Pardon me for being that guy, but in the Foreign Corrupt Practices Act space someone needs to put on the stripes because the information gatekeepers of much FCPA content tend to be non-lawyer journalists writing stories by cobbling together the views of experts who use the opportunity to comment as free marketing for FCPA compliance and investigative services.
And let’s call a spade a spade, FCPA practitioners often have a self-interest in more FCPA investigations, more voluntary disclosures, more enforcement actions and more post-enforcement action compliance obligations.
Much to my surprise, the recent SEC administrative action against Goodyear (see here for the prior post) has generated an unusual amount of commentary. Indeed, in the days that followed I was contacted by numerous media outlets but my consistent response was along the following lines: ”There is nothing noteworthy or special about the Goodyear FCPA enforcement action. The media and law firm coverage of this otherwise ordinary settlement is just the latest example of FCPA Inc. using enforcement actions as opportunities to market FCPA compliance services.”
So in the spirit of March Madness, I call a time out regarding certain Goodyear commentary.
A Law360 article titled “Attorneys React to SEC’s FCPA Action Against Goodyear” contained a roundup of sorts of attorney comments.
One practitioner stated:
“Today’s settlement demonstrates that the SEC and the DOJ are continuing to investigate and bring high-profile FCPA cases against large U.S. companies with multinational operations.”
Whoops, wrong talking point as the Goodyear enforcement action was SEC only with no DOJ component.
Another practitioner stated:
“In recent years … the SEC adopted an increasingly broad view of parent-subsidiary liability, now charging parent corporations with anti-bribery violations based on the acts of their subsidiaries without pleading any direct involvement by the parent in those violations. Goodyear is the latest example of this trend.”
Whoops, again the wrong talking point as Goodyear: (i) was not “charged” with anything (the enforcement action was an SEC cease and desist proceeding); and (ii) the SEC merely “found” violations of the books and records and internal controls provisions – not the anti-bribery provisions.
Another frequent observation from commentators was that the Goodyear action evidences how the SEC is “pursuing” commercial bribery cases given that the SEC enforcement action made generic references to alleged payments to private customers in connection with tire sales.
Let’s go to the monitor for this one. The Goodyear enforcement action, like most corporate FCPA enforcement actions, was based on a voluntary disclosure.” Can the word “pursue” really be used to describe enforcement actions that originate from voluntary disclosures? Or would it be more accurate to say that the SEC “processed” the company’s voluntary disclosure?
Another frequent observation from commentators was how Goodyear “staved off criminal prosecution and fines” through its voluntary disclosure and cooperation.
Time out on this one, and not just a 30-second time out, but a full one.
There is no allegation or suggestion in the SEC enforcement action that Goodyear was involved in or had knowledge of the alleged improper conduct at its subsidiaries. A parent company like Goodyear is a separate and distinct entity from its foreign subsidiaries and is not automatically liable for foreign subsidiary conduct – including potential anti-bribery violations – absent knowledge, approval, or participation in the bribery scheme. In other words, criminal legal liability does not ordinary hop, skip and jump around a multinational corporation absent an alter ego analysis or control / participation in the underlying conduct.
On the other hand, the SEC takes the position that because foreign subsidiary books and records are consolidated with the parent company’s for purposes of financial reporting that subsidiary books and records issues are parent company issues. As to internal controls, the SEC takes the seemingly simplistic position that because certain alleged payments were made by foreign subsidiaries, the parent company issuer must not have had effective internal controls.
In other words, based on the SEC’s allegations – or lack thereof – what criminal prosecution did Goodyear stave off?
“[The Goodyear action] could presage an uptick in enforcement activity in Africa, which has attracted increased global investment and, in certain countries, posted impressive recent economic growth. Despite these advancements, several African countries remain high on Transparency International’s Corruption Perceptions Index. As such, the [enforcement action] provides a clear reminder of the need to conduct appropriate pre- and post-acquisition due diligence on businesses operating in regions and industries that pose a high corruption risk.”
Another frequent comment, sure to induce March “madness” in informed readers, was the comparison to the settlement amount in Goodyear compared to say, Avon or Alcoa.
This article asserted as follows. ”For Goodyear … coming clean seems to have paid off—at least compared to the penalty imposed on Avon Products Inc. in December.”
For starters, the Avon enforcement action – like the Goodyear enforcement action – was the result of a voluntary disclosure.
Second, and most importantly, FCPA settlement amounts are largely a function of the net financial benefit obtained through the alleged improper payments. Thus comparing one settlement to another is of little value.
A full time-out is also needed to comment on this Wall Street Journal Risk & Compliance Journal which carried the headline “Lawyers Point to Goodyear As a Model In Its Handling of Bribery Probe.” Based on the views of two FCPA practitioners, the article asserts that the Goodyear enforcement action provides a ”model for companies to emulate when they discover misconduct in their own firms.”
I beg to differ.
The conduct at issue in the SEC’s enforcement action was very limited in scope (compared to Goodyear’s overall business operations) and the company learned of the alleged improper conduct through an effective internal control - a report through the company’s confidential ethics hotline.
Given these circumstances, a perfectly acceptable, legitimate and legal response would have been for Goodyear to thoroughly investigate the issues, promptly implement remedial measures, and effectively revise and enhance compliance policies and procedures – all internally and without disclosing to the enforcement agencies.
Indeed, as recently noted in this Global Investigations Review article, James Koukios (Senior Deputy Chief of DOJ’s Fraud Section) recently stated: “We understand that sometimes companies choose not to self-report, and it is not always the wrong thing to do. I think a lot of it depends on how serious the issue is and whether it is an issue that can be investigated, addressed, remediated internally, and is more of a one-off versus systemic problem.”
Likewise, as former DOJ FCPA enforcement attorney Billy Jacobson notes in this recent WSJ Risk & Compliance Journal article “more and more companies are making the decision not to disclose instead they remediate controls, get rid of culpable individuals and clean up compliance internally.”
In short, Goodyear’s decision to voluntarily disclose was not necessarily a model for other companies to emulate. Indeed a credible argument can be made that Goodyear’s decision was a poor decision that caused needless expenditure of shareholder money. Although, to my knowledge Goodyear did not disclose it pre-enforcement action professional fees and expenses, in a typical FCPA enforcement action, such professional fees and expenses exceed (often by ratios of 3, 5, or more) the enforcement action settlement amount – which in the case of Goodyear was $16 million.
Moreover, as a condition of settlement, Goodyear was required to report to the SEC, “at no less than 12 month intervals during a three year term” on the status of its remediation and implementation of compliance measures.” As highlighted in this prior post, this is little more than a government required transfer of shareholder wealth to FCPA Inc.