tv Public Affairs Events CSPAN November 10, 2016 10:00am-12:01pm EST
attorney general for the justice department's criminal division on investigating international corruption and fraud cases under the foreign corrupt practices act. that's a federal law prohibiting americans from bribing foreign officials. from the george washington university law school, this is 90 minutes. >> good afternoon. i'm roger fairfax and the associate dean for academic affairs at gw law and on behalf of the president, i welcome you to the george washington university law school. i will hand over the podium momentarily to my colleague who will formally introduce our two distinguished panelists. but first let me say how thrilled we are to host this discussion of the foreign corrupt practices act. one of the most significant issues con fronting us to day. among our full time and part time faculty are many who like myself served as federal prosecutors or defended
individuals and entities charged with criminal conduct including under the fcpa. and we have a rich curriculum in the areas of criminal law and procedure here at gw law. and we produce many graduates who go on to have distinguished careers in government and private practice. and one such star graduate is assistant attorney general for the criminal division leslie caldwell. we're so proud of her and excited to welcome her back to her alma mater this afternoon. although our other distinguish guest is not a gw law graduate, she, too, has a strong connection to the university. i learned just this week that her father once coached football at george washington university. yes, gw once had a football team. and by all accounts, he was a phenomenal coach and, in fact, after coaching at gw went on to coach in the nfl. so in a way you're part of the gw family. welcome back, karen. so with that, i'll hand over the
program to my wonderful colleague and our associate dean for international comparative law to formally introduce our guest and to moderate the discussion. thank you again. >> thank you so much, dean fairfax for that kind introduction. as you just learned, roger fairfax was a former department of justice lawyer. we're fortunate to have him along with other prosecutors and defense lawyers on our faculty. the experience they have had in practice brings immense benefits to the students here' george washington university law school. i would like to welcome you to this conversation about the foreign corrupt practices act. leslie caldwell woshz with the department of justice and a chair of the white collar group
with sidly & austin. the event is possible due to the hard work of a number of people. i would like to thank them at the outset. mile an hour colleagues here at the george washington university law school, dean roger fairfax, selena davis and andrew lawrence. and to mrs. caldwell's colleagues at the department of justice. so thank you so much for all of your help in making this possible. in 1977, the united states enacted the foreign corrupt practices act designed to eliminate or minimize corruption of foreign officials by certain persons and entities. the statute has been aamended on certain occasions to expand its reach. the bribery section of the foreign corrupt practices act is enforced by the united states department of justice. the foreign corrupt practices act raises a whole host of issues such as the extra territorial reach of u.s. law, the relationship between practices and foreign countries
and standards in the united states, the appropriate penalty to be given for violations of the act and the consideration that should be given to companies and individuals that have adopted policies and practices to prevent violations of the foreign corrupt practices act. today we're going to have a conversation about these and many other topics. we're honored to have with us our graduate leslie caldwell who on may 15th 2014 was confirmed as the assistant attorney general for the criminal division of the united states department of justice. and that capacity, she works with more than 600 lawyers who prosecute federal criminal cases around the country. she's responsible to help develop criminal law and formulate criminal enforcement policies. she worked closely with the 93 u.s. attorneys that are involved in investigations and prosecutions of criminal matters in the districts around the united states.
her entire career is largely dedicated to handling federal criminal cases. both as a prosecutor and as defense counsel. she's known for her work on the enron task force. she was director of from the year 2002-2004. she worked at the u.s. attorney's office for the northern district of california and had served as the chief of the criminal divisions, chief of the security's fraud section of the northern district. she had also worked for 11 years in the united states attorney's office for the eastern district of new york and including serving as senior trial counsel for the business and securities fraud section and chief of the violent criminal enterprises section. for her distinguished work on the enron task force, she received the attorney general's award for exceptional service. she's also the recipient of the attorney general's john marshal award for trial litigation and
the attorney general's award for fraud prevention. she also had before joining the criminal division a position as a partner at morgan lewis and bachius and she was co-chair of the corporate investigations and white collar practice group. it's great to welcome you back to your alma mater. you know, you're here in school again. and we're delighted that you're here. she is also graduate of another football power house, pennsylvania state university. she will first provide opening remarks and then karen pop from the law firm of sidly austin will give a response as well. let me just also introduce karen at this time, too. she's on the firm's executive committee and she leads the firm's white collar government litigation investigations group. that group is recognized as one
of the top high profile white collar groups in the united states with substantial experience and legal political and public relations aspects of criminal defense, internal investigations, sec matters and the list goes on. karen's practices is informed by a wealth of government and private sector experience including serving as a federal prosecutor in new york, the lawyer in the office of legal council at the u.s. department of justice and associate white house counsel to president clinton. she's a graduate of the university of north carolina where she earned her bachelor as well as her j degrees. so miss caldwell, we look forward to your opening remarks and after that, we'll provide some comments. i have some questions and after we've had a discussion with the three of us, we'll open the floor to questions and comments. so please let's welcome leslie caldwell back to her alma mater.
>> thank you. i can say that when i was here none of this was here. it was very different physical plant back then. great to be back at gw. i had a lot of good memories here and it was for me a great legal education and i've always valued it. so hopefully you're all -- those of you who are students are having a great experience. so as the dean said 2 1/2 years ago he was privileged to be named about it president and confirmed by the senate to become the assistant attorney general for the criminal division. many people don't know what the criminal division does. most people know about the u.s. attorney's offices which there are 93 of them and they do mostly focus on crime in their geographic areas. several of them go beyond their geographic areas. one of which is the southern district of new york. i can't resist saying that.
but in the criminal division we're not really limited by geography. so we focus not really on geography but on subject matter. so we have 17 sections and they do all sorts of things. they range from very sophisticated, really scary child exploitation organization that's interact on the internet and asset forfeiture and money laundering to the fraud section which does major international fraud cases. they're the ones look ting at t vw investigation. a lot of the things that you read that cross international borders are being done by the criminal division in the fraud section. and because we don't have geographic limits other than obviously the limits of federal criminal jurisdiction, we really have an international and national scope from which we look at everything and the different vantage point than the u.s. attorneys. i think that enabled us to really focus on emerging areas
in white collar crime. so i'd like to talk about a couple things. there were many others but a couple things i thought were important when i started as assistant attorney general and share with you why those were important and what we've done to try to address them. one is i really wanted us to sharpen our focus on international corruption and international cases. i felt that we were a little too rand om in what we were focusing on and that we spent a little bit too much time focusing on particular cases before we decided whether there was something really there or not. i want to really sharpen that. i wanted us to work on bigger cases and more impact cases and more important cases. the second major thing that i really wanted to do -- this was really born of my spoerns exper a defense lawyer is i wanted there to be more transparency in our charging decisions. when we decide to charge a
corporation or a company, what factors do we consider? there are factors that are in guidelines that are in justice department publications. but if you were an outside counsel as i was, you would see what appeared to be inconsistent sen sometimes even arbitrary outcomes in what seemed to be similar fact situations. one goal i have is try to increase transparency. i want to talk binlt national corruption. for a long time that's been apriority of the department. that continues to be a priority. in fact, we added more resources during my tenure. it's really important. you can't measure the damage caused by international corruption just by looking at numbers. the numbers are staggering. more than $1 trillion is paid out in bribes every year. by corporations trying to get businesses in various parts of the world. that is 3% of the entire world economy. so that is a very significant number.
we see the corrosive effects of corruption. the anti-competitive effects of corruption by companies trying to play about it rules and who can't compete against those who are willing to pay bribes. and some of our u.s. companies pay bribes as well. corruption is very destabilizing. destabilizing for governments. it's destabilizing for citizens. it undermines confidence in government and undermines confidence in the markets. it destroys the sense of fair play that undermines the rule of law. it really -- it's especially true in emerging economies where sometimes people are getting rich and there's no infrastructure and people are living on less thanned 1 than $. and the fruits of corruption, you see it in the news and we see it in our cases can really help prop up autocratic means.
