On February 21-22, 2014, the U.S. Securities and Exchange Commission held its annual “SEC Speaks” conference in Washington, D.C. On the first day of the conference, Kara Brockmeyer, Chief of the Foreign Corrupt Practices Act Unit (“FCPA Unit”), spoke on an Enforcement Division workshop panel about the past year’s FCPA trends and this year’s priorities for the FCPA Unit.
Of particular note, Ms. Brockmeyer emphasized the importance of companies investing the proper “thought and analysis” into their FCPA compliance programs and internal controls. As we have previously written about, the SEC and DOJ have repeatedly emphasized that companies should tailor their compliance programs to their own individual circumstances, and that all companies should continually reevaluate, test, and strive to improve their compliance programs over time. Ms. Brockmeyer also explained the specific factors behind the SEC’s reasoning for offering its first-ever non-prosecution agreement to Ralph Lauren Corporation. Other highlights from Ms. Brockmeyer’s statement are below.
FCPA Trends and Statistics
- The SEC has already brought the same number of FCPA enforcement actions in 2014 than it brought in all of 2013. The clear message from Ms. Brockmeyer was that although FCPA enforcement decreased in 2013, companies should not forget that the FCPA is still a priority for the SEC.
- The most common types of FCPA cases that the SEC brought in 2013 and 2014 were traditional bribery cases and cases based on improper travel and entertainment expenses for foreign officials. Ms. Brockmeyer also noted that the SEC brought a FCPA case based on charitable donation payments and on payments to foreign officials in return for value-added tax (“VAT”) refunds (the ADM case). This case was just the second such time in the SEC’s FCPA enforcement history where a company was charged for making improper payments through charitable donations.
- The biggest issues in FCPA enforcement right now are third-party intermediaries and travel and entertainment expenses. Ms. Brockmeyer noted that she is “amazed” to see companies enter into arrangements with third parties to get business without knowing anything else about that third party. Ms. Brockmeyer’s message was clear: third-party due diligence is critical.
- The SEC will bring more FCPA administrative proceedings rather than district court cases (see,e.g, the recent Alcoa, Inc. settlement). This initiative is part of a broader change in SEC policy resulting from Dodd-Frank. Under previous law, the SEC could only bring administrative proceedings against regulated entities (e.g. investment advisors and broker-dealers) and individuals associated with regulated entities, but Dodd-Frank Section 929P(a) allows the SEC to now bring administrative proceedings against any entity or individual.
- In April 2013, the SEC entered into its first non-prosecution agreement (“NPA”) based on FCPA issues with Ralph Lauren Corporation. Ms. Brockmeyer described the following factors as critical to the SEC’s decision to enter into the NPA:
- Immediate self-reporting to the SEC (i.e., within two weeks of discovering the FCPA problem);
- Active self-policing (i.e., Ralph Lauren discovered the bribery during the rollout of a new FCPA training program);
- Production of English-language translations of documents to the SEC and voluntary production of foreign witnesses for interviews in the U.S.;
- Extensive remediation, including a worldwide review of the company for other FCPA violations.
- When asked, Ms. Brockmeyer said that the fact that Ralph Lauren only discovered bribery problems in one subsidiary in one country also made a difference in the NPA decision. The company probably would not have qualified for an NPA if the problems were more widespread or systematic.
The SEC’s FCPA Priorities for 2014
- Compliance Programs: The SEC is continuing to observe companies put more thought and analysis into their compliance programs and internal controls. Ms. Brockmeyer noted that companies are using the FCPA Guidance from November 2012 to strengthen their compliance programs, including integrating the hypotheticals from the Guidance into their training programs, which is exactly what the SEC intended.
- Internal Audit: In addition to having a FCPA compliance policy, the SEC wants companies to test their FCPA programs through their internal audit function. Ms. Brockmeyer said that companies should use the same internal testing procedures as they use for Sarbanes-Oxley testing, so it should not be an overly burdensome process. We agree that companies should not have toothless paper policies, and the amount and type of testing they do should take into consideration the company’s resources, organizational structure, and risk assessment.
- Monitors: The SEC will determine on a case-by-case basis whether a monitor is an appropriate part of an FCPA settlement agreement. The SEC is using more “hybrid monitors,” which are a combination of independent monitors and self-reporting on the part of the company.
- Self-Reporting: Ms. Brockmeyer said that many companies are self-reporting FCPA issues, including small problems that the company immediately remediates, and the SEC takes no action. Despite the SEC’s pitch for self-reporting as a routine matter, we recommend that companies approach self-reporting carefully and thoughtfully, and consult with outside counsel where appropriate, in considering how to best address FCPA issues.
- The Whistleblower Program: The whistleblower program instituted by Dodd-Frank has been a good source of “detailed and informative” leads for the SEC. Ms. Brockmeyer said that the whistleblower program is also helping the SEC evaluate trends in potential FCPA violations. She noted that the SEC does not want to prosecute one-off cases; rather, they want to investigate patterns within industries. This is consistent with prior SEC and DOJ statements about industry-wide FCPA sweeps of the financial services, oil-and-gas, and pharmaceutical and medical device industries
- International Cooperation: Ms. Brockmeyer commented that more and more countries are enforcing their own domestic bribery laws, as well as their international bribery laws. The SEC has also seen an increase in parallel investigations, in sharing of documents across international borders, and in cooperation between national governments in interviewing foreign witnesses.