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A Look Back At 2014 FCPA Enforcement And Related Developments

2014 year in review

Each year, in addition to numerous posts published on this site, I author a year a review / recent developments article devoted to the Foreign Corrupt Practices Act and related issues.

The 2014 version is forthcoming in the Santa Clara Journal of International Law and can be downloaded for free here.

Among the issues addressed in the article are the following:

  • A wide variety of FCPA enforcement statistics from 2014;
  • A comparison of enforcement statistics from 2014 to prior years;
  • The wide spectrum of FCPA enforcement actions from 2014 and how the breadth of such allegations send confusing compliance messages to those subject to the FCPA;
  • The wide gap between corporate and individual FCPA enforcement and a relevant data point which helps explain the gap;
  • The surge in SEC administrative actions to resolve alleged instances of FCPA scrutiny and why the surge is problematic;
  • The most important FCPA legal development from 2014; and
  • How judicial scrutiny of enforcement theories related to FCPA enforcement should cause pause as to certain FCPA enforcement theories.

Combine the 2014 year in review article with the ones below and you will have an extensive collection of FCPA statistics, trends, and analysis over time.

For 2013, see here.

For 2012, see here.

For 2011, see here.

For 2010, see here.

For 2009, see here.

A Look Back At 2014

Today’s post is short on written words, but long on content.

Recently, I had the pleasure to again visit with Thomas Fox for his Foreign Corrupt Practices Act Compliance and Ethics Report.

In this episode I discuss:

  • 2014 FCPA enforcement statistics;
  • The variety of actions brought by the DOJ and SEC in 2014;
  • 2014 enforcement actions that should cause concern;
  • The top FCPA story from 2014;
  • 2014 FCPA opinion procedure releases;
  • Enforcement agency policy speeches from 2014; and
  • How a compliance defense can assist the enforcement agencies in accomplishing their objectives (see here for the prior post).

Like A Kid In A Candy Store

Kid in 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.

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)

Debevoise & Plimpton

The firm’s monthly FCPA Update is consistently a quality read.  The most recent issue is a year in review and the following caught my eye.

“The government’s pressure on companies to assist in investigating and prosecuting individuals raises significant challenges for in-house legal and compliance personnel as they work to navigate the potentially conflicting interests in anti-bribery compliance and internal investigations.  This pressure has produced legitimate concerns that a failure to self-report could, in and of itself, be met with, or be the cause for imposing, monetary penalties.  Although the U.S. Sentencing Guidelines provide for a reduction in fines for a heightened level of cooperation, outside of a narrow range of arenas (such as where duties to self-report are imposed on U.S. government contractors), the government generally lacks any statutory basis for imposing financial penalties against companies for the failure to self-report potential misconduct.  Since there is no legal obligation to self-report, it is our view that the government should exercise caution when discussing bases for monetary penalties and should rely solely on laws passed by Congress and the Sentencing Guidelines provisions that properly draw their authority from a duly-passed statute.  It would be a disturbing trend indeed were the government to begin to impose monetary penalties for failing to self-report where there is no legal obligation to do so.  The actions by U.S. regulators in the coming year will continue to warrant close scrutiny …”.

Gibson Dunn

The firm’s Year-End FCPA Update is a quality read year after year.  It begins as follows.

“Within the last decade, Foreign Corrupt Practices Act (“FCPA”) enforcement has become a juggernaut of U.S. enforcement agencies.  Ten years ago, we published our first report on the state-of-play in FCPA enforcement.  Although prosecutions were at the time quite modest–our first update noted only five enforcement actions in 2004–we observed an upward trend in disclosed investigations and advised our readership that enhanced government attention to the then-underutilized statute was likely.  From the elevated plateau of 2015, we stand by our prediction. In addition to the traditional calendar-year observations of our year-end updates, this tenth-anniversary edition looks back and analyzes five trends in FCPA enforcement we have observed over the last decade.”

The update flushes out the following interesting tidbit from the Bio-Rad enforcement action.

