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Issues To Consider From The Barclays Enforcement Action

This prior post [1] highlighted the SEC’s recent $6.3 million Foreign Corrupt Practices Act enforcement action against Barclays – the latest FCPA enforcement action focused on alleged improper internship and hiring practices primarily involving the financial services industry.

This post continues the analysis by highlighting additional issues to consider.

Timeline

In its March 1, 2016 annual report [2], Barclays disclosed:

“[T]he Group is cooperating with the DOJ and SEC in relation to an investigation into certain of its hiring practices in Asia and is keeping certain regulators in other jurisdictions informed.” Thus, from start to finish, Barclays FCPA scrutiny lasted over 3.5 years.

If the SEC wants its FCPA enforcement program to be viewed as effective and credible, it must resolve instances of FCPA scrutiny much faster. This is particularly true in the case of Barclays as the SEC stated:

“In determining to accept the Offer, the Commission considered Barclays’ self-reporting, cooperation and remedial acts. Barclays voluntarily reported the conduct at issue and, prior to the Commission’s investigation, undertook remedial steps including terminating senior executives and other employees involved in the misconduct, revising its hiring policies and procedures, and enhancing its compliance programs. Barclays’ cooperation included providing facts developed during the course of its own internal investigation, providing focused presentations regarding its hiring practices, and voluntarily producing voluminous records including detailed spreadsheets related to specific hires and key document binders. Barclays also made its employees available for interviews upon request and facilitated the interviews of former employees by the Commission staff, including interviews of certain witness who traveled internationally.”

In addition to scrutiny related to its hiring practices, Barclays has been under other FCPA scrutiny since 2012. For instance, in its most recent annual report [3] the company states:

“In 2012, the DoJ and SEC commenced investigations in relation to whether certain relationships with third parties who assist Barclays PLC to win or retain business are compliant with the US Foreign Corrupt Practices Act. Various regulators in other jurisdictions are also being briefed on the investigations.”

No Jurisdiction

It is clear that the SEC viewed Barclay’s conduct as violating the FCPA’s anti-bribery provisions. Among other things, the SEC’s press release states that the company “violated the FCPA by hiring relatives and friends of foreign government officials in order to improperly influence them in connection with its investment banking business.”

However, in order for a foreign issuer like Barclays to violate the FCPA’s anti-bribery provisions, there must be jurisdiction and in the words of the FCPA “use of the mails or any means or instrumentality of interstate commerce corruptly” in furtherance of the bribery scheme.  There is no use of the mails or any means or instrumentality of interstate commerce alleged in the Barclays enforcement action and thus it involves “only” SEC findings that the company violated the books and records and internal controls provisions.

To?

As mentioned above, even though the SEC did not charge Barclays with FCPA anti-bribery violations, the SEC clearly viewed the conduct to be a violation of the provisions (minus the jurisdictional element mentioned above).

As highlighted in this prior post [4] titled “To,” a basic cannon of statutory construction is that all words in a statute are to be given effect so that no words are void, superfluous, or redundant. Stated differently, every word in a statute matters.

Generally speaking, the FCPA’s anti-bribery provisions prohibit the “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to a foreign official …”. (emphasis added).

[5]

Internship and jobs are obviously something of value offered or given to the intern or employee. But are internships and jobs something of value to an alleged foreign official?

The government at least seemed to be cognizant of the word “to” in the FCPA’s anti-bribery provisions in the BNY Mellon enforcement action (the first of the six enforcement actions over the last several years focused on internship and job opportunities) as the SEC creatively stated:

“The internships were valuable work experience, and the requesting officials derived significant personal value in being able to confer this benefit on their family members.”

Similarly, in the Deutsche Bank enforcement action, the SEC creatively stated:

“Deutsche Bank provided valuable employment to the relatives of foreign government officials in various parts of the world as a personal benefit to the officials in order to improperly influence them to assist the bank in obtaining or retaining business or other benefits.”

In the Barclays enforcement action, the SEC creatively stated:

“At least some of the offers of employment were extended as a personal benefit to those officials and executives with the expectation that the bank would obtain or retain investment banking business.”

No-Charged Bribery Disgorgement

Even though the SEC did not find Barclays to be in violation of the FCPA’s anti-bribery provisions, it still sought disgorgement. Indeed, approximately 75% of the $6.3 million resolution amount consisted of disgorgement and prejudgment interest. This represents yet another example of no-charged bribery disgorgement (in other words the SEC seeking a disgorgement remedy in the absence of FCPA anti-bribery charges or findings).

As highlighted in this [6] previous post (and numerous prior posts thereafter), so-called no-charged bribery disgorgement is troubling. Among others, Paul Berger (here [7]) (a former Associate Director of the SEC Division of Enforcement) has stated that “settlements invoking disgorgement but charging no primary anti-bribery violations push the law’s boundaries, as disgorgement is predicated on the common-sense notion that an actual, jurisdictionally-cognizable bribe was paid to procure the revenue identified by the SEC in its complaint.” Berger noted that such “no-charged bribery disgorgement settlements appear designed to inflict punishment rather than achieve the goals of equity.”

Statute of Limitations

The disgorgement amount is further problematic given that the Supreme Court unanimously held in Kokesh (see here [8] for the 2017 decision) that disgorgement is subject to a five year limitations period. However, as stated by the SEC, the conduct at issue in the Barclays enforcement action occurred between 2009 and August 2013. In other words 6 – 10 years prior to the enforcement action.

Yet once again, statute of limitations matter little when issuers cooperate and agree to resolve SEC enforcement actions in the absence of judicial scrutiny. (See here [9]).

No Financial Books and Records

The FCPA’s books and records provisions capture financial books and records.

The SEC has stated:

“records which are not relevant to accomplishing the objectives specified in the statute for the system of internal controls are not within the purview of the recordkeeping provision.” (emphasis added)

[T]his provision is not an independent and unrestrained mandate to the [SEC] to establish novel or unprecedented corporate recordkeeping standards; it is, rather, an integral part of Congress’ efforts to assure that the business community records transactions and assets in such a way as to maintain adequate control over them. And, this leads to two important conclusions: First, the [FCPA] does not establish any absolute standard of exactitude for corporate records. And, second, records which are not related to internal or external audits or to the four internal control objectives set forth in the [FCPA] are not within the purview of the [FCPA’s] accountingprovisions.” (emphasis added)

Likewise, in the 2012 FCPA Guidance the government stated:

“The FCPA’s accounting provisions operate in tandem with the anti-bribery provisions and prohibit off-the-books accounting. Company management and investors rely on a company’s financial statements and internal accounting controls to ensure transparency in the financial health of the business, the risks undertaken, and the transactionsbetween the company and its customers and business partners. The accounting provisions are designed to ‘‘strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.” (emphasis added).

In the Barclays enforcement action, the SEC found:

“… [C]ertain Barclays personnel submitted, reviewed and approved inaccurate compliance questionnaires and attestation forms containing inaccurate information that failed to disclose the true source of candidates referred for hire and intended purpose of making certain relationship hires.”

However, nowhere in the SEC’s 10 page administrative order is there any reference to false financial books and records in connection with the problematic internship and hiring practices.

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