Previous posts this week (here, here, and here) provided various facts and figures from 2012 FCPA enforcement, including separate figures for SEC enforcement and DOJ enforcement of the FCPA. Viewing FCPA enforcement this way is useful and informative given that the DOJ and SEC are separate law enforcement agencies and different issues arise in DOJ and SEC FCPA enforcement actions.
Viewing FCPA enforcement in the aggregate is of course also useful and informative and this post begins by aggregating the previous DOJ and SEC FCPA enforcement facts and figures from 2012. After providing various aggregate facts and figures, this post concludes with a roundup of other year in reviews.
2012 FCPA Enforcement Facts and Figures
In 2012, there were 12 unique corporate FCPA enforcement actions. 5 of these enforcement actions (Smith & Nephew, Biomet, Orthofix, Pfizer, and Tyco) involved both a DOJ and SEC component, 4 of these enforcement actions (Marubeni, BizJet/Lufthansa, Data Systems & Solutions, and NORDAM Group) involved only a DOJ component, and 3 of these enforcement actions (Oracle, Allianz, and Eli Lilly) involved only an SEC component.
Total DOJ and SEC fine/penalty/settlement amounts in these enforcement actions was approximately $260 million. The average fine/penalty amount in the 12 corporate FCPA enforcement actions was approximately $21.7 million, the median was approximately $17.3 million. Two enforcement actions (Pfizer and Marubeni) represented 44% of the $260 million amount. The range of enforcement actions was, on the high end, $60.1 million (Pfizer), and on the low end, $2 million (Oracle and NORDAM Group).
6 of the 12 enforcement actions (50%) were, in whole or in part, against pharmaceutical or other health care related companies (Smith & Nephew, Biomet, Orthofix, Pfizer, Tyco, and Eli Lilly). These 6 enforcement actions represented 65% of the $260 million amount.
Below is a summary of total DOJ and SEC fine/penalty/settlement amounts 2010-2012.
2010 – $1.4 billion
2011 – $652 million (this figure includes the $149 million Jeffrey Tesler forfeiture).
2012 – $260 million.
Although year-to-year enforcement statistics, and the arbitrary cutoffs they entail, may be of marginal value as many non-substantive factors can influence the timing of an FCPA enforcement action, the undeniable fact is that from an FCPA enforcement fine/penalty/settlement amount perspective, FCPA enforcement has declined, and rather dramatically, over the past two years.
Industry participants have offered various reasons for the decline in FCPA enforcement including (see below) that “vast government resources [were] being poured into the comprehensive FCPA Resource Guide released in November.” The notion that a pamphlet style document (with 35 pages of introductory material, blank pages, and a table of contents; 30 pages of the FCPA statue itself and footnotes; and 20 pages of summaries of previously issued guidelines) and a document that – in the words of the enforcement agencies “does not represent a change in policy” – is a reason for the decline in FCPA enforcement is, in all due respect, just plain silly.
Rather, as I have statistically demonstrated (see here for the prior post from July when FCPA Inc. was beginning to comment on the decline in FCPA enforcement) FCPA enforcement 2007-2011 was, to a great extent, the function of just three unique events: (1) publication in 2005 of the so-called Volcker Report on the United Nations Iraq Oil for Food Program which served as a ready-made list of enforcement actions; (2) in 2003 Georges Krammer, a former top official at Technip, shared information with French investigators concerning a $6 billion dollar project at Bonny Island, Nigeria; and (3) several oil and gas companies utilized the services of Panalpina.
As noted in the prior post, these three unique events have resulted in approximately 35% of the core corporate FCPA enforcement actions between 2007-2011. Moreover, from a fine/penalty/settlement amount perspective, the Bonny Island Bribery cases represent 4 of the top 6 FCPA enforcement actions of all-time (see here for the FCPA Blog’s Top 10 list).
These three unique events have largely run their course and I submit this is the biggest reason why FCPA enforcement in 2011 and 2012 declined from the record setting 2010 enforcement year.
Corporate vs. Individual Enforcement Actions
As noted in the previous SEC and DOJ year in review posts, 0% of 2012 corporate FCPA enforcement actions have, at present, resulted in any related DOJ or SEC charges against company employees.
Of the 12 corporate enforcement actions from 2012
6 enforcement actions (BizJet/Lufthansa, Orthofix, NORDAM Group, Pfizer, Tyco, and Oracle) or 50% were the result of corporate voluntary disclosures
3 enforcement actions (Smith & Nephew, Biomet, and Eli Lilly) or 25% appear to have been based on corporate disclosures following an industry sweep (a sweep that may have been prompted by Johnson & Johnson’s voluntary disclosure – see here for the prior post)
2 enforcement actions (Data Systems & Solutions and Allianz) or 17% appear to have been based on inquiries initiated by the enforcement agencies.
1 enforcement action (Marubeni – like the other Bonny Island bribery cases) or 8% was the result of a previous foreign law enforcement investigation
If your idea of a fantastic Friday is reading additional FCPA year in review information, you are in luck!
