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What Should the Justice Department Do?

Congress is setting its sights on the Justice Department’s enforcement of the FCPA.  The business community has legitimate complaints which they have raised.  The Justice Department is sticking to its guns and continuing to trumpet the importance of FCPA enforcement and the fairness of its enforcement program.

 The Justice Department has to be careful.  Unfortunately, this Justice Department has a tin ear when it comes to reading the mood of the public and of Congress.  As support for FCPA reform grows on Capitol Hill, the Justice Department’s intransigence may have to give way to action.

 Several of my colleagues have urged the Justice Department to make public its declinations for FCPA cases.  It is suggested that from such information, one could define safe harbors.  The Justice Department will never give up that information.  Even if limited to cases in which a voluntary disclosure has occurred, the precedent for prosecutors to start disclosing the reasons why they declined to prosecute would compromise frank and full discussions among prosecutors on how to resolve a case.  The last thing the Justice Department wants to start disclosing or litigating is how it exercises its discretion.

The advocates for declination information really are asking the Justice Department to provide guidance or safe harbors when it comes to enforcement.  This is a much better avenue for advocates to pursue.  This makes sense.  Declinations does not.

So, what should the Justice Department do?  That is pretty easy.  The Department should issue some enforcement guidance to provide companies with some safe harbors for compliance. 

The three most prominent areas for policy guidance are:  

 1.  Definition of “Foreign Official” – It is hard to make rational sense out of the two district court decisions issued this summer concerning the definition of a “foreign official” as applied to private entities in which the state-owned enterprise has a controlling equity interest.  The Justice Department could help to clarify this issue by adopting an enforcement standard based on traditional notions of corporate control – i.e. the private entity would be deemed an “instrumentality” of a foreign government if the state-owned enterprise has (a) a controlling equity interest; or (b) otherwise exercises control of the private entity through voting rights, board seats, or other management control factors.

 2.  Voluntary Disclosure – the Justice Department could adopt and publicize specific benefits to company’s which voluntarily disclose potential FCPA violations.  It does not satisfy companies to issue platitudes of how important cooperation is to the Justice Department.  More specific guidance is needed.  By setting some standards for such disclosures, the Justice Department would provide transparency to an otherwise secret procedure which has lead to uneven results and disparate justice. 

 3.  Mergers and Acquisitions – the Justice Department has quietly, but not very effectively, tried to modify its reliance on successor liability to hold companies accountable for past violations committed by acquired companies committed before the closing date for the acquisition.  This is one of the most unfair enforcement policies used by the Justice Department and it needs to change.  In recent enforcement actions, the Justice Department has relaxed its earlier standards by allowing companies a grace period of up to 18 months to identify and repair compliance programs in acquired companies to make sure they are compatible with the compliance programs of the acquiring company.  This is a welcome change but one that has not been publicized.

 These are three basic reforms which the Justice Department can institute on its own.  Hopefully, someone will act, so that justice can be delivered in practice not just in name only.

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