FCPA Flash Podcast - A Conversation with Claudius Sokenu

Opportunity to talk about the FCPA, which I always welcome. I followed your website for many, many years and I quickly your insights on FCPA matters generally and government and internal investigations more generally. Sir, thank you for that. I think to your question, what I often find surprising from the perspective of people who have never been in the government is how complicated they try to make some of these matters, or how complicated the answers are. And my general sense, having spent the better part of four years working closely with the Department of Justice on various FCPA matters, is that the government tends to look at these issues far more in a cleveland but my private practice counsel in-house lawyers tend to look at them. I'm part of the reason for that is the government lawyers, at least most of the ones that I worked with and most of the ones that have dealt with in private practice, often don't have the business knowledge that business people have when they're dealing with these matters or making these judgment calls. They often don't have the international exposure that one would call upon as one thinks about making these decisions. So that basic premise always sort of starts: okay, you made a payment, the payment is problematic, do you guilty or you validate the FCPA some way shape or form? And that level of simplicity I think sometimes both in-house counsel and private practice lawyers who have not spent time in the government tends not to particularly appreciate. So if I was to summarize that, it is in failing to appreciate the level of sophistication that some of these government lawyers have.

If I'm trying to explain and educate the government officials on how these data privacy rules work in different countries and hopefully today things that better.

And what do I mean by that? I think when you're an in-house lawyer, you have a better appreciation for the business and the business pressures. You have a better appreciation for how people make decisions that the government three, four, five years down the road with the benefit of hindsight may come back and during 20/20 hindsight review of you. You have a better appreciation for the speed of decision making and how often people make decisions without a full plate of information. And so when you put all of that together, people make the wrong decisions, which happens sometimes. When the government comes along and looks at that, you know, yes, down the road, I don't often think that both government lawyers and frankly some outside counsel I've served had the ability or the experience to understand how those decisions get made and what pressures go into making those decisions. And so as defense counsel, I've represented companies that were presented individuals, and when I take an individual to the government and we're trying to explain to them how these decisions were made, they often get glossed over. They often say, 'Well, why didn't you do this and why didn't you do that?' in a massive Fortune 100 company with hundreds and thousands of people running around making decisions on a daily basis, and you don't always have the time and the information to make decisions in real time. And I think that sometimes the government and outside counsel missed that point.

I think some cases fall into that bucket. While I was not involved in banking, the name of the case at the moment, but while there was not importantly oxes case rate where the government also brought enforcement action against busy believers, the CEO and another senior executive of that company for failing to do what the government describes as adequate due diligence, and some people might argue a sort of 'bury your head in the sun' kind of analysis. I think sometimes what government fails to appreciate is how these decisions get made in-house. And having been in-house for the last six months, I have a much, much better understanding and a much, much better appreciation of how decisions get there. And if you put it in the legal context, right, I would argue that often people lack the requisite intent to go pay a bribe or to go engage in unlawful conduct, whether that be FCPA or some other federal law.

Defending a company before the government. I think a lot of times in-house lawyers and their business partners, more importantly, fail to have an appreciation for how the government thinks about these matters. And so you are left with trying to educate not just the in-house lawyers but the in-house business people, and sometimes that takes time in a situation where you don't have a lot of time. So the way this sort of plays out sometimes is the difference between a company that gets a monitor and a company that does not get a monitor, because some companies get the problem and act quickly enough to deal with the problem. Other companies that I have represented I flew to get the problem, I flew to make the necessary changes. And so that slowness or that lack of speed in doing the things that you need from them to go defend the company then puts you in an awkward position with the government, and it puts your client the company in an awkward position regarding getting a good deal out of the government. And I have found that it will be much, much more beneficial to companies and in-house counsels to learn about these issues before they come up. And I'm sure you've written about these issues as well. If you're trying to make the decisions after the problem is surfaced, you're almost always playing catch-up, and that can put the company in a very difficult position. So that would be one thing that I think people should pay attention to. I think planning and thinking ahead about various issues will almost always be helpful. I think that's a place where improvement is required.

I think the in-house job is the most difficult, and the reason for that is you're making decisions. If you are unfortunate enough that your business people are coming to you and asking you tough questions about what transactions you should or should not engage in, you're on the front line making decisions. Every other chair that I have sat in, I've been reactive. You are trying as a lawyer to change people's behaviors internally, you're trying to keep up to speed with the business folks, you're trying to educate them on what is the right thing to do and not the right thing to do, you're trying to create an offering relationship that they can come speak to you honestly and truthfully and get your informed decision or opinion on things. You are lucky if they come to you at all. You're even more lucky if they come to you with enough time to think through these various transactions. But I think as I said earlier, most of my day I come in at 8 o'clock in the morning and between 8:00 and 5:00 I'm almost always in one meeting or another, and each time I walk into a meeting people are looking at me to help make decisions that, frankly, with the benefit of hindsight the government could come along and say that's the wrong decision. And you don't want to be a Department of No, because then people stop coming to you. So on a real-time basis, you're making decisions that you're hoping are the right decisions, you're guiding people through decisions both at home and overseas, where any one of those decisions could be the source of a problem, whether it be FCPA, money laundering, other trade issues, whatever the issues are that you are almost always dealing with on a daily basis. That, to me, is the most difficult chair.

