It has been relatively quiet on the Foreign Corrupt Practices Act front recently, with regulators bringing just three enforcement actions against companies so far in 2013.
Last year, by comparison, the Department of Justice and the Securities and Exchange Commission brought a combined 19 enforcement actions against companies, and together they initiated 24 actions in 2011, well off the record pace of 48 in 2010. But don't be lulled by that eerie calm; lawyers say it won't be long before federal agencies are once again piling up FCPA settlements.
FCPA enforcement actions fell to their lowest levels in seven years, with neither the Justice Department nor the SEC bringing a single FCPA-related action in the first quarter of 2013, according to data from law firm Miller & Chevalier. Not since the third quarter of 2006 have federal regulators gone an entire quarter without notching a single FCPA enforcement action.
Legal experts, however, are quick to warn companies not to view the dip in enforcement actions as a shift in the Justice Department's or SEC's focus on FCPA enforcement. “All signs indicate that those numbers will shoot back up,” says John Davis, coordinator of the FCPA and international anti-corruption practice group of law firm Miller & Chevalier.
Indeed, the pipeline of FCPA cases is heaving. Davis says federal agencies are currently conducting several FCPA investigations that will eventually lead to enforcement actions. According to the Miller & Chevalier data, the government initiated at least 39 corporate FCPA investigations in 2012—more than in any prior year.
Many of the cases involve big companies or require extensive investigation into allegations of wrongdoing that span several countries. Such cases are difficult to resolve quickly and could be contributing to the recent drop-off in the number of settlements. The double-digit enforcement actions initiated in previous years likely will be reflected in 2013 with some “very substantial settlement amounts,” says Joseph Warin, a partner at the law firm Gibson Dunn & Crutcher.
Companies currently facing potentially substantial enforcement actions include Alstom, Total, Embraer, and Avon. “We have a lot of big cases going on right now,” says Michael Volkov, CEO and founder of the Volkov Law Group.
Last month, Ralph Lauren Corp. reached a non-prosecution agreement with the Justice Department and the SEC to resolve allegations that it violated the FCPA by bribing government officials in Argentina to obtain improper customs clearance of merchandise. In exchange for the NPA, Ralph Lauren will pay more than $1.6 million in fines and disgorgement.
In a second case, drilling services company Parker Drilling Company reached settlements with both the Justice Department and the SEC on April 16 over allegations that it authorized improper payments through a third-party agent to resolve a customs dispute with the Nigerian government.
Also in April, Netherlands-based electronics giant Philips Electronics reached a settlement with the SEC over allegations that its Polish subsidiary made improper payments to healthcare officials in Poland in connection with the sale of medical equipment to hospitals.
Cases Closed
In addition to the decline in FCPA enforcement actions, federal agencies are also closing many investigations without any settlement or finding of wrongdoing, known as declinations. During the first quarter of this year, the Justice Department and the SEC closed nine cases without pursuing any enforcement action at all, according to Miller & Chevalier. Furthermore, the agencies are currently on track to double the number of record declinations reached last year, the firm stated.
“I don't think there is any doubt that there is a very substantial commitment by regulators to bring cases against individuals. That trend, in my experience, will not abate.”
—Joseph Warin,
Partner,
Gibson Dunn & Crutcher
That doesn't mean federal regulators are necessarily declining more cases than in past years. According to Davis, they are making a greater effort to publicly disclose cases where they have closed an investigation with no action and are doing so with more consistency than they have in the past. “It's indicative that transparency levels are going up,” he says.
Though it's too early to tell, the effort to beef up anti-corruption compliance programs could also be affecting the number of FCPA cases. “Our clients are devoting very substantial amounts of personnel and time in compliance endeavors to avoid problems,” says Warin. “As a result, problems that are coming up are nipped in the bud earlier.”
Individual Prosecutions
While the number of enforcement actions against companies is down, that's not the case for actions against individual executives. There has been a steady stream of arrests, charges, and indictments brought against individuals. “I don't think there is any doubt that there is a very substantial commitment by regulators to bring cases against individuals,” says Warin. “That trend, in my experience, will not abate.”
