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Like Prior Years, The Gray Cloud Of FCPA Scrutiny Lasted Too Long In 2019

This recent post [1] highlighted the origins of corporate Foreign Corrupt Practices Act enforcement actions in 2019.

Continuing with the 2019 FCPA statistical feast, this post follows the chronology of scrutiny to enforcement and highlights one of the most troubling policy issues when it comes to FCPA enforcement.

That is – FCPA scrutiny simply lasts too long. Specifically, as highlighted below, 4.5 years was the approximate median length of time companies that resolved FCPA enforcement actions in 2019 were under scrutiny.

Before highlighting the statistics, some general background.

[2]The DOJ/SEC have long recognized the problematic issues associated with long-protracted investigations. For instance, in this [3] 2005 speech the DOJ’s then Assistant Attorney General of the Criminal Division stated:

“Simply put, speed matters in corporate fraud investigations.  The days of five-year investigations, of agreement after agreement tolling the statute of limitations – while ill-gotten gains are frittered away and investor confidence sinks – are increasingly a thing of the past.”

As highlighted here [4], a notable development from 2017 was when Acting Principal Deputy Assistant Attorney General Trevor McFadden stated it was the DOJ’s “intent … for our FCPA investigations to be measured in months, not years.”

Statute of limitations are ordinarily the remedy the law provides for legal gray clouds.

[5]

Yet, in corporate FCPA enforcement actions the fundamental black-letter legal principle of statute of limitations seems not to matter because cooperation is the name of the game and to raise bona fide legal arguments such as statute of limitations is not cooperating in an investigation.

Given the “carrots” and “sticks” relevant to resolving corporate FCPA enforcement actions, one of the first steps a company the subject of FCPA scrutiny often does to demonstrate its cooperation is agree to toll the statute of limitations or waive any statute of limitations defenses.

Given this dynamic, the enforcement agencies face little time pressure in resolving corporate FCPA inquiries.  The end result is that the gray cloud of FCPA scrutiny often hangs over a company far too long.

This dynamic has long been discussed by FCPA commentators.

One FCPA commentator stated [6]:

“[Companies under FCPA scrutiny are] routinely asked to waive the statute of limitations. They could refuse but none do; refusal might trigger an instant enforcement action against the company or its people. So the waiver gives the feds limitless time to investigate, deliberate, or procrastinate. And no one can force the DOJ or SEC to move on, either with an enforcement action or a declination. The result? Companies [under FCPA scrutiny] get stuck in FCPA limbo.  […] But the DOJ and SEC should always keep one eye on the calendar. The threat of FCPA enforcement […] casts a long shadow. It darkens the future for management, shareholders, lenders, customers, and suppliers. Exactly the problem the statute of limitations was supposed to fix.”

Another FCPA commentator stated [7]:

“The Justice Department and the SEC attorneys have a duty to manage caseloads and move cases responsibly. I called it “cut and run.”  Either the government has the evidence or it does not – and they now fairly early on what direction a case is heading.”

As highlighted in this prior post [8], members of Congress have also questioned the long time periods associated with FCPA scrutiny.

Paul Pelletier (former Principal Deputy Chief of the DOJ’s Criminal Division) wrote a dandy 2015 Wall Street Journal editorial titled “The Foreign Bribery Sinkhole at Justice [9]” in which he wrote:

“Absurdly long and costly investigations, however, may cause companies to reassess the value of reporting FCPA violations to the federal government.

When bribery investigations are publicly resolved in a timely fashion, other businesses can more readily identify ongoing bribery schemes operating within their industry or region and ensure that their anti-bribery compliance programs adequately address those current schemes. That opportunity is lost when criminal resolutions drag out for five or more years. Deterrence then is principally the size of the monetary penalty.

The Justice Department needs to do more than churn out resolutions to foreign bribery cases notable only for their record-breaking penalties. Rigorous and prompt FCPA enforcement can have a dramatic impact on the insidious and corrosive effect of corruption overseas and provide … restorative justice …”.

In this [10] piece Pelletier went into more-depth on the same topic.  In pertinent part he wrote:

“[T]he pattern of costly delay in FCPA investigations continues unabated.  While every government investigation and resolution poses unique facts and circumstances that may serve to delay the investigatory process, these recent long-developing FCPA resolutions …. are convincingly problematic.  The staggering investigative costs, ultimately borne by employees and shareholders alike, however, also can reach unconscionable levels.

