The Department of Justice and the Securities and Exchange Commission have settled a raft of Foreign Corrupt Practices Act cases in recent months, including agreements with Alcoa, Archer Daniels Midland, Diebold, and Weatherford International. The cases point to some important trends in FCPA enforcement: expanded cross-border cooperation and prosecutions, the emergence of the hybrid corporate monitor, and an upsurge in FCPA fines and penalties.
Taken together, the multitude of recent FCPA enforcement actions speaks volumes about how companies can avoid or minimize liability under the FCPA and reflect the latest thinking of regulators as they pursue these cases. Compliance and legal executives can also use these real-life cases in their compliance and ethics training to deter bribery and corruption practices in the workforce.
For anybody who might have thought that ratcheted-up FCPA enforcement is a passing fad, that question has been answered, says Kevin Abikoff, chair of the anti-corruption and internal investigations group of law firm Hughes Hubbard. “This is the new normal,” he says.
Cross-Border Cooperation
One of the most significant developments in FCPA enforcement is the expanded scope of cross-border cooperation in FCPA investigations. “Active FCPA enforcement in the United States is now being paired with active anti-corruption enforcement around the world,” says Abikoff.
John Chesley, a partner in the law firm Gibson, Dunn & Crutcher, says coordination between foreign enforcement authorities is “a train that's been moving for a while, but it's starting to see it pick up steam.” Jurisdictions where the Department of Justice and the SEC are seeing increased cooperation include countries such as the United Kingdom, Germany, Poland, and others.
The SEC and Justice Department increasingly are receiving cooperation from countries that, until now, have never provided any meaningful assistance. “The Total resolution is a really good example of that,” says John Buretta, a partner with law firm Cravath. In that case, U.S. law enforcement agencies reached their first coordinated enforcement action with French authorities in May 2013 that resulted in the oil and gas giant paying $398 million in an FCPA enforcement action for paying bribes to intermediaries of an Iranian government official.
In some cases, increased cooperation may prove to be beneficial for a company facing an FCPA investigation in multiple jurisdictions, because it can streamline the resolution process. Buretta cites as an example the settlement that food processing giant Archer Daniels Midland reached with the U.S. government in December 2013 for FCPA violations.
In that case, German authorities reached a parallel resolution with ACTI Hamburg, one of ADM's subsidiaries, to resolve charges that it paid bribes through vendors to Ukrainian government officials to obtain value-added tax (VAT) refunds in violation of the FCPA. As a result of ACTI Hamburg entering into a resolution with German regulators, it saved ADM from having to pay two penalties for that subsidiary, says Buretta.
All of these FCPA enforcement actions that are arising out of these high-risk jurisdictions suggest that companies reduce their FCPA risks by “applying their scarce compliance resources to their highest risk areas first,” says Abikoff. In doing so, they will put themselves in a better position than if they were to “try to spread their resources evenly over the entire fabric of their business,” he says.
Follow-on Cases
Another significant development in the FCPA enforcement area is the rise of follow-on investigations, in which the SEC and Justice Department will follow up on a company in high-risk areas where its competitors are found to have engaged in corrupt conduct. “I don't get the sense they're targeting industries, but they are certainly following the evidence where it leads, and that sometimes leads to other companies in the same industry,” says Buretta.
An example of one recent follow-on case occurred in October 2013, when medical-device company Stryker paid more than $13.2 million to the SEC to resolve civil charges for FCPA violations. In that case, the SEC charged Stryker with violating the FCPA after its subsidiaries in five different countries—Argentina, Greece, Mexico, Poland, and Romania—bribed doctors, healthcare professionals, and other government-employed officials in order to obtain or retain business.
Stryker is one of several in a sweep of medical-device companies to be investigated for FCPA violations. Others have included Koninklijke Philips Electronics, Biomet, Medtronic, and Smith & Nephew.
“Active FCPA enforcement in the United States is now being paired with active anti-corruption enforcement around the world.”
