Corporate

The Pressing Need for Diligence in the FCPA Space

 This article was reprinted with permission from FCPA Professor

In running FCPA Professor for over six years, I literally search for FCPA content every day. There is a lot of good stuff out there that is frequently highlighted on these pages.

There is also a lot of not so good stuff out there and I have frequently lamented (see here, herehere and here) about the pressing need for diligence in the FCPA space.

It’s as if certain outlets or commentators believe they possess a de facto license or privilege to say whatever they want to say without the need for context, without the need for original source support, and without the need for diligence to make sure claimed sources actually support the point attempted to be made.

One of the most egregious examples I’ve seen of late is this Corporate Counsel article that amounts to little more than a law firm “puff piece.” The headline reads “Covington Saves Small Company From FCPA Peril” and the article states in full:

“When a small oil exploration company came under investigation for violating the Foreign Corrupt Practices Act, it could have been the end. Houston-based Hyperdynamics had a single asset: the concession to drill for oil off the coast of Guinea in West Africa. But in 2013, it was hit with a grand jury subpoena from the U.S. Department of Justice seeking information about how the company got the concession, followed by another from the U.S. Securities and Exchange Commission. The company’s drilling partner initially said the existence of the investigation justified a refusal to proceed with the drilling. And then, there was the Ebola crisis. By January 2015, Hyperdynamics’ stock price had declined by 85 percent; in February 2015, it was delisted from the New York Stock Exchange. For help, Hyperdynamics turned to a team at Covington & Burling led by partner Nancy Kestenbaum, along with Lanny Breuer and Barbara Hoffman. The strategy, according to the firm: “real-time, extensive cooperation with the government, including frank discussions of the company’s finances and prospects, to try to resolve the investigations quickly enough to allow the company to survive and get back to drilling for oil.” It worked. In May, the DOJ closed its investigation without bringing any charges. And on Tuesday, the company settled with the SEC, agreeing to pay a $75,000 penalty for alleged books and records violations, without admitting wrongdoing. The settlement didn’t even merit a press release from the SEC. In the administrative order settling the case, the SEC said Hyperdynamics failed to accurately record $130,000 in public relations and lobbying expenses in 2007-2008. The payments were listed as being made to unrelated third parties, but the company later determined that an employee in Guinea controlled the entities.”

Um excuse me but … as noted in this prior post, according to Hyperdynamics, the company spent $12.7 million on its FCPA investigation. How can a journalist write a story about a law firm “saving” a company and how the law firm’s strategy “worked” without mentioning this relevant fact?

Another recent example involved a commentator claiming that the SEC’s “broken windows” enforcement policy  (in other words the SEC is pursuing even the smallest securities law violations to send a deterrent message) is “showing FCPA results.”

Um excuse me but … one-third of SEC corporate enforcement actions thus far in 2015 thus far (and 57% in 2014)  were the result of corporate voluntary disclosures. The notion that the SEC “is policing the beat, and vigorously pursuing” small FCPA violations pursuant to a “broken windows” policy would seem not to apply to voluntary disclosures where the SEC largely just processes corporate voluntary disclosures. Moreover, the SEC FCPA enforcement actions from 2015 (and 2014) that were not the apparent result of voluntary disclosures began years ago – long before the “broken window” enforcement theory was declared in October 2013.

Another recent example involved a commentator claiming that the generally low level of FCPA enforcement thus far in 2015 is the result of “declinations” (whatever that term means) based on corporate voluntary disclosures and cooperation. The commentator then proceeded to list four “declinations” by either the DOJ or DOJ and SEC (Gold Fields Ltd., Net 1 UEPS Technologies, Inc., Hyperdynamics, and BHP Billiton) to support the assertions.

Um excuse me but … none of the above FCPA inquiries were believed to be the result of corporate voluntary disclosures. Moreover, two of the inquiries (Gold Fields and Net 1) were presumably launched after foreign media reports. Moreover, every time there is a claimed “declination” of anti-bribery charges involving a foreign company (such as BHP Billiton) commentators rarely mention that such a company can only become subject to the anti-bribery provisions to the extent the conduct has a U.S. nexus. There was absolutely no U.S. nexus alleged by the SEC in the BHP action.

What is happening in the FCPA space is really no different than what is happening in other spaces in this age of reactionary commentary and journalism.

Whether it is media coverage of politics, citizen-police interactions, or FCPA issues, the narrative seems to matter more than the facts.

Specific to the FCPA space, it must be acknowledged that certain FCPA sites serve as billboards for FCPA Inc.

It must also be recognized that much of FCPA media reporting is done by FCPA Inc. participants themselves in search of convenient hooks to sell their own FCPA related compliance products or services. For instance, the Wall Street Journal is owned by Dow Jones & Company which has its own Risk & Compliance Division which offers “data solutions … designed to help [companies] mitigate regulatory, commercial and reputational risks” including anti-bribery and corruption. Likewise, Thomson Reuters, a large international news agency with multiple publications, offers Thomson Reuters Accelus which markets and sells so-called solutions for enterprise Governance, Risk and Compliance (GRC) management, including anti-bribery and corruption. In short, many FCPA media sources have, just like the FCPA Inc. participants providing investigative and compliance services, a vested business interest in making FCPA enforcement appear more robust than it actually is and creating convenient narratives.

The end result is often an FCPA “echo chamber” of sorts in which FCPA Inc. narratives are repeated by many media outlets (on the assumption that the narratives are accurate), readers of such media sources view the FCPA narratives as being accurate because they appear in apparent reputable sources, and then others interested in FCPA topics cite to the media sources for evidence that the narratives are true.

In Freakonomics it was noted:

“Journalists need experts as badly as experts need journalists. Every day there are newspaper pages and television newscasts to be filled, and an expert who can deliver a jarring piece of wisdom is always welcome. Working together, journalists and experts are the architects of much conventional wisdom.”

However, often in the FCPA space the conventional wisdom is wrong.

 Read more articles on the FCPA by Mike Koehler at FCPA Professor.

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