This recent post highlighted the SEC’s FCPA enforcement action against Hitachi.
This post continues the analysis by highlighting various issues to consider from the enforcement action.
A $19 million FCPA enforcement action is nothing to yawn about.
However, it is not every Foreign Corrupt Practices Act enforcement action in which the SEC alleges that approximately $10.5 million in improper payments or benefits were provided in connection with two contracts worth approximately $5.6 billion in business.
Against this backdrop, a $19 million settlement amount appears at first blush to be very lenient. Particularly because the SEC makes no mention of voluntary disclosure or cooperation in its resolution documents (something the SEC typically mentions in resolution documents if indeed it has occurred). Moreover, most FCPA enforcement actions (even those that merely charge books and records and internal controls violations) typically include disgorgement. There was no disgorgement in the Hitachi enforcement action, only a civil penalty.
Hitachi was represented by Linda Chatman Thomsen (a former SEC Director of Enforcement currently at Davis Polk & Wardwell).
Rare Civil Complaint
Since 2014, the SEC has brought, including the Hitachi action, 15 corporate FCPA enforcement actions. Along with Avon, Hitachi was the only enforcement action resolved through a settled SEC civil complaint filed in federal court.
Why? Presumably because the SEC wanted to invoke the injunctive powers of a federal court to enjoin Hitachi from future violations of the FCPA’s books and records and internal control provisions.
An FCPA First
The Hitachi enforcement action is believed to be the first FCPA enforcement action to allege improper conduct in South Africa.
The root causes of many FCPA enforcement are often foreign trade barriers or distortions.
As relevant to this topic, the SEC alleged:
“[I]n establishing a local presence in South Afiica, Hitachi [sought] to identify a local black-owned entity or entities with whom HPA could partner in connection with its submission of bids, or “tenders,” for government business. By partnering with a local black-owned entity, HPA would seek to qualify under the requirements of South Africa’s Black Economic Empowerment Act of 2003 (“BEE”), which promoted participation in the South African economy by companies that were at least 25% owned by black South Africans or black-owned South African entities. In general, companies that qualified under the terms of the BEE enjoyed preferential status in government procurements.”
No Anti-Bribery Charges
Certain readers may be surprised that the Hitachi enforcement action did not include violations of the FCPA’s anti-bribery provisions.
However, in order for the anti-bribery provisions to apply to a foreign issuer like Hitachi, the jurisdictional element of the provisions must be met – in other words “use of the mails or any means or instrumentality of interstate commerce” in furtherance of a payment scheme.
There is no allegation, inference or suggestion that the conduct at issue had a U.S. nexus.
Thus, based on the information in the SEC’s complaint, there were no anti-bribery charges to bring.