Compliance Programs, Self-Reporting Important in Today’s FCPA Enforcement Environment, Officials Say
Two senior U.S. government officials told a recent conference that both the Securities and Exchange Commission and the Department of Justice are increasingly pursuing individuals as well as companies for violations of the Foreign Corrupt Practices Act. They added that strong compliance programs and self-reporting of violations are among the measures that affected entities can take to avoid or mitigate FCPA penalties.
SEC Enforcement. Andrew Ceresney, director of the SEC’s Division of Enforcement, said the SEC is “very focused on attempting to bring [FCPA] cases against individuals” and that “imposing personal consequences on bad actors … will continue to be a high priority” for the agency. Ceresney noted that FCPA cases against individuals “can present some unique challenges” and that the SEC is “simply unable to bring cases against individuals in connection with a number of our cases.” Nevertheless, the SEC has “a robust pipeline of investigations across the globe,” and more FCPA cases against individuals are expected in the coming year.
At the same time, Ceresney said, FCPA cases against companies are important as well and “have had a tremendous impact in the last 10 years on FCPA compliance.” For example, he pointed out, companies have exponentially increased their compliance spending and focus. In addition, SEC actions “send important messages about areas that companies should be focused on” and are thus “scrutinized closely and dissected for information,” which is “a great dynamic and one we should continue to foster.”
Finally, Ceresney noted that the SEC obtained over $380 million in disgorgement and penalties in FCPA cases in fiscal year 2013 and anticipates “another productive year of FCPA enforcement.”
DOJ Enforcement. The DOJ has also seen an increase in FCPA enforcement actions, Assistant Attorney General Leslie Caldwell told the conference, and is focusing its attention on “bribes of consequence – ones that fundamentally undermine confidence in the markets and governments.” More than 50 individuals have been convicted in FCPA and FCPA-related cases since 2009, she said, and 25 of these cases have come since 2013 alone. In addition, criminal cases have been resolved against more than 50 companies, with penalties and forfeiture of approximately $3 billion.
Caldwell also gave some examples of the kinds of corruption cases that DOJ is currently prioritizing. “Stripping individuals of the proceeds of their conduct – and thus depriving them of the very profits that are driving the corrupt conduct in the first place – is one technique that we are using increasingly in our fight against foreign bribery,” she said. Under the department’s Kleptocracy Asset Recovery Initiative, prosecutors “are pursuing ill-gotten riches from corrupt officials using our civil authority.” The department is also working to “hold bribe takers as well as bribe payors accountable for their criminal conduct.”
There has been an increase in international collaboration as well, Caldwell said, and “an international solution truly is beginning to develop.” More companies are rejecting the notion that bribery in international business is inevitable and acceptable, and “in just the last few years several countries have enacted new anti-corruption laws or enhanced existing laws.” While the global trend against foreign corruption continues to face many challenges, Caldwell opined that “the tide has turned … and is now on our side.”
Compliance Programs. Ceresney emphasized the importance of comprehensive compliance programs in helping companies to avoid running afoul of the FCPA. If a problem does arise, he added, the SEC “will look well on companies that have robust [compliance] programs.”
“The best companies have adopted strong programs that include compliance personnel, extensive policies and procedures, training, vendor reviews, due diligence on third-party agents, expense controls, escalation of red flags, and internal audits to review compliance,” Ceresney said. “Companies should perform risk assessments that take into account a host of factors listed in the [FCPA resource guide the SEC and the Department of Justice issued in 2013] and then place controls in these risk areas. Companies should have disciplinary measures in place to deter violations and compliance programs should be periodically tested and reviewed to ensure they are keeping pace with the business.” In addition, the best companies put compliance programs ahead of business interests and “allow decisions to be made to ensure compliance with the law, no matter the business consequences.”
Self-Reporting. While the existence of a compliance program places a company in the best position to detect FCPA misconduct, the question is what a company does once it learns of such misconduct, and Ceresney asserted that self-reporting it to the SEC “is always in the company's best interest.” He explained that self-reporting allows the SEC to detect and investigate misconduct more quickly than it otherwise could and positions companies to aggressively police their own conduct. Nevertheless, the SEC also offers “significant and tangible” benefits for self-reporting and cooperation, ranging from reduced charges and penalties to non-prosecution or deferred prosecution agreements in instances of outstanding cooperation.
On the other hand, Ceresney warned, if the SEC finds FCPA violations on its own and the company did not self-report, “the consequences will surely be worse and the opportunity to earn significant credit for cooperation may well be lost.” The risk of suffering such consequences has been heightened, he added, by the “continued success and expansion of [the SEC’s] whistleblower program,” which provides monetary awards to certain individuals who provide information about securities laws violations that leads to successful enforcement actions. This program “creates a powerful inducement for those aware of wrongdoing to break their silence,” Ceresney said, and “has been very successful, even transformative, in its impact.” The SEC has received over 3,000 whistleblower tips in each of the last three years and expects to see more large monetary awards over the coming year.
Caldwell said that while DOJ is developing more FCPA cases on its own, a trend she expects to continue given the increase in whistleblowers and international cooperation, it still encourages and rewards self-disclosure and cooperation. However, to receive full credit for cooperation companies are expected to conduct a thorough, appropriately tailored investigation of the misconduct and to provide DOJ in a timely manner with useful facts on “not just what happened, but who did what, when, and where,” regardless of the rank or position of those involved. The department also expects cooperating companies to provide relevant documents in a timely fashion, even if those documents are located overseas, and “will not give full cooperation credit to companies that hide behind foreign data privacy laws.” The more open a company is with DOJ about the facts it learned during its investigation, the more credit it will receive for cooperation, Caldwell concluded, but any delay in notifying the department about an executive’s conduct or attempt to whitewash the facts about an individual’s involvement risks the receipt of any credit for cooperation.
Clarification on “Anything of Value.” The FCPA precludes the payment or provision of “anything of value” to a foreign official to induce that official to take official action for the purpose of obtaining or retaining business. Ceresney said that money, property and gifts clearly fall within this definition and that the SEC has charged companies for providing such items to not only foreign officials but also their family members. The SEC has also successfully brought FCPA cases involving other less traditional items of value, such as contributions to charities headed by or affiliated with foreign government officials. The SEC will therefore “continue to pursue a broad interpretation of the FCPA that precludes bribery in all forms,” including “cash, gifts, travel, entertainment or employment of the family and friends of foreign officials.”