Archive for the ‘Enforcement Agency Policy’ Category

Friday Roundup

Friday, April 17th, 2015

Roundup2In-depth, scrutiny alert, further Alstom-developments, quotable, and for the reading stack.  It’s all here in the Friday roundup.

In-Depth

In November 2014, Dutch-based SBM Offshore resolved an enforcement action in the Netherlands.  With a settlement amount of $240 million, the SBM Offshore enforcement action was one of the largest bribery-related enforcement actions of 2014 – regardless of country.

This recent article titled “The Cover-Up at Dutch Multinational SBM” in Vrij Nederland (a Dutch magazine) goes in-depth as to SBM’s scrutiny.  The article has largely escaped the attention of Western media and the FCPA-related blogosphere, but is worth the time to read.  The article begins as follows.

“The corruption scandal at Dutch multinational SBM Offshore, which in November reached a $240 million out-of-court settlement with the Dutch Public Prosecutor (OM), is much larger than thought, as testimony of a former employee now shows. The company has actively pursued a strategy of “containment” and has consistently misled the market. So why did the OM settle?”

Among other things, the article highlights the role of U.S. lawyers and law firms involved in the SBM representation.

Scrutiny Alert

In this recent article, the L.A. Times details, based on obtained documents, the expenditures involved in filming the movie Sahara. Among the expenditures, according to the article - ”local bribes” within the Kingdom of Morocco.  The article states:

“Courtesy payments,” “gratuities” and “local bribes” totaling $237,386 were passed out on locations in Morocco to expedite filming. A $40,688 payment to stop a river improvement project and $23,250 for “Political/Mayoral support” may have run afoul of U.S. law, experts say.

[...]

According to Account No. 3,600 of the “Sahara” budget, 16 “gratuity” or “courtesy” payments were made throughout Morocco. Six of the expenditures were “local bribes” in the amount of 65,000 dirham, or $7,559.

Experts in Hollywood accounting could not recall ever seeing a line item in a movie budget described as a bribe.

[...]

The final budget shows that “local bribes” were handed out in remote locations such as Ouirgane in the Atlas Mountains, Merzouga and Rissani. One payment was made to expedite the removal of palm trees from an old French fort called Ouled Zahra, said a person close to the production who requested anonymity.

Other items include $23,250 for “Political/Mayoral support” in Erfoud and $40,688 “to halt river improvement project” in Azemmour. The latter payment was made to delay construction of a government sewage system that would have interrupted filming.”

Further Alstom Developments

Yesterday, the U.K. Serious Fraud Office announced:

“Charges have been brought by the SFO against Alstom Network UK Ltd and an Alstom employee in phase three of its ongoing investigation.

Alstom Network UK Ltd, formerly called Alstom International Ltd, a UK subsidiary of Alstom, has been charged with a further two offences of corruption contrary to section 1 of the Prevention of Corruption Act 1906, as well as two offences of conspiracy to corrupt contrary to section 1 of the Criminal Law Act 1977.

Michael John Anderson, 54, of Kenilworth in Warwickshire, who was working as a business development director for Alstom Transport SA in France, has been charged with the same offences.

The alleged offences are said to have taken place between 1 January 2006 and 18 October 2007 and concern the supply of trains to the Budapest Metro.

The first hearing in this case will take place at Westminster Magistrates’ Court on 12 May 2015.”

Quotable

In this recent speech, DOJ Assistant Attorney General Leslie Caldwell stated:

“Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators. But these agreements have several features that cannot be achieved by regulatory or civil resolutions.

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation’s history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

[...]

[C]riminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents.”

For the Reading Stack

This Wall Street Journal Risk & Compliance post suggests that the ongoing corruption investigations in Brazil are becoming full-employment events for FCPA Inc.  According to the article:

“Multinationals with operations in Brazil are making frightened calls to their lawyers, as the country’s spreading corruption scandal reaches more companies.

[...]

Attorneys say companies with operations in Brazil are scrambling to assess whether they could get swept up in the probe. “They are very worried,” said Ruti Smithline, an anti-bribery specialist at Morrison & Foerster LLP. “The investigation is so widespread. If you have business in Brazil, the likelihood that this is going to touch you in some way is very high.”

Companies are racing to discover questionable activities before authorities in Brazil do. “They are asking: ‘Is our house clean? If authorities look at these relationships what are they going to find?’” Ms. Smithline said.”

The WSJ post asserts:

“[Brazil's  new anti-corruption law, the Clean Companies Act] holds companies to even higher standards and stricter liability than the U.S. Foreign Corrupt Practices Act. For example, unlike the FCPA, under the Brazilian law a company can be prosecuted for corruption even if didn’t realize it was paying a bribe and had a great compliance program in place.”

This is a most off-target statement as Brazil law does not even provide for corporate criminal liability like the FCPA.  Moreover, business organizations are often the subject of FCPA enforcement actions even though the company had in place pre-existing compliance policies and procedures.

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Miller & Chevalier’s FCPA Spring Review 2015 is here.

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A good weekend to all.

Analyzing The SEC’s Recent FCPA Pharma Speech

Thursday, March 5th, 2015

Pharm SpeechIn November 2009, then DOJ Assistant Attorney General Lanny Breuer delivered this Foreign Corrupt Practices Act speech at a pharmaceutical industry conference.  In the speech, Breuer warned the audience as follows.

“[C]onsider the possible range of “foreign officials” who are covered by the FCPA: Some are obvious, like health ministry and customs officials of other countries. But some others may not be, such as the doctors, pharmacists, lab technicians and other health professionals who are employed by state-owned facilities. Indeed, it is entirely possible, under certain circumstances and in certain countries, that nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product in a foreign country will involve a “foreign official” within the meaning of the FCPA.”

In the speech, Breuer also talked about “the importance [of] rigorous FCPA compliance polic[ies] that are faithfully enforced” and reminded the audience as follows.

“[A]ny pharmaceutical company that discovers an FCPA violation should seriously consider voluntarily disclosing the violation and cooperating with the Department’s investigation. If you voluntarily disclose an FCPA violation, you will receive meaningful credit for that disclosure. And if you cooperate with the Department’s investigation, you will receive a meaningful benefit for that cooperation—without any request or requirement that you disclose privileged material. Finally, if you remediate the problem and take steps to ensure that it does not recur, you will benefit from that as well.”

