Interesting Times: A 2011 Year-End FCPA Update

As a result of developments during 2011, there is a "growing sense of urgency amongst FCPA practitioners as to the direction the statute will take in the coming years," according to a law firm's year-end FCPA report. The January 3, 2011 memo from the Gibson Dunn law firm, entitled "2011 Year-End Update," can be found here. Whatever else might be said, according to the report, "these are interesting times for the FCPA."

According to the report, FCPA enforcement activity remains near all time highs. In terms of FCPA enforcement actions initiated by the Department of Justice and the SEC, 2011 "was the second most prolific ear in the history of FCPA enforcement." The 23 DoJ actions and the 25 SEC actions are "outmatched only by the juggernaut that was 2010." However, the report notes, the 2010 statistics were "elevated substantially" by the 22-defendant SHOT  show arrests.

The report notes a number of interesting FCPA enforcement trends during 2011, including the increasing practice of U.S. regulators to pursue enforcement actions against individual defendants after negotiated settlements with the individuals' employer. As an example, the report cites the recent enforcement actions brought against seven former Siemens executive and two former Siemens third-party agents. Among other things the report notes, the nine targeted individuals are all foreign nationals. In other words, the parent company, the alleged wrongful activity and the targeted individuals all took place or are domiciled outside the United States, which illustrates the U.S. regulators'' willingness to "polic conduct beyond [U.S.] borders that it perceives as affecting U.S. markets.

The report also referenced the SEC's willingness to bring unsettled FCPA enforcement actions as evidence of the agency's "more aggressive enforcement stance." In the past the agency "has not been known to file many FCPA cases absent an advance agreement to settle the matter." But during 2011, the SEC brought 10 unsettled FCPA enforcement actions, more than in the previous 33 years of FCPA enforcement combined."

FCPA enforcement actions during 2011 also reinforced the "imperative that acquisitive companies conduct thorough pre-acquisition due diligence and equally robust post-acquisition compliance integration."

The report also notes the DoJ's recent initiative to pursue foreign government officials who received the bribes paid by FCPA defendants. The FCPA itself does not criminalize the receipt of bribes by foreign officials, but the Department of Justice has tried to use two tools to reach the recipients: money laundering statutes and civil forfeiture actions. These aggressive efforts are still in their early stages.

The report notes that though the FCPA itself does not provide for a private right of action, "enterprising plaintiffs have circumvented the FCPA's lack of a private redress mechanism by filing derivative lawsuits, securities fraud actions, tort and contract law claims, employment lawsuits, and private actions under the Racketeer Influenced and Corrupt Organizations (RICO) Act." Among other cases the report cites is the FCPA-related derivative lawsuit involving Avon Products (refer here, footnote 5 to the financial statements), and the FCPA-related derivative lawsuits involving Bio-Rad Laboratories (refer here) and Tidewater, Inc. (refer here). Avon is also the subject of an FCPA-related securities class action lawsuit as well (refer here).

The report also canvasses the various pending legislative and policy developments that could lead to changes to the FCPA itself or its enforcement during 2012. The report also catalogues global anti-corruption enforcement developments. Overall, the report is interesting and well-written, and well worth reading in its entirety.

Readers of this blog will be most interesting in the report's commentary about FCPA-related civil litigation. The follow-on litigation provides what I have called in the past the link to the D&O insurance policy. There would not be coverage under the typical D&O policy for the fines and penalties imposed in connection with an FCPA enforcement action, although defense fees incurred in connection with the action potentially could be covered under many policies, depending on the policy wording. But the filing of a civil lawsuit against members of the board of directors, as a follow on to the FCPA action, is an event much more directly linked to the D&O policy and much more likely to give rise to covered loss under the policy.

As the escalating levels of FCPA enforcement actions continues to increase, this type of potential Board liability exposure will continue to be a growing concern for Boards, their advisers, and their D&O insurers.

Those readers who want a more comprehensive overview of both the historical and current state of FCPA enforcement will want to refer to the Shearman and Sterling law firm's mammoth 692-page January 3, 2011 "FCPA Digest" (here). The Shearman and Sterling report has a more detailed statistical overview and an exhaustively detailed case summarization. The Shearman & Sterling report also sets out in specific case detail a catalog of follow-on civil actions arising out of FCPA enforcement activities (refer to pages 538 through 620 of the report). The value of the Shearman & Sterling approach is that it is not limited just to actions filed or pending in 2011, but is historically all-encompassing - although some readers may find the report's sheer size intimidating.

The Morrison  Foerster law firm has a January 5, 2012 client alert (here) detailed the fines and penalties assessed under the FCPA in 2011. A January 6, 2011 Corporate Counsel article reviewing the Gibson Dunn and Shearman & Sterling memos can be found here.

Readers interested in the phenomenon of FCPA follow-on civil litigation will want to read the very interesting post on the FCPA Professor Blog (here) about the $45 million settlement that Innospec in an antitrust lawsuit brought by a competitor following Innospec's $25.3 million settlement of an FCPA enforcement action. Professor Mike Kohler has some very provocative observations about the case and the settlement. 

Finally, for reference purposes, The FCPA Blog has a comprehensive list (dated January 4, 2012) of all severity-eight companies that have disclosed in their respective SEC filings currently pending FCPA investigations.

Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.

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