Further To The SEC’s Inconsistent Approach To Enforcing The FCPA’s Books And Records And Internal Controls Provisions
As highlighted in previous posts on this subject (here and here), a basic rule of law principle is consistency.
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.
However, 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.
United Airlines Resolves Books And Records And Internal Controls Action Based On Domestic Bribery And The SEC’s Inconsistencies Are Once Again Highlighted
If the above headline is confusing, you’ve forgotten (as it seems some commentators have) that the Foreign Corrupt Practices Act is a law much broader than its name suggests.
Because of the FCPA’s generic books and records and internal controls provisions, most FCPA enforcement actions (as a technical matter) do not involve any allegations or findings regarding foreign bribery. (This dynamic – termed non-FCPA FCPA enforcement actions for lack of a better term – has been highlighted in prior posts here, here and here).
Case in point is last week’s SEC enforcement action against United Continental Holdings Inc., the parent company of United Airlines Inc.
In Depth Into The JP Morgan FCPA Enforcement Action
Yesterday, the DOJ and SEC announced (here and here) a $202.6 million FCPA enforcement action against J.P. Morgan (and a related entity) based on its alleged improper hiring and internship practices that the U.S. government has labeled bribery and corruption.
While the enforcement action was expected to focus on alleged improper hiring and internship practices involving so-called Chinese “princelings” (family members of alleged Chinese foreign officials), a meaningful component of the DOJ’s enforcement action involves hiring and internship practices involving family members of private individuals. Specifically, the DOJ’s non-prosecution agreement highlights 5 examples of “Quid Pro Quo Hiring” and 2 examples (40%) concern private companies: “a private Chinese manufacturing company” and a “Taiwanese private financial holding company.”
Numerous ironies, contradictions, and rule of law concerns abound in the enforcement action that will be explored in more detail in future posts. (In this clip, I talk to National Public Radio about one).
Company Under FCPA Scrutiny, Resolves Separate FCPA Enforcement Action
The above headline may be a bit confusing, but it is instructive as to the basic point that the Foreign Corrupt Practices Act has always been a law much broader than its name suggests because of its books and records and internal controls provisions.
These provisions, applicable to issuers, are among the most generic substantive legal provisions one can find and the fact is most FCPA enforcement actions (using that term in the most technical sense) do not even involve foreign bribery.
Case in point is yesterday’s SEC enforcement action finding that FMC Technologies violated the FCPA’s books and records and internal controls provisions when it overstated profits in one of its business segments.
The name of this company might ring a bell because earlier this year FMC Technologies disclosed FCPA scrutiny of the more traditional type.
Issues To Consider From The AB InBev Enforcement Action
This previous post went in-depth into the SEC’s Foreign Corrupt Practices Act enforcement action against AB InBev.
This post continues the analysis by highlighting additional issues to consider from the enforcement action.
Timeline
Per the SEC’s order, the SEC began its inquiry in October 2011.
Thus from start to finish, AB InBev’s FCPA scrutiny lasted just shy of five years.
It is absolutely inexcusable on any level for FCPA scrutiny to last five years. If the SEC wants the public to view its FCPA enforcement program as legitimate, credible, and effective, it must resolve instances of FCPA scrutiny much faster.