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FCPA Flash – A Conversation With Neil Smith (Former Senior Counsel In The SEC’s Enforcement Division) About SEC FCPA Enforcement

FCPA Flash

The FCPA Flash podcast provides in an audio format the same fresh, candid, and informed commentary about the Foreign Corrupt Practices Act and related topics as readers have come to expect from written posts on FCPA Professor.

This FCPA Flash episode is a conversation with Neil Smith. On July 14th, Smith left the SEC where he served as senior counsel in the Enforcement Division for more than six years and where he was also a member of the SEC’s FCPA Unit. In the podcast, Smith (currently a partner in the Boston office of K&L Gates) discusses SEC remedies in FCPA enforcement actions, the SEC’s theory of enforcement around the FCPA’s internal controls provisions, the impact of the Supreme Court’s recent Kokesh decision on SEC FCPA enforcement, and changes to the FCPA and FCPA enforcement that he would like to see.

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As We Say, Not As We Do

hypocrisy

The internal controls provisions of the Foreign Corrupt Practices Act require issuers to “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” the specific financial objectives of the statute are met.

Besides these vague objectives such as “transactions are executed in accordance with management’s general or specific authorization” or “access to assets is permitted only in accordance with management’s general or specific authorization” the FCPA does not specify what issuers are supposed to do. Nor does any implementing rule or regulation.

Rather, enforcement of the internal controls provisions often amounts to the government – with the perfect of hindsight – adopting a theory of enforcement that represents little more than ipse dixit (an unsupported statement that rests solely on the authority of the individual who makes it). In other words, the failure to do x, y or z is an internal controls violations merely because the government says it is.

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Development From The “Other Universe” – In Dismissing FCPA-Related Civil Claims, Judge Rejects The Notion That The FCPA “Establishes A Statutory Floor For Adequate Internal Controls”

parallel universe

Foreign Corrupt Practices Act issues often co-exist in two parallel universes.

One universe is ruled by perceived all-powerful gods with big and sharp sticks in which subjects dare challenge the gods. Another universe consists of checks and balances in which independent actors call the balls and strikes.

The first universe refers to FCPA enforcement by the DOJ and SEC. The second universe refers to litigation of FCPA-related claims in which judges make decisions in the context of an adversarial legal system. This second universe is often referred to as the rule of law universe.

There are several examples of theories used in the first universe that do not work in the second universe.

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The Challenges Of Detection And Prevention

challenge

The recent London Bridge attack in London. The January 2017 shooting at the Fort Lauderdale airport. The June 2016 shooting at an Orlando nightclub.

These recent instances, and several other similar acts of violence, have little in common with alleged Foreign Corrupt Practices Act offenses.

Except there is often a common thread in terms of the challenges of detection and prevention.

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Friday Roundup

Roundup

Offensive use of the FCPA, a weekend homework assignment, already answered, scrutiny alert, and for the reading stack. It’s all here in the Friday roundup.

Offense Use of the FCPA

FCPA Ripples highlights, among other things, how the FCPA is increasingly being used offensively including in connection with battles for corporate control.

The latest example concerns Elliott Management Corporation’s efforts to unseat board members at Arconic Inc. The recent departure of Arconic’s CEO Klaus Kleinfeld for apparently threatening Elliott Management (an existing Arconic shareholder) was all over the news (see here for example) and this recent Elliott Management letter to Arconic shareholders assails the “poor judgment” of Arconic’s board including the following.

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