July 24th, 2014

Why The Meaning Of “Foreign Official” Matters

In the aftermath of the 11th Circuit’s recent “foreign official” decision, some appear perplexed why the meaning of “foreign official” even matters.

This commentator stated:

“If your are trying to figure out whether a company is a private company or an “instrumentality” of a foreign government under the Foreign Corrupt Practices Act you are already in trouble. To reach that point in the FCPA analysis you’ve already paid a bribe, or are thinking of paying a bribe. (If you’re just thinking about it; Don’t do it.) Otherwise you’ll end up in the position of Joel Esquenazi and Carlos Rodriguez.”

Such comments are not new.

For instance, as highlighted in this 2011 post in advance of the U.S. House’s June 2011 FCPA hearing, various civil society organizations asked – regarding calls for clarification of the “foreign official” element:  ”Greater certainty of what? Greater certainty of who [companies] are permitted to bribe and who they are not permitted to bribe.”

I respectfully submit that such comments (both then and now) are entirely off-base and not the main reason why the meaning of “foreign official” matters.

To be sure, the meaning of “foreign official” mattered to Esquenazi and Rodriguez in the narrow context of their case and more broadly for the obvious rule of law reasons implicated in criminal law enforcement.

Numerous previous posts have analyzed the 11th Circuit’s “foreign official” decision (see here for the first reporting of the decision; here for the key language of the decision; here for “foreign official” – the current landscape; here for a “foreign official roundup,  here for a perspective on the court’s flawed reasoning; and here for the 193 different meanings of foreign official).

This post highlights why “foreign official” matters to the entire business community.

For starters, to say that the meaning of “foreign official” matters only to those intent on engaging in bribery is like saying the drinking laws matter only to those intent on drunk driving.  Sure, the drinking laws can certainly capture those engaged in drunk driving, yet the reality is the underlying activity – drinking – is legal and socially acceptable in most other situations.

The same is true when it comes to the meaning of “foreign official.”

The FCPA’s anti-bribery provisions are, generally speaking, implicated when money or something of value is offered or provided to a “foreign official” in connection with a business purpose.  But guess what?  The underlying activity, offering or providing money or something of value in connection with a business purpose is legal and socially acceptable in most other situations.  In fact, in most circles it is called effective sales and marketing, wining and dining the customer, or maintaining good will.

The point is companies competing in good faith in the global marketplace can legally provide things of value to one category of person in connection with a business purpose, yet providing the same thing of value to a different category of person can be a crime.

In other words, the meaning of “foreign official” expands regulation of business interactions with a “well-defined group of persons” (as correctly noted by the 5th Circuit in U.S. v. Castle – see here) to an ill-defined, practically boundless category of persons as found by the 11th Circuit in Esquenazi.

How is a company supposed to know what category of person it can safely provide things of value to in connection with a business purpose and the category of person where providing things of value may be deemed a crime?  As highlighted in this prior post, it is difficult to comprehend how a business organization could legitimately find answers to many of the factors identified by the 11th Circuit as being relevant to the “instrumentality” analysis.

As even the 11th Circuit recognized:  it will be a “difficult task – involving divining subjective intentions of a foreign sovereign, parsing history, and interpreting significant amounts of foreign law – to decide what functions a foreign government considers core and traditional.”  Moreover, the 11th Circuit recognized ”there may be entities near the definitional line for ‘instrumentality’ that may raise a vagueness concern.”

At this point, I can hear certain readers screaming, come on, FCPA enforcement actions are about bribery, not providing mere things of value to “foreign officials.”  If that is your view of FCPA enforcement, then you are clearly not reading the actual enforcement agency resolution documents which frequently contain references to such things of value as handbags, tea sets, karaoke bars, flowers, and yes even cigarettes.

Again, the reason why “foreign official” matters is because providing such things of value to one category of person in connection with a business purpose is often perfectly acceptable and legitimate, yet providing such things of value to another category of person – as evidenced by FCPA enforcement actions – is labeled a crime by the enforcement agencies.

