I recently had the pleasure of visiting with Bryan Rahija and Neil Gordon of the Project on Government Oversight (POGO) about U.S. anti-bribery legislation; particularly, whether federal contractors who violate these laws are "too big to debar." You can listen to a podcast of our debarment debate here.
Posted at 02:33 PM in Administrative Agency, Administrative Law, Bribery, Congress, Corruption, Debarment, FCPA, Law, Podcast, Politics, Project on Government Oversight, Research, Suspension and Debarment, White Collar Crime | Permalink | Comments (0)
I recently co-authored an article with Professor Dru Stevenson (South Texas College of Law) entitled “FCPA Sanctions: Too Big to Debar?”, which will appear in the Fordham Law Review’s November 2011 volume 80. This article poses a “provocative” question: Does our nation’s dependency on a handful of private contractors insulate them from the risk of debarment (i.e., being blacklisted from receiving lucrative government contracts) despite flagrant violations of U.S. laws prohibiting foreign corruption? Anecdotal evidence suggests so.
As I recently summarized on the FCPA Blog (here), last year's FCPA-related prosecution of BAE Systems PLC illustrates this “too big to debar” problem. In March 2010 BAE paid a $400 million criminal fine for lying to the U.S. about bribing foreign officials across the globe in exchange for lucrative government contracts overseas. Rather than sever their partnership with the criminal offender, in the year that followed, U.S. agency heads awarded BAE billions of tax dollars in new government contracts. Federal officials have avoided sanctioning certain contractors with debarment because these companies are perceived as being "too big to debar"--that is, federal prosecutors and debarment officials prioritize their desire to avoid the potential “collateral consequences” of a government contractor's debarment (e.g., the resulting job loss and shareholder harm) over the need to deter these contractors from engaging in foreign corruption.
Fast-forward to May 16, 2011. Just months after Professor Stevenson and I released our article discussing the too-big-to-debar issue, BAE once again made headlines for allegedly violating the Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR). As a result, earlier this month BAE agreed to pay a $79 million civil settlement to the State Department for its continued disregard of U.S. export laws. Having uncovered a staggering 2,591 violations of AECA and ITAR just one year after BAE's guilty plea to foreign corruption, the State Department “determined to impose statutory debarment” as a sanction (see page 20 here). And in yet another example of the too-big-to-debar problem, the State Department simultaneously rescinded BAE’s debarment so that it may continue doing business with federal agencies.
Check out the FCPA Professor's in-depth coverage of this story in a recent post entitled "The Final Act in the BAE Circus?" (here). The FCPA Blog summarized this peculiar, albeit unsurprising, development as follows:
In the proposed charging letter, the State Department explained why it imposed its biggest fine ever:
"The Department considered other aggravating factors, including the frequency and type of Respondent’s violations; the fact that certain violations were authorized by its former most senior management of Respondent; that violations were systemic, wide-spread, and sustained for more than ten (10) years; only three (3) of the violations by the Respondent were disclosed at the request of the Department, not voluntarily, after Respondent’s criminal plea with the U.S. Department of Justice; and all other remaining violations were never disclosed, but rather identified by the Department during its investigation."
Although the State Department declined to impose ongoing debarment, it said it is imposing "a policy of denial" on three BAE subsidiaries -- BAE Systems CS&S International, Red Diamond Trading Ltd., and Poseidon Trading Investments Ltd. That means "there will be an initial presumption of denial for all [export] applications involving these entities, unless upon case-by-case review the [State] Department determines that it is in the foreign policy or national security interests of the United States to provide an approval."
It's not clear what impact the policy of denial on the three subsidiaries will have on BAE's operations, if any.
Read the FCPA Blog’s full coverage of the story here. Although BAE’s debarment was taken off the table due to the perceived risk to national security and foreign policy that might result from BAE’s inability to continue supplying the U.S. with weapons, the government’s presumption of denial and enhanced oversight of BAE provide some insurance that the corrupt contractor will comply with U.S. laws moving forward. Whereas the billions of dollars in federal funding flowing to BAE will allow it to merely “write off” its most recent fine, the annoyance that its subsidiaries will experience due to enhanced oversight and case-by-case review will more effectively deter BAE—as well as other private contractors—from continuing to engage in foreign corruption.
