A recalibrated focus by the government on individual culpability, expanding cross-border cooperation and prosecutions, and hordes of new whistleblower complaints are just a few upcoming enforcement trends likely to elicit some big compliance headaches in 2016.
Although 2015 was a sluggish year for corporate Foreign Corrupt Practices Act enforcement from the Justice Department (two reached in all of 2015), compliance and legal teams should in no way interpret that as a slowing down of FCPA enforcement by the government. “The FCPA unit, it seems to us, is working as hard as ever,” says Michael Diamant, a partner at law firm Gibson Dunn & Crutcher.
In fact, the Justice Department says it intends to double down on its bribery and corruption enforcement efforts. “During this past year, we increased our FCPA resources, including by adding three new fully operational squads to the FBI’s International Corruption Unit that are focusing on FCPA,” Assistant Attorney General Leslie Caldwell said at a conference in November. “We are also preparing to add 10 new prosecutors to the Fraud Section’s FCPA unit, increasing its size by 50 percent.”
The biggest development in 2016 will be how the Justice Department reenters the FCPA enforcement scene in light of the Yates Memo—the government’s stance that companies must disclose all relevant facts relating to the individuals responsible for misconduct, if the company hopes to receive cooperation credit during that investigation. “On the enforcement side, what you will see presumably are more individual cases,” Diamant says.
Individual prosecutions cannot be effectively achieved, however, unless both the company and the government commit to a more thoughtful, thorough analysis tailored to scope of the wrongdoing. And at the same time, compliance and legal teams can expect the government to place greater pressure on companies that fail to cooperate fully.
“Cross-border cooperation is at an all-time high. That’s just going to continue to increase in the coming years, as more and more foreign jurisdictions see their anti-corruption regimes mature, and as they make more use of them.”
Brian Whisler, Partner, Baker & McKenzie
Taken together, that could lead the Justice Department to bring “fewer but larger” corporate FCPA enforcement actions, says James Koukios, former senior deputy chief of the Fraud Section at Justice and now a partner at law firm Morrison Foerster.
The Justice Department isn’t the only agency flexing its muscles in the FCPA space. The Securities and Exchange Commission takes “an active and aggressive approach in this area, as well,” says Kevin Abikoff, chair of the anti-corruption and internal investigations group of law firm Hughes Hubbard. “It’s hard to talk about the Department of Justice without talking about the SEC.”
The SEC will continue to keep a close eye out for FCPA books-and-records violations, an enforcement priority that “goes hand in glove” with the Justice Department’s newly established compliance counsel in the Fraud Section, Abikoff says. The overall idea that the SEC will want to see that robust internal controls are being implemented to properly safeguard against systemic corruption, he says.
In addition to the SEC joining the Justice Department in resolving significant FCPA cases under which it has jurisdiction, “I expect that the SEC will continue to bring corporate enforcement actions that are not accompanied by a parallel Department of Justice action, such as we saw happen repeatedly—nine times, so far—in 2015,” Koukios says.
Taking It Global
Beyond enforcement trends in the United States, compliance officers can also expect more enforcement activity from Britain’s Serious Fraud Office. In November, the SFO entered into its first DPA since such settlements were established under British law in February 2014.
SEC’S FCPA GOALS
Below is an excerpt from SEC Division of Enforcement Director Andrew Ceresney’s keynote speech on SEC Enforcement of the Foreign Corrupt Practices Act.
I thought I would say a few words about the Commission’s efforts to enforce the FCPA to the fullest extent of the statute. As this audience surely knows, the statute precludes the payment or provision of "anything of value" to a foreign official in order to induce that official to take official action or obtain an improper advantage for the purpose of obtaining or retaining business.
And of course “anything” of value is, on its face, a broad term. Obviously, cash payments count. Similarly, tangible gifts to foreign officials undoubtedly qualify as things of value. But the Commission has also successfully brought FCPA cases where other, less traditional, items of value have been given in order to influence foreign officials. For example, last year, I discussed a series of cases in which the Commission brought bribery charges against companies that made contributions to charities that were affiliated with foreign government officials, provided no-show jobs to the spouse of a foreign official, or paid for the honeymoon of a foreign official’s daughter, all to induce those officials to direct business to the companies. Each of these benefits qualifies as something of value under the FCPA statute.
The SEC’s recent case against BNY Mellon, its first FCPA case against a financial institution, also illustrates this approach. The Commission’s case charged that the firm violated the FCPA by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund.
Some have expressed concern about these cases, arguing that it is difficult to draw a clear line between what constitutes a violation and what does not, in cases involving less traditional items of value. In my view, these concerns are unfounded. The line between what is acceptable and what constitutes a violation of the law is in the same place it always has been: when something of value – which can include a gift, donation, favor, or hiring decision – is given or taken with intent to influence the foreign official in his or her official actions or obtain an improper advantage. While this analysis is dependent on the facts and circumstances of each particular case, it is the same analysis companies routinely conduct when considering how their employees interact with government officials in the course of business. The relevant questions include:
Was the gift, donation, favor, or hiring asked for by the foreign official?
Did the company official believe that the gift, donation, favor, or hiring would advance their business interests and help them obtain particular business, or at least obtain an improper advantage with the foreign official?
Was the gift, donation, favor, or hiring consistent with company policy and practice?
