Friday Roundup
Cisco’s discreet blog post, McDonald’s receives the “princeling” treatment, Avon update, further to the free-for-all, more candy, and for the reading stack. It’s all here in the Friday roundup.
Cisco’s Discreet Disclosure
There is not much that slips through the cracks when it comes to the FCPA space.
However, this December 23, 2013 Cisco blog post by a Vice President for Compliance Services under the discreet heading “The Importance of Ethics in Global Business” has not otherwise been reported. The post states, after noting that “for the sixth time in as many years, the Ethisphere Institute honored Cisco by naming us to its list of the “World’s Most Ethical Companies,” as follows:
“Recently, at the request of the Securities and Exchange Commission and the US Department of Justice, Cisco began an investigation into our business activities and discounting practices in Russia and other Commonwealth of Independent States in response to a communication those agencies had received. We are cooperating with the agencies and will fully share the results of our investigation with them. Despite the extensive investigation that we have undertaken thus far, we have found no basis to believe that Cisco’s activities are in violation of any law, and indeed the information we were provided does not allege wrongdoing by any of Cisco’s executive management. While this investigation is ongoing, we do not expect the outcome to have any material adverse effect on our business or operations.”
For a prior post concerning companies that have resolved FCPA enforcement actions or have otherwise been under FCPA scrutiny while at the same general time earning “world’s most ethical” company status see here.
McDonald’s
The word of the last six months would seem to be “princeling.” In “princeling” updates:
This Wall Street Journal article “Vietnam Gets Its First McDonald’s” states:
“McDonald’s chose Henry Nguyen, a Vietnamese-American investor and the son-in-law of Vietnamese Prime Minister Nguyen Tan Dung, as its main franchise partner in the country.”
This Quartz article “McDonald’s Partnered with a Vietnamese Princeling” notes:
“Partnering up with a well-connected member of one of Vietnam’s most prominent political families has raised remarkably few eyebrows for McDonald’s—especially given the growing scandal in China over investment banks that have done much the same thing.”
Among other things, the article notes:
“Nguyen, who also heads Vietnam’s Pizza Hut franchise business, worked hard for a decade to convince McDonald’s he was the right person for the partnership, he told Reuters last year. A McDonald’s spokeswoman said then, “His marriage did not preclude him for participating in what was a very competitive selection process.”
Avon
Avon has been under FCPA scrutiny since 2008 and disclosed yesterday as follows.
“The Company recorded an aggregate accrual related to the previously disclosed government Foreign Corrupt Practices Act (“FCPA”) investigations of $89 million, or $0.20 per diluted share, within operating profit, of which $12 million was recorded in the second quarter. Based on the status of the Company’s current settlement negotiations with the DOJ and the staff of the SEC, including the level of monetary penalties being discussed, an additional $77 million was recorded in the fourth quarter, and the Company estimates the aggregate amount of any potential settlements with the government could exceed this accrual by up to approximately $43 million. There can be no assurance that the Company’s efforts to reach settlements with the government will be successful or, if they are, what the timing or terms of such settlements will be.”
“As you saw in our press release this morning, we’ve continued our discussions with that SEC and DOJ and we’ve made significant progress. Based on the status of our recent discussions, we believe that a reasonable range for settlement with both agencies would be $89 million to $132 million. Our discussions with the government are ongoing and differences remain, but the team is working hard in an effort to bring these matters to a close.”
Free-For-All
In my recent article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” I noted that with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have
transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation. In this post regarding the recent Alcoa enforcement action I noted that it was hard to square the enforcement action (the fourth largest FCPA enforcement action of all-time in terms of a settlement amount) when the alleged consultant at the center of the alleged bribery scheme was criminally charged by another law enforcement agency, put the law enforcement agency to its burden of proof at trial, and the law enforcement agency dismissed
the case because there was no ”realistic prospect of conviction.”
Further to the free-for-all, Wiley Rein attorneys Gregory Williams, Ralph Caccia and Richard Smith write here as follows.
“[I]t is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.
