A Debate Regarding the General Upward Trend of FCPA Enforcement Actions

A Debate Regarding the General Upward Trend of FCPA Enforcement Actions

 This article was reprinted with permission from FCPA Professor

Recently, I had the pleasure to again visit with Thomas Fox for his Foreign Corrupt Practices Act Compliance and Ethics Report in a two-part series.

In Part II of our discussion (approximately 25 minutes) we debate the reasons for the general upward trend of FCPA enforcement over the last several years.  I disagree with Tom’s conclusion that a “main reason for the increase – indeed the explosion (as he calls it)” of FCPA enforcement over the last several years has to do with the U.S. fight against terrorism.  (See this recent post from Fox advancing the same theory).  I make the following points in the debate.

  • For starters, calling 10-15 core enforcement actions per year an explosion is strange when one considers that all U.S. business organizations, over 1,000 foreign companies with shares listed on a U.S. exchange, and theoretically all foreign companies if certain jurisdictional requirement are met, are subject to the FCPA;
  • It is a fact that approximately 35% of all corporate enforcement action since 2007 are the result of just three unique events:  (1) Iraq Oil for Food; (2) Bonny Island, Nigeria; and (3) various oil and gas services companies utilizing the services of Panalpina.  (See here for the prior post).
  • Approximately 50% of the remaining FCPA enforcement actions are the result of corporate voluntary disclosures.
  • Numerous practical reasons (there are provocative reasons as well) easily explain the general upward trend of FCPA enforcement actions:

(1) In 1998 the FCPA was expanded through the dd-3 prong of the statute and the DOJ has used this prong to bring several FCPA enforcement actions;

(2) There has been a general increase in international business activity including in high risk jurisdictions.  For instance, approximately 50% of sales from companies in the S&P 500 are non-U.S. sales compared to approximately 30% a decade ago.  It is thus not surprising that there has been more FCPA enforcement given the increase in international business activity for the same reason that more cars on the road results in more accidents, traffic violations and speeding tickets.

(3) In 2004, NPAs and DPAs were introduced to the FCPA context and this third option of “enforcing” the FCPA is one of the more obvious reasons for the general upward trend in FCPA enforcement.  For instance, the former chief of the DOJ’s FCPA unit stated that if the DOJ did not have the option of resolving FCPA enforcement actions with NPAs and DPAs, the DOJ “would certainly bring fewer cases.”  Likewise, the OECD Report on U.S. FCPA enforcement stated that “it seems quite clear that the use of these agreements is one of the reasons for the impressive FCPA enforcement record in the U.S.”

(4) Sarbanes Oxley was passed in 2002 – a law that resulted from Enron, Worldcom, etc. (not terrorism).  In 2004, SOX’s internal controls provisions became effective and this new requirement caused issuers to more actively assess internal controls across its business operations particularly in foreign subsidiaries.  In both the 2010 Senate FCPA hearing and 2011 House FCPA Hearing, the DOJ witness identified SOX as being one of the reasons for the increase in FCPA enforcement.

In Part I of our discussion (approximately 30 minutes) the following topics are discussed:

  • How long FCPA scrutiny tends to last;
  • A plethora of FCPA enforcement statistics (see here);
  • The most accurate and reliable way to keep FCPA statistics (see here);
  • The “three buckets” of FCPA financial exposure including pre-enforcement action professional fees and expenses;
  • My new FCPA training course (see here).

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

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