Posted at 12:24 PM in Administrative Agency, Administrative Law, Bribery, Corruption, Debarment, FCPA, Law, Legal Scholarship, Legislation, Suspension and Debarment, White Collar Crime | Permalink | Comments (0)
I recently co-authored an article that examines the Foreign Corrupt Practices Act (FCPA) and asks, are some federal contractors too big to debar? I answer this question in a recent guest post on the FCPA Blog (here). The article may be downloaded in its entirety here.*
Here are a few of the initial reviews:
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*I’d like to thank Professor Koehler for lending his valuable insight and expertise to this article. You can read his commentary on the article at the FCPA Professor blog here. I'd also like to thank the following websites for helping promote our article:
Abstract: The Foreign Corrupt Practices Act (FCPA) criminalizes bribery of foreign government officials; the frequency of enforcement actions and severity of fines levied against corporations under the FCPA have significantly increased in the last few years. There is an ongoing problem, however, with the sanctions for FCPA violations: enforcement authorities (DOJ and SEC) and contracting officials have limited themselves to fines, civil penalties, and occasional imprisonment of individual violators. Debarment from future federal government contracts, even temporarily, is an unused sanction for FCPA violations, even though Congress provided for this punishment by statute. Debarment offers a far more potent deterrent than fines and penalties, as multinational contractors that conduct business with the U.S. are much less likely to view the sanction as merely a cost of doing business. If ridding foreign markets of corruption truly is a top priority of the U.S., it seems both unfair and imprudent for federal agencies to continue awarding lucrative, multibillion-dollar contracts to firms recently prosecuted for fraudulently obtaining such contracts overseas.
Enforcement officials shy away from debarring entities that violate the FCPA due to the short-term inconvenience of an agency’s inability to transact business with its favorite contractor, its inability to demand favorable bids from contractors when the field of potential bidders has thinned, the resulting job loss, and the risk of overdeterring companies that might otherwise pursue lucrative opportunities in emerging markets. This is the "too big to debar" problem – the federal government is too dependent on a particular set of large, private-sector corporations for equipment and services. In addition to the virtual immunity from debarment enjoyed by these firms when they violate the FCPA, the fines imposed for engaging in foreign corrupt practices comprise a tiny fraction of the potential revenue generated by lucrative contracts with the U.S. and foreign states. When discounted by the low probability of detection, these sanctions are far too low to deter unlawful activity.
Debarment would deter potential wrongdoers and incapacitate actual offenders. The deterrent would induce more firms to comply with the law, which would allow the “too big to debar” problem to diminish over time. To help illuminate these concerns and lend support to the thesis, this Article will examine the third largest FCPA-related enforcement action to date: the BAE Systems case. On March 1, 2010, BAE Systems paid approximately $400 million in fines for its corrupt practices abroad. In the 365 days that followed however, the federal government awarded BAE contracts in excess of $58 billion dollars. The U.S.’s refusal to debar BAE because of the potential “collateral consequences” provides a case study on the benefits and drawbacks of deterring foreign corruption through suspension and debarment. This Article concludes that the U.S. must begin to diversify its portfolio of federal contractors so that prosecutors may leverage the legitimate threat of suspension and debarment to more effectively deter foreign corruption.
Posted at 09:37 AM in Administrative Agency, Administrative Law, Bribery, Congress, Corruption, FCPA, Law, Legal Scholarship, Legislation, Politics, SSRN, Suspension and Debarment, White Collar Crime | Permalink | Comments (0)
In this post I explain why “Statements by Executive Branch Administrators” ranks 18th on my list of the “Top 21 Sources of Legislative History.” Click here for a brief overview of the basis for these rankings.
18. Statements by Executive Branch Administrators: Over the past century, referring to federal administrative agencies as the “fourth branch of government” has become somewhat cliché.[1] This phrase, of course, refers to the increasingly prominent role that government agencies play in shaping our nation’s laws and policies. Such prominence is due in large part to the deference given by courts to statements of intent made by agency administrators when interpreting otherwise ambiguous statutes drafted by Congress.
Despite the Judiciary’s historical deference to Executive Branch administrators, a string of recent decisions urge judges to scale back the Executive and Judicial Branch’s influence over the lawmaking process, citing the Separation of Powers Doctrine. Accordingly, I predict that over the coming years courts will, with increasing regularity, disregard statements made in committees by Executive Branch administrators when trying to decide the intended meaning of an unclear statute, which is why I have ranked this source relatively low on my list of important sources of legislative history.