At this point, I can also hear certain readers saying, well, the Travel Act can cover providing such things of value to non-”foreign officials,” and regardless, the FCPA’s books and records and internal control provisions are implicated in connection with all expenditures by issuers.  If that is your position, I say please highlight any Travel Act enforcement action or non-FCPA, FCPA books and records and internal controls enforcement action  focused on karaoke bars, flowers and cigarettes.

One may be inclined to dismiss corporate concern about providing such inconsequential things of value to certain categories of persons as over-reaction and paranoia.  However, this reaction is understandable because of what the DOJ and SEC are choosing to include in FCPA enforcement action resolution documents and based on DOJ policy statements that the business community should look to resolution documents (including NPAs and DPAs) as evidence of what improper conduct is under the FCPA.

In short, the vast majority of companies competing in good faith in the global marketplace are struggling with the definition of “foreign official” not because they want to bribe anybody.  But rather because such companies are legitimately and legally providing things of value to customer x, but fearful that providing the same thing of value to customer y will be deemed a crime.

The resulting compliance reality is that risk averse companies are acting contrary to sensible enforcement agency guidance.  For instance, in the FCPA Guidance the DOJ/SEC warned about “devoting a disproportionate amount of time policing modest entertainment and gift-giving.”  Likewise, in the SEC’s most-extensive FCPA guidance, the agency cautioned companies that “thousands of dollars ordinarily should not be spent conserving hundreds.”

For the above reasons, the meaning of “foreign official” matters.

Posted by Mike Koehler at 12:03 am. Post Categories: Foreign Official




July 23rd, 2014

How “Respect Your Elder” Can Present Compliance Difficulties

Among the reasons Foreign Corrupt Practices Act compliance is difficult for even the most well-managed business organization operating in the global marketplace is the obvious fact that a company is not a computer on auto-pilot.

Rather, as highlighted in “Revisiting an FCPA Compliance Defense,”

“Doing business in international markets often requires hiring local workers who are products of different cultures and experiences, speak different languages, and are located in different time zones from corporate headquarters. While bribery is prohibited by the written laws of every country and while a suitcase full of cash to a government official to obtain or retain a government contract is a universal wrong regardless of culture, language, or experience, this is where the consensus often ends. Even with gold-standard compliance policies and procedures, the practical reality of monitoring and supervising this vast and diverse network of individuals is difficult and even gold-standard compliance policies and procedures are not foolproof.”

FCPA scrutiny is best minimized when, among other things, employees (regardless of rank, title or position) are able to spot FCPA risk and report concerns or suspicions to the appropriate personnel within the company.

Problem is we are all taught from an early age to “respect our elders” and this cultural norm is even more pronounced in certain cultures outside of the U.S.  In many countries, this cultural norm permeates all facets of life including the workplace.  In short, the same cultural diversity that so enriches a business organization can present compliance difficulties.

From my FCPA practice experience conducting internal investigations abroad, I have direct knowledge of certain instances of FCPA scrutiny that arose in Asian countries where the conduct under investigation focused on the “patriarch” of the office (in other words the elder male), yet under circumstances where the traditional gatekeepers in the company  (in-house counsel, finance and auditing professionals, etc.) were either younger males, or more often, younger females who appeared culturally paralyzed to voice their concern or suspicion regarding the “patriarch.”

The “respect your elder” dynamic, which is positively viewed in other aspects of life, presented compliance difficulties for this particular company, and no doubt many other companies operating in Asia where this cultural value is most revered.

While outside the FCPA context, this recent post “Learning to Speak Up When You’re from a Culture of Deference,” on a Harvard Business Review site by Professor Andy Molinsky is spot-on.  He writes:

“Many of us are uncomfortable speaking with people of higher status. We can feel self-conscious, unsure of what to say, and afraid what we’re going to say — or what we’re saying — is the wrong thing. After these conversations, we often replay in our heads what we said, analyze what we shouldn’t have said, or realize what we should have said but didn’t. But imagine what communicating up the hierarchy is like for people from countries and cultures where notions of hierarchy are much deeper and much more ingrained than ours. Where even as a small child you are taught to speak only when spoken to, and that in the presence of authority figures, like your parents, your teachers, or your boss, you should remain quiet, put your head down, do solid work, and hope to be noticed.”

