In this 2011 letter from Senator Mike Crapo to then SEC Chairman Mary Schapiro, Crapo asked, among other FCPA questions “under what circumstances, if any, is it appropriate for both the SEC and the DOJ to seek the recovery of penalties from the same entity for the same conduct.”
As noted in this prior post, Chairman Schapiro responded as follows.
“The Commission and Department of Justice do not obtain duplicative penalties in FCPA cases. Typically, the Commission will obtain monetary sanctions in the form of disgorgement (ill-gotten gains) while the Department of Justice obtains monetary sanctions in the form of penalties. In those rare cases where both the Commission and the Department of Justice obtain penalties, the total penalty assessed against the company is no greater than it would be if either the Commission or DOJ alone obtained the penalty.”
Nice answer, but as I noted in the prior post, DOJ penalties are calculated by reference to the advisory U.S. Sentencing Guidelines where an important factor in determining the ultimate penalty amount is value of the benefit received by the company from the conduct at issue.
Among the FCPA reform proposals advanced by Philip Urofosky (former DOJ Assistant Chief of the Fraud Section) in this article is to “eliminate overlapping enforcement jurisdiction” – in other words Urofosky writes, “the SEC should get out of the anti-bribery business.”
He writes as follows.
“The SEC’s enforcement of the anti-bribery provisions raises a fundamental matter of fairness. Take two companies, one public and one private, and assume that both violate the FCPA and realize the same illicit gain from the violation. The private company will be subject only to DOJ’s jurisdiction and will therefore be exposed to a criminal fine of up to twice its gain. The public company, on the other hand, will be subject both to that criminal fine and to a civil fine and disgorgement of the illicit proceeds, thus potentially paying a third more in fines than the private company for the same conduct.”
Should the SEC be removed from enforcing the FCPA’s anti-bribery provisions, I’d call it ”granting the wish” because, as noted in my article “The Story of the Foreign Corrupt Practices Act,” the SEC never wanted any part in enforcing the FCPA’s anti-bribery provisions. For additional support for this reform proposal, see Professor Barbara Black’s article (here) “The SEC and the Foreign Corrupt Practices Act: Fighting Global Corruption Is Not Part of the SEC’s Mission.”
Despite the SEC’s response that it does not double-dip in FCPA enforcement actions involving a DOJ component, like in many instances of enforcement agency rhetoric, the reality suggest something different.
Consider the recent Total enforcement action (see here for the prior post). At $398 million in total fine and penalty amounts, the action is the third largest in FCPA history. The action involved a DOJ component ($245.2 million) and a SEC component ($153 million).
It is clear from the enforcement agency documents that approximately $150 million represented a double-dip.
The DOJ DPA sets forth the Sentencing Guidelines calculation and notes that the base fine was $147 million “which corresponds to the value of the benefit received in return for the unlawful payments.” This base fine amount is the most significant factor determining the fine amount after the culpability score multiplier is added to it.
The SEC’s order states that Total’s improper payments “netted Total approximately $150 million in profits.” Based on this figure, the SEC ordered Total to pay $153 million in disgorgement and prejudgment interest.
In other words, Total repaid the approximate $150 million benefit it received from the alleged improper payments twice – first to the DOJ and then to the SEC.
This is called double-dipping.
And it is not unique to the Total enforcement action. Nearly every FCPA enforcement action that involves a DOJ and SEC component, in which the SEC seeks disgorgement, involves the same dynamic.