Over five years and ten FCPA enforcement actions against pharma/healthcare companies later, Andrew Ceresney (Director of the SEC’s Enforcement Division) delivered a nearly identical speech earlier this week.

The below post excerpts Ceresney’s speech.

When reviewing the speech, you may want to keep the following in mind.

As highlighted in this prior post, the enforcement theory that physicians, lab personnel, etc. are “foreign officials” under the FCPA was first used in 2002 and has since been used in 17 corporate enforcement actions.

Even even though Ceresney’s speech contains several citations, it is telling that the following assertion lacks any citation “doctors, pharmacists, and administrators from public hospitals in foreign countries … are often are classified as foreign officials for purposes of the FCPA.”

There is no citation for this assertion because it is one of the most dubious enforcement theories of this new era of FCPA enforcement and an enforcement theory that finds no support in the FCPA’s extensive legislative history.  (See here for “The Story of the Foreign Corrupt Practices Act“).

Of further note, despite extracting hundreds of millions of dollars from risk averse corporations based on this “foreign official” theory, the DOJ and SEC have never used this enforcement theory to charge any individual.

Another issue to consider.

As highlighted in this recent post, despite the continued foreign scrutiny of the pharma and healthcare industry, the corporate dollars continue to flow to U.S. physicians and other healthcare workers.  It is one of the more glaring double standards when it comes to FCPA enforcement and enforcement of U.S. domestic bribery laws.

With that necessary information, to Ceresney began his speech as follows.

“Pursuing FCPA violations is a critical part of our enforcement efforts.  International bribery has many nefarious impacts, including sapping investor confidence in the legitimacy of a company’s performance, undermining the accuracy of a company’s books and records and the fairness of the competitive marketplace.  Our specialized FCPA unit as well as other parts of the Enforcement Division continue to do remarkable work in this space, bringing significant and impactful cases, often in partnership with our criminal partners.

Now, our FCPA focus obviously covers many industries.  For example, we have conducted a recent sweep in the financial services industry that will yield a number of important cases.  But the pharma industry is one on which we have been particularly focused in recent years.  A few factors combine to make it a high-risk industry for FCPA violations.  Pharmaceutical representatives have regular contact with doctors, pharmacists, and administrators from public hospitals in foreign countries.  Those people often are classified as foreign officials for purposes of the FCPA, and they often decide what products public hospitals or pharmacies will purchase.  This influence over the awarding of contracts is true for virtually every country around the globe.

There have been three types of misconduct that we have seen arise most often in our pharma FCPA cases.  One is “Pay-to-Prescribe”; another is bribes to get drugs on the approved list or formulary; and the third is bribes disguised as charitable contributions.  Let me discuss each of these in turn.

In “Pay-to-Prescribe” cases, we see public official doctors and public hospitals being paid bribes in exchange for prescribing certain medication, or other products such as medical devices.  Some of our cases involve simple cash payments to doctors and other medical officials. But we have also seen some more innovative schemes created for the purposes of rewarding prescribing physicians.  For example, in our 2012 action against Pfizer, subsidiaries in different countries found a variety of illicit ways to compensate doctors. In China, employees invited “high-prescribing doctors” in the Chinese government to club-like meetings that included extensive recreational and entertainment activities to reward doctors’ past product sales or prescriptions.  Pfizer China also created various “point programs” under which government doctors could accumulate points based on the number of Pfizer prescriptions they wrote.  The points were redeemed for gifts ranging from medical books to cell phones, tea sets, and reading glasses. In Croatia, Pfizer employees created a “bonus program” for Croatian doctors who were employed in senior positions in Croatian government health care institutions.  Once a doctor agreed to use Pfizer products, a percentage of the value purchased by a doctor’s institution would be funneled back to the doctor in the form of cash, international travel, or free products.  Each of these schemes violated the FCPA by routing money to foreign officials in exchange for business.

Let me turn to a second form of bribery, which is aimed at getting products on a formulary.  Of course, getting your company’s drugs on formularies is important to success in this industry.  But the FCPA requires that you do this without paying bribes, and we have taken action where companies have crossed that line.  We brought a case against Eli Lilly that included such violations.  There, the company’s subsidiary in Poland made payments totaling $39,000 to a small foundation started by the head of a regional government health authority.  That official, in exchange, placed Lilly drugs on the government reimbursement list.  That action involved a variety of other FCPA violations and Eli Lilly paid $29 million to settle the matter.

The Eli Lilly case brings me to my third point, which concerns bribes disguised as charitable contributions.  As you might know, the FCPA prohibits giving “anything of value” to a foreign official to induce an official action to obtain or retain business, and we take an expansive view of the phrase “anything of value.”  The phrase clearly captures more than just cash bribes, and Eli Lilly is not the only matter where we have brought an action arising out of charitable contributions.

For example, in Stryker, we charged a medical technology company after subsidiaries in five different countries paid bribes in order to obtain or retain business. Stryker’s subsidiary in Greece made a purported donation of nearly $200,000 to a public university to fund a laboratory that was the pet project of a public hospital doctor.  In return, the doctor agreed to provide business to Stryker.  Stryker agreed to pay $13.2 million to settle these and other charges.

Similarly, in Schering-Plough, we brought charges against the company arising out of $76,000 paid by its Polish subsidiary to a charitable foundation.  The head of that foundation was also the director of a governmental body that funded the purchase of pharmaceutical products and that influenced the purchase of those products by other entities, such as hospitals.  In settling our action, Schering-Plough consented to paying a $500,000 penalty.

The lesson is that bribes come in many shapes and sizes, and those made under the guise of charitable giving are of particular risk in the pharmaceutical industry.  So it is critical that we carefully scrutinize a wide range of unfair benefits to foreign officials when assessing compliance with the FCPA – whether it is cash, gifts, travel, entertainment, or charitable contributions.  We will continue to pursue a broad interpretation of the FCPA that addresses bribery in all forms.”

Under the heading “Compliance Program,” Ceresney stated:

“The best way for a company to avoid some of the violations that I have just described is a robust FCPA compliance program.   I can’t emphasize enough the importance of such programs.  This is a message that I think has started to get through in the past 5 years.

