sort of prosecute to the fullest extent that the law allows.
You know, they do a good job, they do their jobs, and they
will take as much as the Congress gives them. And I think that
that doesn't mean to suggest bad faith on the part of
prosecutors. It just means that any one of us, given our job,
will do it to the expansive limitations that are given to them.
And unfortunately, there aren't as many limitations in the
statute as there should be.
Mr. Gowdy. Thank you, Mr. Chairman.
Mr. Sensenbrenner. The gentleman's time has expired.
The gentleman from Georgia, Mr. Johnson.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Terwilliger, you just said something that is very
profound. You said corporations can't think, and I wish that
you had been the attorney who could have argued that to the
U.S. Supreme Court in the Citizens United case. [Laughter.]
Mr. Johnson. But I would like to turn now to Ms. Regon and
ask you, have you ever been a prosecutor before?
Ms. Regon. I have not, sir.
Mr. Johnson. But would it be fair to say that the looser
the law, then the more prosecution discretion comes into play?
Ms. Regon. Certainly.
Mr. Johnson. And then to narrowly draw the law means less
prosecutorial discretion.
Ms. Regon. It means less discretion. It doesn't necessarily
mean less prosecutions.
Mr. Johnson. Well, it could result in less prosecution
victories.
Ms. Regon. I think if DOJ means what it says here today,
which is that it is really focused on explicit commercial
bribery, and I think Mr. Andres promised that the DOJ would
never prosecute a company for the rogue acts of an employee
overseas, I think if they meant that, then they wouldn't mind
that the statute was so narrowed because they would still be
allowed to prosecute explicit commercial bribery. I think that
they enjoy a certain broader amount of discretion so they can
in the future bring the kinds of cases they want to bring.
Mr. Johnson. Yes, but my problem is that, okay, while we
want to narrowly draw statutes to limit prosecutorial
discretion in cases of legalized crime, because there are two.
There is legalized crime, there is legal crime and illegal
crime.
Ms. Regon. Well, I am not----
Mr. Johnson. The illegal crime is the blue collar type of
crime, the burglaries, robberies, rapes, murders, those kinds
of things, theft, shoplifting, drug dealing. That is illegal
crime. Some would argue that things like white-collar crime are
legal crime, and they argue that it is legal crime because the
prosecutions for that kind of misconduct are not as vigorous as
they should be.
So in the case of legalized crime or legal crime, I am
bothered by the notion that we need clarification, and I am
bothered by the fact that there has not been a whole lot of
prosecutorial activity in this arena, FCPA, in the past. And so
it just seems kind of fishy. We are trying to let some folks
off the hook for legal crime.
Ms. Regon. Congressman Johnson, if I may respond to that, I
think that there are a number of people who have been
prosecuted for white-collar crimes and that are, in fact,
serving what in effect are life sentences, and they would----
Mr. Johnson. There have been some examples made.
Ms. Regon. Yes. They would disagree that white-collar crime
is not real crime.
Mr. Johnson. There have been some examples made, some of
which I disagree with, some of which I feel like people were
treated too harshly by the criminal justice system for white-
collar crime just to make them an example, and I can feel your
pain in terms of representing clients who may fall on the wrong
side of political correctness, and I hear what you are saying.
But I do not think to amend the law in this case would prevent
prosecution discretion from being misused from a political
standpoint.
Ms. Regon. Sir, I would like to respond to really what I
feel is the heart of your question, which is I think that both
blue collar criminals and white-collar criminals or those who
are accused of those sorts of crimes, they both deserve
constitutional fairness. They both deserve fair notice of what
is against the law before they are prosecuted for potentially
violating----
Mr. Johnson. But nobody----
Mr. Sensenbrenner. The gentleman's time is expired.
Will the witness continue her answer? And then I will
recognize the gentlewoman from Florida.
Ms. Regon. Thank you, Chairman, very much.
The Constitution requires fair notice to each of us about
what the law prohibits and what the law does not. We do this
because we think it deters conduct. We do this because it is
fair, because it provides due process notification to all of
us, and I think that is important to anyone accused of any type
of crime. NACDL represents those accused of all types of
crimes, including burglary and rape and child----
Mr. Johnson. I realize that.