we've seen extreme examples where corrupt regimes created safe havens for criminals and terrorists. they engage in the terrorist acts. these are the reasons why it's been a priority and continues to be a priority. december 2014 they paid $727 million in criminal penalties to bribe officials in ten different countries. that was the highest criminal fine ever paid. one reason he paid that fine is because they refused to cooperate with law enforcement in any country they were under investigation in several
countries. the bribe was significant and directed at fairly high levels in the company. another settlement we had earlier this year is with a company that was a dutch telecom company which was paying bribes to individuals in uzbekistan that controlled access to the telecom market in uzbekistan. and they paid a large amount of bribes along with several other companies. they paid more than $114 million to get access to the uzbekistan telecom market. they resolved their investigation within $800 million resolution that included resolution with us, the department of justice with the sec and with authorities in the netherlands. and that's one thing we're seeing increasingly is we're working increasingly with other countries, sharing in investigations, sharing leads, sharing evidence, sharing witnesses, giving each other tips. some of the cases have come from tips to our law enforcement and
from overseas law enforcement and get information to folks overseas. a good example of that is just last week we announced the resolution of an investigation into bribery by the brazilian aircraft manufacturer embrair which those of you take the shuttle between new york and boston and d.c., those are embrair jets that you're on. that was the case we worked on with brazil. and we worked jointly with saw i arabia. and brazil and saudi arabia prosecuted more than a dozen individuals for their environment in that bribery scandal. we also have something that i'm very excited about in the criminal division that is relatively new. just call our asset recovery initiative. it is housed within the asset forfeiture. i should have said before that the scpa is housed in the fraud section which is our largest section. we have 140 lawyers in the fraud section. that's a big change.
when i was in the criminal division before back in '04, there were 50. so that is really a dramatic change in the face of the criminal division. the goal is to trace and forfeit proceeds of foreign corruption. when possible to figure out a way to get that money, the money that we can actually get our hands on back to help the country, the people of the country where that money was stolen. so, for example, we did a couple years -- a year or so ago a resolution that involved former soviet republic and we were able to get our hands on a large amount of money and work with the ngo to fund and oversee some youth activity programs in that country. that may sound like a small thing. rather than the u.s. keeping the money that we seized from -- that was stole african that country sh we got the money back to that country for useful programs and we have an audit mechanism to make sure the money is going for the good program
that we think we're funding as opposed to going back into the pockets of the people who stole it in the first place. the initiative as i said is fairly new. the work very painstaking. in order to forfeit money and seize it, we have to be able to identify and be able to prove the original crimes, so the orginal corruption and theft and bribery, whatever the underlying crime is and then trace the money from that crime to an account that we can get our hands on. that is really hard to do. because these folks are very sophisticated. they put their money in. it's not in their name. and in an account at city bank. it's in off shore account a to off shore kaccount c and et cetera. it's very difficult to trace and prove that money is the proceeds of the underlying crime. lawyers, panama paper case that you read about, lawyers and very sophisticated accountants, there is a whole network of people out there whose job it is to help other people hide and move their money. so it is really difficult to
penetrate that. witnesses are very difficult to find. oftentimes the thieves are still in power. you're not going to get somebody from that country no knows what happened to come you to if they have to go back to their country and give you actual evidence. but we've already seized a lot. we seized more than $3 billion in assets in the last couple years under this initiative. most of the assets are in the united states. one reason for the initiative is we don't want the united states to be a safe haven for the stolen money. we don't want the dictator of name that country to be able to own the pent house at the time warner center on columbus circle in new york or to be able to own a huge mansion in washington with stolen money. we don't want to be a haven. so some of the assets we've seized have been mansions all over in malibu and apartments in new york, we seized a hotel in beverly hills, we seized impressionist art. we had a case this past summer that involved the malaysian
sovereign wealth funneled, more than $3 billion was siphoned off a wealth fund and used for various things including buying impression in any event paintings. buying mansions, hotels and also funneleding the movie and sort of ironic it was this movie funded, "the wolf of wall street." we now own the rights to "the wolf of wall street." so everyone go home and download it and you'll be adding to your government's covers. or if you i don't, don't download it. the other thing i want to talk about is transparency. when i was at my firm i was frustrated because as i said earlier, i felt that when you represent a client and the client has a problem and the client is going to have to deal with the department of justice, the client wants to know what's going to happen? and you just really weren't in the position to tell the client with any degree of certainty if you go in and self report this something -- here's what will
happen. it's very difficult to give a clear road map. everything is so fact specific. wanlted to try to do as best we could to make our decisions and our action mores understandable. it is really helps companies understand what might happen, helps the public see what we're doing and why we're doing it. and i think it deterred future wrong doers. because being transparent about what will happen to a company if it does x is a good way to deter the company from doing x. they will see the consequences of what they do. so one thing we have done two things to try to make the corporate charging decision mores transparent. one is in all of our charging documents, except for indictments which there are not that many actual indictments, they're resol wfd a guilty plea, deferred prosecution agreement
or nonprosecution agreement. i won't get into those details here. but we used to not say in those documents why. why is this company getting a deferred prosecution agreement and that company is getting a guilty plea and that company is getting an npa. now we say why. if the company cooperated, we say if a company did things, gave us things we couldn't have found on our own, gave us access to documents, gave us evidence, did whatever, it's all very fact specific. you go on our website you'll see resolutions and you'll see the kind of language that the describes what the company did. so in some cases maybe the company self reported cooperated remediated and did much better than the company that didn't cooperate until they switched counsel which happens a lot and then they cooperated. but they still don't get the full credit of the same credit as the other company. we tried to do that. the second way in which we tried to increase transparency is recently six months ago started
a pilot program in our spca cases only. that provides guidance to the prosecutors doing the cases about corporate resolutions and it provides some bench marks about if the company does x it will be eligible for certain things. so the company voluntarilily self reports and he could operates and remediates and tells what profits they made in the contract through bribery, even with when there is a bribe that we can prove, we may decline prosecution of that case. and that is intended to be a carrot for those companies. we think it's important that they still have to disgorge the profits. but in any event, the pilot program is something that it's new. it's only six months old. we have seen that it's been having an effect. we've seen an uptick in self reporting. it's too soon whether that is tributable to that program.
but i think it's working. i think that it's giving and i'd be cure dwrous hear karen's thoughts, i think it's giving counsel something they can tell their clients when their clients say what is going to happen to me if i go in and deal with the government? voluntarily disclosure used to be an element of cooperation. we have nine factors that we consider in decide wlg to charge a corporation. they are called the philip factors. they're in our website and our u.s. attorney's manual. we added one and separated self disclosure from cooperation. now self disclosure is the own factor. in addition to all the other cooperation, self disclosure is something that we also consider. and that was intended to urge companies to self report and to separately and additionally reward them if they did that. so i'm skipping over some of these notes in the interest of time. i really want -- i think that
those are really the main things that we've done in the last couple of years that i think have at least been aimed at and proving our corporate prosecutions and our spca projects. the idea is get the company to self report by giving it some incentives so that when it comes in and self reports it will give us the information that it has because it's already commissioned an outside investigation by an outside law firm. the give us the information that it already has that will enable us to prosecute individuals. we recognize that prosecution of individuals is the biggest deterrent. i think most people agree that is the biggest deterrent to corporate wrongdoing and criminal wrongdoing. actually -- not just criminal and corporate wrongdoing but all wrongdoing. that is one of the main goals of the pilot program. so hopefully too soon to tell whether it is working. but we think it's heading in the
right direction. i hope my hourglass is moving faster by the minute. we have to hear every morning from one of our people. we have 77 days left. it's a real honor to be assistant attorney general and proud to represent gw in that space and hope one day one of you is sitting in that same chair. thanks. >> thank you for setting out clearly the focus of the department on international corruption and the specific angles that the department is taking. i thought in particular the asset initiative is very, very keen and the benefits it can give beyond the enforcement of law here in the united states. and secondly, to give us
guidance on transparency and insight into the pilot program which we'll talk about in a few minutes. miss pop, would you tlik slike a few words in response to her observations? i think she did tee up one issue directly for you. so please feel free. >> which i know we're going to be talking about a lot today and that is the pilot program. let me just say that i -- a lot of what leslie said, i commend the department of justice for all the efforts being made to be more transparent. i think that is extremely important to corporations and individuals and anyone that comes under investigation by the department is to have more tr s transparency into what is going on, the thought process by prosecutors and it's extremely helpful for those out there who are attempting to have effective
compliance programs and other decision making that goes on in corporate america. i also thank the think the pilot program is a good idea and that is based on large part from the prior comments from the department is to -- is to hold that carrot out and to have transparency on the backside as to how those results were achieved. there are some concerns that we still have in the private sector in the defense bar and also amongst individuals. i think one of the concerns is the long arm reach of the u.s. government out in -- throughout the world. and because this practice and
we're focused here today on the fcpa because the practice when you're representing corporations really is what i like to refer to is a practice room conference. you don't go to court. you don't have and jurisdiction is often one of those topics that the government has a different view of its reach than the defense. and so it's an area that dependent on what prosecutors across the table, you may have a very aggressive view on what the evidence is as to rather jurisdiction exists. and i also, you know, it's difficult and leslie eluded to this, companies and we're a global economy today.
