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Items Of Interest From The Bio-Rad Enforcement Action

This previous post dived deep into the Bio-Rad Laboratories FCPA enforcement action.

This post continues the analysis by highlighting various issues from the enforcement action.

Play On Words

The enforcement action was the result of Bio-Rad’s voluntary disclosure and both the DOJ and SEC were complimentary of the company’s cooperation.

In the words of the DOJ, “that cooperation included voluntarily making U.S. and foreign employees available for interviews, voluntarily producing documents from overseas, and summarizing the findings of its internal investigation. ”  Elsewhere the DOJ stated that Bio-Rad translated numerous documents and provided timely reports on witness interviews to the DOJ.

Likewise, the SEC noted that Bio-Rad’s investigation “included over 100 in-person interviews, the collection of millions of documents, the production of tens of thousands of documents, and forensic auditing.”

Against this backdrop, the DOJ’s press release contained a most interesting play of words.

“The department pursues corruption from all angles …” (emphasis added).

“The FBI remains committed to identifying and investigating violations of the FCPA.”  (emphasis added).

Bio-Rad’s press release also contained an interesting play on words as well.

As highlighted in several previous posts (see here for instance), the term “declination” is already one of the more amorphous term in the “FCPA vocabulary.”

In a further twist, the company’s press release stated:

“The DOJ declined to prosecute Bio-Rad, and the parties entered into a Non-Prosecution Agreement under which Bio-Rad has agreed to pay a penalty of $14.35 million.” (emphasis added).

A Government Required Transfer of Shareholder Wealth to FCPA Inc?

Bio-Rad was the second FCPA enforcement in the past two weeks – Layne Christensen being the other (see here and here for prior posts).

Both enforcement actions were the result of voluntary disclosures in which the DOJ and/or SEC were complimentary of the company’s internal investigation, remedial actions, and compliance enhancements.

For instance, the DOJ noted that Bio-Rad conducted “an extensive internal investigation in several countries” and noted, among other things, as follows.

“the Company has engaged in significant remedial actions, including enhancing it anti-corruption policies globally, improving its internal controls and compliance functions, developing and implementing additional FCPA compliance procedures, including due diligence and contracting procedures for intermediaries, instituting heightened review of proposals and other transactional documents for all Company contracts … and conducting extensive anti-corruption training throughout the global organization.”

Likewise, the SEC stated, among other things, as follows.

“Bio-Rad also undertook significant and extensive remedial actions including: terminating problematic practices; terminating Bio-Rad employees who were involved in the misconduct; comprehensively re-evaluating and supplementing its anticorruption policies and procedures on a world-wide basis, including its relationship with intermediaries; enhancing its internal controls and compliance functions; developing and implementing FCPA compliance procedures, including the further development and implementation of policies and procedures such as the due diligence and contracting procedure for intermediaries and policies concerning hospitality, entertainment, travel, and other business courtesies; and conducting extensive anticorruption training throughout the organization world-wide.”

In the Layne Christensen action, the SEC likewise stated, as other things, as follows.

“Layne Christensen also took affirmative steps to strengthen its internal compliance policies, procedures, and controls. Layne Christensen issued a standalone anti-bribery policy and procedures, improved its accounting policies relating to cash disbursements, implemented an integrated accounting system worldwide, revamped its anti-corruption training, and conducted extensive due diligence of third parties with which it does business. In addition, Layne Christensen hired a dedicated chief compliance officer and three full-time compliance personnel and retained a consulting firm to conduct an assessment of its anti corruption program and make recommendations.”

Nevertheless, both Bio-Rad and Layne Christensen have two-year reporting obligations to the government after the enforcement action.

The following observation is the same as in this prior post.

In situations involving voluntary disclosures where the enforcement agencies are complimentary of the company’s remedial actions and compliance enhancements, such post-enforcement action reporting obligations seem to be little more than a government required transfer of shareholder wealth to FCPA Inc.

Sure, such post-enforcement action reporting obligations give enforcement agency officials something to do and provide even more work for FCPA Inc., but in the situations discussed above, are such post-enforcement action reporting obligations necessary?

Both Bio-Rad’s (see below) and Layne Christensen’s FCPA scrutiny lasted approximately four years from beginning to enforcement action.  Tack on two more years of reporting obligations and the result is that these two instances of FCPA scrutiny will have provided FCPA Inc. participants an engagement lasting over six years.

This recent Wall Street Journal article asks “what would get more companies to self-disclose bribery” (a more detailed answer to this question will be explored in a future post).

One answer is to ditch the post-enforcement action reporting obligations in cases where there is a voluntary disclosure and the enforcement agencies are complimentary of the company’s remedial actions and compliance enhancements.

Or perhaps the post-enforcement action reporting requirements do indeed lead to more voluntary disclosures when one considers the important gatekeeper role FCPA counsel often play in such corporate decisions.  (See here).

Timeline

As indicated in the resolution documents, Bio-Rad’s initial self-disclosure of potential FCPA violations occurred in May 2010. The length of the company’s FCPA scrutiny – from point of first public disclosure to resolution – thus lasted approximately 4.5 years. (See here for the prior post “The Gray Cloud of FCPA Scrutiny Simply Lasts Too Long”).

5 for 5

In 2014, there have been five SEC corporate FCPA enforcement actions (Bio-Rad, Layne Christensen, Smith & Wesson, Alcoa, and HP).  All have been resolved via the SEC’s administrative process.

My recent article, “A Foreign Corrupt Practices Act Narrative,” (see pgs. 991-995) discusses this trend and how it is troubling as it places the SEC in the role of regulator, prosecutor, judge and jury all at the same time.  As Judge Rakoff recently observed, “from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”

Here Come the Plaintiffs’ Lawyers

It is as predictable as the sun rising in the east.

No less than 24 hours after release of the Bio-Rad enforcement action documents, plaintiffs’ lawyers began salivating and announcing investigations to determine whether officers and directors of the company breached fiduciary duties owed to shareholders.  (See here, here, here, here, here, and here for releases).

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