Ms. Regon. The full panoply of crimes, and I don't think
that there is a difference between----
Mr. Johnson. But legally----
Mr. Sensenbrenner. The gentleman's time has expired.
Mr. Johnson. Legal crimes----
Mr. Sensenbrenner. The gentleman's time has expired.
Mr. Johnson. Thank you, Mr. Chairman.
Mr. Sensenbrenner. The gentlewoman from Florida, Ms. Adams.
Ms. Adams. Thank you, Mr. Chairman.
Mr. Andres, does DOJ have definitions for foreign official
instrumentality? Do you have that in your agency?
Mr. Andres. So in addition to the statute, foreign official
as defined in the statute, there are now several decisions by
district courts, two in California, recently one in Miami,
which have further amplified the definition of foreign
official. And beyond that I would say that it is important when
we think about that concept that the foreign official
definition in the statute is consistent with our own treaty
obligations.
So, yes, there is a definition in the statute.
Ms. Adams. What about DOJ?
Mr. Andres. We follow the definition----
Ms. Adams. You don't have any tweaks to it whatsoever when
you are determining whether or not to file?
Mr. Andres. We don't support a change in the definition of
foreign official, again because----
Ms. Adams. What about instrumentality?
Mr. Andres. Same answer, because we are fearful that that
will--there is a bright line rule with respect to who
constitutes a foreign official. We think if companies are not
paying bribes, that there is really no fear of prosecution from
FCPA enforcement.
Ms. Adams. Well, I have listened to the different
conversations, different questions, and you said that you
publish when you have your decisions on how you came about your
decisions. What about when you decide not to file? Is there
some area in which you have that information so that people can
go to that area and find out if it is consistent, is there any
irregularities based on decisions made whether or not to file?
Mr. Andres. So that is a difficult area for the government.
We don't, in large part, because we don't want to penalize a
company or an individual that has been investigated and not
prosecuted, that there may be some prejudice from that. But let
me----
Ms. Adams. Can you tell me how many cases maybe in the last
year that you have had come to your agency where you wanted to
take a look but then you changed your mind or whatever and
decided maybe it didn't fall into the parameters or didn't
quite make that bright line test, about how many cases that
would be this year alone?
Mr. Andres. I don't have those numbers, and I can try and
provide them. I will say one other thing about guidance. In the
FCPA there is a unique feature in the law called the procedure,
or an opinion procedure process. It is unique to the FCPA. If a
company has a question about who constitutes a public official,
or if some particular conduct, they have the ability to ask the
Department of Justice for an advisory opinion as to whether or
not that conduct will violate the statute.
So if there is a question about a payment being made or
whether somebody constitutes a----
Ms. Adams. Such as the taxi cab ride that cost $200,000 to
investigate.
Mr. Andres. If, in fact, that is true, then yes, you could
ask the question, and the Department would be obligated under
the statute to give you an opinion as to whether or not that
conduct----
Ms. Adams. So just curious. Would it be fair to say, in the
absence of court involvement in FCPA cases, judges will have
the opportunity to define the limits in the FCPA, and therefore
DOJ alone gets to define what the law means?
Mr. Andres. I don't think that is right. There is judicial
oversight. We just finished----
Ms. Adams. I said in the absence of it.
Mr. Andres. I'm sorry?
Ms. Adams. In the absence of judicial oversight, in the
absence of the court involvement, then you would be making all
those definitions and defining.
Mr. Andres. Yes, but every one of these cases is negotiated
with experienced defense counsel. And so we take a great amount
of time to speak to defense lawyers who are very experienced in
this field in making decisions about how to come to
resolutions. So there is ample opportunity for them to address
these issues with the Department.
Ms. Adams. Judge, I see maybe you wanted to add something?
Mr. Mukasey. I would simply point out that none of those
cases are binding on any other case. So, yes, they provide an
interesting case study for somebody who would like to make a
future decision, but there is no guarantee that it is going to
come out the same way.
