Former SEC FCPA Unit Chief Kara Brockmeyer on declinations and voluntary disclosure, Wal-Mart’s global chief ethics and compliance officer on increased standardization in global anti-corruption efforts, scrutiny updates, French first, and for the reading stack.
It’s all here in the Friday Roundup.
Former SEC FCPA Unit Chief Kara Brockmeyer On Declinations and Voluntary Disclosure
“What is the case load of the unit?
“The unit doesn’t officially report the number of investigations. There are public sources out there that say that at any one time, there are probably one hundred open investigations.”
Is there a dollar cut off for the SEC FCPA unit to take a case?
“There is not a dollar cut off per se. But just like any other enforcement action, there does have to be a triage. You have a limited amount of resources that you can bring to bear. Historically, small dollar limited conduct are the types of things where the unit is not going to open an investigation. That being said, it’s possible that a lot of small low level bribes does indicate there is an internal controls problem. And you may very well see an investigation and even an enforcement action.”
Let’s take a snapshot of those 100 investigations. Can you give me a sense as to percentage wise how they are being resolved?
“It’s difficult to say because the SEC does not announce the number of declinations. These are public companies. But companies will announce when the SEC has declined a matter. But that number will undercount the true number of companies that were involved in an investigation that was closed.”
“There are cases where a company reports a minor matter, the SEC opens an investigation to look into it, and then at the end of that process, the SEC concludes that the company acted appropriately and there was not evidence of a violation and the investigation was closed without action.”
Of those 100 investigations, what would be your guess as to how many are closed without action?
“It could be anywhere from ten to fifteen, even twenty percent of allegations brought to the SEC’s attention that they decline to go further on.”
Does the SEC announce declinations?
“No, the SEC does not announce declinations. Declinations can be made public by the company or the individual who receives one. Often, if a company has disclosed that it is under investigation, it will of course want to announce that it has received a declination. But the SEC itself does not announce declinations.”
When there is no evidence of FCPA violations, this is not a “declination” this is what the law demands. Consider the following analogy. Let’s say law enforcement sets up a sobriety checkpoint on the highway. A sober driver successfully passes through it. Would we call this an instance of law enforcement “declining” to prosecute the driver for drunk driver? Of course not, and the same logic should apply in the FCPA context as well.
Back to the Brockmeyer Q&A.
“[H]ow many [FCPA inquiries] are triggered by self-reports by the company?
“When I was at the SEC, on average, about 25 percent to 35 percent of the cases brought in any given year were the result of self-reporting. That means that on average about two-thirds of the cases brought were sourced through some other mechanism.”
“I can’t give you direct numbers but I can tell you anecdotally that the percentage of self-reports among investigations is higher. There are a significant number of self-reports involving conduct that is limited in scope, time and size. And those are cases that generally would end in a declination. But I don’t know that for sure. And I haven’t looked at that data.”
Overall is self-reporting decreasing?
“With the government, we don’t actually know how many cases are out there that we don’t hear about. When I was with the government, the number of self-reports over five years stayed relatively constant. But I do hear as well from defense counsel that there are fewer self reports.”
I question the 25-35% figure referenced. As highlighted in this prior post (with aggregated information for several years), based on information in SEC FCPA resolution documents.
Of the 24 corporate SEC FCPA enforcement actions from 2016, 8 enforcement actions (33%) were the result of corporate voluntary disclosures; of the 9 corporate SEC FCPA enforcement actions from 2015, 3 enforcement actions (33%) were the result of corporate voluntary disclosures; of the 7 corporate SEC FCPA enforcement actions from 2014, 4 enforcement actions (57%) were the result of corporate voluntary disclosures; of the 8 corporate SEC FCPA enforcement actions in 2013, 3 enforcement actions (38%) were the result of corporate voluntary disclosures; in 2012 of the 8 corporate SEC FCPA enforcement actions 4 (50%) were the result of corporate voluntary disclosures; and in 2011 of the 13 corporate SEC FCPA enforcement actions 11 (85%) were the result of corporate voluntary disclosures.
Wal-Mart’s Global Chief Ethics and Compliance Officer on Increased Standardization Around Global Anti-Corruption Efforts
A very thoughtful and well-written article by Jay Jorgensen (Global Chief Ethics and Compliance Officer at Wal-Mart) about increased standardization around global anti-corruption efforts.
“I believe Walmart has already implemented the recommendations embodied in the ISO  standard. But the fact that Walmart has already implemented an effective program doesn’t make the ISO standard irrelevant. To the contrary, promoting increased standardization of corporate anti-corruption efforts would benefit everyone who is working against the plague of corruption.”
For a recent FCPA Professor post by Jorgensen on Wal-Mart’s enhanced ethics and compliance program, see here.
