This article was reprinted with permission from FCPA Professor
Elevate, a surprise verdict? SEC Chair on compliance, self-reporting and cooperation, quotable, and for the reading stack. It’s all here in the Friday Roundup.
Elevate Your FCPA Knowledge and Practical Skills
Join lawyers and other in-house counsel and compliance professionals from around the country – indeed the world – already registered for the inaugural FCPA Institute July 16-17th in Milwaukee, Wisconsin. The FCPA Institute is a unique two-day learning experience ideal for a diverse group of professionals seeking to elevate their FCPA knowledge and practical skills. FCPA Institute participants will have their knowledge assessed and upon successful completion of a written assessment tool can earn a certificate of completion. In this way, successful completion of the FCPA Institute represents a value-added credential for professional development.
To register see here.
A Surprise Verdict?
As has been widely reported (see here and here for instance) Rebekah Brooks, a former senior News Corporation executive, was found not guilty of various counts (including conspiracy to commit misconduct – in other words bribery) by an English jury earlier this week.
The bribery-related verdict comes as a bit of a surprise given that Brooks – as highlighted in this previous post and as reported by the media:
“[Rebekah Brooks testified that] she authorized payments to public officials in exchange for information on “half a dozen occasions” during her time as a newspaper editor—but did so only in what she said was the public interest. [...] On the stand, Ms. Brooks, who edited News Corp’s Sun newspaper and its now-closed News of the World sister title, said the payments were made for good reasons, and done so on rare occasions and after careful consideration. “My view at the time was that there had to be an overwhelming public interest to justify payments in the very narrow circumstances of a public official being paid for information directly in line with their jobs,” said Ms. Brooks.”
As to the other defendants – Andy Coulson (a former senior News Corp. editor) and Clive Goodman (a former royal reporter for New Corp.’s defunct News of the World publication) – the jury failed to reach a verdict on the bribery-related count.
At the beginning of the trials, in this October 2013 post, I observed:
“What happens in these trials concerning the bribery offenses will not determine the outcome of any potential News Corp. FCPA enforcement action. But you can bet that the DOJ and SEC will be interested in the ultimate outcome. In short, if there is a judicial finding that Brooks and/or Coulson or other high-level executives in London authorized or otherwise knew of the alleged improper payments, this will likely be a factor in how the DOJ and SEC ultimately resolve any potential enforcement action and how News Corp.’s overall culpability score may be calculated under the advisory Sentencing Guidelines.”
SEC Chair White on Compliance, Self-Reporting and Cooperation
SEC Chair Mary Jo White recently delivered this speech titled “A Few Things Directors Should Know About the SEC.”
Among other topics, White spoke about the importance of compliance, self-reporting and cooperation and relevant portions of the speech are highlighted below.
“Ethics and honesty can become core corporate values when directors and senior executives embrace them. This includes establishing strong corporate compliance programs focused on regular training of employees, effective and accessible codes of conduct, and procedures that ensure complaints are thoroughly and fairly investigated. And, it must be obvious to all in your organization that the board and senior management highly value and respect the company’s legal and compliance functions. Creating a robust compliance culture also means rewarding employees who do the right thing and ensuring that no one at the company is considered above the law. Ignoring the misconduct of a high performer or a key executive will not cut it. Compliance simply must be an enterprise-wide effort.”
Self-Reporting and Cooperation
“Even in the best run companies with strong boards, the right tone at the top and robust compliance programs, wrongdoing will almost inevitably occur from time-to-time. What should you do when that happens? How should you respond? What does the SEC expect you to do? When should a company self-report wrongdoing to the SEC or other authorities? All of these questions require careful consideration and appropriate action. For tonight, I will focus just on the last one about self-reporting.
If your company has uncovered serious wrongdoing, you will need to decide whether, how and when to report the matter to the SEC. One immediate question you will have to answer is whether what has been discovered constitutes material information that requires public disclosure. If the answer is yes, that fact will also invariably dictate an obvious affirmative answer to broader self-reporting to the SEC.
In other situations, you will need to decide whether to call us about a serious, but non-material event – perhaps a rogue employee in a small foreign subsidiary has been bribing a foreign official in violation of the Foreign Corrupt Practices Act (“FCPA”). You intend to take decisive action against the employee and enhance your FCPA compliance program. Your disclosure lawyer’s view is that the occurrence does not require public disclosure. That does not, however, end your inquiry or responsibilities. Your company still needs to decide whether to self-report to the SEC, and consider what that may mean for the company.
