Friday Roundup
In one way, shape or form, whistleblowing is the theme of this week’s Friday Roundup.
SEC Timeline on Various Dodd-Frank Provisions
The SEC has a lot on its plate in implementing various rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).
Included on that list is the new whistleblower provisions established by Dodd-Frank (see here for a prior post).
Interested in following the SEC’s progress?
If so, here are the important dates (or months as the case may be) to keep in mind.
October – December 2010
SEC plans to “propose rules to implement a Whistleblower Incentives & Protection Program,” “report to Congress on Whistleblower Program,” and “Establish Whistleblower Office.”
January – March 2011
SEC plans to “adopt rules to implement a Whistleblower Incentives & Protection Program.”
Another Dodd-Frank provision many in the FCPA universe are following is Section 1504 – “Disclosure of Payments by Resource Extraction Issuers” (see here for a prior post).
Here is the planned timeline for that provision.
October – December 2010
SEC to “propose rules regarding disclosure by resource extraction issuers”
January – March 2011
SEC to “adopt rules regarding disclosure by resource extraction issuers”
Khuzami on the SEC’s Whistleblower Program
Earlier this week Robert Khuzami (Director, Division of Enforcement – SEC) had this to say about the SEC’s whistleblower program in testimony before the Senate:
“The Division currently is in the process of drafting the proposed rules applicable to the Whistleblower Program, including rules setting forth the procedures for whistleblowers to submit original information to the Commission and for the Commission to make awards to whistleblowers. We also have begun the process of staffing the Commission’s Whistleblower Office. As we create the Program and the Office, we will be mindful of competing interests, including: (i) a desire to encourage whistleblowers to provide the Commission with high-quality tips regarding potential violations of the federal securities laws, and (ii) a need to avoid creating undue burdens on the Commission and the constituencies that we protect and regulate that could result from groundless whistleblower submissions.”
Furmanite Corporation
Kendall Law Group is one of the new breed of FCPA “plaintiff” firms that have sprung up in recent months. The sequence is usually predictable. A company discloses an FCPA issue or inquiry. Within days the firm, or one of the other firms that is also seeking to capitalize on what, at times, seems like an FCPA feeding frenzy, issues a press release such as this one. These releases have become so common, that it is easy to gloss over them.
However, Kendall Law Group’s September 16th release (here) regarding Furmanite Corporation was a bit different. Here is what it said, in relevant part:
“The Kendall Law Group was recently notified by a confidential source of potential violations of the Foreign Corrupt Practices Act (FCPA) by Furmanite. The company was allegedly made aware of potential violations of the FCPA as early as 2008. The firm’s source indicates that cash gifts were given to representatives of state-owned enterprises to maintain and develop customer relations. Furmanite has two subsidiaries in China, Furmanite Mechanical Technology Services Co. Ltd. which operates out of Shanghai and Furmanite East Asia Ltd. which is based in Hong Kong. Furmanite has entered into business relationships with state-owned enterprises in China, such as the recently announced delivery of equipment to China HuanQiu Contracting and Engineering Company, a branch of the China National Petroleum Corporation, China’s largest integrated oil and gas company.”
Is Kendall Law Group representing a whistleblower in connection with Dodd-Frank’s new whistleblower provisions? Pursuant to the new whistleblower provisions, a whistleblower may be represented by counsel.
Furmanite, “the worldwide innovator and leader in comprehensive on-site and on-line plant and pipeline maintenance” according to its website (here), is an issuer on the New York Stock Exchange.
To my knowledge Furmanite has not issued a release / disclosure about this issue.
*****
A good weekend to all.
World Bribery & Corruption Compliance Forum – Comments by U.S. Officials
As promised in yesterday’s post (here) that provided a summary of comments by U.K. officials at the World Bribery & Corruption Compliance Forum in London hosted by IBC Legal Conferences, today’s post provides a summary of Charles Duross’s (Deputy Chief – Fraud Section, DOJ) special address as well as comments made by Duross and Thierry Olivier Desmet (Assistant Regional Director, FCPA Unit, SEC) during a panel discussion about voluntary disclosure.
