Law Prof Calls for Debarment of FCPA Violators
26 Corporate Crime Reporter 8, February 15, 2012

What can the government do to sanction a major corporation that violates the Foreign Corrupt Practices Act (FCPA)?

Fine the company.

Imprison its corporate executives.

And debar the corporation from government contracts.

But the government rarely debars corporations under the FCPA.

Why not?

There will be the dreaded collateral consequences.

There will be major job losses.

The federal government is too dependent on a particular set of large, private sector corporations for equipment and services.

But despite these obstacles, Drury Stevenson, a professor of law at the South Texas College of Law and one of his students, Nicholas Wagoner, argue that in a recent law review article that it’s time for the government to ramp up its debarment actions for FCPA violations.

The article is titled FCPA Sanctions: Too Big to Debar? 80 Fordham Law Review 2 (November 3, 2011).

“In addition to the virtual immunity from debarment enjoyed by these firms when they violate the FCPA, the fines imposed for engaging in foreign corrupt practices comprise a tiny fraction of the potential revenue generated by lucrative contracts with the United States and foreign states,” Stevenson and Wagoner write. “When discounted by the low probability of detection, these sanctions are far too low to deter unlawful activity.”

“Debarment offers a far more potent deterrent than fines and penalties, as multinational contractors that conduct business with the United States are much less likely to view the sanction as merely a cost of doing business. If ridding foreign markets of corruption truly is a top priority of the United States, it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multi-billion dollar contracts to firms recently prosecuted for fraudulently obtaining them overseas.”

“Debarment would deter potential wrongdoers and incapacitate actual offenders,” they argue. “The deterrent would induce more firms to comply with the law, which would allow the ‘too big to debar’ problem to diminish over time.

The article focuses on the third largest FCPA-related enforcement action to date – BAE Systems case.

On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad.

In the year that followed, however, the federal government awarded BAE contracts in excess of $6 billion.

The authors conclude that the United States “must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption.”

Mike Emmick, a partner at Sheppard Mullin in Los Angeles, counters that debarment for FCPA violations is a “bad idea whose time should never come.”

“Debarment is a severe, forwardlooking administrative remedy – the corporate ‘death penalty’ – not a vehicle to ‘boost’ the penalties for past criminal FCPA violations,” Emmick writes in a recent Sheppard Mullin publication – Mandatory Debarment for FCPA Violations? A Bad Idea Whose Time Should Never Come.

Emmick’s article focuses on legislation that would mandate debarment for FCPA violations.

The Justice Department opposed the legislation and that was defeated in the Congress in 2010.

But Stevenson and Wagoner focus on discretionary debarment and use the BAE case to shed light on how major corporations get around the sanction.

“An agency’s decision to suspend or debar a contractor from future business with the United States is a direct result of whatever charges federal prosecutors brought against the firm,” they write. “For example, BAE’s misrepresentation of $5 million in bribes and kickbacks paid to a Saudi official fell squarely within the language of the FCPA’s accounting provision. A more general statute criminalizes the submission of false statements to the United States. Yet because BAE was prosecuted under the latter statute – which does not trigger an agency’s discretionary debarment authority – rather than the former – which triggers an agency’s discretionary debarment authority), BAE was insulated from suspension or debarment from its contracts with the United States.”

The Department of Justice denies ever using specific language in settlements that would prevent debarments and suspensions.

But Stevenson and Wagoner point out that the sentencing memoranda in the Department’s Siemens prosecution explicitly stated that it selected sanctions that would avoid “collateral consequences” that would result from criminal FCPA anti-bribery charges.

This included the “risk of debarment and exclusion from government contracts.”

In the BAE case, the Justice Department said that in “2008, BAE was the largest defense contractor in Europe and the fifth largest in [America] as measured by sales.”

“In prosecuting BAE for falsely recording bribe payments, the Department of Justice used non FCPA charges to avoid exposing one of the United States’ key defense suppliers to the EU’s mandatory debarment provisions triggered by the FCPA,” the authors write.

“Prosecutors similarly structured settlement language to avoid debarment in the Siemens and Daimler.”



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