The best companies have adopted strong FCPA compliance programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance.  I encourage you to look to our Resource Guide on the FCPA that we jointly published with the DOJ, to see what some of the hallmarks of an effective compliance program are.  I’ll highlight just a couple.

First, companies should perform risk assessments that take into account a host of factors listed in the guide and then place controls in these risk areas.  The pharmaceutical industry operates in virtually every country, including many high risk countries prone to corruption.  The industry also comes into contact with customs officials and may need perishable medicines and other goods cleared through customs quickly.  They may also come into contact with officials involved in licensing and inspections.  These are just a few examples of risk factors that a risk assessment should be focused on in this particular sector.

A healthy compliance program should also include third-party agent due diligence.  In addition to using third-party agents, many pharmaceutical companies use distributors.  This creates the risk that the distributor will use their margin or spread to create a slush fund of cash that will be used to pay bribes to foreign officials.  Because of this added layer of cash flow, companies frequently improperly account for bribes as legitimate expenses.  To properly combat against these abuses, a compliance program must thoroughly vet its third-party agents to include an understanding of the business rationale for contracting with the agent.  Appropriate expense controls must also be in place to ensure that payments to third-parties are legitimate business expenses and not being used to funnel bribes to foreign officials.”

Under the heading, “Self-Reporting and Cooperation,” Ceresney stated:

“The existence of FCPA compliance programs place companies in the best position to detect FCPA misconduct and allow the opportunity to self-report and cooperate.  There has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC.  Let me be clear about my views – I think any company that does the calculus will realize that self-reporting is always in the company’s best interest.  Let me explain why.

Self-reporting from individuals and entities has long been an important part of our enforcement program.  Self-reporting and cooperation allows us to detect and investigate misconduct more quickly than we otherwise could, as companies are often in a position to short circuit our investigations by quickly providing important factual information about misconduct resulting from their own internal investigations.

In addition to the benefits we get from cooperation, however, parties are positioned to also help themselves by aggressively policing their own conduct and reporting misconduct to us.  We recognize that it is important to provide benefits for cooperation to incentivize companies to cooperate.  And we have been focused on making sure that people understand there will be such benefits.  We continue to find ways to enhance our cooperation program to encourage issuers, regulated entities, and individuals to promptly report suspected misconduct.  The Division has a wide spectrum of tools to facilitate and reward meaningful cooperation, from reduced charges and penalties, to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation. For example, we announced our first-ever non-prosecution agreement in an FCPA matter with a company that promptly reported violations and provided real-time, extensive cooperation in our investigation. And just six weeks ago, we entered into a deferred prosecution agreement with another company that self-reported misconduct.

More commonly, we have reflected the cooperation in reduced penalties.  Companies that cooperate can receive smaller penalties than they otherwise would face, and in some cases of extraordinary cooperation, pay significantly less.  One recent FCPA matter in this sector illustrates the considerable benefits that can flow from coming forward and cooperating.  Our joint SEC-DOJ FCPA settlement with Bio-Rad Laboratories for $55 million reflected a substantial reduction in penalties due to the company’s considerable cooperation in our investigation. In addition to self-reporting potential violations, the company provided translations of numerous key documents, produced witnesses from foreign jurisdictions, and undertook extensive remedial actions.  There, the DOJ imposed a criminal fine of only $14 million, which was equivalent to about 40% of the disgorgement amount – a large reduction from the typical ratio of 100% of the disgorgement amount.

In fact, we have recently announced FCPA matters featuring penalties in the range of 10 percent of the disgorgement amount, an even larger discount than the case I just mentioned. And in the Goodyear case we announced last week, we imposed no penalty.  In those cases, the companies received credit for doing things like self-reporting; taking speedy remedial steps; voluntarily making foreign witnesses available for interviews; and sharing real-time investigative findings, timelines, internal summaries, English language translations, and full forensic images with our staff.

The bottom line is that the benefits from cooperation are significant and tangible.  When I was a defense lawyer, I would explain to clients that by the time you become aware of the misconduct, there are only two things that you can do to improve your plight – remediate the misconduct and cooperate in the investigation.  That obviously remains my view today.  And I will add this – when we find the violations on our own, and the company chose not to self-report, the consequences are worse and the opportunity to earn significant credit for cooperation often is lost.

This risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program.  The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward.  Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”

Senate Remains Interested In FCPA Issues

Thursday, February 12th, 2015

SenateGranted it has been approximately four years since the Senate held its Foreign Corrupt Practices hearing in November 2010.  (The House followed-up with an FCPA hearing in June 2011).

FCPA reform legislation was never introduced (for potential reasons why – see this article), yet the Senate very much remains interested in FCPA issues.

The Senate Judiciary Committee recently released this document which contains Attorney General Nominee Loretta Lynch’s responses to various Senator questions.

The remainder of this post excerpts all FCPA related questions and Lynch’s answers.

As highlighted below, the Q&A’s cover the following topics:  DOJ guidance, DOJ declinations, “FCPA abuses” (as stated in a series of questions), Andrew Weissman’s FCPA reform positions prior to recently re-joining the DOJ (see here for the prior post), international cooperation, FCPA reform (including a compliance defense), and the time it takes to resolve FCPA investigations.

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FROM SENATOR GRASSLEY (R-IA)

Q: In 2012, the Department of Justice and Securities Exchange Commission (SEC) issued joint guidance detailing Foreign Corrupt Practices Act (FCPA) enforcement information and the agencies’ enforcement priorities. While the guidance clarified portions of the law and some of the agencies’ enforcement theories, many companies and individuals seeking to comply with the FCPA have asked for further, and continued, clarification. This request was expressed to Attorney General Eric Holder and Assistant Attorney General Leslie Caldwell during previous Committee hearings.

a. If confirmed, will you commit to working with companies and individuals to further improve the Guidance?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing the outreach efforts that the Department has been making with the private sector to understand their needs and concerns and, if necessary, update and/or improve the Guide.

b. Will you commit to updating the Guidance, when necessary, to reflect changes in DOJ enforcement practices?

RESPONSE: If I am confirmed as Attorney General, I look forward to continuing efforts that the Department has been making to provide meaningful guidance in the FCPA context where necessary and appropriate.

