Including the first time I proposed this concept in 2010, this is the 11th time I have written this general post (see here, here, here, here, here, here, here, here, here and here for the previous versions). Until things change I will keep writing it which means I will probably keep writing this same general post long into the future.
The proposal is this: when a company voluntarily discloses an FCPA internal investigation to the DOJ and/or SEC and when one or both of the enforcement agencies do not bring an enforcement action, have the enforcement agency publicly state, in a thorough and transparent manner, the facts the company disclosed and why the enforcement agency did not bring an enforcement action based on those facts.
As highlighted in this prior post, in September 2020 Pactiv Evergreen Inc. disclosed:
“In August 2020, we identified practices in our Evergreen Packaging Shanghai business (“EPS”), which is part of our Beverage Merchandising segment, that involve acts potentially in violation of the FCPA. While our investigation into these practices (which is being conducted by external counsel, accountants, and other advisors) is not complete, we believe we have identified the occasional giving of gift cards representing relatively minor monetary values to government regulators in the People’s Republic of China (“PRC”), and/or employees of one or more state-owned enterprises in the PRC, over the course of several years. In addition, it is possible that EPS potentially violated the FCPA by engaging external consultants to interact with government regulators in the PRC to avoid potential adverse action by those regulators. The amounts involved in each scenario are immaterial, individually and in the aggregate, and we have initiated procedures to remediate such practices, including discontinuing the giving of gift cards and the engagement of any such consultants. We have also voluntarily self-reported these matters to the U.S. Department of Justice and U.S. Securities and Exchange Commission. We intend to fully cooperate with these U.S. government agencies, with the assistance of legal counsel. While we are not aware of any other acts at EPS which could be a violation of the FCPA or other similar laws, our investigation is ongoing and there can be no assurance that other violations have not been made. We are unable at this time to predict when our or the government agencies’ review of these matters will be completed or what regulatory or other consequences may result from these matters.”
In May 2021, the company disclosed:
“As disclosed in our risk factors in our Annual Report on Form 10-K for the year ended December 31, 2020, in August 2020 we identified practices in our Evergreen Packaging Shanghai business, which is part of our Beverage Merchandising segment, which involve acts potentially in violation of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). In September 2020 we made a voluntary self-disclosure to the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) about these items and our investigation being conducted by external counsel, accountants and other advisors. Our investigation identified the occasional giving of gift cards representing relatively minor monetary values to government regulators and employees of state-owned enterprise customers in the People’s Republic of China (“PRC”), over the course of several years. The amounts involved were immaterial, individually and in the aggregate, and these appear to have been provided at the times of PRC holidays for generalized goodwill purposes only. We have initiated procedures to remediate such practices, including discontinuing the giving of gift cards. We also identified certain other gift, travel and entertainment practices that do not comply with company policy and expectations. These findings provided an opportunity for targeted, enhanced controls and additional training in these areas. We presented our investigation findings to the DOJ and SEC in February 2021. In response to and based on our investigation findings, the DOJ has decided to close its file on this matter without any action against the Company. We are still waiting on a decision from the SEC. We intend to fully cooperate with the SEC, with the assistance of legal counsel, to conclude this matter. We are unable at this time to predict when the review of this matter by the SEC will be completed or what regulatory or other consequences may result.”
Recently the company disclosed:
“As disclosed in our risk factors in our Annual Report on Form 10-K for the year ended December 31, 2020, in August 2020 we identified practices in our Evergreen Packaging Shanghai business, which is part of our Beverage Merchandising segment, which involve acts potentially in violation of the U.S. Foreign Corrupt Practices Act of 1977 (the “FCPA”). In September 2020 we made a voluntary self-disclosure to the U.S. Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) about these items and our investigation being conducted by external counsel, accountants and other advisors. Our investigation identified the occasional giving of gift cards representing relatively minor monetary values to government regulators and employees of state-owned enterprise customers in the People’s Republic of China (“PRC”), over the course of several years. The amounts involved were immaterial, individually and in the aggregate, and these appear to have been provided at the times of PRC holidays for generalized goodwill purposes only. We have initiated procedures to remediate such practices, including discontinuing the giving of gift cards. We also identified certain other gift, travel and entertainment practices that do not comply with Company policy and expectations. These findings provided an opportunity for targeted, enhanced controls and additional training in these areas. We presented our investigation findings to the DOJ and SEC in February 2021. In response to and based on our investigation findings, the DOJ has decided to close its file on this matter without any action against the Company. The SEC staff has indicated its intention to close this matter without any action against the Company, and we intend to fully cooperate with the SEC, with the assistance of legal counsel, to conclude this matter.”
If the FCPA enforcement agencies are sincere about transparency in their FCPA enforcement programs as enforcement officials frequently mention, the public (not to mention Pactiv Evergreen shareholders who likely shelled out millions in connection with the investigation) have a right to know the facts the company disclosed and why the enforcement agency did not bring an enforcement action based on those facts.
Here is why the proposal makes sense and is in the public interest.
