US authorities are holding course on bribery and corruption enforcement, despite a predicted slowdown in favour of a more business-friendly approach.
September 2017 saw the first notable Foreign Corrupt Practices Act (FCPA) resolution under the Trump administration: a $965 million global settlement with Swedish telecoms operator Telia Company. It highlights the willingness of the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to impose large penalties under the FCPA. Even with the hefty penalty, Telia dodged having a compliance monitor, marking a trend worth watching.
Four years before his election, President Trump expressed contempt for the FCPA. He called it a "horrible law" that "should be changed". He suggested efforts to stop global corruption amounted to the United States acting as "policemen for the world", which he called "ridiculous".
However, recent remarks by DOJ and SEC officials show that enforcement of the FCPA remains a priority. Both agencies will target individuals at fault for corporate wrongs.
In fact, the DOJ expanded the FCPA pilot programme through the new FCPA Corporate Enforcement Policy (CEP), issued in November 2017. The CEP strengthens incentives for companies to use compliance programmes and cooperate during investigations.
Further, in December 2017 the Trump administration released its National Security Strategy. It highlights countering foreign corruption as one of five priorities to "promote free, fair, and reciprocal economic relationships".
That said, FCPA cases are not shaped solely by an aspirational commitment to fight global corruption. It takes specific DOJ policies like the CEP; these dictate how corporate fraud investigations will proceed. It also takes law enforcement priorities, as these steer limited enforcement resources.
In a keynote address on compliance and enforcement, Deputy Attorney General Rod J Rosenstein expressed a "resolve to hold individuals accountable for corporate wrongdoing". Attorney General Jeff Sessions, in his nomination hearing, also said that the DOJ will "continue to emphasize the importance of holding individuals accountable for corporate misconduct". Further, at the Committee on Banking, Housing and Urban Affairs, SEC Chair Jay Clayton restated his belief in "the deterrent effect of enforcement proceedings that include individual accountability".
Of course, actions speak louder than words. No lack of aggressive enforcement was evident in the settlement with Telia Company. Along with its Uzbek subsidiary, Coscom, Telia admitted paying $331 million in bribes to an Uzbek government official.
Telia resolved the criminal investigation through a deferred prosecution agreement (DPA), in which the DOJ imposed roughly $274 million in fines. The SEC required Telia to disgorge $457 million, to be reduced by $40 million paid in criminal fines. Telia also settled with the Public Prosecution Service of the Netherlands for another $274 million. The company's net cost for resolving the matter came to $965 million — the largest ever FCPA settlement against one defendant.
Telia's criminal fines reflect credit for the compliance and remedial measures that it took during the investigation. It fired the employees involved in the misconduct and "all individuals who had a supervisory role over those engaged in the misconduct, including every member of the Company's board who took part in the decision to enter Uzbekistan", according to the DPA.
As a result, Telia received full credit for cooperation, as well as credit for implementing enhanced compliance measures and agreeing to additional measures to ensure compliance. In a novel provision, the DPA announced that "based on the Company's remediation and the state of its compliance program, the Fraud Section and the Office determined that an independent compliance monitor was unnecessary".
In October 2017, after the settlement was announced, Michaela Ahlberg, Telia's former chief ethics and compliance counsel, revealed details about the compliance programme. Ahlberg said that she and Telia's former head of anti-corruption travelled to Washington DC three times to discuss the programme with prosecutors from the DOJ and the SEC.
Telia focused on the DOJ guidelines, while ensuring that the programme was innovative and accessible to employees. For example, it created a mobile app that helps employees to get answers to common anti-bribery questions.
Future defendants will no doubt model their behaviour after Telia in order to try to persuade prosecutors that an independent compliance monitor is unnecessary.
A few companies previously paid multimillion-dollar fines to resolve bribery and corruption allegations. They also avoided the imposition of a monitor. However, the DOJ finding that Telia's compliance and remediation efforts negated the need for a compliance monitor is unique.
The Telia resolution effectively telegraphed the Trump administration's new policy. In the new CEP, Rosenstein outlined the opportunity for companies to avoid a compliance monitor by implementing an effective compliance programme before an FCPA investigation is resolved.
Like the FCPA pilot programme, the CEP provides guidelines on how companies will benefit if they self-disclose, fully cooperate and execute timely and appropriate remediation. Whereas the pilot programme promised that the DOJ would 'consider' a declination, the CEP promises a 'presumption' of a declination. This assumes that there are no aggravating circumstances, such as widespread misconduct or executive management involvement.
When a criminal resolution is called for despite full cooperation, prosecutors in the Fraud Section will recommend a 50% reduction off the low end of the US Sentencing Guidelines' fine range, except in the case of a criminal re-offender.
The DOJ announced two such declinations in 2017 in the oil and gas and construction and engineering sectors. It closed FCPA investigations of Linde North America Inc and Linde Gas North America LLC (collectively Linde) and CDM Smith, Inc without charges.
Both Linde and CDM Smith disgorged profits linked to their reported misconduct. Linde disgorged more than $7.8 million and forfeited to the US government $3.4 million of corrupt proceeds owed to Georgian officials under a corrupt profit-sharing agreement. CDM Smith disgorged over $4 million.
Although these two declinations preceded the CEP, the companies' conduct appears consistent with what is required to secure a declination under this new policy, as they:
- conducted internal investigations;
- cooperated in full with investigators;
- agreed to disgorge profits from the conduct;
- enhanced their compliance programmes and internal accounting controls; and
- took action against culpable employees.
CDM Smith, for example, fired the executives and employees involved in, or who directed, the misconduct. Linde also fired or disciplined other employees involved in the misconduct and ended contracts relating to the scheme.
With few FCPA corruption investigations resolved under the Trump administration's watch, it is too early to weigh up how the administration will affect enforcement or settlements in the long term. On its face, the new CEP signals a more business-friendly approach by removing the spectre of a monitor in many situations and by committing to a presumption of a declination in certain circumstances.
Companies meeting the criteria for the CEP are expected to resolve SEC actions on terms that include disgorgement and receive a declination from the DOJ. Further, the DOJ will likely continue providing "declinations with disgorgement" to companies that are not issuers and thus not subject to an SEC action.
Certainly, US enforcement agencies have committed to enforcing the FCPA and, as in the Telia case, to cooperating with foreign counterparts to do so, but with greater leniency for companies that comply and cooperate. The emphasis on individual accountability and policies designed to encourage self-reporting, compliance and remediation also looks set to continue.
For further information on this topic please contact at Stephanie Yonekura Hogan Lovells US LLP's Los Angeles office by telephone (+1 310 785 4600) or email (firstname.lastname@example.org). Alternatively, contact James G McGovern at Hogan Lovells US LLP's New York office by telephone (+1 212 918 3000) or email (email@example.com). The Hogan Lovells website can be accessed at www.hoganlovells.com.
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