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It’s Important To Remember That The Internal Controls Standard Is “Reasonable”

Reasonable

This recent post discussed how the COVID-19 crisis once again demonstrates that there is a difference between the FCPA anti-bribery provisions (the statute) and how the FCPA’s anti-bribery provisions are enforced by the DOJ/SEC.

In the current crisis, some have raised legitimate concerns that doing risk assessments, due diligence of third parties, monitoring of third parties, in-country audits, and a host of other internal controls “best practices” have become difficult if not practically impossible – and thus Foreign Corrupt Practices Act violations are lurking. After all, the DOJ says a business organization should do the above-listed things (among others) in its Evaluation of Corporate Compliance Programs (“ECCP”)

Compliance professionals – take a deep breath. The ECCP is not the law and courts have held that failure to follow supposed “best practices” is not a legal violation.

Rather, in times like these remember that the internal controls standard is “reasonable.” “Reasonable” is a term used throughout the law and when used the standard contemplates a variety of factors including the circumstances in which conduct occurs. Indeed, this position finds grounding in the FCPA itself, its legislative history, FCPA judicial decisions, and even prior FCPA enforcement agency guidance.

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The FCPA Has Always Been A Law Much Broader Than Its Name Suggests

exclamation

Yesterday, the Foreign Corrupt Practices Act turned 42.

Thus, an appropriate time to highlight that the FCPA has always been a law much broader than its name suggests. Sure, the FCPA contains anti-bribery provisions which concern foreign bribery. Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.

However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery and these provisions are among the most generic legal provisions one can possibly find.

Case in point is this recent SEC enforcement action against MetLife for “long-standing” internal control failures and associated books and records issues.

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Issues To Consider From The Enforcement Action Against Former Herbalife China Executives

Issues

This prior post detailed the DOJ’s recent criminal indictment against Yanliang Li (a citizen of China and former Managing Director of a Chinese division of Herbalife) and Hongwei Yang (a citizen of China and former head of the External Affairs Department of a Chinese division of Herbalife). Yang was charged with one count of conspiracy to violate the FCPA and Li was charged with one count of conspiracy to violate the FCPA, one count of perjury and one count of destruction of records in a federal investigation. In addition, the SEC charged Li with violating the FCPA’s anti-bribery provisions and aiding and abetting books and records and internal controls violations.

This post highlights additional issues to consider from the enforcement action.

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What Should Happen When Compliance Is Ignored?

questions to ask

The recent Barclays Foreign Corrupt Practices Act enforcement action was based on alleged improper internship and hiring practices (see here and here for prior posts).

In the enforcement action, the SEC acknowledged that the company had several compliance policies and procedures to mitigate risk in this area.

For instance, the SEC stated: “Barclays promulgated anti-bribery and corruption policies that included prohibitions on providing employment in exchange for business.”

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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions

inconistent

Other than this website (see here, herehereherehere and here), there seems to be little focus on the SEC’s inconsistent approach to enforcing the FCPA’s books and records and internal controls provisions.

Which is too bad because consistency is a basic rule of law principle. In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

As highlighted in the numerous prior posts as well as the latest example described below, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

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