As many of you know, the Commission in the 2001 Seaboard statement on cooperation, explained how self-reporting, cooperation, self-policing, and remediation factor into our decisions when considering enforcement actions. And, I can tell you from experience that of those four factors, self-reporting is especially important to both the SEC and the Department of Justice.
What are the benefits to your company of self-reporting? You can read about that in the SEC’s press releases on enforcement actions, which routinely highlight how the quality of a company’s cooperation has affected any resulting enforcement action. Typically, a company realizes the benefits of cooperation through a reduced penalty, or, at times, no penalty or even not proceeding in an exceptional case.
Not that you should need any extra incentive, but keep in mind that there are also downsides in deciding not to self-report. If the wrongdoing is not self-reported, the opportunity to earn significant credit for cooperation may be lost. And, with our new whistleblower program … the SEC is more likely than ever to learn of the misconduct through another channel.
Let me just say a few words about how to cooperate with SEC investigations.
As an initial matter, the decision to cooperate should be made early in the investigation. The tone and substance of the early communications we have with a company are critical in establishing the tenor of our investigations and how the staff and the Commission will view your cooperation in the final stages of an investigation. Holding back information, perhaps out of a desire to keep options open as the investigation develops, can, in fact, foreclose the opportunity for cooperation credit. We are looking for companies to be forthcoming and candid partners with the SEC investigative team – and the board has a responsibility to ensure that management and the legal team are providing this kind of cooperation.
When choosing the path of self-reporting and cooperation, do so decisively. Make it clear from the outset that the board’s expectation is that any internal investigation will search for misconduct wherever and however high up it occurred; that the company will act promptly and report real-time to the Enforcement staff on any misconduct uncovered; and that the company will hold its responsible employees to account.
There is, of course, cooperation and then there is cooperation, just as there are compliance programs that look great on paper but are not strongly enforced. We know the difference. Cooperation means more than complying with our subpoenas for documents and testimony – the law requires you to do that. If you want your company to get credit for cooperation – and you should – then sincere and thorough partnering with the Division of Enforcement to uncover all the facts is required.”
As highlighted in this previous post, here is what White had to say about cooperation issues as a lawyer in private practice.
“Today, before making their decisions about charging companies, some prosecutors are exerting considerable – some say, extreme -pressure on corporate behavior under the not so subtle threat that if the company doesn’t do as the government wishes, the company risks, at the end of the day, being indicted.”
“To ensure that a company does not become that ‘rare’ case resulting in a corporate indictment with all of its attendant negative consequences, a company must not poke the government in the eye by declining any of its requests or suggestion of how a cooperative, good corporate citizen is to behave in the government’s criminal investigation. This template, in my view, can give prosecutors too much power.”
Homer Moyer (Miller & Chevalier) states as follows in the June issue of Global Investigations Review.
“As this area of law has evolved, the challenges for all concerned have changed. Agencies plainly hold most of the cards here. They have great leverage in these cases. [...] [T]hey are rarely subject to judicial review. That creates a special responsibility for enforcement agencies.
As a practical matter, they are creating the operative jurisprudence. Companies and practitioners read those settlements and try to tease out of them the principles that have been at play. So it’s important that the government articulates its legal rationales, and frankly it’s important the government self-policies. It may invest in a lengthy investigation at the end of which it should take no action. And that’s sometimes hard for an agency to do.
The agencies have, over the last 25 years, expanded their jurisdictional reach; they’ve expanded their theories of liability; they have expanded the penalties imposed with new kinds of penalties and new kinds of settlements. So I think there’s a burden on the agencies, given that much sway, to act especially responsibly.
[T]he great interest in this area has been prompted in part by reports of enormous costs to corporations of investigations. I think law firms have to address that. Many of the reported cases are stupefying and, in my opinion, can be avoided. But that takes a little clear-eyed thinking on the part of both outside law firms and corporations.”
From Transparency International UK - Countering Small Bribes. As described in this release:
“[The report] provides practical advice on addressing the challenge of countering small bribes including “grease payments”. It is also designed to be of assistance to regulators, law-makers, prosecuting agencies and professional advisers. Countering small bribes is a complex challenge for companies. Transparency International research shows that, globally, more than 1 in 4 people paid a bribe in a recent 12 month period, highlighting the scale of the problem facing companies. Demands most often occur in overseas markets, where employees may be vulnerable through travelling alone or the company needs to release critical goods from customs. The guidance provides a set of principles, discussion and advice designed to help companies operate to high ethical standards, protect their reputations and fulfill their legal obligations.”
A good weekend to all.
Read more articles on the FCPA by Mike Koehler at FCPA Professor.
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