For starters (as I first wrote in 2010 and even more relevant today), the DOJ and the SEC are already wildly enthusiastic when it comes to talking about FCPA issues. Enforcement attorneys from both agencies are frequent participants on the FCPA conference circuit and there seems to be no other single law that is the focus of more DOJ or SEC speeches than the FCPA. Thus, there is clearly enthusiasm and ambition at both agencies when it comes to the FCPA.
Further (as I first wrote in 2010 and even more relevant today), both the DOJ and the SEC have the resources to accomplish this task. Both agencies have touted the increased FCPA resources in their respective offices and the new personnel hired to focus on the FCPA. Combine enthusiasm and ambition with sufficient resources and personnel and the proposal certainly seems doable considering that there are likely less than 10 relevant examples per year.
In addition, the DOJ is already used to this type of exercise. It is called the FCPA Opinion Procedure Release (see here), a process the DOJ frequently urges those subject to the FCPA to utilize. For instance, as highlighted in this prior post high ranking DOJ officials have stated: “not enough companies are taking advantage of this process” and that “the opinion process is a tremendous resource and we want to encourage greater use of it going forward.” Under the Opinion Procedure regulations, an issuer or domestic concern subject to the FCPA can voluntarily disclose prospective business conduct to the DOJ which then has 30 days to respond to the request by issuing an opinion that states whether the prospective conduct would, for purposes of the DOJ’s present enforcement policy, violate the FCPA. The DOJ’s opinions are publicly released and the FCPA bar and the rest of FCPA Inc. study these opinions in advising clients largely because of the general lack of substantive FCPA case law.
If the DOJ is able to issue an enforcement opinion as to voluntarily disclosed prospective conduct there seems to be no principled reason why the enforcement agencies could not issue a non-enforcement opinion as to voluntarily disclosed actual conduct. If the enforcement agencies are sincere about providing guidance on the FCPA, as they presumably are, such agency opinions would seem to provide an ideal platform to accomplish such a purpose.
Requiring the enforcement agencies to disclose non-enforcement decisions after a voluntary disclosure could also inject some much needed discipline into the voluntary disclosure decision itself – a decision which seems to be reflexive in many instances any time facts suggest the FCPA may be implicated.
Notwithstanding the presence of significant conflicting incentives to do otherwise, it is hoped that FCPA counsel would advise clients to disclose only if a reasonably certain legal conclusion has been reached that the conduct at issue actually violates the FCPA. Accepting this assumption, transparency in FCPA enforcement would be enhanced if the public learned why the enforcement agencies, in the face of a voluntary disclosure, presumably disagreed with the company’s conclusion as informed by FCPA counsel. If the enforcement agencies agreed with the conclusion that the FCPA was violated, but decided not to bring an enforcement action, transparency in FCPA enforcement would similarly be enhanced if the public learned why.
A final reason in support of the proposal is that it would give the disclosing companies (and others similarly situated) a benefit by contributing to the mix of public information about the FCPA.
In most cases, companies spend millions of dollars investigating conduct that may implicate the FCPA and on the voluntary disclosure process. When the enforcement agencies do not bring an enforcement action, presumably because the FCPA was not violated, these costs are forever sunk and company shareholders can legitimately ask why the company just spent millions investigating and disclosing conduct that the DOJ and the SEC did not conclude violated the FCPA.
However, if the enforcement agencies were required to publicly justify their decision not to bring an enforcement action after a voluntary disclosure, the company would achieve, however small, a return on its investment and contribute to the mix of public information about the FCPA – a law which the company will remain subject to long after its voluntary disclosure and long after the enforcement agencies no enforcement decision. Thus, the company, the company’s industry peers, and indeed all those subject to the FCPA would benefit by learning more about the DOJ and the SEC’s enforcement conclusions.
Regarding Pactiv Evergreen’s disclosure, many companies could benefit from the DOJ/SEC’s opinions about concepts such as “occasional” giving of gift cards, “relatively minor monetary values” and providing things of value at time of “holidays for generalized goodwill purposes.”
Transparency, accountability, useful guidance, a return on investment.
All would be accomplished by requiring the enforcement agencies to publicly justify a non-enforcement decision after a voluntary disclosure.
All points to ponder … until the next time I write this same general post.
Stericycle
In other disclosure news, Stericycle (a medical waste disposal company) that has been under FCPA scrutiny since mid-2017 recently disclosed:
“Government Investigations
On June 12, 2017, the SEC issued a subpoena to the Company, requesting documents and information relating to the Company’s compliance with the FCPA or other foreign or domestic anti-corruption laws with respect to certain of the Company’s operations in Latin America. In addition, the DOJ notified the Company that it was investigating this matter in parallel with the SEC. The Company is cooperating with these agencies and certain foreign authorities. The Company also conducted an internal investigation of these and other matters, including outside of Latin America, under the oversight of the Audit Committee of the Board of Directors and with the assistance of outside counsel, and this investigation found evidence of improper conduct.
As part of the FCPA investigation discussed above, the SEC has requested certain additional information from the Company. On July 29, 2019, the SEC issued a subpoena to the Company requesting documents relating to the Company’s pricing practices concerning small quantity customers, as alleged in the Contract Class Action previously discussed. The Company is cooperating with the SEC’s request. We have begun meeting with these agencies to engage in discussions about potential resolution of these matters, but these discussions are in a preliminary stage.”
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