In the article, Professor Molinsky offers advice that “organizations and particularly leaders of organizations [can] do to lessen the brunt of this liability of deference for their employees from other cultures.”  Much of the practical advise seems self-obvious at first blush, yet – as in other aspects of compliance – sometimes the self-obvious is not so self-obvious.

Moreover, recognizing the existence of a hidden problem (in other words how the “respect your elder” dynamic – so noble in other aspects of life – can present compliance difficulties) is often the first step to crafting company specific responses to counteract the problem.

Posted by Mike Koehler at 12:03 am. Post Categories: Compliance




July 22nd, 2014

Across The Pond

Today’s post highlights various developments across the pond in the United Kingdom.

*****

Last week, Sweett Group (a U.K.-based provider of professional services for the construction and management of building and infrastructure projects) provided this update regarding its previously disclosed scrutiny:

“Sweett Group, notified the Serious Fraud Office (SFO) last year about an allegation of impropriety concerning the conduct of a former employee in 2010, which was reported in the Wall Street Journal in 2013. That former employee operated from an office in Dubai under contract with Cyril Sweett International Limited (CSI).  CSI is a company registered in Cyprus and is a wholly owned subsidiary of Sweett Group plc. Sweett Group initiated independent investigations of the allegation and has been keeping the SFO regularly informed as to the progress of those investigations. As was reported on 2 April 2014, evidence came to light that suggests that material instances of deception may have been perpetrated by a former employee or employees during the period 2009 – 2011. One of the former employees refused to answer questions asked of him by the independent investigators. The SFO has now decided to exercise its statutory powers under the Criminal Justice Act to investigate this matter. Sweett Group continues to cooperate fully with the SFO on this matter.”

The U.K. SFO issued this release stating:

“The SFO confirmed today that the Director has opened an investigation into Sweett Group in relation to its activities in the United Arab Emirates and elsewhere.”

*****

This recent front-page Wall Street Journal article added Tradition Financial Services of Switzerland to the growing list of financial services firms under scrutiny for  prior relationships with senior Libyan officials under Moammar Gadhafi.  According to the article, “City of London police pursuing a criminal probe have interviewed former employees of Tradition and are nearing a decision on whether to bring charges.”  The article also suggests that the SEC and DOJ are also “examining whether the firm or its employees were part of what authorities believe was a broad pattern in which Western companies used improper means to curry favor with officials in the Gadhafi regime.”  According to the article, “U.S. investigators have also looked into the Libyan activities of hedge-fund manager Philip Falcone of Harbinger Capital Partners.”

This 2011 guest post predicted scrutiny concerning business practices in Libya after Gadhafi. This previous post asked – in connection with the various Libya probes – whether the U.S. government bears some responsibility.

*****

This Pillsbury client alert asks – in regards to the Bribery Act’s recent three-year anniversary – “The UK Bribery Act, Three Years On: Can We Relax Yet?”  The alert begins:

“The Bribery Act 2010 has now been in force for three years. Despite the announcements and commentary that it heralded a new and aggressive face toward corporate corruption, there have as yet been no corporate prosecutions brought under the Act. Was it all sound and fury signifying nothing? Or should all involved remain cautious and focused on compliance?”

*****

In this recent speech, Ben Morgan (Joint Head of Bribery and Corruption at the U.K. Serious Fraud Office) asks “Deferred Prosecution Agreements:  What Do We Know So Far?”

The obvious answer is nothing since there has not yet been a UK DPA in the “FCPA-like” context or otherwise.  Nevertheless in the speech Morgan did highlight what “you need to do if a DPA is to be a potential resolution to an issue you discover.”

Morgan stated:

“It is not my job to try to persuade you to seek a DPA – that is a matter entirely for you and it is open to you to ignore that potential disposal of an issue and defend a prosecution instead. We are very comfortable with both scenarios, but the point of today is to concentrate on the DPA fork in the road as opposed to the adversarial prosecution fork in the road, so that’s what I will concentrate on. While my intention today is to encourage co-operation between you and the SFO, do remember that that only applies to those of you who choose the DPA fork in the road. For everyone else, remember we are ultimately a prosecutor and you can expect the bulk of our case load to be prosecuted in the usual way – the Director has made that entirely clear.”

