Mayling C. Blanco, Carlos F. Ortiz, Shawn M. Wright, Ariel S. Glasner
The single most frequently asked question by our international clients over the past several months is whether there will be changes in white collar prosecution priorities under the new administration, specifically with respect to the Foreign Corrupt Practices Act (“FCPA”). The FCPA, which criminalizes the payment of bribes to foreign officials around the world, has been subject to enforcement trends and scrutiny during its 40-year history. Prior to 2005, there were few notable prosecutions. However, over the past 12 years, the law has garnered much attention given the unparalleled increase in the number of prosecutions and the headline-grabbing monetary amounts of the settlements. This trend has straddled administrations from both sides of the aisle.
Of course, it is nearly impossible to answer the question posed directly with any degree of certainty. Venturing to do so would require reading tea leaves. However, there are certain indicia and reasoning that can guide our understanding of the direction that the new administration may be heading in.
The Tone from the Top
For months, many doubted whether the new Attorney General for the Department of Justice (“DOJ” or the “Department”), Jeff Sessions, would abandon the prosecution of white collar crimes, such as the FCPA, in favor of other crimes—drugs, immigration, violent crimes—that formed a central role in the election rhetoric. This public perception was not lost on the attorney general, and he laid that fear to rest with his remarks at the Ethics and Compliance Initiative’s Annual Conference on April 24, 2017. Attorney General Sessions stated that he wanted “to make clear … that under [his] leadership, the Department of Justice remain[ed] committed to enforcing all the laws. That includes laws regarding corporate misconduct, fraud, foreign corruption, and other types of white-collar crime.” He acknowledged that this would be the case, despite his efforts to strengthen the DOJ’s focus on traditional crimes.
The attorney general went on to specifically identify FCPA enforcement efforts as “critical” to the Department. He recognized that corruption in the form of bribes to foreign officials “harms free competition, distorts prices, and often leads to substandard products and services coming into this country.” He further noted that it “increases the cost of doing business, and hurts honest companies that don’t pay these bribes.” He stated that he “wants to create an even playing field for law-abiding companies[,]” which “should succeed because they provide superior products and services, not because they have paid off the right people.” To this end, he declared that the DOJ “will continue to strongly enforce the FCPA and other anti-corruption laws.”
The attorney general also made clear that the prosecutorial approach in pursuing FCPA matters would not deviate in any major way with that of his predecessors, in at least two respects.
First, the DOJ will continue to emphasize the importance of holding individuals accountable for misconduct. In other words, prosecutors will continue adhering to what is commonly known as the “Yates Memo” and, towards that end, will continue to work with international law enforcement to prosecute individuals.
Second, the DOJ will continue to consider some of the same previously identified factors when making charging decisions. These factors include evaluating the quality of a company’s compliance program and valuing companies that choose to do the right thing on their own accord. In determining the appropriate fines to impose, these factors include taking into account the company’s efforts to self-disclose, cooperate, and accept responsibility. In all, Attorney General Sessions confirmed that there would be no major departures from the way the prior administration pursued FCPA matters. Indeed, it will be interesting to see how prosecutors will apply the recently issued “Sessions Memo”—requiring prosecutors to pursue the most “readily provable” offense—to FCPA matters. (For more information, see article on page 11.)
Any doubts of the DOJ’s commitment should have been dispelled by the statements of the Acting Principal Deputy Assistant Attorney General, Trevor N. McFadden. At two compliance-related events, he made efforts to “dispel [the] myth” surrounding white collar prosecuting priorities. McFadden unequivocally declared that the Department “continues to vigorously enforce the FCPA … motivated as ever by the importance of ensuring a fair playing field for honest corporations.”