Duross began by noting that the DOJ’s FCPA unit is still very much in a transition phase. He stated that the unit recently added prosecutors with expertise in gathering foreign evidence as well as new prosecutors with the ability to try substantial criminal cases to verdict. Duross stated that the “ability to try lengthy and complex trials” is critical to the FCPA unit’s success and that the unit must continue to be willing to try cases and be put to its burden. Duross stated that the DOJ’s FCPA unit consists of “world class prosecutors” “pure and simple” and that these prosecutors and other personnel make “tremendous personal sacrifices” in their mission of combating bribery. For instance, he noted that in the past few months DOJ prosecutors have traveled to a dozen different countries on four different continents to gather evidence and investigate cases.
Duross also noted that the DOJ works with “tenacious” agents willing to pursue any lead. These agents include, most notably, FBI agents, as well as agents from Immigration, the Internal Revenue Service, Office of Foreign Assets Control, and the Office of Export Enforcement. He said that these agents will “follow the evidence to where it leads them” and that these agents will use traditional law enforcement tools including surveillance, warrants, and wire taps.
Duross stated: “let me be clear – paying bribes to foreign officials to secure business is illegal and is a crime, you will be investigated like any other criminal, and that it doesn’t matter if you wear a tie or you went to a fancy business school.” He said that “if [the DOJ] wins, and we win often, you will go to prison.” He stated that the DOJ is “normally outnumbered by armies of defense attorneys and accountants,” but that DOJ prosecutors are “never outworked and never outhustled.” Duross stated that the DOJ is “always pursuing justice and that it is always seeking to do the right thing.”
Duross also stated that the DOJ continues to expand its network and further development its relationships with foreign counterparts around the world. He stated that the DOJ has “no stronger ties” than with the U.K. and that to say the DOJ has a “close relationship” with the U.K. and the Serious Fraud Office “would be an understatement” as demonstrated by the recent BAE and Innospec prosecutions.
Duross admitted that he takes his new position with a bit of “trepidation” given that he has big shoes to fill (he made specific praise for Peter Clark and Mark Mendelsohn) and given that each new case is followed more closely than the last. He stated that such “scrutiny and criticism can be constructive” and that if it means the DOJ needs to review past practices “we will do so” and that the only way for DOJ to get better is for it to reevaluate what it is doing.
Duross also noted that the DOJ’s FCPA program will be “graded” later this year under the peer review process sponsored by the OECD. The lead examiners in this process are representatives from Argentina and the United Kingdom. He noted that the examiners spent three days in Washington D.C. over the summer and the examiners were provided over 1,000 pages of documents. He also stated that the examiners spent considerable time with the private sector without DOJ involvement something he termed “unprecedented.” According to Duross, the examiner’s report will be made public in mid-October as well as the U.S. response to OECD’s phase 3 questionnaire.
Duross is confident that the U.S. “has a tremendous story to tell” and that if the peer review process identifies area for potential improvement, then “we will welcome this.” Duross said that “if the bar is raised we welcome that” “if it is consistent with our treaty obligations and if all countries are treated equally.”
Duross explained that the FCPA unit has a “number or pending trials” and a significant number of investigations “in the pipeline.” He mentioned upcoming trials in Miami in connection with the Haiti Teleco enforcement actions (see here for prior postings); the upcoming trial of various executives of Control Components Inc. in California – a trial he expects to last two months (see here for prior postings); the pending trials of the Africa Sting defendants in Washington, D.C. (see here for prior postings); and a pending trial in Houston.
In each of these cases, Duross said that the DOJ FCPA unit partners with local AUSA’s who are experts on local trial procedure and have familiarity with the judge. He said that these partnerships are “critical” to the FCPA unit’s success, even if, per DOJ policy, all FCPA prosecutions must be handled by DOJ Main Justice. Duross noted that recently over 90 prosecutors (both DOJ and SEC) participated in “three intense days” of FCPA training at the SEC’s headquarters (see here for a prior post). In concluding on this issue, Duross stated that it would be an “understatement” to say that the DOJ’s team is growing.
