Approximately three weeks into the full effects of the COVID-19 crisis, it seems likely that FCPA enforcement in 2020 will be below historical averages. (See here, here and here for historical averages for corporate and individual FCPA enforcement). Depending on the duration of the full effects of the COVID-19 crisis, its impact on FCPA enforcement may carry over into future years as well (recognizing that the life cycle of the FCPA inquiry tends to be approximately 4 years – see here).
Set forth below are some general observations as well as DOJ and SEC responses received to the following question: has COVID-19 had an impact on FCPA investigations and/or enforcement actions.
Cases in the Pipeline
There are many FCPA inquiries that have been in the DOJ/SEC pipeline for some time. However, as highlighted numerous times on these pages, because of the frequency of tolling agreements or outright waiver of statute of limitation defenses in corporate matters, there often seems to be little urgency at the DOJ/SEC in actually bringing an enforcement action. Thus, cases in the pipeline are likely to remain in the pipeline and are unlikely to impacted in any significant way by the COVID-19 crisis.
Will a case move from the pipeline to an actual enforcement action during the crisis (recognizing that the end date of the crisis is largely unknown)?
Perhaps, although the last FCPA enforcement action announced by the DOJ/SEC was over one month ago on February 28th. (Note: a one month, two month or greater gap in FCPA enforcement is not – in and of itself – unusual – see here for a prior post).
In this regard, moving an FCPA matter from the pipeline to an actual enforcement action often involves – in the case of issuers – coordination between the DOJ, SEC and the company (including its board of directors / audit committee / general counsel and outside FCPA counsel). In other words, it often requires the coordination of 4 – 5 different actors / bodies. Can what is often a “conference room” practice be easily replicated through other means? Perhaps, but it is an open question how efficiently this can be done in the current environment given other priorities.
If there is a corporate FCPA enforcement action during the COVID-19 crisis, what might it look like? Granted the current economic downtown is impacting different industries in different ways, but might there be claimed “inability to pay” by a business organization of the full settlement amount. As discussed in this post, in October 2019 the DOJ released a non-binding policy memo titled “Evaluating a Business Organization’s Inability to Pay a Criminal Fine or Criminal Monetary Penalty.” As stated in the memo: “in every case where an inability to pay is asserted, the business organization will be expected to provide a complete and timely response to the Inability-to-Pay Questionnaire, as well as to any follow up inquiries.” This process will obviously take time and perhaps further delay an FCPA enforcement action.
From an individual FCPA enforcement standpoint, a meaningful portion of individual actions are against foreign nationals who are arrested upon arrival to U.S. airports. Thus, the slowdown in international travel because of COVID-19 could impact individual FCPA enforcement. Moreover, grand juries which issue indictments are likely not meeting with the same frequency during the current crisis.
In any given year, approximately 50% of corporate enforcement actions are the result of voluntary disclosure after a corporate internal investigation has taken place. While it is not impossible to conduct (or advance) an FCPA internal investigation during the current crisis, it is likely that many investigations have been stalled.
With investigations stalled, there are likely to be fewer voluntary disclosures so long as the full effects of the COVID-19 crisis lasts. Because the life cycle of an FCPA matter (from disclosure to settlement) is typically four years, this aspect of FCPA enforcement resulting from the COVID-19 crisis may manifest itself for several years.
Recently, I posed the following question to the DOJ and SEC: “has COVID-19 had an impact on FCPA investigations and/or enforcement actions?”
The DOJ responded as follows:
“The Justice Department is in regular contact with the Centers for Disease Control and Prevention (CDC), the Office of Personnel Management, and other federal agencies tracking the spread of COVID-19. In recognizing the challenges presented by COVID-19 developments, the U.S. Department of Justice continues investigating and prosecuting individuals and entities in violation of federal law. The department continues enforcement actions, all while taking into consideration the health and safety of prisoners, law enforcement personnel, and the public at large. The Justice Department will continue steadfast in our mission to protect the American people and uphold the Constitution throughout this period of national emergency. For more information, please see here and AG Barr’s March 16 memo to all U.S. Attorneys on “COVID-19 – Department of Justice Priorities.”
The SEC responded as follows:
“Decline comment on investigations. On enforcement, would point you to what is posted on SEC.gov:
Like the rest of the agency, the Division of Enforcement and the Office of Compliance Inspections and Examinations (OCIE) continue to execute on their mission of protecting investors and remain fully operational.
On March 19 the Commission issued an order in pending Administrative Proceedings to encourage parties to file and serve documents electronically.
There’s also a statement from the co-directors of Enforcement posted here.“
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