[Comment:  years ago the DOJ said the same thing about NPAs and DPAs (i.e. they were to be used sparingly and only in appropriate circumstances) however the passage of time has suggested otherwise].

Back to Morgan’s speech.  He stated:

“If I was back in my old job, advising a company that had become aware of a potential criminal incident, I would be asking myself these two questions:

  • 1) Will the SFO ever find out? and
  • 2) If they do, what would they really do about it anyway?

Those of you who follow what the SFO has to say about DPAs will know that the Director and our General Counsel have spoken about both of these points at length. I do not repeat what they have said today, although I do endorse it. Today I want to make just two new points to amplify that.

As for “will the SFO find out” the point is simply this – our intelligence capability is expanding and as is widely known, we are investing heavily in it. The Director has said that we are seeking to make use of the full range of investigative tools available to us, and I can say from personal experience that that is now moving to a new level in practice. Through our own capabilities, and in conjunction with our law enforcement and intelligence partners, we have access to and are using that full range of tools. That is potentially game changing for us, not only in respect of forensic recovery of things that have happened in the past, but also in respect of evidence of things happening right now – crime in action.

Judging whether we will find out has always been an exercise in balancing risk. My message for you is if you don’t understand what that full range of investigative tools entails, you are not doing a proper balancing exercise – so you need to do some research on that, and have another think about your risk appetite. Refresh your assessment of what we’re able to do and how that might affect you.

As for “the SFO won’t do anything anyway”, I have to acknowledge history – we have very few corporate convictions in our stable. But under the current Director’s leadership I and others are expressly addressing that as a priority. Three points are worth making.

1) It is often said that it is too difficult to prosecute under pre-Bribery Act legislation. I disagree with that strongly – it can be done if the evidence is there. With the convictions recently of two of the controlling minds of Innospec – the former CEO and current Sales Director – we have shown that we have the resilience to find that evidence and make sure a jury has the opportunity to consider it, however long that takes and however robustly defendants try to stop that happening. Had the company not already pleaded, we would have had a conviction of a corporate under the old legislation for the bribery of foreign public officials. It can be done, we are doing it on other cases right now and we have the appetite to take it on on new cases as well if the evidence leads that way. It is not too difficult to prosecute under pre-Bribery Act legislation. It is hard, yes, but that is what the SFO is for, and we will do it.

2) Of course as time moves on, more and more of the conduct we are looking at is starting to straddle or post-date the coming into force of the Bribery Act, so for corruption offences at least, the job of prosecuting a corporate should become easier.

3) Finally on this, you will have heard the Director speak about the need for the logical expansion of the section 7 offence to cover other economic crimes, and my own view is that that logic is irresistible, such that the job of prosecuting corporates for more than just corruption offences should also become easier.”

As to “what we know about DPAs so far,” Morgan stated:

“[W]hen you become aware of potentially criminal conduct, there is a fork in the road – do you keep quiet and brace yourself for a fight if the SFO comes calling; or do you come and talk to us, work with us rather than against us, and try to manage the consequences of that incident responsibly, exhibiting the characteristics of honesty and integrity that I am sure every one of you has a lot to say about in your Code of Ethics and your Corporate Social Responsibility literature. Do you do the right thing morally, regardless of your analysis of the balance of risk?

I speak to defence barristers and solicitors about this a lot, and I am frequently told that the impediment to corporates coming forward is that their advisers cannot say with enough certainty what will happen if they do. That’s nonsense. Ever since DPAs have been on the agenda the consistent message from the SFO has been that a company that comes to tell us about a problem and genuinely co-operates with us in resolving it is unlikely to be prosecuted. While there will still be corporate prosecutions, the Director has said on many occasions that if a company genuinely does that, it will weigh heavily against the public interest parts of the Full Code Test pointing toward a prosecution. So actually, the position is pretty clear.

