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Rep. Perlmutter, Once Again, Introduces FCPA Reform Bill, But This Time Goes Political

perlmutter

U.S. Representative Ed Perlmutter (D-CO) is persistent.

In 2009, he introduced the “Foreign Business Bribery Prohibition Act” in the House to no avail. (See here and here for prior posts). In 2011, he again introduced the “Foreign Business Bribery Prohibition Act” in the House to no avail. (See here for the prior post). In 2016, he again introduced the “Foreign Business Bribery Prohibition Act” in the House to no avail (See here for the prior post).

Last week, Perlmutter once again introduced the “Foreign Business Bribery Prohibition Act” in the House (H.R. 1549), but this time he attempted to make a political statement.

Even though H.R. 1549 is substantively the same bill as Perlmutter introduced in 2009, 2011 and 2016, the supposed purpose of H.R. 1549, as stated in his press release, is to “help stop corruption and foreign bribery under the Trump Administration.”

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Friday Roundup

Roundup

Scrutiny alert, a potential increase FCPA statutory penalty amounts, Second Circuit appeal begins, SEC enforcement chief on whistleblowers, marketing the black hole, of note, and a ripple. It’s all here in the Friday roundup.

Scrutiny Update

VimpelCom was not the only company involved in the Uzbek telecommunications bribery scheme. As highlighted in this prior post, Swedish telecom company (a company with ADRs registered with the SEC) and Russia-based Mobile TeleSystems PJSC (a company with shares traded on the New York Stock Exchange) have also been scrutiny.

Recently, Telia issued this release:

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Rep. Perlmutter, Once Again, Introduces FCPA Reform Bill

perlmutter

If nothing else, U.S. Representative Ed Perlmutter (D-CO) is persistent.

In 2009 he introduced the “Foreign Business Bribery Prohibition Act” in the House to no avail. (See here and here for prior posts).

In 2011, he introduced the “Foreign Business Bribery Prohibition Act” in the House to no avail. (See here for the prior post).

Last week, he again introduced the “Foreign Business Bribery Prohibition Act” in the House (H.R. 5438).

What is the “Foreign Business Bribery Prohibition Act?”

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The Numbers Do Not Support Chair White’s Statement Regarding Individual FCPA Enforcement Actions

Support

In this recent testimony before the House Financial Services Committee, SEC Chair Mary Jo White stated: “as in other areas, the Commission is focused on holding individuals accountable in FCPA cases.” (emphasis added).

The numbers do not support White’s statement.

As highlighted in this recent post, since 2008 approximately 85% of SEC corporate FCPA enforcement actions have not (at least yet) resulted in any related SEC action against company employees.

Indeed, prior to the SEC’s November 2014 FCPA enforcement action against Stephen Timms and Yasser Ramahi (individuals who worked in sales at FLIR System Inc.) there was a 2.5 year gap in any SEC individual enforcement actions.  During that 2.5 years, the SEC brought 19 corporate enforcement actions and not one involved any related SEC action against company employees.

As to the accountability portion of White’s statement, the two SEC individual FCPA enforcement during the last three years (the above Timms / Ramahi action and the January 2015 action against former PBSJ International employee Walid Hatoum) involved SEC administrative orders in which the individuals were allowed to settle without admitting or denying the SEC’s findings.

It is debatable what is more concerning.

A political actor making assertions without knowledge of and/or understanding of the underlying facts.

Or a political actor making assertions with knowledge of and/or understanding of the underlying facts, but making the political statement anyway.

Regardless of the cause or reason prompting Chair White’s recent statement, the numbers do not support her assertion that the SEC is “focused on holding individuals accountable in FCPA cases.”

SEC Enforcement Director Talks FCPA And Is On The Hot Seat Over Administrative Proceedings

SEC

Last week, Andrew Ceresney testified before the House Financial Services in a hearing titled “Oversight of the SEC’s Enforcement Division.”

As highlighted below, Ceresney’s testimony touched upon Foreign Corrupt Practices Act issues and during the hearing Ceresney was on the hot seat regarding the surge in SEC administrative proceedings to resolve enforcement actions.

In his written testimony, Ceresney stated as following regarding the FCPA.

“Pursuing violations of the FCPA remains a critical part of our enforcement efforts, as international bribery saps investor confidence in the legitimacy of a company’s performance and undermines the accuracy of a company’s books and records, among other negative impacts. The Division, and particularly the specialized FCPA unit, is active in this area, bringing significant and impactful cases, often in partnership with its law enforcement and regulatory counterparts both at home and abroad. Last fiscal year, the Commission obtained orders for over $380 million in disgorgement and penalties in FCPA cases. In FY 2013, the SEC and DOJ released A Resource Guide to the U.S. Foreign Corrupt Practices Act. The guide takes a multi-faceted approach toward setting forth the statute’s requirements, providing insights into SEC and DOJ enforcement practices.

In today’s globalized marketplace, Enforcement’s ability to protect investors and maintain fair and efficient markets is often dependent on the Division’s ability to investigate misconduct that takes place, at least in part, abroad. In coordination with the SEC’s Office of International Affairs, the Division has expanded its efforts to obtain evidence of potential wrongdoing from around the globe. Many of Enforcement’s FCPA investigations rely on evidence obtained from foreign jurisdictions, and often are conducted in parallel with foreign governments. Other areas, such as financial reporting and accounting fraud, asset management, and insider trading, also often rely on evidence obtained through foreign regulators.”

Whether many of the SEC’s recent FCPA enforcement actions (such as Bruker Corp., Layne Christensen, Smith & Wesson and one against former employees of FLIR System, Inc ) were “significant and impactful” is of course subject to debate.

During the hearing, Ceresney found himself on the hot seat over the SEC’s prominent use of administrative proceedings to resolve enforcement actions.  As highlight in this article, Rep. Scott Garrett (R-N.J.) reportedly stated as follows in an opening statement:

“While bringing more cases through the administrative proceedings can lead to lower costs for the agency and increases in efficiency, it’s important to realize that those benefits come with a cost. The cost is less due process protections for defendants.”

“Because the SEC’s administrative proceedings use the SEC’s procedural rules, respondents are forced to operate on a condensed timeframe and do not have the benefit of some of the fundamental due process protections under federal civil procedures.”

As noted in the article:

“Rep. Sean Duffy (R-Wis.) also hammered the agency’s head of enforcement, Andrew Ceresney, over the fairness of administrative law proceedings. Duffy questioned the SEC’s track record in these hearings, in which it won 100 percent of its cases last year.

“You won every case. How about with regard to the cases you brought in federal court? One hundred percent there? No, you won 11 out of 18 [cases]. You think there could be any correlation when you actually hire the judges, and you set the rules, that you win all the cases?” Duffy asked somewhat sarcastically.”

Concern as to the surge in the SEC’s use of the administrative process to resolve enforcement actions, including in the FCPA context, is warranted.

As highlighted in prior posts, of the seven SEC corporate FCPA enforcement actions in 2014, six (86%) were resolved through SEC administrative orders meaning there was not one ounce of judicial scrutiny.

Judge Jed Rakoff (S.D.N.Y.) has been among the more prominent critics of this surge. As highlighted in this prior post, Judge Rakoff has asked:  “is the SEC becoming a law unto itself?”

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