On March 6, Director of Enforcement James M. McDonald of the U.S. Commodity Futures Trading Commission (“CFTC”) announced a new Enforcement Advisory at the American Bar Association’s National Institute on White Collar Crime, aimed at encouraging cooperation with CFTC investigations related to foreign corruption. Importantly, this new policy initiative suggests that the CFTC will begin more aggressively pursuing investigations related to foreign corruption that could affect U.S. markets, alongside Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) investigations into violations of the U.S. Foreign Corrupt Practices Act of 1977 (“FCPA”).
Under the new policy, companies and individuals that are not required to register with the CFTC can earn a presumption against a civil monetary penalty recommendation, absent aggravating circumstances. To do so, they must timely self-report violations involving foreign corruption, cooperate with the CFTC’s investigation, and appropriately remediate the violation. Companies and individuals that are required to register with the CFTC will not be eligible for this presumption due to their existing reporting obligations, but may be eligible to receive a recommended substantial reduction in penalty under pre-existing guidance. Notwithstanding the new policy, the CFTC will still require companies and individuals that violate the Commodity Exchange Act (“CEA”) to pay disgorgement and restitution as appropriate.
Federal regulations prohibit, among other things, intentionally or recklessly using or employing any manipulative scheme or artifice to defraud, or engaging in any practice that would operate as a fraud upon any person in connection with a swap, contract of sale of any commodity, or a commodity future.Additionally, federal regulations prohibit directly or indirectly manipulating or attempting to manipulate the price of any swap, commodity, or commodities future.
In his announcement, Director McDonald remarked that foreign corruption could amount to fraud, manipulation, or false reporting under the CEA in several ways. For example, bribes could result in fraudulent commodities prices being reported to benchmarks, or could be used to fraudulently secure business connected with trading, derivatives dealing, or another activity falling within the CFTC’s regulatory purview. Foreign corruption could also be directly related to manipulating benchmarks that serve as the basis for derivatives contracts. Director McDonald confirmed that the CFTC presently has open investigations into such conduct.
As part of the policy announcement, Director McDonald took great care to note that the CFTC’s Whistleblower Office remained “open and ready for business” in order to support its new policy. Last July, the CFTC issued its fifth and largest ever Whistleblower award, totaling $30 million to reward an individual that “voluntarily provided key original information that led to a successful enforcement action.”
This new policy reemphasizes the importance of companies engaged in international business adopting anti-corruption compliance programs that are effective in detecting and preventing corruption of all kinds. While the CFTC emphasized that its new policy was not intended to allow the CFTC to pile onto DOJ and SEC investigations, their involvement increases the potential risks and costs associated with corruption investigations in which they are involved.