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Off-Target Enforcement Of The FCPA’s Books And Records Provisions

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This prior post highlighted the jury instructions in a recent domestic bribery criminal trial which also involved the books and records provisions of the Foreign Corrupt Practices Act.

The jury instructions included that the “books, records, or accounts were of the type that were required to accurately and fairly reflect in reasonable detail the transactions and dispositions of the assets of [the relevant issuers].”

The instruction properly captured the explicit statutory standard “transactions and dispositions of the assets” of the issuer and was consistent with the relevant legislative history and even prior enforcement agency guidance.

For instance, the SEC has stated:

“records which are not relevant to accomplishing the objectives specified in the statute for the system of internal controls are not within the purview of the recordkeeping provision.” (emphasis added)

[T]his provision is not an independent and unrestrained mandate to the [SEC] to establish novel or unprecedented corporate recordkeeping standards; it is, rather, an integral part of Congress’ efforts to assure that the business community records transactions and assets in such a way as to maintain adequate control over them. And, this leads to two important conclusions: First, the [FCPA] does not establish any absolute standard of exactitude for corporate records. And, second, records which are not related to internal or external audits or to the four internal control objectives set forth in the [FCPA] are not within the purview of the [FCPA’s] accounting provisions.” (emphasis added)

Likewise, the 2012 FCPA Guidance and the Second Edition of the FCPA Guidance issued in 2020 states:

“The FCPA’s accounting provisions operate in tandem with the anti-bribery provisions and prohibit off-the-books accounting. Company management and investors rely on a company’s financial statements and internal accounting controls to ensure transparency in the financial health of the business, the risks undertaken, and the transactions between the company and its customers and business partners. The accounting provisions are designed to ‘‘strengthen the accuracy of the corporate books and records and the reliability of the audit process which constitute the foundations of our system of corporate disclosure.” (emphasis added).

Against this backdrop of a federal court judge properly instructing the jury on the FCPA’s books and records provisions, as well as prior enforcement agency guidance, it is important to note that the SEC has resolved FCPA enforcement actions based on a much different standard.

For instance, in the Barclays FCPA enforcement action the SEC found:

“… [C]ertain Barclays personnel submitted, reviewed and approved inaccurate compliance questionnaires and attestation forms containing inaccurate information that failed to disclose the true source of candidates referred for hire and intended purpose of making certain relationship hires.”

Nowhere in the SEC’s 10 page administrative order is there any reference to false financial books and records in connection with the problematic internship and hiring practices.

In the Deutsche Bank enforcement action, the SEC found in summary fashion:

“Deutsche Bank employees created false books and records that concealed corrupt hiring practices and failed to accurately document and record certain related expenses …”

Nowhere in the SEC’s 14 page administrative order is there any reference to false financial books and records in connection with the problematic internship and hiring practices.

In the BHP Billiton enforcement action, the SEC found in summary fashion:

“[The company’s] books and records, namely certain internal forms that employees prepared in order to invite a government official to the Olympics, did not, in reasonable detail, accurately and fairly reflect [the company’s] pending negotiations or business dealings with the government official at the time of the invitation.”

Nowhere in the SEC’s 11 page administrative order is there any reference to false financial books and records in connection with the Olympic hospitality program.

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