[…]

The Department of Justice has recently articulated that at least part of the rationale or justification for these interminable investigations is that “[c]ompared to other white collar crime, the challenges associated with FCPA investigations can be much greater.”  The DOJ offered “overseas evidence” as one basis for this greater challenge.

But this statement fails to explain the  more than twofold increase in investigatory durations from historical norms.  A dispassionate, experience-based analysis of this overly broad assertion exposes a faulty premise.  Simply put, the DOJ can and must do better.

[…]

With a cooperating corporation, FCPA investigators routinely find themselves in the unique position of having prompt access to overseas evidence and witnesses without a need to resort to cumbersome international treaty requests.  Such cooperation is much like the prosecution having secured a cooperator with unfettered access to the critical evidence.

[…]

Regardless of the reason or reasons for these protracted investigations, both the continued vitality of the DOJ’s FCPA enforcement efforts and the prominence of the United States as the global leader of anti-corruption enforcement would seem to demand a renewed effort to dramatically reduce the time frame necessary to achieve resolution.

[…]

Legitimate enterprises benefit from those kinds of real-time revelations, and criminal political regimes can be immediately identified and deterred.  Moreover, when a criminal resolution discloses and punishes criminal conduct that occurred five or more years earlier, any deterrent effect of the resolution is significantly diminished.  This is particularly true in industries where the overseas corrupt conduct flourishes with abandon.

At that late stage, the principal deterrent effect is relegated to the size of the monetary penalty — something the DOJ continues to emphasize with all too much frequency and relish.  As recent cases have demonstrated, lengthy FCPA investigations also place untenably wasteful financial burdens on corporations, their employees and their shareholders.

[…]

Given that the DOJ’s FCPA unit within the Fraud Section has more than doubled in size from 2009 to today and has been fortified by a dedicated squad of FBI agents, it is puzzling that many of these investigations seem to drag on interminably.  The DOJ must strive to be more than just “FCPA Inc.,” churning out stale resolutions notable only for their record-breaking penalties.”

In conclusion Pelletier stated:

“The interests of justice are neither served nor advanced when FCPA investigations routinely drag on for five or more years.  Rigorous and prompt FCPA enforcement with respect to current bribery schemes can have a dramatic impact on the insidious and corrosive effect of corruption overseas.  Real-time enforcement is just one component of what must be a larger proactive strategy to root out overseas corruption, which includes punishing the bribe takers as well as the bribe payers and dispossessing the government officials of access to ill-gotten gains.

Curing the deficiencies that lead to costly and wasteful delays will require a systemic and sustained effort, primarily by the DOJ.  It will also require a more focused approach by outside counsel.  Although the ameliorative benefits resulting from such change will not be achieved overnight, the long-term vitality and efficacy of the DOJ’s anti-corruption enforcement efforts ultimately rests on the government’s ability to sustainably alter the status quo.”

As highlighted here [11], Pelletier suggested that the high attrition levels at the DOJ likely contribute to the length of FCPA inquiries. As he stated “most FCPA investigations will be passed from prosecutor to prosecutor, almost certainly leading to unnecessarily protracted investigations.”

[5]

For FCPA Flash podcast episodes discussing the long time periods associated with FCPA scrutiny see here [12] (Paul Pelletier), here [13] (Homer Moyer – a dean of the FCPA bar), here [14] (Kevin Muhlendorf – former Assistant Chief in DOJ’s Fraud Section and former Senior Counsel in the SEC’s Enforcement Division), here [15] (Richard Grime – former Assistant Director of SEC Enforcement), here [16] (Ephraim Wernick – former DOJ FCPA Unit Assistant Chief), and here [17] (Lucinda Low – a dean of the FCPA bar).

With this background, the post next highlights how long companies that resolved FCPA enforcement actions in 2019 were under scrutiny.

Thus, 4.5 years is the approximate median length of time companies that resolved FCPA enforcement actions in 2019 were under scrutiny.

[See here [18] for the prior post highlighting that 4.25 years was the approximate median length of time companies that resolved FCPA enforcement actions in 2018 were under scrutiny; here [19] for the prior post highlighting that 4.5 years was the approximate median length of time companies that resolved FCPA enforcement actions in 2017 were under scrutiny and here [20] for the prior post highlighting that 4.25 years was the approximate median length of time companies that resolved FCPA enforcement actions in 2016 were under scrutiny].