In the area of FCPA enforcement, there is little guiding case law available for compliance practitioners to rely on. However, the FCPA Guidance that was issued in 2012 took an important first step in helping practitioners understand how the enforcement agencies’ interpret the statute. The Guidance includes six anonymized examples of declinations— instances where the DOJ and SEC declined to bring FCPA-related enforcement actions in recognition of the companies’ timely voluntary disclosures, meaningful cooperation, and sophisticated compliance policies and controls. The continued publication of FCPA declinations would foster greater FCPA compliance by providing practitioners with a better understanding of how the FCPA is interpreted. If confirmed, would you support increasing DOJ transparency regarding declination decisions?

RESPONSE: As you know, the United States Attorney’s Manual provides a mechanism to allow for notification to an individual (or entity), where appropriate, that an investigation as to that individual (or entity) is being closed. If I am confirmed as Attorney General, I look forward to continuing the Department’s practice of providing meaningful guidance in the FCPA context (such as procedures to respond to opinion requests) and of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared.

FROM SENATOR CRUZ (R-TX)

DOJ Foreign Corrupt Practices Act Abuses

In much the same way as civil forfeiture, critics of the FCPA note that the Department of Justice collects and retains for use (without further congressional approval or disbursal from the Treasury) fines paid in settlement of federal FCPA investigations. This ability to retain FCPA fines incentivizes not only a vigorous application of the FCPA, but also “creative” legal theories (which can lead to investigations of companies for potentially innocuous behavior). Critics of the FCPA, and the Department’s pursuit of FCPA investigations, point out that the combination of investigation and potential litigation expenses frequently drive what may be innocent companies to settle, which both cements the revenue source for the Department and prevents federal judges from having opportunities to interpret provisions of the FCPA.

Do you agree or disagree with the claim that the ability of the Department of Justice to keep and use FCPA settlement fines incentivizes application of the FCPA? If you disagree with this claim, please provide a detailed explanation as to why.

RESPONSE: I disagree with this claim, which I believe is built on a faulty premise regarding the process by which criminal fines and other financial penalties are paid and subsequently put to use. Fines for FCPA violations are not “kept” or “used” by the Department, and no such use incentivizes application of the FCPA. Rather, as with all cases, the Department considers the strength of the evidence and other long-standing policy considerations (see, e.g., United States Attorney’s Manual (USAM) 9-28.300) in determining whether to bring an FCPA prosecution.

A company convicted of an FCPA violation pays any accompanying fine not to the Department but to the relevant U.S. district court clerk’s office. Those funds are then directed to the Crime Victim Fund, which is a U.S. Treasury fund created pursuant to Title 42, United States Code, Section 10601. Funds paid into the U.S. Treasury are not available for use by the Department except through the appropriations process or by statute.

A company that settles an FCPA investigation through a non-prosecution or deferred prosecution agreement pays any accompanying financial penalty not to the Department but to the U.S. Treasury. Pursuant to Congressional authorization and strict Departmental oversight, a small percentage of these funds may be made available to the Department. More specifically, in 1993 Congress authorized the creation of a 3% working capital fund (“3% Fund”) for the Department. See Public Law 113-234, 28 C.F.R. Section 527. Three percent of penalties associated with certain financial recoveries, including through non-prosecution and deferred prosecution agreements, are paid into the 3% working capital fund. After rigorous review by the Collection Resources Allocation Board, overseen by the Justice Management Division, the Department may award funds from the 3% Fund to support certain litigation, data administration, and personnel costs.

Has your office actually tried any FCPA cases to a verdict in federal court? If the answer is yes, please provide details about these cases.

RESPONSE: The Eastern District of New York has participated in a number of significant FCPA investigations with the Fraud Section of the Criminal Division of the Department, and it continues to do so. To date, these investigations have resulted in two corporate resolutions: (1) In re Ralph Lauren, NPA, $882,000 penalty, press release at: http://www.justice.gov/opa/pr/ralph-lauren-corporation-resolves-foreign-corrupt-practices-actinvestigation-and-agrees-pay; and (2) In re Comverse Technology, Inc., NPA, $1.2 million penalty, press release: http://www.justice.gov/opa/pr/comverse-technology-inc-agrees-pay-12- million-penalty-resolve-violations-foreign-corrupt); and one guilty plea by Garth Peterson of Morgan Stanley (and a declination against Morgan Stanley) (press release: http://www.justice.gov/opa/pr/former-morgan-stanley-managing-director-pleads-guilty-roleevading-internal-controls-required). While the Department has conducted FCPA trials in many districts, the United States Attorney’s Office for the Eastern District of New York has not had an FCPA trial to date.

As you know, the Criminal Division’s Fraud Section is charged with investigating and enforcing the criminal provisions of the FCPA. Recently, Andrew Weissmann was selected to be the Chief of the Fraud Section. Mr. Weissmann is a former prosecutor and FBI general counsel. In private practice, however, Mr. Weissmann has been an outspoken critic of DOJ’s FCPA program. Specifically, in a report36 Mr. Weissmann drafted for the U.S. Chamber of Commerce’s Institute for Legal Reform, he has recommended that: (1) a compliance defense to the FCPA should be added; (2) a company’s liability should be limited for the prior actions of a company it has acquired; (3) a “willfulness” element should be added for corporate criminal liability; (4) a company’s liability should be limited for the actions of a subsidiary; and (5) the definition of “foreign official” under the FCPA should be changed.

Do you agree with any, some, or all of Weissmann’s proposals for reforming the FCPA?

RESPONSE: It is my understanding that Mr. Weissmann made these comments while in private practice and in connection with his representation of the U.S. Chamber Institute for Legal Reform (“Chamber”). It is also my understanding that, in the intervening time period, the Department has met with the Chamber, as well as other stakeholders, to engage in a healthy and productive dialogue regarding the Department’s interpretation and application of the FCPA. If confirmed as Attorney General, I would continue to foster dialogue with the Chamber and other stakeholders regarding our FCPA program.

Which of these changes (if any) do you think could be done administratively, as opposed to legislatively?