Yes, yes. Right. I think that if I go back to when I joined the SEC in 1997, we did a lot of investigations on our own. As you know, I did the first ever joint SEC-DOJ Baker Hughes investigation where there was a joint settlement. And in that instance and in instances similar to where we did the investigation, we traveled across countries. Indeed, the investigation today, I find that less and less government lawyers are doing this. So it's almost a repository, right? The outside law firm runs around, does the investigation, and comes back and hands you a resolution, and you write a complaint and that's the end of that. And I think that has several consequences. One, it affects the development of the law in a not particularly positive way in my mind. Two, it affects the quality of the lawyers that are coming out of these various government agencies. And yeah, I remember seeing a study somewhere recently that showed where SEC lawyers went and where DOJ lawyers went, and you know what they've done with their career since they left the FCPA unit at the Justice Department or the FCPA unit here at the SEC. I think the quality of the lawyers has suffered as a result. I think the development of the law has suffered as a result. I think frankly the way that companies approach these matters has suffered as a result, because when something goes wrong, the government doesn't appear to take the time and doesn't appear to have the right judgment about which matters should be prosecuted and which matters should be left alone, and frankly how to resolve these matters. So in my mind, I think the failure of the government or the SEC and DOJ to do their own investigations, even though you go to any of these programs they will profess that they do their own investigations and maybe they do on occasion, but as you stated, the overwhelming majority are self-reported matters, and that dulls the skill set of most of these girls and boys.

Companies are particularly concerned if they had to walk into court to defend themselves. The constant collateral consequences of that associated with a trial, I don't think most companies, and rightly so, will choose to roll the dice. I think the only solution or the saving grace, if you will, around those types of issues is the prosecution of individuals. Individuals tend to want to fight and lead to at least George lead rules rather than some junior government lawyers somewhere in DC sort of saying this is the way that law should be interpreted.

I think they are all interdependent, right? But I would argue that the in-house lawyer, being at the forefront of those decisions, is probably the best place to have long-term effect. However, that in-house lawyer's ability to do that has to rely to some extent on how the government prosecutes those matters. So I think without one, the other doesn't survive too well, because I think companies and their employees in the end are forced to the table to think through these issues because of the potential for government action, and sometimes severe government action. So in that context, I think the two of the three are somewhat interdependent. And if you turn solely towards the government, you know, if the only threat you face is one of civil monetary penalties, then some people might make a cost-benefit analysis: we get caught, we'll pay a fine, and life goes on. If the threat is you can go to jail, even though you can query how many people have gone to jail in the 40-year history of the FCPA, I still think that having that sort of criminal threat hanging over both the corporation and its individual employees does the in-house lawyer well when it comes to making hard decisions.

I think the single most important is clarity of decisions and why those decisions have been made. I think that the government has done a good job over the last maybe three, five, seven or so years. I think historically they've done a poor job of raising awareness and educating people, both in-house and in private practice, as to how they make these decisions, what their expectations are, and whether or not they are open to an honest dialogue about whether those expectations are the right expectations. So I'll give you just a very simple example: facilitation payments. The statute recognizes facilitation payments. There have been many, many times that I've been in the DA's offices or the SDNY's offices, and my client has asked, 'I've been asked to make a payment. Can we make this payment without running afoul of the law using the opinion process?' And the government has not been very helpful in how we answer those questions. And so, as we do like at the moment, a body of court-made decisions, if we rely on the government to answer some of these questions, is about as far as you can go. But the inability of the government to give you straight answers sometimes can be particularly frustrating in an M&A transaction where you're trying to close it, you're very quickly going to the government and asking for an opinion on some complicated parts of the transaction, sometimes leaves you scratching your head because if they don't know the answer. So there are places where the transparency of decision making and the quality and substance of the decisions will help outside counsel have a better sense of what the government's expectations are. You know, for me, one of the best government cases that I often refer my clients to read when I was in private practice is the Morgan Stanley declination, which is listed in pass. We can argue about whether or not the Morgan Stanley would have litigated it for the walk, we put that aside, but at least the government took some great pains to lay out the reasons for the declination. And if you took that as a road map, at least it gives you the beginning of what would qualify as an effective compliance program and what the benefits of doing that would otherwise be if you find yourself in a jam.