Ms. Adams. Interesting. So it all falls back to DOJ and the
decisions that they decide to make based on what?
Mr. Andres. We decide based on the definition of a foreign
official in the statute. And while an opinion release may not
be binding on a separate party, nothing precludes that party
from asking the Department the particulars of his or her case
so that they can have clarity about what the law is. We feel
that that procedure has the ability to provide explicit
guidance.
Ms. Adams. Would it be possible, just say in the last year,
for you to provide to the Committee the amount of cases that
were brought to your attention and that were not filed upon,
and the reasons and rationale why you did not file those cases?
Mr. Andres. We certainly can try to figure out the number
of cases we declined, the various factors that went into----
Mr. Sensenbrenner. Will the Department submit this
information in writing to the Committee?
Mr. Andres. To the extent that we can--to the extent that
we can gather that information, we will certainly try to.
Mr. Sensenbrenner. Without objection, when the information
is received, it will be made a part of the record.
And the gentlewoman's time has expired.
The gentlewoman from Texas, Ms. Jackson Lee.
Ms. Jackson Lee. Mr. Chairman, thank you, and I thank you
and the Ranking Member, Mr. Scott, for holding the hearing. It
is extremely important for this Committee to be diligent in
oversight. And if there is a Committee that has a broad reach,
it is the Judiciary Committee in terms of the layers of laws
that we have to address.
So let me try to probe as quickly as I can to the
Department of Justice. Tell me how many attorneys and staff, to
your best knowledge, are assigned to the Foreign Corruptions
Act.
Mr. Andres. Well, I am going to--I can obviously get that
number in particular, but I am going to say there are probably
between 15 and 20 lawyers in the Department of Justice in
Washington that are assigned to those cases and do those cases
primarily. When we, in fact, prosecute a case, we often partner
up with the local U.S. Attorney's Office. So----
Ms. Jackson Lee. So you add resources when it happens to
fall within a different jurisdiction.
Mr. Andres. That is right.
Ms. Jackson Lee. So any given time, you could have 10--
excuse me--you could have 15, 20, 25 if you are working on a
case, or more. I mean, I would imagine there is some
flexibility there.
Mr. Andres. Fifteen or 20 in Washington who are dedicated
solely to this mission, the prosecution of foreign bribery, and
then lawyers, prosecutors in offices throughout the United
States who will supplement our trial team if we go to trial, or
in the investigative team.
Ms. Jackson Lee. Do you think that is an excessive amount?
Mr. Andres. Certainly not in light of what the problem is,
that is the size and magnitude of foreign bribery and the way
that that negatively impacts on American business, which isn't
to say I am asking for more resources, but only to say the
problem is significant.
Ms. Jackson Lee. So your prosecution, however, is of U.S.
companies that engage in bribery. Is that correct?
Mr. Andres. No. That I think is a common misconception.
Our--the FCPA allows us to prosecute a range of different
companies, both foreign and domestic. In fact, one of the ways
that we are hopeful that we are helping American businesses is
by the prosecution of foreign companies who are engaged in
widespread----
Ms. Jackson Lee. And give me the nexus. If I am in a
foreign country and I am a foreign company from elsewhere, what
is the nexus for suing that company for bribing? And I would
add to it that there is an American company trying to do
business, I am bribing, I get the business, but I am a foreign
country--excuse me--foreign company in a foreign country, the
same country that this United States business is in.
Mr. Andres. So, for example, if you are a foreign company
who is listed on an exchange in the United States, then we
can--you fall within the jurisdiction. Eight of the 10 largest
FCPA settlements in the history of the statute are against
foreign companies, which isn't to say that we target----
Ms. Jackson Lee. And is the action based upon a bribery,
does it have to impact a U.S. company, or because it is on an
exchange you have the jurisdiction?
Mr. Andres. No, it doesn't have to impact an American
company necessarily.
Ms. Jackson Lee. But the bribery, of course, is one that
undermines the normal course of business.
