The corporate compliance community had a surprise moment of mainstream media attention on Friday, when Trump Administration chief economic adviser Larry Kudlow told reporters the Administration is “taking a look at” the Foreign Corrupt Practices Act and is considering potential reforms.
This led to a wave of speculation on Twitter and the press that the FCPA’s demise is nigh. You can guess the overall sentiment: that President Trump and his pro-corruption proclivities are gunning for the most important anti-bribery statute in the world, another pillar of good conduct to be knocked down by that simpering mess of venality otherwise known as Donald J. Trump.
Color me skeptical.
I believe Kudlow was talking off the cuff, giving the politically correct response in case his boss in the Oval Office happened to catch Kudlow’s clip on TV. The plain truth is that the White House hasn’t proposed any changes to the FCPA as a statute, FCPA enforcement hasn’t gone away, and corporate compliance officers will still be plenty busy with anti-corruption issues for a long while to come.
Let’s break this down.
First, why did Kudlow talk about the FCPA at all on Friday? Because a reporter from the Daily Mail asked Kudlow about the Administration’s views on the law. Kudlow happened to be talking to reporters that day about economic issues generally, but it’s not like Kudlow had called a press conference to complain about anti-corruption law. The FCPA was not on his agenda that morning.
Well, why did the Daily Mail ask Kudlow about the FCPA? Because another tell-all book about the Trump Administration is going to hit store shelves on Jan. 21 — and it includes the tale of Trump telling former Secretary of State Rex Tillerson in early 2017 that he wanted Tillerson’s help to weaken the FCPA.
The book, A Very Stable Genius, is by Washington Post reporters Philip Rucker and Carole Leonnig. So naturally the Post has been publishing juicy excerpts lately, and the Tillerson-FCPA tale was published last week. That’s why reporters are asking about the FCPA now.
News flash: this isn’t news. Close observers of the Trump Administration and the FCPA have long known that Trump hates the law, and that three years ago he tried to enlist Tillerson to weaken it. You can read the original Radical Compliance post about Tillerson defending the FCPA if you like; plenty of other media outlets reported the item at that time too.
Also consider what Kudlow said next. He flimflammed away from further details with all the skill that a veteran Trumper could muster, blurting out “I don’t want to say anything definitive policy-wise, but we are looking at it,” before pivoting to other subjects.
Because there is no plan. There are only a bunch of senior-level aides trying to advance their own agendas, terrified that Trump will see something on TV, respond to it on Twitter, and send everyone scrambling for a few days before he loses interest. That’s all this is.
Does Trump have animus toward the FCPA? Of course. Plenty of people suspect that’s because the Trump Organization violated the law while building his hotels overseas, which isn’t far-fetched considering the president’s many other fraudulent business practices.
Still, changing the FCPA requires an act of Congress. There is no political will to do that right now. Heck, there wasn’t any political will to change the FCPA even when Republicans did control all of Washington in the first two years of the Trump Administration. Now there is real chance they will control none of it in 2021.
So, I suspect changes to the FCPA are not forthcoming. As a certain president likes to say, we’ll see.
The FCPA Threat That May Be
For all the unlikelihood of statutory changes to the FCPA, compliance officers all know that the Trump Administration has already changed enforcement of the law. We should consider two points about that enforcement change, too — one of them potentially troublesome.
First, the fundamental philosophy of the FCPA Corporate Enforcement Policy isn’t a bad thing. It offers lesser punishments (or even no punishment) for businesses that disclose their mistakes and work with the Justice Department to assure that those mistakes won’t happen again. It gives companies incentive to achieve good standards of corporate conduct as dictated by Justice Department guidance for effective compliance programs.
Well, that’s the same approach any good parent would take to raising their child. If you only offer a child the threat of severe punishment, that child is more likely to lie or stay silent about mistakes he or she makes. They won’t learn how to behave properly, but they will learn to avoid authority. You want them to own up to their mistakes, and offer a mixture of punishment, forgiveness, and education to help them become better adults.
Scale up that concept to corporate conduct, and it would resemble the FCPA Corporate Enforcement Policy. So as much as we all might want to punish companies with fines and penalties, there is wisdom here. The Justice Department had been moving toward the Corporate Enforcement Policy well before Trump arrived, and did so for a reason.
Hence I believe that even if Trump doesn’t get a second term in November, the basic direction of the FCPA Corporate Enforcement Policy is here to stay. Which brings us to my second, more troublesome question.
What do we do with companies that settle charges according to the FCPA Corporate Enforcement Policy, and then violate the FCPA again sometime in the future?
After all, one prong of the policy is that the company has an effective compliance program at time of resolution. So if you then violate the FCPA again further down the road, does that mean you actually didn’t have an effective program? Should a repeat offender be ineligible for the Corporate Enforcement Policy’s largess a second time?
I get it, that an effective program does not mean a perfect program. A company could have an effective program and still suffer FCPA compliance failures. Legally that is possible; it would depend on the specific facts.
That’s what I mean by the FCPA threat that might be, sometime in the future. A repeat offender should get much closer scrutiny of its compliance program, to understand exactly how another failure came to be. Did the program atrophy over time? Did senior management demote the CCO as soon as some corporate integrity agreement expired? Did funding for due diligence not keep pace with business expansion?
Fundamentally, “How did this happen when you knew it was important to prevent?” will become a much more legitimate question to ask.
That’s where Justice Department appetite for holding companies accountable will really matter — and where Trump Administration skeptics can still be skeptical that this Administration will take the FCPA seriously, because the president clearly hates this law.
If someone truly wanted to neuter FCPA enforcement, that would be how to do it: by letting repeat offenders sing a song and then waltz off with a second declination, rather than asking tough questions and holding them accountable.
Will that happen when the inevitable repeat offender comes along? We’ll see.