FCPA and Foreign Policy: A Brief Analysis of the China Initiative, and Why FCPA Enforcement is a Poor Foreign Policy Stick

Tiffany Chung

Vol. 42 Associate Editor

Explicitly politically targeted anti-corruption enforcement is contrary to American OECD convention obligations. However, in a stunningly political move, the DOJ announced the China Initiative in November 2018, which explicitly targeted Chinese entities and individuals for investigation and prosecution under multiple regulations, including the Foreign Corrupt Practices Act. This initiative followed President Trump’s increasingly aggressive approach to foreign relations in China and reflected similar priorities of “trade fairness” and protecting American “economic prosperity and competitiveness.” [1] In this post, I evaluate whether the FCPA enforcement is a good foreign policy tool, especially in the United States’ complex relationship with China. I conclude that the FCPA is a bad “stick” because enforcement relies on cooperation with foreign law-enforcement and governments due to the extra-territorial nature of key evidence, witnesses, and defendants. Furthermore, politically targeted anti-corruption enforcement is explicitly contrary to American OECD convention obligations.[2]  Given this, I posit that foreign policy considerations will have an effect on prosecutorial decision-making (decisions to start an investigation), but the difficulty in international legal assistance will lead to the failure to charge due to insufficient evidence. I also examine how retaliatory action from China will further hinder efforts to negotiate either formal or informal international law enforcement agreements.   The OECD Anti-Bribery convention requires states to adopt anti-corruption legislation that, among other things, bans private payments to foreign government officials to attract or retain business. It places obligations on signatory states to enforce their own laws governing private corrupt payments to foreign officials, but does not specify, require, or evaluate particular enforcement measures. While there are technically consequences for violation or underenforcement of treaty obligations, they are largely toothless (including forming “monitoring sub-groups,” organizing missions to the country being evaluated, issuing formal public statements on the OECD website, issuing due diligence warnings, and requesting diplomatic engagement). Unsurprisingly, compliance with OECD commitments is “shockingly low.”[3] According to Transparency International, only 11 countries “significantly punished companies” that paid bribes abroad.[4]   Article 5 of the OECD Bribery Convention directly prohibits “considerations of national economic interest,” foreign relations, or the “identity of the natural or legal persons involved” to influence the investigation and prosecution of the bribery of a foreign public official. Nonetheless, given that an FCPA violation definitionally involves the bribery of a foreign government position, foreign relations and foreign affairs unsurprisingly remain a sensitive touchpoint in enforcement decisions. In Clayco Petroleum Corp. v. Occidental Petroleum Corp., the Ninth Circuit commented that “There is also no question . . . that any prosecution under the [FCPA] entails risks to our relations with the foreign governments involved,” that coordination with the State Department was recognition of the potential foreign policy implication of enforcement action, and that “any governmental enforcement represents a judgment on the wisdom of bringing a proceeding, in light of the exigencies of foreign affairs.”[5]   The reality of DOJ enforcement work is that foreign cooperation is essential for effective investigation of misconduct in foreign jurisdiction, because key witnesses, documents, and other evidence are all often located in foreign countries.[6] More importantly, defendants are often foreign nationals that may be difficult to extradite depending on the existence of extradition treaties between their home countries and the United States. Depending on the level of cooperation between the countries and existence of informal or formal law-enforcement cooperation agreements, accessing and gathering this information can either be standard procedure or an insurmountable barrier that leads to the total collapse of any attempt to investigate a potential violation.[7]   In “almost every situation” the DOJ has investigated related to FCPA violations, it has found that “much, if not all” of the “critical evidence” lay outside of U.S. jurisdiction.[8] An OECD report cited U.S. authorities saying, “the chief difficulty in investigating and prosecuting foreign bribery cases has until now been the lack of cooperation in obtaining evidence located outside the United States.”[9] There is recognition both within the DOJ and international organizations that, without international cooperation and assistance in law-enforcement and evidence gathering, investigating an FCPA violation is very difficult, if not impossible.   In order to access evidence located outside of the United States, U.S. authorities must seek and gain the cooperation of foreign governments and law-enforcement agencies.