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. For lack of a better term, these enforcement actions have longed been called non-FCPA, FCPA enforcement actions by this site.
The latest example concerns FirstEnergy, an Ohio public utility holding company. The matter actually involved a “political corruption scheme” but it was domestic (U.S.) not foreign in nature.
In summary fashion, this administrative order finds:
“These proceedings arise out of FirstEnergy’s participation in a multi-year political corruption scheme. Between 2017 and 2020, FirstEnergy and FirstEnergy Solutions (“FES”), through FirstEnergy Service Company, made payments totaling approximately $60 million to Generation Now (“GenNow”) in exchange for specific official action for the benefit of FirstEnergy and FES. GenNow, an Internal Revenue Code Section 501(c)(4) entity, was controlled by Larry Householder (“Householder”), a member of the Ohio House of Representatives who was elected as its speaker in January 2019. FirstEnergy made payments to a 501(c)(4) entity [Partners For Progress – PFP] to help conceal the source of the payments. On July 23 and 24, 2020, FirstEnergy violated the antifraud provisions of the Securities Act and the Exchange Act by making misrepresentations about its role in the political corruption scheme to investors in an earnings call and in a filing with the Commission. Additionally, FirstEnergy failed to disclose material related party transactions with respect to payments FirstEnergy made to a 501(c)(4) organization funded and controlled in part by certain former FirstEnergy executives. FirstEnergy also failed to keep accurate books and records and to devise and maintain an adequate system of internal accounting controls with respect to payments to organizations organized under Section 501(c)(4) of the Internal Revenue Code and the identification and disclosure of material related party transactions.”
Under the heading “FirstEnergy Failed to Devise and Maintain a Sufficient System of Internal Accounting Controls,” the order finds:
“FirstEnergy lacked sufficient controls to provide reasonable assurances that payments made to 501(c)(4) organizations were executed in accordance with management’s authorization. FirstEnergy also lacked internal accounting controls and disclosure controls and procedures designed to ensure that entities incorporated and controlled by FirstEnergy executives and lobbyists were reviewed for potential disclosure as material related party transactions, as required by ASC 850 [Accounting Standards Codification (“ASC”) 850, Related Party Disclosures].”
Under the heading “FirstEnergy Failed to Make and Keep Books and Records That Accurately Accounted for Payments Made to 501(c)(4) Organizations and Related Parties,” the order finds:
“FirstEnergy failed to make and keep books and records that accurately reflected payments made to GenNow. The descriptions of the payments to GenNow within FirstEnergy’s accounting system were inconsistent with the illegal nature of the payments.
FirstEnergy also failed to make and keep books and records that accurately reflected related party transactions. FirstEnergy processed two $10 million payments to PFP, a related party, in October 2019. These payments were ultimately approved, processed, and recorded within FirstEnergy’s accounting system with no indication that the payments were made to a related party under ASC 850.”
Based on the above, the SEC found that FirstEnergy violated, among other things, the FCPA’s books and records and internal controls provisions. FirstEnergy agreed to cease and desist from, among other things, committing future violations and also agreed to pay a $100 million civil penalty.
The SEC also civilly charged Charles Jones (the former Chief Executive Officer and President of FirstEnergy) with, among other things, aiding and abetting FirstEnergy’s violations of the internal controls provisions. (See here for the complaint).
The SEC alleges:
“Jones provided substantial assistance to FirstEnergy by failing to devise and maintain sufficient internal accounting controls. As CEO, Jones had responsibility for establishing and maintaining FirstEnergy’s system of internal accounting controls. He participated in the scheme to make secret payments to Householder through a related entity, in violation of FirstEnergy policies and procedures, and failed to devise and maintain controls that would have prevented such payments. He was directly involved in payments made to a 501(c)(4) organization for Householder’s benefit, which FirstEnergy made in exchange for official action. Jones directed and approved payments to be made to Partners for Progress that he knew would be paid to Generation Now, which in turn would benefit Householder. Thus, Jones is liable for aiding and abetting the [internal controls] violations committed by FirstEnergy.”
As noted in the SEC’s order, in connection with the same core matter, in 2021 FirstEnergy entered into a DOJ deferred prosecution agreement pursuant to which it paid a $230 million criminal penalty.