When assessing the long time periods associated with FCPA scrutiny, it is important to keep in mind that both the DOJ/FBI and SEC have specific FCPA units that are uniquely tasked with investigating and prosecuting FCPA offenses.

It is also worth noting the extensive cooperation that companies under FCPA scrutiny typically provide to the enforcement agencies which, it would seem, should make the DOJ and SEC’s job easier and should lead to shorter scrutiny periods.

For instance, in the Barclays enforcement action 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 the Quad Graphics matter, the SEC stated that the company:

“[S]har[ed] facts developed during the course of its own internal investigation, produc[ed] documents and other materials (including documents from overseas), translat[ed] key documents, summariz[ed] findings of internal investigations, provid[ed] summaries of witness interviews, and assist[ed] in making current and former employees available for interviews.”

In the Juniper Networks enforcement action, 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.”

In the Deutsche Bank enforcement action, the SEC stated:

“Deutsche Bank shared facts developed in the course of its own internal investigation, including certain of the violative conduct described herein. Deutsche Bank’s cooperation included: responding promptly to the Commission’s requests for information and documents; identifying issues and facts that would likely be of interest to the Commission’s staff; providing regular updates of factual findings developed during the course of its own internal investigation; and identifying key documents and providing factual chronologies to the Commission’s staff.”

In the Microsoft enforcement action, the DOJ stated:

“MS Hungary received full credit for its cooperation with the Fraud Section and the Office’s investigation, including conducting a thorough internal investigation, making regular factual presentations to the Fraud Section and the Office, producing documents to the Fraud Section and the Office from foreign countries in ways that did not implicate foreign data privacy laws, and collecting, analyzing, organizing, and translating voluminous evidence and information for the Fraud Section and the Office.”

The SEC likewise stated:

“Microsoft’s cooperation included timely sharing of facts developed during the course of an internal investigation and voluntarily producing and translating documents.”

In the Walmart matter, the DOJ stated:

“the Company received full credit for its cooperation with the Fraud Section and the Office’s investigation into conduct in Brazil, China, and India and partial cooperation credit for its investigation into conduct in Mexico; its cooperation included: conducting a thorough internal investigation; proactively identifying issues and facts that would likely be of interest to the Fraud Section and the Office, and providing updates to the Fraud Section and the Office; making regular factual presentations to the Fraud Section and the Office and sharing information that would not have been otherwise available to the Fraud Section and the Office; voluntarily making foreign based employees available for interviews in the United States; producing documents, including translations, to the Fraud Section and the Office from foreign countries in ways that did not implicate foreign data privacy laws; obtaining cooperation of former employees and third parties, including their consent to interviews; providing counsel to employees and founer employees to facilitate their cooperation; collecting, analyzing, and organizing voluminous evidence and information for the Fraud Section and the Office; and identifying, investigating, and disclosing conduct to the Fraud Section and the Office that was outside the scope of the Company’s initial disclosures.”

Likewise, the SEC stated:

“Walmart … cooperated by identifying issues and facts that would likely be of interest to the Commission and the staff and providing regular updates to the staff; making regular factual presentations to the staff and sharing information that would not have been otherwise readily available to the staff; making foreign-based employees available for interviews in the United States; producing translations of relevant documents; and obtaining cooperation of former employees and third parties, including their consent to interviews.”

The length of Walmart’s FCPA scrutiny was particularly egregious given that the company disclosed the settlement amount in approximately November 2017. Should it really take an additional 1.5 years for the government to resolve an enforcement action when the company agreed to the settlement amount?

In the Fresenius matter, the DOJ stated that the company:

“conduct[ed] a thorough internal investigation; ma[de] regular factual presentations to the Department; provid[ed] facts learned during witness interviews; voluntarily ma[de] foreign-based employees available for interviews in the United States; produc[ed] documents to the Department from foreign countries in ways that did not implicate foreign data privacy laws; collect[ed], analyz[ed], and organiz[ed] voluminous evidence and information from multiple jurisdictions for the Department, including translating key documents; and disclos[ed] conduct to the Department that was outside the scope of its initial voluntary self-disclosure …”.

In the words of the SEC:

“FMC produced documents, including key document binders and translations as needed, and made current or former employees available to the Commission staff, including those who needed to travel to the United States.”

Examples from other enforcement actions could also be cited, but the point remains the same: FCPA scrutiny simply lasts too long and corporate cooperation in FCPA inquiries should be more of a two-way street in which the FCPA enforcement agencies should resolve inquiries in a much more timely fashion.

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