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Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions

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Other than this website (see here, hereherehereherehere and here), there seems to be little focus on the SEC’s inconsistent approach to enforcing the FCPA’s books and records and internal controls provisions.

Which is too bad because consistency is a basic rule of law principle. In other words, the same legal violation ought to be sanctioned in the same way. When the same legal violation is sanctioned in materially different ways, trust and confidence in law enforcement is diminished.

As highlighted in the numerous prior posts as well as the latest example described below, there sure does seem to be a lack of consistency between how the SEC resolves Foreign Corrupt Practices Act books and records and internal controls violations.

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Potpourri

Potpourri

Deficient FCPA Reporting

In this New York Times article, journalists once again demonstrate their deficient FCPA knowledge. In reference to Microsoft’s possible purchase of TikTok and the potential of the U.S. Treasury receiving a portion of the sale, the article states: “In essence, the president is promising to orchestrate the kind of pay-to-play bounty that the United States prohibits companies from making to governments of other countries under the Foreign Corrupt Practices Act.”

However, the FCPA does not prohibit business organizations from providing things of value to foreign governments – just foreign officials. As stated in the U.S. government FCPA Guidance “”The FCPA prohibits payments to foreign officials, not to foreign governments.”

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The FCPA Has Always Been A Law Much Broader Than Its Name Suggests

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The Foreign Corrupt Practices Act has always been a law much broader than its name suggests. Sure, the FCPA contains anti-bribery provisions which concern foreign bribery. Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.

However, the books and records and internal controls provisions are among the most generic legal provisions one can possible find. The provisions generally require issuers to: (i) maintain books and records which, in reasonable detail, accurately and fairly reflect issuer transactions and disposition of assets (the books and records provisions); and (ii) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for (the internal controls provisions).

Because of these provisions, most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery.

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Query Why The SEC Did Not Bring A Books And Records Or Internal Controls Case Against Exelon In Connection With The ComEd Bribery Matter?

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For years these pages have highlighted the SEC’s inconsistent approach to enforcing the books and records and internal controls provisions of the Foreign Corrupt Practices Act. (See herehereherehereherehere and here for prior posts).

Unlike the FCPA’s anti-bribery provisions, the FCPA’s accounting provisions are generic and generally require that issuers shall: (i) maintain books and records which, in reasonable detail, accurately and fairly reflect issuer transactions and disposition of assets (the books and records provisions); and (ii) devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are properly authorized, recorded, and accounted for (the internal controls provisions).

The SEC frequently advances an enforcement theory akin to strict liability that goes something like this: if problematic conduct occurs within a subsidiary, the conduct becomes an issuer violation of the books and records because the subsidiary’s books and records are consolidated with the issuers for purpose of financial reporting as well as an internal controls violation because the subsidiary is subject to the issuer’s internal controls.

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The FCPA Has Always Been A Law Much Broader Than Its Name Suggests

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Yesterday, the Foreign Corrupt Practices Act turned 42.

Thus, an appropriate time to highlight that the FCPA has always been a law much broader than its name suggests. Sure, the FCPA contains anti-bribery provisions which concern foreign bribery. Sure, the FCPA’s books and records and internal controls provisions can be implicated in foreign bribery schemes.

However, the fact remains that most FCPA enforcement actions (that is enforcement actions that charge or find violations of the FCPA’s books and records and internal controls provisions) have nothing to do with foreign bribery and these provisions are among the most generic legal provisions one can possibly find.

Case in point is this recent SEC enforcement action against MetLife for “long-standing” internal control failures and associated books and records issues.

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