Highlights from the DOJ and SEC’s Updated FCPA Resource Guide
On July 3, 2020, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) released the second edition of their joint Resource Guide to the U.S. Foreign Corrupt Practices Act (the Guide). The second edition does not break new ground. The revisions consist primarily of incorporating new DOJ guidance into the Guide, an expanded discussion of successor liability, new sections on forfeitures and coordinated resolutions, and guidance related to new case law, all of which are addressed in this alert.
Incorporating New DOJ Guidance
The second version of the Guide incorporates discussion of policies that the DOJ has issued since the Guide was last updated. Specifically, it provides a summary of the policies and how they have been applied by the DOJ.
For example, the Guide now includes a section on the DOJ’s FCPA Corporate Enforcement Policy (CEP). The CEP provides that when companies voluntarily self-disclose misconduct, fully cooperate with the investigation, and institute timely and appropriate remedial measures, the DOJ will have a presumption of declining prosecution or, depending on the circumstances, will provide a recommended reduction in penalties. The Guide also provides three recent examples of CEP declinations.
Similarly, the Guide now includes a summary of the DOJ’s Memorandum on the Selection of Monitors in Criminal Division Matters. This policy provides guidance regarding whether the DOJ will impose a monitor as part of a corporate resolution, which broadly includes weighing (1) the potential benefits of a monitor for the company and the public and (2) the cost and impact of the monitor on the company.
Discussion of Successor Liability
The Guide includes revised commentary regarding corporate successor liability. The Guide recognizes that in the mergers and acquisitions context, “robust pre-acquisition due diligence” may not always be possible. Under the revised guidance, a path to declination remains open. In those cases, the DOJ and SEC will consider whether the post-acquisition due diligence is thorough, whether an effective compliance program has been implemented, and whether the conduct was voluntarily disclosed in a timely manner. This new section also includes updated examples of enforcement cases involving successor liability.
New Sections on Penalties
DOJ and SEC added two new sections to the “FCPA Penalties, Sanctions and Remedies” chapter of the Guide. The first addresses forfeitures and disgorgements. It briefly notes that the purpose of disgorgement is not punishment, but an equitable remedy to prevent the perpetrator from profiting by its own misconduct. The new section cites the U.S. Supreme Court case SEC v. Liu for the proposition that that disgorgement is permissible when the amount does not exceed net profits. It also notes the Supreme Court’s decision in Kokesh v. SEC indicating that the five-year statute of limitations under 28 U.S.C. § 2462 applies to the civil disgorgement remedy.
The second addition describes the U.S. regulators’ policy of avoiding duplicative penalties for the same conduct in cases where foreign authorities are resolving cases with the same company. It outlines the factors that determine whether and how much credit should be given for penalties imposed in a coordinated resolution. These include the egregiousness of the company’s misconduct, statutory mandates, risk of delay of final resolution, and the adequacy and timeliness of the company’s disclosure and cooperation with DOJ.
New Case Law
The Guide adds analysis of two cases: Esquenazi and Hoskins. The FCPA broadly defines foreign officials to include officers or employees of a “department, agency, or instrumentality of a foreign government.” The Guide’s inclusion of the Eleventh Circuit Esquenazi factors to determine if an entity is an “instrumentality” is significant because the FCPA does not define “instrumentality.” In the absence of a controlling definition, Esquenazi provided a “non-exhaustive list” of factors to determine whether the government controls an entity and whether the entity performs a function the government treats as its own. The Guide carefully notes that numerous courts, including the court in Hoskins, have approved final jury instructions providing a similar non-exclusive list of factors to be considered.
The Guide also uses Hoskins to demonstrate the government’s broad view of jurisdiction over agents. Specifically, the Guide includes the ruling from the Second Circuit in Hoskins which concluded that those not directly covered by the FCPA could not be held liable for aiding and abetting or conspiring to violate the FCPA anti-bribery provisions. The Guide also points out that there is at least one conflicting ruling which rejected the reasoning in Hoskins, and that Hoskins speaks only to the anti-bribery provisions and not the accounting provisions of the FCPA which apply to “any person.”