msh many, many, companies in this country are global. they're hence doing business here. and it is -- it can be very unlevel playing field throughout the world for corporations that are attempting to do business. and i encourage the -- our government to continue its efforts that i know has been going on for some time now to encourage other governments to enforce their own laws. so that companies in those countries have to abide by the same rules that u.s. companies have to abide by. so there is a level playing field. and then, you know sh my -- it's also music to my ears to hear that department of justice is emphasizing big cases. having big impact. you couple that with the pilot program. this is something that i'm going to put to leslie right now and she doesn't have to answer it right away. but it is a question that i know
being asked and that is there a threshold that a company should be considering and rather to disclose? at what point should a company if it has an issue, what point should it be bringing it to attention of the department of justice. >> narrator: pilot program? because -- it is something that is often faced out there by companies that are doing business globally. and i expect that the department of justice doesn't want every little thing brought to them. >> narrator: p-- under the pilo program. i think it's a good thing for us to talk about today. >> all right, thank you so much, karen. leslie, i think we have a question on the table already. and i suggest we focus on the
pilot program first and the challenge that was just raised by karen and i have a couple questions as well on that subject. go ahead, please. >> so there is no threshold. we wouldn't tell a company if there is a bribe over $40,000 you should self report. we don't usually prosecute. we recognize that any big company can't control all of its employees all the time. you'll be paying some inappropriate payments. we recognize. that we recognize that companies have rogue employees who don't follow company policy. even when there is a strong company policy, it may still be the case that somebody in the company does something that is off the reservation. that happens all the time. i did work in this area when i was in pristd practice and it's impossible for a big global company to make sure all of its employees are following the law at all times. so there isn't any threshold.
i think if i were a company and i were thinking about whether i wanted to self report, i think about a couple things. i think about was anyone, let's say it's a u.s. company sh was anyone in the u.s. involved in this? if somebody in the u.s. was involved in this, if somebody high in the company was involved in this, if somebody even high in a foreign jurisdiction was involved in this, the higher you go the more likely it is that somebody else is going to tell us about whatever happened. so if you have a serious problem and we get reports from whistle blowers, competitors that didn't get the bid because they didn't pay bribe and the chances of us finding out -- and we added into our resources in terms of fbi resources and prosecutor resources, we're working with
prosecutors and police agencies all over the world. i mentioned the case of the case with brazil and saudi arabia. we gave evidence to the indonesian authorities who prosecuted the corrupt indonesian public officials. so we are all talking to each other and we're sharing information. so if you got something that is a significant issue, you should seriously think about telling us about it and trying to get credit. >> narrator: p-- under the pilo program. we don't want to hear about the bribe paid to argentina to get your package to leapfrog the other packages. we don't want to hear about the gift to the chinese government official that he was given a big box of cigars on chinese new year. we don't need to hear about those things. we don't want to hear about those things. we also don't want to hear about thing whuz don't have a sense of what exactly happened. we want you to tell us soon enough but we don't expect you to tell us as soon as you get the hotline call or as soon as you start your investigation
because in my own practice experience, a lot of the allegations turn out to be unfounded or turn outing to somebody else or what somebody else thought happened that didn't actually happen. so there is no threshold. i think if you're worried about it and it's a serious thing, i think you should tell us about it. because the risk of us finding out is great eastern the consequences to you if you don't and we find out are fairly significant. >> can i ask a follow up, sir? >> one thing that happens in private practice is, as you know, is that, you know, a client can call you. they got an allegation. they want you to help. so you get all the benefits of it and i'm happy to address and
be asked what i think the benefits are and what they're not. but the question is for defense counsel is that and advising the company, the company needs to take enough steps to figure out what type of issues. and just like you said just now, you don't want to hear everything. so it's a real judgement call. you don't know if a whistle-blower will get to you before we decide to come to you and you're going down that path of taking investigative steps. you're constantly weighing the possibilities that the government could find out before you take those steps. and so like my threshold question, i take it you all also do not have a definitive view as to what point in time a company needs to come in.
that you do expect us to take some steps and if you could enlighten us and i know this is one my concerns about the program, the program is only as good as the individuals who implement it. and so i know that this question is really your perspective. but at what point, what down that path of investigative steps are you thinking a company better get in? or do you think we should come in immediately? i'm assuming that last question is no. >> it depends on the facts and that's a typical lawyer answer. if somebody comes in and they say that the ceo or an example that came from an actual case welt have a department in the company that is so reason for existing is to pay bribes. we have a whole set of books,
the sole reason for existing is to keep track of the bribes. and we have paid bribes to the tune of hundreds and hundreds of millions of dollars. >> you know what kind of alligator that is. you don't need to know more than. that you may want to make sure that somebody is not crazy in making something up. if there is a slhred of truth o that, you want to do that. somebody says you get anonymous hotline complaint that we've been paying bribes in china to get business from the following five state owned enterprises and we paid even with some level of specificity, you're going to want to look at that and see whether that's true, whether the real even had deals with the state enterprises and whether you paid money and whether the people who are supposedly involved in it actually even worked on the deals. you're going to want to kick the tires on the allegations. we don't expect you to come running into us. but when you have a good reason to think it's true and serious, that's when.
>> narrator: pil -- under the p program, that's when we expect you to raise a flag us with. >> what do you say about the challenge that this program is largely designed to assist corporations and individuals may be left out there and not getting the benefit of it and then they end up, perhaps, baring the responsibility when there was enormous benefit to the corporation? i guess the benefit would be given back. but how do you address that concern? >> so i think part of the purpose of the pilot program is to encourage -- i know karen has in her files in her firm probably 50 spca investigations that doj doesn't know b she's done full complete investigations. she knows what money was paid to what government entities or individuals. she knows who paid it. she knows who in the company is
responsible. she's not telling us. we want that information because we want to be able to make cases against those individuals. but we don't have that evidence. part of the idea of the program is to give the company an incentive to come in and tell us something and give them some carrot to do that. obviously, we don't -- just coming in on the pilot program doesn't mean you're getting a case. you may well have to -- you won't have to plead guilty but you'll have to get a deferred prosecution agreement or some other agreement. you may have to get a monday for. the pilot program has a lot of different things that can happen. the idea is to get that information that we know is out there about culpable individuals so that we can make the cases against the culpable individuals. companies can't go to jail, obviously.
so that is part of the goal. we have whistle blowers who come forward all the time in spca cases and other cases. they may have been in the thick of the wrongdoing. if they come forward and tell us thing wez often don't prosecute them. just the snam any other kind of criminal conduct. there are many times when we have somebody tell us about an accounting fraud and that person may have been involved in the accounting fraud but because they've come in, we don't -- sometimes don't insist that they be held criminally accountable. so i don't think it's that different than what we normally do. but it's just really designed to get at the vast trove of information that we know is in karen's files. >> does that put pressure on the companies then to in effect make a judgement about culpability even if there could be differences of perspective on an issue and good faith differences?
