Why do FCPA investigative fees often reach tens of millions of dollars?  Why does FCPA scrutiny (from the point of disclosure to the point of resolution – if any) often last two to four years and perhaps longer?  In part, it is because of the “where else” question.

The “where else” questions often works as follows.  A company voluntarily discloses conduct to the DOJ/SEC that occurred in country x that could implicate the FCPA.  Before the DOJ/SEC agree to resolve any enforcement action, the agencies will often ask something to the effect – if the conduct occurred in country x, convince us that similar conduct did not also occur in countries a, b, c, etc.  The lawyers on the receiving end of the “where else” question don’t mind being asked because the “where else” question often leads to a world-wide review of their client’s operations around the world.

I first started writing about “where else” in 2009, see here, and most recently wrote about “where else” here.  As a former FCPA practitioner I was on the receiving end of the “where else” question and conducted resulting world-wide reviews on behalf of corporate clients.

The “where else” question is asked in nearly every FCPA enforcement action.  How does one know?  Read the resolution documents.  For instance, the Magyar Telekom resolution documents states that the company conducted a “thorough global internal investigation concerning bribery and related misconduct.”  The Tenaris resolution documents cites that company’s “voluntary investigation of the Company’s business operations throughout the world.”  The Tyson resolution documents state that all of the company’s wholly-owned overseas production facilities were “subjected to rigorous FCPA reviews.”  Numerous other examples could also be cited.

Claudius Sokenu is a leading FCPA practitioner at Arnold & Porter (see here).  As a former SEC FCPA enforcement attorney, Sokenu has both asked the “where else” question in the context of an FCPA inquiry and has been on the receiving end of the “where else” question as an FCPA practitioner.  His views on “where else” first caught my attention in this 2011 interview with The Metropolitan Corporate Counsel and he expands on “where else” in the below Q&A.

What percentage of FCPA enforcement actions that you have been involved in have resulted in the “where else” question being  asked?

In my time as a regulator at the Securities and Exchange Commission’s Division of Enforcement and in private practice, the “where else” question has been asked in  virtually every single FCPA matter in which I have been involved.  I have asked  it and it has been asked of me.

Do you believe the “where else” question was appropriate in these instances?

In some instances it was entirely appropriate for the SEC, the Justice Department, and other regulators to ask the “where else” question.  In others, however, the allegations did not support a “where else” question and it appeared to be more of a fishing expedition and boiler plate question than a well-reasoned question under the facts.  “Where else” is a reasonable and appropriate question when the alleged misconduct appears to be systemic and/or the company under investigation appears to lack the controls necessary to prevent the payment of bribes to foreign government officials.  It is not, however, an appropriate question where it is intended to force companies to conduct multi country internal investigations with little more than the uninformed hunch of a government official who has little or no experience in how businesses work around the world.

The “where else” question could logically be asked in any DOJ or SEC investigation regardless of substantive area of law.  Do you believe the “where else” question is asked more frequently in FCPA enforcement actions
compared to say antitrust, tax, or environmental enforcement actions?  If so, why?

Because the “where else” question is often raised behind closed doors in private conversations between government and counsel, it is difficult to be certain, but yes, I do believe the question is asked more frequently in FCPA enforcement investigations.

This is not entirely unreasonable given the nature of the FCPA.  First, the scope of the FCPA’s jurisdiction, by definition and necessarily, covers the entire world.  And unlike antitrust laws, for example, which have some extraterritorial application but are primarily concerned with the impact on U.S. markets, the FCPA’s primary focus is on actions occurring abroad.  Second, it is not always unreasonable to think that the insufficient (or nonexistent) internal controls that facilitated bribe payments in one country will have the same effect elsewhere. Taking these two factors together, one could reasonably conclude that the FCPA is uniquely amenable to the “where else” question.

That is not to say, of course, that the “where else” question will always be appropriate in the FCPA context or that it will never be relevant elsewhere.  For example, a discharge of pollutants in one of a company’s many U.S. plants may very well justify a widespread environmental audit.  Expanding the scope of investigation in such a case would depend on whether the discharge was the result of, say, incompetent employees hired under criteria used nationwide, as opposed to a once-in-a-generation weather event.  In the former case, a widespread audit would likely be called for, whereas in the latter it likely would not.  The fact is, in the FCPA context, the vast majority of cases have resembled the first scenario – i.e., systematic defects whose effects could arise anywhere – and thus broad investigations have often made more sense than localized ones.

Of course, a somewhat more pessimistic reason for the “where else” question’s predominance in the FCPA context would involve the issues that you’ve written about extensively in your papers and on your blog. Namely, a case law scarcity that causes risk-averse corporate defendants to cooperate regardless of the cost, and government agencies who have the mostly unchecked power (and possibly incentive) to exploit a corporation’s position to cobble together the largest possible fine. Overall, I expect both of these possible frameworks are at play.

DOJ or SEC asks the “where else” question in the absence of any meaningful check or judicial oversight.  What is the remedy?

If I had been asked a year ago whether there was any meaningful check or judicial oversight with respect to the “where else” question, I would almost certainly have replied that there was not.  Given the government’s assorted setbacks in the past year, however — the overturned Lindsay Manufacturing convictions, the O’Shea acquittal, the Africa sting case acquittals and mistrial — it is possible that a potential check is emerging.  Until recently, the government’s near-perfect track record has given them the power to unilaterally dictate the terms of a defendant’s “voluntary” cooperation.  It stands to reason that once defendants have some hope of a positive outcome at trial, the parties’ negotiating positions will not be so lopsided and a company will be able to resist, without fear of reprisal, an unreasonable demand to expand the investigation.

Another possible remedy, although perhaps a more improbable one, would be a revision not to the FCPA itself, but instead to the agencies’ internal guidelines.  This revision would make clear that cooperation credit should not be withheld in situations where the company declines to expand its investigation in the absence of some specific and articulable facts pointing to wrongdoing there.  This “reasonable suspicion” language is, of course, less demanding than the probable cause required for a warrant, but it is at least enough to prevent the blind fishing expeditions that happen now.

Both of the above scenarios will likely require another high-profile setback or two, but as we’ve seen over the past year, those are certainly not out of the question anymore.