In addition to trials, Duross noted that the DOJ’s “pipeline” of investigations “continues to grow.” He said it would “short sighted” if one was left with the view that the only way DOJ receives leads is through voluntary disclosures. Duross dispelled the notion that voluntary disclosures make up the “majority” of its cases. He said that this was “not true and has never been.” According to Duross, when DOJ last looked into this issue a few years ago, the percentage of voluntary disclosure cases was approximately 1/3. On voluntary disclosure, Duross stated that DOJ “has and will continue to provide meaningful credit for companies that provide voluntary disclosures.” He also stated that several voluntary disclosures result in DOJ declinations and that these declinations, which are not often made public, “should not be underestimated.”
During the public Q&A session, I asked Duross about DOJ declinations in FCPA inquiries. I noted that through the FCPA Opinion Release Procedure, DOJ often makes its no-enforcement action decision known as to contemplated business conduct. I asked whether it is in the public interest for the DOJ to publicly disclose its declination decisions, including the facts disclosed by the company and why DOJ, on those facts, declined prosecution. Duross said that the question presented a “difficult issue” and he shared an example of a company that disclosed conduct to the DOJ, but the DOJ declined to prosecute. According to Duross, DOJ asked the company whether it wanted the declination decision to be made public and the company said no – reasoning that it already had disclosed the issue and that there was no need for another public disclosure.
Duross noted that the DOJ receives allegations from a number of sources: the FBI, pro-active investigations, tips from U.S. embassies around the world, anonymous tips, e-mails, and whistleblowers. As to anonymous tips, e-mails, and whistleblowers, Duross stated that DOJ does not immediately launch a full-blown investigation, rather DOJ does its best to verify the information, weight other information, and to make the best judgment possible before commencing an investigation. In sum, Duross said “I don’t want to leave you with the impression that but for voluntary disclosures we would be sitting around on our hands.”
Duross emphasized that the DOJ and its law enforcement partners “make tons of efforts to pursue matters pro-actively” and that the “likelihood of getting caught is increasing over time” and that the world is getting smaller. For instance, Duross said he receives Google Alerts that contain the word bribe. He also shared a story about a “major Fortune 50 company” being the focus of a bribery-related story in a Chinese newspaper. Duross said that the DOJ saw the story on a Sunday night and that by 9:30 a.m. on Monday morning the DOJ had already sent a letter to the general counsel of the company asking for an explanation. Duross explained, that after learning the facts, the DOJ concluded that the newspaper story was incorrect because the case was merely an employee embezzlement matter and had nothing to do with bribery.
Duross next spoke about “tone at the top” and how important it is because non-executive employees look to the board and senior managers for guidance. Duross said that boards and executives should not “let their employees down” and should make clear that unethical and illegal behavior will not be tolerated and that company leaders “should mean it.” On this issue, Duross said that frequently a company voluntarily disclosing will, at the first meeting with DOJ, “slap down on the table its compliance policy.” Duross will then ask the company representative whether anyone has ever been reprimanded for conduct in violation of the policy and that the answer is often “no.” Duross stated that it is “not enough to have a compliance program and a tone at the top,” but rather for a company to “make sure that it means it.”
As to the role of compliance officers, Duross said that vocal support within the business is critical to support the compliance officer so that he/she will not be ignored or willfully disobeyed. Although compliance departments are not viewed as profit centers, Duross encouraged companies to make compliance positions an attractive career track with room for advancement and promotion.
After his remarks, Duross was asked about the general lack of judicial scrutiny of FCPA enforcement actions. He talked about the three FCPA trials in 2009 and said that DOJ is “excited about the upcoming trials” and that the DOJ “welcomes judicial input” on the FCPA.