[…]
Such an enforcement approach appears to abrogate basic tenets of corporate liability. A parent company is not liable for the acts of its subsidiary except when the companies disregard corporate formalities (alter ego theory) or when the subsidiary acts as the agent of the parent for a specific purpose. For the latter, the parent is required to control the particular activity in question. The government’s new agency theory of enforcement represents an aggressive expansion of corporate liability, with significant the implications for parent companies both in terms of the compliance and potentially liability.”
For additional reading, see this recent post (“Dig into certain corporate Foreign Corrupt Practices Act enforcement actions and it would appear that legal liability seems to hop, skip, and jump around a multinational company. This of course would be inconceivable in other areas, such as contract liability, tort liability, etc. absent an “alter ego” / “piercing the veil” analysis for the simple reason that is what the black letter law commands”).
More Candy
Previous posts here and here have dispensed FCPA candy (that is year in reviews). You can be tardy for the party, but still be included in the fun and set forth below are three additional worthwhile reads.
BakerHostetler 2013 Year-End Foreign Corrupt Practices Act Update
“This [recent] decrease [in corporate FCPA enforcement actions] appears to be the result of proactive internal investigations and remediation by U.S. companies that recognize the importance of retaining external resources to investigate FCPA issues in light of the substantial fines levied by the government over recent years.”
That’s a nice way to spin it, but the better answer by far is to have a proper perspective on FCPA statistics and to realize that 35% of all corporate FCPA enforcement actions in recent years and 55% of the settlement amounts were the direct result of just three unique events.
WilmerHale Foreign Corrupt Practices Act Alert
Kudos for the following statement regarding so-called “declinations.”
“[W]hile these corporate disclosures are frequently referred to generically as “declinations,” that term seems to encompass not only genuine declinations where the government exercises discretion to decline prosecution of an otherwise chargeable offense, but also cases where the government decides not to prosecute because it has found insufficient evidence of FCPA violations or faces insurmountable legal hurdles in bringing a case.”
For more on so-called “declinations” see prior posts here, here and here.
Miller & Chevalier FCPA Winter Review 2014
Once again, be warned – the divergent enforcement statistics are likely to make you dizzy at times and as to certain issues. [Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)]
For the Reading Stack
From the Washington Post, a look at New Jersey Governor Chris Christie and the rise and controversy of non-prosecution and deferred prosecution agreements.
In this recent NY Times Dealbook article, “S.E.C.’s Losing Streak in Court Puts Agency in Spotlight,” Professor Peter Henning (a former SEC enforcement official) begins as follows.
“Every litigator says that trials are messy affairs because no one can predict how they will play out. After a string of recent unfavorable verdicts in fraud cases, the Securities and Exchange Commission may, too, be concerned with that trend. The S.E.C. is a bit like the New York Yankees, because every defeat is magnified, so we should be careful not to read too much into the anecdotal evidence as garnered by the results of a few recent trials. Most cases filed by the agency are settled, garnering only modest publicity, so the effectiveness of its enforcement program is not tied solely to its wins in the courtroom.”
For more on the SEC’s recent losses, see here from Marc Fagel and Mary Kay Dunning (Gibson Dunn).
“One likely consequence [of the SEC’s recent losses] may be an increase in the number of enforcement matters filed as administrative cease-and-desist proceedings rather than as federal district court actions.”
Spot-on observation, but again a sorry state of affairs in that a way for the SEC to avoid litigated losses when put to its burden of proof is to avoid the judicial system altogether.
A recent survey from AlixPartners conducted in November 2013. (The survey group consisted of executives at companies based in North America, Europe, the Middle East, and Asia that have annual revenues of $150 million or more). “The survey also found that although some companies have expanded the scope of their reviews of their foreign subsidiaries, one-third said they have not done that. Less than half (43%) of respondents said they regularly conduct due diligence on third-party agents.” (See here for the prior post “It’s More Like Bronze Dust.”).
A Summary Of The Statistics
My recent number crunching binge comes to an end. The calculator deserves a break.
This post summarizes, in one spot, the various Foreign Corrupt Practices Act facts and figures published over the past few weeks. Tweet them, link them, pass them along. The more people who are familiar with actual FCPA enforcement statistics, the more informed the conversation will become.