i think this is an issue where there is a rub. the sally yates memo re-emphasizing and put in place a process about going after individuals and then, of course, the pilot program where we're seeing and the declanation letters, a reference in the letters that the companies must cooperate against the individuals. and, you know, the rub is that if a company and certainly by now corporations out there in america know that you have to have an effective compliance program. i would say that at least my experience is that most companies have very strong robust programs. and so if a company is, in fact
does comes to their attention that there is an allegation of wrongdoing involved in -- amongst their employees or an employee, a rogue employee, the company is set up to handle that. from an hr perspective. and to remediate, you know, to investigate it and remediate it. are they able to go after them criminally? of course the department hopes that would happen. that's where the carrot is and the department has the hammer of companying after the company, if they can, for that employee's conduct. so i think that, you know, one of the benefits to the pilot program is that it does encourage companies to come in
and as leslie said on significant matters, matters that it, too, has determined to be significant, to cooperate and to enhance through mediation that presumably they, too, are making in the form of punishment, possibly termination and that sort of thing. and at the same time, making sure that it does not get dragged in and get indicted and hence lose the value and especially if it is publicly traded is the share hoe holders that will lose that value. i think that companies may, in fact, find that it is important for themselves as a corporation to go and disclose even though it has remediated and taken care of its -- those individuals. but not every time do i think that it's necessary to go into disclose when the company has taken the remediation steps that
need to be taken. this is what the pilot program is trying to address and i don't think it's been around long enough to see if it's actually working in this regard is that often when a company went into disclose and disclose this incident or this scheme or this group of people engaged in x, y, z, often because this is a conference room practice, the prosecutor across the table from you will say thanks for that. you know, go off and investigate. come back. we'll deal with. that but i also want you to look at blah, blah, blah, and it becomes a sprawling investigation. the pilot program -- i know every time she takes notes because she wants an answer. i'm going to give the answer right now. the pilot program has a time
limit or self imposed, we're going to try to get this done quickly. leslie and the chief of fraud and others have been very vocal about not wanting to boil the ocean. and that is something i do think is a very worthy effort and goal for the department. because that will scare off companies and has scared off many companies from coming in and disclosing, believing that we may have to disclose profits an pay fines and we may have to pay millions of dollars in legal fees to investigate ourselves way beyond the problem and not because there's issues out there but because the department wapts us to. >> so i think that first everyone should know to the extent that you don't already, very few companies have a legal obligation to report things like an fck violation to the government. the only companies who may have an obligation are defense contractors who in certain circumstances might have to
report a violation of the law fit relates to one of the contracts. and companies that are already under some kind of disposition with u.s. gofs like a deferred prosecution agreement that they agree that going forward if something bad happens during the agreement they will report it. they have to report that. other companies don't have an obligation to report to doj violations of the spca. they may have obligations to other regulators for other violations. but they don't have that obligation for us. on the issue of the type of investigation that we expect, i've seen over the years a lot of companies that did way too broad investigations. and in my experience, that wasn't the result of what doj told them to do. they may say person x is also the country manager in malaysia. did you look in malaysia? but they're not going to say if you have a bribe in china, you
better look at the entire world. but i've seen companies do that. i've seen -- there's one company that i'm thinking of that had a kind of a one off situation in china. and they did an investigation of the entire world. similar situation of a company in russia. did the entire world. they may have good internal business reasons why they want to do that. but we are not going to be the ones telling them to do that. >> i do think that is a change. there have been times that it's been the idea of the line of attorneys to go out and look at other locations. and that's in years past. i do think that the effort and the stated objective to really be more surgical helps companies in making the decision to disclose. because it's not going to be so fearful if, in fact, not only
you say it as chief of the criminal division and the chief of fraud and the chief of the spca unit but pushed down to the line attorneys and the u.s. attorneys offices throughout the country that you should not boil the ocean and you should stay surgical on the issues at hand. >> there are some case that's you do have to boil the ocean but those are few and far between. >> can we shift the focus a little bit now to something you addressed, miss caldwell, and that is the relationship with other states around the world? we have a couple major treaties, the oecd convention, we have the u.n. convention dealing with anti-corruption. what is the relationship again these treaties and the departments enforcement of the spca? >> so we work very closely with -- we're a member of the oecd working group on bribery. we go to all the meetings. we participate very closely with them. we brainstorm with them and
other member countries. we also work with the countries involved in the u.n., the u.n. effort. we have informal relationships with treaties all over the world. we have information sharing. the spca area has really helped us across the board in the criminal division because the relationships that we formed with law enforcement and with regulators in a lot of other countries has really helped us investigate a lot of other kind of cases. they're really important examples that we see every day is cyber crime. the relationship that's we developed in the spca space have tran translatesed in relationships with cyber investigators and cyber crime to me cyber crime is the thing that keeps me up at night as the aeg of a criminal division. it's the scariest thung out there. it pervades everything. so the relationships have really helped. we have formal relationships through the treaties and then we have a lot of informal
relationships, prosecutor to prosecutor, agent to agent that have really helped us expand. and the other thing that i think our example in the spca space has led a lot of other countries to take helped us expand. i mentioned the saudi arabian brazil example. indonesia was a pretty big development, that they prosecuted a corrupt leader. >> so leslie, if i could just follow up on a couple of questions if that regard. so as defense counsel representing a company who may have an issue in another country, one of the questions that is always considered and rather you go into disclose is the government going to find out about it. is the u.s. government going to
find out about this issue? and so -- and let's say in this hypothetical in this other country your client does have a local investigation going on into the very issue. could you tell us -- and i know even your predecessors emphasize collaboration with other governments. is there a lot more and is it continuing to grow that prosecutors are actually picking up the phone and calling each other? does it in fact happen that a prosecutor in another country will pick up a phone and call into doj and say we've got this issue with one of your u.s. companies? >> yes, that happens and probably more frequently it happens that law enforcement in one country will call us or we will call them.
that happened in a case we have recently done involving government officials of venezuelan oil company that were taking bribes. i think it's probably pretty rare these days when there's a really big fcap case that it's not multijurisdictional and we're not working with or speaking to and reaching out to foreign officials. yes. that's just going to keep getting more and more pervasive. >> are there certain countries where the relationship between our prosecutors and their prosecutors are pretty tight, where there's a lot of back and forth? >> yes. many of the european countries, but also some countries you might not expect such as indonesia. we do a lot of back and forth with switzerland notwithstanding switzerland's reputation of not
wanting to work with other countries. there are certain countries we don't really do work with, for example, russia, china. although i have to say china very recently has started being much more proactive internally in anti-corruption cases and taking them much more seriously. we have a matter right now that involves cooperation with china which is pretty, pretty new. we'll see how that goes. >> the same vein, i think i recall because i think attorney general eric holder announced it in a speech before that there have been meetings with the prosecutors from various countries that have come together to share strategies, techniques, that sort of thing. are those meetings still happening? >> yes, in fact they happen all the time. i would be surprised if there's not someone from the money
laundering section sitting in another country. one good example is the fifa investigation, the world soccer governing body. that's something that's involved countries from all across the world. another thing that we try to do is when we're doing something where there are multiple jurisdictions involved we try to make it where the company has one big resolution so they're not paying us 100% of the penalty and switzerland 100% of the penalty. we can't always control that, but we try the control that. in fact, the people we have the must trouble controlling that are u.s. state regulators. >> as a defense counsel, when we're trying to assess
disclosure, obviously we're assessing the government may find out about it and we're in another country trying to figure out are those local authorities are going to learn about it, are they going to pick up the bat phone and call doj or is the press going to find out about it. i know u.s. prosecutors look at the newspapers and figure out where to serve subpoenas. i remember that when i was in the eastern district in the new york. in fact, i might have learned it from you when you were my chief. are you using a mechanism at department of justice to monitor foreign newspapers? >> yes. we follow foreign reporting just as we follow u.s. reporting. we recently learned about a really cool app that somebody has the geneva airport.
