Enforcement of the Foreign Corrupt Practices Act (“FCPA”) has continued to be an important area of regulatory focus. Recent years have witnessed aggressive government tactics in this area and an increasing amount of cooperation between U.S. regulators and their overseas counterparts. The SEC and DOJ brought a combined total of 16 actions, and more than 100 companies were reported to be conducting FCPA-related internal investigations in 2015.
Leading FCPA Cases and Settlements
Leading the charge in headline-making FCPA settlements was this year’s agreement between the SEC and global resource companies BHP Billiton Ltd. and BHP Billiton Plc. (collectively “BHP Billiton”). The SEC accused BHP Billiton of extending nearly 200 invitations and four-day “hospitality packages” to the 2008 Beijing Summer Olympics to government officials and employees of state-owned enterprises while they were in a position to assist BHP Billiton with its business or regulatory endeavors. In May 2015, BHP Billiton agreed to settle the SEC charges for a $25 million civil penalty and a year of self-reporting on its FCPA and anti-corruption compliance program. The settlement drew attention as it did not include a charge under the anti-bribery provisions of the FCPA, and instead focused on the purported lack of proper internal controls and failures of BHP Billiton’s compliance programs.
Another noteworthy FCPA case this year was the settlement between the SEC and the Bank of New York (“BNY”) Mellon, which was charged with providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund. According to the SEC, family members of the sovereign wealth fund did not meet the criteria for BNY Mellon’s highly competitive internship program, but were hired regardless in an attempt to influence foreign officials and obtain contracts with the fund. In exchange for the settlement, BNY Mellon agreed to pay $8.3 million in disgorgement, $1.5 million in prejudgment interest, and a $5 million penalty. The case highlights that the government reads the FCPA’s language prohibiting improperly influencing foreign officials with “anything of value” quite broadly.
In another key action this year, the SEC alleged that the Chinese subsidiary of Mead Johnston Nutrition Company made improper payments to health care professionals at government-owned hospitals in order to secure recommendations for its infant formula. According to the SEC, employees of Mead Johnston’s Chinese subsidiary funneled improper payments through third-party distributors to health care professionals in China who would recommend the company’s products to new or expectant mothers. The SEC charged the company with violating the books and records and internal control provisions of the Securities Exchange Act of 1934, and Mead Johnston agreed to settle the charges for a reported $12 million this summer. As with BHP Billiton, there was no allegation that Mead Johnston violated the FCPA’s anti-bribery provisions, and the case highlights the importance of closely monitoring distributor relationships and payments as an integral part of a successful compliance program.
And, in an especially novel case, the SEC settled a FCPA enforcement action against Hitachi Ltd., in September of this year, which allegedly bribed not a foreign official but a foreign political party—South Africa’s African National Congress (“ANC”). Hitachi was alleged to have inaccurately recorded improper payments in connection with contracts to build two multi-billion dollar power plants, directing payments to a front company that was actually a funding vehicle for the ANC. The charges, also brought under the internal accounting controls and books and records provisions, were settled with a $19 million penalty.
Important Focus on Individual Accountability
For some time, the SEC has noted its commitment to hold individuals accountable under the FCPA, an intention the SEC’s Director of Enforcement reiterated in his November 17, 2015, FCPA Conference Keynote Address, where he stated that “[h]olding individuals accountable for their wrongdoing is critical to effective deterrence” and is considered “in every case.” See ACI’s 32nd FCPA Conference Keynote Address, Andrew Ceresney, Director, Division of Enforcement(Nov. 17, 2015). For its part, the DOJ released a memo under the signature of Deputy Attorney General Sally Yates in September, which, among other things, required that prosecutors only give corporations credit where the corporation has provided “all relevant facts about the individuals involved in corporate misconduct.” See Memorandum re: Individual Accountability for Corporate Wrongdoing, Sally Quillian Yates, Deputy Attorney General (Sept. 9, 2015). In addition, absent extraordinary circumstances, the DOJ is not to release culpable individuals from liability when resolving a matter with a corporation, nor should DOJ attorneys reach a resolution with a corporation “without a clear plan to resolve related individual cases.” Id.
Underscoring the SEC’s focus on individuals, it pursued both corporate enforcement charges and related individual enforcement actions against the employees of FLIR Systems, a company producing thermal imaging and night vision equipment. According to the SEC, FLIR employees provided unlawful travel, gifts, and entertainment to foreign officials in Saudi Arabia in order to obtain or retain business, and FLIR lacked sufficient internal controls to detect or prevent the violations. Ultimately, FLIR paid $7.5 million in disgorgement and $1 million in penalties, and the employees were fined $20,000 and $50,000. These individual fines, in particular, which are relatively small in comparison to the potential yield of other government actions, demonstrate the SEC’s commitment to pursue individual accountability in parallel with corporate enforcement actions.
Voluntary Disclosures and FCPA Cooperation
It bears noting that, of the SEC and DOJ enforcement actions under the FCPA, most were the product of voluntary self-reporting by the companies at issue. Under the DOJ and SEC’s cooperation programs, corporations can obtain declination, non-prosecution agreements or deferred prosecution agreements, when certain conditions are met. Generally speaking, companies have avoided the full brunt of government action when they self-disclose, make employees available for interviews, voluntarily produce documents, conduct risk assessments and internal investigations, and engage in early and extensive remediation. As the Director of the SEC’s Division of Enforcement recently put it, “companies are gambling if they fail to self-report FCPA misconduct.” See ACI’s 32nd FCPA Conference Keynote Address, Andrew Ceresney, Director, Division of Enforcement (Nov. 17, 2015).
The SEC highlighted the benefits of cooperation in its announcement of a settlement with Goodyear Tire & Rubber, which was accused in February 2015 of failing to detect and prevent some $3.2 million worth of bribes paid in connection with tires sales at its Kenyan and Angolan subsidiaries, where employees allegedly reported the bribes as legitimate business expenses. According to the government, Goodyear violated the FCPA by failing to implement adequate internal controls that could have prevented or detected the improper payments. Although Goodyear ultimately paid some $16 million in disgorgement, it paid no civil penalties as a result of its significant cooperation with the government, which included self-reporting, prompt remedial acts, and assistance with the SEC investigation. Further, not only did Goodyear voluntarily produce documents and respond to requests for information, but it also divested its ownership in its African subsidiaries, disciplined employees with oversight responsibilities, expanded its anti-corruption training, and instituted internal audits and self-assessment questionnaires regarding its subsidiaries’ business.