As highlighted in this post, in 2013 the SEC collected approximately $300 million in 8 corporate FCPA enforcement actions. Of note, 50% of the SEC’s FCPA enforcement actions were not subject to one ounce of judicial scrutiny, either because the action was resolved via an NPA or through an administrative order. Of further note, in 2013 the SEC did not charge any individuals with FCPA offenses.
As highlighted in this post, in 2013 the DOJ collected approximately $420 million in 7 corporate FCPA enforcement actions. Of note, none of the enforcement actions have involved (at least yet) any related enforcement actions against company employees. Of further note, 100% of corporate DOJ enforcement actions in 2013 involved either an NPA or DPA and since 2010 93% of corporate DOJ enforcement actions have been resolved via NPAs or DPAs.
This post explores whether corporate FCPA enforcement in 2013 was up or down compared to prior years. As explained in the post, the more accurate and reliable way to keep and analyze FCPA enforcement statistics is by focusing on unique instances of FCPA scrutiny (not settlement amounts) and tracking enforcement actions using the “core” approach. Using this approach, corporate FCPA enforcement was down in 2013.
This post highlighted the alleged “foreign officials” of 2013. Once again, a dominate enforcement theory was that employees of alleged state-owned or state-controlled enterprises, as well as foreign health care providers, are “foreign officials” under the FCPA. Approximately 80% of 2013 corporate enforcement actions involved, in whole or in part, these enforcement theories.
This post highlighted DOJ individual FCPA enforcement actions in 2013. It also highlighted that 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases. There have been 60 corporate DOJ FCPA enforcement actions since 2008 and in 44 actions (or 73%) there has not (at least yet) been any DOJ charges against company employees. Of the individuals charged by the DOJ with FCPA criminal offenses since 2008, 69% were employees or otherwise affiliated with private business entities even though 80% of corporate DOJ FCPA enforcement actions during the same time period were against publicly traded corporations. In short, a private entity DOJ FCPA enforcement action is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.
This post examined a relevant datapoint concerning the relationship between NPAs and DPAs and DOJ individual prosecutions. Since NPAs and DPAs were first introduced to the FCPA context, 83% of corporate DOJ enforcement actions that were the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations resulted in related criminal charges of company employees. By comparison, only 9.8% of corporate DOJ FCPA enforcement actions resolved solely with an NPA or DPA resulted in related criminal charges of company employees. These data points are useful in assessing the quality and legitimacy of many corporate DOJ FCPA enforcement actions. Instead of asking the ”but nobody was charged” question, the more appropriate question ought to be – do NPA and DPAs always represent provable FCPA violations?
This post highlighted SEC individual FCPA enforcement actions in 2013. It also highlighted that 64% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases. There have been 65 corporate SEC FCPA enforcement actions since 2008 and in 53 actions (or 82%) there has not (at least yet) been any SEC charges against company employees. This figure is higher than the 73% DOJ figure, a notable statistic given that the SEC, as a civil law enforcement agency, has a lower burden of proof in an enforcement action. This data point is likewise useful in assessing the quality and legitimacy of many corporate SEC FCPA enforcement actions. Instead of asking the “but nobody was charged” question, the more appropriate question ought to be, given the SEC’s neither admit nor deny settlement policy, administrative orders – or now NPAs – do such settlements always represent provable FCPA violations?
A Focus On SEC FCPA Individual Actions
Posts earlier this week (here and here) highlighted various facts and figures from 2013 and historically concerning DOJ FCPA individual prosecutions. This post focuses on SEC FCPA individual actions in 2013 and historically.
Like the DOJ, the SEC frequently speaks in lofty rhetoric concerning its focus on holding individuals accountable under the FCPA. For instance, in connection with the 2012 Garth Peterson enforcement action, the SEC’s Director of Enforcement stated (here) that the case “illustrates the SEC’s commitment to holding individuals accountable for FCPA violations.” Speaking generally, SEC Chairman Mary Jo White recently stated that a “core principle of any strong enforcement program is to pursue responsible individuals wherever possible … [and that] is something our enforcement division has always done and will continue to do.”
