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The Hidden Employee Costs Of FCPA Scrutiny And Enforcement

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As highlighted in the article “FCPA Ripples,” settlement amounts in an actual Foreign Corrupt Practices Act enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement. Other ripples include, most prominently, pre-enforcement action professional fees and expenses, post-enforcement action professional fees and expenses as well as a host of other negative business consequences.

As long as there has been FCPA enforcement, it has been known that culpable employees have been terminated or disciplined in connection with FCPA investigations and enforcement actions.

Yet, as highlighted in this post, in certain recent FCPA enforcement actions (but not all – the SQM and Las Vegas Sands enforcement actions were silent on this topic) the DOJ has quantified the number of employees terminated or disciplined. According to DOJ resolution documents, in six recent enforcement actions approximately 160 employees have been terminated or disciplined. (This figure is in addition to numerous third parties terminated by companies resolving FCPA enforcement actions).

These employee figures represent yet another “ripple” of FCPA scrutiny and enforcement. The aggregate costs of this ripple are surely meaningful when one considers certain inevitable wrongful termination or separation costs, lost productivity, and the time and expense of recruiting and hiring replacements.

The November 2016 DOJ NPA used in connection with the JPMorgan enforcement action appears to be the first instance of the DOJ providing specific number on this topic.

As highlighted in this prior post, the NPA stated in pertinent part:

“the Company and JPMC engaged in extensive remedial measures, including: (1) causing five employees who participated in the misconduct described in the Statement of Facts to separate from the Company—one employee resigned after being placed on leave, one employee received a notice of separation while on leave, and three employees resigned or retired after receiving a notice of separation; (2) causing one employee who failed to identify issues with referral hiring and failed to take appropriate steps to mitigate risks to separate from the Company; (3) disciplining an additional twenty-three employees who failed to detect the misconduct, failed to supervise effectively those who were engaged in the misconduct, failed to take appropriate steps to mitigate corruption and compliance risks, and/or who were lower-level employees engaged in the misconduct at the direction of supervisors; (4) imposing more than $18.3 million in financial sanctions on former or current employees in connection with the remediation efforts.”

Thereafter, as highlighted in this December 2016 post, the Odebrecht plea agreement stated in pertinent part:

“the company engaged in extensive remedial measures, including: (i) terminating the employment of 51 individuals who participated in the misconduct; (ii) disciplining an additional 26 individuals who were engaged in the misconduct, including suspensions of up to a year and a half, significant financial penalties, and demotion to non-managerial, non-supervisory, non-decision making roles, for each of the 26 individuals.”

Similarly, as highlighted in this December 2016 post, the Teva plea agreement stated in pertinent part:

“the Company and the Defendant engaged in remediation measures, including: (1) causing at least 15 employees who were involved in the misconduct described in the Statement of the Facts to be removed from the Company, because their employment was terminated, they resigned after being asked to leave, or they voluntarily left once the Company’s internal investigation began.”

Likewise, as highlighted in this December 2016 post, the General Cable NPA stated in pertinent part:

“the Company has enhanced and has committed to the Fraud Section to continue to enhance its compliance program and internal controls, including ensuring that its compliance program satisfies the minimum elements set forth in Attachment B to [the NPA], the Company has engaged in extensive remedial measures, specifically by: (1) terminating the employment or accelerating the previously-planned departures and resignations of 13 employees who participated in the misconduct, (2) causing the resignation of 2 employees and accelerating the previously-planned departure of an additional employee who failed to supervise effectively others who were engaged in the misconduct described in the Statement of Facts, (3) causing the resignation of an additional employee who failed to take appropriate steps in response to identifying the misconduct; (4) terminating the business relationships with 47 third-party agents and distributors who participated in the misconduct described in the Statement of Facts;”

This trend continued into 2017 as this prior post highlighted how the Zimmer DPA stated in pertinent part:

“the Company has engaged in remedial measures, including: (1) terminating or causing the resignation of five employees who participated in the misconduct described in the Statement of Facts; (2) terminating one employee who failed to identify issues with the use of a prohibited distributor in Brazil and failed to take appropriate steps to mitigate risks; (3) disciplining two employees who failed to detect the misconduct, failed to supervise effectively those who were engaged in the misconduct, and failed to take appropriate steps to mitigate corruption and compliance risks, including by placing an official letter of reprimand in their employment files, reducing their bonuses, and requiring them to take additional anticorruption training;”

Finally, as highlighted in this post, in the DOJ’s most recent corporate FCPA enforcement against Rolls-Royce the DPA stated in pertinent part:

“the Company engaged in significant remedial measures, including: (i) terminating 6 employees and accepting resignations from 11 other employees who were the subject of internal disciplinary investigations, where all 17 employees were implicated in the corrupt schemes described [in the DPA] or in other conduct that the Company disclosed to the [DOJ] prior to signing the [DPA]; (ii) terminating the Company’s business relationships with all third-party intermediaries involved in the corrupt schemes …”

Stay Informed About FCPA Current Events

This approximate two hour engaging video tutorial provides a summary of all 2016 corporate FCPA enforcement actions and enforcement agency policy developments; various issues to consider; and compliance take-away points.

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