RESPONSE: I do not support the proposed changes. Several of them would be a significant departure from general principles of corporate criminal law, effectively creating unique exceptions for FCPA cases that are unwarranted, are contrary to Congress’s intent in enacting the FCPA, and would impose often insurmountable obstacles to effective enforcement of the FCPA.

In 2004, then-Deputy Attorney General (and current director of the Federal Bureau of Investigation) James Comey stated that “[the Department of Justice wants] real time enforcement, so that the public and potential white collar criminals see that misdeeds are swiftly punished.” Despite this statement, the 2014 OECD Foreign Bribery Report noted that “the average time taken (in years) to conclude foreign bribery cases has steadily increased over time, [from an average of 1.3 years in 2004] peaking at an average of 7.3 years taken to conclude the 42 cases in 2013.” Lengthy federal investigations not only place a tremendous financial burden on the targeted corporations and their shareholders, but also on taxpayers who shoulder the agency’s expenses for conducting the investigation.

Do you agree or disagree with Director Comey’s statement regarding the value of real-time law enforcement? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that law enforcement must move swiftly and responsibly in investigating both white collar and other criminal activity. I also agree that, for deterrence purposes, it is important to move quickly and bring charges against those individuals and companies that have engaged in criminal behavior. While the Department has been working diligently to find meaningful and reasonable ways to reduce the time white collar FCPA investigations take, the question’s reliance on the OECD Foreign Bribery Report is misplaced. As I understand it, the referenced statistic is based on an aggregate of all the OECD Working Group members’ cases, rather than isolating the time taken by the United States in its cases. Also, this statistic does not measure the length of the criminal investigation. Rather, it measures the time between the last criminal act and the sanction, increasing substantially the time measured, since the Department (or foreign law enforcement) might not learn about a potential violation until years after the last criminal act has occurred.

Given that the FCPA Unit within the Department’s Fraud Section has expanded its personnel from 2004 to today, and given that the Department receives even more international cooperation today than it did in 2004, do you agree or disagree that the Department should be witnessing reduced investigative timelines for FCPA investigations rather than increased timelines? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Additional resources and cooperation are greatly appreciated and can often be key factors in expediting criminal investigations. However, they are only two of many factors that can influence the time it takes to conduct a successful investigation of any kind. Compared to other white collar investigations, the challenges associated with FCPA investigations can be much greater. Because of the nature of the offense, most of the evidence in these cases is typically located overseas. While international cooperation efforts have expanded significantly over the past ten years, the process for obtaining evidence from overseas is still time-consuming.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to dramatically reducing the timeline of FCPA-related Fraud Unit investigations, in order to reduce the financial burden on potentially innocent corporations and reduce investigation-related taxpayer expenses? If you will not commit to reducing these investigative timelines, please provide a detailed explanation as to why.

RESPONSE: Under my leadership, the Eastern District of New York has been committed to increasing the speed of its white collar investigations, including its FCPA investigations. As a result of the particular challenges of corporate and overseas investigations, however, the investigations can take a significant amount of time. While improvements in this area can be made, irresponsibly or artificially expediting an investigation solely for the sake of speed can harm the investigation and the pursuit of justice, as well as create greater harms to the targets, subjects, and witnesses in our investigations. If I am confirmed as Attorney General, you can be assured that the Department will continue to review each case on its merits and will move as expeditiously and responsibly as possible.

Often, many of the countries with corrupt officials are the same countries that harbor terrorists, that seek to undermine U.S. foreign policy, and that have rampant bid rigging and illegal cartel conduct. On the opposite side of the equation, there are an increasing number of countries that have passed new anti-bribery statutes in the hope of curbing their own internal corruption problems and spurring legitimate economic growth.

How will you marshal the criminal justice resources of the Department of Justice to enforce the FCPA in a way that helps in the fight against terrorism, cartel conduct, and international money laundering? Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you intend to tackle the problem.

RESPONSE: As the United States Attorney for the Eastern District of New York, I am well aware of the link between corruption, corrupt regimes, and transnational crime, including economic crime, human trafficking, narcotics trafficking, money laundering, and even terrorism. In addition to prosecuting foreign corruption, narcotics trafficking, money laundering, and terrorism cases, the Department works closely with its counterparts throughout the U.S. government to devise and implement robust anticorruption strategies. For example, my Office has worked closely with the intelligence community on terrorism and corruption-related matters. The Department further participates, along with colleagues in other agencies in the U.S. government, in developing anticorruption policies through various international organizations and anticorruption conventions, including the Organization for Economic Cooperation and Development’s Working Group on Bribery, the G-7, the G-20, and the U.N. Convention Against Corruption. The Department also consults with civil society organizations involved in the battle against corruption. If confirmed as the Attorney General, I would continue to ensure that fighting corruption overseas, as well as domestically, remains a top priority for the Department. I would ensure that resources are appropriately directed to enforcing U.S. laws targeting foreign corruption, recovery of assets stolen by kleptocrats, and corrupt regimes.

Given that more and more countries are enacting and enforcing anti-bribery statutes, would you agree or disagree that the FCPA ought to be amended to restrict FCPA jurisdiction to countries that do not have a prima facie anticorruption infrastructure? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: Such an exception would be unique under federal law. I disagree with this approach, as I believe it would do harm to the Department’s anticorruption efforts. The Department works closely with countries that are developing their own anticorruption infrastructures, and we are well aware that it can take years of persistent effort to create an effective and holistic response to corruption of domestic and foreign officials.

As a recent OECD Report on Foreign Bribery noted, enforcement of existing anticorruption statutes, particularly those targeting foreign bribery, is improving but has a long way to go to see consistent and effective enforcement even among top economies in the world.

The Department of Justice generally emphasizes the benefit of voluntary self-disclosure to, and voluntary cooperation with, FCPA investigations. Corporations are increasingly questioning the benefit, however, of rushing toward self-disclosure without demonstration of some sort of legal or cost benefit for doing so. To address this, some practitioners have suggested that the FCPA should contain a “safe harbor” from criminal prosecution for corporations that (1) have robust compliance programs, (2) self-disclose potential FCPA violations, and (3) cooperate fully with the Department’s investigation, akin to what the Antitrust Division has for cartel enforcement. (The Department would, of course, be able to continue to obtain non-criminal penalties for violations.)

