FCPAméricas Blog

How FCPA Enforcement Officials Discover Violations

Author: Matteson Ellis

People throughout Latin America often ask me how FCPA enforcement officials discover that a company has bribed a foreign official. It is a good question. Foreign bribery usually happens far away from the United States. Bribery by its very nature plays out in the darkness. Those committed to making improper payments are also committed to making sure their tracks are covered. So the chances that the DOJ or SEC would learn about a violation seem pretty slim.

In reality, there are many ways, more than one might think, for foreign bribery to come to light. Consider the following, which represents just a sample:

Voluntary Disclosures: The government puts forth a strong case for why companies should self-disclose the violations they uncover themselves (see, e.g., the FCPA Guidance at 54-56): “The DOJ and SEC place a high premium on self-reporting, along with cooperation and remedial efforts, in determining the appropriate resolution of FCPA matters.” Such efforts can lead to fine reductions under §8C2.5(g) of the U.S. Sentencing Guidelines by decreasing the culpability score. These benefits are seen in resolutions like BizJet where the ultimate penalty was less than a third of the minimal suggested fine. But other FCPA practitioners, like Alexandra Wrage, highlight how the benefits to self-disclosure are often unclear and hard to quantify. Either way, self-disclosures are occurring and will continue to occur.

Whistleblower Tips: Dodd-Frank has changed the enforcement landscape. We know from the SEC’s Office of the Whistleblower annual report that tips exposing foreign bribery at companies are starting to come in. Whistleblowers have many different reasons for coming forward, some of which are described here. One important incentive is clearly the financial one – up to 30% of the monetary sanction recovered by the government.

Press Reports: Reporters are aggressive, sensational bribery stories sell papers, and enforcement officials read the news. This combination of factors creates the perfect storm for the press to help expose FCPA violations. The New York Times reports on Wal-Mart’s alleged bribery in Mexico were surely of much interest to the DOJ and SEC.

Competitors: An easy way for a company to complicate the business pursuits of a competitor is to make known to enforcement officials the acts of bribery of that competitor. Companies in the same industry are often well positioned to discover wrongdoing by their competition. Perhaps they are asked for a bribe by a permitting official, refuse to pay, and then see another company quickly receive the same permit from the same official. Perhaps a company is wrongly disqualified in a public procurement while its higher priced competitor wins the contract. It only takes an anonymous email to the DOJ or SEC to expose potential wrongdoing.

Industry Sweeps: The DOJ and SEC take an industry-by-industry, sector-by-sector approach to enforcing the FCPA. This offers unique ways of uncovering wrongdoing. By investigating one company in an industry, the government might learn of other companies that are using the same corrupt agent or consultant. They might see that other companies are generating significant business from a foreign government entity known for corruption. Such leads help uncover violations. The investigation of Johnson & Johnson appears to have triggered the investigation of another medical devices company, Smith and Nephew.

Disgruntled Employee: An employee who is terminated or is otherwise upset with his employer and who knows of wrongdoing at the company might have a strong incentive to disclosure such information to the government.

The FBI: A specialized FBI unit has now been trained to investigate corruption. This unit regularly seeks insight from FCPA practitioners on the nature of foreign bribery in international business. It is already quite active – there is speculation that its work originated the current enforcement focus on the aerospace industry.

The FCPAméricas blog is not intended to provide legal advice to its readers. The blog entries and posts include only the thoughts, ideas, and impressions of its authors and contributors, and should be considered general information only about the Americas, anti-corruption laws including the U.S. Foreign Corrupt Practices Act, issues related to anti-corruption compliance, and any other matters addressed. Nothing in this publication should be interpreted to constitute legal advice or services of any kind. Furthermore, information found on this blog should not be used as the basis for decisions or actions that may affect your business; instead, companies and businesspeople should seek legal counsel from qualified lawyers regarding anti-corruption laws or any other legal issue. The Editor and the contributors to this blog shall not be responsible for any losses incurred by a reader or a company as a result of information provided in this publication. For more information, please contact Info@MattesonEllisLaw.com.

The author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author.

© 2013 Matteson Ellis Law, PLLC

Matt Ellis

Post authored by Matt Ellis, FCPAméricas Founder & Editor

Categories: Enforcement, FCPA, FCPA Guidance, Wal-Mart, Whistleblowers

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