Every year at the American Conference Institute’s Washington, DC Foreign Corrupt Practices Act conference, senior officials from the Department of Justice and Securities and Exchange Commission brief anti-corruption practitioners on enforcement trends and developments of the past year and offer insights on what to expect in the year to come. In this year’s Annual Anti-Corruption Enforcement Update panel discussion, moderated by Kaye Scholer partner Amy Conway-Hatcher, FCPA Unit heads Charles Duross (DOJ) and Kara Brockmeyer (SEC) also discussed the government’s views on third party risk, gifts & entertainment abuses, effective compliance program presentations and remediation, and how companies can more effectively help to expedite government investigations. The panel discussion was followed up later in the day by Keynote Speaker Deputy Attorney General James Cole, who re-confirmed the DOJ’s strong commitment to FCPA enforcement, the panoply of law enforcement tools brought to bear in these investigations and its increasing efforts to cooperate with and train foreign counterparts.
Key takeaways from this year’s conference include:
Expect More Criminal and Civil Enforcement Cases Against Companies and Individuals. Since January 2011, the DOJ has reached 27 corporate resolutions and publicly announced that 28 individuals have been charged with FCPA and FCPA-related violations, with penalties of $785 million. DOJ estimates that two-thirds of the top 20 largest FCPA cases have been brought in the last 3 ½ years, while the SEC predicted increased use of Administrative Proceedings with penalties for books and records and internal controls violations (citing the recent Stryker and Total SA settlements as examples). More significant corporate resolutions are expected in the near future. Both the DOJ and SEC confirmed that there are approximately 150 or more cases in the pipeline and that, in addition to self-reporting, they receive a constant flow of information from other internal DOJ/SEC and external sources regarding potential FCPA violations.
The Government Has Dedicated Significant Resources to FCPA Enforcement. Both the DOJ and SEC have increased their resources in the last few years and are working regularly with US Attorney’s Offices and SEC Regional Offices, in addition to foreign counterparts, to conduct investigations and pressure test information provided by companies through voluntary disclosures. The US government’s focus on building relationships with and training foreign counterparts, as well as its active participation in OECD member reviews, appears to be paying off with increased international cooperation and information sharing in investigations, as well as increased enforcement of new and existing anti-corruption laws locally by other countries.
FCPA Enforcement is Present in Every Business Sector. No sector is immune from problems or prosecution. The government made clear its expectation that businesses covered by the FCPA—regardless of size and scope of international business—comply with the law.
The Government Continues to Push for Self Reporting and Cooperation. Both the SEC and DOJ say that self-reporting and cooperation pays off. They repeatedly cite to cases like Morgan Stanley and Ralph Lauren as examples of matters where self reporting and exemplary cooperation significantly benefited the company. In addition, although they cannot identify the matters publicly, they say that there are many self-reported matters that they decline. The cases are fact specific, and there is no publicly available information to help companies assess how individual cases will be received. However, the DOJ and SEC say that companies can speed up the review of their cases by engaging earlier and more often with the government to ensure investigations are appropriately scoped and to ensure that the government’s questions are answered.
“The government made clear its expectation that businesses covered by the FCPA—regardless of size and scope of international business—comply with the law.”
Whistleblower Reports are on the Rise. On November 15, 2013, the SEC issued its annual report on the Dodd-Frank Whistleblower Program. The SEC reported that in fiscal year 2013, it received 3,238 whistleblower tips (an increase of 237 from 2012). Although it is hard to quantify the number of FCPA reports (whistleblowers are not required to identify a category and the statistics include a very large percentage of “other” reports), Brockmeyer noted that the SEC said that it is making some cases through whistleblower complaints that it would not have otherwise known about. The SEC has received whistleblower tips from all 50 states and 55 different countries (with the most coming from the UK, Canada, and China), and it has paid over $14 million from the whistleblower fund to whistleblowers during fiscal year 2013. Additional awards are expected.
Approximately 67-70% of FCPA Investigations/Cases Involve Third- Party Intermediaries. If you use distributors, channel partners, agents/consultants, or other third parties in international business or you are involved in joint venture relationships, you MUST conduct risk-based due diligence and monitor for red flags. (Do not ignore suppliers and vendors, i.e., the procurement side.) Companies should revisit their compliance programs with respect to third party relationships to make sure they are taking sufficient and reasonable steps to mitigate risk. Common red flags cited by the government include:
- The third party does not serve a legitimate business purpose
- The third party does not have the capability or infrastructure to provide the services identified
- The services are general in nature, duplicative of other vendors or never materialize
- Compensation or fees are significantly higher than market rates or what is paid for other similar services
The Government Continues to See and Bring “Bright Line” Cases for Improper Travel, Gifts and Entertainment. While there is certainly legitimate promotional activity, the government is unlikely to have much sympathy for those who continue to pay for foreign officials to visit Disney World or other tourism hot spots.
Remediation and Corporate Compliance Programs. Remediation and improvements to compliance programs should occur as soon as possible and in parallel to the investigation. If you want the government to become an advocate for a more favorable resolution, the company needs to show the government how it has strengthened its compliance program and how it plans to test enhanced controls to avoid reoccurrence of the problems in the future. The government made clear that you must be able to answer questions regarding how the violations occurred and what you have done to prevent them from happening again. The government views these discussions as an opportunity for the company to shine. Don’t squander the opportunity. Be thoughtful. Bring the people who are responsible for overseeing and monitoring the remediation. Be prepared to discuss what you have fixed and how it is working.