On Tuesday, the New York Times reported on Walmart de Mexico’s alleged bribery of low-level Mexican officials, in a quest to open as many as 19 new stores. The DOJ and the SEC are currently investigating whether this violated the Foreign Corrupt Practices Act, which bars companies that operate in America from bribing “foreign officials” for business.
Unfortunately, as Walmart de Mexico’s situation brings into focus, the FCPA is just one more example of a troubling number of well-intentioned, but costly federal criminal laws that are poorly written or overly broad. While Congress designed FCPA to address high-level bribery and corruption, its broad wording and the DOJ’s aggressive enforcement have turned it into a costly tax on American businesses overseas, in countries where low-level administrative tasks routinely require small payments to grease the wheels of bureaucracy.
FCPA compliance can be very expensive, offering little tangible benefit in return. A natural response for businesses faced with potential FCPA liability is to implement internal investigations and compliance programs that do little to ensure avoiding future legal liability. For example, Walmart has spent $35 million on FCPA compliance since the spring of 2011, and their $100 million internal investigation into possible FCPA violations in China, India, and Brazil could eventually cost $250 million. Given that the FCPA lacks a legal safe harbor for businesses with robust anti-bribery internal procedures, these efforts could be for naught. As Michael Mukasey and James Dunlop argue, the lack of a safe harbor means that businesses can still be liable for rogue company actors, which “adds unnecessary uncertainty and opens businesses to massive, largely unavoidable, liability, with few offsetting benefits.”
The FCPA’s unnecessary compliance expense also stems from the government’s current enforcement regime — stepping outside the bounds of the FCPA’s original intent. The Obama Administration has too often stretched the FCPA’s limits in search of expensive settlements, relying more upon legal coercion than a particular lawsuit’s merit. While enforcing a limited anti-bribery statute is certainly praise-worthy, using prosecutorial discretion to invent a more expansive anti-bribery statute is not — although it seems to be par for the course for the Obama administration.
For example, as law Professor Mike Koehler explains, much of Walmart de Mexico’s potential liability stems from bribes for permits, licenses, and favorable inspections, which the DOJ has found companies liable for in recent contexts. But, the FCPA was originally intended to capture a “narrow[er] range of foreign payments,” within the context of“foreign government procurement.” Similarly, Congress did not intend for the FCPA to cover any payments to ministerial or clerical employees, which is how, at least in part, Walmart could face liability. Nevertheless, the DOJ has also recently found companies liable for those types of payments.
An obvious response to an overreaching lawsuit—at least normally—is to challenge the overreach in court. There is even some indication that this strategy could be successful. Defendants have successfully challenged the government’s expansive liability theory regarding “foreign government procurement” three out of four times in court (the fourth result was equivocal).
Unfortunately, the cost of challenging the government’s overreach is so high that it is believed that only two corporate defendants ever challenged (both successfully) the DOJ at trial. Doing so requires withstanding a criminal indictment and risking “drawn-out criminal investigations, indictments by grand juries and protracted trials.”
In fairness to the DOJ, some of the FCPA’s problems stem from its poorly constructed statutory language. This allows it to be, as George Terwilliger explains, a law more defined by “‘prosecutorial common law”than Congress’s original statutory intent. The end result is, according to Mukasey and Dunlop,“the FCPA has had almost no judicial oversight…[with] businesses trying to comply with its mandates find they are fighting corruption in the dark, their quest for standards confined to making mitigation arguments in prosecutors’ offices.” The DOJ’s new FCPA compliance guidelines certainly help, but even the former chief of the DOJ’s FCPA division admits that they have “few bright lines,” to guide companies in search of clear-cut guidance or economic certainty. As I have written about in the regulatory context, this is destructive for economic growth—and this is even truer in a criminal context—forcing businesses to avoid new opportunities rather than risk costly liability.
The potential for criminal liability under the FCPA necessitates that Congress should at least provide certainty for businesses wishing to comply with the law. Fortunately, there are sensible reform proposals that do so, including offering a safe-harbor for those with robust compliance procedures. For more, I highly recommend Michael Mukasey and James Dunlop’s Federalist Society paper on this topic, along with George Terwilliger’s Congressional testimony on FCPA reform.