the app monitors the tails of private jets that land at the geneva airport. it identifies the owner of the tail, looking at the tail it identifies the owner. we learned one of our targets, who is the current vice president of equatorial guinea -- i tell you this because this is all public knowledge. his plane landed in geneva last week and it was there for about an hour and then it left. we know about that because of this app that somebody created. the app records the tail number and it says dictator from name of that country landed in geneva. dictator departed geneva. >> oh, my goodness. in that vein, in the law faculty
we offer a laundering. for the next generation of lawyers learning these tools, i don't think the app is in the game yet. are there situations where you would simply defer to a foreign prosecution? say they have the resources. it appears there's a lot of activity that occurred in the foreign country. we trust them to get this right, but to be vigorous and fair in their prosecution and therefore not allocate our resources that way. >> we do that all the time. the key to that is vigorous and fair. we also don't want companies to form shop to go to a country that doesn't have strong anti-corruption enforcement and try to use that as a shield
doing something when we have a stake in what was done in the underlying criminal conduct. individuals were being prosecuted by saudi arabia and brazil. there was no reason for us to also try to prosecute those individuals. in another case we resolved the case with the netherlands. we did part of the case. they did part of the case. so we do that all the time. >> great. i have been reading in the press just concerns about the enforcement not just in the fcpa but in other areas of u.s. laws abroad and the perception that perhaps the united states is delving too far into foreign legal systems. this could be hurting business activity in a profound way, the notion that the united states has now become the world police. how do you address that allegation? >> so we don't have time to be
the world police. we really only focus on things that affect us. one example where we were accused of being the world police, the department was negotiating a resolution with a french bank. bnpp was very vocal to the degree of taking out newspaper articles and having president holland trying to raise the issue with president obama about the fact we were prosecuting the bank and targeting french companies. in fact, there's been some french legislation proposed to try to thwart us from doing that. germany may think we're doing the same thing with germany. vw sent cars to the united states knowing that they violated our environmental laws, lied about it, and put those cars out on the road, hundreds
of thousands of cars. should we be prosecuting that? the french bank was dealing with iranian and sudanese clients. they were dealing with those countries not outside our borders, but using our banking system and using our banks. they had internal compliance memos where the compliance people would write e-mails which we had saying this violates u.s. sanctions law. this is illegal. they sought opinions from two u.s. law firms. is this illegal? the law firms said yes and they kept doing it. so i think that we try to keep our focus on cases where it does affect our system. we don't want our system to be used to evade sanctions. we don't want our system to be used for dirty money, as a haven for dirty money. we don't want our companies to
be disadvantaged when other companies are paying bribes all over the world. i don't think we're out there prosecuting things we barely have jurisdiction over. we're really trying to focus on the things that we have a real interest in. >> i'll say from a defense perspective that the jurisdictional question is one that you really to stay focused on whenever you are asked to assist a company in looking into an allegation of wrongdoing. because if there's conduct abroad, no u.s. folks involved, very little touch to the u.s., if any. it has been my experience and also my understanding from others that that kind of argument really in today's fcpa group really can resonate and it should for the reasons leslie
has just said. the department of justice should not be the global police, but it is -- especially when you're doing an internal investigation, it can be very, very tedious in terms of finding evidence that there's no jurisdiction. it can be very difficult because you're basically trying to prove the negative. but i encourage folks who are in this practice to -- from the very beginning to really focus on the jurisdiction or lack thereof because it can make a huge difference in the end result. >> great. thank you. we have about 25 minutes and have ample time for questions from the floor. i have additional questions as well, but i see we have students from around the world who are here. we have i know members of the press that are here and of
course members of government agencies and from private law firms. if you have a question, please raise your hand and she'll get the microphone to you. if you could introduce yourself, we would appreciate that. >> we weren't shy, so don't be shy. >> i'm with a publication called global investigations review. are you able to talk more about the cooperation you were talking about with the china case in terms of what type of case is it? could you talk a little bit more about what corporation involves? >> i can't talk about specific cases because they're ongoing, but we have cooperation with china in a corruption case. we have cooperation with china in a intellectual property case. and we have some cooperation with china in a cyber case.
it's spotty. it's early. it's too soon to say whether this is a brave new world where we're going to be working hand in hand with china on a lot of things. the chinese economy is a huge economy as is ours, and we have a lot of mutual interests in protecting intellectual property and bribery. >> it's also been my experience that the chinese government has become more aggressive in enforcing its own laws. i was on the planning committee for, but the aba hosted its first white collar conference in conjunction with the bar in china and this was last fall, last november in shanghai. a number of prosecutors and judges and defense bar from china were there, and there was a lot of talk about how aggressive not only is the government now but how they
expect to continue to grow, which i do think that means there's going to be more collaboration with the u.s. authorities. and given how the u.s. economy and u.s. companies are going there and are there, i certainly think it's prudent as the member of the defense bar to be counseling clients to make sure you have very good compliance programs in cooperation, which includes ratcheting up issues at headquarters so they can get addressed. i've seen situations where raids can happen and headquarters don't necessarily know about it for a while. >> karen, with you talki are yoe context of international companies in china? >> yes. >> so doing business around the world? >> yes.
>> i have a question about the chinese. >> introduce yourself, please, matt. >> my name is matt. i'm from china and i'm an international law student here. my question is regarding the cooperation between america and chinese about corporations. i know now that chinese governments have become more and more aggressive attacking corruption issues, but on the other hand so many people talking about the chinese government attacking anti-corruption. the campaign is to attack another part of chinese government, some government
officials with different opinions. why do you possibly review the corruption information to you? how do you evaluate whether you should charge those corporations? do you take a holistic view? >> generally, we often see other countries accusing people of corruption. sometimes the people who live in the united states are accused of corruption in the country where they came from and we have to see whether we get -- for example, there might be a prosecution of that person in the other country and the country may be seeking extradition for that person to
be sent back to china -- china is a bad example, but a country where we have a lot of extraditions going back and forth. we have to figure out whether this is a political case or is this a real criminal case before we extradite the person to face charges. we definitely kick the tires when we hear the allegation that a person is corrupt. we have seen an evolution in china from nonenforcement to anti-corruption to arbitrary enforcement of anti-corruption to i think we're seeing now a more even handed, still not perfect, but more even handed enforcement of anti-corruption. i'm not an expert on china or its anti-corruption efforts, but i think part of the reason we're seeing that is china realizes if it wants to be a leader in the global economy, it has to be
more transparent and less corrupt. >> very interesting because it does raise the issue of having skills in your office to deal with political issues and understanding the politics in a country too. yes, sir. >> this is a follow up on the last question. china is a country that people are tortured in detention, particularly sometimes political opponents. they have trials that are bogus. it's a very -- obviously from a u.s. perspective, it's a very flawed justice system. how do you make sure if you're sharing information with chinese authorities on corruption investigations that it's not going to end up being used for types of activities that would frankly violate u.s. standards or just be really embarrassing for the u.s.? >> so i don't know that we've had an example where -- if we have, i don't know about it.
