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Trump DOJ to Continue FCPA Focus: More Smoke and Mirrors?

By Jerri-Lynn Scofield, who has worked as a securities lawyer and a derivatives trader. She now spends most of her time in Asia and is currently researching a book about textile artisans. She also writes regularly about legal, political economy, and regulatory topics for various consulting clients and publications, as well as scribbles occasional travel pieces for The National.

Those of us with an interest in legal issues have been trying to read the tea leaves to get some sense of how aggressive the Department of Justice (DoJ) under Attorney General Jeff Sessions will be in pursuing corporate and white-collar crime.

The recent lackluster DoJ record notwithstanding, please recall that the during the George W. Bush administration, the DoJ seriously pursued corporate and white collar crime violations, and indeed went after C-suite types (e.g., Adelphia, Enron, WorldCom) , some of whom drew serious prison time for their crimes.

It’s of course early days yet to decide which way the Trump administration will lean on such prosecutions, especially with many significant DoJ positions yet to be filled.

Vacancies will of course slow the course of effective prosecutions, at least in the short-term. As I wrote last month in Trump Fires Preet Bharara and 45 Other US Attorneys, Media Hysteria Ensues, Trump asked most sitting US attorneys– all of whom are political appointees– to resign. This practice has been customary since Janet Reno served as attorney general under Bill Clinton (and dates, in a more informal form, to the Reagan administration),

Yet so far, the Trump administration has failed to line up replacements. As this Washington Post piece discusses, this failure is having an unfortunate effect on prosecutorial business as usual: A month after dismissing federal prosecutors, Justice Department does not have any U.S. attorneys in place. Oops!

What Will DoJ Policy Be?

Although I should point out that although the lack of US attorneys may slow the progress of individual investogations and prosecutions, these attorneys are more worker bees, rather than the queen bee, and don’t themselves set overall DoJ policy (informal or otherwise). So the key issue yet to emerge is what the DoJ’s policy with respect to corporate and white collar prosecutions will be.

Despite lots of lofty rhetoric, regular readers are well aware of how much of a bust the DoJ was in the last eight years on corporate and white collar crime issues, first under Attorney General Eric Holder and then under Attorney General Loretta Lynch. So much so that seasoned attorneys had taken to calling the DoJ the “Department of Jokes”, as I discussed in The Obamamometer’s Toxic Legacy: The Rule of Lawlessness.

Not a single bank C-suite executive was charged– let alone successfully prosecuted– for any violations related to the great financial crisis.  Not One!  The DoJ effectively rolled over and played dead. I’ll not discuss this sorry record here, although both Yves and Bill Black have done so, in multiple posts.

What I’ll mention and we shouldn’t forget is that the DoJ also failed to undertake any significant antitrust actions in this period, either under the Sherman Act or under the Clayton Act, thus continuing a bipartisan trend that began during George W. Bush’s administration. I draw your attention to Matt Stoller’s article last week that made this point– as well as spelled out some consequences: The evidence is piling up — Silicon Valley is being destroyed.

To elaborate on this antitrust point: An initial flurry of optimism in May 2009 followed the announcement of a major shift in antitrust policy in speeches the then-newly appointed head of the DOJ’s antitrust division, Christine Varney, delivered before the Center for American Progress and the US Chamber of Commerce.  Alas, in what would subsequently become a familiar pattern, the DoJ failed to follow up on this rhetoric with significant enforcement actions.

That’s left us with the current state of affairs where the lack of antitrust enforcement has become so acute that even the NYT can’t ignore it, as discussed in yesterday’s op-ed, Is it Time to Break Up Google? For reasons of space, I leave aside a more extended, comprehensive discussion of antitrust issues for a future post.