FCPA ENFORCEMENT ACTION TRENDS
The following chart contains the number of Justice Dept. and SEC FCPA enforcement actions during the years 2006 through 2013:
Year
Justice Dept. FCPA Corporate
Enforcement Actions
Currently Use
SEC FCPA Corporate
Enforcement Actions
Plan to Use
2006
2
8
2007
12
14
2008
14
8
2009
6
10
2010
26
22
2011
11
13
2012
11
8
2013
2 (as of May 10)
3 (as of May 10)
Sources: SEC; Justice Department.
“They're back, and they're back with a vengeance,” agrees Volkov. “This is the year they're going to go after the senior employees, and they're going to take an aggressive stance in charging individuals along with companies.”
Last month, in particular, was an active month for FCPA individual enforcement actions. In one case, the Justice Department resolved enforcement actions with two BizJet executives, while indicting two more. Additionally, the agency arrested a French agent on April 13 on charges of obstruction of justice and witness tampering in an ongoing probe into whether a mining company paid bribes to win lucrative mining rights in the Republic of Guinea.
Other individual enforcement actions that have long been in the pipeline were also resolved. On April 12, the U.S. District Court for the Southern District of New York entered a final judgment against former Siemens executive, Uriel Sharef, for his role in a decade-long bribery scheme to retain a $1 billion government contract to produce national identity cards for Argentine citizens.
A few days later, the Justice Department unsealed bribery charges against one current and one former executive of the U.S. subsidiary of the French power and transportation company Alstom for their alleged participation in a scheme to bribe foreign officials.
“What this shows is that even though your company may have a settlement of some sort, that doesn't mean individuals aren't being looked at,” says Volkov. “Enforcement agencies have been saying that for a while, but now we know that for sure.”
FCPA ENFORCEMENT ACTIONS
The following is a list of companies that have resolved FCPA enforcement actions with the Securities and Exchange Commission and the Department of Justice in the second quarter of 2013. The second list is the current number of individuals who have resolved FCPA enforcement actions with the Justice Department:
Corporate Enforcement Actions:
Ralph Lauren Corporation
SEC Ralph Lauren NPA
DoJ Ralph Lauren NPA
Parker Drilling Company
SEC Parker Drilling Complaint
DoJ Parker Drilling Complaint
Koninklijke Philips Electronics
SEC Philips Electronics Complaint
Individual Enforcement Actions:
United States v. Frederic Pierucci, et al.
United States v. David Rothschild
United States v. Frederic Cilins
United States v. Peter Dubois
United States v. Jald Jensen
United States v. Bernd Kowalewski
United States v. Neal Uhl
Sources: SEC; Justice Department.
Aggressive Tactics
While the numbers may be down, enforcement agencies aren't letting up on using aggressive tactics in FCPA investigations.
Following the dismal outcome of the so-called “shot show” case, which involved an unprecedented undercover operation and represented the largest single investigation and prosecution against individuals in the history of FCPA enforcement, many criticized the agency's covert investigative undercover efforts as ineffective.
In the shot show case, the government charged 22 defendants with plotting to bribe the minister of defense for Gabon to sell military and law enforcement products. The massive bribery scheme, however, was part of an FBI undercover operation and no foreign official was actually involved. Following several mistrials and acquittals, all charges ultimately were dropped.
Nonetheless, the Justice Department has said it will continue to use those types of undercover sting techniques in appropriate circumstances. Both Volkov and Davis cite the arrest of the French agent in the mining case as the latest example where the FBI used such undercover techniques.
“What that means is that companies not only have to be worried about the traditional ways in which these investigations get started—such as through a whistleblower or internal auditor—but now we're seeing that the government is taking proactive investigative steps in appropriate circumstances to catch people,” says Volkov.
With many significant cases on the horizon—any slowdown in enforcement actions shouldn't be perceived as anything more than a blip on the radar screen. Says Volkov: “The idea that FCPA enforcement in any way has slowed down has clearly been proven wrong.”
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