In his answer, Duross also mentioned the Nexus Technologies enforcement action and how in that action the parties fully briefed the “foreign official” element and that DOJ “won that case.” Although Duross conceded that the judge in that case did not issue a written opinion on the “foreign official” element, Duross did note that the judge, under Rule 11 of the Federal Rules of Criminal Procedure, was required, before accepting the plea, to make sure each element of the crime was met.
[It should be noted that in the Nexus Technology briefing, the DOJ specifically urged the judge, on a number of occassions, not to consider the defendant’s substantive “foreign official” argument because they were premature. The following are snippets from the DOJ’s brief: (i) “the Court need not address any of these faulty arguments at this time:” (ii) “although styled as a motion to dismiss, Defendants’ submission is instead a premature request for a ruling on the sufficiency of the Government’s evidence before any of that evidence has been presented. These arguments, which are premature at best, will be moot after presentation of the Government’s case.” (iii) “because Defendants’ arguments turn entirely on issues of fact, they are premature.”]
During a panel discussion on voluntary disclosure both Duross and Desmet answered questions posed by John Rupp (Covington & Burling – see here).
The first question posed by Rupp was – when is it a crime not to disclose a suspicion of bribery of a public official?
Desmet answered that the concept of materiality is important – would a reasonable investor consider the information important in making a buy or sell decision. Desmet said that the concept of materiality itself has two “sub-concepts”: (i) quantitative materiality (something that impacts a company’s financial statements) – he conceded that very few bribes are quantitatively material; and (ii) qualitative materiality a “complicated gray area” to use Desmet’s words. He said that all bribes can be considered qualitatively material because they may “automatically trigger a books and records violation.” Because of this, Desmet said that it is “prudent” for any issuer to approach the SEC with any “suspicion” of bribes “as soon as” the company learns of the improper payment. When an issuer makes such a disclosure, Desmet said that the Commission will give the company credit for doing so.
Duross answered the question by saying that from the FCPA unit’s perspective, “if there is a bribe we want to hear about it, even if it is small” and that good advice is “to come in and let us know about it.”
Rupp next posed the question – at what point do you expect a company to make a voluntary disclosure?
Duross said, “the earlier the better” although he did also say that the DOJ “does not want to get inundated with a bunch of false starts.” Duross shared an example he said was “troubling” and that was a recent situation where the company voluntarily disclosed a few days after terminating employees in connection with the investigation. When the DOJ asked the company about the employees implicated in the conduct at issue, the company said we terminated them a few days ago and the company then proceeded to say that it no longer had access to the employees.
According to Duross, this “seemed like a bad decision” for the company to make and the conclusion he drew from the company’s decison was that the company did not “want to make the employees available to us.” Duross also added that while a company is often under no affirmative obligation to voluntary disclose, once the voluntary disclosure decision is made, the relationship between the DOJ and company counsel is all about trust and credibility.
Duross said that it is “incredibly difficult” for the DOJ to make important decisions affecting the company if the DOJ senses that the investigation was not done properly or if the DOJ senses that the company is not truly cooperating. Duross said that if the DOJ does not trust company counsel, it may ask the company to go back and redo the investigation of the conduct at issue. According to Duross, a reason a company should consider early in the process to voluntarily disclose is to perhaps save money. He said that the DOJ FCPA unit is “pretty reasonable” and that if a company comes in before the investigation is complete, the DOJ can have some input as to the scope of the investigation – which may turn out to be more limited than what the company may have thought was going to be expected.
In sum, Duross sees the benefits of an early voluntary disclosure as building trust and credibility and perhaps saving the company money.
Duross said that counsel should also not assume that a voluntary disclosure will result in a “passive approach” from the DOJ. Even if a company has voluntarily disclosed conduct, Duross said that the DOJ will go talk to witnesses and use the Mutual Legal Assistance Treaty process to gather evidence. Duross shared a story of outside counsel meeting with the DOJ and giving DOJ a big Powerpoint presentation, when the reality of the situation was that, through no fault of outside counsel, outside counsel had “absolutely no idea of what was going on” because DOJ, as a result of its independent fact-gathering, knew information that even outside counsel did not know.