Mr. Andres. Clearly it affects the level playing field, and
we believe----
Ms. Jackson Lee. Give me some--and my time is running, so I
am interrupting. Give me some, one or two cases and your
assessment of whether you have been excessive.
Mr. Andres. So, for example, the Siemens case involved
improper payments of over $800 million in four countries, and
that bribery scheme lasted over 6 years. That was a company
that we prosecuted.
Ms. Jackson Lee. Right. What was the settlement? What was
the result?
Mr. Andres. The settlement was a payment, I believe, of
approximately over $800 million settlement with respect to the
payments that were made----
Ms. Jackson Lee. And what would be your answer to the
question that it is antiquated and over-broad?
Mr. Andres. I don't believe that is true, and I don't
believe change is necessary to the statute. Again, given the
magnitude of the problem and the possibility that some change
to the statute could either send a message that we were
sanctioning some type of bribery or producing loopholes which
would further----
Ms. Jackson Lee. Thank you.
Mr. Andres [continuing]. Impact American business.
Ms. Jackson Lee. Thank you.
May I get Ms. Shana-Tara Regon? What is your opposition, or
what do you think we can do to improve? Frankly, let me tip my
hand and say that I think it is a valuable purpose for this
act. What are your arguments against its utilization?
Ms. Regon. Congresswoman Lee, we would agree that the act
itself started off with a laudable goal, and that is to prevent
explicit commercial bribery abroad, and we are certainly not
here to suggest that there shouldn't be anti-corruption laws on
the books. We are suggesting that those that do exist have
understandable and rational limitations, that the people who
are subject to those laws are able to understand by reading the
law what is prohibited and what is not so that they can then
conform their conduct to the law and not violate it. That is,
unfortunately, not the case with this statute.
Ms. Jackson Lee. Mr. Chairman, may I just thank General
Mukasey for being here? I wanted to pose a question, but he
knows the great respect that I have for him and thank him for
his service that he rendered as Attorney General and on the
Federal bench, and I will look forward maybe to engaging with
you on this question.
Mr. Mukasey. Thank you very much. Good to see you again.
Ms. Jackson Lee. Thank you. Good to see you.
Mr. Sensenbrenner. The gentlewoman also knows that the
gavel is bigger than normal. [Laughter.]
Ms. Jackson Lee. But I know you won't throw it. Thank you,
Mr. Chairman. [Laughter.]
Mr. Sensenbrenner. The gentleman from Arizona, Mr. Quayle.
Mr. Quayle. Thank you, Mr. Chairman.
Mr. Andres, in 2006 Macau became the number one gambling
market in the world, surpassing Las Vegas, and it was recently
reported that gambling revenue in Macau rose about 42 percent
in May, and year over year, and it is expected to continue to
grow in this manner.
Has the DOJ looked into the gambling practices in Macau and
if there is any illegal activity occurring in that arena?
Mr. Andres. I am not sure that would be appropriate for me
to comment on any ongoing investigation to the extent there was
one. So I am not sure that is a question I am able to answer.
Mr. Quayle. Okay. Let me go to another subject. Now, when
you are trying to decide whether a company is an
instrumentality of the state, what sort of ownership structure
or ownership percentage do you have to be there to fall within
that definition? Because one of the things I am wondering is if
under that guidance, is GM considered an instrumentality of the
state?
Mr. Andres. So there are a variety of factors which we look
at, and ownership is not the sole factor. In deciding whether
or not an instrumentality constitutes, or a foreign official
constitutes an entity bribing against which we could prosecute,
we look at the characterization, the foreign state's
characterization of the entity and its employees, the foreign
state's degree or control over the entity, the purpose of the
entity, the state law, the creation. So the fact alone that GM,
that there is some government investment in GM would not, under
the tests we use, qualify it as an instrumentality of the
United States.
Mr. Quayle. So just the ownership stake does not actually
trigger that. You would actually say, well, if there was some
communication with the board and various members of the
government basically being able to control or influence, as you
will, where a company goes, would that then fall under that
category?
