A Practical Look at the Compliance Defense Proposals

A policy debate requires careful thought and practical evaluations.  That is the case with the current flap involving the Chamber of Commerce’s push for reform.  The Chamber of Commerce, for all its resources, and brilliant minds, ignored a number of significant issues surrounding a compliance defense to an FCPA prosecution.  Even the FCPA Professor ignored some real significant practical issues.  Prosecutors and defense counsel with significant trial experience need to weigh in, free from any client influence, with an objective analysis of the practical issues in a compliance defense. 

First, and most significantly, a company cannot afford to be indicted.  How many times do we have to repeat this – the Arthur Andersen case and others have shown the devastating impact that criminal charges can have on a public company.  The pending criminal case after an indictment cannot be tolerated by a public company.  For that reason, companies have to resolve their cases prior to indictment, and that is why the Justice Department has developed deferred and non- prosecution agreements to resolve cases.  The DPA and NPA issue is a debate for another time.

Second, the compliance defense suffers from major practical obstacles and questions.    The Chamber proposes to add a compliance defense to the FCPA statute.  The FCPA Professor proposes to add a new element to the FCPA statute: the “absence of an adequate compliance program” which the government would have to prove in its case-in-chief beyond a reasonable doubt.

The Professor is suggesting that the government would have to prove a negative as an element of the offense.  That is unprecedented and unworkable.  I am not aware of any criminal offense which requires any significant proof of a negative, other than regulatory type offense where someone possesses a firearm without the requisite license or similar type of offense.  More importantly, the Professor’s idea misses the mark on solving the unfair enforcement issue.

How would the government prove a negative beyond a reasonable doubt?  One way would be to point to the charged violation itself and argue that the violation itself proves an “inadequate compliance program.”  The more likely way would be that the government uses the grand jury to investigate the company’s entire compliance program.  It will issue grand jury subpoenas for documents and review the company’s entire compliance record. 

The impact of a grand jury investigation of a company’s entire compliance program will be disruptive and costly.  Every decision will be second-guessed by prosecutors and used as evidence at trial, or even the subject of additional investigations.  I am willing to bet if it does so, the government will uncover more violations or an abundance of evidence which shows inadequacies in the company’s compliance program.

Let’s go even further.  The government indicts the defendant company, puts on all its evidence gathered during the grand jury.  At the conclusion of the government’s case-in-chief, the defense moves for a judgment of acquittal under Criminal Rule of Procedure 29, and argues that no reasonable jury could find the defendant guilty on such evidence.  The defendant will rarely, if ever, win that motion, given its burden. 

Assuming the motion is denied, the defense may put on a case, part of which will challenge the government’s proof of the compliance program element.  The defense will put on evidence of “good” behavior following its compliance program, and detailing the operation of its compliance program.  The government will have plenty of evidence to show and magnify compliance failures or shortcomings. 

At the conclusion of the defense case and any rebuttal the government may offer, the defense will move again for a judgment of acquittal and be denied.  In practice, companies will lose when they focus the trial on compliance.  Maybe in the rare case of a rogue employee they may prevail before the jury, but if such a fact pattern occurs, I expect the government will not charge the defendant and handle it like the recent Morgan Stanley case where the rogue employee was prosecuted but not the company.

The Chamber’s proposal suffers from similar procedural flaws.  Again, the government will use the grand jury process to gather evidence of the compliance program, which will provide the government with more than enough ammunition to second-guess a compliance program.  As in the case of the Professor’s proposal, the company will put on evidence of the compliance program to secure the defense.  But how much evidence will the defense have to put on before it will be entitled to a jury instruction on the defense? 

There are several ways to handle this – in the case of entrapment, the defense has to establish through “some evidence” that it is entitled to the entrapment instruction, and if the defendant does so, then the government has to establish that the defendant was “predisposed” to commit the crime.

In the case of an affirmative defense, such as self-defense or insanity, the defendant bears the burden of proceeding and a lesser standard of proof of facts needed to establish the defense, e.g. defendant feared imminent bodily injury or death, or the defendant suffered from a mental defect or disorder which prevented him or her from appreciating whether his conduct was right or wrong.  The Chamber has not addressed how the defense would work, in practice. 

For businesses, these scenarios will cost money and disrupt their operations as they launch a compete defense of their compliance programs.  The government will learn and investigate every aspect of a compliance program, creating even greater risks.  Businesses may long for the old days of today. 

Some have suggested that the Chamber’s proposal is aimed at increasing the company’s leverage in settlement negotiations.  If that is the motivation, it suffers from the flaws outlined above.  No company can afford to be indicted and the defense is too little too late.  It is an extremely ineffectual way to address an issue which we all agree on – how to increase corporate compliance to reduce the risk and occurrence of bribery.  If this is the best our minds can come up with, we are in trouble.

My only point here is not to throw cold water on FCPA reform, but let’s put our heads together and come up with realistic solutions, assuming we all agree that there is a need for reform (which some will not admit).  I am suggesting that those who promote such ideas need to think them through a little bit more carefully, and need to collaborate with those who understand the practical realities of criminal investigations and prosecutions.

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7 Responses

  1. Gregor Allan says:

    What is so unusual about proving a deficiency? The law in my country and doubtless yours is replete with examples – usually in the regulatory setting, where criminalising deficiency is the name of the game. Occupational Health and Safety regulation (failure to take sufficient precautionary safety measures), for example.
    Is the issue less the nature of the proposed offence and more the uncertainty of what will be considered deficient? That, surely, is simply a matter of establishing precedent… so maybe the NPA/DPA issue is NOT one that should be left for another day?

  2. Jon May says:


    While it may be that companies cannot afford to challenge the government at trial, as more individuals are prosecuted and more executives targeted these defenses become relevant to counter government claims of conscious avoidance. Your blog the other day on the advice of counsel defense comes into play here as well. I agree that these are probably going to have to be affirmative defenses that the defense will have to prove, but there is a substantial argument that the facilitation exception is actually an element of the offense which the government is required to disprove based upon how the FCPA is drafted.


  3. Eva Galfi says:

    Michael, it’s always great to read the posts you write. Here in Australia there is not much activity in terms of anti-bribery prosecutions. In fact, we’ve only had one… ever. It’s all about to change as the OECD Working Group will be making a trip down under later this month to evaluate Australia’s progress when it comes to enforcement of our existing laws. I anticipate that the coming years will see an increase in investigations and prosecutions and that companies will pay more attention to their policies and employee training. I don’t think there haven’t been a lack of prosecutions because all of our business dealings in the southern hemisphere have been on the straight and narrow… there’s just not enough resources dedicated to making sure companies are doing the right thing. Anyway, I enjoy your posts on how FCPA reform efforts are playing out in the states, as I’m sure the discussion on anti-bribery legislation will get bigger down under in the short term.

  1. May 16, 2012

    […] Volkov slammed the compliance defense proposals tied to overall FCPA reform sought by the U.S. Chamber of Commerce […]

  2. May 16, 2012

    […] Volkov slammed the compliance defense proposals tied to overall FCPA reform sought by the U.S. Chamber of Commerce […]

  3. September 4, 2012

    […] this post concerning a compliance defense, Michael Volkov states that my proposal to have […]

  4. December 5, 2012

    […] Those who argue for a compliance defense have never explained in practical terms how such a defense would work.  Until they address the issues and fix the obvious problems with the defense, the prpoposal will never gain any ground.  See my post here.  […]