Top Menu

When Is It Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?

The Foreign Corrupt Practices Act often intersects with other disciplines and it is refreshing to read how others see this current era of FCPA enforcement including the resolution vehicles used to resolve enforcement actions as well as government policy relevant to such resolution vehicles.

Professor Peter Reilly (Texas A&M School of Law) focuses his writing in the area of alternative dispute resolution, ethics, emotional intelligence and theories of influence and persuasion within the context of mediation and negotiation.  Professor Reilly previously authored this guest post regarding his article “Negotiating Bribery: Toward Increased Transparency, Consistency, and Fairness in Pre-Trial Bargaining Under The Foreign Corrupt Practices Act”  and he is out with a new article to be published soon in the Harvard Business Law Review titled:  “Ralph Lauren, Transnational Bribery, and Voluntary Disclosure Under the Foreign Corrupt Practices Act: When Is It Strategically Wise (or Not) to Self-Report FCPA Violations to the SEC?”

Below is the abstract and the article can be downloaded here.

“In 2013, the SEC announced a non-prosecution agreement (“NPA”) with Ralph Lauren Corporation in connection with bribes paid to government officials in Argentina. The SEC decided not to charge the corporation with violations of the Foreign Corrupt Practices Act due to the company’s response to the situation, including: (1) the prompt reporting of the violations on its own initiative; (2) the completeness of the information provided; and (3) the “extensive, thorough, and real-time cooperation” put forth during the SEC investigation. While the SEC and various legal commentators suggest the case stands for the proposition that “substantial and tangible” benefits will accrue to companies that self-report FCPA violations and cooperate fully with the SEC, this article arrives at a very different assessment of the matter. Specifically, the article suggests that (1) it might not have been a good idea, from a business perspective, for Ralph Lauren Corporation to self-report the potential violation to the SEC; and (2) the non-prosecution agreement negotiated to resolve the matter — the SEC’s first-ever NPA awarded in an FCPA case — also might not have been in the best interest of the company. In other words, this article suggests that, under current SEC policy, a company’s ability and willingness to self-report to and cooperate with the government is not always strategically wise in the context of FCPA enforcement.

The article explores, through the lens of the Ralph Lauren case, the factors that companies and their counsel must consider when making the difficult and critical calculation of whether or not to voluntarily disclose a potential FCPA violation to the SEC. I investigate the policies and programs used by the SEC to entice voluntary reporting and cooperation, as well as the kinds of results and rewards that might be achieved therefrom. I demonstrate that although the risks associated with voluntary disclosure tend to be concrete and predictable, the rewards have heretofore been largely uncertain — a calculus that militates against disclosure. I conclude that in order to increase the likelihood that companies will self-report FCPA violations in the future, and thereby assist in eradicating the scourge of transnational bribery worldwide, the SEC must be far more transparent: Its policies, pronouncements, rules, and regulations must provide more certain, specific, and calculable incentives to companies for volunteering to come forward. Simply put, companies will not come forward in large numbers, or on significant FCPA matters, until they can determine with certainty and specificity that the rewards obtained will outweigh the risks involved. The article concludes with reform measures that can and should be implemented within the SEC to bring about such transparency. Implementing these changes would benefit everyone involved — the companies and their counsel, the regulatory agencies, and, perhaps most important of all, the people and institutions throughout the world currently suffering the ill effects of transnational bribery.”

Powered by WordPress. Designed by WooThemes