“[A noteworthy aspect] of the Bio-Rad settlement is that it is the first DOJ FCPA corporate settlement agreement to require executives to certify, prior to the end of the [post-enforcement action] reporting period, that the company has met its disclosure obligations.  As noted above in the Ten-Year Trend section, post-resolution reporting obligations, including an affirmative obligation to disclose new misconduct, have long been a common feature of FCPA resolutions.  But Bio-Rad’s is the first agreement to insert a provision requiring that prior to the conclusion of the supervisory period, the company CEO and CFO “certify to [DOJ] that the Company has met its disclosure obligations,” subject to penalties under 18 U.S.C. § 1001.”

Gibson Dunn also released (here) its always informative “Year-End Update on Corporate Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs).”  The update:  “(1) summarizes highlights from the DPAs and NPAs of 2014; (2) discusses several post settlement considerations, including protections for independent monitor work product and post settlementterm revisions; (3) analyzes a potential trend in the judicial oversight of DPAs; and(4) addresses recent developments in the United Kingdom, where the Deferred ProsecutionAgreements Code of Practice recently took effect.

According to the Update, there were 30 NPAs or DPAs entered into by the DOJ (29) or SEC (1) in 2014. (However, this figure includes two in the Alstom action and two in the HP action.  Thus, there were 27 unique instances of the DOJ using an NPA or DPA in 2014.  Of the 27 unique instances, 5 (19%) were in FCPA enforcement actions and the FCPA was the single largest source of NPAs and DPAs in 2014 in terms of specific statutory allegation.

The Gibson Dunn updates provides a thorough review of two pending cases in which federal court judges are wrestling with the issue of whether to approve of a DPA agreed to be the DOJ and a company.

Shearman & Sterling

The firm’s “Recent Trends and Patterns in Enforcement of the FCPA” is also another quality read year-after-year.

Of note from the publication:

“[W]hat may be the most interesting facet of the SEC’s current enforcement approach is the Commission’s shift in the latter half of 2014 in Timms to settle charges against individuals through administrative proceedings. This may come as no surprise, as the SEC has had difficulty successfully prosecuting individuals for violating the FCPA in previous years. Most recently, in early 2014, the SEC suffered a pair of setbacks in its enforcement actions against executives from Nobel Corp. and Magyar Telekom […] before the U.S. courts. Other cases, such as SEC v. Sharef (the SEC’s case against the Siemens executives) and SEC v. Clarke (which is currently the subject of a pending stay), have lingered in the S.D.N.Y. for significant periods of time without resolution.”

[…]

Obtain or Retain Business

Following the announcement of the SEC’s settlement with Layne Christensen over improper payments made to foreign officials in various African countries, we noted that the SEC’s approach to the “obtaining or retaining business” test in the FCPA appeared at odds with the Fifth Circuit’s 2007 opinion in United States v. Kay. Specifically, in Kay, the DOJ charged two executives of American Rice, Inc. for engaging in a scheme to pay Haitian customs officials bribes in exchange for accepting false shipping documents that under-reported the amount of rice onboard ocean-going barges. The result of the false shipping documents was to reduce the amount of customs duties and sales taxes that American Rice would have otherwise been forced to pay. While the court in Kay dismissed the defendants’ argument that the FCPA was only intended to cover bribes intended for “the award or renewal of contracts,” holding instead that the payment of bribes in exchange for reduced customs duties and sales taxes, the court added that in order to violate the FCPA, the prosecution must show that the reduced customs duties and sales taxes were in turned used “to assist in obtaining or retaining business” per the language of the FCPA. In short, the court in Kay held that while bribes paid exchange for the reduction of duties or taxes could violate the FCPA, they were not per se violations of the statue, and that the Department would have to show how the benefit derived from the reduced duties and taxes were used to obtain or retain business.

Fast forwarding to 2014 in Layne Christensen, the Houston-based global water management, construction, and drilling company, was forced to pay over $5 million in sanctions despite the fact that the SEC’s cease-and-desist order pleaded facts inconsistent with the Fifth Circuit’s opinion in Kay. In its discussion of Layne Christensen’s alleged violation of the FCPA’s anti-bribery provisions, the SEC only alleged that the company paid bribes to foreign officials in multiple African countries “in order to, among other things, obtain favorable tax treatment, customs clearance for its equipment, and a reduction of customs duties.” The SEC’s cease-and-desist made no reference to how these reduced costs were used to obtain or retain business, rendering the SEC’s charges facially deficient.

