A Q&A With Claudius Sokenu On “Where Else”
Why do FCPA investigative fees often reach tens of millions of dollars? Why does FCPA scrutiny (from the point of disclosure to the point of resolution – if any) often last two to four years and perhaps longer? In part, it is because of the “where else” question.
The “where else” questions often works as follows. A company voluntarily discloses conduct to the DOJ/SEC that occurred in country x that could implicate the FCPA. Before the DOJ/SEC agree to resolve any enforcement action, the agencies will often ask something to the effect – if the conduct occurred in country x, convince us that similar conduct did not also occur in countries a, b, c, etc. The lawyers on the receiving end of the “where else” question don’t mind being asked because the “where else” question often leads to a world-wide review of their client’s operations around the world.
I first started writing about “where else” in 2009, see here, and most recently wrote about “where else” here. As a former FCPA practitioner I was on the receiving end of the “where else” question and conducted resulting world-wide reviews on behalf of corporate clients.
The “where else” question is asked in nearly every FCPA enforcement action. How does one know? Read the resolution documents. For instance, the Magyar Telekom resolution documents states that the company conducted a “thorough global internal investigation concerning bribery and related misconduct.” The Tenaris resolution documents cites that company’s “voluntary investigation of the Company’s business operations throughout the world.” The Tyson resolution documents state that all of the company’s wholly-owned overseas production facilities were “subjected to rigorous FCPA reviews.” Numerous other examples could also be cited.
Claudius Sokenu is a leading FCPA practitioner at Arnold & Porter (see here). As a former SEC FCPA enforcement attorney, Sokenu has both asked the “where else” question in the context of an FCPA inquiry and has been on the receiving end of the “where else” question as an FCPA practitioner. His views on “where else” first caught my attention in this 2011 interview with The Metropolitan Corporate Counsel and he expands on “where else” in the below Q&A.
What percentage of FCPA enforcement actions that you have been involved in have resulted in the “where else” question being asked?
In my time as a regulator at the Securities and Exchange Commission’s Division of Enforcement and in private practice, the “where else” question has been asked in virtually every single FCPA matter in which I have been involved. I have asked it and it has been asked of me.
Do you believe the “where else” question was appropriate in these instances?
In some instances it was entirely appropriate for the SEC, the Justice Department, and other regulators to ask the “where else” question. In others, however, the allegations did not support a “where else” question and it appeared to be more of a fishing expedition and boiler plate question than a well-reasoned question under the facts. “Where else” is a reasonable and appropriate question when the alleged misconduct appears to be systemic and/or the company under investigation appears to lack the controls necessary to prevent the payment of bribes to foreign government officials. It is not, however, an appropriate question where it is intended to force companies to conduct multi country internal investigations with little more than the uninformed hunch of a government official who has little or no experience in how businesses work around the world.
The “where else” question could logically be asked in any DOJ or SEC investigation regardless of substantive area of law. Do you believe the “where else” question is asked more frequently in FCPA enforcement actions
compared to say antitrust, tax, or environmental enforcement actions? If so, why?
Because the “where else” question is often raised behind closed doors in private conversations between government and counsel, it is difficult to be certain, but yes, I do believe the question is asked more frequently in FCPA enforcement investigations.
This is not entirely unreasonable given the nature of the FCPA. First, the scope of the FCPA’s jurisdiction, by definition and necessarily, covers the entire world. And unlike antitrust laws, for example, which have some extraterritorial application but are primarily concerned with the impact on U.S. markets, the FCPA’s primary focus is on actions occurring abroad. Second, it is not always unreasonable to think that the insufficient (or nonexistent) internal controls that facilitated bribe payments in one country will have the same effect elsewhere. Taking these two factors together, one could reasonably conclude that the FCPA is uniquely amenable to the “where else” question.
That is not to say, of course, that the “where else” question will always be appropriate in the FCPA context or that it will never be relevant elsewhere. For example, a discharge of pollutants in one of a company’s many U.S. plants may very well justify a widespread environmental audit. Expanding the scope of investigation in such a case would depend on whether the discharge was the result of, say, incompetent employees hired under criteria used nationwide, as opposed to a once-in-a-generation weather event. In the former case, a widespread audit would likely be called for, whereas in the latter it likely would not. The fact is, in the FCPA context, the vast majority of cases have resembled the first scenario – i.e., systematic defects whose effects could arise anywhere – and thus broad investigations have often made more sense than localized ones.
