Just to add my voice to the cottage industry surrounding FCPA enforcement and compliance, I wanted to take a deep breath and offer some observations on FCPA enforcement in 2016.
There are a few significant headlines for the year so far, and I suspect more to come as we get close to the end of the year when FCPA enforcement usually picks up a little bit before heading into the next year.
FCPA Enforcement for 2016 Exceeds Total for All of 2015
This headline is not so significant given the very low enforcement numbers in 2015. But the uptick in 2016 is fairly significant, with the SEC total of 16 enforcement actions (13 corporate and 3 individual), and the Justice Department total of 10 enforcement actions (6 corporate and 4 individual).
The first quarter was a record-setting quarter for FCPA enforcement, while enforcement in the second quarter has slowed down – 5 corporate actions and 3 individuals. Nonetheless, 2016 will be seen as a year of significant FCPA enforcement action. If the pace of enforcement continues, the total number of enforcement actions will exceed all prior years through 2011 (except 2010, which had a total of 72 enforcement actions. Most of the SEC actions against companies have been relatively small, and DOJ closed its parallel investigation.
VimpelCom is the Most Significant Enforcement Action of the Year
VimpelCom was the most significant FCPA enforcement action in 2016 so far. DOJ achieved the largest criminal fine in an FCPA action.
The VimpelCom case focused on a decade-long bribery scheme through which the company earned hundreds of millions of dollars in profits. VimpelCom agreed to pay $795 million, divided among the DOJ, SEC and Dutch prosecutors. DOJ also filed a $500 million asset forfeiture action against the Swiss bank account of the Uzbek President’s daughter.
The VimpelCom matter highlighted governance failures at the board and senior management level, as well as inadequate due diligence efforts by in-house counsel. The VimpelCom board ignored serious warning signs and failed to insist on identifying beneficial owners of a shell company used to disguise the Uzbek President’s daughter, notwithstanding claims that the board was mislead by key senior executives.
Healthcare and Hi-Tech Companies Continue to be the Focus of FCPA Enforcement
Of the enforcement actions against corporations this year, a high percentage of them have been against healthcare and high-tech companies. Six have involved healthcare companies (SciClone, PTC/Yuan, Nordion, Novartis, Olympus and Analogic) and four involved technology companies (SAP, Qualcom, Akami and Nortek).
The focus on healthcare companies continues the SEC and DOJ commitment to its industry sweep. More companies are under investigation and we are likely to see more cases before the end of the year.
Hi-tech companies have come under increasing focus because of their immature compliance programs and reliance on complex multi-level channel partners for distribution of their products. Global high-tech companies are responding by addressing overall compliance deficiencies and building third party risk management systems.
FCPA Enforcement Focus on Bribery in China
The number of FCPA enforcement actions in China is increasing as an overall percentage of countries involved in FCPA enforcement. Before this year, almost one-third of FCPA enforcement actions involved China, and this year the number is closing in on 50 percent.
China poses unique and significant risks for healthcare and hi-tech companies in particular. Both industries depend on local distributors who are often involved in bribery schemes using gifts, hospitality and travel to confer benefits on critical foreign officials.
The FCPA Pilot Program May Increase Self-Disclosure
The Justice Department announced its FCPA Pilot Project with much fanfare and expectation of increasing voluntary disclosures. To reinforce its purpose, DOJ has so far granted 3 declinations to companies and released copies of its declination letters to these companies.
By altering the framework for consideration of voluntary self-disclosure, DOJ has changed the weighting of various factors. However, it is still too early to tell what impact, if any, the Pilot Program will have on overall FCPA enforcement.
The Justice Department’s focus on individual prosecutions under the Yates Memorandum is expected to influence FCPA enforcement as well. As of this date, again it is too early to tell what impact the Yates Memorandum has had on DOJ enforcement efforts.