The Fine Line Between 'Cutting Red Tape' and Throwing Out the Play Book
To most readers, the Wall Street Journal's recent article about Robert Kraft's efforts quickly to obtain N95 masks from China for Massachusetts hospitals was a story of a seemingly heroic act. While we too were able to appreciate that aspect of the story, what really stood out to us were all of the FCPA red flags.
April 17, 2020 at 01:20 PM
4 minute read
To most readers, the Wall Street Journal's recent article about Robert Kraft's efforts quickly to obtain N95 masks from China for Massachusetts hospitals was a story of a seemingly heroic act. While we too were able to appreciate that aspect of the story, what really stood out to us were all of the FCPA red flags. We instantly started thinking of what a wonderful case study the story would make and whether readers of that case study would think that the humanitarian nature of the mission should render any FCPA obstacles moot.
The case study would nearly mirror the reported transaction—the wealthy and powerful chairman of a major sports franchise purchased 1.2 million N95 masks, a rare and critical commodity during the time of a major health crisis, using his professional sports team plane to ferry the goods from China to the United States. Sprinkled throughout the case study would be the following red flags:
- Purchase from China
- Under desperate circumstances ("I just had to get them there," the chairman reportedly told a friend)
- Use of intermediaries, who purportedly sourced the rare goods, possibly among other functions
- Purchase required calling in favors and involved significant red tape and obstacles to overcome
- Purchase required navigation of a dense global bureaucracy virtually paralyzed by the pandemic
- Special exemption granted to the plane by government authorities in China for an otherwise unauthorized trip
- Special visas secured by plane crew, including special opening of embassy facilities to produce the visas
- Special inspection processes in China were needed for the goods, which had to be done on an extremely expedited basis
- Payment in U.S. dollars
Responses to the question of whether the red flags should be ignored would likely be fascinating, as humanitarian crises create the sort of moral dilemmas that challenge us all. How do you deal with a request from a foreign military general with authority to award tens of millions in contracts for assistance with life-saving surgery for his wife? How about the free or discounted construction of needed water treatment or medical facilities at the request of a government official during an election cycle?
It is said that hard cases make bad law. While we do not suggest that competent legal counsel and ethical business executives did not successfully navigate the minefield presented above, we note the potential that the COVID-19 crisis raises for bad law to be made within companies, as employees may be tempted to inject a "humanitarian exemption" in their anti-corruption compliance efforts. While it is hard not to celebrate the life-saving acts of people who come through for others in need, one can only hope those acts can withstand the test of time if they are reexamined when the crisis fades to memory.
Kevin Abikoff is co-chair of the Hughes Hubbard & Reed's anti-corruption and internal investigations, securities litigation and class actions practice groups. He regularly advises clients across myriad industries and geographies on the full range of anti-corruption issues. He was appointed as the independent compliance monitor for Innospec by the SFO, DOJ, and SEC (and with approval from OFAC). Currently, he serves as the independent compliance monitor for a Chinese state-owned construction enterprise in connection with a debarment and sanctions by the World Bank. In addition to his anti-corruption practice, Abikoff is deputy chair of the firm and a member of its executive committee.
Laura Perkins is co-chair of the firm's anti-corruption and internal investigations practice group. Prior to joining the firm, she spent nearly 10 years at the DOJ, most recently serving as assistant chief of the FCPA Unit of the Criminal Division's fraud section. At the DOJ, Perkins supervised and prosecuted some of the largest FCPA cases in U.S. history and was involved in the development of the FCPA pilot program and the drafting of the FCPA resource guide.
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