Of course, a somewhat more pessimistic reason for the “where else” question’s predominance in the FCPA context would involve the issues that you’ve written about extensively in your papers and on your blog. Namely, a case law scarcity that causes risk-averse corporate defendants to cooperate regardless of the cost, and government agencies who have the mostly unchecked power (and possibly incentive) to exploit a corporation’s position to cobble together the largest possible fine. Overall, I expect both of these possible frameworks are at play.
DOJ or SEC asks the “where else” question in the absence of any meaningful check or judicial oversight. What is the remedy?
If I had been asked a year ago whether there was any meaningful check or judicial oversight with respect to the “where else” question, I would almost certainly have replied that there was not. Given the government’s assorted setbacks in the past year, however — the overturned Lindsay Manufacturing convictions, the O’Shea acquittal, the Africa sting case acquittals and mistrial — it is possible that a potential check is emerging. Until recently, the government’s near-perfect track record has given them the power to unilaterally dictate the terms of a defendant’s “voluntary” cooperation. It stands to reason that once defendants have some hope of a positive outcome at trial, the parties’ negotiating positions will not be so lopsided and a company will be able to resist, without fear of reprisal, an unreasonable demand to expand the investigation.
Another possible remedy, although perhaps a more improbable one, would be a revision not to the FCPA itself, but instead to the agencies’ internal guidelines. This revision would make clear that cooperation credit should not be withheld in situations where the company declines to expand its investigation in the absence of some specific and articulable facts pointing to wrongdoing there. This “reasonable suspicion” language is, of course, less demanding than the probable cause required for a warrant, but it is at least enough to prevent the blind fishing expeditions that happen now.
Both of the above scenarios will likely require another high-profile setback or two, but as we’ve seen over the past year, those are certainly not out of the question anymore.
Business Effects
Previous posts have explored the FCPA’s long tentacles (here), collateral civil litigation resulting from FCPA scrutiny or enforcement actions (here and here), how FCPA scrutiny can impact mergers (here), how FCPA scrutiny can impact the cost of capital (here), and numerous prior posts have highlighted professional fees and expenses in connection with FCPA inquiries.
In short, failure to comply with the FCPA has real business effects in addition to any ultimate fine and penalty amount announced on resolution day. This post summarizes several recent business effects associated with FCPA scrutiny.
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As previously indicated in this Wall Street Journal Corruption Currents post by Samuel Rubenfeld, S&P recently cut its debt rating on Avon Products Inc. Among the reasons cited for the downgrade was “expenses related to the ongoing investigation under the Foreign Corrupt Practices Act.” (See here). As noted in this recent New York Times White Collar Watch piece by Professor Peter Henning, professional fees and expenses incured by Avon in connection with its internal FCPA review have approached $250 million – and there hasn’t even yet been an enforcement action. Over the past three years and doing the math, Avon has spent approximately $225,000 per day on its FCPA inquiry. One can debate whether such expenses (as well as the other business effects noted in this post) should happen or are truly necessary, but the point remains such effects are happening.
Sticking with the investigative fees issue, Weaterford International recently stated in its March 15th annual report (here) that since disclosure of its FCPA scrutiny (as well as Iraq Oil for Food and OFAC scrutiny) it has “incurred $123 million for legal and professional fees in connection with complying with and conducting” the on-going investigations. According to the company, “this amount excludes the costs [the company has] incurred to augment and improve our compliance function.”
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Diebold, which disclosed FCPA issues in July 2010 (see here), stated in March 14th proxy solicitation materials (here) that the cash bonus of Thomas Swidarski (President and CEO) was reduced by the Compensation Committee. According to the materials, the Committee concluded that “given the CEO’s ultimate responsibility for the oversight of the company, as a result of the impact to the company of the global FCPA investigation it was appropriate that Mr. Swidarski’s cash bonus be reduced.” Nevertheless the materials indicate that Swidarski did receive a $1 million cash bonus (on top of his other compensation) … but it could have been more. Another component of the proxy materials that caught my eye was discussion of the Board Special Committee set up to oversee the “global FCPA review.” The materials note as follows. “This committee met in person or telephonically seven times in 2011.
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In other disclosure news, Dun & Bradstreet (the world’s leading source of commercial information and insight on businesses) announced earlier this week (see here) that it “has been reviewing certain allegations that local employees may have violated the Foreign Corrupt Practices Act and certain other laws in our China operations. D&B is cooperating with the local Chinese investigation, and has voluntarily reported these matters to the U.S. Department of Justice and the U.S. Securities and Exchange Commission.”
