This article was reprinted with permission from FCPA Professor
A roundup of comments made yesterday by Charles Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief) at the ABA’s National Institute on the Foreign Corrupt Practices Act in Washington, D.C.
Duross stated that the DOJ has “20 full-time prosecutors” focused on the FCPA, an “embarrassment of riches” in terms of resources compared to the past he said. He indicated that the DOJ’s FCPA unit also makes frequent use of Assistant U.S. Attorneys, particularly in litigated cases. Duross countered the notion that his unit sits “back on our hands” waiting for the next case to come in. He stated that DOJ FCPA attorneys are “actively encouraged to follow-up on leads” and cited the BizJet enforcement action as an example where the case involved a voluntary disclosure, individuals cooperating, and charging individuals under seal (see here for a prior post).
According to Brockmeyer, the SEC FCPA Unit “has about three dozen” staff dedicated full-time to the FCPA. This number is in addition to other enforcement attorneys in SEC offices outside of DC who may also work on FCPA cases. Her best guess is that approximately 75% of SEC FCPA cases are handled in Washington, D.C. with the rest of the cases handled by regional offices (such as Fort Worth, Salt Lake City, etc.) with coordination from D.C.
Law Enforcement Partners
According to Duross, domestic law enforcement partners include U.S. Attorneys Offices and the FBI. He also mentioned the IRS as a partner in FCPA cases and indicated that the Haiti Teleco case was an “IRS case from start to finish” and thus it was not surprising that the prosecutions in that case included money laundering charges.
Despite an “embarrassment of riches” in terms of resources compared to the past, Duross indicated that the FCPA Unit, like other DOJ offices, “could always use more resources.” He cited the following challenges in bringing FCPA cases: foreign evidence collection, foreign laws concerning data privacy, foreign blocking statutes, and multi-jurisdictional issues. As to the later, Duross stated that with increasing frequency more than one sovereign is involved in bribery and corruption investigations and that this is a “fact of life.” He indicated that the U.S. has encouraged foreign jurisdictions to increase their involvement in this area and that since “we invited them to the party” “we must now deal with it.”
Brockmeyer cited the same general challenges as Duross in terms of enforcing the FCPA.
Brockmeyer indicated that the SEC FCPA Unit tracks its inventory of cases and she shared the following. 30% – 40% of cases come from corporate voluntary disclosures. According to Brockmeyer, the number of voluntary disclosures has been steady compared to prior years, but as a percentage of the overall enforcement pie it is shrinking because the overall enforcement pie is growing. Other sources Brockmeyer identified included whistleblower tips (including more sophisticated and detailed tips), enforcement attorneys reading the news, that a “pretty significant number of investigations” began as “spin-offs” of other investigations, and that “increasing number of referrals” are from foreign law enforcement authorities.”
Duross said that the DOJ FCPA Unit does not formally track its inventory like the SEC but his “general sense” was that voluntary disclosures are less than 50% of the inventory of cases. According to Duross, voluntary disclosure as a source of FCPA cases “is less than people tend to think it is.” According to Duross, the number of voluntary disclosures has remained steady, but most “get declined and nobody ever hears about them.”
Duross said that over the past several years, FBI agents and DOJ prosecutors (outside of the FCPA unit) have become more sophisticated about the FCPA and that more cases are coming to the FCPA Unit’s attention from others in the field who may spot FCPA issues in their other cases. Brockmeyer agreed with this comment and stated that SEC enforcement attorneys handling typical accounting fraud cases are also now looking for indicia of FCPA issues.
Related to the above issue, both Brockmeyer and Duross talked about so-called “industry sweeps” (see here for the prior post).
According to Brockmeyer, an industry sweep is not a situation where an existing case may suggest a wider problem in an industry and lead to investigations of others. Nevertheless, she did indicate that “very occasionally” the SEC does engage in industry sweeps, but “not as often as people think,” where the SEC, in its role as a regulator, sends out “high-level requests for information” to certain industries in which the SEC thinks there are FCPA risk factors. As to the predication leading to such an inquiry, Brockmeyer said that such a sweep can result even if there is no specific tip as to the industry. Nevertheless she stated that the SEC is not going to send out information letters “willy-nilly” because the SEC does recognize that when it sends out letters there are costs to the company’s associated with the request.
Duross agreed that following the evidence in one particular case to perhaps another company is not an “industry sweep,” it is simply following the evidence.
According to Duross, the future of the DOJ FCPA’s unit is “bright,” there is a “tremendous pipeline of cases,” and that his unit continues “to do proactive cases” using all of the resources in its toolkit (i.e. wiretaps, etc.).
According to Brockmeyer, the SEC has become more focused on how compliance programs and internal controls are “intertwined.” She indicated that companies have generally become more sophisticated when it comes to compliance programs, but that much work still needs to be done in monitoring compliance programs and how compliance can impact a company’s overall internal financial controls.
As to the “where else” question (see here for the prior post), Duross suggested that often company lawyers are seeking to over do it through a global search of operations for FCPA issues. He discussed a case in which a company and its professional advisors came to a meeting with a global search plan and he said “no, no, no, that is not what I want.” He indicated that the lawyers and other professional advisors in the room “looked unhappy,” but that the general counsel of the company was happy. (For more on this dynamic, see this prior post).
As to a compliance defense, as I highlight in my article “Revisiting an FCPA Compliance Defense,” the DOJ already recognizes in various ways a de facto compliance defense to the FCPA. Further support for this proposition is found in the following comment from Duross. He indicated that a large company (he did not provide the company’s name – other than it would be recognizable to the audience) was a “serial reporter” of FCPA issues to the DOJ’s FCPA Unit. Duross said that this company has a “good compliance program and system” in place and does “robust” internal investigations when issues arise. Duross said that he and his unit have a “relationship of trust” with this company and its counsel and that “frankly, most of the time” the issue is “not a particularly large issue.” According to Duross this company remediates the issue and then it “goes on its way.”
As to the media, Duross indicated that media reports (domestic and foreign) have led the DOJ to open up FCPA investigations. He stated “what happens in China, doesn’t stay in China.” Duross stated that while the media can be critical of the DOJ’s FCPA unit and its efforts, that is not necessarily a “bad thing” because “criticism of us can be useful and cause us to look inward.” Duross indicated that “we should be held accountable for what we do – good and bad.” Duross shared that one of his biggest surprises upon becoming FCPA Unit chief is realizing how the unit “operates under a microscope” which highlights the need for his unit “to have its A game” at all times. Duross stated that media reporting of bribery and corruption issues can also spread a message of general deterrence.
A roundup of the latest scrutiny alerts. As Christopher Matthews at the Wall Street Journal’s Risk & Compliance Journal stated ”if you’re a corruption probe enthusiast, the hits just keep coming out of China these days.”
As noted in this article, Dumex Baby Food Co., a subsidiary of France’s Danone SA, is “launching a probe of its infant-formula marketing after China’s state broadcaster alleged the formula maker pays hospital staff to use its products and influence sales.” Danone has ADRs that are traded in the U.S.
Novartis, already on the scrutiny list see here, was the focus of recent media articles (see here) suggesting that “it would investigate allegations published in a Chinese newspaper that its eye care unit Alcon bribed doctors.” Novartis has ADRs that are traded in the U.S.
Gabriel Resources, a Canada based company with shares traded “over the counter” in the U.S., was the focus of this article concerning allegations of bribery in Romania in connection with a proposed gold mine.
A good weekend to all.
Read more articles on the FCPA by Mike Koehler at FCPA Professor.
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