Layne Christensen is not, however, the first time the DOJ and SEC have brought similar FCPA charges against companies without alleging how reduced taxes and customs duties were used to obtain or retain business. In the Panalpina cases from 2010, a series of enforcement actions against various international oil and gas companies, the DOJ and SEC treated the exchange of bribes for reduced taxes and customs duties as per se violations of the FCPA. Even in the 2012 FCPA Guide the enforcement agencies make clear that “bribe payments made to secure favorable tax treatment, or to reduce or eliminate customs duties . . . satisfy the business purpose test.” Whether the DOJ’s and SEC’s approach to the “obtaining or retaining business” element of the FCPA stems from a misinterpretation of Kay or is an attempt to challenge the Fifth Circuit’s opinion, remains to be seen. Nevertheless, we are troubled by the lack of clarity in the DOJ’s and SEC’s approach as it ultimately disadvantages defendants who may otherwise be pressured to settle charges over conduct which does not necessarily constitute a crime.”

Parent/Subsidiary Liability

As noted in previous Trends & Patterns, over the past several years the SEC has engaged in the disconcerting practice of charging parent companies with anti-bribery violations based on the corrupt payments of their subsidiaries. In short, the SEC has adopted the position that corporate parents are subject to strict criminal liability not only for books & records violations (since it is the parent’s books ultimately at issue) but also for bribery violations by their subsidiaries regardless of whether the parent had any involvement or even knowledge of the subsidiaries’ illegal conduct. The SEC has subsequently continued this approach in Alcoa and Bio-Rad.

According to the charging documents, officials at two Alcoa subsidiaries arranged for various bribe payments to be made to Bahraini officials through the use of a consultant. The SEC acknowledged that there were “no findings that an officer, director or employee of Alcoa knowingly engaged in the bribe scheme” but it still charged the parent company with anti-bribery violations on the grounds that the subsidiary responsible for the bribery scheme was an agent of Alcoa at the time. The Commission’s tact is curious considering that it charged Alcoa with books and records and internal controls violations as well, making anti-bribery charges seemingly unnecessary. Moreover, it is noteworthy that in the parallel criminal action, the DOJ elected to directly charge Alcoa’s subsidiary with violations of the FCPA’s anti-bribery provisions instead of Alcoa’s corporate parent.

In Bio-Rad, the SEC’s cease-and-desist order alleged that the corporate parent was liable for violations of the FCPA’s anti-bribery provisions committed by the company’s corporate subsidiary in Russia, Vietnam, and Thailand. In order to impute the alleged wrongful conduct upon the corporate parent, the SEC relied heavily upon corporate officials’ willful blindness to a number of red flags arising from the alleged schemes in Russia, Vietnam, and Thailand. Nevertheless, even if certain officials from Bio-Rad’s corporate parent were aware of the bribery scheme, the SEC’s charges ignore the black-letter rule that in order to find a corporate parent liable for the acts of a subsidiary, it must first “pierce the corporate veil,” showing that the parent operated the subsidiary as an alter ego and paid no attention to the corporate form.

It is also interesting that much like the case of Alcoa, the DOJ’s criminal charges against Bio-Rad are notably distinct from the SEC’s. Specifically, while the DOJ charged Bio-Rad’s corporate parent with violating the FCPA, the Department elected to only charge the company with violations of the FCPA’s book-and-records and internal controls provisions, not the anti-bribery provisions like the SEC.

The SEC’s charging decisions in Alcoa and Bio-Rad are even more peculiar given the fact that the SEC took an entirely different approach in HP, Bruker, and Avon, where despite alleging largely analogous fact patterns, the SEC charged the parent companies in HP, Bruker, and Avon with violations of the FCPA’s books-and-records and internal controls provisions only. Much like Alcoa and Bio-Rad, all of the relevant acts of bribery in HP, Bruker, and Avon were committed by the company’s subsidiaries in Mexico, Poland, Russia (HP), and China (Bruker and Avon). The SEC’s decisions in Alcoa, Bio-Rad, HP, Bruker, and Avon to charge parent companies involved in largely analogous fact patterns with different FCPA violations raise ongoing questions as to consistency and predictability of the SEC’s approach to parent-subsidiary liability.”

