Officials from the U.S. Department of Justice (“DOJ”) and U.S. Securities and Exchange Commission (“SEC”) spoke about the newly released FCPA guidance1 (“the Guidance”) and current issues in FCPA enforcement at the American Conference Institute’s 28th National Conference on the Foreign Corrupt Practices Act, held in Washington, D.C., on November 15-16, 2012.2
Assistant Attorney General Lanny A. Breuer delivered the keynote address on November 16. Breuer cast enforcement of the FCPA in terms of American exceptionalism, arguing that the United States is in a unique position “to spread the gospel of anti-corruption.”3 Highlighting the DOJ’s and SEC’s work in preparing and issuing the Guidance, Breuer stated that the Guidance is contained in the most comprehensive document ever produced by the DOJ and SEC to explain the government’s approach to enforcing a statute.4 According to Breuer, the Guidance represents a bold commitment to transparency, although obviously it will not answer every question.5 Breuer highlighted the Department’s declination of an enforcement action against Morgan Stanley as an example of increasing transparency and rewarding companies that have robust compliance systems in place.6
Jeffrey Knox, Principal Deputy Chief of the DOJ’s Fraud Section, spoke on a conference panel about the Guidance, discussing how it covered many issues in FCPA enforcement.7 Knox, however, noted that the Guidance includes a disclaimer on the inside cover that states: “[The guidance] is non-binding, informal, and summary in nature, and the information contained here does not constitute rules or regulations. As such, it is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, that are enforceable at law by any party, in any criminal, civil, or administrative matter.”8 The Guidance therefore should be digested similarly to the U.S. Attorneys’ Manual: counsel can expect the government to abide by the Guidance, but the government is not bound to act in accordance with it.9
I. Enforcement Trends
Charles E. Duross, Deputy Chief of the DOJ’s Fraud Section, and Kara Brockmeyer, Chief of the SEC’s FCPA Unit, spoke on a panel about current enforcement trends. According to Duross, the DOJ is bringing a wide variety of cases across industries, not just concentrating on one industry such as pharmaceuticals; trying to increase transparency, e.g., by releasing the Guidance; and seeking to reward self-reporting. Looking back on the past year, Duross stated that the issuance of the Guidance, as well as multiple trials, sentences, and appeals, has made 2012 the DOJ’s busiest year ever in FCPA enforcement. Duross emphasized the value of self reporting in the DOJ’s enforcement program, strongly encouraging companies with FCPA issues to reach out proactively to the government as the issues arise. Adding some levity to the conference, Duross told conference participants, “We’re here to help.”
Brockmeyer said that the SEC’s FCPA Unit has also had a busy year with numerous cases brought and settled. The SEC continues to aggressively pursue tips provided by whistleblowers and issues that come to its attention from news media reports. According to Brockmeyer, the whistleblower program is producing excellent tips from individuals with documents and specific names in hand, and more awards to whistleblowers are in the pipeline. Brockmeyer said that her unit has occasionally responded to media reports by preemptively calling companies and asking if an internal investigation has commenced, rather than waiting for the company to reach out to the government.
II. Whistleblower Program
Sean McKessy, head of the SEC’s Whistleblower Office, spoke to the conference about the effects of the Dodd- Frank Act’s new whistleblower protections. The Whistleblower Office will have grown from a staff of one in February 2011 to a staff of eleven lawyers, three paralegals, and one program support specialist by the end of 2012. Reviewing the statistics provided in the office’s report10 on its first full fiscal year, McKessy noted that the office received 3,001 tips, of which 3.8% (115 tips) were FCPA related.11 Tips have been coming in from around the world, from former employees, current employees, family members of employees, and market observers. According to McKessy, a significant majority of tipsters have tried internal reporting and have approached the SEC only after an unsatisfactory internal response. In August, the office paid out its first award to a whistleblower in a case involving ongoing fraud.12 The $50,000 award represented 30% (the maximum allowed percentage under the whistleblower provision)13 of the amount the Commission had collected to date. McKessy noted that the sanctions far exceeded $1 million, the minimum threshold for eligibility under the whistleblower provisions,14 but the SEC only pays out based upon what it collects.15 According to McKessy, the office recommended compensating the whistleblower at the maximum allowable amount because of the quality of the information provided, i.e., specific documents and individuals involved in the fraud. McKessy commented that, despite some predictions that the whistleblower program would harm compliance efforts, few companies appear to feel that this prediction has been borne out.
III. Evaluation of Compliance Programs
Several DOJ and SEC officials spoke about how the government evaluates compliance programs and what companies should be doing to improve their programs. For example, Tracy Price, Assistant Director of the SEC’s FCPA Unit, spoke on a panel about internal controls. According to Price, the fact that a company has a problem does not necessarily mean that it has a faulty compliance program. As several officials noted, there will always be circumstances that foil the most robust compliance programs. Price emphasized that compliance programs need to adjust dynamically to changing risks and potential problems as they occur: a good compliance program is not static.
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In light of these comments by DOJ and SEC officials, companies can expect vigorous FCPA enforcement to continue in the near future, particularly as new information is provided through the whistleblower program. Companies are well advised to review carefully the new Guidance, develop appropriate controls to address FCPA-related risks, and seek to continuously improve their compliance programs to meet best practices and evolving risks.