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

exclamation

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 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 the former CEO and CFO of FTE Networks Inc. In the complaint, the SEC charges Michael Palleschi and David Lethem with engaging in a multi-year accounting fraud.

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

exclamation

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 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 Gulfport Energy Corporation.

Continue Reading

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

exclamation

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

inconistent

I recognize that I can be a creature of habit, but when an issue – such as the SEC’s inconsistent treatment of FCPA violations – is so frequent I will keep on writing about it. So here goes the umpteenth post on this issue. (See here for other examples).

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.

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An Instructive Example Of An FCPA Enforcement Action Having Nothing To Do With Foreign Bribery

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Conveying knowledge about the Foreign Corrupt Practices Act’s anti-bribery provisions is relatively straight-forward as there are specific elements or issues such as anything of value, foreign official, obtain or retain business, jurisdiction, facilitating payments and various affirmative defenses. Moreover, in some cases statutory definitions assist in the analysis.

Conveying knowledge about the FCPA’s other provisions – the books and records and internal controls provisions – is often more difficult because these provisions – aside from the term reasonable – are basically standardless as written. Indeed, in SEC v. Worldwide Coin the judge stated:  “The main problem with the internal accounting controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgable individuals can arrive at totally different conclusions.” Continue Reading

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