Since 2000, the SEC has charged 59 individuals with FCPA civil offenses. The breakdown is as follows.
- 2000 – 0 individuals
- 2001 – 3 individuals
- 2002 – 3 individuals
- 2003 – 4 individuals
- 2004 – 0 individuals
- 2005 – 1 individual
- 2006 – 8 individuals
- 2007 – 7 individuals
- 2008 – 5 individuals
- 2009 – 5 individuals
- 2010 – 7 individuals
- 2011 – 12 individuals
- 2012 – 4 individuals
- 2013 – 0 individuals
Similar to the prior DOJ figures, most of the individuals charged – 33 (or 56%) were charged since 2008. Thus, on one level the SEC is correct when it states that individual prosecutions are a focus of its FCPA enforcement program at least as measured against the historical average given that between 1978 and 1999 the SEC charged 22 individuals with FCPA civil offenses.
Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1978 and 1999, the SEC’s statements (like the prior DOJ statements about its focus on individuals) represent hollow rhetoric as demonstrated by the below figures.
Of the 33 individuals charged with civil FCPA offenses by the SEC since 2008:
- 7 individuals were in the Siemens case;
- 4 individuals were in the Willbros Group case;
- 4 individuals were in the Alliance One case;
- 3 individuals were in the Maygar Telekom case; and
- 3 individuals were in the Noble Corp. case.
In other words, 64% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases.
Considering that there has been 65 corporate SEC FCPA enforcement actions since 2008, this is a rather remarkable statistic. Of the 65 corporate SEC FCPA enforcement actions, 53 (or 82%) have not (at least yet) resulted in any SEC charges against company employees. This figure is thus higher than the 73% figure highlighted earlier this week regarding the DOJ. This is notable given that the SEC, as a civil law enforcement agency, has a lower burden of proof in an enforcement action.
The last SEC FCPA enforcement action against a company employee related to a corporate FCPA enforcement action occurred approximately two years ago in connection with the Noble Corporation matter (see here for the SEC’s enforcement action against Thomas O’Rourke, Mark Jackson and James Ruehlen – current or former employees of Noble Corporation). Of note from this enforcement action, it is the only individual FCPA enforcement action (DOJ or SEC) in connection with the 2010 enforcement actions against Panalpina and six oil and gas companies concerning alleged conduct in Nigeria.
Once again, like with the DOJ figures, one can ask the “but nobody was charged” question given the gap between corporate SEC FCPA enforcement and related individual enforcement actions.
Yet, like with the DOJ figures and as highlighted in yesterday’s post, there is an equally plausible reason why so few individuals have been charged in connection with many corporate SEC FCPA enforcement actions. The reason has to do with the quality and legitimacy of the corporate enforcement action in the first place.
With the SEC, the issue is not so much NPAs or DPAs (although the SEC has used such vehicles twice to resolve an FCPA enforcement action – a DPA with Tenaris in 2011 and a NPA with Ralph Lauren in 2013 – and there has been no individual enforcement actions related to these corporate enforcement action). Rather, the issue seems to be more the SEC’s neither admit nor deny settlement policy (notwithstanding its minor tweaks in 2013). For more on this policy and its impact of SEC enforcement actions, see pgs. 946-955 of my article “The Facade of FCPA Enforcement.” In the article, I discuss the affidavit of Professor Joseph Grundfest (Stanford Law School and a former SEC Commissioner) in SEC v. Bank of America and how SEC enforcement actions “typically omit mention of valid defenses and of countervailing facts or mitigating circumstances that, if proven at trial, could cause the Commission to lose it case.” In the article, I also discuss the SEC’s frank admission in the Bank of America case that a settled SEC enforcement action “does not necessarily reflect the triumph of one party’s position over the other.”
Individuals in an SEC FCPA enforcement, even if only a civil action, and even if frequently allowed to settle on similar neither admit nor deny terms, have their personal reputation at stake and are thus more likely than corporate entities to challenge the SEC and force it satisfy its burden of proof at trial as to all FCPA elements.
