This previous post went in-depth into the Ericsson enforcement action and this post continues the analysis by highlighting additional issues to consider.
Record-Setting
Although there are certain haphazard FCPA top ten lists out there, the Ericsson enforcement action is the largest in FCPA history in terms of actual FCPA settlement amount. (See here for the current top ten list).
Record-Setting?
Even though the Ericsson enforcement action was record-setting, the question arises should it have been record-setting or was it an example of FCPA settlements increasing just because (see here for the prior post)?
Obviously, the conduct at issue in Ericsson was not garden-variety. There were numerous alleged bribery schemes in multiple countries.
Yet compared to Siemens, MTS and certain other FCPA enforcement actions the conduct at issue appears to be less egregious.
For instance, the Siemens enforcement action involved payments totaling approximately $1.4 billion and the DOJ stated that “for much of its operations across the globe, bribery was nothing less than standard operating procedure for Siemens,” and “compliance, legal, internal audit, and corporate finance departments” were areas of the company that played a significant role in the conduct at issue.”
The MTS enforcement action involved “at least $420 million in illicit payments for the purpose of obtaining and retaining business, and those payments generated more than $2.4 billion in revenues.” Like the Siemens enforcement action, the MTS action also involved numerous allegations concerning executive management at the parent company.
Yes, the conduct at issue in Ericsson was egregious and involved approximately $62 million in bribes to alleged foreign officials to realize approximately $430 million in profits as well as an additional approximate $90 million in payments improperly characterized in subsidiary books and records. However, this conduct pales in comparison to the Siemens and MTS actions and it is notable that the Ericsson matter, involving a company with over 100,000 employees, contains allegations about 11 employees and there are sparse allegations about the parent company issuer itself.
Timeline
According to Ericsson, the SEC initiated their investigation in 2013 and the DOJ initiated their investigation in 2015. Thus, Ericsson’s FCPA scrutiny lasted an unconscionable six years. As stated numerous times on these pages, if the FCPA enforcement agencies want their enforcement programs to be viewed as credible and effective, they must resolve instances of FCPA scrutiny much quicker.
This is particularly true in the case of Ericsson given that the DOJ found the company:
“Conduct[ed] a thorough internal investigation; ma[de] regular factual presentations to the Fraud Section and the Office; provid[ed] facts learned during witness interviews conducted by the Company; voluntarily ma[de] foreign-based employees available for interviews in the United States; produc[ed] extensive documentation, including documents located outside of the United States as well as translations of foreign language documents; and proactively disclos[ed] some conduct of which the Fraud Section and the Office were previously unaware.”
Djibouti
The Ericsson enforcement action is believed to be the first FCPA enforcement action involving conduct in Djibouti.
There – you are now well positioned to win FCPA Jeopardy.
What Happened
In this presentation, Ericsson stated, under the heading “What Happened,” as follows:
“While the Company had a compliance program and a supporting control framework they were not adequately implemented.
Specifically, certain employees in some markets, some of whom were executives in those markets, acted in bad faith and knowingly failed to implement sufficient controls. They were able to enter into transactions for illegitimate purposes and, together with people under their influence, used sophisticated schemes in order to hide their wrongdoing:
They entered into sham contracts or contracts at inflated prices, including the creation of cash pools outside of the company’s control where the ultimate beneficiaries of the funds were unknown; and
They arranged for excessive travel and entertainment of customer representatives without a demonstrable business purpose.”
Improvements
In this release, Ericsson highlighted improvements to its Ethics and Compliance program including:
- Additional resources for the Compliance and Investigations functions.
- Reorganizing the allegation management process to ensure a centralized, professional intake of allegations, conduct of investigations and remediation.
- Refining the risk assessment process to consist of a tiered approach and systematic risk mitigation methodology.
- Enhancing the due diligence process of third-parties, including the overall monitoring of third-party engagements.
- Introducing more sophisticated analytic tools to better identify and prevent high-risk transactions and engagements.
- Enhancing the ethics and compliance vetting process for senior leaders.
- Refreshing compliance training modules for employees, including workshops and face-to-face training for employees in exposed roles.
- Enhancing the internal anti-corruption and compliance related awareness campaigns (including the Company’s zero tolerance for corruption).
Cash Cow
In the minds of some, FCPA enforcement has become a convenient cash cow for the U.S. government. The Ericsson enforcement action only amplifies these concerns.
After all, this was a U.S. government enforcement action against a Swedish company for conduct in the following countries: Djibouti, Vietnam, Indonesia, China and Saudi Arabia.
Yes, Ericsson’s common shares are registered with the SEC and traded in the form of American Depositary Shares that are represented by American Depositary Receipts listed on NASDAQ. In FCPA speak, that makes Ericsson an issuer and subject to the FCPA’s books and records and internal controls provisions as well as anti-bribery provisions to the extent “use of the mails or any means or instrumentality of interstate commerce” is corruptly used in furtherance of a bribery scheme.
Yes, the DOJ did allege that certain payments in connection with certain bribery schemes passed through correspondent bank accounts in the U.S. and also made generic reference to use of U.S.-based e-mail accounts. But is this enough of a jurisdictional nexus (from a policy perspective) to bring an FCPA enforcement action against a foreign company? After all, as highlighted in this prior post in 2018 the Supreme Court (in a non-FCPA case) questioned whether dollar-denominated transactions or other financial transactions in the U.S. are sufficient to assert jurisdiction over foreign corporations.
It is hard to ignore (as highlighted in prior posts here and here) that much of the largeness of FCPA enforcement is due to enforcement actions against foreign companies for their alleged conduct with foreign officials.
As highlighted in the prior posts, most of these enforcement actions are against companies headquartered in OECD Convention countries and this is certainly the case with Swedish company Ericsson. Why couldn’t Sweden bring this enforcement action?
After all, Article 4 of OECD Convention states that “when more than one Party has jurisdiction over an alleged offence described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution.”
Can it truly be said that the U.S. was an appropriate jurisdiction to prosecute Ericsson for alleged interactions with non-U.S. officials?
So long as the above dynamics of FCPA enforcement persist, many will continue to view FCPA enforcement as a convenient cash cow for the U.S. government.
Why Disclose?
Numerous prior posts (see here and here for instance) have suggested that the DOJ continues to shot itself in the foot when it comes to resolving corporate FCPA enforcement actions.
In other words, the Department of Justice has long wanted companies to voluntarily disclose conduct that implicates the Foreign Corrupt Practices Act. Why then does the DOJ continually make decisions that should result in any board member, audit committee member, or general counsel informed of current event not making the decision to voluntarily disclose?
The Ericsson enforcement action is just the latest example.
For starters, Ericsson did not voluntarily disclose.
Moreover, upon becoming the subject of FCPA scrutiny, Ericsson did not fully cooperate. In the words of the DOJ:
“The Company did not receive full credit for cooperation and remediation pursuant to the FCPA Corporate Enforcement Policy, because it did not disclose allegations of corruption with respect to two relevant matters, produced certain relevant materials in an untimely manner, and did not timely and fully remediate, including by failing to take adequate disciplinary measures with respect to certain executives and other employees involved in the misconduct.”
Yet, Ericsson was still offered a DPA and allowed to resolve the matter for a discount of 15% off the bottom of the advisory guidelines range.
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