This year marks the beginning of the second decade of vigorous enforcement of the U.S. Foreign Corrupt Practices Act (FCPA), which prohibits the bribery of foreign government officials. Prior to 2004, cases under the FCPA were infrequent, but since that time, about a dozen companies per year have been charged with FCPA violations. The fines, penalties, and other amounts paid to the U.S. government to resolve these cases have varied widely, with some as low as $1 million, and others in the hundreds of millions of dollars, averaging about $60 million per case. FCPA enforcement has become routine and poses a risk to any company—whether a U.S. company or not—doing international business.
At the same time, the FCPA enforcement environment remains dynamic, and a number of trends will likely continue or accelerate.
WHO IS AFFECTED?
FCPA enforcement actions can impose significant costs on the subject company, including defense costs, direct fines, and penalties, as well as reputational and other collateral consequences. These government actions also may give rise to shareholder derivative suits which often allege that the company's failure to implement appropriate FCPA controls and practices amounts to a breach of fiduciary obligations by the company's directors.
U.S. federal officials continue to promise that more "big" FCPA cases are on the way, and already in January 2014, one long-pending investigation was concluded with a settlement of $384 million. Three of the 10 largest FCPA cases in history, measured by sanctions, have been resolved in the past 18 months. There is no reason to think that the current pace will slow, and other factors suggest that the pace may well increase.
Larger Penalties and More Criminal Actions Against Individuals
Although it can be difficult to discern the significance of differences year to year, most observers agree that the level of fines, penalties, and disgorgement amounts in FCPA cases seems to be increasing steadily. Added to this, as promised by Department of Justice officials for several years, there appears to have been a real focus not only on actions against corporate entities, but on bringing charges, particularly criminal charges, against persons believed to have been responsible for those violations. Many of those convicted have been sentenced to prison terms.
The United States has always led the way in international anticorruption enforcement, and indeed, the renewed vitality of the FCPA is closely linked with the Organisation for Economic Co-operation and Development's Convention Against Bribery of Foreign Officials in International Business Transactions (the Convention), which came into force in 1999. The Convention obligated signatories to criminalize the bribery of "foreign" government officials, much in the way that every nation already outlaws efforts to corrupt its domestic officials.
Transparency International has identified three other nations—the United Kingdom, Germany, and Switzerland—that are "actively" enforcing their laws against international corruption. By contrast, efforts by the 34 other nations that have signed the Convention have been lackluster at best. According to Transparency International, there has been "moderate" enforcement by four other signatories (Italy, Australia, Austria, and Finland) and "little or no" enforcement by the remaining 30.
At the same time, there are other, more vibrant forms of international cooperation. For instance, the United States has a variety of agreements with dozens of other nations providing for evidence-gathering and information exchanges between national law enforcement agencies. While these mechanisms can be cumbersome, and cooperation can be very uneven, the clear trend is toward heightened multinational action against corruption.
Under the whistleblower provisions of the Dodd-Frank Act of 2010, persons who provide the Securities and Exchange Commission (SEC) with information leading to a successful enforcement action in which more than $1 million is recovered are entitled to an award of 10 to 30 percent of those amounts. For the average FCPA case, that could mean an award in the range of $6 million to $18 million, and in larger cases, considerably more.
The program appears to be working. Since it took effect in August 2011, the SEC has received more than 3,000 tips per year relating to all forms of U.S. securities law violations. Reports come not only from the United States, but also in significant numbers from sources in China, Russia, India, the United Kingdom, and Canada. In 2013, the SEC made its first bounty payments under the program, including one of $14 million to an unidentified informant.
This case in particular illustrates the potential impact that the whistleblower program may have in streamlining law enforcement efforts; the information provided enabled the SEC to respond exceptionally quickly, completing an enforcement action in less than six months.
This paradigm seems to be spreading: the UK is now exploring ways of further encouraging whistleblowers on a variety of issues, including UK Bribery Act violations.
Anticorruption Enforcement as a Competitive Weapon
UK law enforcement authorities have expressly indicated that they intend to target violations of the UK Bribery Act where an improper payment may have disadvantaged a UK company. While not surprising, the open acknowledgement of this dynamic is unusual. U.S. authorities have repeatedly denied that they single out non-U.S. companies for FCPA enforcement action, but it cannot be overlooked that eight of the 10 largest FCPA enforcement actions of all time have been against non-U.S. companies.
Awareness of these trends can help companies in assessing their risks associated with potential anticorruption exposure and in designing and executing anticorruption compliance efforts so as to enable them to reduce the risk of a violation. As always, a company can be best protected by devoting its energies to a compliance program designed to address its specific risks, and by frequently re-evaluating that program in light of changes in its business and in the broader enforcement environment.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.