WilmerHale

The firm’s FCPA alert states regarding the travel and entertainment enforcement actions from 2014.

“While most cases involving travel and entertainment historically have involved other allegedly corrupt conduct, it was notable this year that travel and entertainment was the focus of the conduct in some cases. … [T]his suggests that travel and entertainment should continue to be a focus of corporate compliance programs. Unfortunately, the settled cases give little guidance as to some of the gray areas that challenge compliance officers, such as the appropriate dollar amounts for business meals, or how much ancillary leisure activity is acceptable in the context of a business event. Perhaps most interesting about the recent cases is that the government’s charging papers in some cases seem to lack any direct evidence that the benefits provided were provided as a quid pro quo to obtain a specific favorable decision from the official. The cases seem to simply conclude that if there were benefits provided to a government decision maker, the benefits must have been improper. Whether such allegations would be sufficient to satisfy the FCPA’s “corruptly” standard in litigation remains to be seen.”

Regarding the lack of transparency in FCPA enforcement, the alert states:

“[T]here still remains legitimate debate about whether the amount of credit that companies receive for voluntary disclosures is sufficient, especially when compared to companies that cooperate but do not self-report. One important factor that is often left out of the debate on this topic is the “credit” that is not visible in the public settlement documents but is nonetheless often informally received by companies that voluntarily disclose and/or cooperate. While the discussion above focuses on Sentencing Guidelines calculations and percentages of credit off the Sentencing Guidelines ranges, the discussion does not take into account decisions made by the government in settlement discussions that affect the ranges that are not seen in the settlement documents. For example, in settlement negotiations, the government might determine not to include certain transactions when calculating the gains obtained by the corporate defendant—perhaps because the evidence might have been weaker, or because jurisdiction might have been questionable, or because the settlement may have focused on transactions from a certain time period, or because of other factors. Thus, while the settlement documents might suggest a 20% discount from the bottom of the Sentencing Guidelines range, that range could have been higher had other transactions been included. These determinations are not transparent, but, anecdotally, there is some basis to believe that companies that voluntarily disclose and/or cooperate are more likely to get the benefit of the doubt as the sausage is being made. Given the lack of transparency in this area, the debates on this topic are likely to continue for a long time.”

Covington & Burling

The firm’s “Trends and Developments in Anti-Corruption Enforcement” is here.  Among other things, it states:

“As we have noted in the past, U.S. enforcement authorities have a taken creative and aggressive legal positions in pursuing FCPA cases. This past year saw a continuation of that trend, most notably with the SEC staking out an expansive position on the FCPA’s reach via agency theory.

Aggressive Use of Agency Theory. 2014 saw the SEC make use of a potentially far reaching agency theory to hold a parent company liable for the conduct of subsidiaries. In the Alcoa settlement, the SEC made clear that it had made “no findings that an officer, director or employee of [corporate parent Alcoa Inc.] knowingly engaged in the bribe scheme” at issue. Instead, its theory of liability was that the parent company “violated Section 30A of the Exchange Act by reason of its agents, including subsidiaries [Alcoa World Aluminum and Alcoa of Australia], indirectly paying bribes to foreign officials in Bahrain in order to obtain or retain business.” This agency theory was premised on the parent company’s alleged control over the business segment and subsidiaries where the conduct at issue allegedly occurred. Notably, the SEC did not rely on any evidence that parent-company personnel had direct involvement in or control over the alleged bribery scheme. Instead, the SEC pointed only to general indicia of corporate control that are the normal incidents of majority stock ownership (e.g., that Alcoa appointed the majority of seats on the business unit’s “Strategic Council,” transferred employees between itself and one of the relevant subsidiaries, and “set the business and financial goals” for the business segment). This is notable, in our view, because it is arguably at odds with DOJ and the SEC’s statement in the FCPA Resource Guide that they “evaluate the parent’s control — including the parent’s knowledge and direction of the subsidiary’s actions, both generally and in the context of the specific transaction — when evaluating whether a subsidiary is an agent of the parent.” (Emphasis added.) In the Alcoa matter, the SEC seemed to focus solely on “general” control; it did not allege any facts to support parent-level “knowledge and direction . . . in the context of the specific transaction.” This potentially expansive use of agency theory underscores the need for parent companies who are subject to FCPA jurisdiction to be attentive to corruption issues and compliance in all their corporate subsidiaries, even entities over which they do not exercise day-to-day managerial control.”

