October 18, 2021

Volume XI, Number 291

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October 15, 2021

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Foreign Corrupt Practices Act Trends

Recent high-profile settlements stemming from alleged violations of the Foreign Corrupt Practices Act, 15 U.S.C. §§ 78dd-1 et seq. (FCPA), together with the nearly twofold increase in enforcement actions brought in 2010, underscore the necessity for multinational corporations to implement detailed compliance guidelines to mitigate potential FCPA exposure.    

FCPA Overview

Congress enacted the FCPA in 1977 in an attempt to curb the bribery of foreign officials and to restore public confidence in the integrity of the American business system.

Specifically, the FCPA’s antibribery provisions make it unlawful for a U.S. person, and certain foreign issuers of securities, to make a corrupt payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person.  Since 1998, these antibribery provisions also apply to foreign firms and persons who take any act in furtherance of such a corrupt payment while in the United States.

In addition to the antibribery provisions, the FCPA contains a books-and-records provision requiring issuers to make and keep accurate books, records and accounts that correctly and fairly reflect, in reasonable detail, the issuer’s transactions and disposition of assets.  Finally, the FCPA’s internal-controls provision requires that issuers devise and maintain reasonable internal accounting controls aimed at preventing and detecting FCPA violations.  Regulators frequently leverage these accounting provisions to facilitate settlements because there is no requirement that a false record or deficient control be linked to an improper payment.  Even a payment that does not constitute a violation of the antibribery provisions can lead to prosecution under the accounting provisions if inaccurately recorded or attributable to an internal-controls deficiency.

While the SEC is responsible for civil enforcement of the FCPA with respect to issuers, the Department of Justice (DOJ) is responsible for all criminal enforcement and for civil enforcement with respect to domestic concerns, foreign companies and nationals.

Recent Trends in FCPA Enforcement

The emerging era of FCPA enforcement activity is characterized by escalating numbers of enforcement actions, bolstered by industry-wide investigations with a focus on prosecuting individuals, and heightened levels of international anticorruption cooperation and enforcement.

Each of these trends continued in 2010, a year in which there was an unprecedented number of FCPA enforcement actions brought by the SEC and the DOJ—26 and 48, respectively.  In comparison, the SEC brought a total of 14 and 13 enforcement actions in 2009 and 2008, while the DOJ brought 26 and 20 such actions, respectively, in those years.  Not only is 2010 notable for the sheer number of enforcement actions, but the monetary penalties assessed in 2010 also reached historic heights:  eight of the top ten monetary settlements in FCPA history were reached in 2010.

Top 10 FCPA-Related Monetary Settlements

A number of prosecutions in 2010 also centered on corruption in the telecommunications industry, principally in Latin America, but also in Africa and the Far East.

Most recently, on December 27, 2010, the SEC and DOJ announced a joint settlement with Alcatel-Lucent, S.A., a global telecommunications giant, to resolve allegations of widespread bribery of foreign government officials.  According to the charging documents, from 2002 to 2006, prior to its merger with Lucent Technologies, Inc., Alcatel S.A. used third-party agents to pay more than $8 million in bribes to government officials in Costa Rica, Honduras, Malaysia and Taiwan in exchange for hundreds of millions of dollars worth of public-sector telecommunications contracts.  Also, Alcatel-Lucent allegedly hired agents without proper controls in Kenya, Nigeria, Bangladesh, Ecuador, Nicaragua, Angola, Ivory Coast, Uganda and Mali.  Alcatel-Lucent was alleged to have won more than $450 million in contracts, and $48.1 million in profit, stemming from improper payments to foreign officials.

To resolve the SEC’s complaint, Alcatel-Lucent agreed to pay $45.4 million in disgorgement and consented to an injunction from future violations of the antibribery and accounting provisions of the FCPA.  To resolve the criminal charges with the DOJ, Alcatel-Lucent consented to the filing of an information charging it with violating the accounting provisions; three of its subsidiaries pleaded guilty to FCPA conspiracy counts, and all the companies paid a combined criminal fine of $92 million.

Among many other notable issues from the Alcatel-Lucent case, it marks just the second time in the history of the FCPA (the first being Siemens AG in 2008) that a company has resolved criminal internal-control charges.  Moreover, in January 2010, Alcatel-Lucent paid $10 million to settle corruption charges filed by Costa Rican authorities, the first time in Costa Rica’s history that it has recovered damages from a foreign corporation for alleged corruption of its own government officials.

The increased focus and resources being devoted to FCPA enforcement at both the SEC and DOJ suggests that the prolific pace of FCPA prosecutions is unlikely to abate.

These enforcement trends are by now familiar to directors, officers and general counsels of multinational companies.  However, as the level of enforcement activity continues to escalate, multinational companies and their employees must be increasingly vigilant in conducting their business abroad.  To guard against FCPA exposure, multinational corporations should implement and reinforce several compliance themes, including (1) sophisticated and organized anticorruption due diligence, (2) close scrutiny and examination of third-party agents and distributors and (3) a focused awareness of industry business practices, investigations and litigation.  To be sure, corporations that embrace a proactive approach to investigating red flags and, if necessary, self-reporting FCPA violations to the SEC and/or the DOJ are far more likely to avoid crippling liability than corporations that turn a blind eye to their self-reporting obligations, and which are all too often left to react—at the eleventh hour—to enforcement actions.

© 2021 Vedder PriceNational Law Review, Volume I, Number 97
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About this Author

Thomas P. Cimino, Vedder Price Law Firm, Litigation Attorney
Shareholder

Thomas P. Cimino, Jr. joined Vedder Price P.C. in 1996 as a shareholder and is a member of the firm’s Litigation Practice Area. He has broad experience in complex commercial litigation, including securities fraud class actions, shareholder disputes, patent, trademark and copyright infringement and bankruptcy litigation.  Mr. Cimino has appeared in both state and federal trial and appellate courts throughout the United States. He also has represented clients in proceedings before the United States Securities and Exchange Commission.

312-609-7784
Junaid A. Zubairi Vedder Price Law Firm  Government  Investigations Attorney
Shareholder

Junaid A. Zubairi focuses his practice on government investigations, investment services and regulatory compliance matters.  His practice includes representing companies and individuals in SEC investigations, conducting internal investigations, counseling clients during regulatory examinations, and providing general compliance and remediation counseling.  Mr. Zubairi has extensive experience representing investment advisers, broker-dealers, corporations and officers and directors during government investigations and regulatory proceedings.

Mr. Zubairi regularly practices before the...

312-609-7720
William Thorsness, Corporate Litigator, Vedder Price legal practice
Shareholder

William W. Thorsness joined Vedder Price as an associate in the Litigation Practice Area. In this capacity, Mr. Thorsness represents and counsels corporations and individuals on all litigation concerns, including contract, commercial and tort matters. In 2007, Mr. Thorsness also became a member of Vedder Price’s Bankruptcy Group. As an associate in Vedder Price’s Bankruptcy Group, Mr. Thorsness focuses his practice on corporate bankruptcy, reorganization and workouts.

312-609-7595
Rachel T. Copenhaver, Vedder Price Law Firm, Litigation Attorney
Shareholder

Rachel T. Copenhaver joined Vedder Price P.C. as an associate in the Commercial Litigation Practice Area.  She counsels and represents clients on a wide variety of business and commercial disputes, including contract, commercial and tort litigation.

312-609-7514
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