Yesterday, a colleague stopped by my office and commented how it seems like every day the news contains a story about a company subject to FCPA scrutiny. Every day may be a stretch, but a new company every week is probably accurate.
In its Feb. 14th 10-K filing, Goodyear Tire and Rubber Company disclosed as follows.
“In June 2011, an anonymous source reported, through our confidential ethics hotline, that our majority-owned joint venture in
Kenya may have made certain improper payments. In July 2011, an employee of our subsidiary in Angola reported that similar
improper payments may have been made in Angola. Outside counsel and forensic accountants were retained to investigate the
alleged improper payments in Kenya and Angola, including our compliance in those countries with the U.S. Foreign Corrupt
Practices Act. We do not believe that the amount of the payments in question in Kenya and Angola, or any revenue or operating
income related to those payments, are material to our business, results of operations, financial condition or liquidity.
Following our internal investigation, we have implemented, and are continuing to implement, appropriate remedial measures
and have voluntarily disclosed the results of our investigation to the U.S. Department of Justice (“DOJ”) and the Securities and
Exchange Commission (“SEC”), and are cooperating with those agencies in their review of these matters. We are unable to predict the outcome of any review that may be undertaken by the DOJ and SEC.”
In this prior post, I asked why in this era of increased FCPA compliance there seems to be more, not less, FCPA inquiries? Does effective compliance reduce FCPA scrutiny or does effective compliance uncover more potential FCPA issues? Based on Goodyear’s disclosure, it seems that in its case, the later is true, its compliance policies and procedures worked! If so, does this not argue in favor of an FCPA compliance defense? See here for a webcast next Tuesday on this topic.
If every company hired FCPA counsel to do a thorough review of its world-wide operations would – given the enforcement agencies theories of interpretation - 50% of companies find technical FCPA violations? 75%? 95%? If the answer is any one of these numbers, is that evidence of how corrupt business has become or is that evidence of how unhinged FCPA enforcement theories have become?
In other words, what does it say about enforcement of a law if, at any given time, the majority of corporations are on the wrong end of how that law is enforced? After all, according to the FCPA Blog’s most recent corporate disclosure list (here) approximately 80 companies are currently under investigation for FCPA violations. As the FCPA Blog rightly notes “nearly all entries are based on disclosures in SEC filings. That means non-issuers (non-public companies) aren’t included. And perhaps not all issuers have made a disclosure about a pending FCPA investigation, in which case the company may not appear on this list.”
Indeed, today’s Wall Street Journal editorial is titled “Justice’s Bribery Racket.” It begins as follows. “The Justice Department’s creative prosecutions under the Foreign Corrupt Practices Act (FCPA) continue to disintegrate [...] The 1977 FCPA was intended to prevent American companies from joining the Third World’s payoff habits. Over the last five years, however, Justice has begun to stretch the law into a far more blunt instrument. Instead of going after clear violations, the vague statute has become a tool to prosecute or threaten legions of companies.” I agree and the issues discussed in the WSJ editorial have been the focus of my writing for years. See here for the “Facade of FCPA Enforcement,” here for ”Revisiting A Foreign Corrupt Practices Act Compliance Defense,” here for my Senate FCPA testimony and here for my “foreign official” declaration. [As to the WSJ’s reference to News Corp. “if Justice tries to portray payments made as part of traditional news-gathering as criminal acts, the list of felons won’t stop at the tabloids,” I’ve stated before (here) that News Corp.’s FCPA exposure – and the intense media coverage it has generated - does shine a much needed light on the current era of FCPA enforcement and raises two distinct questions. The first question is whether – given the DOJ and SEC’s current enforcement theories – the News Corp. payments at issue can expose it to FCPA liability and the answer is yes. The second question is whether Congress intended the FCPA to apply to the numerous enforcement actions in this new era that have nothing to do with obtaining or retaining foreign government contracts. This is a valid and legitimate question and the same question could also be asked as to many other current FCPA enforcement theories.]
Goodyear states in its disclosure that it does not believe that the amount of the payments in question or any revenue or operating income related to those payments, are material to its business, results of operations, financial condition or liquidity. Then why disclose? It is perfectly acceptable in a situation like this to promptly implement remedial measures, revise and enhance compliance policies and procedures – all internally without disclosure to the enforcement agencies.
Yet the steady stream of disclosures feed a growing and vibrant FCPA industry where FCPA issues, no matter how limited in scope, often turn into a boondoggle for many involved. Corporate voluntary disclosures are like a rainbow and waiting on the other side is often the pot of gold “where else” question. For more on this dynamic, see this prior post.