It has been a while since the last SEC FCPA enforcement action in December 2024.
What is interesting though, is that the SEC never wanted any part in enforcing the FCPA’s anti-bribery provisions.
This post rewinds the clock back to the mid-1970’s when Congress held numerous hearings about the so-called foreign corporate payments problem resulting in the FCPA becoming law in 1977.
As told in the “The Story of the Foreign Corrupt Practices Act,” the SEC played a prominent role during Congress’s multi-year investigation, deliberation, and consideration of the foreign corporate payments problem.
Yet, the SEC’s role was also the most curious as the Commission was a reluctant actor in Congress’s quest for a new and direct legislative remedy to the problem.
It is clear from the legislative record that the SEC wanted no part in policing the morality of American business or in determining what is an improper foreign corporate payment.
Rather, the SEC, true to its mission, was focused on ensuring disclosure of material foreign corporate payments to investors by companies subject to its jurisdiction.
During a House hearing, SEC Commissioner Loomis stated as follows:
“[D]isclosure really is our business in this area. Our concern by statute is with disclosure. As a matter of policy, whether there should be a Federal statute making such payments illegal or otherwise dealing with them, seems to me a general question within the province of the Congress primarily, rather than our disclosure statutes.”
Likewise, SEC Commissioner Loomis stated as follows:
“We have no mandate from the Congress to act, at least directly, as the guardians of corporate morality. . . . . . . . . . . [O]ur basic mandate in this matter is one of full disclosure rather than of passing judgment on corporate morality or of imposing our own views as to what is “proper” or “improper.” . . . . . . . [O]ur purpose and mission is not to eliminate sin, but to enforce the statutes entrusted to us, which, in general, require disclosure of facts material to investors. Companies with foreign payments present some questions in turn in that connection. . . . . . . . [O]ur obligation . . . is to obtain disclosure of information which is material to investors in the buying and selling of securities in the company. We are not here to police the morality of American industry as such, but the responsibilities of disclosures to investors.”
SEC Chairman Hills stated as follows:
“We don’t have the skill to say should we, can we, enforce the laws of the rest of the world? I’m sure the West Digest that reports these decisions would be full of cases trying to decide whether a given payment is or is not legal. The legal profession has enough business without going to all the countries of the world to try to establish whether a given transaction is right or wrong. We are concerned with the materiality of these practices. [Congress] has asked for our views as to the adequacy and effectiveness of the present laws and regulations and any recommendations we may have for improving them. As [Congress] knows, a primary purpose of the Federal securities law and the Commission’s regulations is to protect investors by requiring issuers of securities to make full and fair disclosure of material facts. In my opinion, these statutes provide the Commission adequate authority to require appropriate disclosure about the matters I have been discussing in order to protect stockholders.
The Commission does not oppose direct prohibitions against these payments, but we have previously stated that, as a matter of principle, we would prefer not to be involved even in the civil enforcement of such prohibitions. As a matter of long experience, it is our collective judgment that disclosure is a sufficient deterrent to the improper activities with which we are concerned. . . . . . . . . . . [A]s a matter of longstanding tradition and practice, the [SEC] has been a disclosure agency. Causing questionable conduct to be revealed to the public has a deterrent effect. Consistent with our past tradition, we would rather not get into the business, however, we think get involved [sic] in prohibiting particular payments. It is a different thing entirely to try to prohibit something, to try to make a decision as to whether it is legal or illegal, or proper or improper. Under present law, if it is material, we cause its disclosure, and we need not get into the finer points of whether it is or is not legal. . . . [The SEC] would prefer not to be involved in civil enforcement of such prohibitions since they embody separate and distinct policies from those underlying the federal securities laws. The securities laws are designed primarily to insure disclosure to investors of all of the relevant facts concerning corporations which seek to raise their capital from the public at large. The [criminal payment provisions of proposed legislation], on the other hand, would impose substantive regulation on a particular aspect of corporate behavior. The Commission recognizes the congressional interest in enacting these prohibitions, but the enforcement of such provisions does not easily fit within the Commission’s mandate.”
An SEC Report stated:
“The Commission believes that the question whether there should be a general statutory prohibition against the making of certain kinds of foreign payments presents a broad issue of national policy with important implications for international trade and commerce, the appropriateness of application of United States law to transactions by United States citizens in foreign countries, and the possible impact of such legislation upon the foreign relations of the United States. In this context the purposes of the federal securities laws, while important, are not the only or even the overriding consideration, and we believe that the issue should be considered separately from the federal securities laws.”
Despite being a reluctant actor, the SEC’s role in helping uncover the problem and the expertise it gained in doing so was highly valued by congressional leaders, particularly Senator Proxmire who stated that the SEC was “the only agency in the Government that hasn’t gone to sleep on this issue, and [that it did] a good job under the circumstances.”
That the SEC was also an independent agency, unlike the Department of Justice (DOJ), was also highly valued by Senator Proxmire as indicated by the following statement:
“If we learned anything in the Watergate affair, we learned that the Department of Justice is not a department we can always rely on, especially when you have top influential corporate officials that are involved. They have a good record in some areas. They prosecute the hoodlums. They haven’t got such a good record on white-collar crime.”
The following statement by Senator Proxmire to SEC Chairman Hills best captures the SEC’s reluctant role in seeking a new and direct legislative remedy to the problem:
“[Y]ou were responsible for about the only action we have taken with respect to foreign bribery and your agreements, your work, with various corporations to persuade them to cleanse their operation have been a fine example of how an agency can work to get this job done even without legislation. Because of that, you see, we would like to have you involved at least on the investigative disclosure basis. And perhaps we can work something out that would protect you from not pushing you into something you think you wouldn’t want to do.”