More recently, the SEC has been keen on resolving corporate FCPA enforcement actions in the absence of any judicial scrutiny. As highlighted in this prior SEC Year in Review post, a notable statistic from 2013 is that 50% of SEC corporate enforcement actions were not subjected to one ounce of judicial scrutiny either because the action was resolved via a NPA or through an administrative order.
In other words, and like in the DOJ context, perhaps the more appropriate question is not “but nobody was charged,” in connection with SEC corporate FCPA enforcement actions, but rather – do SEC corporate FCPA settlements necessarily represent provable FCPA violations?
It is also interesting to analyze the 12 instances since 2008 where an SEC corporate FCPA enforcement action resulted in related charges against company employees. With the exception of Siemens, KBR/Halliburton and Magyar Telekom, the corporate SEC FCPA enforcement actions resulting in related charges against company employees occurred in what can only be described as relatively minor (at least from a settlement amount perspective) corporate enforcement actions. These actions are: Faro Technologies, Willbros Group, Nature’s Sunshine Products, United Industrial Corp., Pride Int’l., Noble Corp., Alliance One, Innospec, and Watts Water.
[Note – the above data was assembled using the “core” approach as well as the definition of an FCPA enforcement action described in this prior post]
DOJ Prosecution Of Individuals – Are Other Factors At Play?
Yesterday’s post (here) focused on DOJ FCPA individual prosecutions and highlighted the following facts and figures.
- Since 2008, the DOJ has charged 89 individuals with FCPA criminal offenses.
- 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.
- There have been 60 corporate DOJ FCPA enforcement actions since 2008 and of these actions, 44 (or 73%) have not (at least yet) resulted in any DOJ charges against company employees.
These statistics should cause alarm, including at the DOJ as it has long recognized that a corporate-fine only enforcement program is not effective and does not adequately deter future FCPA violations. For instance, in 1986 John Keeney (Deputy Assistant Attorney General, Criminal Division, DOJ) submitted written responses in the context of Senate hearings concerning a bill to amend the FCPA. He stated as follows:
“If the risk of conduct in violation of the statute becomes merely monetary, the fine will simply become a cost of doing business, payable only upon being caught and in many instances, it will be only a fraction of the profit acquired from the corrupt activity. Absent the threat of incarceration, there may no longer be any compelling need to resist the urge to acquire business in any way possible.”
In 2010 Hank Walther (Deputy Chief Fraud Section) stated that a corporate fine-only FCPA enforcement program allows companies to calculate FCPA settlements as the cost of doing business.
Most recently, in 2013 Daniel Suleiman (DOJ Deputy Chief of Staff, Criminal division) stated that “there is no greater deterrent to corporate crime that the prospect of prison time … if people don’t go to prison, then enforcement can come to be seen as merely the cost of doing business.”
In my 2010 Senate FCPA testimony (here), I noted that the absence of individual FCPA charges in most corporate FCPA enforcement actions causes one to legitimately wonder whether the conduct giving rise to the corporate enforcement action was engaged in by ghosts. Others have rightly asked the “but nobody was charged” question, including James Stewart in a New York Times column highlighted in this previous post.
However, as I stated in my Senate testimony, there is an equally plausible reason why no individuals have been charged in connection with many corporate FCPA enforcement actions. The reason has to do with the quality and legitimacy of the corporate enforcement action in the first place.
Readers know well of the prevalence of non-prosecution and deferred prosecution agreements (NPA / DPA) in the FCPA context and how these agreements, not subject to any meaningful judicial scrutiny, are often agreed to by companies for reasons of ease and efficiency, and not necessarily because the conduct at issue violates the FCPA. For more on this dynamic, see my article “The Facade of FCPA Enforcement.” As highlighted in this recent post, since 2010, 93% of corporate DOJ enforcement actions have been resolved via NPAs or DPAs.
Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ to satisfy its high burden of proof as to all FCPA elements. In other words, perhaps the more appropriate question is not “but nobody was charged,” but rather do NPA and DPAs always represent provable FCPA violations?