[10] Cooperation on anti-corruption enforcement is as “at its peak,”[11] and has certainly been bolstered by an increasing norm of anti-corruption regulation abroad,[12] enactment of foreign anti-bribery laws, and ratification of international anti-bribery treaties (such as the U.K. Anti-Bribery Act, the OECD Anti-Bribery Convention, and the UN Convention Against Corruption). Not only have foreign laws strengthened anti-corruption norms abroad, thus increasing the likelihood and ease of seeking investigative assistance, but international treaties often have provisions that create legal obligations to provide legal assistance to other parties. For example, Article 9 of the OECD Anti-Bribery Convention states that parties have an obligation to provide “legal assistance” to other parties regarding “investigations and proceedings.”[13][14]   The DOJ and SEC mainly coordinate and seek investigative cooperation from foreign authorities through a range of mechanisms. The DOJ primarily seeks foreign cooperation and evidence through MLATs with foreign law enforcement agencies.  MLATs are negotiated by the State Department with cooperation from the DOJ, and allow the DOJ to obtain information or evidence from the country party to the MLAT through production of documents and testimony from witnesses, execution of search and seizure requests, and other obligations.[15] The conduct that leads to the request for assistance generally does not need to be an offence under both countries’ laws in order for legal assistance to be provided.[16][17]As of 2017, the United States had MLATs with over 40 countries and an MLAA with China.[18]   The SEC also benefits from cooperation and assistance through MLAT treaties, but typically seeks international cooperation through the International Organization of Securities Commissions Multilateral Memorandum of Understanding, memoranda of understanding with foreign securities authorities which facilitate bilateral information-sharing, and ad hoc agreements with foreign regulators.[19]   Despite the existence of these formalized information-sharing mechanisms, the actual level of compliance varies greatly from country to country. SEC officials reported that responses for requests for assistance range “from full-scale sharing of domestic investigative files on short notice to outright non-compliance.”[20] Non-cooperation, either due to non-compliance with existing MLATs or the non-existence of formal legal assistance agreements, can lead to delays or impossibility for U.S. authorities in prosecuting their cases.[21] Material delays hamper the investigative abilities of the DOJ, and may lead to cases running up against their statute of limitations.   Given the significance of foreign cooperation in attaining foreign evidence and witnesses, analysis of China-US legal assistance mechanisms is important. Though China and the United States signed an MLAA in June 2001, and both countries are party to the United Nations Convention on Corruption which has an information request provision, Chinese cooperation on FCPA matters remains inconsistent.[22] While MLAA’s provide the mechanisms for cooperation, the ultimate driver is the willingness of the foreign country to cooperate and assist with the investigation – something that China has not been consistently willing to do for a variety of political and foreign policy reasons. Given China’s history of sporadic cooperation, it is unsurprising that in an era of high hostility between the United States and China that this cooperation would further decrease, thus hampering the ability to use FCPA enforcement as a hostile foreign policy tool.   Indeed, China enacted a blocking statute in 2018 to prohibit entitles and individuals from providing evidence to foreign investigators without prior authorization from Chinese authorities.[23] This law (the International Criminal Judicial Assistance Law) has created additional barriers for American agencies seeking to investigate potential violations involving Chinese nationals and entities, and there is still broad uncertainty over whose the law will actually be implemented.[24] The issue of what obligations Chinese entities and individuals have to respond to U.S. Authorities document requests and subpoenas continues to be clarified. In 2019, three Chinese-headquartered bank attempted to invoke the ICJA  in resisting records productions subpoenas by U.S. Law enforcement agencies – but in In re: Sealed Case, No. 19-5068 (D.C. Cir. 2019), the U.S. Court of Appeals for the D.C. Circuit affirmed civil contempt orders on the basis that the three banks had sufficiently availed themselves to U.S. jurisdiction through U.S. bank branches and maintenance of “correspondent accounts” in the United States.[25]   The importance of international cooperation in securing key evidence to build a FCPA case cripples the efficacy of using FCPA enforcement against Chinese nationals and entities to pursue foreign policy goals. Not only does this strategy violate American OECD treaty commitments, it may even backfire and lead to retaliatory blocking statutes that hinder the possibility for international law-enforcement cooperation in future cases.  

