This site is a big fan of SEC Commissioner Hester Peirce and this post highlights two recent statements she issued.
Neither of the statements are Foreign Corrupt Practices Act specific, but both are FCPA relevant.
Earlier this week, the SEC announced “settled charges against The Brink’s Company (“Brinks”) for requiring employees to sign restrictive confidentiality agreements prohibiting the disclosure of any financial or business information to third parties, without an exemption for potential SEC whistleblowers, from at least 2015 through 2019.”
As stated in the SEC’s release:
“The SEC’s order finds that, from at least April 2015 through April 2019, Brinks used an employee confidentiality agreement that prohibited employees from disclosing confidential company information to any third party without the prior written approval of Brinks. According to the SEC’s order, the confidentiality agreement threatened current and former employees with liquidated damages and legal fees if they failed to notify the company prior to disclosing any financial or business information to third parties. According to the order, the confidentiality agreement did not provide an exemption for potential SEC whistleblowers. The SEC’s order finds that, in 2015, shortly after the SEC had instituted its initial whistleblower protection action, Brinks modified its employee confidentiality agreement by adding a $75,000 liquidated damages provision for violations of the agreement. According to the SEC’s order, the confidentiality agreement was signed by thousands of new Brinks employees annually. The SEC’s order finds that, while Brinks continued to use restrictive confidentiality language for its rank-and-file employees until April 2019, it revised its corporate-level severance agreement to add whistleblower protection information for its executives beginning in January 2017.
Without admitting or denying the findings therein, Brinks consented to the issuance of a cease-and-desist order finding that it violated Rule 21F-17(a) of the Securities Exchange Act of 1934, a whistleblower protection rule that prohibits taking any action to impede potential whistleblowers from communicating with the SEC staff about a possible securities law violation, and ordering Brinks to cease-and desist from future violations of the rule, pay a $400,000 civil penalty, and comply with certain undertakings. In particular, Brinks has undertaken to amend its employment agreements to make clear that employees may report possible securities law violations to the SEC without prior company approval or forfeiting any resulting whistleblower award, and to make reasonable efforts to contact current and former Brinks employees who had executed the confidentiality agreements after April 10, 2015, and notify them that, notwithstanding the restrictions in the confidentiality agreements that they signed, they may provide confidential information to the SEC staff and accept SEC whistleblower awards.”
In this statement, Peirce supported “the Commission’s finding that, for the reasons explained in the Order Instituting Cease and Desist Proceedings, The Brink’s Company (“Brinks”) violated Exchange Act Rule 21F-17(a)’s prohibition against taking “any action to impede an individual from communicating directly with the Commission staff about a possible securities law violation, including enforcing, or threatening to enforce, a confidentiality agreement . . . with respect to such communications.”
Nevertheless, Peirce stated:
“I nonetheless again write to explain my view regarding the scope of the Commission’s authority under that rule. When it adopted Rule 21F-17 in 2011, the Commission explained that “Section 21F of the Exchange Act evinces a Congressional purpose to facilitate the disclosure of information to the Commission relating to possible securities law violations and to preserve the confidentiality of those who do so.” Adopting Rule 21F-17(a), as the Commission further explained, was “necessary and appropriate because . . . efforts to impede an individual’s direct communications with the Commission staff about a possible securities law violation would conflict with the statutory purpose of encouraging individuals to report to the Commission.” The Commission’s authority to adopt and enforce Rule 21F-17 necessarily is limited to the scope and purpose of Exchange Act Section 21F, which is to ensure the free flow of information to the Commission.
For this reason, I do not support the undertaking in the order that goes beyond that limited scope. Specifically, Brinks has undertaken to include a “provision in all employment-related agreements involving U.S.-based Brinks employees” that states:
Protected Rights. Employee understands that nothing contained in this Agreement limits Employee’s ability to file a charge or complaint with the Securities and Exchange Commission, or any other federal, state, or local governmental regulatory or law enforcement agency (“Government Agencies”). Employee further understands that nothing in this Agreement limits Employee’s ability to communicate with any Government Agencies or otherwise participate in or fully cooperate with any investigation or proceeding that may be conducted by any Government Agency [sic], including providing documents or other information, without notice to or approval from the Company. Employee can provide confidential information to Government Agencies without risk of being held liable by Brinks for liquidated damages or other financial penalties. This Agreement does not limit Employee’s right to receive an award for information provided to any Government Agencies.
The Commission plainly lacks statutory authority to impose such a broad requirement, and Rule 21F-17 does not purport to assert such authority. I recognize that the Order states that Brinks’ agreement to this undertaking was merely a consideration when determining whether to accept the company’s offer of settlement. The Commission, however, must be cautious about using the settlement process to obtain voluntary compliance with requirements that it lacks statutory authority to impose.
That a respondent has agreed to particularly broad language as part of a settlement should not be misconstrued as an indication that other companies are under any obligation to use the same or similar language to avoid running afoul of Rule 21F-17.”
The FCPA analog should be fairly obvious to astute readers.
The SEC routinely uses the settlement process in FCPA enforcement actions to obtain voluntary compliance with requirements that it lacks statutory authority to impose. (See here for the most recent example).
In this recent statement, Peirce responds to SEC Chair Gary Gensler’s Regulatory Flexibility Agenda for the Securities and Exchange Commission and states:
“The Agenda continues to shun issues at the core of our mission in favor of shiny objects outside our jurisdiction. We used to focus on companies’ disclosure of economically material information; we now focus on disclosure of hot-button matters outside our remit. We once sought to protect retail investors; we now rush to the aid of professional investors. We once worked to help small and emerging companies raise the funds that are their lifeblood; we now work to increase their costs and shrink their investor base. We once hoped to increase the ranks of public companies by making it less costly and more beneficial to be public; we now look for ways to force companies to go public since we are making it costlier to go public and be public.”
Peirce’s remarks about “shiny objects outside [of the SEC’s] jurisdiction” reminded me of the following Foreign Corrupt Practices Act legislative history fact: the SEC never wanted a role in enforcing the FCPA’s anti-bribery provisions.
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.”
The SEC Report stated as follows:
“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.”
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