The question that naturally arises then is what is meant by genuinely co-operating with us? Again, I personally think this is pretty clear too – the DPA code covers it, and we have developed that in several speeches since. It seems to me that the issue amongst defence lawyers on co-operation is less a lack of clarity about what we are asking for, and more the fact that they don’t particularly like what we are asking for. For that reason I am glad to have this opportunity to speak directly to the corporates present here today. I think it’s important people hear from us about what we are asking for. If you want to have a chance of getting a DPA when you discover an issue somewhere in your network, you need to think through some of the following:

1) Tell us something we don’t already know, and do it within a reasonable period of the incident coming to light. I accept that it is hard to strike the balance between knowing enough about what has happened to make it worth speaking to us, and leaving it too long and us finding out anyway. If I was an adviser, I would be trying to approach that judgement by reference to the SFO’s own criteria for taking on a case. The Director has the power under section 1 of the Criminal Justice Act to open a criminal investigation into a suspected offence which appears to him on reasonable grounds to involve serious fraud, bribery or corruption. Practical tip number one is why not approach your analysis using that same test? I can’t guarantee it will get you a DPA, but it is the best help I feel I can offer in terms of when to come and talk to us.

One thing I can say with confidence is that generally speaking, the time to come will be a lot sooner than people have tended to think in the past. We certainly do not need you to have instructed lawyers to do an 18 month internal investigation and produce a weighty report. In the context of DPAs, from the SFO’s perspective those days are over. You need to decide early if you want a DPA to an option, and come and see us promptly if you do. And if that seems worrying, remember this – we have to apply the Full Code Test to any charging decision we make, so if you come and tell us something early you have the security that if having looked at it together, the evidence of a crime is not there, we MUST NOT pursue the case, and I can promise you we won’t. We are far too busy to try to force a square peg into a round hole.

[...]

4) There are a series of other important steps a co-operating company needs to take – and these are set out in the Code of Conduct: engaging with us on the scope of an ongoing investigation, points around the capture and sharing of digital material, that sort of thing. The final practical tip I would offer is this. In the case of all co-operative steps, make sure that you really are co-operating; genuinely. I came across the awful phrase recently at an event “the impression of co-operation” and believe me, nothing is more likely to derail the DPA process than a stage-managed attempt to co-operate that, as our investigation progresses, inevitably transpires to have been designed to give no more than the impression of co-operation. It is a matter of substance, sustained over time, not form, and proper co-operation requires genuine effort on the part of a company from the point of coming to speak to us, right through the DPA process, and then on throughout the life of the DPA.

Remember that ultimately it is a matter for a judge whether a DPA is finalised, not the SFO. I can say for my part that I certainly won’t be inviting any corporate into the process who I do not honestly believe is being fully frank with us. Littering correspondence with the word “co-operation” but in fact doing anything but is really not good enough. Co-operation is something we will judge by actions, not words. And while I can’t speak for the judiciary, I would be stunned if anything other than genuine, unreserved co-operation from a corporate would be enough to satisfy a judge that it is in the interests of justice to dispose of criminal conduct through a DPA rather than a prosecution.

For those that choose the DPA fork in the road, my message for you today is a warm one; if we think a DPA is appropriate then we are willing to work with you, collaboratively, to present to the court a DPA that is properly in the interests of justice. To get to that mutual goal, where we are both in court asking the judge for the same thing, you will have to be frank and open with us, and co-operate with us. I’ve explained what that means to us. A DPA won’t be appropriate in every case, and even if you follow everything I’ve said this morning I can’t guarantee you will get a DPA, but if you choose to ignore everything I’ve said, you might quickly find you’ve ruled one out.”





July 21st, 2014

Potpourri

Inversions

Readers of business news know that a term du jour these days is “inversion.”  In other words and at the risk of oversimplification , the process by which, largely for tax reasons,  a U.S. company acquires a foreign company, obtains that foreign company’s “legal address,” yet maintains – in many cases –  its operational base in the U.S.

I’ve been asked a few times recently what impact, if any, “inverting” will have on a company’s FCPA exposure.  My answer has been very little, if any, impact.

Most of the companies that are “inverting” remain issuers under the FCPA.  Moreover, even if an “inverted” company is not an issuer, because most of these companies are keeping an operational base in the U.S. – even if a legal address elsewhere – it is likely that the DOJ would consider such companies to be “domestic concerns” under the FCPA.

The FCPA defines “domestic concern,” in pertinent part, as follows.

