Must Read: Distorted FCPA Statistics Exposed
If you have any interest in Foreign Corrupt Practices Act enforcement you must read an article recently published by the Rutgers Law Review titled “A Common Language to Remedy Distorted FCPA Enforcement Statistics” (click here to download the article).
In the article, you will learn how various FCPA Inc. participants have adopted creative and haphazard counting methods that infect the quality and reliability of FCPA enforcement and related statistics of interest to many in the legal and business communities.
Are these creative counting methods that yield higher FCPA enforcement statistics part of a deliberate business strategy by certain FCPA Inc. participants to make FCPA enforcement appear more robust than it actually is to generate more business? That is for you to decide.
In the article, you will learn how the lack of an FCPA common language has several negative effects including the quality of FCPA lawyering, the quality of empirical FCPA research, and the quality of FCPA reporting by the media.
Regarding the later, it must be recognized that much FCPA media reporting is done by FCPA Inc. participants themselves in search of convenient hooks to sell their own FCPA-related compliance products or services. In short, many FCPA media sources have – just like the FCPA Inc. participants providing the original enforcement statistics – a vested business interest in making FCPA enforcement appear more robust than it actually is and the result is an FCPA “echo chamber” of sorts.
In the article, you will learn how a proposed FCPA common language can improve the quality and reliability of FCPA statistics and thus allow a more cogent conversation to take place regarding FCPA issues.
In short, read the article and decide for yourself whether FCPA Inc. needs more exacting standards. (See this Wall Street Journal Risk and Compliance Journal article for additional information).
It’s NOT True That The FCPA Enforcement Agencies Are Focusing More On Individuals
In recent public statements, DOJ and SEC officials have stated that they are focusing more on individual FCPA enforcement actions.
For instance, in this recent Financial Times article about DOJ FCPA enforcement, Assistant Attorney General Leslie Caldwell stated “we’re really focusing on individuals.” (Interestingly and as an aside, in the same article Caldwell stated: “In more than half of all countries it’s very difficult to do business without being faced with the potential of a FCPA violation . . . we recognize it’s a significant problem.”).
Likewise, in this recent interview DOJ Fraud Section Chief Andrew Weissmann, in explaining some of the reasons for the slowdown in corporate FCPA enforcement actions in 2015 stated that “part of the answer is that we are prosecuting more individuals.”
Over at the SEC, Andrew Ceresney (Director of the SEC’s Enforcement Division) recently stated that the SEC’s general focus on individual prosecutions “also applies to FCPA cases.”
The notion that the FCPA enforcement agencies are focusing more on individual enforcement is certainly part of the current narrative and many in the FCPA’s echo chamber are falling for this narrative hook, line and sinker.
However, it’s NOT true that the FCPA enforcement agencies are focusing more on individual enforcement. Indeed, the following number demonstrate the opposite.
Friday Roundup
Not something you see everyday, Yates Memo related, quotable, scrutiny alerts and updates, and for the reading stack. It’s all here in the Friday roundup.
Not Something You See Everyday
It’s not everyday that you see a director of a publicly-traded company publicly resign because the director thinks the company is engaged in improper conduct including FCPA violations.
But that is just what Michael Moss, until recently a director of Malvern Bancorp, did.
Like A Kid In The Candy Store
Like every year around this time, I feel like a kid in a candy store given the number of FCPA year in reviews hitting my inbox. This post highlights various FCPA or related publications that caught my eye.
Reading the below publications is recommended and should find their way to your reading stack.
However, be warned. The divergent enforcement statistics contained in them (a result of various creative counting methods) are likely to make you dizzy at times and as to certain issues. There will be more on this issue in the near future.
Shearman & Sterling
The firm’s Recent Trends and Patterns in FCPA Enforcement is among the best year-after-year.
