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Recent actions by both the DOJ and SEC show that, in the future, FCPA enforcement will be an even higher priority.
The U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) have ramped up enforcement of the Foreign Corrupt Practices Act (FCPA). Both the number of FCPA cases and sanctions imposed have risen dramatically. Over the last two years, companies have paid hundreds of millions of dollars in combined DOJ/SEC sanctions. For example, in December 2008, the DOJ and SEC assessed $800 million in civil and criminal fines and penalties in one FCPA case, and in February 2009, joint civil and criminal fines and penalties in another FCPA case totaled $579 million. Recent actions by both the DOJ and SEC show that, in the future, FCPA enforcement will be an even higher priority.
On January 13, 2010, Robert Khuzami, director of the Division of Enforcement of the SEC, announced the formation of an FCPA Specialty Unit. The unit will be led by a senior SEC Enforcement official with extensive FCPA experience and will include a large team of SEC attorneys dedicated to FCPA investigations and enforcement actions.
The FCPA Unit will likely use a more proactive risk-based approach to target certain perceived high-risk industries (including energy, pharmaceuticals, medical devices, telecommunications, defense) and companies operating in perceived high-risk locations, such as China, Russia, the Middle East and Africa. Companies involved in perceived high-risk industries or countries should expect to receive an increase in information requests from the SEC. These requests will likely seek broad categories of information looking for what the SEC may perceive as “red flag conduct,” such as the following:
- Compensation to third parties without sufficient supporting detail
- Lack of written agreements with consultants, agents or business partners
- Close relationships with government officials or payments to entities run by former government officials
- Use of shell or nominee companies
- Cash transactions
- Payments to third parties outside the country where the goods or services were provided, or to tax havens such as Switzerland
- Unusual rebate or discount pricing
- Large dollar travel, gifts or gratuities
In addition, the SEC will probably ask such companies to describe the results of any internal reviews, audits or complaints that may be indicative of potential FCPA violations.
Recently, the SEC also announced a new initiative to encourage individuals to cooperate with SEC investigations. For the first time, the Division of Enforcement will utilize cooperation agreements, deferred prosecution agreements and non-prosecution agreements—tools similar to those of criminal prosecutors—as incentives for individuals to assist SEC investigations and enforcement actions. This will likely increase the number of FCPA investigations and enforcement actions stemming from cooperating witnesses.
Similarly, DOJ will intensify its focus on FCPA cases by increasing resources, working more closely with the SEC and employing undercover tactics. Currently, a team of eight Federal Bureau of Investigation (FBI) agents and approximately 20 lawyers are dedicated to FCPA investigations—an exponential increase from prior years. More agents and prosecutors are likely to be added. The DOJ is also becoming more proactive in its FCPA investigations. For example, on January 19, 2010, DOJ arrested 22 executives and employees in the defense and law enforcement products industry at a Las Vegas industry trade show. The operation is DOJ’s first acknowledged use of large-scale undercover tactics in an FCPA investigation and included the use of an undercover FBI agent who solicited bribes posing as the minister of defense for an African country.
As U.S. law enforcement has taken the lead and stepped up FCPA enforcement, foreign regulators and prosecutors—particularly in Western Europe—have recently become more active in anti-bribery matters. This trend will likely continue.
In light of these law enforcement developments, companies with overseas operations must have comprehensive FCPA compliance programs that include strong internal controls, procedures and internal audits. An integral part of an effective compliance program is regular education of the corporate workforce, both through online and in-person training. Clear guidance regarding the law’s requirements and standards of proper behavior is important, as is training regarding what the SEC believes may be “red-flag conduct.” In light of the U.S. government’s vigilance in FCPA enforcement, regular and vigorous internal audits focusing on potential “red-flag conduct”—particularly with operations in high-risk countries—is advised. Consultation with experienced FCPA counsel should be sought as issues arise or if a company is contacted by DOJ or the SEC.
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