“any corporation, partnership, association, joint-stock company, business trust, unincorporated organization, or sole proprietorship which has its principal place of business in the United States, or which is organized under the laws of a State of the United States or a territory, possession, or commonwealth of the United States.”

In other words, place of incorporation and “legal address” is one way for an entity to be a domestic concern under the FCPA, but so too is having a principal place of business in the U.S.

For instance, in the Weatherford action, the DOJ stated:

“Prior to March 2009, Weatherford was incorporated in Bermuda and headquartered in Houston, Texas … As of March 2009, Weatherford was incorporated and headquartered in Switzerland, although it maintained a significant presence in Houston, Texas.”

In short, while inversions may have tax implications, it is difficult to see any meaningful implication under the Foreign Corrupt Practices Act.

It Can Be Done

You know the narrative.

In 2002, an accounting partnership (Arthur Anderson) was convicted of obstruction of justice for shredding documents related to its audit of Enron.  Even though the Supreme Court ultimately tossed the conviction, Arthur Anderson essentially went out of business.  Because of this, in the minds of some, the DOJ can’t criminally charge business organizations with crimes and business organizations can’t mount legal and factual defenses to criminal charges.  Thus, the DOJ has crafted, and the business community has accepted,  alternative resolution vehicles such as non-prosecution and deferred prosecution agreements to avoid the perceived collateral consequences of a criminal indictment or conviction.

Never mind that the narrative is based on a false premise.  (See here for the guest post and article by Gabriel Markoff titled “Arthur Anderson and the Myth of the Corporate Death Penalty).

Nevertheless, the narrative persists and is accepted by some as gospel truth.

I have been publicly wondering since 2010 (see here) what the “shelf life” of the Arthur Anderson effect would be and how long the Arthur Anderson myth would be believed.

If there are still believers, witness yet another instance (PG&E from earlier this year was an example as well – see here) that companies (even publicly-traded companies) can mount legal and factual defenses to what the company views as aggressive and overzealous DOJ enforcement theories.

As widely reported, last week FedEx Corporation, FedEx Express, Inc., and FedEx Corporate Services, Inc.,  were criminally indicted “with conspiracies to traffic in controlled substances and misbranded prescription drugs for its role in distributing controlled substances and prescription drugs for illegal Internet pharmacies.”  (See here for the DOJ release).

In response, FedEx issued this statement which stated, in pertinent part, as follows.

“FedEx is innocent of the charges brought today by the Department of Justice. We will plead not guilty. We will defend against this attack on the integrity and good name of FedEx and its employees.”

FedEx stock is still trading, (in fact it is up since the criminal charges were announced), it is still employing people, and it is still operating its business.  In fact, a FedEx truck just went down my residential street a few hours prior to writing this post.

While the FedEx example is outside the FCPA context, the message to corporate boards, audit committees, and other corporate leaders should be clear.

Yes, there are “carrots” and “sticks” which motivate risk-adverse business organizations to do things regardless of the law or facts in any particular matter.  However, fighting back against what the company perceives to be aggressive and overzealous DOJ theories is an acceptable and viable option in many cases despite speculative doomsday scenarios to the contrary.

If more companies would do what FedEx is doing in the FCPA context. and thereby expose certain DOJ and SEC theories of enforcement, I am confident of one thing.  This “new era” of FCPA enforcement would look different than it does today.  In this regard, and as highlighted in my recent article, the business community is, at least in part, responsible for the current aggressive FCPA enforcement climate. Indeed, as Homer Moyer, a dean of the FCPA bar, recently observed:

“One reality is the enforcement agencies’ [FCPA] views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.”

Kudos to FedEx, its board, counsel and corporate leaders for having the courage of conviction and not rolling over and playing dead in the face of DOJ scrutiny.  (Note, last year UPS resolved its alleged scrutiny for the same core conduct by agreeing to a non-prosecution agreement in which it paid $40 million).