Duross also cautioned companies to make accurate public statments during an investigation and voluntary disclosure process. On this issue, Duross shared that the DOJ has reached out to companies in the middle of an FCPA inquiry to let the company know that DOJ may disagree with various aspects of the public statements the company is making about the investigation.
Rupp asked – do companies in discussions with you, run the “footnote language by” the DOJ? Duross said, it depends on the practitioner. He did say “to be honest, we don’t want to get into that level of detail in which we are blessing company filings.” Duross did say though that if the company proposes language for a filing or public statement and the DOJ says “no comment” that this should be interpreted by the company as “probably not a good thing.”
Desmet said that when he opens up an FCPA investigation, one of the first things he does is read the company’s SEC filings, including a very detailed review of the company’s MD&A section of the financial statements.
Rupp next asked questions about the SEC’s new whistleblower provisions and asked what will happen if the company has a mere suscipion of an improper payment, the company is in the very early stages of an investigation, a document hold has been issued, electronic documents are being pulled, the company is lining up employees that may have knowledge – but that during this process, a whistleblower contacts the SEC. Rupp asked – will the company in this situation lose the benefits of voluntary disclosure because the whistleblower first contacted the SEC? (See here for my prior post on this issue).
Duross said that the above company probably would be negatively affected under the U.S. Sentencing Guidelines, and probably not receive the sentencing credit for voluntary disclosure, but that this should not be the beginning and end of the analysis. Duross said that there are “lots of different factors” the DOJ considers when resolving an FCPA inquiry per the DOJ’s Principles of Prosecution of Business Organizations and that just because the company was technically not the first in the door does not mean that the DOJ will not try to achieve a “just and fair result.” Duross stated that the SEC, not the DOJ, is in charge of the whistleblower program, but again stated that companies should not think the “world is going to be over” just because a whistleblower “is in first” even if that fact may impact the Sentencing Guidelines culpability score.
Desmet’s answer was very similar on this issue. He noted that while final rules are yet to be issued as to the whistleblower program, he hopes that the Commission would not be rigid in the face of such a hypothetical. He said that if the company comes in a “few days or a few weeks after a whistleblower” that he would “like to think” that such a company would still get credit for self-reporting. In this type of situation, Desmet said that the whistleblower, if otherwise qualified under the provisions, would likely get his/her bounty and the company would likely still get the benefit of self-disclosure as well.
Anonymous Reporting … Common, But Effective?
A company looking to establish “best-practices” FCPA policies and procedures will often implement anonymous reporting mechanisms so that employees and others can report misconduct that may violate the Foreign Corrupt Practices Act or company policy.
The conventional wisdom (see here for example) is that such anonymous reporting mechanisms are effective because, among other things, they remove the stigma of reporting misconduct.
Anonymous reporting is common, but is it effective?
That is question asked by James Hunton (Bently College – see here) and Jacob Rose (University of New Hampshire – see here) in a recently published study in the Journal of Management Studies titled: “Effects of Anonymous Whistle-Blowing and Perceived Reputation Threats on Investigations of Whistle-Blowing Allegations by Audit Committee Members.”
The answer according to Hunton and Rose?
No it isn’t.
Here is the abstract of the paper.
“A total of 83 experienced audit committee members participated in an experiment in which they evaluated the credibility of and allocated investigative resources towards a whistle-blowing allegation of financial reporting malfeasance by corporate executive officers. We manipulated whether the whistle-blowing allegation was made through anonymous or non-anonymous channels and whether the allegation posed a relatively high or low threat to the personal reputation of the audit committee member who was charged with investigating the allegation. Results indicate that the participating audit committee members attributed lower credibility and allocated fewer investigatory resources when the whistle-blowing report was received through an anonymous versus non-anonymous channel, and when the allegation posed a relatively high versus low level of reputation threat. While the Sarbanes–Oxley Act of 2002 requires audit committees of publicly traded firms to provide an anonymous whistle-blowing channel to employees, our findings suggest disturbing unintended consequences of such regulation; specifically, audit committee members might fail to sufficiently investigate whistle-blowing allegations received through anonymous whistle-blowing channels, particularly if the allegation poses a personal reputation threat.”