Do you agree or disagree with the statement that there should be an FCPA “safe harbor provision” to help corporations that are trying to do the right thing? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I do not believe a “safe harbor provision” is necessary or desirable. Both the U.S. Sentencing Guidelines and the Department of Justice already provide significant benefits for companies that have robust compliance programs, self-disclose potential FCPA violations, and cooperate fully with the Department’s investigation. Indeed, in a recent FCPA matter, the Criminal Division and the Eastern District of New York declined to prosecute Morgan Stanley based on many of those factors, among others, despite the fact that one of its Managing Directors bribed a foreign official to obtain business for and on behalf of Morgan Stanley.

If you agree with the concept of an FCPA safe harbor provision, please describe what the structure or contours of such a safe harbor provision should be, and how you would implement that provision. Please provide a detailed explanation, based on your current experience as United States Attorney for the Eastern District of New York, of how you would write and implement such a provision.

RESPONSE: The factors outlined in your question are important considerations in all FCPA cases, but I do not believe that a “safe harbor provision” is necessary or desirable.

Members of the business community, practitioners, commentators, and even members of Congress have expressed frustration with the Department of Justice’s failure to publicize declined FCPA prosecutions, even where there is public knowledge that a particular corporation is under investigation. This practice may have several negative effects, including preventing corporations from having clarity about what type of conduct is considered acceptable. Given the Department’s financial incentive to ensure robust application of the FCPA, there is concern that this refusal to publish decline-to-prosecute information is intended to protect the FCPA fine-based revenue source for the Department.

Would you agree or disagree with the statement that FCPA decline-to-prosecute decisions should be made available to the public? If you disagree with this statement, please provide a detailed explanation as to why.

RESPONSE: I agree that the Department should continue to explore ways by which it can responsibly share information while protecting the many sensitive interests that federal, criminal investigations implicate. The Department has a longstanding general practice of refraining from discussing non-public information on matters it has declined to prosecute. This practice is designed to protect ongoing investigations, privacy rights and other interests of uncharged parties, and sensitive, internal law enforcement deliberations. This practice and these considerations apply across the enforcement of all federal criminal laws.

Nevertheless, I must emphasize that the Department does pursue means by which declinations and other information about the decision to prosecute can be responsibly shared with entities or individuals under investigation, the business community, practitioners, commentators, and members of Congress. The United States Attorney’s Manual (USAM) describes situations in which a United States Attorney can exercise discretion to provide notice that an investigation is being closed. See USAM § 9-11.155. Further, in the last two years, the Department has made great efforts to provide more information and transparency in the area of the FCPA, including the publication of A Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Resource Guide”). The Resource Guide, which was written by the Department and the U.S. Securities and Exchange Commission (SEC), provides the public with extensive information about the Department’s FCPA enforcement approach and priorities. It contains a section on declinations and sets out criteria prosecutors consider in declining to bring a prosecution under the FCPA. In addition, the Department responds to opinion requests concerning its enforcement intent about actions that may be perceived as violating the anti-bribery provisions of the FCPA. See Title 15, United States Code, Sections 78dd-l(e) and 78dd-2(f). These opinion letters provide significant additional insight into the Department’s enforcement views, as well as transparency for companies, individuals, and practitioners as to what is acceptable or not.

Before you are confirmed to serve as the next Attorney General, will you or will you not commit to publishing information about the FCPA cases that the Department has decided not to pursue or prosecute? If you will not commit to publishing this information, please provide a detailed explanation as to why.

RESPONSE: I will commit to continuing the Department’s practice of actively pursuing and implementing means by which declinations and other information about the decision to prosecute, or not, can be responsibly and appropriately shared. As detailed in my answer to the preceding question, the United States Attorney’s Manual already provides a mechanism to provide notice that an investigation is being closed. I also commit to continuing the Department’s recent efforts to provide more information and transparency, as it did by publishing the Resource Guide.

Friday Roundup

Friday, January 23rd, 2015

Roundup2Scrutiny alerts, quotable, and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts

Nortek

Nortek Inc.  recently disclosed:

“As part of our routine internal audit activities, Nortek, Inc. (the “Company” or “we”) discovered certain questionable hospitality, gift and payment practices, and other expenses at the Company’s subsidiary, Linear Electronics (Shenzhen) Co. Ltd. (“Linear China”), which are inconsistent with the Company’s policies and raise concerns under the U.S. Foreign Corrupt Practices Act (“FCPA”) and perhaps under other applicable anti-corruption laws. The Company initiated an internal investigation into these practices and payments with the assistance of outside counsel. On January 7, 2015 and January 8, 2015, respectively, we voluntarily contacted the United States Securities and Exchange Commission (“SEC”) and the United States Department of Justice (“DOJ”) to advise both agencies of our internal investigation. The Company intends to cooperate with any SEC or DOJ investigation into these matters. The Company takes these matters very seriously and is committed to conducting its business in compliance with all applicable laws. Based on information known at this time, we currently believe that the amount of the questionable expenses and payments is not material with respect to the Company’s financial condition or results of operations. However, at this time, we are unable to predict, what, if any, action may be taken by the DOJ or SEC or any penalties or remedial measures these agencies may seek, but intend to cooperate with both agencies. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, and equitable remedies, including disgorgement or injunctive relief. Nortek’s Linear China location manufactures products primarily for our Security and Control Solutions Segment and does not sell products to third parties.”

Sony

Last week’s Friday Roundup highlighted the FCPA scrutiny of Sony and other Hollywood film studies in China.

In this article, Bloomberg reports:
“Sony Corp.’s entertainment unit investigated its Indian operations for possible legal violations including bidding fraud and kickbacks, according to internal e-mails released by hackers, highlighting challenges the company has faced in the country. Sony enlisted Ernst & Young to look into its businesses in the country and uncovered potential evidence of wrongdoing, according to the e-mails. In one case, investigators found that a joint venture between Sony and Discovery Communications Inc. (DISCA) may have engaged in fraudulent bids, kickbacks and excessive handouts to government officials …”
According to the article, there are various “areas of concern” including: “potential gifts and entertainment of Indian government officials” such as providing tickets to IPL cricket matches to public servants, as well as laptop bags that were requested as gifts for government officials during the Diwali festival.”