Miller & Chevalier

The firm’s FCPA Winter Review 2015 is here.

Among other useful information is a chart comparing the top ten FCPA enforcement actions (in terms of settlement amounts) as of 2007 compared to 2014 and a chart comparing SEC administrative proceedings and court filed complaints since 2005.

Davis Polk

The firm recently hosted a webinar titled “FCPA: 2014 Year-End Review of Trends and Global Enforcement Actions.”  The webcast and presentation slides are available here.

Jones Day

The firm’s FCPA Year in Review 2014 is here.

Other Items for the Reading Stack

From the FCPAmericas Blog – “Top FCPA Enforcement Trends to Expect in 2015.”

From the Corruption, Crime & Compliance Blog – “FCPA Year in Review 2014,” and FCPA Predictions for 2015.”

A Summary Of FCPA Enforcement Statistics

Survey Results

FCPA Professor was the place to visit in January for in-depth Foreign Corrupt Practices Act enforcement statistics from 2014 as well as comparisons to historical statistics.

If you missed the daily posts, no worries, this post consolidates in one place the statistics published on FCPA Professor in January.

*****

This post highlighted SEC enforcement of the FCPA in 2014.  Take-away points: (i) of the 7 corporate enforcement actions from 2014, 6 enforcement actions (all but the Avon action) were administrative actions; and (ii) of the 7 corporate SEC FCPA enforcement actions from 2014, 0 (0%) have thus far resulted in related SEC charges against company employees.

This post highlighted DOJ enforcement of the FCPA in 2014.  Take-away points: (i) in the 7 corporate FCPA enforcement actions from 2014, the DOJ collected approximately $1.25 billion in criminal fines, an all-time record in terms of yearly FCPA settlement amounts; and (ii) of the 7 corporate DOJ enforcement actions in 2014, 1 (14%) has thus far resulted in related DOJ prosecutions of company employees.

This post compared corporate FCPA enforcement in 2014 to prior years. Take-away point: while settlement amounts the DOJ and SEC collected in 2014 (approximately $1.6 billion set an all-time high), the number of core corporate enforcement actions in 2014 was below historical averages.  (Note:  many FCPA Inc. participants are calling 2014 settlement amounts the second-highest of all-time behind 2010.  Not true, as such 2010 figures include the $400 million BAE settlement, an enforcement action in which the company was not even charged with FCPA violations).

This post highlighted the alleged “foreign officials” in 2014 corporate enforcement actions.  Take-away point: 60% of enforcement actions involved, in whole or in part, employees of alleged state-owned or state-controlled entities (ranging from power and electric companies, hospitals and labs, an oil and gas company, and an aluminium smelter).

This post highlighted certain facts and figures concerning the DOJ’s prosecution of individuals for FCPA offenses in 2014 and historically.  Take-away points: (i) 75% of corporate DOJ enforcement actions since 2008 have not (at least yet) resulted in any DOJ charges against company employees; and (ii) since 2008, 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 explored why so few corporate DOJ enforcement actions result in related DOJ prosecutions of company employees. Take-away point: (i) the reason may be the quality of the corporate enforcement action as there is only a 9% chance (since NPAs and DPAs were first introduced to the FCPA context in 2004) that a corporate enforcement action resolved solely with an NPA or DPA will result in related criminal charges of company employees compared to a 71% chance of related criminal charges of company employees if the corporate enforcement action was the result of a criminal indictment or resulted in a guilty plea by the corporate entity to FCPA violations.

Finally as it relates to DOJ prosecution of individuals, this post highlighted how approximately 90% of criminal corporate FCPA enforcement actions between 1977 and 2004 resulted in related charges against company employees compared to this new era of FCPA enforcement when approximately 75% of DOJ criminal corporate FCPA enforcement actions have not resulted (at least yet) in related charges against company employees.