Mr. Andres. Yes. So ownership is one of several factors
that we consider, but it is not the sole factor. Just to give
you an example, in the recent prosecution of Lindsay
Manufacturing, they were bribing a state-owned electric company
in Mexico, and in the constitution, the Mexican constitution
dictated that people had a right to electricity. So that was
one of the factors that we considered, the country's own
constitution and how it defined what the responsibilities of
the entity were, the instrumentality.
Mr. Quayle. Okay. Thank you.
Mr. Terwilliger, the SEC recently implemented new rules
pursuant to the Dodd-Frank bill which encourages whistleblowers
to actually go directly to the SEC, which circumvents the
internal corporate compliance requirements. Now, given your
experience conducting these internal investigations, can you
speak to the appropriateness of the whistleblower provision
included in the Dodd-Frank bill? And also I would like to get
specific in terms of how they are allowing the monetary
sanctions that the government receives, the whistleblower gets
a percentage of that, and how that would influence and have, I
think, maybe a possible perverse effect on whistleblowing going
forward.
Mr. Terwilliger. Thank you, Mr. Quayle. And I think it is--
I commend you for attention to that issue, and the Committee's
attention to it, because what we are really talking about here
and the fundamental need for reform is to address the impact on
the American economy and American businesses which create the
jobs that Americans so desperately need right now. And, yes,
having a level playing field in the world for competition is
good for American business, but wasting money on compliance
efforts that get nothing at the end of the day is problematic.
And the uncertainty that attaches to the parameters of the
FCPA costs tremendous amounts of money not just to hire lawyers
to try to figure out where they are and to discuss them in a
reasonable basis with the Justice Department in the context of
an enforcement action, but even to decide whether, for example,
given your example, an instrumentality in a similar situation
to General Motors is, in fact, an instrumentality of the
government or not, and therefore enhanced compliance procedures
would be needed if a U.S. company was engaged in business with
it. Those uncertainties as to those questions create a lot of
hidden cost and may have a U.S. company say, look, I am not
going to spend $200,000 to find that out; I am going to leave.
In terms of the whistleblower act, the fundamental problem
with the whistleblower statute and its impact on compliance
programs is this. Companies need to know if something wrong is
being done in their operations, and they need to know it in a
timely way so they can remediate it, take corrective action
and, if appropriate, disclose it to the government and accept
the consequences.
The whistleblower statute encourages employees to go around
the company and instead go to the SEC. Why should someone who
stands to gain a percentage of a recovery act in a manner that
is going to limit the bad acts which determine the size of what
that recovery would be? It is something that I would humbly
suggest is well worth Congress' attention.
Mr. Quayle. And going back to the creation of jobs--that is
the final question? My time is----
Mr. Sensenbrenner. Sure.
Mr. Quayle. Thank you, Mr. Chairman. Without getting into
any confidences, how--can you give us an example? Do you have
any knowledge of companies that have been ceding markets to
foreign companies because they are afraid of what happens under
FCPA?
Mr. Terwilliger. I would not--I think ceding markets would
go too far, at least between, beyond data that is available to
me. I would say that American companies have become much more
circumspect in dealing with opportunities, particularly smaller
opportunities that may grow into something larger in some of
the developing markets of the world, including China, which was
mentioned earlier, simply because the cost/benefit analysis of
worrying about FCPA compliance issues in this world of
uncertain parameters, which is no criticism of the Justice
Department. I think they do undertake an effort to be fair in
enforcement. But that is the end of the line. We are worried
about the beginning of that line.
Mr. Quayle. Thank you. Thank you, Mr. Chairman.
Mr. Sensenbrenner. Thank you very much, Mr. Quayle.
I have changed the order of questioning deliberately today
rather than asking my questions first, but I am going to do it
last because I wanted to hear both the testimony as well as the
answers to questions of Members of the Committee.
There is no question in my mind that we have to bring this
law up to date. Nobody here is in favor of bribery, but there
has to be more uncertainty. And I must say I was a bit
befuddled at the statement that the former Chairman of the
Committee, Mr. Conyers, made, saying that corporations should
know what is illegal. I think while a corporation is not a
human being, but everybody has a right to know what is illegal,
and there has to be much more certainty in the law.