Related to the entertainment industry, this recent Wall Street Journal article “Media Giants Look Far Afield for New TV Audience” is an interesting read (with FCPA goggles on) as it describes how various U.S. companies are expanding abroad.

Transparency International

Transparency International (TI) is usually the one scrutinizing, not being scrutinized.  However, this Corporate Crime Reporter article highlights Siemens’ recent $3 million dollar donation to TI.  The article quotes a “TI insider, who asked not to be identified for fear of retaliation” as follows.

“This really shows that Transparency International is not as pure as people think. Transparency International’s own policy forbids accepting money from corrupt companies. Period. Even though the Siemens bribery scandal broke in 2006, the company is still being investigated in more than 20 countries — in Europe, Asia, the Americas, Africa and the Middle East. All over the world, Siemens is still under suspicion.”

“Its reputation is the most valuable asset that Transparency International has. But its management has made the choice that taking $3 million from Siemens to support its $70 million international budget is worth the risk of damaging its reputation. That’s less than 5 percent of TI’s budget. Is this really worth it?”

“How can anyone trust TI? The world’s leading anti-corruption NGO is now taking money from one of the world’s worst corporate criminals. People need to start asking the question.”

Quotable

In this recent speech, Deputy Assistant Attorney General Sung-Hee Suh spoke “about the Criminal Division’s white-collar criminal enforcement priorities now and in the coming year.” Among other things, Suh stated:  

“The prosecution of individuals—including corporate executives—for criminal wrongdoing continues to be a high priority for the department.  That is not to say that we will be looking to charge individuals to the exclusion of corporations. However, corporations do not act criminally, but for the actions of individuals.  And, the Criminal Division intends to prosecute those individuals, whether they are sitting on a sales desk or in a corporate suite. It is within this framework that we are also seeking to reshape the conversation about corporate cooperation to some extent.  Corporations too often overlook a key consideration that the department has long expressed in our Principles of Federal Prosecution, which guide our prosecutorial decisions:  That is a corporation’s willingness to cooperate in the investigation of its culpable executives. Of course, corporations—like individuals—are not required to cooperate.  A corporation may make a business or strategic decision not to cooperate.  However, if a corporation does elect to cooperate with the department, it should be mindful of the fact that the department does not view voluntary disclosure as true cooperation, if the company avoids identifying the individuals who are criminally responsible for the corporate misconduct. Even the identification of culpable individuals is not true cooperation, if the company intentionally fails to locate and provide facts and evidence at their disposal that implicate those individuals.  The Criminal Division will be looking long and hard at corporations who purport to cooperate, but fail to provide timely and full information about the criminal misconduct of their executives. In the past year, the Criminal Division has demonstrated its continued commitment to the prosecution of individual wrongdoers in the corporate context.  I will highlight a few examples. On the FCPA front, since 2009, we have convicted 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against 59 companies with penalties and forfeiture of almost $4 billion.  Within the last two years alone, we have charged, resolved by plea, or unsealed cases against 26 individuals, and 14 corporations have resolved FCPA violations with combined penalties and forfeiture of more than $1.6 billion. As just one example, the department unsealed charges against the former co-CEOs and general counsel of PetroTiger Ltd., a BVI oil and gas company with offices in New Jersey, for allegedly paying bribes to an official in Colombia in exchange for assistance in securing approval for an oil services contract worth $39 million. The general counsel and one of the CEOs already pleaded guilty to bribery and fraud charges, and the other former CEO is headed for trial. This case was brought to the attention of the department through voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.  Notably, no charges of any kind were filed against PetroTiger. An example on the flip side is the Alstom case, an FCPA investigation stemming from a widespread scheme involving tens of millions of dollars in bribes spanning the globe, including Indonesia, Saudi Arabia, Egypt, and the Bahamas. When the Criminal Division learned of the misconduct and launched an investigation, Alstom opted not to cooperate at the outset.  What ensued was an extensive multi-tool investigation involving recordings, interviews, subpoenas, MLAT requests, the use of cooperating witnesses, and more. As of today, four individual Alstom executives have been charged; three of them have pleaded guilty; Alstom’s consortium partner, Marubeni, was charged and pleaded guilty; and Alstom pleaded guilty and agreed to pay a record $772 million fine.  And that only accounts for the charges in the United States. As I have said, we want corporations to cooperate, and will provide appropriate incentives.  But, we will not rely exclusively upon corporate cooperation to make our cases against the individual wrongdoers.

[...]

To do these complex, international investigations, we are increasingly coordinating with domestic and foreign regulators and law enforcement counterparts, some of whom are on this panel today. In working with our foreign counterparts, we have developed growing sophistication and experience in a variety of areas, including analyzing foreign data privacy laws and corporations’ claims that overseas documents cannot be provided to investigators in the United States. We are also building and relying upon on our relationships with our foreign counterparts to gather evidence, locate individuals overseas, conduct parallel investigations of similar conduct, and, when appropriate, coordinate the timing and scope of resolutions. Yes, just as we are coordinating our investigations, we are likewise willing to coordinate our resolutions, including accounting for the corporate monetary penalties paid in other jurisdictions when appropriate. This is all to say that you should expect to see these meaningful, multinational investigations and prosecutions of corporations and individuals to continue.”

*****

These pages have frequently highlighted how the root cause of bribery and corruption is often foreign trade barriers and distortions.

Jeremy Douglas (who leads the United Nation’s regional Office on Drugs and Crime for Southeast Asia and the Pacific) was thus spot-on in this recent Q&A.

“Q: How do western companies get themselves into trouble in the region?

A: … What we see in the region is that bureaucracies and government structures tend to be highly personalized. People are ensconced in key positions i.e. government procurement positions, or people in the position to give government contracts, let’s say building a power plant. [These officials] are in powerful positions to ease up administrative procedures and accelerate red tape and issue licenses. So companies can be drawn into scenarios where they are paying facilitation fees or their intermediaries are paying facilitation fees. [Much of] Southeast Asia doesn’t have a lot of the regulatory structure–the checks and balances you have in the [U.S. or Canada] so companies come in and run into very powerful persons in those structures, and they know if they can influence these officials, they can get what they need to win business.”