As noted by the authors, the study “is the first to examine whether and how anonymous whistle-blowing affects corporate directors who are charged with determining the veracity of such allegations” and the study questions “whether anonymous whistle-blowing improves the quality of corporate governance …”
DOJ, SEC Receive FCPA Training
The Department of Justice and the Securities and Exchange Commission enforce the Foreign Corrupt Practices Act.
It is thus a bit strange that the DOJ and SEC are receiving FCPA training.
Yet, piecing together information from two prominent law firm event calendars (see here and here) that is exactly what is occuring today in Washington D.C. at the SEC headquarters.
Described as a “joint FCPA training program” for the DOJ, SEC, and FBI and the “SEC’s FCPA Boot Camp” the speakers appear to include a who’s who of the FCPA defense bar.
What prompted this training session? What is the full agenda of topics? What type of questions will DOJ and SEC personnel ask?
Inquiring minds want to know.
Inquiring minds may also wonder – is it proper for the DOJ and SEC to receive training from lawyers and law firms that are frequent “adversaries” in FCPA enforcement actions?
The event is not included on the SEC’s event calendar (see here), but DC readers may want to show up at the SEC’s headquarters today and say “I’m here for the FCPA training” to see what happens.
If anyone has information or insight as to this event, please leave a comment.
A few other DOJ / SEC items of interest to pass along.
Make Your Voice Heard
According to this release, the SEC is seeking public comment on various sections of the recently enacted Dodd-Frank financial reform package. The SEC will post all submissions on SEC’s Internet Web site. As noted in the release, “members of the public who wish to submit official comments on particular rulemaking initiatives should submit comments during the official comment period that starts with the notice of the initiative published in the Federal Register.” (emphasis added).
To learn more about Section 922’s whistleblower provisons, see here and here. To learn more about Section 1504’s Resource Extraction Issuer Disclosure provisions see here.
The Revolving Door Continues to Revolve
Some of you, I know, think it is no big deal when a DOJ prosector enforces a law one day and then the next day defends clients against enforcement of that same law.
Others of you, I know, think that this is an important public policy issue worthy of discussion.
Whatever your persuasion, it should be noted that yet another DOJ attorney with FCPA responsibilties has left government service for a private law firm to engage in an FCPA practice.
According to this Main Justice story, Steven Fagell, Assistant Attorney General Lanny Breuer’s deputy chief of staff, is leaving the DOJ to return to Covington & Burling LLP (Breuer’s previous employer), the firm he worked at prior to joining the DOJ in January 2009. Main Justice reports that “as a member of the Criminal Division’s senior leadership team, Fagell served as a counselor to Breuer and worked on a broad range of issues including the Financial Fraud Enforcement Task Force and the Foreign Corrupt Practices Act.” According to Tim Hester, Covington’s managing partner, Fagell is expected to work on FCPA matters at the firm (see here).
For other recent movement betweent the DOJ and the FCPA bar see here, here and here.
Whistleblower Provisions … What Others Are Saying
The FCPA bar is an active group of writers.
And quick.
Below is a sample of other views on the whistleblower provisions of the Dodd-Frank financial reform bill signed by President Obama last week.
As noted in this prior post, the whistleblower provisions apply to all securities laws violations and the FCPA is part of the Securities Exchange Act. In the post, I set forth my reasons for why I believe the new whistleblower provisions will have a negligible impact on FCPA enforcement. As demonstrated by the below snippets, I am clearly an outlier, which is not surprising to me.
So if you have an unexplained fascination for law firm client alerts (as I often do) this post is for you.