The appointment of Jay Clayton to head the Securities and Exchange Commission (“SEC”) has not yet resulted in as clear a mandate. Mr. Clayton is a well-respected Wall Street lawyer and is no stranger to the FCPA. In 2010, he was involved in representing ENI, S.p.A., an Italian oil group, in settling a FCPA matter with the SEC.1 On the other hand, Mr. Clayton also publicly expressed reservations on the law. In 2011, he assisted in drafting an article for the New York City Bar Association, “The FCPA and Its Impact on International Business Transactions: Should Anything Be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption?” The article noted that companies have become increasingly wary of purchasing businesses with potential costly liabilities due to FCPA violations. The article further noted that companies not subject to the law’s reach have reservations about entering into transactions that would bring the company within the FCPA’s jurisdictional reach. Mr. Clayton has not made any recent public statements regarding the FCPA, and it is difficult to say how these six-year-old views may impact his policies as chairman.
Money Talks and Pro-America
Last year was a near record-setting year for the FCPA, both in terms of number of actions brought and total dollar amounts secured through settlements. In 2016, there were 29 SEC and 25 DOJ enforcement actions.2 Only 2010 was more prolific, with 33 DOJ and 23 SEC enforcement matters.3 Also in 2016, over $2.4 billion was paid in fines and penalties for FCPA violations.4
The total amount of sanctions recovered was slightly greater, at $2.6 billion, in 2008.5 Numbers like these are difficult for anyone
to ignore.
The FCPA also may be more aligned in certain respects with the new administration’s agenda. The law has a broad jurisdictional reach, and businesses, including foreign businesses, that fall within its jurisdiction must conduct business by the same ethical standards as U.S. companies. Indeed, all but one of the top FCPA settlements have been with non-U.S. corporations.6 FCPA penalties paid by foreign companies have been significantly higher than those paid by U.S. companies.7 This data suggests that foreign companies bear a higher FCPA-enforcement burden than their American counterparts.
Wheels Set in Motion
Over the past few years, the DOJ has taken steps that will continue to encourage and increase FCPA prosecutions. First, the Fraud Section’s one-year “Pilot Program” has been extended. (See our previous Blank Rome white collar advisory on this program here.) The program is intended to motivate companies and individuals to voluntarily disclose their FCPA violations. McFadden has announced that the “program will continue in full force” pending “a final decision regarding its permanence.”
Second, the size of the FCPA Unit has significantly increased in the past several years. After the announcement of the Pilot Program, in April 2016, the Fraud Unit doubled the size of its FCPA-dedicated prosecutors and created teams of special FBI agents focused solely on FCPA matters. Those agents, McFadden confirmed, are working on “numerous significant investigations.” Additional resources are provided by the U.S. Attorney’s Offices across the country, which are actively working on these cases alongside the Fraud Unit.
Third, more so now than ever before, FCPA enforcement has led to a growing, global wave of anti-corruption laws. Mexico and France have recently instituted anti-bribery systems and have pledged to root out offenders. Even though some of these countries’ laws and enforcement systems are in their infancy, international cooperation among foreign prosecutorial authorities makes it more likely that corrupt activity will come to the attention of U.S. prosecutors.
Finally, the DOJ has publicized that international law enforcement cooperation is increasing. Not only does this cooperation make it more likely that wrongful conduct will come to the attention of U.S. authorities, but it also facilitates investigations and prosecutions. FCPA violations are becoming low-hanging fruit for the DOJ.
More Than Tea Leaves
Despite the new administration’s focus on prosecution of domestic crime, the DOJ remains heavily invested in the aggressive prosecution of FCPA violations on both the corporate and individual levels, and corporations must ensure that their compliance programs and measures are active and effective.
- See http://www.marketwatch.com/story/new-sec-chief-may-have-interest-in-reforming-foreign-bribery-enforcement-2017-01-04.
- See http://fcpa.stanford.edu/statistics-analytics.html.
- Id.
- See http://fcpa.stanford.edu/chart-penalties.html.
- Id.
- See http://fcpa.stanford.edu/statistics-top-ten.html.
- See http://www.fcpablog.com/blog/2015/1/23/paper-the-fcpa-is-a-new-international-business-tax-on-non-us.html.
This article was originally published in the July 2017 edition of White Collar Watch. Click here to read the article online.