an example where we've shared information with china or another country and they've used that information to persecute somebody or torture somebody in this corporate context. and i think that we don't -- our relationships with our foreign counterparts, investigative counterparts and law enforcement counterparts, tend to grow in baby steps. it has to be a matter of trust. i'll give you an example from just a few years ago. we had a very contentious relationship and lack of trust relationship with of all entities the u.k. regulators. we were fighting with u.k. regulators. we didn't trust them. they didn't trust us. and we've gradually because we've worked on a bunch of cases with the u.k. developed a really good working relationship with the u.k. to the point where we're considering embedding one of our prosecutors in one of the u.k. law enforcement agencies to sort of help those
relationships. with these other countries that we don't have a longstanding relationship, we have to develop the trust and the confidence that whatever enforcement action they might take is a real one, an appropriate one, and a fair one. we're not interested in feeding political dissidence to china and other countries. we're cognizant of that. we really want to understand what's going to happen and what the system is before we provide evidence that could be used in a trial to another country, including even the u.k. >> can i follow up with a question? karen, is this an issue in your day-to-day practice? nothing specific, but the kind of political ramifications that were raised from the question. >> i certainly think that companies establishing and
operating their compliance programs in dealing with allegations of wrongdoing and then making the kind of disclosure decisions that we were talking about earlier all need to factor in those issues. the issues that are swirling around that particular country and enforcement climate. >> right. >> i want to move off of china a little bit and go back to the transparency you were talking about. the recent settlement papers have all included the guidelines calculation when it comes to penalty, which i think a lot of people appreciate that aspect of transparency. but what i have noticed a lack of is a discussion of how the number that represents the proceeds of the crime has been arrived at and same thing when it comes to calculating disgorgement. i was wondering if you could
talk a little bit about how that number gets calculated and arrived at. >> speaking like a lawyer, it varies from case to case, but i think the disgorgement amount is usually the profit. if you pay a bribe to get a $2 million contract and your profit on that country is $1 million, you have to disgorge that $1 million. there are criminal fines and penalties which are in addition to whatever you made off the contract and those depend off a variety of factors. how pervasive was the crime, who was involved, was the company a recidivist. there are a lot of factors that are considered and it is very case specific. so when we reference the guidelines, we should be referencing whatever application notes of the guidelines we considered, which we may not say the third time the -- we probably would say that, but we probably wouldn't say this went up to the ceo level, but we'll
reference the notes. if you want to go look them up, you can see what exactly those are referring to. we're trying to be as transparent as we can without putting every single fact in. >> can i make a comment about the transparency point that's set forth in the documents? earlier, i said i had some concerns with the pilot program and the detail that's in some of these letters causes me to have concern from the perspective of it may actually deter some companies from wanting to disclose if in fact they think their arm is going to get twisted by the department of justice to agree to the publication of that letter. and i don't know that there's been already talk in the defense bar and within corporate america as to does the department require you to agree, is it part of the settlement discussions,
even if they say you don't have to agree is it expected and are you going to feel pressure. as a result, i do think that that type of transparency that is public could be a deterrent because you necessarily would not see all of that detail in a public document, especially if say, for example, you're a privately held company and you otherwise wouldn't have any fcc type disclosure. so one thing that i would encourage the department of justice to consider doing -- and i'll ask leslie on the spot if anyone is thinking about this, and that is obviously transparency when you're negotiating a settlement is very important for the lawyer across the table from you to have a robust and truthful and
transparent conversation an how the arrive at these numbers so you get a fair settlement. that is very important and very good. to then take it the next step and put it out into the public so that the rest of the world can see it, i see some good to that if in fact you're not twisting the arm of a company to do it. it obviously tells the rest of us how doj has arrived at something. but if there's undue pressure, what i would consider the department of justice to do is do it on a no name basis. publish the detail. publish the information as to the outcome, but don't give the information about what company is at issue. that would still serve the purpose of being informative and also could attract the disclosures the department is seeking. >> so i think we've had this
conversation within the department about how much detail should be included under the pilot program if there's a declination. i think the cases you're talking about we had declinations with two private companies. normally when we do fcpa cases, most are public companies and most are with the fcc. in most cases where we declined, the sec will decline an action. that is a public document. when the department gets disgorgement from a company, it's because -- this was the case with the two companies
recently -- they're not subject to the jurisdiction of the sec. but we feel very strongly under the pilot program we can't let them keep the profits that they got through an admitted bribery, but we don't want to have secret disgorgement agreement with companies. karen being a very skilled defense lawyer wants to have full transparency of what the result is likely to be, but doesn't want anyone else to know about it or at least that her client had the result, which is what i would do too if i were in her shoes. a big benefit of the pilot program is we can put out there in detail enough to show that a crime was committed and that bribes were paid and that
businesses won as a result of those bribes and that notwithstanding the fact this company violated the fcpa by accepting bribes they're going to get a benefit. they can decide whether they want to participate in that program. they can decide it's not worth it to them to have their name out there in a two or two and a half page letter as opposed to a long detailed agreement, but from our perspective it's very important to be transparent not just with the companies, but with the public about what we're going and why we're disgorging money from the company. in the wake of those two recent resolutions, we have gotten quite a number of calls from those companies because we laid out the fact in one instance there was $500,000 in bribes paid. we gave a declination. that, i think, has resonated with a lot of companies. oh, i didn't think we would get
a declination if we had 500,000 in bribes. i think you really have to compare it to what you would normally get in an sec resolution if the sec were involved in the case. >> leslie, are you saying it is in fact a requirement that a company must -- do you even ask for the consent? >> our position is the resolutions should be public. if the company is going to be required to disgorge, we don't want that to be something that's done in secret. we want that to be done in public. we hear all these different voices. we hear people saying all you're doing is extorting money. there are companies that are willing to pay money if we would just keep quiet and go away. that's not how we want to operate. we want to show a basis of why
this company is paying this money, a bribe was paid, the law was violated, but the company did everything we asked them to do under the pilot program and now they're getting a benefit. world, here's what we're doing and why. we think it is really important they be public. i don't know that we've ever -- i don't know enough about the dynamic in those two cases that we demanded against their objection because we think it is appropriate. >> what is going to happen then is anytime you're negotiating a nonprosecution agreement is you're going to be debating the language. the declination letter is turning to something between what we used to get in a declination when there wasn't disgorgement because the one
thing the pilot program has brought to the table is there has to be disgorgement between private companies. you get a short, sweet letter. never be made public. now we've got the pilot program that's given us something between that, what it used to be like, and the non-pros and deferred pros where you have a paper that's going to be made public and has language about the conflict. what's important is you try to really address how the language is going to read because the impact it can have on your brand, it can have a tremendous impact on your company whether you're publicly held or not. it is something that companies -- when companies are
trying to evaluate to voluntarily disclose, participate in the pilot program or not, these are factors that they should consider and would consider. >> great. >> hi. i'm a law student here at g.w. my question is about disgorgement. if there was a violation of the fcpa and there was a profit and the company has paid taxes to the government on that profit, how are those taxes factored into disgorgement and what's the rationale behind that? >> so sadly most companies don't pay taxes on income that they earn overseas or they pay very little taxes, but we would not take into account. we would require disgorgement of the entire profit, but i honestly have never seen that scenario because most companies operating overseas don't pay taxes. certainly not taxes attributable directly to that transaction.
>> my name is ben. the question i have related to disgorgement as well as the pilot program is that to what extent can we assume the real historical declinations that were a sweet and short letter nowadays will pretty much be cases where there's very little evidence of an actual bribe? the reason i say that is because it seems to me if you hear about a case and the company let's say refuses to participate in the pilot program and refuses to s disgorge, you would not allow them to have a short, sweet letter of declination anymore. so i'm trying to see the line. >> so i think we still do declinations in cases where for whatever reason we can't prove our case. we may conclude that a bribe was paid, but we lacked
jurisdiction. we may think the circumstances were very suspicious, but we couldn't prove a bribe at the end of the day, so we might issue a declination. those would be short declinations, the ones that you were talking about. it's only when we conclude that the company has violated the fcpa and they're reaping the benefits of the pilot program -- if we conclude they have violated the fcpa and they should disgorge -- for example, if we don't have jurisdiction, we're not going to be asking for disgorgement. if we don't think we can prove there was actually a bribe as opposed to money went missing, we're not going to ask for disgorgement. when we think we can prove that there was a bribery and we're going to decline prosecution because the company did everything we asked in the program, we think it's very important to lay out that there was a crime and that because of
the company's conduct and the way they addressed the problem we're going to decline prosecution, but they're going to give back their profits. >> we have time for one more question. >> my name is mark. i have a question for you about restitution in fcpa cases. at the last big conference, a number of countries put forward a resolution in essence asking that the developed countries make available part of the proceeds in fcpa cases, and in particular i believe some of those countries wanted to be able to participate in settlements as they're being negotiated. has that issue come to the fore in the department and what is the department's view on that? thank you. >> so i haven't heard that exact issue in the fcpa context. we see that issue or a variation of that issue in another context
where for example when we seized $800 million in swiss bank accounts that belonged to the corrupt uzbeki official. so we see that. that's obviously something the people who were involved in the wrongdoing were associated with the government of uzbekistan. in the kleptocracy context, what the corruption was, the government will claim interest in the funds. we deal with that. we generally fight that. we recognize the entire government is not corrupt and the government itself was a victim in some way of the corruption of its official, but we try to work to get the money to the extent we're going to
give the money back to them in a different way so we can be sure it's not going to be used by the corrupt officials just to be put back in a different swiss bank account. i haven't seen it in the fcpa context, but i see the similar rationales might apply that we don't want to give bribe proceeds or money that was paid to get contracts through bribes back to potentially the same officials who got the bribes. >> well, please join me in thanking leslie caldwell for this wonderful presentation, particularly with regard to transparency as to the work they do on a daily basis, but the fact you're here and talking about these important issues. and thank karen for the perspective from practice. and i think we were able to get a nice balance on the issues and
something that i think developed the issues with the perspective from the government and from the private sector. so thank you very much for coming. please join me in thanking the panelists. [ applause ] >> we will have a reception outside across the hall in the lounge. president obama and president-elect trump are meeting at the white house today to discuss the transition ahead of mr. trump's inauguration in january. after that meeting, white house press secretary josh earnest briefs reporters.