Foley & Lardner (see here)
“The Act’s broad whistleblower provisions significantly increase the compliance risks companies doing business internationally face. Coupled with the fact that numerous recent FCPA enforcement actions have resulted in companies paying record fines — in many cases in the tens or even hundreds of millions of dollars — to settle enforcement actions, the Act will create enormous financial incentives for individual whistleblowers to report FCPA violations (or even speculative claims of a violation) to the SEC. Given this important legislative development, there is no better time for companies to evaluate their FCPA compliance programs to ensure they are in line with current best practices. An effective FCPA compliance program both minimizes a company’s risk of violations and provides protection to companies by maintaining the components of an effective compliance and ethics program set forth in the U.S. Sentencing Guidelines.”
Morrison & Foerster (see here)
“Although the new provisions apply to all violations of the securities laws, they are likely to have particularly significant impact on enforcement of the Foreign Corrupt Practices Act (“FCPA”), an area in which criminal and civil penalties and enforcement activity have increased sharply in recent years.”
“Although Dodd-Frank’s whistleblower provisions apply to any of the securities laws under which the SEC can bring enforcement actions, the Act will likely have an immediate and outsized impact on FCPA enforcement.”
“Given the large size of recent FCPA settlements and enforcement actions, the ability to aggregate the recoveries from “related judicial and administrative actions” when determining the whistleblower’s award, and the government’s continued focus on and increased resources devoted to FCPA enforcement, the Dodd-Frank whistleblower provisions are likely to result in even more FCPA investigations and enforcement actions.”
“The new whistleblower provisions could lead to more and/or earlier voluntary disclosures of potential securities law violations, as companies hoping to obtain the benefits of voluntary disclosure must move quickly, before the whistleblower makes his or her disclosure. They could also lead to more reports of minor violations previously deemed not significant enough to report.”
Proskauer Rose (see here)
“While the whistleblower bounty exists for all securities violations, the risk companies face is particularly great relative to the Foreign Corrupt Practices Act (“FCPA”), which broadly proscribes corruptly influencing foreign public officials. The remarkable monetary sanctions in FCPA enforcement actions, where SEC settlements in the tens or even hundreds of millions of dollars have become increasingly common, provide a compelling incentive for individuals to contact the SEC about suspected FCPA violations.”
“The dramatic increase in FCPA enforcement efforts, along with the comprehensive press coverage surrounding such efforts and the expected cottage industry of lawyers and others, will ensure that potential whistleblowers are aware of, and take full advantage of, this enticing incentive.”
“The increased possibility that FCPA violators will face substantial sanctions (for violations that may have been “under the radar” previously) also suggests that companies have even greater reason to inhibit bribery and fraud from occurring in the first place. The importance of effective internal controls and compliance programs to detect and prevent FCPA and other securities violations has intensified. With the new bounty, companies will need to adapt to this defining change in the legal landscape.”
Fulbright & Jaworski (see here)
“In light of the current aggressive FCPA enforcement environment, Section[] 922 […] stand to further increase the number of FCPA-related investigations initiated by corporate counsel and U.S. enforcement authorities, as well as the number of civil and criminal enforcement actions brought by the SEC and U.S. Department of Justice (“DOJ”). Before the Act is signed into law, companies doing business overseas—particularly publicly traded companies in the oil, natural gas, or minerals industries—should take the time to review their compliance policies and procedures and determine what, if any, changes must be made to account for the changing enforcement landscape as a result of the Dodd-Frank Act.”
“In light of Section 922 and the financial incentives it provides, companies should expect an increase in whistleblower allegations and associated investigations—particularly in the context of the FCPA, where several recent civil and criminal recoveries have been $100 million or more. This expectation will also affect companies’ determinations regarding self-reporting, should allegations arise, both in terms of whether to self-report the allegations and how quickly to do so (e.g., before an internal investigation has been conducted). At the very least, companies should reassess internal compliance policies and procedures to ensure their adequacy in anticipation of such increased enforcement activity.”