FCPA Actions

What I want to discuss here is last week’s speech by Acting Principal Deputy AssistantGeneral  Attorney General Trevor McFadden, affirming that the DoJ would continue “to vigorously enforce” the Foreign Corrupt Practices Act (FCPA). Before turning to discussing that speech– one of two McFadden delivered last week on the same subject– I want to credit the WSJ article that drew my attention to it, The Morning Risk Report: DOJ Stays the Course on FCPA. This piece  quoted various legal authorities to suggest that Trump’s DoJ would more or less continue the recent trend of FCPA enforcement policy.

Over to McFadden’s speech:

Today, motivated as ever by the importance of ensuring a fair playing field for honest corporations doing business abroad, the department continues to vigorously enforce the FCPA. The department is committed to enforcing the FCPA and to prosecuting fraud and corruption more generally. The department does not make the law, but it is responsible for enforcing the law, and we will continue to do so. We also continue to prioritize prosecutions of individuals who have willfully and corruptly violated the FCPA – Attorney General Sessions has stressed the importance of individual accountability for corporate misconduct. Finally, the department continues to work with business organizations and their counsel and regularly takes into consideration voluntary self-disclosures, cooperation and remedial efforts when making charging decisions.

In his speech, McFadden, regurgitates boilerplate suggesting that the DoJ’s recent FCPA enforcement record merits kudos:

This brings me to our FCPA enforcement, which is also as alive as ever. The FCPA Unit within the Fraud Section has primary jurisdiction among Department components for prosecuting FCPA matters and in developing FCPA enforcement policy. As you may know, I spent the last four years in private practice, working on anti-corruption issues. In those four years, the size of the FCPA Unit has nearly doubled, and our Fraud Section trial attorneys are hard at work on numerous significant investigations.

In 2016 alone, through the diligent work of the FCPA Unit, 17 individuals were charged or pleaded guilty to FCPA violations and 13 corporate resolutions were reached, resulting in $1.36 billion in corporate U.S. criminal fines, penalties, and forfeiture. If you combine that total to amounts payable to foreign authorities, the number is close to $7.3 billion. These accomplishments build on a strong legacy of FCPA enforcement. In the last decade, prosecutors in the FCPA Unit have convicted over 100 individuals who committed FCPA violations or related criminal offenses and entered 101 corporate resolutions with well over $5 billion in corporate U.S. criminal fines, penalties and forfeiture.

The Fraud Section and FCPA Unit’s aims are not to prosecute every company we can, or break our own records for the largest fines or longest prison sentences. Our aim is to motivate companies and individuals voluntarily to comply with the law. It is by working with companies transparently and in partnership that we can achieve this goal. We recognize that business organizations are our partner in the fight against corruption, because they are in the best position to detect risk, to take preventative measures and to educate those who act on its behalf on best practices. We hope that, in this cooperative effort, we can reduce corruption with effective compliance programs that prevent nefarious conduct from happening and through effective prosecutions to resolve violations in a way that punishes the conduct and deters similar future misconduct.

Enforcement Theater: FCPA and Insider Trading

As I’ve previously written in November 2016 in The Obamamometer’s Toxic Legacy: The Rule of Lawlessness, FCPA offenses were one of two areas, with insider trading, where the DoJ took a muscular enforcement approach. Yet these areas were mere enforcement theater– much sound and fury, signifying nothing– rather than meaningful attempts to grapple with serious corporate and white collar crime, particularly of the most systemically important variety.

I criticized the policy then, and I’ll continue to criticize its latest avatar. Quoting from my earlier piece:

“We have to act sometimes as shoe salesmen, flogging competence in FCPA violations, that occur in subsidiaries or with foreign suppliers,” says my white collar defense specialist contact. “This work leads us to countries and legal systems we don’t know well, to uncover chickenshit violations that occur far from home.” Far better, he believes, would be for the DoJ to focus on law-breaking that occurs in the United States, as that could be effectively deterred by the agency refocusing its enforcement priorities.

