This prior post highlighted the SEC’s $11.7 million Foreign Corrupt Practices Act enforcement action against Juniper Networks. This post continues the analysis by highlighting additional issues to consider.
Timeline
As highlighted in this prior post, Juniper Networks disclosed its FCPA scrutiny in mid-2013. Thus, from start to finish the company’s FCPA scrutiny lasted an unconscionable six years.
If the SEC wants its 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 Juniper Networks as the SEC stated:
“Juniper’s cooperation included timely disclosure of facts developed during an internal investigation initiated after learning of the investigation being conducted by Commission staff. The company voluntarily produced and translated documents and provided the staff presentations regarding its investigation.”
Internal Controls
It is beyond troubling, when the SEC invokes in an enforcement action a legal standard that does not even exist.
Yet, once again, the SEC did just that in the Juniper Networks enforcement action when it stated that the company “failed to devise and maintain a system of internal accounting controls sufficient to prevent and detect off-book accounts, unauthorized customers trips, falsified travel agendas and after-the-fact travel approvals.”
The “prevent and detect” standard does not even exist in the FCPA!
Rather, the FCPA’s internal controls provisions state that an issuer shall “devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that” certain financial objectives are met. The FCPA then defines “reasonable assurances” to “mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”
According to the SEC:
“Certain sales employees of the Russian representative office of Juniper’s subsidiary [JNN] secretly agreed with third party channel partners to increase the incremental discount on sales made to customers through those channel partners without passing those increased discounts on to customers.”
“In late 2009, Juniper learned of these off-book ‘common fund’ accounts and improper use of additional discounts, both of which were prohibited under Juniper policies.”
“At times, these JNN employees used personal communication devices instead of corporate e-mail …”.
“Certain sales employees of Juniper’s Chinese subsidiaries falsified trip and meeting agendas for customer events that understated the true amount of entertainment involved on the trips. The sales employees submitted these falsified and misleading trip agendas to Juniper’s Legal Department to obtain event approval.”
In short, it is hard to reconcile the actual legal standard of “reasonable assurances” with the above SEC findings. But then again, when the SEC converts the actual legal standard into a legal standard that does not even exist (i.e. prevent and detect) it is simple.
Voluntary Disclosure Or Not
Normally, when an FCPA enforcement action originates from a corporate voluntary disclosure, the government specifically mentions this in the resolution documents.
The SEC’s order is silent on this topic, but the following sentence from the order suggests that there was no voluntary disclosure: “Juniper’s cooperation included timely disclosure of facts developed during an internal investigation initiated after learning of the investigation being conducted by Commission staff.” Moreover, Juniper’s original disclosure of its FCPA scrutiny in mid-2013 stated: “The U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act.”
However, the company’s blog post announcing last week’s enforcement action stated that the company “entered into an administrative settlement with the SEC that resolves an internal and government investigation with respect to matters involving the FCPA that Juniper Networks self-reported.” (emphasis added).
No-Charged Bribery Disgorgement
Even though the SEC did not find Juniper Networks to be in violation of the FCPA’s anti-bribery provisions, it still sought disgorgement. As mentioned above approximately $5.2 million of the $11.7 million settlement 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 previous post (and numerous prior posts thereafter), so-called no-charged bribery disgorgement is troubling. Among others, Paul Berger (here) (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 conduct at issue in the enforcement action – per the SEC – occurred from 2008 through 2013. Thus, 6-11 years prior to the enforcement action and beyond any conceivable statute of limitations. Yet, this bedrock legal principal matters little when a company waives statute of limitation defenses or agrees to toll the statute of limitations as most companies under FCPA scrutiny do.
Statute of limitations are relevant not only to the underlying legal violations, but also to the disgorgement remedy in the Juniper Networks enforcement action (approximately $5.2 million of the $11.7 million settlement amount consisted of disgorgement and prejudgment interest).
As highlighted in this prior post, in 2017 the Supreme Court unanimously held that disgorgement is also subject to a five-year limitations period. Yet once again, not even a unanimous Supreme Court opinion maters when a company waives statute of limitation defenses or agrees to toll the statute of limitations as most companies under FCPA scrutiny do.
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