This post highlighted certain facts and figures concerning the SEC’s prosecution of individuals for FCPA offenses in 2014 and historically.  Take-away points:  (i) since 2008, 83% of corporate SEC FCPA enforcement actions have not (at least yet) resulted in any SEC charges against company employees; (ii) compare that statistic to the following:  between 1977 and 2004, 61% of SEC corporate FCPA enforcement actions resulted in related charges against company employees.

A Focus On SEC FCPA Individual Actions

SEC

This previous post provided various facts and figures from 2014 SEC FCPA enforcement.

This post focuses on SEC FCPA individual actions 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 has 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.”

Most recently in November 2014, the SEC’s Director of Enforcement stated as follows.

“I always have said that actions against individuals have the largest deterrent impact. Individual accountability is a powerful deterrent because people pay attention and alter their conduct when they personally face potential punishment. And so in the FCPA arena as well as all other areas of our enforcement efforts, we are very focused on attempting to bring cases against individuals.  […] [I]ndividual accountability is critical to FCPA enforcement — and imposing personal consequences on bad actors, including through bars and monetary sanctions, will continue to be a high priority for us.”

Since 2000, the SEC has charged 61 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
  • 2014 – 2 individuals

As highlighted by the above statistics, most of the individuals charged – 35 (or  57%) 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 1977 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 1977 and 1999, the SEC’s statements represent hollow rhetoric as demonstrated by the below figures.

Of the 35 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, 60% of the individuals charged by the SEC with FCPA civil offenses since 2008 have been in just five cases.

Considering that there has been 72 corporate SEC FCPA enforcement actions since 2008, this is a rather remarkable statistic.  Of the 72 corporate SEC FCPA enforcement actions, 60 (or 83%) have not (at least yet) resulted in any SEC charges against company employees.  This figure is thus higher than the 75% figure recently highlighted 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.

Compare the fact that since 2008 83% of corporate SEC enforcement actions have NOT (at least yet) resulted in any SEC charges against company employees to the following statistic. Between 1977 and 2004, 61% of SEC corporate FCPA enforcement actions RESULTED in related charges against company employees.

Like the prior DOJ post on the same topic, although certain historical comparisons of FCPA enforcement lack meaningful value, other comparisons are noteworthy.

For instance, while one can question how the SEC held individuals accountable (i.e whether the civil penalties were too lenient) for most of the FCPA’s history, the SEC did frequently hold individuals accountable when a company resolved an FCPA enforcement action.

With the exception of last week’s creative SEC enforcement action against PBSJ and Walid Hatoum ,the last SEC FCPA enforcement action against a company employee related to a corporate FCPA enforcement action occurred approximately three 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 is that when Jackson and Ruehlen put the SEC to its burden of proof, the SEC agreed to settle on the eve of trial in what can only be called a win for the defense.  (See here, here and here for prior posts).  Indeed, as highlighted in this post, the SEC has never prevailed in an FCPA enforcement action when put to its ultimate burden of proof.

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 this recent 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 three times to resolve an FCPA enforcement action – DPAs with Tenaris in 2011 and PBSJ Corp. in 2015 and a NPA with Ralph Lauren in 2013). Rather, the issue seems to be more the SEC’s neither admit nor deny settlement policy (notwithstanding its minor tweaks in 2013) as well as the SEC’s increased use of administrative actions.

For more on the SEC’s neither admit nor deny settlement 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.”

Indeed, a notable development from 2014 (see here) was the Second Circuit concluding that SEC settlements are not about the truth, but pragmatism.

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 2013 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 2014, as highlighted in this prior year in review post, of the 7 corporate enforcement actions from 2014, 6 enforcement actions (86%) were administrative actions.  In other words, there was no judicial scrutiny of 86% of SEC FCPA enforcement actions from 2014.

It is interesting to note that the SEC has used administrative actions to resolve 9 corporate enforcement actions since 2013 and in none of these actions have there been related SEC enforcement actions against company employees.

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 13 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, Watts Water, and PBSJ.

[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]

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