McDermott Will & Emery (see here)
“When combined with recent efforts to step up enforcement, these new provisions significantly alter the incentives for potential whistleblowers, making it more likely that those on the fence will race to government, rather than report to their employer. Take the Foreign Corrupt Practices Act as an example. In the past few years, both the SEC and the U.S. Department of Justice (DOJ) have dramatically increased their enforcement of this statute, resulting in a recent number of groundbreaking settlements, including an $800 million payment by Siemens; a more than $575 million sanction and disgorgement against Kellogg Brown & Root and a $185 million payment by Daimler. With recoveries like this, a potential 30 percent share is akin to winning the lottery for a whistleblower. Under such circumstances, even a loyal employee may find it difficult to turn down such a potential jackpot.”
Holland & Knight (see here)
“The Wall Street Reform and Consumer Protection Act approved by Congress and set to be signed into law by President Obama next week contains a whistleblower provision that will have a significant impact on Securities and Exchange Commission (SEC) enforcement of the Foreign Corrupt Practices Act (FCPA).”
“This new provision increases the likelihood that information regarding improper payments will come to the attention of the SEC. Moreover, when combined with recent enforcement actions by the SEC that have held U.S. parent companies strictly liable for the improper conduct of their foreign subsidiaries, the compliance and enforcement risks for U.S. public companies engaged in overseas business activities cannot be overstated.
We strongly urge U.S. companies to take immediate steps to strengthen their FCPA compliance programs and undertake training of their employees and third parties, including agents and distributors. U.S. companies should also be proactive in conducting compliance audits of their overseas operations.”
Mark Mendelsohn, Paul, Weiss, Rifkind, Wharton & Garrison (former DOJ FCPA top cop) in the American Lawyer
“[Mendelsohn] offered the usual cautionary caveat about it being too soon to know, but he did say the new provisions may create a regulatory backlog because employees now have an incentive to go to the SEC with matters that previously would have been handled internally. ‘As a company, you want to have mechanisms for people to report things up the chain internally,’ Mendelsohn said. ‘The whistleblower legislation cuts against that by incentivizing people to go outside the company with information.'”
It is just not law firms with FCPA practices that have put pen to paper. Below is a sample of what some “whistleblower” law firms are saying.
Finch McCranie (see here)
“Bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute, are the targets of the FCPA. Whistleblowers whose information helps the SEC recover monetary sanctions from those corrupt entities in FCPA cases now have an enforceable right to a monetary award of 10-30%. Based on the increasing number and size of these FCPA cases, the rewards to whistleblowers can be meaningful–as they must be to cause whistleblowers to come forward. Over the past decade, the government has pursued more and more FCPA cases, and some recover hundreds of millions of dollars.”
Pietragallo Gordon Alfano Bosick & Raspanti (see here)
“Some believe that this new provision will have significant impact in the context of the Foreign Corrupt Practices Act, which prohibits companies from engaging in certain practices, including bribery, in foreign countries. Recent settlements by the SEC with international corporations have demonstrated the possibility of FCPA settlements in the hundreds of millions of dollars. Whistleblowers contemplating the new SEC whistleblower provisions of the Wall Street Reform Act will have a huge new financial incentive to come forward with allegations of wrongdoing, in both domestic markets and abroad.”
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Staying on the whistleblower topic, last week the SEC announced (see here) the award of $1 million to Glen and Mary Kaiser “who provided information and documents leading to the imposition and collection of civil penalties” in an insider trading case. As noted in the SEC release, “this is the largest award paid by the SEC for information provided in connection with an insider trading case.” The release notes that the award was pursuant to the old insider trading whistleblower program and further notes that this program “has since been repealed by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which added new Section 21F to the Securities Exchange Act, authorizing the Commission to award bounties to parties who provide information leading to recovery of monetary sanctions in a broader range of cases, not limited as before to civil penalties recovered in insider trading cases.”
If indeed the SEC does award whistleblower payments in connection with an FCPA enforcement action, let’s hope that the SEC makes such an award known as in the above example.