I set out to test this with the following working hypothesis.
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Instances in which the DOJ brings actual criminal charges against a company or otherwise insists in the resolution that the corporate entity pleads guilty to FCPA violations, represent a higher quality FCPA enforcement action (in the eyes of the DOJ) and is thus more likely to result in related FCPA criminal charges against company employees.
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Instances in which the DOJ resolves an FCPA enforcement action solely with an NPA or DPA, represent a lower quality FCPA enforcement action and is thus less likely to result in related FCPA criminal charges against company employees given that an individual is more likely to put the DOJ to its high burden of proof.
The below statistics provide a compelling datapoint concerning the quality and legitimacy of many corporate DOJ FCPA enforcement actions.
Since NPAs and DPAs were first introduced to the FCPA context in December 2004 (see here), there have been 76 corporate DOJ FCPA enforcement actions.
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12 of these corporate enforcement actions were the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations. 10 of these corporate enforcement actions – 83% – resulted in related criminal charges of company employees.
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51 of these corporate enforcement actions were resolved solely with an NPA or DPA. In only 5 instances – 9.8% – was there related criminal charges of company employees.
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A third type of corporate FCPA enforcement action is what I will call a hybrid action in which the resolution includes a guilty plea by some entity in the corporate family – usually a foreign subsidiary – and an NPA or DPA against the parent company. Since the introduction of NPAs and DPAs in the FCPA context, there have been 13 such corporate enforcement actions. In 4 of these actions – 31% – there was related criminal charges of company employees. This percentage is what one might expect compared to the two types of corporate FCPA enforcement actions discussed above, although it is interesting to note the following regarding 3 of these 4 instances. The DOJ ended up dismissing the charges against Si Chan Wooh (Schnitzer Steel), John O’Shea (ABB) was not found not guilty, and Bobby Elkin (Alliance One) received a probation sentence after the sentencing judge questioned many aspects of the enforcement action (see here for the prior post).
If the above statistics do not cause you to question the quality and legitimacy of many corporate FCPA enforcement actions, no empirical data ever will. For those who believe NPAs and DPAs always represent provable FCPA violations, the ball is now in your court to offer credible explanations for following datapoints.
If a corporate DOJ FCPA enforcement action is the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations, there is a 83% chance that related criminal charges will be brought against a company employee. If a corporate DOJ FCPA enforcement action is resolved solely with an NPA or DPA, there is a 9.8% chance that criminal charges will be brought against a company employee.
At a conference last May (and as highlighted in this post), I presented the above numbers and put the ball in the court of Denis McInerney (DOJ, Deputy Assistant Attorney General) and asked him to explain the gap. He described two enforcement actions resolved via an NPA or DPA in which there were indeed related individual prosecutions, but otherwise said that he did not know where these numbers are coming from. As I explained, it was really quite easy calculating the numbers. One simply takes all DOJ corporate enforcement actions since 2004, tracks how those enforcement actions were resolved, and then looks to see if there have been related individual actions against company employees.
[Note – the above data was assembled using the “core” approach as well as the definition of an FCPA enforcement action described in this prior post]
A Focus On DOJ FCPA Individual Prosecutions
Some have proclaimed 2013 to be the year of the individual. (See here and here).
Yes, in 2013 FCPA criminal charges were filed or announced against 12 individuals and this figure was higher than in 2012 and 2011. Yet at the same time, 0 of the 8 DOJ corporate FCPA enforcement actions in 2013 have resulted (at least yet) in any related charges against company employees. Going back to 2012, only 1 of the 9 DOJ corporate FCPA enforcement actions (11%) in 2012 have resulted (at least yet) in any related charges against company employees.
Certain individual FCPA enforcement actions filed or announced in 2013 (see here for the individual actions announced in connection with the 2012 BizJet enforcement action and here for the individual action announced in connection with the 2011 Maxwell Technology enforcement action) remind us that there can be a lag time between a corporate FCPA enforcement and any related individual enforcement action.
Nevertheless, the statistics are what they are at the present moment and this post highlights certain facts and figures concerning the DOJ’s prosecution of individuals for FCPA offenses.