In-House Counsel Opportunity at Avon

Avon Cosméticos, a subsidiary of Avon Products, Inc., based near Buenos Aires, Argentina, is looking for an attorney to join the Ethics & Compliance team.  The Compliance Counsel has day-to-day operational responsibility for managing the compliance program in the South Markets Group (Argentina, Chile, Paraguay and Uruguay).  The program seeks to minimize risk exposure of corporate and regulatory law through company guidance and controls.  A primary activity of the Compliance Counsel is to provide operational advice and interpretation of company policies and procedures, including but not limited to the company’s anti-corruption policy.  As part of the program, the Compliance Counsel supports corporate, regional and local governance, monitoring, auditing, training and communication initiatives.  A primary goal for the Compliance Counsel is to enhance the culture of awareness and adherence to company policies.  Prospective candidates should apply via the Avon website:  https://avon.zonajobs.com.ar/listadoAvisosBj/.

Posted by Mike Koehler at 12:02 am. Post Categories: Deferred Prosecution AgreementsInversionsJurisdictionNon-Prosecution Agreement




July 17th, 2014

Comparing DOJ FCPA Enforcement To SEC FCPA Enforcement Is Not A Valid Comparison

This recent Wall Street Journal Risk & Compliance Journal headline stated “SEC Stays on the FCPA Sidelines” and states in relevant part:

“The Securities and Exchange Commission has largely stayed on the sidelines of anti-bribery enforcement so far this year … The agency has brought just two enforcement actions tied to the Foreign Corrupt Practices Act in the first six months of the year, compared to 13 brought by the Justice Department.”

For starters, there have not been 13 FCPA enforcement brought by the DOJ this year and, once again, it is only through creative counting methods that some industry participants are able to reach numbers.  As noted in this recent post, thus far this year the DOJ has brought 3 corporate enforcement actions (HP related entities, Alcoa and Marubeni) and 3 core individual enforcement actions (5 individuals in connection with Indian mining licenses, 3 individuals associated with PetroTiger and 2 individuals added to the 2013 case involving individuals associated with broker-dealer Direct Access Partners).  As highlighted several times on these pages, the most reliable way to keep FCPA statistics is using the “core” approach (i.e. the Indian mining licenses case is one “core” action, etc.), an approach endorsed by the DOJ and an approach that is a commonly accepted method used in other areas.

Regardless of counting method, comparing DOJ FCPA enforcement to SEC FCPA enforcement is not a valid comparison because – sticking with the “sidelines” reference – the DOJ and SEC “play” on different fields.

As demonstrated visually below, the SEC has FCPA jurisdiction over only issuers and associated person (78dd-1 – a relatively narrow slice of the range of “persons” subject to the FCPA).

The DOJ, by contrast, has FCPA jurisdiction over issuers and associated persons (78dd-1), as well as domestic concerns (78dd-2 – all U.S. companies regardless of form of business organization and U.S. persons) and persons other than issuers or domestic concerns (78dd-3 – literally any company in the world or any person in the world to the extent certain jurisdictional requirements are met).

Jurisdiction

In 2014, when the DOJ and SEC are playing on the same field – that is issuer FCPA enforcement actions – there is perfect 2 for 2 overlap as the SEC also brought enforcement actions against HP and Alcoa.  (Marubeni is not an issuer).  Even if it wanted to, the SEC could not bring FCPA charges against individuals in the Indian mining license enforcement action, individuals associated with PetroTiger or individuals associated with Direct Access Partners (although the SEC did bring non-FCPA charges against certain of the Direct Access Partners individuals because the entity was a broker-dealer).

In short, it is not that the SEC is staying on the “sidelines,” rather it is not allowed under the FCPA to step onto the same “playing field” as the DOJ.

In case you are wondering, in 2013 the DOJ brought 6 issuer FCPA enforcement actions (ADM, Weatherford, Diebold, Total, Ralph Lauren and Parker Drilling) and in all 6 of those DOJ issuer actions there were also related SEC enforcement actions against those same issuers.  In 2013, the SEC brought an additional 2 issuer enforcement actions (Stryker and Philips) that the DOJ theoretically could have joined, but here, it is not surprising that the SEC, a civil law enforcement agency, brought more issuer cases than the DOJ, a criminal law enforcement agency.  To complete the analysis from 2013, there was 1 DOJ enforcement action (Bilfinger) involving a non-issuer and thus the SEC was not allowed on that “playing field”).

Posted by Mike Koehler at 12:04 am. Post Categories: FCPA StatisticsJurisdiction