This previous post highlighted how Beijing-based Sinovac Biotech, a company with shares traded on NASDAQ, could become the first China-based issuer to resolve a Foreign Corrupt Practices Act enforcement action. Recently the company disclosed:
“The Beijing People’s Court issued five judgements in 2016 and 2017. These judgments were related to corrupt conduct allegedly engaged in by a former official of the Center for Drug Evaluation in CFDA, his wife and his son. These judgments found that the official and his wife had engaged in a practice of improperly soliciting and accepting payments from various individuals involved in the vaccine products industry. According to the judgments, one of the individuals solicited by the official was Mr. Weidong Yin, our chairman, president and chief executive officer. It was asserted in the judgments that Mr. Yin made three payments, and arranged for a loan, to the official and his wife, in the total amount of RMB550,000 ($77,000) between 2002 and 2011. Mr. Yin was not charged with any offense or improper conduct and he cooperated as a witness with the procuratorate. To our knowledge, no legal proceedings or government inquiries have been made against Mr. Yin. In December 2016, our audit committee authorized the commencement of an internal investigation into the allegations made in the judgements. The audit committee engaged Latham & Watkins as independent counsel to assist with the investigation.
In June 2017, we became aware of certain judgments based on bribery charges issued by Chinese courts in four provinces against various officials of the Chinese Center for Disease Control (the “CDC”). While these judgments appear to reflect an industry-wide investigation focused on CDC officials, they also referenced eight of the Company’s former and current salespersons, together with sales personnel from several other Chinese vaccine companies and distributors. These judgments did not name, and no charges were brought against, the Company or any of its directors, officers or employees as defendants. The eight referenced employees cooperated with the procuratorate. The procuratorate did not contact the Company for cooperation. Upon becoming aware of these judgments, our Audit Committee expanded its internal investigation to review matters related to these judgments and the Company’s sales practices and policies, and further engaged Latham & Watkins to continue the independent investigation with the expanded scope.
After we publicly announced the internal investigation arising from the allegations in a research report in December 2016, we were notified by the SEC in February of an enforcement inquiry related to the matters discussed in the report, and in April 2017 we received a subpoena from the SEC requesting documents. Also in February 2017, we received an inquiry from NASDAQ related to the same matter. We are cooperating with NASDAQ and the SEC investigations into these matters. In September 2017, we received an inquiry from the Department of Justice (the “DOJ”) and we have been cooperating with the DOJ.
We take these matters very seriously and are committed to conducting business in compliance with all applicable laws. However, at this time, we are unable to predict, what, if any, action may be taken by NASDAQ, the SEC and the DOJ or any penalties or remedial measures these agencies may seek, but intend to continue to cooperate with these agencies. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of fines, civil and criminal penalties, and equitable remedies, including disgorgement or injunctive relief. We cannot reasonably estimate the potential liability, if any, related to these matters resulting from any proceedings that may be commenced by the SEC or any other governmental authorities.”
As highlighted in this previous post, in February 2016 SAP (a German company with American Depository Shares registered with the SEC) resolved an FCPA enforcement action based on conduct in Panama. Without admitting or denying the SEC’s finding’s in an administrative order the company agreed to pay approximately $3.9 million and the SEC ordered the company to cease and desist from committing or causing any violations and any future violations of the FCPA’s books and records and internal controls case.
Fresh off this 2016 FCPA enforcement action, SAP again became the subject of FCPA scrutiny. As highlighted here, SAP is under scrutiny for contracts with South African state rail company Transet and state utility Eskom including its relationship with “the Indian-born Gupta brothers—Ajay, Atul, and Rajesh—[who] are, together with [South Africa] president Jacob Zuma, at the center of numerous allegations of corruption in South Africa.” As noted in this report: “the Guptas are extremely close to Zuma, to the extent that they reportedly have influence over who occupies senior cabinet positions, and there have been numerous allegations of Gupta-linked enterprises demanding kickbacks for arranging deals with state-owned companies.”
“[SAP] has launched an investigation into its business practices in the Gulf region […] The company also said one of its executives in the Gulf region had resigned and another was on administrative leave, without giving further details. […] A source familiar with the matter said the individuals referred to by SAP were Tayfun Topkoc, the company’s country manager for the United Arab Emirates, and Oman country manager Przemek Oledzki – whose LinkedIn profile identifies him as chief of staff for the UAE, Iran and Oman region. The source added SAP’s investigations related to the company’s dealings with Iran, which are overseen by its Gulf States offices in Dubai. Topkoc and Oledzki did not immediately respond to requests for comment via their email and social media profiles. “We are currently investigating business activities in the region,” SAP told Reuters in a statement, without specifying whether the matter concerned Iran. “SAP is committed to the highest standards of business ethics and we always strive to operate with transparency and integrity. Please understand that we cannot say more while the investigation is ongoing,” it said.”
As highlighted in this recent FCPA Flash podcast, France has adopted a deferred prosecution regime. The resolution vehicle was recently used for the first time in an enforcement action (outside the bribery/corruption context) against HSBC.
What does a French DPA look like? See here for the English translation.
As stated in the DPA:
“[The relevant entity], which neither voluntarily disclosed the facts to the French criminal authorities, nor acknowledged its criminal liability during the course of the investigation, only offered minimal cooperation in the investigation.”
For the Reading Stack
The always informative Debevoise & Plimpton FCPA Update is here with a lead article about the DOJ’s recent individual enforcement actions. As highlighted several times on these pages in terms of the “clustering phenomenon,” the alert rightly notes that there is a “feast or famine” aspect to individual enforcement. Cases tend to either have many individuals (PDVSA, Haiti Teleco, Rolls-Royce) or none …”.
Miller & Chevalier’s FCPA Autumn Review is here.
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