Content that caught my eye:
“It is … noteworthy that the DOJ’s and SEC’s prioritization of individual prosecutions comes as enforcement agencies continue to struggle while pursuing FCPA charges against individual defendants. Setbacks in United States v. Sigelman and United States v. Firtash may cause the Department to rethink its strategy. Indeed, while the DOJ has had some success extracting plea agreements, when put to its burden of proof the DOJ (and the SEC for that matter) has experienced difficulty in securing convictions and judgments. Given these struggles, it is possible that future individual defendants may be emboldened to test their chances against the government in court, potentially requiring the DOJ to devote even more resources to trying these individuals. While the DOJ and SEC have made it a clear priority to prosecute individuals for violations of the FCPA, the risk-reward calculations that prosecutors must consider before bringing charges could be altered going forward.”
[For more on this general topic, see “What Percentage of DOJ FCPA Losses is Acceptable?“]
[…]
“[Regarding so-called declinations] we note however, in the cases of Eli Lilly, Goodyear, Mead Johnson Nutrition, Hyperdynamics, and Bristol-Myers, the DOJ’s declination decision might also be explained by a possible lack of jurisdiction. Specifically, in each of the cases above, where all of the illicit conduct was committed by subsidiaries of the parent company, the DOJ may have concluded it was too difficult to prove that the subsidiaries’ conduct should be imputed on the corporate parent—bearing in mind that the DOJ has a higher burden of proof to sustain criminal FCPA charges against a company.”
[…]
“The DOJ’s 2015 prosecution of Daren Condrey in United States v. Condrey raises some questions as to whether government prosecutors are remaining faithful to the government instrumentality test set out in the Eleventh Circuit’s 2014 decision in United States v. Esquenazi.”
[For more on this topic, see this prior post]
[…]
“[Regarding the 2015 BNY Mellon “internship” enforcement action] [T]he government’s approach is bad policy. For better or worse, some of the most educated and most qualified potential hires in many countries are the children of government officials—individuals who benefited from their parents’ privileges and had the opportunity to attend prestigious schools, learn foreign languages, etc. If the government infers an intent to apply corrupt influence from the potential hire’s relationship to government officials, it is likely to chill hiring of such individuals, resulting in a completely unnecessary disadvantage to U.S. and other companies covered by the FCPA.”
Debevoise & Plimpton
The firm’s FCPA Update is the best monthly read there is and the most recent edition states:
“Even adding in amounts agreed or ordered to be recovered from individuals in FCPA cases, last year was by any objective measure one of more muted FCPA enforcement. Various theories can be advanced to explain these figures.
One, and probably the most plausible, is that, in a system of FCPA enforcement against companies that almost never ends in a trial, corporate resolutions require companies’ consent. It was only a matter of time for there to be a dry spell of large corporate resolutions. Thus, there were no large settlements last year because of the mundane fact that none of the larger cases in the pipeline was ready to be settled. Because of potential negotiation delays of various kinds in cases in the pipeline, it is conceivable if not likely there will be large settlements in 2016, which may dampen urges to downplay enforcement risk.
Still, a theory warranting consideration is that more companies subject to the FCPA are “getting it,” the possibility being that after a decade of vigorous enforcement the number of big cases that could be brought is markedly decreased. That the number of FCPA-related investigations reported by public companies declined by about 20 percent, year over year, arguably supports this theory.
But negating this theory is the large number of new foreign corruption matters reported daily in the media, and the kinds of political upheaval and developments in technology, social media culture, whistle-blowing, and transparency movements that drive anti-bribery enforcement. Given the broad jurisdictional reach of the FCPA (particularly as construed by the DOJ and SEC), a large percentage of the new cases reported in the media could well subject companies and individuals alike to future FCPA enforcement risks. These risks are magnified by a growing level of cross-border cooperation among anti-bribery enforcement agencies.
And as the Obama Administration heads into its final year, with a new Attorney General and Assistant Attorney General for the Criminal Division now settled into their roles, the likelihood of increased enforcement seems relatively high.”
Gibson Dunn
The firm’s Year-End FCPA Update is also a quality read year after year.
Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”
It begins as follows.
“2015 was a blockbuster year in corporate non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”), by sheer numbers alone. Skyrocketing to 100 [87 NPAs and 13 DPAs], in 2015 the number of agreements more than doubled the numbers in every prior year since 2000 , when Gibson Dunn first began tracking NPA and DPA data.”
Davis Polk
The firm’s Trends in Anti-Corruption Enforcement is here. A visual FCPA Resolution Tracker is here.
Jenner Block
The firm’s Business Guide to Anti-Corruption Laws 2016 is here.
Hogan Lovells
The firm’s Global Bribery and Corruption Review is here.
Arnold & Porter
The firms Global Anti-Corruption Insights is here.
Why Does The SEC Have An FCPA Unit?
Notwithstanding the fact that the SEC played an important role (indeed a more prominent role than the DOJ) in addressing the foreign corporate payment payments problem in the 1970s’s that led to enactment of the Foreign Corrupt Practices Act, it is a historical fact that the SEC never wanted any role in enforcing the FCPA’s anti-bribery provisions.
It is also a historical fact that the SEC did not object to various bills introduced during the FCPA reform debates of the 1980’s that sought to “divest” the SEC of enforcement authority over the anti-bribery provisions.
In both cases, the SEC explicitly stated that enforcement of the anti-bribery provisions was not central to the SEC’s investor protection mission.
Against this backdrop, it is strange that the SEC announced in August 2009 that it was forming a specialized FCPA Unit. In making the announcement, then SEC Enforcement Director Robert Khuzami stated:
“The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”
In January 2010, the five specialized SEC units, including the FCPA Unit, were formally launched. In making the announcement, Khuzami stated:
“These specialized units address both challenges through improved understanding of complex products and markets, earlier and better capability to detect emerging fraud and misconduct, greater capacity to file cases with strike-force speed, and an increase in expertise throughout the Division.”
Since 2010, the SEC’s FCPA Unit has steadily grown. For instance, in previous public comments Kara Brockmeyer (SEC FCPA Unit Chief) stated:
“the SEC FCPA Unit has about three dozen staff dedicated full-time to the FCPA. This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases.”
SEC FCPA Unit staff are public employees and as public employees it is worth asking the question: what are these approximate 40 people doing on a daily basis?
For instance, in 2014 and 2015 the SEC brought 16 corporate FCPA enforcement actions. 7 (approximately 45%) were the result of corporate voluntary disclosures. In such actions, the word “enforce” the FCPA is a bit too much, when the reality is the SEC largely “processes” the corporate voluntary disclosure.
Regardless of the origins of the SEC’s corporate FCPA enforcement actions, is the SEC actually litigating these cases and having to prove anything (a task that can require substantial time and resources if the defendant is mounting a defense)?
Nope.
Of the 16 corporate FCPA enforcement actions brought by the SEC over the past two years, 14 (88%) were resolved through administrative actions or a deferred prosecution agreement. The other two actions were resolved through settled civil complaints.
As one of only five “specialized units” at the SEC, one might think that a reasonably proportionate total of the SEC’s overall enforcement actions would come from the FCPA Unit.
Not true.
Since 2011, the SEC has broken its enforcement statistics into specific categories. As highlighted by the SEC’s own data below, FCPA enforcement actions are a miniscule percentage of overall SEC enforcement actions.
- FY 2014 – FCPA actions .9% of total actions
- FY 2013 – FCPA actions .7% of total actions
- FY 2012 – FCPA actions 2% of total actions
- FY 2011 – FCPA actions 2.7% of total actions
[Note: the SEC’s fiscal year is not a calendar year]
There is certainly more to having an FCPA unit than srictly enforcement action output.
Nevertheless, given the above output it is a fair question to again ask – what do the approximately 40 people in the SEC’s FCPA Unit actually do on a daily basis?
More fundamentally, why does the SEC have an FCPA Unit?