Since 2000, the DOJ has charged 123 individuals with FCPA criminal offenses. The breakdown is as follows.
- 2000 – 0 individuals
- 2001 – 8 individuals
- 2002 – 4 individuals
- 2003 – 4 individuals
- 2004 – 2 individuals
- 2005 – 3 individuals
- 2006 – 6 individuals
- 2007 – 7 individuals
- 2008 – 14 individuals
- 2009 – 18 individuals
- 2010 – 33 individuals (including 22 in the Africa Sting case)
- 2011 – 10 individuals
- 2012 – 2 individuals
- 2013 – 12 individuals
An analysis of the numbers reveals some interesting points.
Most of the individuals – 89 (or 72%) were charged since 2008. Thus, on one level the DOJ is correct when it states that individual prosecutions are a “cornerstone” of its FCPA enforcement strategy and that it has been “vigorous about holding individuals accountable” – at least as measured against the historical average given that between 1978 and 1999, the DOJ charged 38 individuals with FCPA criminal offenses.
Yet on another level, a more meaningful level given that there was much less overall enforcement of the FCPA between 1978 and 1999, the DOJ’s statements about its focus on individuals represents hollow rhetoric as demonstrated by the below figures.
Of the 89 individuals criminally charged with FCPA offenses by the DOJ since 2008:
- 22 individuals were in the Africa Sting case;
- 9 individuals (minus the “foreign officials” charged) were in the Haiti Teleco case;
- 8 individuals were in the Control Components case;
- 8 individuals were in the Siemens case;
- 4 individuals were in the Lindsey Manufacturing case;
- 4 individuals were in the LatinNode / Hondutel case;
- 4 individuals were in the Nexus Technologies case;
- 4 individuals were in the BizJet case; and
- 4 individuals were associated with Alstom (the company’s FCPA scrutiny is still ongoing).
In other words, 53% of the individuals charged by the DOJ with FCPA criminal offenses since 2008 have been in just four cases and 75% of the individuals charged by the DOJ since 2008 have been in just nine cases.
Considering that there has been 60 corporate DOJ FCPA enforcement actions since 2008, this is a rather remarkable statistic. Of the 60 corporate DOJ FCPA enforcement actions, 44 (or 73%) have not (at least yet) resulted in any DOJ charges against company employees.
This FCPA specific figure is higher than the general 66% figure calculated by Professor Brandon Garrett and recently profiled in this Wall Street Journal article (“The Justice Department hasn’t charged employees at two-third of nearly 400 companies that have settled criminal investigations or been convicted of crimes in recent years.”)
In short, and as demonstrated by the statistics, DOJ FCPA individual enforcement actions are significantly skewed by just a few enforcement actions and the reality is that 73% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees.
A very interesting and significant picture emerges when analyzing DOJ individual prosecution data based on whether the corporate entity employing or otherwise involved with the individual charged was a public or private entity.
Of the 89 individuals charged by the DOJ with FCPA criminal offenses since 2008, 61 of the individuals (69%) were employees or otherwise affiliated with private business entities. This is a striking statistic given that 48 of the 60 corporate DOJ FCPA enforcement actions since 2008 (80%) were against publicly traded corporations.
In the 12 private entity DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 7 of those cases (58%). In contrast, in the 48 public entity DOJ FCPA enforcement actions since 2008, individuals were charged in connection with 9 of those cases (19%). In short, and based on the data, a private entity DOJ FCPA enforcement is approximately three times more likely to have a related DOJ FCPA criminal prosecution of an individual than a public entity DOJ FCPA enforcement action.
Are other factors at play when it comes to the fact that 73% of DOJ corporate enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees? A future post will highlight a relevant datapoint.
[Notes – the above data was assembled using the “core” approach – see this prior post for an explanation. The term “public entity” is not limited to “issuers” under the FCPA, but rather a public entity regardless of which market it shares trade on. Thus, for instance, JGC Corp. of Japan and Bridgestone are both public entities even though its shares are not traded on a U.S. exchange.]