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Joseph W. Yockey, Choosing Governance in the FCPA Reform Debate, 38 J. Corp. L. 325 (2013), available at SSRN.

Health law scholars sometimes pay inadequate attention to those who don’t write specifically in our area, which is the reason I have dedicated this and my previous jot to articles by non-health law professors that give us the big picture on issues related to the False Claims Act and the Foreign Corrupt Practices Act (FCPA), both of which are key enforcement mechanisms in the health sector. Bribery is unquestionably one of the most significant risks global life science companies face, given the SEC and DOJ’s recent increase in FCPA enforcement. Growing numbers of academic medical centers are engaging in joint ventures throughout the world, particularly in emerging economies where the risks of corruption are greatest. For these reasons, then, the FCPA is increasingly relevant to the health lawyer and compliance professional.

Professor Joseph W. Yockey’s recently published article, Choosing Governance in the FCPA Reform Debate, is a worthwhile read for three reasons. First, it summarizes the history and salient parts of the FCPA for those requiring a primer on the law. Second, it examines the two sides of the debate—between the business community (led by the Chamber of Commerce, which is also fighting vigorously for changes to the False Claims Act) and entities such as Human Rights Watch and Amnesty International —over whether Congress should revise the FCPA and whether DOJ and the SEC are over-enforcing the law. Third, the issues evoked by the concerns about FCPA enforcement are quite similar to the debate surrounding enforcement under the False Claims Act thereby giving the health professor, like myself, who is not a white collar specialist, a ten-thousand-foot view across the statutory spectrum of enforcement agency behavior.

Congress enacted the FCPA in 1977 to criminalize bribery of foreign officials by publicly traded entities, domestic concerns, and those operating in the United States, with the corrupt purpose of obtaining or retaining business. The law is key to those in the healthcare sector who do business abroad because hospitals are government instrumentalities in most foreign countries, with doctors assumed to be foreign officials for FCPA purposes. Formulary and pricing decisions are generally made by health ministries or hospital districts, thereby making the FCPA relevant to the entire procurement process.

Critics argue that DOJ is getting away with aggressive and unchallenged interpretation of the law—including its broad view of jurisdiction, who counts as a foreign official or government instrumentality, what it means to behave “corruptly,” and other undefined terms. The lack of interpretive guidance is exacerbated, critics assert, because so few cases are tried—most settle to reduce fines (by cooperating) and avoid debarment (by haggling over the ultimate disposition to avoid whatever the statutory trigger for debarment is). Such settlements leave unchallenged the government’s statutory interpretation.

As articulated by Yockey, the “crux of the reform argument [is] that the leverage that prosecutors hold through corporations’ fear of indictment means that there is nothing to stop prosecutors from applying the FCPA’s expansive scope beyond what is necessary for deterrence.” Yockey questions this assertion. He believes that traditional economic analysis of the relationship between harm and penalties is questionable because of the difficulty in quantifying the business that would be obtained as a result of the bribery, as well as the uncertainty over whether the consequences of indictment and trial would be as serious as the business community suggests. Would a patient decline to get a brand-name prescription filled upon learning that the manufacturer bribed the head of the patent office in China? Also difficult to quantify, argues Yockey, are the costs of structural reforms (changes to the company’s compliance program) required by the Deferred Prosecution Agreement. Yockey also points out the difficulty in detecting bribery, and he stresses that, while Western European countries are cooperating with DOJ in prosecuting corruption, many other countries, where corruption is arguably worse, have as yet shown little interest in such collaboration or enforcement more generally.

More to the point, Yockey detects some developments in the private sector as corruption is more widely discussed and analyzed, which suggests to me that maybe enforcement, albeit spotty, is changing norms:

Whether framed in terms of corporate social responsibility or not, these firms have come to realize that there is a business case to be made for avoiding bribery that goes beyond the risk of regulatory sanction. Bribery raises their marginal tax rate, increases the chance of continuous solicitation, raises the cost of capital due to the time lost during haggling, makes it harder to recruit and keep talent, and, for some companies, can have adverse branding and reputational effects. Contracts obtained through bribery may also be legally unenforceable, and can undermine employee trust and confidence in management. (P. 356.)

In the end, Yockey suggests a climate that is not unlike that of healthcare enforcement more generally: “Some firms likely remain undeterred by the present FCPA enforcement climate, whereas the risk and expense associated with even modest FCPA scrutiny can cause socially responsible firms to seek check-list solutions to compliance challenges that they (and regulators) often do not fully understand. This dynamic does not help firms that seek to remain law-abiding, nor does it help regulators operating with limited capacities find ways to reduce overall levels of bribery.”

Yockey suggests a solution to this state of affairs in new governance, whereby firms would work in a consultative manner with regulators to create compliance programs that are context-specific and therefore more likely to be effective in combating corruption. This conversation seems quite timely, as life science companies are discussing whether it is more effective in resisting corruption to adopt a single template compliance program or tailor made programs specific to each region. Some support for the context-specific approach can be found in the October 2013 European Union Study on Corruption in the Healthcare Sector, which suggests that, because the triggers for corruption vary by economy, a one-size-fits-all solution does not best address corruption, the form of which also varies by member state.

Yockey concludes that the ambiguity of the FCPA makes it well-suited to the task of eliminating corruption. The appeal of new governance is that it shows how a statute like the FCPA, which is more principle than rule-based, can make regulation more effective and less burdensome. Working collaboratively, industry and agencies can focus on the problems that require resolution simultaneous with norm building, thereby giving the law content. Yockey hopes that this process will achieve industry buy-in while fashioning on-the-ground solutions that actually work. Finally, responding to one of the biggest challenges to corporate compliance, he hopes that this approach “discourages efforts at cosmetic compliance or ‘the gaming of detailed rules’ and emphasizes the importance of internalization as the way to long-term compliance.”

Yockey’s exposition on how new governance would work in implementation displays a thoughtfulness and practicality that makes the article a strong prescription as well as an excellent read. Any health law professor looking for an introduction to the international fight against bribery will spend her time well reading Yockey’s article.

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Cite as: Kathleen Boozang, New Governance as the New Weapon in the Fight Against Fraud, JOTWELL (September 8, 2014) (reviewing Joseph W. Yockey, Choosing Governance in the FCPA Reform Debate, 38 J. Corp. L. 325 (2013), available at SSRN),