that's scheduled to start here at 12:30 p.m. eastern. c-span, where history unfolds daily. in 1979, c-span was created as a public service by america's cable television companies and is brought to you today by your cable or satellite provider. coming up later today on our companion network c-span, a conversation from the smithsonian associates on campaign 2016. we'll hear from democratic and republican pollsters and reporters from cnn and msnbc. that's live at 6:45 p.m. eastern on c-span. and friday is veterans day. at 11:00 a.m. eastern, president obama lays a wreath at the tomb of the unknown soldier in arlington national cemetery. you can see that live on our companion network c-span. this weekend on american
history tv on c-span 3 saturday night a little after 7:00 eastern kings college london visiting professor andrew roberts discusses the role of u.s. army chief of staff general george c. marshall in america's world war ii victories, arguing the general's skills as a strategist transformed the u.s. army. >> this pennsylvanian gentleman with beautiful manners was incorruptible, single minded, and astonishingly calm. >> then at 10:00 on real america, the 1921 silent film created by the u.s. army signal corps honoring the unknown soldier of world war i. >> it was tremendous. the streets of washington were lined with thousands of folks who waited for the casket to be removed and brought by the honor guard down pennsylvania avenue and then across the bridge into the virginia. and i think what i've read is it
is one of the largest turnouts for any parade in the city. >> sunday evening at 6:00 eastern on american artifacts. >> the beautiful building and from the moment it opened it was already too small for what it was about to face. constructed to handle about a half a million people a year, it ended up handling in 1907 alone a 1,207,000 people. >> just before 9:00, in 1916 president woodrow wilson nominated a boston lawyer to the united states supreme court, becoming the first jew to sit on the nation's highest court. in commemoration of the 100th anniversary of his appointment, we talk about the justice's life, career, and legacy. >> brandeis is trying to limit the court to a very specific role, one that is defined by the
constitutional network in which all government operates and which limits any one branch from exercising power beyond its province. now a discussion on the economy with former clinton administration treasury secretary lawrence summers and robert barro. a "wall street journal" reporter moderated this discussion at the american enterprise institute in washington. >> well, good morning. thank you all for being here. i'm michael strain, director of economic and policy studies here. why has the economic recovery
been unusually weak and why do many economists believe we're in for a period of sustained weakness? has demand been weaker because of leveraging? has demand been weaker because of the severity of the recession and it was akpaccompanied by a financial crisis? are we stuck in a liquidity trap? has economic policy, including the policies of the obama administration and the fed, acted as a drag on growth? are we in a period of secular stagnation? an important hypothesis advanced and brought into the mainstream by dr. summers. as importantly as diagnosing the underlying problem, how should policy respond to slow growth? to discuss this issue and to discuss other issues as well, aei is honored to have two giants of macroeconomics joining
us today. he was the 71st secretary of the treasury and during the obama administration he served as the director of the national economic council. robert barro is the inaugural john h. macon scholar for the current economic year. we're really honored by that. dr. barro is a war berg professor of economics at harvard. their discussion will be moderated by greg ipp. one of the top economic journalists in the world. chief economics commentator at the "wall street journal," previously u.s. economies editor for the economist magazine. the format will be very straightforward, brief introductory remarks by dr. barro and dr. summers and
then we'll dive into a then we'll dive into a discussion. we'll have some time at the end for audience questions. for those of you watching the live stream, i think you can through technology send questions to an ipad somewhere up on the stage, so please feel free to do that as well. thank you very much. >> robert, thanks very much. i guess we will start with a few comments. robert, i guess you can go ahead. >> i wanted to say a few things about the topics that michael just mentioned. i think it is generally accepted that there's been no recovery with respect to gdp growth in the u.s. and many other economies since the end of the great recession, 2009. in order to recover, you have to grow for some period at above the average rate. that's not what happened over this period. in terms of getting evidence about what recoveries typically look like, i have relied mostly
on the kind of research i have done with other people on the sort of largest depression events one has seen in history, sometimes called rare macroeconomic disasters and couple that with an analysis of the recovery that has followed. the evidence from that is that recoveries typically recoup about half on average of what was lost during the prior down turn. that corresponds to somewhat above normal growth for some period. it tends to be a fairly rapid recovery to the extent that it occurs. it has been the contention that we haven't had a recovery in the u.s. since 2009 because of the severity of the great recession. i think that basically gets the sign wrong. i think the evidence is the stronger the downturn, the stronger the recovery. i think it is also wrong to talk
about the financial crisis as the reason we didn't have a strong recovery. in history, most of the non-war depressions have involved financial crises. you see this pattern about recoveries that i just referred to. the great depression itself is an example of that. in the u.s., there was a down turn, 1929 to '33. it's a fall of about 29% in per capita gdp. that is followed by growth at an average rate of 6.5% per year, from 1933 to '40, which is a very strong recovery despite the severe financial crisis. the big surprise and a surprise to me of the recent period without the gdp recovery is the labor market has actually been pretty strong. so payroll employment growth since the trough in 2010 has actually grown at almost 2% per year, which is a pretty good performance. so the labor market looks pretty good and the declining
unemployment rate kind of reinforces that picture. so the combination of things in the recent period is weak gdp growth combined with pretty good labor market performance. and of course, that has to be mirrored in weak growth of labor productivity. in fact, the growth rate of labor productivity is close to zero since 2010 in the u.s. the slowdown is obvious if you look since 2010. it may have started earlier, like 2004 or 2005. but to think about the weak recovery, i focus on what influences productivity, labor productivity. and i naturally think of forces that are sometimes labeled as supply side influences when i think about that. i have a tough time telling a
keynesian aggregate demand story if i am focusing on what is it that enhances productivity growth. examples of forces that are good for economic and productivity growth, i get more from the empirical growth literature than from thinking about business cycles. the kinds of things that are good for growth are strong rule of law and property rights, free trade, lack of inefficient regulations, some kind of public infrastructure to the extent that it actually enhances productivity can be good, good institutions for education and health, fiscal discipline and efficient taxation. a lot of these things work through encouraging investment, which can in turn enhance labor productivity. if you look at what was actually done in terms of policies following the great recession, that is from 2009 on, the biggest thing in the u.s. was a dramatic increase in transfer payments to persons. so that total at the federal level went up by three
percentage points from 2007 to 2010, from 9 to 12% of gdp. following that, a small decline. unemployment went up and fell dramatically when the extended federal benefits were eliminated. other parts have stayed permanently elevated, so that includes social security, especially disability part, medicaid, medicare, food stamps. all of those programs look like they have had a permanent increase in relation to gdp in terms of the reaction to the great recession. one can argue about whether larger transfer payments are a good idea, but i don't think they're likely to raise productivity. and i think productivity was the main factor to be considering. the other main policy coming from the government is dramatic monetary expansion.
we can argue about whether that is a good or bad idea. i don't think it is something that's going to be center stage if you are thinking about productivity enhancement. so there's a question. what is it that explains the productivity slowdown? this is subject to a lot of controversy and interesting ideas. some promising possibilities are growth of inefficient regulation, decay of public infrastructure, a slowdown in the rate of technological process. other factors that have reduced the investment gdp ratio -- fiscal uncertainty. those are all things that have been raised as most important. the really pleasant explanation that has been raised is measurement error. the gdp growth is understated, because we don't have a proper adjustment for new goods and quality change. iphone is often raised as an example of that. so if that were the answer, that
would be terrific. we wouldn't have to worry about the productivity slowdown. we wouldn't need any special policies. in this context, recent discussions in the ongoing campaign are pretty depressing because to the extent they talk about economics that focuses on things like trade and immigration restrictions, higher minimum wages, i don't think any of these things are good for productivity, so i think they're irrelevant from the standpoint of thinking about economic recovery and growth. on the other hand, less i be too pessimistic, i thought the simpson bowles commission in 2010 was excellent particularly looking at the long-term pattern with respect to taxation and entitlement expenditure. it was too bad it was basically ignored. if we could get back to that kind of thing, i think one might have more faith in terms of washington policymaking. >> thank you very much, robert. larry, your remarks? >> a fair amount of what robert said i agree with.