The Bottom Line

The jury’s still out on what the DoJ ’s enforcement priorities will be during the Trump administration. But continuing the emphasis on FCPA violations would be just more smoke and mirrors, mere misdirection, rather than signifying any meaningful attempt to crack down on serious corporate violations. We can only hope that the media will hammer the Trump DoJ’s failings in this regard more than they did his predecessor. (No, I know, I don’t think that’s likely to happen either.)

Before surrendering to complete cynicism, however, we should remember that the DoJ under  Bush took scalps in actions against Adelphia, Enron, and Worldcom,. So I’m at least willing to wait a bit longer, to see what Sessions does with respect to pursuing corporate and white collar violations. It wasn’t that long ago that the DoJ enforced laws that targeted white collar and corporate crimes. Dare we hope that we might see such days again?

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12 comments

  1. UserFriendly

    Well, hopefully Sessions hasn’t changed his mind on the topic since 2008. regarding the bank bailout bill:

    Mr. Sanders, the Vermont independent, complained that the bill did not put any limits on the types of distressed debt the Treasury could buy, that it did not provide enough oversight, that it did not include adequate provisions to limit home foreclosures, that it did not really limit executive pay at firms that seek help.

    “Under this bill, the C.E.O.’s and the Wall Street insiders will still, with a little bit of imagination, continue to make out like bandits,” Mr. Sanders said.

    He said the bill also did not do anything to prevent financial institutions from becoming “too big to fail,” effectively leaving open the potential need for future bailouts.

    Mr. Sanders also said he could not fathom giving Treasury Secretary Henry M. Paulson Jr. such broad authority over so much money.

    “Maybe I am the only person in America who thinks so, but I have a hard time understanding why we are giving $700 billion to the secretary of the Treasury, who is the former C.E.O. of Goldman Sachs, which, along with other financial institutions, actually got us into this problem,” he said. “Maybe I am the only person in America who thinks that is a little bit weird, but that is what I think.”

    He added: “This bill does not address the major economic crises we face — growing unemployment, low wages and the need to create decent-paying jobs, rebuilding our infrastructure and moving us to energy efficiency and sustainable energy.”

    In one of the more remarkable colloquies of the day’s discourse, Senator Jeff Sessions, Republican of Alabama, and one of the most conservative members of Congress, took to the floor to express solidarity with Mr. Sanders.

    “I would like to say to Senator Sanders a couple things,” Mr. Sessions said. “First, I think it is indeed breathtaking that this Senate would authorize basically one person with very little real oversight, a Wall Street maven himself, and allocate $700 billion in America’s wealth, which I would have to say would be the largest single authorization of expenditure in the history of the Republic.”

    Mr. Sessions added: “So I have to say, fundamentally, I think we have not done a good enough job in creating an oversight mechanism that will work, so I am not going to vote for the bill; I am not.”

    http://www.nytimes.com/2008/10/03/business/03naysayers.html

    But I’m not holding my breath.

  2. Allegorio

    Mr. Sessions will be too busy busting Marijuana dispensaries to deal with the white collar crimes of the .001%.

    As John Erlichman allegedly said: “The Nixon campaign in 1968, and the Nixon White House after that, had two enemies: the antiwar left and black people. You understand what I’m saying? We knew we couldn’t make it illegal to be either against the war or black, but by getting the public to associate the hippies with marijuana and blacks with heroin, and then criminalizing both heavily, we could disrupt those communities. We could arrest their leaders, raid their homes, break up their meetings, and vilify them night after night on the evening news. Did we know we were lying about the drugs? Of course we did.”

    Genocide by other means. Jeff Beauregard Sessions won’t be able to resist.

    1. Tomonthebeach

      Most Americans of all political persuasions assumed that Trump’s promise to “drain the swamp” meant replacing incompetent and/or crooked bureaucrats with hard-working and competent ones. Wrong! It looks like he just intends to sabotage the entire federal bureaucracy by neutering it.

      If he really intended to build a better government, he would not blow his weekends in Palm Beach playing golf at great taxpayer expense.

      I do recall something about another world leader named Nero, fiddling away while his problems burned.

