Another acknowledgment of the logic, whistleblower statistics, a guilty plea, and for the reading stack. It’s all here in the Friday roundup.
Another Acknowledgment of the Logic
Previous posts here and here have highlighted recent speeches by top SEC officials in which they acknowledge the underlying logic supporting a compliance defense. Deputy Attorney General James Cole did the same in this recent speech before a bank compliance officer crowd.
“At the Department of Justice, we know that compliance officers within financial institutions, and the lawyers, bankers, and others who work with them, are the first line of defense against abuse within these institutions. Compliance officers are critical to protecting both a bank’s reputation and its bottom line. They’re essential when it comes to preventing criminal activity – and if that effort is not entirely successful, detecting and reporting such conduct. It is not an exaggeration to say that compliance is fundamental to protecting the security of our financial institutions and is essential to the integrity of our entire financial system. Despite, and in some ways because of, this crucial role, I know that working in compliance is often difficult. Compliance is seldom thought of as a ‘money-maker’ for any bank, and it may be challenging to get sufficient resources and authority to do the job well. To some, compliance may not seem to fit within the culture of a fast-moving, cutting-edge institution. And at times, certain business units or managers may seem downright hostile toward the compliance function. We at the Department of Justice understand this reality. And we appreciate that, despite these challenges, you and your colleagues are fully committed to helping protect the integrity of your institutions and our financial system.”
The notion that compliance must be firmly embedded in a corporation’s culture has been raised before, including at this conference, by many government officials. You’ve heard a great deal about the importance of ‘tone at the top.’ Indeed, companies regularly argue during negotiations that they have taken various steps to set the right tone at the highest levels of their institutions. But based on what we have seen, we cannot help but feel that the message is not getting through often enough or clearly enough. Despite years of admonitions by government officials that compliance must be an important part of a corporation’s culture, we continue to see significant violations of law at banks, inadequate compliance programs, and missed opportunities to prevent and detect crimes.”
In “Revisiting a Foreign Corrupt Practices Act Compliance Defense,” I argue, among other things, that a compliance defense will better incentivize corporate compliance and reduce improper conduct. Compliance is a cost center within business organizations and expenditure of finite resources on FCPA compliance is an investment best sold if it can reduce legal exposure, not merely lessen the impact of legal exposure.
In short, an FCPA compliance defense will best allow compliance professionals in the FCPA context to – in the words of Cole – “get sufficient resources and authority to do the job well.”
Will the DOJ and SEC ever be capable of realizing that a compliance defense is a race to the top, not a race to the bottom? (See here for the prior post). Will the DOJ and SEC ever have the courage to realize that a compliance defense can best help the enforcement agencies accomplish its laudable goals? (See here for the prior post).
The Dodd-Frank Act enacted in July 2010 contained whistleblower provisions applicable to all securities law violations including the Foreign Corrupt Practices Act. In this prior post from July 2010, I predicted that the new whistleblower provisions would have a negligible impact on FCPA enforcement. As noted in this prior post, my prediction was an outlier (so it seemed) compared to the flurry of law firm client alerts that predicted that the whistleblower provisions would have a significant impact on FCPA enforcement. So anxious was FCPA Inc. for a marketing opportunity to sell its compliance services, some even called the generic whistleblower provision the FCPA’s “new” whistleblower provisions.
So far, there have not been any whistleblower awards in connection with FCPA enforcement actions. Given that enforcement actions (from point of first disclosure to resolution) typically take between 2-4 years, it still may be too early to effectively analyze the impact of the whistleblower provisions on FCPA enforcement.
Whatever your view, I previously noted that the best part of the new whistleblower provisions were that its impact on FCPA enforcement can be monitored and analyzed because the SEC is required to submit annual reports to Congress. Recently, the SEC released (here) its annual report for FY2013.
Of the 3,238 whisteblower tips received by the SEC in FY2013, 4.6% (149) related to the FCPA. As noted in this similar post from last year, of the 3,001 whisteblower tips received by the SEC in FY2012, 3.8% (115) related to the FCPA. In FY2011 (a partial reporting year) 3.9% of the 334 tips received by the SEC related to the FCPA.
Yes, there will be in the future a whistleblower award made in the context of an FCPA enforcement action. Yes, there will be much ink spilled on this occasion and wild predictions about this “new trend.” Yet, I stand by my prediction – now 3.5 years old, that Dodd-Frank’s whistleblower provisions will have a negligible impact on FCPA enforcement.
“Foreign Official” Pleads Guilty
Earlier this week, the DOJ announced that Maria Gonzalez, the alleged “foreign official” at the center of the FCPA enforcement actions against individuals associated with broker-dealer Direct Access Partners LLC, pleaded guilty to “conspiring to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses.” Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes – an alleged state-run economic development bank in Venezuela) is to be sentenced on August 15, 2014.
As noted in the DOJ’s release:
“Previously, three former employees of the Broker-Dealer – Ernesto Lujan, Jose Alejandro Hurtado, and Tomas Alberto Clarke Bethancourt – each pleaded guilty in New York federal court to conspiring to violate the Foreign Corrupt Practices Act (FCPA), to violate the Travel Act and to commit money laundering, as well as substantive counts of these offenses, relating, among other things, to the scheme involving bribe payments to Gonzalez. Sentencing for Lujan and Clarke is scheduled for Feb. 11, 2014, before U.S. District Judge Paul G. Gardephe. Hurtado is scheduled for sentencing before U.S. District Judge Harold Baer Jr. on March 6, 2014.”
An interesting read from a Vietnam media source regarding the notion that – just like in tango – it takes two in a bribery scheme and that many instances of bribery are the result of harassment by foreign officials and extortion-like demands. When passing the FCPA in 1977, Congress fully recognized and understood this reality and that is why it did not seek to capture facilitation payments in the FCPA. (See here for more reading).
A good weekend to all.