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Friday Roundup

Yesterday at an American Bar Association event in Washington, D.C. Kara Brockmeyer (Chief of the SEC’s FCPA Unit) and Patrick Stokes (Chief of the DOJ’s FCPA Unit) spoke on a panel titled “DOJ-SEC FCPA Update:  Trends and Significant Developments.”  This post rounds up their comments and responses to certain questions.

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Brockmeyer began by providing a general overview of the types of FCPA issues that the SEC often encounters.  She commented that – much to her surprise – “old-school sprawling bribery” cases still exist.  She also mentioned gifts, travel and entertainment type cases, charitable donations, and the use of third party intermediaries.

Brockmeyer mentioned the increasing international cooperation the SEC has with law enforcement agencies in other countries.  She indicated that some of this cooperation is visible to the outside world, but is even more visible inside the SEC.  According to Brockmeyer, the increase in international cooperation may not be a “positive development for companies” (she used the analogy that there are “more cooks in the kitchen”), but she did indicate that this dynamic will have a “positive long term impact” because it will level the playing field for U.S. companies.

Consistent with prior statements made by Brockmeyer, she also indicated that more FCPA enforcement will be handled through the SEC’s administrative process.

According to Brockmeyer, corporate self-reporting is “worth it.”  She stated that a “disproportionate number of cases we decline” are because of corporate self-reporting even if the SEC does not report this to the public.  Brockmeyer stated – “declinations are not unicorns – they do exist.”

In response to a question from Peter Clark (moderator of the panel and himself the former head of the DOJ’s FCPA Unit) concerning the quality of corporate compliance programs, Brockmeyer said that the SEC still sees a “lot of paper programs, lots of boxes, forms, but no teeth, no testing.”  She specifically mentioned small to medium size companies as generally having deficient compliance policies and procedures and stated that a message the SEC intended to send with the Smith & Wesson action (here [1]) was that small to medium size companies trying to break into international markets need to have internal controls in place.

Stokes began his talk with statistics and reminded the audience of DOJ enforcement statistics and stressed that a number of cases in the pipeline are significant.  According to Stokes, the “past is a good window into where [the DOJ] is going in the near term.”

Stokes next highlighted various take-away points from recent cases that he thought were instructive.  The first was that the DOJ doesn’t “have a preference or bias for any particular industry.”  He said that the DOJ is “opportunistic” and will look for evidence of crimes anywhere and follow the evidence where it leads.  He reminded the audience that from DOJ’s perspective, it is “not just about high risk industries, but high risk jurisdictions.”

According to Stokes, the DOJ is aware that companies “are trying to push FCPA risk out of the company and onto third parties.”  He said that the DOJ is evolving as bribery schemes evolve and will use more investigative techniques to uncover bribery schemes.

As to another take-away point, Stokes stated that the DOJ is “very focused” on prosecuting individuals (executives, intermediaries) as well as companies.  According to Stokes, “going after one or the other is not sufficient for deterrence purposes.”  Stokes next reminded the audience that the DOJ is using various law enforcement tools available to it and that “corporate executives should wonder who is listening in on their calls and conversations.”

As to corporate self-disclosures, Stokes acknowledged that he often hears from people that there is no benefit.  He disputed this and stated that the reality is the DOJ has declined a number of cases in instances of self-reports as well as based on corporate cooperation and remediation.  According to Stokes, not all cases of voluntary disclosure are going to be rewarded with a declination because the DOJ still needs to prosecute “bad conduct.”

According to Stokes, self-reports are also rewarded in the following ways: various forms of resolution the DOJ uses, including which entity which be included in the enforcement action; penalty amounts; and whether or not a monitor may be required.

According to Stokes, the “risks are high” if a company does not self report because of whistleblowers and foreign law enforcement investigations.

Moderator Clark next asked Stokes if the DOJ has or will consider on an annual basis disclosing the matters that have been declined.  Stokes acknowledged that there is a “tremendous amount of interest in [DOJ] declinations” something that “never ceases to amaze” him.  He said that the DOJ is “very aware of the interest in providing more information about declinations.”

Nevertheless Stokes stated that it is a “difficult balance” because of a corporation’s privacy interest.  Moreover, Stokes noted that many factors go into the declination decision  including the quality of the evidence, self-disclosure, cooperation, whether employees were truly rogue, and whether the company had a strong compliance program.  According to Stokes, it is often a challenge for the DOJ to “encapsulate in a meaningful and helpful way” when it declines and the reason why.

In the end, Stokes stated that “raw” declination numbers might be useful to show the public that the DOJ is “living up to [its] word and declining cases” and that there is “value in the public understanding how [the DOJ is] exercising discretion.” One did get the sense from Stokes’s comments that this is an issue the DOJ is actively considering.  That would be a good thing and I have suggested since 2010 that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and the SEC decline enforcement, the agencies should publicly state, in a thorough and transparent manner, the facts the company disclosed and why the agencies declined enforcement on those facts. (see here [2]).

Stokes was asked a question from the audience – how is one “truly to determine who is a foreign official?”  He mentioned the recent 11th Circuit decision as factors the DOJ “will be looking to” and stated that these factors are “very consistent” with DOJ’s interpretation in other cases.  Stokes also mentioned that the DOJ has an Opinion Procedure Release program in which companies can seek a DOJ opinion.  Asked whether a question could be submitted as to the specific issue of whether someone is a “foreign official,” Stokes stated “yes we can answer that” so long as it is a real issue and forward looking.

As indicated above, both Brockmeyer and Stokes talked about the importance of individual prosecutions.  I asked Brockmeyer and Stokes to respond to statistics (see here [3], here [4] and here [5]) which highlight that approximately 80% of corporate FCPA enforcement actions lack any related enforcement actions against company employees.

Their response will be the focus of a future post.