The DOJ's 3 FCPA Strikes

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NEW YORK ( TheStreet) -- After years of unprecedented success enforcing the U.S. Foreign Corrupt Practices Act -- the law that prohibits companies and individuals from offering or giving bribes to win or retain business abroad -- the Department of Justice has hit a series of major stumbling blocks that has commentators questioning the very future of FCPA enforcement.

In December, Judge Howard Matz of the U.S. District for the Central District of California dismissed with prejudice the FCPA case against Lindsay Manufacturing and two of its executives on grounds of prosecutorial misconduct. The ruling overturned a jury's guilty verdict against the company, its CEO and CFO. Lindsey was the first company ever convicted at trial of violating the FCPA. In a sharply worded ruling, Judge Matz stated that "charges were filed against the defendants as a result of a sloppy, incomplete and notably over-zealous investigation."

In late January, Judge Richard Leon of the U.S. District Court for the District of Columbia declared a mistrial of the remaining defendants in the FCPA prosecution that has come to be known as the "Africa Sting" trial. The jury could not agree to convict the defendants on the evidence presented at trial. Just a day before the judge's ruling, the jurors actually acquitted two other defendants of violating the FCPA, and the judge acquitted yet another in December -- even before the case went to the jury.

The first Africa Sting trial fared no better for the government, ending in a hung jury in July of 2011. This week, faced with the virtual collapse of its case, Justice Department officials indicated they may abandon the prosecution altogether rather than retry the defendants.

Just weeks earlier, Judge Lynn Hughes of the U.S. District Court for the Southern District of Texas acquitted John O'Shea, a former manager of ABB Inc., a Texas-based subsidiary of Swiss engineering company ABB, of bribing Mexican government officials and then covering it up. In his ruling, Judge Hughes stated that the government's chief witness simply could not connect O'Shea to the alleged bribery scheme.

These recent setbacks have inspired commentators of diverse stripes to start reading the tea leaves for signs that government enthusiasm for FCPA prosecutions may wane in 2012. Should this series of losses be viewed simply as a matter of coincidence -- close cases that just happened to break the wrong way in the government's view -- or are they emblematic of an enforcement regime increasingly prone to arrogance and overreaching? Will they have a chilling effect on vigorous FCPA prosecution? Importantly, what effect will they have on corporate willingness to cooperate with enforcement officials to settle cases in the future?

Implications for the Future

Some supportable trends are already beginning to emerge.

First, commentators say that voluntary disclosures by companies appear to be on the decline, and they have begun to speculate that companies may be emboldened to take their cases to trial rather than settling with prosecutors, as has been the norm in most FCPA cases.

Second, FCPA critics who have long been concerned about government overreach, and the effect of the law on U.S. businesses trying to compete with foreign companies less constrained by anti-bribery prohibitions, are calling for FCPA reform with renewed vigor. They are rounding up heavy hitters to make their case. Most notably, the U.S. Chamber of Commerce is leading a well-organized and funded reform effort with former Attorney General Michael Mukasey at the helm, urging Congressional amendments to the FCPA that would include a compliance defense, among other reforms.

Third, in what may be a nod to the increasingly vocal criticism of its enforcement tactics, the Justice Department has stated that it will issue new FCPA guidance in the near future, a move that has been welcomed by business and their legal advocates. While we will have to wait and see whether that guidance provides the clarity that the Chamber and others have called for -- particularly in relation to how much credit companies should receive for implementing strong and effective compliance programs -- any effort to ensure coherent law and enforcement is welcome.

But corporate interests are well advised to remember that the benefits of clarity will not include a free ride. Whatever happens, the necessity for strong and effective compliance programs -- and for embedding their standards in the organizational DNA with effective communications from the very top and throughout the organization -- will not change.

Effective communication of a zero tolerance policy toward corruption remains the best way to prevent violations and ensure that the company can defend itself if the government comes knocking. Whatever happens, one thing we know is that it will still be against the law in this country -- and in an ever growing number of jurisdictions -- to bribe officials in other countries. If corporations interpret the recent Justice Department setbacks and the aggressive reform efforts of the Chamber as green lights to loosen their grip on internal controls, they may find that a jury of their peers can be as formidable as any public sector adversary.

Follow Richard Levick on Twitter@richardlevick.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.
Richard Levick, Esq. President & CEO of Levick Strategic Communications, represents countries and companies in the highest-stakes global communications matters -- from the Wall Street crisis and the Gulf oil spill to Guantanamo Bay and the Catholic Church. Mr. Levick was honored for the past three years on NACD Directorship's prestigious list of "The 100 Most Influential People in the Boardroom" and has been named to multiple professional Halls of Fame for lifetime achievement. He is the co-author of three books including The Communicators: Leadership in the Age of Crisis and is a regular commentator on television, in print, and on the most widely read business blogs.

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