So I think that we are going to have to have a defined
parameter which may be a little bit less than it has been,
recognizing that there have been some changes with the result
of China's economy exploding and the collapse of the Soviet
Union, so that people have a better idea of what is in bounds
and what is out of bounds.
I have several points that I have heard, and I am going to
ask you, Mr. Andres, and you, Ms. Regon, what your idea of an
appropriate response would be.
First is a better clarification of the definition of a
foreign official, particularly when you are dealing with a
quasi-state-owned enterprise like are very common in China and
the Middle East.
The second is how we delineate between a legitimate
business activity and bribery, because I think that there has
to be a clarification on that.
The third is talking about affirmative defenses such as the
affirmative defense that has been provided in Title 7 of the
Civil Rights Act, where if there is a remediation in the
workplace, that can be pleaded as an affirmative defense; a
clarification of the type of mens rea that the prosecution must
prove in order to successfully convict someone who is indicted.
And then I am really concerned about a de minimis defense
and having at least some clarification that when an opinion is
issued, the Justice Department would have to accept that as
precedential value rather than saying, well, it was okay if X
did it, but it is criminal if Y does exactly the same thing.
And we talked quite a bit about the taxi ride. And if you
are working until 3 o'clock in the morning and everything is
shut down, I don't know what good it does to wait for an
advisory opinion that can take as long as 30 days from the
Justice Department for the U.S. corporation official or
somebody else to decide to get back to the hotel and snare some
Z's, rather than sitting and waiting until somebody from
Washington tells them what is good and what is not and whether
this is bribery or whether it is a legitimate business
activity.
So if you can kind of sum this up, both Ms. Regon and Mr.
Andres, on how we deal with this issue, I think it would be
very helpful to the Committee in drafting legislation. And I
would like to ask you to go first, Ms. Regon, because I would
like to hear the answer to your observation from Mr. Andres.
Ms. Regon. Thank you, Chairman, and I will attempt to
answer succinctly the many questions that you have put to me. I
would first like to say that NACDL has not taken an official
policy position on the types of reforms my colleagues have
mentioned today, but I would like to suggest that we are
certainly supportive of anything that the Congress does to
clarify, bring uniformity, and bring fairness to the
enforcement of this statute. We are particularly supportive of
ensuring that mens rea requirements in the statute, on behalf
of both individuals and corporations, is as high and as
protective as possible so that only persons who are purposely
engaging in corrupt, explicit commercial bribery are punished
by the act.
I think that defining more narrowly who a foreign official
is so that companies and individuals can look prospectively and
say I am dealing with a foreign official in this business deal,
therefore my compliance measures have to be up, my focus on
what I am doing and what my employees are doing needs to be
more sharp, sharply focused, I think that would help and go a
long way in ensuring both compliance with the statute and
preventing misconduct.
Where you get misconduct is where you get these fuzzy lines
where no one, companies or the individuals working for them,
really understands what is prohibited or not, and I fail to see
a rational explanation for not providing that kind of clarity
to people so that they can conform their behavior to it.
I think that we have many bribery statutes on the books
that address other types of bribery in other contexts. Some of
those are written very tightly and very well, and no one seems
to have any difficulty figuring out what is bribery and what is
not. So I suggest that we use those as models.
I think an affirmative defense could be helpful to a
company. The Department has testified that they do take into
consideration compliance defenses when they are thinking about
whether to charge a company or what an appropriate sentence
should be. I guess I would suggest that from NACDL's point of
view, we would like to foster fairness in the criminal justice
system, and having a prosecutor also sort of be judge and jury
and being the sole person in that calculation making the
determination of how valuable the compliance defense is isn't
quite fair.
And so I believe the people that are supporting an
affirmative defense in this way are probably coming from that
point of view and hoping that it is taken into consideration
slightly more than just the same person that is deciding
whether a violation of the statute has actually occurred.
Mr. Sensenbrenner. Mr. Andres, which of Ms. Regon's
suggestions don't you agree with?
Mr. Andres. I am not sure I agree with any of them, sir.
