This previous post highlighted the recent $19.2 million SEC Foreign Corrupt Practices Act enforcement action against London-based advertising agency WPP (a company with depositary shares traded on the New York Stock Exchange).
This post continues the analysis by highlighting additional issues to consider.
Most issuers under FCPA scrutiny tend to disclose the scrutiny in SEC filings and thereafter disclose scrutiny developments in subsequent filings.
However, WPP appears to be a relatively rare example of an issuer not disclosing FCPA scrutiny.
Scant “Jurisdiction” for Anti-Bribery Violation
As a foreign issuer, WPP is subject to the FCPA books and records and internal controls provisions by virtue of its U.S. listing.
However, a foreign issuer is subject to the FCPA’s anti-bribery provisions only to the extent “the mails or any means or instrumentality of interstate commerce” are used in furtherance of the bribery scheme.
While the WPP enforcement action involved subsidiary conduct in India, China, Brazil and Peru for which the SEC found books and records and internal controls violations, the SEC also found violations of the FCPA’s anti-bribery provisions relating to the India conduct.
Regarding the FCPA’s jurisdictional element, the SEC’s administrative order merely states that “CEO A’s [the CEO of the Indian subsidiary] and CFO A’s [the CFO of the Indian subsidiary] email accounts … were stored on servers in the United States.”
To state the obvious, this is scant jurisdiction and it is very much an open question whether it was legally sufficient jurisdiction.
Invoking A Standard That Does Not Even Exist
In its administrative order, the SEC stated:
“WPP failed to devise and maintain a sufficient system of internal accounting controls necessary to detect and prevent the bribe payments at this Indian subsidiary or properly account for the true nature of payments and income at all four subsidiaries.” (emphasis added).
You can read the FCPA statute until the cows come home but you will never find the words “prevent or detect” in the statute – quite simply because that is not the statutory standard.
Rather, the internal controls provision 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.”
Is it asking too much for SEC enforcement officials to articulate the proper statutory standard?
Why Couldn’t The U.K. Handle This?
In the minds of some, FCPA enforcement has become a convenient cash cow for the U.S. government. The WPP enforcement action only amplifies these concerns.
In summary, a U.K. company through its Indian, Chinese, Brazilian and Peruvian subsidiaries engaged in alleged improper conduct in those countries … and the U.S. collects $19.2 million.
The U.K. has the Bribery Act. Why couldn’t the U.K. handle the WPP matter?
Statue of Limitations?
The Peru conduct in the SEC’s order occurred in 2013 (8 years prior to the enforcement action) and beyond any conceivable statute of limitations.
However, if WPP acted like other issuers under FCPA scrutiny, it likely waived statute of limitations defenses and/or otherwise agreed to toll the statute of limitations.
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