A. The Separation of Powers Doctrine
The Framers created a system of checks and balances designed to ensure that power did not become too concentrated in any one person or group within our government. To achieve this goal, the Constitution delegates the power to create laws to the Legislative Branch,[2] the power to enforce laws to the Executive Branch,[3] and the power to oversee the just application of laws to the Judicial Branch.[4] In more formal circles, this is referred to as the Separation of Powers Doctrine.
Judges who wish to preserve this separation of power will frequently restrict their inquiry into the intended meaning of a law to statements and documents produced by the branch responsible for creating the law in question: the Legislature. However, with the recent proliferation of administrative agencies, Congress has delegated much of its lawmaking power to regulators who typically take orders from the Executive Branch. Additionally, an agency will often bear responsibility for adjudicating disputes that arise from the rules and regulations it creates and enforces. These disputes frequently turn on questions of whether an agency’s interpretation of a particular law—in carrying out the will of the Executive Branch—was reasonable. As a result, “the Executive branch exercises powers that are both legislative and judicial in nature” through its influence over administrative agencies.[5]
B. Judicial Deference to Administrative Agencies
Over time, courts became increasingly willing to entertain arguments for a particular interpretation of a statute based on statements made not by members of Congress, but by relevant Executive Branch administrators, thereby blurring the traditional lines drawn by the Framers through the Separation of Powers Doctrine. In fact, one article points out that Congress frequently consults executive departments when drafting bills, and that “their opinions about bills they have drafted or supported are often noted in the Supreme Court’s discussion of legislative history.”[6]
Chevron, U.S.A., Inc. v. National Resources Defense Council, Inc., which has been cited an impressive 11,467 times by federal courts,[7] provides a perfect example of the Court’s willingness to substitute administrative intent for legislative intent.[8] In Chevron, Congress had enacted a statute requiring builders to obtain permits before constructing new pollution-generating factories, which the statute ambiguously referred to as “stationary sources.”[9] The administrative agency tasked with overseeing Congress’s new law—the Environmental Protection Agency (EPA)—clarified this term by creating a regulation limiting the scope of “stationary sources” to pollutant-emitting “building[s], structure[s], facilit[ies], or installation[s].”[10] Rather than making up its own definitions for the ambiguous terms found in Congress's eco-friendly law, and rather than relying on statements of intent made by individual members of Congress, the Court deferred to the EPA's definition of "stationary sources."
From this decision emerged the "Chevron two-prong test," which was designed to help courts determine when deference to statements of legislative intent made by Executive Branch administrators in interpreting a law is appropriate. The Chevron two-prong test requires courts to first interpret a statute consistent with Congress's stated intent where such intent is clearly conveyed. The second prong applies in the event that Congress’s intent as to the “precise question at issue” is not clear, in which case courts must give “controlling weight” to the administrator’s statements of intent “unless they are arbitrary, capricious, or manifestly contrary to the statute.”[11] Although such deference to the “fourth branch” of government muddles the Separation of Powers Doctrine, courts “have long recognized that considerable weight should be accorded to an executive department’s construction of a statutory scheme it is entrusted to administer.”[12]
Although in Chevron, the statements of intent made by the administrative agency were delivered through a federal regulation, courts similarly defer to statements made by Executive Branch administrators elsewhere. For instance, when the Senate Committee on the Judiciary held a hearing in 2006 on the “Wartime Executive Power and the National Security Agency’s Surveillance Authority,” Senator Arlen Specter questioned then-Attorney General Alberto Gonzalez, which served as “the framework for [Congress’s] discussion” on how certain legislation concerning national security should be interpreted.[13] Illustrating the Executive Branch’s influence over certain pieces of legislation like the Foreign Intelligence Surveillance Act, Senator Specter noted that “the beauty of our system is the separation of powers, the ability of the Congress to call upon the administration for responses, the response of the attorney general in being willing to come here today, and then the Supreme Court to resolve any conflicts.”[14]
C. Renewed Respect for the Separation of Powers Doctrine
Despite the significant deference given to administrative statements of statutory intent in recent years, courts appear to be moving back towards the traditional separation of power envisioned by the Framers. As a result, in the coming years statements made by Executive Branch administrators are less likely to persuade judges to interpret ambiguous statutes in a manner consistent with the Executive Branch’s intended meaning. Courts will instead look exclusively to Congress to determine the meaning of a statute when its text is unclear.
