What is the current thinking of FCPA enforcement officials at the U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC)? At ACI’s 30th International Conference on the FCPA this year, two top officials provided insights (they clarified that their statements reflected their own views and not the views of their respective agencies).
FCPAméricas has published each year a similar post to this one based on past ACI presentations – see the 2011 post and 2012 post. This year, the DOJ’s Deputy Chief of the FCPA Unit Charles Duross, and the SEC’s Chief of the FCPA Unit Kara Brockmeyer, discussed the following issues:
“The numbers shouldn’t fool you.” Ms. Brockmeyer said that, even though the number of FCPA enforcement actions is down in 2013, no one should be fooled. There are “lots of cases in the pipeline.” They deal with a variety of types of bribery activity, from public procurement to improper travel to charitable donations to customs. Mr. Duross added that every sector and industry is under review, not just the likely sectors like energy. He cited financial services and manufacturing as examples. He concluded, “If you are doing international business and interacting with government officials, you need to be concerned with risks.” Both officials stressed that the FCPA is here to stay, noting that authorities have “more resources than at any time before.” They cited new staff with language skills and a rapidly developing “bench” of FCPA talent. FCPA officials are also receiving a “constant inflow” of cases from anonymous letters, e-mails, whistleblowers, and voluntary disclosures. The DOJ has about 150 investigations underway and the SEC has about 100.
More SEC administrative proceedings. Ms. Brockmeyer explained that, with Dodd-Franks’ provisions on administrative proceedings, the SEC now has the ability to assess a variety of civil penalties on issuers without going to court. She said this has changed the enforcement landscape dramatically. Companies should expect to see more administrative proceedings in the future.
Commercial bribery under watch. Ms. Brockmeyer discussed the SEC’s willingness to find accounting violations for commercial bribery. She said that, for example, even if a public company flies a non-governmental official to Las Vegas for a purported business purpose and allows that person to gamble on the company’s dime, it must still reflect the expenses accurately in its books. Though the SEC is not looking for commercial bribery cases, if it comes across issues in the course of reviewing public bribery violations, it will charge them too.
Importance of monitoring. The officials stated that, when assessing the effectiveness of compliance programs, it is important to consider not only what a program looks like on paper and what training looks like. Companies must also ensure that compliance is checked on the backend. Companies should confirm that they are not disbursing money in ways not anticipated. Controls like segregation of duties, internal auditing, and testing are essential. It is not enough to rely on employees not to break the law.
International cooperation on the rise. Mr. Duross said that, when several enforcement officials from different jurisdictions get together and discuss how to investigate cases, “this should scare you.” Ms. Brockmeyer noted new anti-bribery laws in Brazil and the Ukraine, legislation that India is in the process of passing, and enhancements that Canada recently made to its criminal bribery laws. Officials underscored the important role that the OECD is playing. They said it is urging countries to improve and enforce their own foreign bribery laws. They explained that the U.S. delegation has participated in several OECD working groups, including the review of Canada, Russia, and South Africa.
Third party risk continues to be high. As officials did in 2011, officials this year once again noted that third party risk continues to be high. In the past 2 years, almost 70% of all FCPA enforcement actions have involved third party intermediaries. They discussed several common third party red flags, such as use of consultants that do not have business purposes, suppliers that are supposed to be providing services that are actually provided by others, and overcompensated distributors. They advised companies to “follow the money” when reviewing the activities of questionable third parties. Companies should take a risk-based approach. While companies might not need to roll out the same level of due diligence for every service provider, they need a plan in place to address low and high-risk situations. They need to be able to “tell a story” of their third party due diligence approach.
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© 2013 FCPAméricas, LLC
Post authored by Matt Ellis, FCPAméricas Founder & Editor