D&B’s FCPA disclosure was contained in the same release in which the company stated it “has temporarily suspended its Shanghai Roadway D&B Marketing Services Co Ltd. operations in China, pending an investigation into allegations that its data collection practices may violate local Chinese consumer data privacy laws.”
D&B’s FCPA disclosure marks the third time in the last four weeks that a company has newly disclosed FCPA scrutiny.
Friday Roundup
Reader mail, an Olympic loophole, this week’s disclosure(s), the SEC speaks, and so do executives … it’s all here in the Friday Roundup.
Reader Mail
At times, even I ask myself why I spend countless hours maintaining a free website. Then I receive an e-mail from a reader such as the one below (the reader encouraged me to share it) and I keep writing.
“I just wanted to thank you for your blog. My son-in-law, [former Africa Sting defendant], was involved in the sting case.
After his arrest we found your website and learned alot from it. We had never heard of the fcpa before all of this happened. Your site was the most informative and easy for nonlawyers to understand. I would check it everyday for updates! It was my lifeline! Thank you again for writing so much about the case. I’m just glad it is over and life can go back to normal.
Sincerely,
[Relative of former Africa Sting defendant]”
Olympic Loophole
A recent article in the Wall Street Journal (A Battle for Mongolia’s Copper Lode – Feb. 22nd) reminded me of a post lost in the unpublished archives.
Last August, Rio Tinto PLC, which manages the Oyu Tolgoi mine in Mongolia, announced (here) that the company “signed an agreement with the Mongolian National Olympic Committee (MNOC) to be a Gold Partner sponsor for the Mongolian National Team competing at the London 2012 Olympic and Paralympic Games.” In the release, Rio Tinto Country Director Mongolia, David Paterson, stated “we are sponsoring the National Olympic Team as part of our long-term commitment to Mongolia and Oyu Tolgoi.” The release further stated as follows. “Rio Tinto’s Olympic sponsorship is just one of many ways the company is contributing to Mongolia’s development. For example, Rio Tinto invests in numerous programmes that assist regional and local communities and young Mongolians in the areas of education and training, local procurement practices and sustainable development.”
An August 2011, Wall Street Journal article discussing Rio Tinto’s sponsorship states that Mongolia “is a key battleground for mining companies, which are vying to extract its rich mineral deposits” and that the Oyu Tolgoi project “is expected to yield 1.2 billion metric tons of copper and 650,000 ounces of gold a year in its first 10 years, as well as silver and other metals.”
For more on Rio Tinto’s involvement at Oyu Tolgoi, see here from the company’s website.
On one level, engaged corporate citizens with a committment to community welfare and development is a good thing and ought to be encouraged.
But, on another level, and FCPA jurisdictional issues aside (although Rio Tinto’s ADR’s are traded on a U.S. exchange), is a company’s sponsorship of a country’s Olympic team any less problematic than a company providing a laptop computer or an expensive bottle of wine to an employee of a state-owned or state-controlled enterprise? What about pre-paid gifts cards (oops, getting ahead of myself, that is coming up next)? Such instances have never been the sole basis for an FCPA enforcement action, but such allegations (or those similar) are frequently included in FCPA enforcement actions suggesting that the enforcement agencies do indeed view such conduct as problematic.
Strange as it may sound, the FCPA’s anti-bribery provisions are only implicated when something of value is provided, directly or indirectly, to a foreign official to influence the official in obtaining or retaining business. The FCPA’s anti-bribery provisions are not implicated when the thing of value is provided to a foreign government itself. Even the DOJ recognizes this. See here for DOJ Opinion Procedure Release 09-01 in which the DOJ states that the proposed course of conduct “fall[s] outside the scope of the FCPA in that the [thing of value] will be provided to the foreign government, as opposed to individual government officials …”.
Is this an FCPA loophole? If so, ought it be closed?
This Week’s Disclosure(s)
Back to those pre-paid gift cards.
On Feb. 16th in this prior post, I commented (somewhat tongue-in-cheek) that every week another company seems to be disclosing FCPA scrutiny. So far two weeks have passed and there have been two new disclosures. This week’s disclosure is from W.W. Grainger Inc. (consistently ranked as one of the “world’s most admired companies” by Forbes). In a recent SEC filing, the company (a broad-line distributor of maintenance, repair and operating supplies and other related products and services) stated as follows.
