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The Black Hole Of FCPA Enforcement

Black Hole

Readers frequently contact me with good questions about recent Foreign Corrupt Practices Act enforcement actions.

Recent examples include the following.

In connection with the recent enforcement action against individuals associated with FLIR Systems Inc., will there be a corporate enforcement action?  Given that the SEC alleged that the individuals (both U.S. citizens) not only engaged in improper conduct, but also engaged in a “cover-up” as to their conduct, will there be a DOJ criminal enforcement action against the individuals?

In connection with the recent Dutch enforcement action against SBM Offshore, will there be a DOJ or SEC enforcement action? After all, the company disclosed to U.S. authorities, as well as Dutch authorities, and the company does have American Depositary Receipts traded on U.S. exchanges, a hook the DOJ and SEC have used before in bringing an enforcement action against a foreign company.

In connection with the recent Layne Christensen enforcement action – why did voluntary disclosure and cooperation result in an SEC administrative cease and desist order in that case, but a SEC NPA in another case, a SEC DPA in another case, and a SEC civil complaint in another case?

I read the same FCPA enforcement actions and other information as others, and being a professor, am predisposed to come up with some value-added answer.  Yet when it comes to FCPA enforcement, my answer is often, good question, I don’t know, there is often a black hole when it comes to FCPA enforcement.

While that is often my answer, opaque law enforcement and its resulting contradictions and inconsistencies is contrary to the rule of law.

To state the obvious, FCPA enforcement could benefit from greater transparency.  While the below reform proposal I first articulated in 2010 is not a panacea, it is a start.

When a company voluntarily discloses an FCPA internal investigation to the DOJ and/or SEC, and when the DOJ / SEC do not bring an enforcement action, in these situations it is in the public interest to require the enforcement agencies  to publicly state, in a thorough and transparent manner, the facts the company disclosed and why there was no enforcement action based on those facts.

Here is why I think the proposal makes sense and is in the public interest.

For starters, the enforcement agencies are already enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both the DOJ and SEC are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at the enforcement agencies when it comes to the FCPA.

Further, the enforcement agencies both have specific FCPA Units (which we are told has dozens of attorneys) and thus have the resources to accomplish this task. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable.

Most important, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release  a process the DOJ frequently urges those subject to the FCPA to utilize. Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has an obligation to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA. The DOJ’s opinions are publicly released  and the FCPA bar and the rest of FCPA Inc. often study these opinions in great detail in advising clients largely because of the general lack of substantive FCPA case law. If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct. Such agency opinions would seem to be more valuable to those subject to the FCPA than the FCPA Opinion Procedure Releases. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.

Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.

Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel advises clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA.  Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.

A final reason in support of the proposal is that it would give companies a benefit by contributing to the mix of public information about the FCPA.  In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies decline an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and the company can legitimately ask why it just spent millions investigating and disclosing conduct that the DOJ  did not conclude violated the FCPA.

However, if the enforcement agencies were required to publicly justify their non-enforcement decision, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies non-enforcement decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ/SEC’s enforcement conclusions.

Transparency, accountability, useful guidance, a return on investment.

All would be accomplished by requiring the enforcement agencies  to publicly justify a non-enforcement decision in situations where no enforcement action follows a voluntary disclosure.

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