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SEC Enforcement Of The FCPA – Year In Review

FCPA enforcement, it is not just about the DOJ. Granted, its sticks are less sharp than the DOJ’s, but the SEC also claims a significant piece of the FCPA enforcement pie (query whether it should – but that is a subject for another day).

Today’s post is a Year in Review of SEC FCPA Enforcement.  (See here [1] for a similar post for 2010).  Stay tuned for a similar post on the DOJ’s Enforcement of the FCPA in 2011.

In 2011, the SEC collected approximately $148 million in 13 corporate FCPA enforcement actions.  By comparison, in 2010 the SEC brought in approximately $530 million in 19 corporate FCPA enforcement actions.   SEC FCPA enforcement in 2011 was both small (Ball Corp. – $300,000) and large (Johnson & Johnson – $48.6).

Five corporate FCPA enforcement actions from 2011 were SEC only (IBM, Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies).  Of the 13 corporate enforcement actions, only 5 (Armor Holdings, Johnson & Johnson, Tyson Foods, Maxwell Technologies, and Magyar Telekom / Deutsche Telekom) included FCPA anti-bribery charges.  In other words 8 SEC FCPA enforcement actions charged FCPA books and records and internal controls only yet in those enforcement actions the SEC collected approximately $51 million in disgorgement and prejudgment interest.  This is noteworthy because many question, and rightfully so, whether disgorgement is an appropriate remedy in cases that do not charge FCPA anti-bribery violations.  See here [2] for a prior post.

Of the $148 million the SEC collected in 2011 corporate FCPA enforcement actions, approximately $80 million (54%) were in two enforcement actions (Johnson & Johnson and Magyar Telekom / Deutsche Telekom).  Of the $148 million, approximately $53 million (36%) were in enforcement actions against foreign issuers (Tenaris, Diageo, and Magyar Telekom / Deutsche Telekom).

The $148 million further breaks down as follows: $9.6 million  in civil penalties; $138.4  in disgorgement and prejudgment interest.  Thus 94% of SEC FCPA enforcement settlement amounts in 2011 consisted of disgorgement and prejudgment interest.  This figure last year was 96%.   If one tries to analyze why some SEC FCPA enforcement actions include a civil penalty, disgorgement and prejudgment interest (Watts Water Technologies, Diageo, Armor Holdings, Rockwell Automation, IBM), whereas other enforcement actions include only disgorgement and prejudgment interest (Comverse Technologies, Johnson & Johnson, Tenaris, Tyson Foods, Maxwell Technologies, Aon, Magyar Telekom / Deutsche Telekom), whereas other enforcement actions include only a civil penalty (Ball Corp.), good luck and please enlighten us all with your insight.

Other notable developments from corporate SEC FCPA enforcement in 2011 include use of the first alternative resolution vehicle (a DPA) against Tenaris (see here [3] for the prior post) and four enforcement actions resolved via administrative proceedings (Ball Corp., Rockwell Automation, Diageo, and Watts Water Technologies).  As noted in this [4] previous guest post, a provision in Dodd-Frank granted the SEC broad authority to impose civil monetary penalties in administrative proceedings.

Another significant development in 2011, albeit not FCPA specific, was the much needed scrutiny on the SEC’s neither admit nor deny settlement policy – a policy relevant to SEC FCPA enforcement actions.  See here [5] for the prior post.   This will remain an issue to watch in 2012 as neither admit nor deny heads to the Second Circuit.

In recent years, the DOJ has been the subject of well deserved criticism for the lack of individual prosecutions in many corporate FCPA enforcement actions.  The same criticism can also be made of the SEC’s FCPA enforcement program. The SEC, at a minimum, has jurisdiction over the employees of companies settling an FCPA enforcement action and can, as demonstrated by certain FCPA enforcement actions, pursue civil FCPA anti-bribery charges, civil FCPA books and records and internal control charges, as well as other related civil charges.

However, in just 2 of the 13 (15%) corporate SEC FCPA enforcement actions in 2011 did the SEC charge individuals (Lessen Chang (Watts Water Technologies) and Elek Straub, Andras Balogh, and Tamas Morvai (Magyar Telekom)) despite allegations in other enforcement actions that employees, including in certain cases senior management, were engaged in the improper conduct at issue.  Last year, the SEC charged individuals in only 3 of the 19 corporate enforcement actions (15%).

In 2011, the SEC did charge 1 individual (Paul Jennings – see here [6]) in connection with the 2010 Innospec enforcement action as well as 7 individuals (Uriel Sharef, Herbert Steffen, Andres Truppel, Ulrich Bock, Stephan Signer, Carlos Sergi and Bernd Regendantz  – see here [7]) in connection with the 2008 Siemens enforcement action.  It is interesting to note that all 12 of the individuals the SEC charged with FCPA violations in 2011 were foreign nationals (in a few cases, dual citizens of a foreign country and the U.S.).

