FCPA enforcement is high, but there remains very little official guidance from the government. As a result, practitioners, corporate counsel, and others following the latest FCPA developments are invariably on the edge of their seats any time an oracle from the SEC or DOJ (the latter, in particular) speaks at one of the growing number of conferences on the topic. Anne Richardson of TRACE had a chance to read the DOJ tea leaves yesterday, when Mark Mendelsohn of the DOJ, Cheryl Scarboro of the SEC, and Edward Coopers of the FBI spoke at a conference in Washington, DC. After all of the usual disclaimers by each speaker, here is the most recent summary of trends and predictions in the FCPA enforcement arena.
• Heightened level of FCPA enforcement. Ten criminal prosecutions were brought in 2009, 17 in 2008, and 16 in 2007. There have been more prosecutions in the last five years than between 1977 (when the statute was passed) and 2005. These cases tend to involve grand corruption rather than petty corruption, Mark said, and criminal fines from the past five years have totaled over $1 billion. There are currently over 120 on-going DOJ criminal investigations.
• Increased focus on individual prosecutions. Individual prosecutions have involved both senior executives as well as those in “gatekeeper” roles. A notable recent prosecution was that of Albert “Jack” Stanley, former chairman and CEO of KBR, and several CCI executives have been indicted and are awaiting trial. Mark noted that the increase in prosecutions of individuals, who have more to lose, has led to more FCPA trials. This year alone there have been three trials (Bourke, Jefferson, and Green). Mark commented that there would be no more trials in 2009. He welcomed the increased litigation as this would lead to more guidance from the judiciary in interpreting the FCPA (the Bourke decision, for example, commented on both the local law defense and the possibility of extortion as a defense).
• Broad jurisdictional reach of the FCPA. On the civil side, foreign issuers fall under SEC jurisdiction; on the criminal side, the DOJ has jurisdiction where conduct takes place in the territory of the U.S. or a foreign company conspires with a U.S. company. Mark expects the trend of investigating and prosecuting foreign entities to continue.
• Increase in multi-jurisdictional investigations. Mark said that this was “clearly the trend of the future,” as increasingly one or more foreign prosecutorial authorities are investigating the same set of conduct (as in the antitrust realm). This trend is being fuelled by other countries’ increasingly active enforcement of their own foreign bribery laws (which the DOJ has been encouraging), as well as by efforts by the U.S. authorities to develop deeper relationships with their foreign counterparts at both the prosecutor and police levels. Mark noted that other countries are also stepping up their enforcement of domestic corruption.
• Increase in industry or sector-wide investigations. Mark stated that he could not emphasize enough “how important this is to [DOJ’s] enforcement strategy.” This strategy, he said, is critical to effectiveness and fairness of FCPA enforcement, as well as the efficient use of DOJ resources.
• Due diligence in connection with transactional activity. Mark believes that the importance of due diligence in anti-bribery compliance programs has finally taken hold, at least among most large multinationals. He finds that practices in this area have become much more sophisticated and that many more companies are coming into the DOJ, in the M&A context, with due diligence at the top of their agenda (e.g., Opinion Procedure Release 08-02).
• Other criminal violations alongside FCPA violations. Mark emphasized that the Fraud Section in the DOJ’s Criminal Division is fundamentally comprised of “fraud prosecutors,” and thus they will prosecute other instances of fraud that are uncovered in the course of FCPA investigations. Other violations include those in the areas of export control, antitrust, sanctions, commercial bribery (e.g., as in Schnitzer Steel and CCI), procurement fraud, and accounting fraud. “Process crimes,” such as obstruction of justice and false statements, will also be pursued.
• The global economic crisis will increase opportunities for corruption and thus FCPA violations. Mark predicted greater competition for less business, leading to increased pressure to engage in bribery. At the same time, companies are probably spending fewer resources on their legal and compliance departments (he said he hopes companies are not cutting back, but expects that they are). Governments are injecting large amounts of money into their economies and are taking over failing firms, leading to difficult assessments of who qualifies as a “foreign official” under the FCPA (in response to a question from the audience, Mark recommended that, when in doubt about the “foreign official” status of the directors or employees in firms assisted by the government, companies should take the conservative approach and treat them as government officials). In addition, governments are directing an enormous amount of money – without a lot of corresponding controls – into infrastructure projects, which are traditionally at higher risk of corruption. Mark expressed concern about how business activity in 2009 would look from an FCPA enforcement perspective five years from now.
• Enhanced resources and greater coordination among U.S. authorities. More resources in the DOJ are being devoted to white collar crime, including funds allocated to the Fraud Section generally and funds specifically designated for FCPA enforcement. The SEC is creating a specialized FCPA unit, discussed by Cheryl Scarboro in her remarks, and the DOJ hopes to benefit from even greater coordination with the SEC as a result. Mark said that they were always looking for additional FBI investigation resources as well.