By CHARLES M. JOHNSON
CHARLESTON -- West Virginia businesses are working hard to compete on the world stage. Our abundant natural resources -– coal, timber, metals –- actually allow our Mountain State to realize an almost-unheard-of trade surplus.
I believe we could do even better, and with a broader range of business interests. But in the course of conducting business abroad and advising West Virginia clients with overseas interests, I've encountered a potential shark in the water about which many companies may be completely unaware -– even those that have worked with our trade offices in Japan and Germany, and on our trade missions across Europe and Asia, through the West Virginia Development Office.
The circling menace I'm referencing is an outdated statute known as the Foreign Corrupt Practices Act (FCPA), which has recently been accompanied by an overzealous U.S. Department of Justice and U.S. Securities and Exchange Commission taking advantage of uncertainties in the law to extract fines and penalties.
Congress passed and President Carter signed the FCPA in 1977 to ensure the integrity of U.S. business practices, with anti-bribery provisions at its core. Five presidential administrations later, the law is badly in need of reform.
No one disputes the law's positive intent. However, its strict application and harsh enforcement by the DOJ and SEC, particularly in the last three years, has produced unintended consequences – namely, stifling overseas investment and adversely impacting both our economy and those of our trade partners.
The DOJ and SEC smell blood in the water. Fines and penalties against U.S. companies have risen dramatically as a result of their stepped-up enforcement efforts; the top 10 recent settlements total $2.8 billion.
Despite this rise in enforcement and investigatory action, judicial oversight and rulings on the meaning of FCPA provisions remains minimal. In effect, the DOJ serves as both prosecutor and judge in FCPA actions, because it both brings charges and controls the disposition of cases it initiates. Clearly, at the national level, the pendulum has swung too far in one direction.
Here is where West Virginia can seize a leadership opportunity. The West Virginia Bribery and Corrupt Practices Act, in contrast to the FCPA, provides specific guidance and is very helpful in addressing local issues. It has clear, ascertainable and reachable standards, making it simple and effective in compliance efforts by our state's business community.
On the other hand, for example, there is no clear guidance under the Foreign Corrupt Practices Act as to who might be seen as an instrumentality of a foreign government. Foreign governments often own, subsidize, appoint leadership, closely regulate and have influence over the governance of foreign businesses. Some of these ties are unknown to American businesses. Some are loose affiliations which are not seen as out of the norm overseas. This underscores the need to have a clear standard for American businesses to apply to foreign business relationships so they can determine in advance what relationships are proper to cultivate and what relationships should be avoided.
In the absence of clarification, many businesses of the highest ethical standards prefer to sit on the sidelines rather than grapple with risks that are unfathomable in this regard.
I offer a modest proposal: Use the West Virginia Bribery and Corrupt Practices Act as a blueprint to reform the FCPA, which is ripe for much-needed clarification and improvements to the existing statute. Specifically, I believe the law can be improved by:
* Adding a compliance defense;
* Limiting a company's liability for the prior actions of a company it has acquired;
* Adding a "willfulness" requirement for corporate criminal liability;
* Limiting a company's liability for acts of a subsidiary; and,
* Defining a "foreign official" under the statute.
These reforms would be useful in guiding West Virginia businesses, and indeed those across our great nation, to better anticipate and more easily comply with the ethical requirements of the law. Clear and ascertainable standards are the hallmark of any effective compliance system. Hiding the ball is a disservice.
Let me reiterate. I am certainly in favor of strong corporate compliance policies and procedures. But the FCPA needs to be changed to reflect a complex worldwide economic perspective that no one could have anticipated 34 years ago. Those changes would bring definition to what are now blurred lines, and reflect cultural differences as well as differences in the ways that corporations and governments interact in other countries.
As we strive to establish our roles in the global economy, West Virginia's business community must be aware of the hurdles involved in international trade.
If you need additional information, please contact me at (304) 348-2420 or email me at email@example.com.
Johnson is a member of the law firm Frost Brown Todd in Charleston.