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Assessing The Narrative That FCPA Enforcement Will Increase Post Covid-19 Crisis, Because That’s What Happened Post-Financial Crisis

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There are some narratives in the Foreign Corrupt Practices Act space that seem to take on a life of their own without a factual basis (see here, here and here for instance).

Once such recent narrative is that FCPA enforcement will increase post COVID-19 because a crisis presents business desperation and a greater willingness to secure business improperly. Part of the narrative is that after the so-called financial crisis of late 2008 – 2009 FCPA enforcement increased.

This post analyzes that narrative and debunks it because there is no evidence that FCPA enforcement increased circa 2010-2012 because of the financial crisis.

Yesterday, I attended a webinar in which a lawyer panelist stated as follows:

“[There] was statistically significant uptick in FCPA enforcement after the last worldwide crisis … the financial meltdown or recession of 2008-2009 – much of that uptick was driven by the DOJ/SEC postmortem examination of books and records … that later lead to enforcement actions against many companies coming later in 2010-2012 that was in large part responsible for that uptick.”

The lawyer further stated about FCPA enforcement post COVID-19″

“We know that DOJ and SEC – their enforcement is going to remain robust and in fact we know it is going to expand, we learned that from the 2008-2009 financial meltdown crisis, that the DOJ expanded after that crisis, there is really no reason to believe that there won’t be an expansion of their enforcement coming on the heels of this crisis.”

Likewise, this recent publication titled “Financial Crime Impact: COVID-19 (Corona Virus) Bribery and Corruption Risks” states:

“Companies that may fall within the jurisdiction of the U.S. Foreign Corrupt Practices Act (FCPA) and the UK Bribery Act should be vigilant in their anti-corruption efforts. Indeed, the financial crisis of 2008 increased FCPA enforcement. As companies faced pressure to obtain business and even maintain operational status during the crisis, their focus on compliance decreased and companies decided to quickly merge and consolidate. The speed of these consolidations resulted in the discovery by some acquiring companies of questionable payments and accounting practices both pre-and post-merger, resulting in increased compliance risks. The U.S. Department of Justice and Securities Exchange Commission brought FCPA enforcement actions with significant fines.”

Set forth below are the number of core corporate FCPA enforcement actions for the years 2007 – 2014.

  • 2007 – 15
  • 2008 – 10
  • 2009 – 11
  • 2010 – 21
  • 2011 – 16
  • 2012 – 12
  • 2013 – 9
  • 2014 – 10

Enforcement during this time period was typically, “choppy” but the numbers clearly demonstrate that corporate FCPA enforcement in 2013 and 2014 was either below or consistent with corporate FCPA enforcement in 2007 and 2008.

2010 and 2011 corporate FCPA enforcement action were clear outliers, but the reasons for this are plainly obvious and have nothing to do with the financial crisis of late 2008 – 2009.

In 2010, the DOJ and SEC announced on the same day six enforcement actions against various oil and gas companies all with the common thread that the companies used Panalpina for freight forwarding services in Nigeria. On the same day, Panalpina also resolved an enforcement action. All seven of the related enforcement actions concerned conduct between 2001 and 2007 and thus had nothing to do with the financial crisis of late 2008 – 2009.

In addition, 2010 also saw two related enforcement actions against Technip and Eni/Snamprogetti in connection with a liquified national gas plant on Bonny Island, Nigeria. The conduct at issue in these two enforcement actions occurred between 1995 and 2004 and thus had nothing to do with the financial crisis of late 2008 – 2009.

In short, the reason for uptick in FCPA enforcement in 2010 compared to previous years was due to the 7 Panalpina-related enforcement actions and the 2 Bonny Island enforcement actions – neither of which had anything to do with the financial crisis of late 2008 – 2009.

As indicated in the above chart, in 2011 there were 16 core corporate enforcement actions. One of the enforcement actions (JGC of Japan) concerned the same Bonny Island, Nigeria conduct described above. Set forth below are the 15 other corporate enforcement actions from 2011 as well as the years in which the alleged conduct at issue took place.

  • Magyar Telekom / Deutsche Telekom (2005-2006)
  • Aon (1983-2007)
  • Watts Water Technologies (2006-2009)
  • Diageo (2003 – mid-2009)
  • Armor Holdings (2001-2007)
  • Tenaris (2006-2007)
  • Rockwell Automation (2003-2006)
  • Johnson & Johnson (1998-2006)
  • Comverse Technologies (2003-2006)
  • Ball (2006-2007)
  • IBM (1998-early 2009)
  • Tyson (2004-2006)
  • Maxwell Technologies (2002 – mid-2009)
  • Bridgestone (1999 – mid-2007)

Thus, 2011 corporate enforcement actions had nothing to do with the financial crisis of late 2008 – 2009.

Might FCPA enforcement increase because of the COVID-19 crisis? Because of the time lag associated with most corporate FCPA enforcement actions, the answer will generally not be known until circa 2025.

However, one should not assume FCPA enforcement will increase post COVID-19 because FCPA enforcement increased because of the financial crisis of late 2008-2009.

As demonstrated above, that narrative is contradicted by actual facts and the narrative is a classic example of the logical fallacy post hoc ergo propter hoc (in other words, since event Y followed event X, event Y must have been caused by event X).

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