Shearman & Sterling
In late December, Shearman & Sterling FCPA attorneys Philip Urofsky and Danforth Newcomb released (here) their always stellar “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act.” The authors discussion of parent/subsidiary liability stands out. In pertinent part, it states as follows.
“We have previously expressed concern about the SEC’s stretching to holding parent companies liable under the FCPA’s anti-bribery provisions for corrupt payments by their subsidiaries, as opposed to the more clearly applicable books-and-records provisions, when the facts alleged in its pleadings do not establish any authorization, direction, or control of the subsidiaries’ conduct. […] In the [FCPA Guidance], the government asserted that a parent company may be liable for a subsidiary’s conduct in two ways: (i) where the “parent . . . participated sufficiently in the activity to be directly liable for the conduct,” or (ii) “under traditional agency principles.” The [Guidance] stands by the notion that the “fundamental characteristic of agency is control”—”including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction.” Thus, the government seems to be saying that it will first determine whether the subsidiary is an agent of the parent, focusing not only on the formal relationship but also on the practical realities of how the parent and subsidiary actually interact, and then apply “traditional principles of respondeat superior” to hold the parent liable for the acts of the subsidiary, whether or not specifically authorized, directed, or controlled by the parent. This would, in our view, be a significant departure from existing practice and indeed from generally applicable corporate principles.”
Regarding the Watts Water Technologies – Sidley Austin malpractice case (see here and here for prior posts), the Shearman & Sterling report states as follows. “[The case] was dismissed after the parties filed a joint stipulation of dismissal, which gives no explanation as to why the suit was terminated.”
In early January, Gibson Dunn released its 2012 Year-End FCPA Update (here). It begins, in dramatic fashion, as follows.
“The whispers have begun. By comparison to the blistering pace set in recent years, FCPA prosecutions were down in 2012 (though still far higher than in any of the first 30 of the statute’s 35-year existence). Does this portend the end of the FCPA Era–left on the cutting room floor of the Sequester? Can U.S. companies relax their vigilance? Not according to Lanny A. Breuer, Assistant Attorney General for DOJ’s Criminal Division, who recently commented that “robust FCPA enforcement has become part of the fabric of the Justice Department” and a “reality that companies know they must live with and adjust to”–a reality from which “there is no turning back.” We agree. The relative downtick in 2012 FCPA enforcement is a slight blip in the landscape, attributable to, among other things, vast government resources being poured into the comprehensive FCPA Resource Guide released in November–the signature FCPA development of 2012–and multiple, team-intensive trial and pre-trial trench warfare being waged by both DOJ and the SEC in numerous venues across the country. This is a marathon, not a sprint, and as the statute celebrates its 35th birthday, both DOJ and the SEC appear to have hit their stride.”
Of note from the Gibson Dunn report is an informative chart summarizing “the corporate compliance monitoring obligations imposed by DOJ and/or the SEC in 2012.”
Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).” The update states as follows. “The headline for 2012 is both the near-record pace of DOJ DPAs and NPAs and the eye-popping $9.0 billion dollars in monetary amounts obtained by the U.S. government related to settlements involving a DPA or NPA.”
Of the 35 NPAs or DPAs the DOJ entered into in 2012, 8 (23%) were in FCPA enforcement actions. In 2011, approximately 40% of DOJ NPAs or DPAs were in FCPA enforcement actions and in 2010, approximately 50% of DOJ NPAs or DPAs were in FCPA enforcement actions. The lower percentage in 2012 would seem largely a function of the number of trade sanctions / export controls / money laundering enforcement actions resolved with NPAs or DPAs in 2012, particularly against financial institutions.
On his Corruption, Crime & Compliance Blog (here) Michael Volkov serves up his typically candid and blunt opinions (this is a compliment in case you are wondering) and states as follows regarding FCPA enforcement in 2012. “[T]he fact is that FCPA enforcement has been slowing down … 2012 was an FCPA bust. I am sure we will see plenty of client alerts with highlights of an aggressive enforcement year, but let’s be honest – 2010 was the best year DOJ had in FCPA enforcement. As they say in the wine business, 2011 and 2012 were not good years.” As to Morgan Stanley’s so-called “declination” which made several lists for a top story in 2012, Volkov states as follows. “Contrary to many commentators, I have never thought the Morgan Stanley case was as significant as others have written. It is a case which is limited by its facts to the actions of a “rogue” employee. But precedent is precedent, and sometimes it can morph into something stronger. DOJ and the SEC have set a precedent and the FCPA bar will quickly cite it in any circumstance they can when trying to secure a declination.”
I guess this goes to show how a herd mentality has impacted the nature and quality of certain FCPA information (i.e. if enough people say x, x must be true).
On his FCPA Compliance and Ethics blog, Tox Fox served up his Top 10 Enforcement Actions of 2012 (here) and the compliance lessons from those actions and on his FCPA Blog (here), Richard Cassin served up his Top 5 FCPA Stories of 2012.
Happy reading and a good weekend to all.