[1] Press Release, U.S. Dep’t of Justice, Attorney General Jeff Session’s China Initiative Fact Sheet (Nov. 1, 2018), https://www.justice.gov/opa/speech/file/1107256/ [2] See, OECD Convention Article 5. [3] Transparancy International, Strengthening Enforcement Of The OECD Anti-Bribery Convention, https://www.transparency.org/en/projects/strengthening-enforcement-of-the-oecd-anti-bribery-convention-1# [4] Id. [5] Clayco Petroleum Corp. v. Occidental Petroleum Corp., 712 F.2d 404, 408-09 (9th Cir. 1983), cert. denied, Clayco Petroleum Corp. v. Occidental Petroleum Corp., 464 U.S. 1040 (1984). (“Therefore, any governmental enforcement represents a judgment on the wisdom of bringing a proceeding, in light of the exigencies of foreign affairs.”) [6] Rachel Brewster, Enforcing the FCPA: International Resonance and Domestic Strategy, 103 Va. L. Rev. 1611, 1611-13 (2017). [7] Id. [8] American Bar Association, Should FCPA “Territorial” Jurisdiction Reach Extraterritorial Proportions?, (November 08, 2018), https://www.americanbar.org/groups/international_law/publications/international_law_news/2013/should_fcpa_territorial_jurisdiction_reach_extraterritorial_proportions/. https://www.americanbar.org/groups/international_law/publications/international_law_news/2013/should_fcpa_territorial_jurisdiction_reach_extraterritorial_proportions/ [9] U.S. Dep’t of Justice, Response of the United States: Questions Concerning Phase 3 OECD Working Group on Bribery § 10.2 (2010), available at http://www.justice.gov/ criminal/fraud/fcpa/docs/response3.pdf. [10] See Supra note 38. [11] Id. [12] Especially with European allies such as the U.K. and France [13] Org. For Econ. Co-Operation & Dev., United States: Phase 3: Report On The Application Of The Convention On Combating Bribery of Foreign Public Officials In International Business Transactions and the 2009 Revised Recommendations On Combating Bribery In International Business Transactions 10 (2010), http://www.oecd .org/dataoced/1o/49/46213841.pdf. [14] Article 9, OECD Convention “Each Party shall, to the fullest extent possible under its laws and relevant treaties and arrangements, provide prompt and effective legal assistance to another Party for the purpose of criminal investigations and proceedings…” [15] Press Release, Ropes and Gray, China Enacted “Blocking Statute” for International Criminal Judicial Assistance (February 25, 2019), https://www.ropesgray.com/en/newsroom/alerts/2019/02/China-Enacted-Blocking-Statute-for-International-Criminal-Judicial-Assistance. [16] Id. [17]  Navigating The Arcane World of Mutual Legal Assistance Treaties, Letters Rogatory and Evidence-Gathering From Abroad, FCPA PROFESSOR (May 21, 2014), http://fcpaprofessor.com/navigating-the-arcane-world-of-mutual-legal-assistance-treatiesletters-rogatory-and-evidence-gathering-from-abroad/. [18]  Treaties, Agreements and Asset Sharing, U.S. DEP ’TOF STATE, http://www.state.gov/j/inl/rls/nrcrpt/2014/vol2/222469.htm. 6 See, e.g., Treaty on Mutual Legal Assistance in Criminal Matters, Aug. 5, 2003, U.S.-Japan, S. TREATY  DOC . NO. 108-12 (2003), https://www.state.gov/documents/organization/191629.pdf. [19] See note 35. [20] U.S. Sec. Exch. Comm’n, Response of the United States, Questions Concerning Phase 3, Organization for Economic Co-operation and Development (OECD) Working Group on Bribery 22 (May 3, 2010) [21] Id. [22] See note 40. [23] Press Release, Ropes and Gray, China Enacted “Blocking Statute” for International Criminal Judicial Assistance (February 25, 2019), https://www.ropesgray.com/en/newsroom/alerts/2019/02/China-Enacted-Blocking-Statute-for-International-Criminal-Judicial-Assistance. [24] Id. [25] In re: Sealed Case, No. 19-5068 (D.C. Cir. 2019), ( “Banks One and Two consented to jurisdiction when they opened branches in the United States and, although Bank Three has no U.S. branch and executed no such agreement, its choice to maintain correspondent accounts in the United States established an adequate connection to the forum and the enforcement action to sustain jurisdiction.”) The views expressed in this post represent the views of the post’s author only.