“The Company is conducting an inquiry into alleged falsification of expense accounts submitted by employees in certain sales offices of Grainger China LLC, a subsidiary of the Company. In the course of the investigation the Company learned that sales employees may have provided prepaid gift cards to certain customers. The extent and value of the gift cards are subject to further inquiry. The Company’s investigation includes determining whether there were any violations of laws, including the U.S. Foreign Corrupt Practices Act. Consequently, on January 24, 2012, the Company contacted the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) to voluntarily disclose that the Company was conducting an internal investigation, and agreed to fully cooperate and update the DOJ and SEC periodically on further developments. The Company has retained outside counsel to assist in its investigation of this matter. Because the investigation is on-going, the Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”
Finally on the disclosure front, in August 2011, Brucker Corp. made an FCPA disclosure concerning its Brucker Optics subsidiary in China. Recently, the company further disclosed as follows.
“As previously reported, in 2011 the Audit Committee of our Board of Directors commenced an internal investigation, with the assistance of independent outside counsel and an independent forensic consulting firm, in response to certain anonymous communications received by us alleging improper conduct in connection with the China operations of our Bruker Optics subsidiary. The Audit Committee’s investigation, which included a review of compliance by Bruker Optics and its employees in China and Hong Kong with the requirements of the Foreign Corrupt Practices Act (FCPA) and other applicable laws and
regulations, has been completed. The investigation found evidence indicating that payments were made that improperly benefited employees or agents of government-owned enterprises in China. The investigation also has found evidence that certain employees of Bruker Optics in China and Hong Kong failed to comply with our corporate policies and standards of conduct. As a result, we have taken personnel actions, including the termination of certain individuals. We have also terminated our business relationships with certain third party agents, implemented an enhanced FCPA compliance program, and strengthened the financial controls and oversight at our subsidiaries operating in China and Hong Kong. We have also initiated a review of the China operations of our other subsidiaries, which is being conducted with the assistance of an independent audit firm.
“In the fiscal year ended December 31, 2011, $4.3 million was recorded for legal and other professional services incurred related to the internal investigation of these matters.”
As noted in Brucker’s initial filing, in 2010, the China operations of Bruker Optics accounted for less than 2.5 percent of the Company’s consolidated net sales and less than 1.0 percent of its consolidated total assets.
SEC Speaks
The Subject to Inquiry Blog published by McGuireWoods has this post regarding the recent SEC Speaks event. Regarding anti-corruption enforcement, the post states as follows.
The Commission now has a “cross-border group” charged with ferreting out corruption in corporations that trade on US exchanges, but are headquartered abroad. The group is particularly interested in the accounting policies and financial disclosures of cross-border companies, many of which rely on “small US audit firms.” As a result, the SEC is leaning on audit firms, which the SEC regards as “gatekeepers.” To that end, the SEC issued guidance in 2010 and again in 2012, advising that they conduct risk-based analyses of their overseas clients. According to Kara Brockmeyer, head of the SEC’s FCPA Unit, the SEC has seen a spike in Form 8-K reports of accounting irregularities, as well as a jump in Rule 10A reports. She expects additional 10A reports to flow in through the Office of the Whistleblower.
Brockmeyer noted that the SEC is also devoting significant resources to Foreign Corrupt Practices Act (FCPA) enforcement. The SEC’s FCPA Unit is focusing heavily on international cooperation, teaming with regulators around the world. She highlights the FCPA Unit’s cooperation with Switzerland, Russia, and China, each of which recently enacted anticorruption laws. The FCPA Unit brought 20 FCPA enforcement cases 2011, including 19 against companies and one against an individual. Brockmeyer cautioned, however, that the 2011 numbers should not be seen as a model. Indeed, in 2012 the SEC has already charged 14 individuals with FCPA violations, compared with only five companies charged.
From the Executive’s Mouth
Some excerpts from earnings conference calls that caught my eye.
From Bill Utt (President, CEO and Chairman of KBR Inc.) during a recent call. “I would also like to report that in February KBR successfully concluded our three-year independent corporate monitorship related to KBR’s 2009 plea under the US Foreign Corrupt Practices Act case. Overall, the engagement with our corporate monitor was a positive experience for KBR. We remain committed to consistently doing the right thing every time, and our commitment to compliance is a fundamental part of KBR’s culture. In fact, our compliance programs are paying off in terms of new work as we were recently awarded an international project where our compliance program was a differentiating factor in KBR securing the work.”