recovery has been very slow since the trough of the recession. the economy is 12 odd percent below where you would have predicted on the basis of a trend run through 2007. to put the point differently, if you looked at gdp from 1929 to 1940 and the best estimate of gdp from 2008 to 2019 on the basis per member of the adult working population, those two figures would have been about the same. that is to say over the 11-year period of depression and over the 11-year period we have just
been through, gdp has behaved about the same. obviously, it was much more "v" shaped during the depression than it has been during the current episode, going down further and coming up but ending in just about the same place. robert is right that if you attempt to decompose that slowdown into employment and productivity, it is much more on the productivity side than it is on the employment side. robert places no emphasis on the role of demand in all of this. i do think we have had substantial issues of demand management. there are substantial issues in the world economy of demand management and there may be substantial issues in prospect
in the united states of demand management. the best single way to measure inflation expectations in my view is by comparing the yield on ten-year nominal securities with the yield on index bonds. if you make that comparison and you make an adjustment for the fact that the index bond uses the consumer price index and the fed targets a different price index, the so-called deflator for personal consumption, you get an expectation in the united states that inflation will be below 1.5% for the next ten years having fallen short of the 2% target over the last seven years. at the same time, the index bond yield is telling you that real
interest rates, which probably have something to do with the supply and demand for capital, are at extraordinarily low levels, suggesting in the united states and to even a larger extent for the industrial world as a whole an excess of saving over investment, which is significantly constraining the level of demand and has, in my view, contributed to the relatively weak economic growth over the last seven years and leave us with a very serious prospect of problem that historically with 20% probability economies go into recession in any given year. and the normal way for the fed to respond to that is to cut interest rates by 500 basis
points. there is likely to be a recession long before there is anything like room for the fed to cut interest rates by 500 basis points. i think without denying that there are very large challenges on the productivity side, that there are also substantial issues on the demand side as reflected in what's happening to nominal gdp. what is to be done? it seems to me that it is not hugely plausible to argue that the united states has had a major deterioration in its legal institutions over the last eight to ten years. it seems to me that the argument that somehow this has been a period of crushing and unprecedented burdens on business from regulation does need to confront the observations that corporate profits as a share of income are
at near record highs and the related observation that the stock market has tripled during the period when it was thought that these burdens were imposed. but it seems to me that the logic from both the supply side and the demand side points to the promotion of investment in both the public and the private sector as central priorities going forward. i would just emphasize that it seems bizarre at a moment when borrowing costs have never been lower, materials costs are very low, 15% of men between the ages of 25 and 54 are not working, that the nation has its lowest rate of infrastructure
investment in two generations measured relative to gdp. so it seems to me enormously inr interest to increase the quantitiy tof infrastructure investment and at the same time to engage in a set of reforms directed at improving the project selection, the efficiency of procurement and the streamlining and execution of those infrastructure investments. it also seems to me that there is a case even without believing that regulation is central to understanding the productivity slowdown to looking at what can be done encourage increased
private investment and there i would cite as a priority corporate tax reform and perhaps you'll indulge me in an analogy i've used before. imagine that you were running a library. you might decide that it was a good idea to give an amnesty so that people who had overdue books would bring them back quickly. you might decide that that was a bad idea is so you should tell people they'll never have amnesty and they should bring back their books because the fines will accumulate. but only a fool would put a sign on the library door saying "no amnesty now but we're thinking of one next month." [ laughter ] now think about a nation whose corporations have two and a half trillion dollars of cash abroad
and who have to pay taxes at a 35% rate to bring the cash back into the united states who tell those corporations there's no amnesty now but we're having a tax reform debate and we might have one next year. it's hard to imagine a better capital repulsion strategy than that and so surely bringing clarity to the corporate tax reform debate and resolution from my perspective best done through a significantly broader base, a significantly lower tax rate, neutral taxation between farm income and income repatriated and greater international cooperation on various forms of profit shifting. but in some way, bringing
clarity and resolution to the tax reform debate seems to me the single most important thing we could do to encourage private investment. i don't know what the answer -- i agree with robert on the importance of productivity. i focus on public and private investigation. because those are things that i'm pretty confident are important and i'm pretty confident we can affect and there's a great deal in productivity where the interconnections are puzzling. i would frame one aspect of his comments slightly differently than he did but i would be surprised if he does not disagree a lot and that is i would say i think the evidence is overwhelming that productivity is undercounted. leave aside information -- leave
aside information technology and just think about statins or other pharmaceuticals that have huge impacts on life expectancy and where we reflect almost no productivity improvement. but from the point of view of economic policy it barely matters -- in most of the things we're discussing it barely matters if productivity has been understated by a constant 1% or a constant 1.5% or 2%. the interesting question in term s of explaining the data would be if the magnitude of underestimate has increased and there a fair-minded person has to be more agnostic in assessing the data. but agnosticism about whether the underestimate has increased should not be confused withing a no
-- agnosticism and whether there is currently an underinvestment. >> terrific, thanks very much. to those of you watching online, just a quick reminder, you can send me questions and we'd love to hear from you so go on line to sli.do and enter the code "aei event." you type in the question and submit it and if you're lucky -- if you're lucky i will figure out how to use this technology. [ laughter ] i want to zero in, robert, on a point you made which is incontrovertible which is the productivity situation. if you go back four or five years ago -- and what i think is interesting here is that this is not a purely united states phenomenon. it's a global phenomenon. the imf forecasts were found to be systematically overestimated. but their employment forecast is underest mated. so if you look at a country like uk, for example, which has outperformed every country on
employment and underperformed on gdp. we know as an accounting matter this tells us productivity is why. and there's a healthy debate about whether it's demand or supply. by demand i mean we know that capital investment has been weak and that reduces labor and productivity but we also know that efficiency, total factor productivity began to slow before the recession and that's more strong on supply-side. so i would like to hear both of you weigh in on where the productivity story is a demand or supply problem. >> it's the pattern that you mentioned that makes me de-emphasize the role of aggregate demand and the current situation in the u.s. and elsewhere. that's not the typical response of the economy you would get from insufficient aggregate demand. you wouldn't get that behavior
typically in the labor market, at least not in models i'm familiar with. i used to work in this area but not so much recently. so that's where i end up emphasizing thing that looks like supply-side policies as you described so now detective be -- as you suggest some of it could be working for investment. i know our recent papers, the type of breakout, the trend in labor productivity and how much of it is related to reduce capital formation and other forces and reduced capital formation seems to play a role but not quantitatively that large and then we're left with a lot of other things that have been proposed, some of which larry debunked that might matter for productivity growth.
people who talk about the iphone claim it's become a more serious issue than it used to be but i'm agnostic about that. statins, i've had an ongoing argument with my doctor about whether i should be taking a statin and they have a formula to determine whether you should take it or not but the dominant factor in the formula is how old you are. [ laughter ] and if you get beyond the a certain age it's always going to say take it so now i was forced to do it but i'm irritated about that ch that. >> larry, demand or supply, is productivity so weak. >> afterward you have to explain why the formula is stupid. seems kind of sensible to me. i have written and what i've said about secular stagnation
has more to do -- has emphasized the demand side. i don't want to be heard as suggesting that there isn't some mystery on the supply-side as well. i think there's a fair amount of evidence that there is a kind of inverse law where lack of demand creates over time lack of supply robert is right that you can explain something but not everything and not most by looking at reductions in capital investment. i think we need to think about a range of things firms may cut during recessions, r&d, develop development reorganizations and
the like that represent a kind of unmeasured investment. during periods of investment, during periods of downturn. so i would be more inclined to atribute more of the productivity shortfall to the consequences of the downturn on the demand side than robert is but i agree with him that there is a puzzling pattern of surprisingly weak productivity growth which has audiences -- has odd conncomitants. if i told you just in the