Of the 13 corporate SEC FCPA enforcement actions in 2011, 12 enforcement actions (92%) were the result of corporate voluntary disclosures or previous foreign law enforcement investigations.  The only exception is the Aon enforcement which, as noted in this [8] prior post, “following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”  Stated in terms of the approximate $148 million the SEC collected in the 13 corporate FCPA enforcement actions in 2011, $133.5 million (90%) was the result of such disclosures.  As noted in last year’s SEC Year in Review post, in 2010, 97% of the SEC’s intake in FCPA enforcement actions was the result of voluntarily or otherwise publicly disclosed information and not the result of original investigation by either the SEC.

This remainder of this post provides an overview of corporate SEC FCPA enforcement in 2011.

*****

Magyar Telekom / Deutsche Telekom (Dec. 29th)

See here [9] for the prior post.

Charges:  Settled civil complaint charging FCPA anti-bribery and books and records and internal controls violations.

Settlement:  $31.2 million in disgorgement and pre-judgement interest.

Disclosure:  Yes, voluntary disclosure.

Individuals Charged:  Yes.

Related DOJ Enforcement Action:  Yes.

Aon Corp. (Dec. 20th)

See here [8] for the prior post.

Charges:  Settled civil complaint charging FCPA books and records and internal controls violations.

Settlement: Approximately $14.5 million (disgorgement of $11,416,814 and prejudgment interest of $3,128,206).

Disclosure:  Aon’s SEC filings stated that  ”following inquiries from regulators, the Company commenced an internal review of its compliance with certain U.S. and non-U.S. anti-corruption laws, including the U.S. Foreign Corrupt Practices Act.”

Individuals Charged:  No.

Related DOJ Enforcement Action: Yes.

Watts Water Technologies (Oct. 13th)

See here [10] for the prior post.

Charges:  None. Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement:  $3.8 million ($2.8 million in disgorgement, $820,000 in prejudgment interest and a $200,000 civil monetary penalty).

Disclosure:  Yes, voluntary disclosure.

Individuals Charged: Yes.

Related DOJ Enforcement Action: No.

Diageo (July 27th)

See here [11] for the prior post.

Charges:  None.  Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement:  Approximately $16.4 million (approximately $11.3 million in disgorgement, approximately $1.2 million in prejudgement interest; and a $3 million civil penalty).

Disclosure:  Yes, voluntary disclosure and/or based on previous foreign law enforcement investigation.

Individuals Charged:  No.

Related DOJ Enforcement Action: No.

Armor Holdings (July 13th)

See here [12] for the prior post.

Charges:  Settled civil complaint charging FCPA anti-bribery, books and records and internal controls violations.

Settlement:  Approximately $5.7 million (approximately $1.5 million in disgorgement; $458,000 in prejudgment interest; and a $3.7 million civil penalty)

Disclosure:  Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Comverse Technologies (April 7th)

See here [13] for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal control violations.

Settlement: Approximately $1.6 million (approximately $1.2 million in disgorgement and approximately $360,000 in prejudgment interest).

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Johnson & Johnson (April 8th)

See here [14] for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and FCPA books and records and internal controls violations.

Settlement: Approximately $48.6 million (approximately $38.2 million in disgorgement and $10.4 million in prejudgment interest).

Disclosure: Yes, voluntary disclosure (however the Iraq Oil for Food conduct was not voluntarily disclosed).

Related DOJ Enforcement Action. Yes.

Rockwell Automation (April 7th)

See here [15] for the prior post.

Charges: None.  Administrative cease and desist order finding violations of the FCPA’s books and records and internal control provisions.

Settlement: Approximately $2.7 million (approximately $1.7 million in disgorgement; approximately $590,000 in prejudgment interest; and a $400,000 civil penalty).

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tenaris (May. 17th)

See here [3] for the prior post.

Charges: None – resolved via a deferred prosecution agreement – term two years.

Settlement: $5.4 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Ball Corporation (March 24th)

See here [16] for the prior post.

Charges:   None.  Administrative cease and desist proceeding finding FCPA books and records and internal controls violations.

Settlement: $300,000 penalty.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

IBM Corporation (March 18th)

See here [17] for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal controls violations.

Settlement: $10 million ($5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty).

Disclosure: Yes, the action is reportedly the result of a prior South Korean government investigation.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Tyson Foods (Feb. 10th)

See here [18] for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and books and records and internal control violations.

Settlement: $1.2 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Maxwell Technologies (Jan. 31st)

See here [19] for the prior post.

Charges: Settled civil complaint charging: FCPA anti-bribery, books and records and internal controls violations; and Section 13 disclosure violations.

Settlement: Approximately $6.3 million (approximately $5.6 million in disgorgement and $700,000 in prejudgment interest)

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.