Reading Stack

The Corporate Crime Reporter previews a new bookUnaccountable: How Elite Power Brokers Corrupt our Finances, Freedom, and Security written by Professor Janine Wedel.  Professor Wedel states:
“Transparency International pioneered the corruption index in the early 1990s. They rank countries from most corrupt to the least corrupt. And they are based on public perception – perception of business people and experts from outside the country. They come up with these numbers that are attractive to the press. And it has put Transparency International on the map. They are simple minded surveys. But they don’t really mean a lot. The idea of corruption in these surveys is simple bribery — cash changing hands. It’s the proverbial cash in the piano or the freezer. Corruption is reduced to bribery. In fact, today’s most savvy power brokers are engaged in a kind of corruption that is much more subtle and more difficult to detect. Today’s most corrupt players, at least in the West, don’t need this quid pro quo corruption. They are far beyond that. That’s for the little players. That’s for the small fry. That’s a key point of Unaccountable.”

*****

This Op-Ed about Chinese law enforcement (in the corruption space and otherwise) states: “China’s leaders must realize that even the perception that they are targeting foreign businesses disproportionately can create great harm.”  Against this backdrop, is the following fact.  8 of the top 10 FCPA enforcement actions (in terms of settlement amounts) have been against foreign companies and are often based on sparse jurisdictional allegations.

*****

From the Singapore Corrupt Practices Investigation Bureau

“Public Officers Rejecting Bribe Offers

Singapore enjoys a good international standing for having a clean and efficient civil service. While this is reflected by the low number of public servants being prosecuted for corruption offences, another evidence of the clean public sector is the significant number of public officers who take pride in discharging their duties and say “no” to bribes when put to the test.”

The post then provides several examples.

*****

A good weekend to all.

Here’s What Would Get More Companies To Self-Disclose Bribery

Thursday, December 11th, 2014

This recent Wall Street Journal Risk & Compliance post asks “what would get more companies to self-disclose bribery?”  The article discusses several  answers (publicize declinations, start a leniency program, lower the amount of fines), but the best answer  is depicted in the below picture (with an FCPA compliance defense being the red arrow).

Compliance Defense As A Gap

There currently exists an informational gap between those with evidence of FCPA violations (i.e. companies and their counsel who conduct FCPA internal investigations) and the government agencies (DOJ and SEC) who enforce the FCPA.

Although – as highlighted in this recent post – approximately 60% of recent FCPA enforcement actions are the result of corporate voluntary disclosures, it should be an uncontroversial observation that many more FCPA violations (at least based on current enforcement theories) are happening in the global marketplace on a daily basis.

This observation is based on my nearly ten years of FCPA practice experience (and will be recognized as a self-evident truth by other FCPA practitioners) as well as my frequent conversations with FCPA practitioners.  While I am not suggesting the following is empirical evidence, the general thrust of comments I hear from FCPA practitioners is that approximately only 50% of FCPA issues in public companies are disclosed to the DOJ/SEC and that very, very few FCPA issues in private companies are disclosed to the DOJ.  The follow-up question I then ask is – in the situations in which the company has not voluntarily disclosed, has the DOJ/SEC ever found out about the problematic conduct at issue.  The universal response I have received is no.

Put this all together and the resulting landscape is that there are many FCPA violations occurring (at least based on current enforcement theories) that are not disclosed to the enforcement agencies.  Because the violations are not disclosed to the enforcement agencies, there is no enforcement action. Because there is no enforcement action, the individual engaging in the problematic conduct are not being held accountable.  Because the individual engaging in the problematic conduct is not being held accountable, FCPA enforcement is not as effective as it could be.

The DOJ (and SEC) clearly recognize the gap that exists and in recent months enforcement officials have tried to articulate policies that can help close this gap (see here, here, and here for summaries of recent speeches).

As highlighted in this prior post,  the policies articulated by DOJ officials are sensible (voluntarily disclose, cooperate, and identify culpable individuals).

Problem is, this is the same policy the enforcement agencies have been talking about for nearly a decade and its seems not to be closing the gap that exists between evidence of FCPA violations and prosecution of FCPA violations, including individuals.  Indeed, as highlighted by this prior post, 82% of corporate SEC FCPA enforcement actions since 2008 have not resulted in any related enforcement action against a company employee and 75% of corporate DOJ FCPA enforcement actions since 2008 have not resulted in any related enforcement action against a company employee.

An FCPA compliance defense will not close this gap completely, but it will help bridge the gap.

As stated in my 2012 article “Revisiting a Foreign Corrupt Practices Act Compliance Defense.”

“An FCPA compliance defense will better facilitate the DOJ’s prosecution of culpable individuals and advance the objectives of its FCPA enforcement program. At present, business organizations that learn through internal reporting mechanisms of rogue employee conduct implicating the FCPA are often hesitant to report such conduct to the enforcement authorities. In such situations, business organizations are rightfully diffident to submit to the DOJ’s opaque, inconsistent, and unpredictable decision-making process and are rightfully concerned that its pre-existing FCPA compliance policies and procedures and its good faith compliance efforts will not be properly recognized. The end result is that the DOJ often does not become aware of individuals who make improper payments in violation of the FCPA and the individuals are thus not held legally accountable for their actions. An FCPA compliance defense surely will not cause every business organization that learns of rogue employee conduct to disclose such conduct to the enforcement agencies. However, it is reasonable to conclude that an FCPA compliance defense will cause more organizations with robust FCPA compliance policies and procedures to disclose rogue employee conduct to the enforcement agencies. Thus, an FCPA compliance defense can better facilitate DOJ prosecution of culpable individuals and increase the deterrent effect of FCPA enforcement actions.”

Are the enforcement agencies capable of viewing an FCPA compliance defense, not as a race to the bottom, but a race to the top? Are the enforcement agencies capable of viewing an FCPA compliance defense as helping them better achieve their FCPA policy objectives?

Let’s hope so, because the gap is problematic.

Might a compliance defense result in 1 or 2 fewer corporate enforcement actions per year?  Perhaps, but against this slight drop in “hard” enforcement would be an increase in “soft” enforcement of the FCPA (see here and here), and indeed because the gap would be narrowed there would be more “hard” enforcement of culpable individual actors.

See here and here for prior posts on the same topic.