FCPA Compliance and Ethics Blog

February 16, 2012

Regulation v. Enforcement of the FCPA – A Renewed Call for Release of Declinations

In his blog post of February 16, 2012, entitled “The Justice Department’s Slippery Slope — Enforcement Versus Regulation”, Mike Volkov takes the Department of Justice (DOJ) to task for “hubris and insensitivity to the business community” in their enforcement of the Foreign Corrupt Practices Act (FCPA). I believe that he correctly notes that companies do want to comply with the FCPA but want more guidance so that they do not have to “read the tea leaves” on what the DOJ may believe is conduct violative of the FCPA.

However, I do not believe the “hubris or insensitivity” of the DOJ is the genesis of this perceived problem. Rather, I would argue that it is the nature of system in place. I need to credit my colleague Doug Jacobson for this next insight. For those of you who do not know him, Doug is a well-experienced international trade lawyer, who blogs at International Trade Law News. Doug’s observation was that the FCPA is similar to a regulatory system which, in this case, is being administered by DOJ lawyers. He contrasted this with his international trade law practice, in which he frequently interfaces with regulators from the Departments of Commerce and Treasury on issues related to trade control. Of course if a legal violation occurs, trade control issues can and do go to the DOJ for enforcement, but as counsel representing companies, he can interact with regulators to develop best practices programs, policies and procedures.

In the FCPA arena, there are no regulators to call upon. If one has a query, one is required to ask the group that enforces the FCPA. Of course the DOJ does have its Opinion Release procedure, which has been sometimes used and is of value to those in the compliance field. In addition to Opinion Releases, the only other DOJ comments on best practices are those which are to be found in Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA). We are also now beginning to see a body of case law develop, particularly on the definition of who is a foreign governmental official.

In his post, Volkov cites back to a case from the 1970s for some guidance. He wrote that in the aftermath of the breakup of AT&T, District Court Judge Harold H. Greene, who presided over the implementation of the antitrust decree in the case, and Justice Department lawyers played a critical role in setting telecommunications policy. However, he wrote that “The Bell Operating companies argued that they needed to be regulated by the FCC, not the Justice Department and a federal judge. Moreover, the industry accused the judge, and the Justice Department of slowing the telecommunications industry, and eventually the judge and the Justice Department were removed from the issue when Congress enacted the Telecommunications Act of 1996.”

In his dénouement, Volkov urges the DOJ to “respond to the business community, adopt some prosecutorial policies and make them public, so that companies can implement meaningful and effective compliance programs without fear of unfair prosecutions.” However, as lawyers are charged with enforcement, not regulation, I would urge another tack. I have previously argued that another viable source of information is found in DOJ declinations to prosecute companies which self-report potential FCPA violations. A decision to prosecute, or not to prosecute, is precisely what prosecutors do. In the declination process, the DOJ is handling a much broader and more significant amount of information than is found in an Opinion Release. A self-disclosing company has investigated or will investigate a matter, most likely with the aid of specialized outside FCPA investigative counsel. The DOJ has the opportunity to review the investigation and suggest further or other lines of inquiry. Company personnel are made available for DOJ interviews, if appropriate. In short one would have actual facts and detailed oversight by DOJ, which in the case of a declination to prosecute, would provide substantive guidance on why it did not believe a FCPA violation had occurred in the face of a company’s good faith belief that it had violated the FCPA.

Declinations to prosecute are a part of the enforcement process. By releasing declinations to prosecute, the DOJ can maintain its role in enforcement and not become the regulators of the FCPA. I believe that release of this information, redacted in such a manner as to protect the names of the parties involved, would be some of the highest value of compliance information that a practitioner could use to determine what the best practices are and what actions might well constitute a FCPA violation in the eyes of the DOJ. Further, for those who wish to simply water down the statute, in the name of US competitiveness, such information should put to rest the arguments that companies are being unfairly prosecuted for the actions of ‘rogue’ employees.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

