FCPA Enforcement: Crafting Incentives to Foster Compliance

FCPA enforcement has been marked by the aggressive approach adopted in recent years by The Department of Justice and the SEC. As Acting Deputy Assistant Attorney General Greg Andres told a Senate Committee this week "over approximately the last two years, we have substantially increased the number of our prosecutions against corporations and individual executives, and we have collected more in fines than in any other period in the history of our FCPA enforcement." Increased enforcement has generated praise from some such as the OECD and calls for reform from others such as the U.S. Chamber of Commerce.

Hearings before the Senate Judiciary Committee, Subcommittee on Crime and Drugs, on November 30, 2010 considered testimony about FCPA enforcement and possible reform. A key question discussed was how to incentivize corporations to institute effective compliance systems and cooperate with the enforcement efforts of the SEC and DOJ. Some commentators have suggested that DOJ adopt an amnesty program similar to the one utilized by the antitrust division. Under that program, the first company to self-report antitrust violations can, under certain circumstances, receive amnesty. Mr. Andres, in his comments to the Committee, essentially rejected this notion. Former prosecutor Michael Volkov of Mayer Brown noted that the antitrust program focuses on unraveling cartels, a different question from that confronted in FCPA cases.

In remarks on behalf of the U.S. Chamber of Commerce, Andrew Weissmann recommended that Congress adopt a compliance defense in a manner similar to the one incorporated in the recently enacted British Bribery Act of 2010. Adding such a provision to the FCPA would create an incentive for corporations to craft effective compliance programs because it would constitute a defense to liability. In contrast, under the current system compliance systems are considered at the sentencing stage of an FCPA case.

Other testimony focused on the difficulties inherent in the current incentives to self-report and cooperate which are incorporated in DOJ and SEC prosecution standards. Both sets of standards offer the prospect of amnesty, or at least credit in the charging process, in return for self-reporting and/or cooperation. Indeed, DOJ and the SEC strongly encourage companies to self-report and cooperate in return for cooperation credit. From the prospective of a company considering the question however, determining the potential benefits of self-reporting is akin to reading tea leaves, the Committee was told. Stated differently, determining how the cooperation credit will impact the overall resolution of the case is difficult at best.

Summarizing a proposal crafted by Judge Stanley Sporkin, whom he acknowledged as the father of the FCPA, Mr. Volkov proposed a six step program which, if properly implemented, would in most instances effectively inoculate a company from FCPA liability. Those steps are:

1. Agreeing to conduct a full and complete FCPA compliance review of the past five years;
2. Having the review conducted by a major accounting firm or specialized forensic accounting firm and law firm;
3. Disclosing the results to DOJ, the SEC and the public;
4. If violations are discovered, taking appropriate steps to eliminate the difficulty and ensure against future violations;
5. Submitting to an annual review for five years to ensure compliance; and
6. Retaining an FCPA compliance officer who will annually certify compliance by the participating company to DOJ and the SEC.

In exchange for taking these six steps, DOJ and the SEC would agree not to initiate an enforcement action against the company during the period except for flagrant or egregious violations.

The program envisioned by Judge Sporkin differs significantly from the compliance defense suggested by the U.S. Chamber or even the current cooperation credit approach. Each of those can encourage compliance, but focus on the mitigation of liability for the company in a manner which may shift it to the executive. Under the Judge's proposal, the focus is continuing compliance, reassurances for enforcement officials and no liability for the company or its executives.

FCPA Program: Thursday, December 9, 2010 from 12:00 to 1:30 p.m. Tom Gorman and Frank Razzano will co-chair the "Third Annual FCPA Update: Current SEC & DOJ Enforcement Activities." The program is sponsored by the ABA Criminal Justice Section, White Collar Securities Fraud Subcommittee of which Mr. Gorman is co-chair.

The panel of speakers includes: Judge Stanley Sporkin, Law Offices of Stanley Sporkin, Peter B. Clark, Cadwalader, Wickersham & Taft, F. Joseph Warin, Gibson Dunn, and Tammy Eisenberg, Chief Compliance Officer and General Counsel of DIAM, New York City.
The program will be webcast nationally and live in Washington, D.C. at the offices of Pepper Hamilton where Mr. Razzano is a partner, 600 14th Street, Washington, D.C. Lunch will be served during the program. To register please click on the following link: http://www.abanet.org/cle/programs/t10fpa1.html.

For more cutting edge commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.