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SEC Awards for Disclosures of Foreign Bribery or FCPA Violations

SEC Awards for Disclosures of Foreign Bribery or FCPA Violations

Under the SEC Whistleblower Program, the SEC Whistleblower Office will issue awards to whistleblowers who provide original information that leads to enforcement actions with sanctions in excess of $1 million. A whistleblower is eligible to receive an award of between 10-30 percent of the total sanctions imposed.

At the end of each month, the SEC Whistleblower Office posts “Notices of Covered Actions” for each SEC enforcement action where a final judgment or order results in monetary sanctions exceeding $1 million. Once a Notice of Covered Action is posted, whistleblowers and their attorney will have 90 calendar days to apply for an award by submitting a completed Form WB-APP to the whistleblower office.

On February 28, 2017, the SEC posted the “Notice of Covered Actions” due on May 29, 2017.  This list of covered actions includes several enforcement actions against companies that paid bribes to foreign officials. For example, Cadbury Limited and Mondelēz International, Inc. agreed to pay $13 million to settle charges for payments their subsidiary in India made to a consultant to obtain government licenses and approvals for a chocolate factory in Baddi, India. In addition, Biomet. Inc. agreed to pay $5.5 million in disgorgement and prejudgment interest (and a $17.28 criminal fine) for charges that it, among other violations, made unlawful payments to Mexican customs officials to facilitate the importation of Biomet’s unregistered and mislabeled dental products into Mexico.

These foreign bribery issues are common and the fines have been substantial (see more below).

Foreign Bribery and FCPA Violations

According to SEC guidance, the FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business. This anti-bribery provision broadly applies to:

  • U.S. persons;
  • U.S. and foreign public companies that are listed on the stock exchanges in the United States or that are required to file periodic reports with the SEC; and
  • certain foreign persons and companies that are acting while in U.S. territory.

Courts have interpreted “foreign officials” broadly as well. For example, employees of State-owned or State-controlled entities are considered foreign officials under the FCPA. This may include a variety of company types, since the only requirement is that the entity is “controlled by the government of a foreign country that performs a function the controlling government treats as its own.” United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014), cert. denied, 135 S. Ct. 293 (2014).

The FCPA also requires issuers to maintain adequate internal controls. These controls must provide reasonable assurance that transactions are executed and that assets are accessed and accounted for in accordance with management’s authorization. By maintaining these controls, companies are able to provide more-accurate books and records. Common violations of the FCPA internal-control provision include:

  • falsifying documents to conceal bribery payments;
  • fraudulently mischaracterizing bribes as normal business expenses;
  • overbilling with an understanding that some of the payment is a bribe; and
  • inappropriate hiring practices, such as hiring candidates solely based on referrals by client executives and government officials.

Importantly, there is no “materiality” consideration under the books-and-records provision of the FCPA—any failure is considered a statutory violation.

SEC and DOJ Anti-Bribery Enforcement Actions

The SEC and Department of Justice (“DOJ”), which are the agencies charged with enforcing the FCPA, have aggressively pursued foreign bribery cases. Since the enactment of the FCPA, the agencies have prioritized the Act and have imposed substantial fines on companies for violations. Examples include:

  • In 2008, Siemens AG agreed to pay $350 million in disgorgement to settle the SEC’s charges of violating the FCPA, as well as a $450 million fine to the DOJ to settle criminal charges.
  • In 2014, ALCOA paid $175 million in disgorgement of revenues to the SEC and a fine of $209 million for bribing government officials in Bahrain.
  • In 2014, Marubeni Corporation agreed with the DOJ to pay an $88 million fine for paying bribes to Indonesian officials in order to secure business.
  • In 2016, Och-Ziff Capital Management Group LLC agreed to pay $413 million to settle charges that the hedge fund violated the FCPA by using intermediaries and business partners to pay bribes to government officials in Africa.
  • In 2016, JPMorgan Chase agreed to pay $264 million in sanctions for a client-referral hiring program called the “Sons and Daughters Program.” This program was expressly designed to hire candidates referred by client executives and government officials. By employing these referrals, the bank was able to win business that generated millions in revenues. From 2006 to 2013, JPMorgan did not deny a single referral from the program. This enforcement action represents the third time the SEC has fined a company for hiring officials’ relatives in violation of FCPA. Andrew Ceresney, SEC Enforcement Division Chief, has indicated that the SEC will continue to sweep the referral hiring practices.
  • In 2016, engineering conglomerate Odebrecht and Braskem agreed to pay a total of $3.5 billion in a record FCPA settlement with U.S., Brazilian, and Swiss authorities.  Beginning in 2001, the companies used a hidden business unit to pay hundreds of millions of dollars in bribes to corrupt foreign officials in the Petrobras corruption scandal.
  • In 2016, Teva Pharmaceutical Industries Ltd. agreed to pay $519 million to settle U.S. charges that it violated the FCPA by paying bribes in its operations in Ukraine, Mexico, and Russia. The U.S. has extensively enforced the FCPA on pharmaceutical firms over the years, especially in countries with national health systems. In these countries, doctors are considered “public officials” for FCPA purposes, which dramatically increases their exposure to FPCA violations. Also in 2016, pharmaceutical giants GlaxoSmithKline, AstraZeneca, and Novartis all settled cases involving FCPA violations.
  • On January 16, 2017, Rolls-Royce agreed to pay $809 million to settle allegations of a long-running scheme to bribe government officials in exchange for government contracts. The settlement proceeds were split between the UK, the United Stated, and Brazil. The Department of Justice reported that it received nearly $170 million.
  • On January 18, 2017, medical device company Orthofix International agreed to pay more than $14 million to settle charges that it made improper payments to doctors at government-owned hospitals in Brazil in order to increase sales and improperly booked revenue causing the company to materially misstate financial statements from at least 2011 to Q1 2013.
© 2019 Zuckerman Law

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About this Author

Jason Zuckerman, Whistleblower Litigation Attorney, Washington DC  Law Firm
Principal

Jason Zuckerman is Principal of Zuckerman Law and litigates whistleblower retaliation, wrongful discharge, non-compete, and other employment-related claims.  Zuckerman serves as Plaintiff Co-Chair of the Whistleblower Subcommittee of the ABA Labor and Employment Section’s Employee Rights and Responsibilities Committee, and in 2012, the Secretary of Labor appointed Zuckerman to serve on the Whistleblower Protection Advisory Committee. 

Prior to founding Zuckerman Law, Zuckerman served as Senior Legal Advisor to the Special Counsel at the U.S...

(202) 262-8959
Matthew Stock, CPA, Auditor, Zuckerman Law Firm
Certified Public Accountant

Matthew Stock is an associate at Zuckerman Law, where his practice focuses on representing whistleblowers in whistleblower rewards and whistleblower retaliation cases. He is also a Certified Public Accountant, Certified Fraud Examiner, and former KPMG external auditor.

As an auditor, Mr. Stock developed an expertise in financial statement analysis, internal controls testing, and fraud recognition. At Zuckerman Law, Mr. Stock uses his auditing experience to help whistleblowers investigate and disclose to the government complex financial frauds. In addition, Mr. Stock routinely assists whistleblowers in Sarbanes-Oxley whistleblower retaliation cases analyze a wide range of accounting issues, including revenue recognition, earnings management, and financial statement fraud.

202-930-5901