Recent deferred prosecution agreements and settlements remind us of the need to carefully consider disclosure issues relating to the Foreign Corrupt Practices Act (FCPA). Since August 1, 2012, the Department of Justice and the SEC have announced the resolution of FCPA matters resulting in the payment of over $85 million in fines and penalties. In August, the DOJ announced that Pfizer H.C.P. Corporation, an indirect wholly-owned subsidiary of Pfizer Inc., and the DOJ entered into a Deferred Prosecution Agreement in connection with alleged FCPA violations. Under the Deferred Prosecution Agreement, Pfizer H.C.P. was required to pay a penalty of $15,000,000. In addition, the SEC announced that Pfizer Inc. and its Wyeth LLC subsidiary entered into settlement agreements with the SEC under which Pfizer agreed to pay more than $26.3 million in disgorgement of profits and pre-judgment interest and Wyeth agreed to pay more than $18.8 million in disgorgement of profits and prejudgment interest. In addition, on September 24, 2012, the SEC and the DOJ announced that Tyco International had agreed to pay more than $26 million dollars to settle SEC charges and resolve criminal matters brought by the DOJ relating to allegations that Tyco subsidiaries engaged in activities violating the anti-bribery provisions of the FCPA. These matters represent just a small fraction of the over 150 FCPA cases the DOJ had open in 2011 and the over 35 FCPA enforcement actions the SEC has announced since the start of 2010.
Generally, the FCPA covers, among others, any company with securities registered under the Securities Exchange Act of 1934 and any company that is required to file reports under the Exchange Act. The anti-bribery provisions of the FCPA prohibit corrupt payments to foreign officials for the purpose of procuring or maintaining business. The FCPA is notoriously broad in its scope and determining exactly what is prohibited by the FCPA can be very difficult. Because the FCPA makes illegal many payments that individuals working in countries other than the United States may consider ordinary or customary, it can be particularly difficult to put a stop to the sorts of payments that may be covered by the FCPA, even where a company has a robust training and compliance program.
The difficulty of ensuring compliance with the FCPA, even when there is a rigorous compliance program in place, combined with the significant fines and penalties that a company may have to pay for FCPA violations, present potentially significant risks to companies with international operations. Should your company include an FCPA risk factor in its annual report or registration statement? If your company has operations outside the United States, especially where those operations are in countries where unofficial payments or gifts are a regular part of the business culture, an FCPA risk factor is probably warranted. You and your legal advisors will have to determine whether an FCPA risk factor is warranted based upon your company’s own unique circumstances.