CORPORATE CRIME REPORTER
Koehler Takes on FCPA Inc
24 Corporate Crime Reporter 15, April 12, 2010
There are maybe ten lawyers at the Department of Justice who work full time enforcing the Foreign Corrupt Practices Act. (FCPA).
There are fifty or so lawyers at big corporate law firms who spend a big chunk of their time defending corporations in FCPA cases.
And there are the big accounting firms who run an active FCPA compliance business.
Put them together.
Mike Koehler calls them FCPA Inc.
Koehler at one time was part of FCPA Inc.
He worked for nine years at Foley & Lardner on the defense side of the FCPA fence.
Last year, he bailed and took a job as an assistant professor of law at Butler University.
And in July 2009, he started a blog called FCPA Professor.
The FCPA Professor is constantly butting heads with FCPA Inc.
The Justice Department says it is vigorously enforcing the FCPA.
Koehler says it’s all a facade.
Later this year, the Georgetown Journal of International Law will publish a paper in which Koehler lays out his case.
The title of the paper – The Facade of FCPA Enforcement.
Koehler says the facade has four pillars.
Pillar one – a big chunk of FCPA enforcement actions are resolved based on uninformative, bare-bones, and legal conclusory statements of facts or allegations.
Pillar two – the increasing and alarming trend of FCPA enforcement actions being resolved based on tenuous, dubious and untested legal theories, as well as enforcement theories seemingly in direct conflict with FCPA’s statutory provisions.
Pillar three – the opaque nature of FCPA enforcement and how similar enforcement actions, based on the government’s own allegations, are resolved with materially different charges and penalties.
And pillar four – “the most alarming pillar” – highlights how seemingly clear-cut instances of corporate bribery and corruption, per the government’s own allegations, are resolved without FCPA antibribery charges.
Koehler says that these enforcement actions suggest, contrary to rule of law principles, that certain companies in certain industries are “above” the FCPA and essentially immune from FCPA antibribery charges.
“Most people assume that FCPA enforcement actions are based on giving money or things of value to foreign government officials to get business,” Koehler told Corporate Crime Reporter in an interview last week. “But a majority of FCPA enforcement actions in the last five to seven years have nothing to do with government officials.”
“Instead, the so called foreign official is an employee of a state owned or state controlled company. So, it’s the functional equivalent of calling employees of General Motors or AIG U.S. governmental officials.”
“It’s a rather ridiculous statement to make.”
“So even on that one issue – and more broadly speaking – so many FCPA enforcement actions are based upon dubious and untested legal theories.”
“Because these cases do not get challenged – and because these cases are not subjected to any level of meaningful judicial scrutiny – that’s why I call it the facade of FCPA enforcement.”
“You can make the argument that in the majority of FCPA enforcement, the company may not have even violated the FCPA.”
“But another component of the facade of enforcement is the fact that when the Department is presented with a clear cut case of the company violating the FCPA, such as the Daimler case, the BAE case from this year and the Siemens case from 2008, the Department does not even charge FCPA violations against the parent company.”
“And this despite the fact that according to the Department’s own evidence, it’s quite clear that that company violated the FCPA.”
“So, it leaves you with really only one conclusion. And that is that if you are a certain company in a certain industry selling to a certain customer, you are essentially immune from FCPA anti-bribery violations.”
Billy Jacobson is the former head of FCPA enforcement at the Justice Department.
Two years ago, he left to join Fulbright & Jaworski.
He’s now general counsel to Weatherford International.
Mark Mendelsohn is the current head of the Department’s FCPA enforcement division.
In a January 2010 interview, Mendelsohn defended the Department’s handling of the Siemens matter. Koehler blogged a contrary view contesting what Mendelsohn was saying.
Mendelsohn was saying – the Siemens case sends a strong enforcement message. Koehler was saying - no it doesn’t.
“It does not send a strong deterrent message,” Koehler told Corporate Crime Reporter. “The fine and penalty amounts are rather eye-popping. The U.S. resolution was over $800 million.”
“But when you add up the amount of bribe payments, and then when you add up the amount of business Siemens allegedly obtained or retained through those payments, that number far exceeds the fines and penalties. So, it leaves you with the conclusion that notwithstanding this massive fine, this entire episode was a net positive for Siemens.”
“Same with the BAE case. Same with the Daimler case. These are eye-popping numbers. But when you dig into the details, you will quickly find that the fine amounts are less – in many cases substantially less – than the bribe payments themselves and the business secured through those payments.”
“How does that send a deterrent message when the companies emerge from this with a net positive?”
“Four or five weeks after I made that post, Jacobson says – we were doing our best here. He said the perfect should not be the enemy of the good. In other words, this may not have been the best enforcement action. But it was a good enforcement action.”
“And I’ve come to know Billy. Even though he is now outside the Department, he participated in the Siemens matter. And it’s not surprising that he’s going to defend how the Department handled it while he was there.”
“What do you expect? He’s going to come out guns blazing criticizing the Department? Of course not.”
“There is a revolving door here. Mark Mendelsohn is soon go to a big law firm.”
“Lanny Breuer, who is currently the head of the Criminal Division did FCPA work while he was at Covington & Burling.”
“Phil Urofsky and Peter Clark – the former Mark Mendelsohns if you will – are now at big law firms doing FCPA work. Urofsky is at Shearman & Sterling. Clark is at Cadwalader.”
“The Wall Street Journal yesterday ran an article about the revolving door at the SEC. There is a huge revolving door in this area of law. Private practice lawyers go to the government for a few years and then come right back to the law firms.”
“Every single time the Department talks about voluntary disclosures in the FCPA context, the cash registers of FCPA law firms are ringing.”
“No one is talking about that and the potential conflicts embedded on both sides of FCPA enforcement.”
“I had a post back in December titled – The Role of FCPA Counsel in Voluntary Disclosures. And it laid out the massive conflicts of interest that are present. And no one is talking about this.”
“It helps explain this facade of FCPA enforcement.”
[For the complete Interview with Mike Koehler, see 24 Corporate Crime Reporter 15(11), April 12, 2010, print edition only.]
1209 National Press Bldg.
Washington, D.C. 20045