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Industry sweeps – it’s a term in the vocabulary of most FCPA practitioners. And with good reason. Industries that have been subjected to industry sweeps or are reportedly in the middle of industry sweeps include: oil and gas, pharmaceutial / medical devices, and financial services.
But what are industry sweeps, what issues do they pose, and what policy implications are implicated?
Homer Moyer (Miller & Chevalier) recently penned (here) “The Big Broom of FCPA Industry Sweeps” and it is re-posted below with his permission.
The Big Broom of FCPA Industry Sweeps
Inaugurated by the series of so-called “Panalpina cases,” which focused on companies doing business with the giant Swiss freight forwarding company, FCPA enforcement has seen additional industry-wide government investigations that have come to be known as “industry sweeps.” Focusing on particular industries – pharmaceuticals and medical devices come to mind — industry sweeps are investigations that grow out of perceived FCPA violations by one company that enforcement agencies believe may reflect an industry-wide pattern of wrongdoing.
Industry sweeps are often led by the Securities and Exchange Commission (“SEC”), which has broad subpoena power as a regulatory agency, arguably broader oversight authority than prosecutors. They are different from internal investigations or traditional government investigations, and present different challenges to companies. Because the catalyst may be wrongdoing in a single company, agencies may have no evidence or suspicion of specific violations in the companies subject to an industry sweep. A sweep may thus begin with possible cause, not probable cause. In sweeps, agencies broadly solicit information from companies about their past FCPA issues or present practices. And they may explicitly encourage companies to volunteer incriminating information about competitors. This practice not only fuels the “salesman’s defense” (that “everybody does it”), but can also generate anecdotal or speculative information that simply leads to additional rounds of inquiries.
Inevitably, industry sweeps become organic and evolve, with government investigators using information from one company as the basis for additional requests to others. Pooling information about unreliable third parties, suspect government instrumentalities, and information about employees who have worked for multiple companies can prolong an investigation or cause its scope to expand or turn in new directions.
The coming year could well force some of the issues of industry sweeps to the surface. What threshold of evidence is appropriate to target a particular company in an industry sweep? What prevents sweeps from becoming fishing expeditions that are costly to the companies and unconstrained in the agencies? What are the disclosure considerations for a company in a sweep investigation focused on Asia if issues arise in Latin America? Can a company decline to participate or cooperate, and, if so, what are the risks or trade-offs for doing so? Answers to questions such as these — which often raise policy issues, not legal ones — could affect corporate attitudes about disclosure generally, and possibly result in challenges to the agencies.