From Kevin Royal (Senior VP, CFO of Maxwell Technologies) during a recent call. “Now I would like to provide an update regarding the shareholder derivatives. As we have disclosed in past public filings in 2010, two shareholders had alleged that certain of our past and current officers and directors failed to prevent us from violating the US Foreign Corrupt Practices Act, or FCPA. It is important to note that the Company is only a nominal defendant in this suit. In December 2011 mediation was held and a proposed settlement was reached wherein $3 million would be paid to plaintiff’s counsels, with $2.7 million to be paid by our insurance carrier, and $290,000 would be paid by the Company. In addition, we would be required to insure that certain corporate governance measures are in place and in force. The agreement is subject to among other things, court approval and notice to our shareholders. Without admitting any wrongdoing, the defendants to this suit are willing to enter into this settlement in order to expedite resolution of the matter, and to relieve the defendants and the Company from further financial burden. We are pleased that this suit is near final settlement, and look forward to putting this matter behind us.” [For a recent post on FCPA-related civil litigation titled “A Purpose or Parasitic” – see here].
From Bernard Duroc-Danner (President and CEO of Weatherford International in response to a question about the company’s FCPA inquiry) “Well, there’s not a lot to say about, that I can say, about the DOJ process. To a degree, I think it fell off the screen as it were. For us it moves slowly, that’s all I can tell you. So, I don’t have much of an update that I can tell you. And actually even if I could, I wouldn’t have much of an update period.”
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On that note, a good weekend to all.
Inside An FCPA Inquiry
In case you missed it, the Foreign Corrupt Practices Act made another appearance on the Wall Street Journal’s editorial page earlier this week. In a column about the “Return of ‘Honest Services’ Fraud” the column states as follows. “Prosecutors are also expanding the reach of older statutes to cover behavior that businesses have long believed to be legal. Take the Foreign Corrupt Practices Act, whose vague definition of foreign official has ballooned to include nearly everyone in a foreign country, whether or not the individuals control government procurement.”
On to today’s post.
How long do FCPA inquiries last? How does the government learn of FCPA issues in the first place? What specifically does company cooperation include? What can turn the course of an investigation? How many countries are included in a review? How many witnesses? What about senior management? What about agents?
Answers to these questions can be found in the DOJ’s “Memorandum in Support of the Proposed Plea Agreements and Deferred Prosecution Agreement” (here) filed on May 23rd in response to the ICE Victim petition (see here for the prior post). The December 2010 Alcatel-Lucent enforcement action (see here for the prior post) is a top-ten enforcement action of all time in terms of fine and penalty amount, thus what is set forth below may not be a typical case, but interesting nevertheless to see how expansive FCPA inquiries can become.
Portions of the DOJ’s brief are excerpted below.
The Government’s Investigation and the Company’s Cooperation
“The investigation that gave rise to the instant case began in the fall of 2004. In late September 2004, press reports surfaced in Costa Rica alleging that a consultant of Alcatel had bribed Costa Rican officials. In early October 2004, the Fraud Section of the Criminal Division of the Department of Justice and the SEC made inquiries of Alcatel, and Alcatel through its counsel agreed to cooperate with the government’s investigations. Between October 2004 and November 2006, Alcatel and its outside counsel conducted an internal investigation, which was slow, plagued with problems, and was non-responsive to many repeated inquiries by the government.”
“In late 2006, however, two significant events occurred that changed the course of the investigation. First, on November 0, 2006, a former Alcatel CIT executive, Christian Sapsizian, was detained on a material witness warrant during a layover at the Miami International Airport. […] Sapsizian agreed to plead guilty in early 2007, and he began cooperating against his former employer.”
“Second, in December 2006, Alcatel and Lucent Technologies merged. Following this merger, the leadership of the combined new entity, Alcatel-Lucent, changed, and the company changed outside counsel. In the ensuing three years, at the request of the government, the new company undertook a ‘Global Review’ to evaluate its relationship with agents, interactions with government officials, and gifts, travel and entertainment provided in countries around the world. Through this process, Alcatel-Lucent discovered it had serious problems. It uncovered improper payments, inaccurate books and records, and violations of its internal controls on a number of continents, and the new management embraced the need to fully investigate the corrupt conduct. In the end, the new company of Alcatel-Lucent conducted a credible investigation, dramatically improved its compliance program, embraced a culture of compliance at the highest levels within the company, and made significant remediation efforts, which are detailed below. In particular, Alcatel-Lucent and its outside counsel conducted investigations of 34 countries around the world to uncover potential misconduct. The internal investigation examined Alcatel-Lucent’s agent and consultant approval, review, and termination processes, the activities of a number of terminated agents, and the knowledge and involvement of senior management in any potential wrongdoing. This effort was closely coordinated with the government. At the same time, Alcatel-Lucent has cooperated with investigations conducted by government authorities in other countries regarding the matters that have been under investigation by the government in the United States.”