      1. Carla

        “It looks like [Trump] just intends to sabotage the entire federal bureaucracy by neutering it.”

        Too late. Already accomplished by #44.

      2. Ptolemy Philopater

        On the contrary, despite what establishment historians wrote, as per Brittanica

        “Brought up in this atmosphere, Nero might well have begun to behave like a monster upon his accession as emperor in 54 but, in fact, behaved quite otherwise. He put an end to the more odious features of the later years of Claudius’s reign, including secret trials before the emperor and the dominance of corrupt freedmen, and he accorded more independence to the Senate. The testimony of contemporaries depicts Nero at this time as a handsome young man of fine presence but with soft, weak features and a restless spirit. Up to the year 59, Nero’s biographers cite only acts of generosity and clemency on his account. His government forbade contests in the circus involving bloodshed, banned capital punishment, reduced taxes, and accorded permission to slaves to bring civil complaints against unjust masters. Nero himself pardoned writers of epigrams against him and even those who plotted against him, and secret trials were few. The law of treason was dormant: Claudius had put 40 senators to death, but, between the murders instigated by Agrippina in 54 and the year 62, there were no like incidents in Nero’s reign. Nero also inaugurated competitions in poetry, in the theatre, and in athletics as counterattractions to gladiatorial combats. He saw to it that assistance was provided to cities that had suffered disaster and, at the request of the Jewish historian Josephus, gave aid to the Jews.”

        Likewise, National Geographic: “Rethinking Nero He killed two of his … who lived during the time of Nero, wrote that the emperor ordered the homeless to be sheltered, … He was a great reformer.” Speaking of infrastructure, he rebuilt Rome in the Greek style, built a canal from the Gulf of Corinth to the Aegean. Let’s see what kind of infrastructure Trumpenstien builds, besides rentier toll booths all over the place.

        He often assumed the garb of an acetic and wandered through the streets barefoot. He was no where near Rome when it burned, and only half-heartedly persecuted the Christians that Rome blamed, with some justification, for the fire. His artistic pursuits outraged the moralistic establishment, ““I have seen him on stage,” Gaius Julius Vindex, the legate who rebelled against him, was to say, “playing pregnant women and slaves about to be executed.” Oh the horror!

        Much like today’s oligarchs, Nero’s reforms threatened the corrupt establishment, so they slandered him and threatened him with crucifixion, hence his suicide. According to another version recounted by Tacitus … he reached the Greek islands, where the following year (69) the governor of Cythnos (modern Kíthnos) recognized him in the guise of a red-haired prophet and leader of the poor, had him arrested, and executed the sentence that had been passed by the Senate.”

        As always, the grasping psychopaths that become the hoarders of wealth in a society slander those who threaten their greed, as in the case of the Gracchi, Nero, Caligula and Stalin. Even then it was a crime to hold the rich accountable for their corruption disguised as merit. The popularity of emperors, kings and dictators with the people are often based on the fact that they challenge the power elite.

        Would that Trumpenstien indeed be as great a reformer as Nero Claudius Drusus Germanicus. Trumpenstien is card carrying member of the grasping establishment, who stepped in to save them by brazenly lying to pretend he was a reformer, drain the swamp indeed.

  3. Ed Miller

    Speaking of the lack of significant anti-trust action, this article completely misses the medical industry which pretends to provide healthcare while reaping outlandish profits. How could this be missed in this context?

  4. Chris Oates

    If Sessions doesn’t prioritize white collar crime, who in DoJ would pursue it? A career civil servant?

  5. rrennel

    My theory is that the US government finds FCPA enforcement to be profitable and a possible long term solution to our current account deficit. Unfortunately the US extraterritorial reach reinforces foreign suspicions of US hypocrisy, especially viewed in the context of the new administration’s repeal of the SEC rule requiring natural resource companies to disclose their foreign payments. Maybe the law could be renamed the Corruption by Foreign Corporations Act.

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