[Today is April 1st, commonly referred to as April Fools Day. Please keep this in mind when reading this post. In other words, this post should not be taken literally. Even though this post is presented as satire, readers are encouraged to ponder the issues raised.]
Earlier today the SEC announced Foreign Corrupt Practices Act enforcement actions against all issuers subject to the FCPA.
Total SEC recovery in the enforcement actions – all resolved via administrative cease and desist orders and thus not subject to any judicial scrutiny was – approximately $925 billion dollars.
In announcing the enforcement actions, an SEC spokesperson stated:
“Using our data analytics tools, the SEC determined that it was more likely than not – given the SEC’s current FCPA enforcement theories – that all issuers subject to FCPA were in violation of the FCPA’s anti-bribery provisions, or at the very least the FCPA’s books and records and internal controls provisions.”
Pressed for more specifics on the enforcement actions, the SEC spokesperson stated:
“Consistent with the SEC’s prevailing FCPA enforcement theories, the enforcement actions were all over the map.
For instance, the SEC believes, looking back at the last 7-10 years as the SEC typically does in corporate FCPA enforcement actions, that numerous companies, either directly or indirectly through subsidiary companies, joint venture partners, or other third parties, provided various things of value such as flowers, cigarettes, bottles of wine, evenings at karaoke bars, sauna and spa sessions, to what the SEC alleges are “foreign officials” under the FCPA.
In other enforcement actions, the SEC believes that several companies offered jobs, internships or similar positions to individuals somehow connected or associated with what the SEC alleges are “foreign officials.” In other enforcement actions, the SEC believes that companies encountered corrupt “foreign officials” when attempting to navigate foreign country bureaucracy and acquiesced to demands by the officials for a small payment (in some cases as little as $4) to do something they ought to do anyway such as issue a license or permit.
Previous FCPA enforcement actions have all included similar allegations and thus clearly demonstrate the legitimacy and viability of these enforcement theories.”
Regarding why several of the enforcement actions resolved today had nothing to do with foreign bribery, the SEC spokesperson stated:
“The SEC came to the conclusion that it was fair, and indeed consistent with the FCPA’s books and records and internal controls provisions, to subject domestic business interactions to the same level of scrutiny as foreign business interactions. Indeed, all the books and records provisions generally say is that issuers have to keep accurate books and records. Likewise, all the internal controls provisions generally say is that issuers need to have reasonable internal controls in place to make sure that corporate assets are properly spent.
Using our data analytics tools, the the SEC determined that it was more likely than not that issuers were hosting customers and potential customers in corporate boxes at various sporting events, wining and dining customers and potential customers by providing fancy dinners and expensive bottles of wine, and otherwise having fun with customers and potential customers at bars, golf courses and the like.
Yet, we found that issuers were booking these expenditures merely as “sales and marketing expenses” when in reality they were corrupt attempts to influence or curry favor with customers and potential customers.”
Moreover, the SEC found that issuers did not have sufficient internal controls surrounding these various interactions with customers and potential customers. Indeed, in one situation a mid-level sales person at an issuer twice hosted his college friend in the corporate box at a sporting event, yet knowingly circumvented his employer’s internal controls by describing his friend as a potential client.
In several other examples, the SEC found that certain individuals hired by issuers or provided paid or unpaid internships by the issuers were unqualified and did not go through the company’s normal and rigorous hiring procedures. Instead, these employees or interns were somehow connected or associated with persons with whom the issuer did business or sought business from.
Consistent with our mission of investor protection and to create a level playing field for all companies, the SEC has determined going forward to subject domestic business interactions to the same scrutiny under the books and records and internal controls provisions as foreign business interactions, because frankly, that is what these provisions require.”
Reaction to today’s blockbuster FCPA enforcement actions was mixed.
A spokesperson for “Companies Subject to the FCPA” issued the following statement.
“Although today’s enforcement actions involve all issuers subject to the FCPA and involves in the aggregate $925 billion dollars, our members came to the conclusion that resolving today’s actions represented the best use of shareholder money as opposed to the alternative of engaging in protracted litigation with our primary government regulator. Indeed, because of the way in which today’s actions came about – sort of out the blue I might add – our member firms saved millions of dollars on a per company basis and many billions of dollars in the aggregate by not having to hire FCPA Inc. participants to travel around the world to “boil the ocean” as Assistant Attorney General Leslie Caldwell recently stated. Given the current FCPA enforcement theories, literally every issuer has committed an FCPA violation over the past 7-10 years.
While our members disagree on the legitimacy and viability of many of these enforcement theories, we feel defenseless. Given this landscape, we appreciate the SEC’s willingness to resolve all FCPA violations by issuers this way because today’s enforcement actions do not single out any one company.
Moreover, today’s enforcement actions were swift resulting in no “gray cloud” of FCPA scrutiny hanging over member companies for years, as is typically the case, a dynamic which has negatively impacted member share prices, bond ratings and other financial aspects of business.”
Although today’s actions resulted in a significant increase in FCPA enforcement actions, a spokesperson for “FCPA Inc.” criticized today’s enforcement actions.
“These enforcement actions came out of the blue and did not provide issuers the opportunity to conduct the customary best practices internal investigation concerning the conduct at issue. Because our member firms did not have the opportunity to conduct an internal investigation, report the results of these internal investigations to the government enforcement attorneys in numerous meetings, and otherwise respond to their questions, the enforcement actions announced today are likely not representative of the full scope of conduct engaged in by the companies. If the SEC continues to enforce the FCPA in this fashion, our practices will be limited, indeed the very existence of FCPA Inc. will be in jeopardy.”
A spokesperson for “Civil Society Against Bribery” applauded today’s enforcement actions.
“Today’s SEC actions send a powerful message to others nations regarding the importance of enforcing bribery and corruption laws. The type of bribery found by the SEC in the enforcement actions announced today has a corrosive impact on the foundations of society. Bribery results in bridges crumbling, roads not being built, and people dying. The $925 billion dollars collected by the SEC should be redistributed to the victims of this bribery and should send a powerful message to other governments that revenue can be raised through enforcement of bribery laws.”
Asked whether civil society groups had any concerns that today’s FCPA enforcement actions were not subjected to any judicial scrutiny, and that some of the enforcement actions were based on enforcement theories on which the U.S. government has not prevailed when put to its burden of proof, the spokesperson for “Civil Society Against Bribery” stated:
“No. More enforcement of bribery and corruption laws is an inherent good because bribery has a corrosive impact on the foundations of society. Why else would a company resolve an FCPA enforcement action unless the company truly did engage in bribery?”