This recent post highlighted 1979 comments from the DOJ’s Assistant Attorney General regarding the DOJ’s FCPA enforcement priorities. Today’s post is an SEC blast from the past.
The year was also 1979 and Wallace Timmeny (SEC Deputy Director, Division of Enforcement) authored an article titled “SEC Enforcement of the Foreign Corrupt Practices Act” in the Loyola of Los Angeles International and Comparative Law Review. The purpose of the article was to “discuss legal issues arising from the enforcement” of the FCPA in actions brought by the SEC. The article is an informative read as to the SEC’s early FCPA enforcement actions.
The article is also an interesting reading concerning the author’s description of “vicarious liability under the FCPA” and it states, in pertinent part, as follows.
“The liability of issuers for the acts or failures of foreign or domestic subsidiaries is not clearly specified in section 30A and section 13(b). Section 30A covers the conduct of registered and reporting companies and the conduct of any officer, director, employee, or agent of any such company or any stockholder of such company acting on behalf of the company. Thus, by its terms, section 30A does not refer to subsidiaries whose securities are not registered or which are not required to file reports pursuant to section 15(d). The legislative history of section 30A indicates that the section was not intended to cover the activities of foreign subsidiaries where there was no jurisdictional nexus with the United States and where the issuer of a reporting company had no knowledge of the payment.”
The article concludes as follows.
“As a nation we understand the implications of corrupt practices. Improper or questionable payments undermine our foreign policy and, in fact, place control of foreign policy in the hands of private individuals or companies who do not respond to the electorate. Corrupt practices can topple friendly governments, increase hostility to the United States, and provide ammunition to those who would topple our own system. Shoddy accounting practices foster those problems and result in significant detriment to individual investors, and to the marketplace in general, by undermining investor confidence. The problems leading to the passage of the FCPA have been more than sufficiently illumined in legislative history and in enforcement actions brought by government agencies. Against this background, it is unlikely that the courts will interpret the FCPA narrowly.”
Like the recent post regarding the DOJ blast from the past, Timmeny’s article also recognizes that the primary motivation of Congress in passing the FCPA was foreign policy related. (For more see my article “The Story of the Foreign Corrupt Practices Act“). In this prior post, also regarding the 1979 speech by the DOJ official, I asked as follows.
“Most enforcement actions in this new era involve alleged payments to state-owned or state-controlled enterprises with many attributes of private commercial enterprises, employees of various foreign health care systems such as physicians, or actions based on payments to ministerial or clerical officials concerning mundane foreign licenses, permits or customs issues. Can it truly be said that these enforcement actions concern payments that could lead to the downfall of foreign governments or payments that have significant foreign policy and national security implications?”
Timmeny’s article also predicted that it was “unlikely that the courts will interpret the FCPA narrowly.”
It is believed that the SEC has been put to its ultimate burden of proof in a core FCPA case only four times.
The SEC lost two cases. In SEC v. Eric Mattson and James Harris the court granted the defendants’ motion to dismiss and rejected the SEC “obtain or retain business” enforcement theory. In SEC v. Herbert Steffen, the court granted the defendants’ motion to dismiss and rejected the SEC’s jurisdictional theories.
Two cases remain pending. In SEC v Elek Straub et al. defendants’ pre-trial motion to dismiss was denied. In SEC v. Mark Jackson and James Ruehlen, the court granted defendants’ motion to dismiss the SEC’s claims that sought monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. The dismissal was without prejudice and the SEC has filed amended complaints that have significantly narrowed the case.