Were the company’s normal procedures followed in connection with the gift, donation, favor, or hiring?
Would the gift, donation, favor, or hiring have been made if there were no potential business benefit?
In the BNY Mellon case for example, the Commission’s order described the following facts. The sovereign wealth fund officials explicitly and repeatedly requested the internships and the BNY Mellon employees viewed providing the internships as important to keeping the sovereign wealth fund’s business and potentially obtaining new business. Indeed, one BNY Mellon employee stated that failure to provide the internships would “potentially jeopardize our mandate” with the sovereign fund and another stated that providing the internship was “the only way” to increase BNY Mellon’s share of business from the sovereign funds’ European office. In addition, the bank did not evaluate or hire the officials’ relatives through its internship program, which had stringent standards, including a minimum grade point average, relevant prior work experience, and multiple rounds of interviews. In fact, the family members hired did not meet the basic entrance standards for any established BNY Mellon internship program, did not have the requisite academic or professional credentials, and were not even required to interview before being offered the positions.
Under these circumstances, I would suggest that there was ample basis for viewing the internships as something of value to the foreign officials who requested them for their relatives, and for concluding that they were given in an attempt to influence the foreign officials in connection with the performance of their official duties or to obtain an improper advantage from the foreign officials.
As I’ve said before, bribes come in many shapes and sizes. And in my view, the FCPA is properly read to cover providing valuable favors to a foreign official, as well as providing cash, tangible gifts, travel or entertainment.
In the November case, the SFO charged Standard Bank with failing to prevent the payment of a bribe by a former sister company of Standard Bank, Stanbic Bank Tanzania, to obtain business from the government of Tanzania. “Now that they’ve broken the ice, we’ll see enhanced activity out of the SFO not just in terms of DPAs, but also enforcement activity more generally,” Abikoff says.
Cross-border cooperation will also continue to play a role in FCPA investigations and resolutions in 2016. Jurisdictions where the Department of Justice and the SEC have received cooperation include countries such as the United Kingdom, Germany, Poland, and others.
“Cross-border cooperation is at an all-time high,” says Brian Whisler, a partner at law firm Baker & McKenzie. “That’s just going to continue to increase in the coming years, as more and more foreign jurisdictions see their anti-corruption regimes mature, and as they make more use of them.”
Both the SEC and the Justice Department are also likely to re-emphasize the value they place on self-disclosure—a point Caldwell cited as a vital element of mitigation for any company that wants to achieve maximum cooperation credit in an FCPA case.
“Companies that fail to self-disclose but nonetheless cooperate and remediate will receive some credit, but that credit for cooperation and remediation will be measurably less than it would have been had the company also self-reported,” Caldwell said. Self-disclosure means that companies must disclose all relevant facts known to them “within a reasonably prompt time after becoming aware of an FCPA violation,” she said.
In November, Andrew Ceresney, head of the SEC’s Enforcement Division, announced that it had adopted a similar policy. From here forward, he said, a company must self-report misconduct for the SEC to consider a deferred- or non-prosecution agreement in an FCPA probe.
One bit of good news: After years of pleading from the compliance and legal community, the Justice Department (finally) intends to put its own feet to the fire regarding increased transparency in FCPA charging decisions. “Just as we expect transparency from companies seeking prosecutorial consideration for mitigating an FCPA offense, we are doing our best to act in kind,” Caldwell said. “We recognize that information about the bases for our corporate guilty pleas and resolutions is an important reference point for companies that are evaluating whether to self-disclose a violation or cooperate.”
The continuing success of the SEC's whistleblower program, established under the Dodd-Frank Act, also continues to pose enforcement concerns for compliance officers. Since taking effect in 2011, the SEC has doled out more than $54 million to 22 whistleblowers, $37 million of which was awarded in fiscal year 2015 alone.
The number of whistleblower complaints the SEC received through its Whistleblower Office continues to rise. According to the SEC’s annual report on the Dodd-Frank Whistleblower Program, the Whistleblower Office received 4,000 whistleblower tips, complaints, and referrals during fiscal year 2015, compared to the 3,001 it received in 2012.
The SEC further warned that reviewing confidentiality agreements to ensure they’re in compliance with Rule 21F-17(a) will continue to be a top priority for the Whistleblower Office in 2016. Enacted under the Dodd-Frank Act, Rule 21F-17 prohibits companies from taking any action to impede whistleblowers from reporting possible securities violations to the SEC.
The warning comes after the SEC in April brought its first-ever enforcement action against a company (engineering firm KBR) for using improperly restrictive language in its confidentiality agreement. KBR paid a $130,000 penalty in that case.
Retaliation complaints filed by whistleblowers are not only growing by the numbers; they’re are getting more sophisticated, Diamant says. “In recent months, we have consistently seen more detailed submissions that clearly have been prepared with the assistance of counsel,” he says.
What does that mean, exactly? Rather than “throwing every complaint they’ve ever had against the wall and seeing what sticks,” Diamant says, whistleblowers increasingly are framing their complaints in a way that more clearly speak to the prosecutors, making them more difficult to defend. “I expect this trend to continue,” he says.
Also looking ahead to 2016, compliance officers will want to pay attention to any new personnel moves at the Justice Department, given that it’s an election year, says Koukios. “FCPA enforcement is here to stay,” he says, “but the Criminal Division leadership can have a big impact on the manner of enforcement.”