Attorney-Client Privilege for In-House Counsel

The question of attorney-client privilege (herein “the privilege”) for in-house counsel can be a vexing one, yet one that has significant implications for investigations and enforcement actions under the Foreign Corrupt Practices Act (FCPA) or other anti-corruption legislation. There is a split decision between the US and countries in the European Union (EU) on whether in-house counsel may engage in privileged communications with corporate employers. In a recent article, entitled “In-House Counsel and Corporate Client Communications: Can EU Law after Akzo Noble and U.S. Law after Gucci be Harmonized? Critiques and a Proposal”; published in Volume 45, Number 3 of the International Lawyer, author John Gergacz explored this dichotomy and proposed a simple, yet clear rule to put in place to foster ease of determination of the privilege and promote the goals behind the existence of the privilege.

This question of whether the privilege exists for communications will certainly increase due to the increase in international enforcement actions in the area of anti-corruption and anti-bribery under laws such as the FCPA and UK Bribery Act. It will also arise in investigations involving any other activities which might be subject to both EU and US laws, such as EU competition law and US anti-trust law.

European Union Countries – Status of counsel test

In EU countries, the primary test involves what is the status of the lawyer making the communication. Following a 1982 decision, styled “AM&S Europe v. Commission of European Communities”, the privilege is limited to communications conducted with independent lawyers. Initially, a determination must be made if an attorney is independent, this being defined as to whether or not an attorney was “bound to his client by reason of employment” for example an employee. However, the court decision did not use the term “in-house” counsel but broader formulation of “independent counsel.” While recognizing that this may have left room for interpretation the practice seems to be to deny the privilege when the advice emanates from in-house counsel. Gergacz says that to apply the privilege in the EU is determined by following a two-step process. If this initial threshold of independence is met the analysis turns to the substance of the communication. That is, whether the “communications concerned legal advice and related to the client’s right of defense.”

United States – Type of communication

In all reported jurisdictions in the United States, both in-house counsel and outside counsel communications are eligible for privilege protection. However, within certain states in the US, the analysis is largely centered on the substance of the communication, whether it involves legal advice or more general business advice. This analysis recognizes that in-house counsel may have several “corporate capacities” all of which do not necessarily involve providing legal advice. Gergacz notes that “in practice, in-house counsel may communicate about a number of activities, even though his formal corporate position is to provide legal advice.” He believes that such sentiment has led to a greater scrutiny of in-house counsel communications than those made by outside counsel to a client. This has led courts to be “wary of inadvertently extending privilege confidentiality too far,” when business advice is provided or there are mixed business-legal services delivered.

EU/US Harmonization

Gergacz concludes his article with a proposal to harmonize these two rules for privilege. He believes that both views have merit, with the US recognizing the “equivalence of in-house and outside counsel” and the EU “the concept of counsel independence is noteworthy.” Gergacz’s proposal is that communications with in-house counsel would be privileged if the attorney involved is (1) admitted to a relevant Bar; and (2) has Bar membership status intact that allows him to practice law at the time of the relevant communication.

Gergacz listed three general reasons for his proposal. First, he believes that the proposal is easy to administer as there should not be either court intervention to determine privilege or court review of the communications involved. Simply put, does the lawyer have a license and is it up to date to allow him or her to practice law? Second, he believes that the privilege should be broad enough to encourage candor in communications between attorney and client in the corporate setting, but not so broad as to expand the cloak of confidentiality to “thwart just decisions from being rendered.” Third, and finally, Gergacz writes that in-house counsel often has two roles to fulfill. One is certainly as a lawyer providing legal services, however, it may be that a person who has graduated from a law school or holds a law degree may not be licensed to practice law and may have other roles inside of a corporation. As a practicing lawyer is held to ethical and disciplinary standards whether they are in-house or in private practice, the requirement for Bar membership should satisfy the AM&S line of cases which speak toward ‘independence’ as the key concept for privilege.

I would commend Gergacz’s article to you for a more complete review of the US case law and other issues related to attorney-client privilege. His proposal is certainly an intriguing one and one which deserves rich consideration to simplify this knotty area. In this era of multi-jurisdictional enforcement of laws such as the FCPA and UK Bribery Act, the certainty of whether a communication is privileged or not is an important point for businesses.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2012

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