“After Alcatel-Lucent retained new outside counsel, substantially larger resources were used to complete – and in some instances re-do – the internal investigation. Alcatel-Lucent’s investigation was subsequently expanded a number of times. For example, the ‘Global Review’ mentioned above was expanded to ten countries. Later in 2007, the investigation expanded again when the government requested that Alcatel-Lucent conduct a detailed investigation into the company’s conduct in Nigeria and any country for which Sapsizian had responsibility or in which he had dealings, which amount to a total of 17 additional countries. Alcatel-Lucent and its outside counsel presented a series of reports on their findings with respect to each country.”
“Separately, Alcatel-Lucent voluntarily undertook a lengthy review of its agent and consultant approval process in 2007. As part of this review, Alcatel-Lucent retained an independent investigative firm to review all of Alcatel-Lucent’s 300 then-existing agents and consultants. Based on reports from the investigative firm, Alcatel-Lucent decided to terminate certain agents immediately and to cease working with other agents in the future. Alcatel-Lucent also undertook a detailed Terminated Agents Review to review the activities of 11 former agents for evidence of potential bribery or other wrongdoing. Alcatel-Lucent reported to the government on its findings related to these agents …”.
“Additionally, in June 2008, Alcatel-Lucent commenced a review of its Board of Directors’ and other senior management’s knowledge of, and involvement in, any of the wrongdoing. As part of this review, interviews were conducted of 26 individuals who were either current high-ranking members of Alcatel-Lucent’s management, former high-ranking members of Alcatel’s management, or were in a position to provide information relevant to the review. Alcatel-Lucent and its counsel also reviewed documents collected from these individuals. Alcatel-Lucent and its counsel reported to the government on their findings regarding the Senior Management Review in March 2009.”
Overall, Alcatel-Lucent’s outside counsel interviewed over 330 witnesses as part of these investigations, collected data from 201 individuals, and reviewed over 2 million documents, of which over 200,000 documents were produced to the government.”
FCPA Insurance
This “new era of FCPA enforcement” (see here) has resulted in “a thriving and lucrative anti-bribery complex” that is – in the words of the DOJ’s former FCPA head from a different era – “good business for law firms […] good business for accounting firms, […] good business for consulting firms, the media – and Justice Department lawyers who create the marketplace and then get [themselves] a job.” (See here).
FCPA practices are now profit centers at law firms and accounting firms and dozens of companies have appeared on the landscape to provide all imaginable services related to the FCPA. Persons “working in this growing field” can now even receive “a professional accreditation” as an anti-bribery compliance specialist. (See here).
As if further evidence was needed that FCPA Inc. is indeed a full-fledged industry in and of itself, an insurance company has begun to offer Foreign Corrupt Practices Act insurance.
Chartis, a New York based “world leading property-casualty and general insurance organization” recently announced (here) the introduction of “Investigation Edge, developed by its Executive Liability Division as the first insurance solution to cover company costs arising from SEC investigations, including those related to internal investigations.”
According to the release, “Investigation Edge covers legal expenses, discovery costs and insurable settlements resulting from investigations by enforcement authorities – including the SEC and the Department of Justice – into insider trading, restatements, accounting fraud and reporting violations.”
Need a specific endorsement for FCPA issues?
No problem – as the release notes “coverage is also available via endorsements for investigations into Foreign Corrupt Practices Act violations and derivative investigations.”
It is not surprising that an insurance company is now offering such a product.
FCPA professional fees and expenses have reached, in some cases, nine figures such as Avon’s recent disclosure that it has spent approximately $100 million just to investigate conduct that may implicate the FCPA. In addition will be any enforcement action fines, penalties, and disgorgement, as well as any post-enforcement action compliance fees and expenses. In addition, collateral civil litigation seems to have become a new norm (see here for example).
However, would it not be easier, more cost efficient, and more desirable for any number of policy reasons to address the root causes for why the “new era of FCPA enforcement” exists in the first place?
For some – yes.
For others – no. The current era is suiting them just fine.