—Kevin Abikoff,
Chair, Anti-Corruption Investigations Group,
Hughes Hubbard
The SEC and Justice Department are “always looking at cases holistically,” says Chesley. “A lot of times it's agent-specific.” If one company uses an agent who engaged in bribery, for example, and five of its competitors are using the same agent, the government likely will come knocking, he says.
Potential FCPA liability also lurks in cases where one company paid a bribe to a government official who is at the center of a government investigation, who also does business with other competitor companies, Chesley adds. “Pay attention to what is going on in your industry,” he says.
When a company sees that its competitors are under scrutiny for suspected bribery issues, rather than rejoicing in their misfortunes, Chesley says, “you need to pay attention as to whether that might lead to a knock at your door.”
Rising Penalties
Companies are also paying more to settle FCPA charges. In 2013, the average corporate FCPA resolution, including fines, penalties, disgorgement, and prejudgment interest, reached more than $80 million—a nearly fourfold increase over 2012, according to analysis from Gibson Dunn & Crutcher. Two of the nine corporate FCPA resolutions last year—Total S.A. and Weatherford International—join the ranks among the top ten highest FCPA settlements. Furthermore, during remarks at the International Conference on the FCPA in November 2013, Charles Duross, deputy chief of the Justice Department's FCPA unit, warned that companies should expect more significant investigations and resolutions, including "very significant cases, top 10-quality-type cases.”
Compliance Monitors
Another significant development in FCPA cases in 2013 was the return of independent compliance monitors in deferred prosecution agreements—in particular, a notable surge in the use of so-called “hybrid” monitorships, where an external monitor is required for 18 months, followed by 18 months of self-reporting by the company.
“Some had suggested that monitors were falling into disfavor,” says Abikoff, a compliance monitor appointed by the SEC, Justice Department, and the U.K. Serious Fraud Office. “That's proving to not at all be the case. The government is actually finding supervision through a monitor to be quite an effective way to ensure that companies provoke meaningful change in their compliance programs.”
Traditionally, in FCPA cases where the Justice Department required a compliance monitor, it would be for the full three-year term of the agreement. With recent settlements, “we're seeing a lot of nuance between the agreements,” says Chesley. That's because the government is “becoming more experienced at this,” he says, and they're discovering that a lot of these companies “don't necessarily need a compliance monitor for the full three years.”
Out of seven FCPA-related DPAs entered into in 2013, the Justice Department imposed independent compliance monitors on four companies—Diebold, Weatherford, Bilfinger, and Total. Of those companies, Total was the only one to receive a full three-year independent monitor, while the others received a hybrid monitor.
FCPA ENFORCEMENT TRENDS
The chart below from Gibson Dunn shows how many enforcement cases the Justice Department and SEC had in the years 2004 to 2013.
Source: Gibson Dunn.
When deciding whether to impose an independent compliance monitor, the Justice Department weighs numerous factors. As demonstrated by several recent FCPA resolutions, some of those factors include the company's ability to remediate its past wrongdoing, the scope and severity of the misconduct. In the Total FCPA resolution, for example, the government made no reference to any remediation efforts.
By comparison, the Justice Department acknowledged Weatherford's “extensive remediation and compliance improvement efforts.” The scope of the corrupt conduct, however, appears to have tipped the scales toward the appointment of a compliance monitor for the period of 18 months.
The most important message for compliance and legal executives is that, “as soon as you enter into an FCPA matter, it's really important to start implementing more robust compliance controls immediately,” says Chesley. Putting enhanced compliance controls in place just before a settlement means nothing, because the government is going to want to see how those controls work in practice, he says.
Because a typical FCPA investigation takes a couple of years, “if you implement controls at the start of a probe, you have a couple of years to show how the testing is working before reaching a resolution,” Chesley adds. “Under those circumstances, you're much more likely to avoid a monitor.”
Looking forward, Chesley says he expects to see more FCPA enforcement actions arising out of the Dodd-Frank whistleblower provisions. “We have not seen an FCPA enforcement case that we can point to yet,” he says.
That probably won't be the case much longer; given that Dodd-Frank was passed in 2010, it's likely any whistleblower cases in the pipeline are still under investigation, Chesley adds. “I think we're going to start to see them very soon.”
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