D. State of Florida v. United States Department of Health & Human Services
Federal Judge Roger Vinson’s 78-page ruling in January 2011, which declared President Obama’s “Patient Protection and Affordable Care Act” unconstitutional, provides a perfect example of the reemergence of the Separation of Powers Doctrine.[15] The opinion, which opens with a quote plucked from James Madison’s Federalist No. 51 extolling the virtues of the Separation of Powers Doctrine,[16] cites a number of instances in which members of the Executive Branch clearly expressed their policy goals for legislative healthcare reform.[17] Although the court acknowledged that these policy goals were noble and clearly conveyed, it nevertheless struck the Act down, stating: “It is Congress that should consider and decide these quintessentially legislative questions.”[18] Because I believe this is only the first of many similar decisions to come that will wrestle power away from the Executive Branch, I have ranked “Statements by Executive Branch Administrators” relatively low on my list of important sources of legislative history.
The following lists the “Top 21 Sources of Legislative History” (1 = most important; 21 = least important):
[1] During the New Deal Era, President Roosevelt created a Committee on Administrative Management to study the organizational structure of the federal government. In its report, the committee referred to the increasingly prominent independent regulatory commissions as “a headless fourth branch of the government” characterized by its “haphazard deposit of irresponsible agencies and uncoordinated powers.” Report of President’s Committee on Administrative Management (Washington, D.C., U.S. GPO 1937).
[2] U.S. Const. Art. I, § 1.
[3] U.S. Const. Art. II, § 1.
[4] U.S. Const. Art. III, § 1.
[5] Cindy G. Buys & William Isasi, An “Authoritative” Statement of Administrative Action: A Useful Political Invention or a Violation of the Separation of Powers Doctrine?, 7 N.Y.U. J. Legis. & Pub. Pol’y 73, 89 (2003).
[6] William N. Eskridge, Jr., The New Textualism, 37 UCLA L. Rev. 632, 633 & n.44 (1990) (citing a long list of Supreme Court opinions that refer to testimony given to Congress by administrators regarding various bills).
[7] This number was generated by performing a “Shepard’s Summary” on LexisNexis for Chevron and then limiting the results to citations by federal courts.
[8] 467 U.S. 837 (1984).
[9] Id. at 840 n.1 (quoting 42 U.S.C. § 7502(b)(6)(a)(6)).
[10] Id. at 840 n.2 (quoting 40 C.F.R. §§ 51.18(j)(1)(I), (ii) (1983)).
[11] Id. at 844.
[12] Id.
[13] Hearings before the Senate Committee on the Judiciary, 109th Cong. 2d session, Wartime Executive Power and the National Security Agency’s Surveillance Authority (Feb. 6, Feb. 26, & Mar. 28, 2006) (S. Hrg. 109–500).
[14] Id.
[15] State of Florida v. U.S. Dep’t of Health & Human Servs., Case No. 3:10-cv-91-RV/EMT (Jan. 31, 2011).
[16] Id. The beginning of the opinion reads:
If men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.
[17] See, e.g., State of Florida v. U.S. Dep’t of Health & Human Servs., at 68 (“In speech after speech President Obama emphasized the legislative goal was ‘health insurance reform’ and stressed how important it was that Congress fundamentally reform how health insurance companies do business, and ‘protect every American from the worst practices of the insurance industry.’” (citing Remarks of President Obama, The State of the Union (Jan. 27, 2009))).
[18] Id. at 74.
Posted at 01:04 PM in Administrative Agency, Administrative Law, Chevron, U.S.A., Inc. v. National Resources Defense Council, Inc., Congress, Federalist No. 51 , James Madison, Law, Legislation, Legislative History, Patient Protection and Affordable Care Act, SCOTUS, Separation of Powers Doctrine, State of Florida v. United States Department of Health & Human Services , Statements by Executive Branch Administrators, Statutory Interpretation, Top 21 Sources of Legislative History | Permalink | Comments (0)