Mr. Sensenbrenner. Okay.
Mr. Andres. Just stepping back for a minute, with respect
to the definition of a foreign official, Mr. Chairman, you talk
about the different structures in China. I think one of the
things that you have to take into consideration in defining
what a foreign official is is that the statute covers the whole
world. And so what constitutes a foreign official in China
because of different structures within the government and how
they run their state-run industries may be very different from
those joint ventures or structures that are government-
controlled in Brazil, or in France. So----
Mr. Sensenbrenner. But how do you know that when you are
trying to negotiate a contract to sell American-made products?
Mr. Andres. Well, two things. If there is a concern about
who constitutes a foreign official, you ask the government for
an opinion and you provide the relevant facts.
Mr. Sensenbrenner. Oh, come on now. China is a communist
country. They are not going to tell you what the governmental
involvement is or who gets paid which way.
Mr. Andres. Well, we are going to----
Mr. Sensenbrenner. They don't have the type of disclosure
that Western countries, including the United States, has on who
owns what, with disclosures that the SEC requires of public
corporations.
Mr. Andres. I understand that, sir, but there is no
prohibition with doing--the statute doesn't make it illegal
doing business with China. It makes illegal providing a bribe.
And so with respect to whether or not a company could bribe a
commercial entity versus bribing a foreign official, the
Department's position would be that if companies aren't paying
bribes, they have nothing to fear with respect to enforcement--
--
Mr. Sensenbrenner. Okay. Then would the Department approve
an amendment to the Foreign Corrupt Practices Act to use the
statute on bribing somebody in a commercial contract to apply
to any type of bribery and forget about this debate on who a
foreign official is, because bribery is bribery? That is a lot
clearer than what is in the Foreign Corrupt Practices Act.
The thing is that we have heard from every one of the
witnesses today that this statute is vague, it does not tell
people what is criminal activity and what isn't, and it is
subjective, and what the Justice Department determines, which
you don't know until you find out there is an investigation or
get hit with an indictment, and there is no precedential value
to advisory opinions that have been issued in the past.
Now, I have been pretty pro-prosecution, as my friend from
Virginia can say, probably too much so. But I really think that
it would behoove the Department to realize that this statute
needs updating because China was a lot different in 1977 than
it is today, and I think most of the Middle East is going to be
changing pretty rapidly if the newspaper reports are correct.
Mr. Andres. Mr. Chairman, obviously the Department is more
than willing to work with Congress on any possible changes.
Mr. Sensenbrenner. Okay.
Mr. Andres. Although I----
Mr. Sensenbrenner. Okay. Well, the invitation is there, and
we are going to be drafting a bill. So, see you later.
[Laughter.]
Mr. Andres. Understood, with the exception, Mr. Chairman,
that----
Mr. Sensenbrenner. Okay.
Mr. Andres. I will say that while there have been
criticisms by the other members of the panel, no one has raised
a single example of a prosecution or enforcement action which
was remotely close to the line. The cases that we are
prosecuting----
Mr. Sensenbrenner. But that is not the point, Mr. Andres.
You know, the thing is is that if you were the general counsel
of a corporation that was involved in the globalized economy
and you had to go advise your CEO and everybody else who is
involved in this, you are going to be advising in the most
narrow way and exercising the greatest amount of caution
because of what is going on. And as a result, legitimate
business activity which is not bribery in nature is going to be
quashed, and we end up being put at a significant disadvantage
to our foreign competitors. Get the message, sir, and tell that
to the AG.
Well, I made my point. I think all of the Members of the
Committee, as well as the witnesses, have made their point. I
would like to thank all of you for coming, even those of you
who have had a tough time.
Does the gentleman from Virginia want to put something into
the record?
Mr. Scott. Yes. Mr. Chairman. Letters from--statements from
the Global Financial Integrity and Citizens for Responsibility
and Ethics in Washington.
Mr. Sensenbrenner. Without objection, the material will be
put in the record.
The purpose of this Committee or this hearing having been
concluded, without objection, the Committee stands adjourned.
[Whereupon, at 12 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]