Some people simply read FCPA enforcement actions, accept the enforcement theories advanced, record the enforcement statistics, and go about their day.
Not here at FCPA Professor. Just because the FCPA is a fundamentally sound statute, does not mean that FCPA enforcement is necessarily fundamentally sound.
Prior posts here and here went in-depth into the SEC’s $9.2 million Foreign Corrupt Practices Act enforcement action against Dun & Bradstreet based on the conduct of two indirect Chinese subsidiaries from 6 – 12 years ago.
This post continues the analysis by highlighting the many troubling or notable issues to consider from the enforcement action.
Time Line
As highlighted in this prior post, in March 2012 D&B disclosed that it was under FCPA scrutiny.
Thus, from start to finish D&B’s FCPA scrutiny lasted six years and two months.
If the SEC/DOJ want the public to have confidence in its FCPA enforcement program, it must resolve instances of FCPA scrutiny much quicker. The validity and credibility of FCPA enforcement depends on this. Having FCPA scrutiny linger for over six years is inexcusable particularly since D&B, in the words of the SEC:
“D&B’s cooperation included voluntarily producing documents from overseas, summarizing the findings of its internal investigation, translating numerous key documents, providing timely factual summaries of witness interviews done in the course of its internal investigation, making employees available to the Commission staff, and providing for employees or former employees to travel to the United States for interviews.”
Likewise, the DOJ stated:
“the Company identified the misconduct; the Company’s prompt voluntary self-disclosure; the thorough investigation undertaken by the Company; its full cooperation in this matter, including identifying all individuals involved in or responsible for the misconduct, providing the Department all facts relating to that misconduct, making current and former employees available for interviews, and translating foreign language documents to English.”
Invoking A Standard That Does Not Even Exist
To anyone who values the rule of law, it is troubling when an FCPA enforcement agency invokes a standard of liability that does not even exist under the FCPA.
Yet once again, that is what the SEC did in the D&B enforcement action.
In the words of the SEC: “During the relevant period, D&B also failed to devise and maintain sufficient internal accounting controls to detect or prevent the improper payments.”
Elsewhere, the SEC stated: ““D&B violated [the provisions] for several years by failing to devise and maintain a sufficient system of internal accounting controls in its China subsidiaries to prevent and detect improper payments in connection with data acquisitions and sales.”
Problem is, the invoked “detect or prevent” 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” and “reasonable detail” to “mean such level of detail and degree of assurance as would satisfy prudent officials in the conduct of their own affairs.”
No-Charged Bribery Disgorgement
The D&B enforcement action is the latest example (of numerous prior examples) of the SEC seeking a disgorgement remedy in the absence of FCPA anti-bribery charges or findings. Specifically, the $9.2 million settlement amount in the D&B action, which found books and records and internal controls violations, consisted of the following: (disgorgement of $6,077,820, which represents profits gained as a result of the conduct described herein, prejudgment interest of $1,143,664, and a civil money penalty in the amount of $2 million).
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.”
Kokesh Only Matters to the Extent Companies Don’t Roll Over and Play Dead
The disgorgement amount in the D&B enforcement action was troubling for another reason.
As highlighted here, in June 2017 the Supreme Court unanimously held in SEC v. Kokesh that disgorgement is a penalty and thus disgorgement actions must be commenced within five years of the date the claim accrues. However, as highlighted in this post, Kokesh, not to mention other Supreme Court decisions and other legal principles, only matter to the extent companies under FCPA scrutiny do not roll over and play dead.
The D&B action concerned alleged conduct that took place between 2006 and 2012. In other words, 6-12 years prior to the enforcement action.
In short, Kokesh is not going to matter one bit if companies role over and play dead when under FCPA scrutiny and presumably D&B did what most companies under FCPA scrutiny do: either waive or toll statute of limitation defenses. As highlighted in this previous guest post from a former SEC Enforcement Division attorney and DOJ Fraud Section prosecutor, issuers simply need to stop doing this.
Voluntary Disclosure
It is interesting that the government referenced D&B’s voluntary disclosure.
For instance, the SEC referenced D&B’s “self-disclosure” and the DOJ referenced D&B’s “prompt voluntary self-disclosure.”
In the FCPA Corporate Enforcement Policy voluntary disclosure is defined to mean, among other things:
“The voluntary disclosure qualifies under U.S.S.G. § 8C2.5(g)(1) as occurring “prior to an imminent threat of disclosure or government investigation”
What is interesting about the government’s voluntary disclosure tag in the D&B matter is that according to the SEC’s order: “D&B made an initial self-disclosure to the Commission staff and the DOJ in March 2012, shortly after local police raided its Roadway subsidiary.” (emphasis added).
Pre-Enforcement Action Professional Fees and Expenses
As has been noted in numerous prior posts and in the article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny. Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.
Since its FCPA scrutiny began, D&B has disclosed “Legal and Other Professional Fees and Shut-Down Costs Related to Matters in China” and this number FY 2012 – FY 2017 amounts to approximately $33 million. (The settlement amount was approximately $9.2 million).
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