United States: Regulatory And Enforcement Round Up: A Record CFTC Whistleblower Award And Some Key DOJ/SEC FCPA Instructions For Companies

Last Updated: July 5 2016
Article by Sharie A. Brown

Confidential CFTC Whistleblower Receives Record $10 Million Award

In a press release issued on April 4, 2016, the Commodity Futures Trading Commission (CFTC) announced that it paid a $10 million award to a whistleblower for original information that led to a major enforcement action by the CFTC.  Without providing any details of the nature and extent of the original information provided to the CFTC to warrant such a record breaking bounty, the CFTC's Director of Enforcement, Aitan Goelman, and Christopher Ehrman, Director of the CFTC's Whistleblower Office, both signaled their hope that the large amount of this bounty will encourage other whistleblowers to come forward with information regarding suspected violations of the Commodity Exchange Act (CEA) that the CFTC might not otherwise be in a position to address.  The CFTC did not divulge the title or position of the whistleblower receiving the award, as whistleblowers are legally entitled to confidentiality regarding their identity, as well as to information that could be used to identify them.

The record bounty was paid pursuant to the expansion of whistleblower awards under section 748 of the Dodd-Frank Act, which makes individuals eligible for a 10% to 30% whistleblower award if the whistleblower provides original information that results in at least $1 million in fines and penalties by the covered enforcing agencies that bring enforcement actions and impose fines and penalties based on the original information provided by the whistleblower.  According to its mission statement, the CFTC was created to "foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act."  In this current matter, the record bounty was paid from the CFTC's Consumer Protection Fund (CPF).  The CPF is funded by sanctions and penalties paid for violating the CEA. The CFTC's last whistleblower award of $290,000 was announced in September 2015.

In light of the above record breaking award from the CFTC, and the recent whistleblower awards made by the U.S. Securities and Exchange Commission (SEC) under a similar program for violations of various securities laws, including the U.S. Foreign Corrupt Practices Act, companies and firms should enhance their compliance monitoring, supervision, and detection procedures and controls.  Proactive monitoring, detection, and remediation will help ensure that the organization detects and remediates misconduct before it rises to a level that drives a whistleblower to make a voluntary report to the CFTC or the SEC in order to obtain a whistleblower bounty.

The SEC Targets Inadequate Procedures and Improper Hiring Practices for Internships Provided to Relatives of Foreign Government Officials in Violation of the FCPA

On March 1, 2016, the U.S. Securities and Exchange Commission announced that Qualcomm Incorporated would pay $7.5 million in order to settle charges that it violated the FCPA by hiring relatives of government officials in China in order to win business for its mobile technology products.  According to the SEC, Qualcomm offered paid internships and full-time employment opportunities, among other gifts and entertainment, to relatives of Chinese officials from state owned and controlled telecommunications companies in China.  Emails and other correspondence made clear that the relatives of the Chinese officials were hired in order to help Qualcomm try to obtain business from government officials in exchange for the hiring of their relatives in permanent jobs and in paid internships, without regard to Qaulcomm's hiring policies or whether the hired person had the skills that matched the requirements for the job or internship. In one instance, a relative of a Chinese official not only received preferential job treatment, but also obtained a personal loan of $70,000 from a Qaulcomm executive in order to buy a home.  Moreover, the relative of a Chinese official was hired even when an interview resulted in a "no hire" recommendation.

Under the above circumstances, the SEC determined that Qaulcomm lacked effective internal controls and procedures to prevent violations of the FCPA, including hiring procedures, and also violated the books and records requirements of the FCPA.

It is likely that companies and firms may continue to attempt to hire relatives of foreign government officials in international countries.  Companies should proceed with caution and ensure that they have robust procedures and internal compliance controls to make certain that all interns and prospective employees in foreign regions are hired pursuant to clear, written standards, in consultation with the Law Department and the Human Resources Department, to ensure that the candidate meets the basic standards for the job or the internship.  Enhanced scrutiny and extra caution should be applied when the candidate is a foreign official's relative, as such candidates will raise a "red flag" under the FCPA, particularly if the foreign official related to the candidate is responsible for influencing decisions related to the company's business operations in the foreign country. 

While such hiring of relatives of foreign officials will likely continue and is not per se unlawful, the risk created by hiring the relative of a foreign government official in a country in which the company operates requires careful adherence to all written compliance and hiring procedures.  It also requires extra reviews and monitoring to ensure that business managers are not promoting such hiring in order to maintain or retain business for the company from the government official of the hired relative. The hiring company should be prepared to demonstrate, as effectively as possible, that the foreign official's relative did not receive preferential treatment under the hiring procedures during the hiring process or during the course of the internship or employment tenure because the employee or intern performed his or her duties satisfactorily, as required, and met basic standards.  The hiring company should also be able to show that the internship or hiring was not intended to influence the official's decision to award business to the hiring company, among other considerations.

DOJ FCPA Pilot Program Outlines Criteria For Receiving Full Corporate Cooperation Credit In FCPA Cases

The U.S. Department of Justice (DOJ), Fraud Section's Foreign Corrupt Practices Act (FCPA) Enforcement Plan and Guidance, issued by Andrew Weissman, Chief, Fraud Section, DOJ Criminal Division, on April 5, 2016 ("Weissman Memo") gave practical, written guidance for companies that hope to receive full credit for cooperation and compliance-related actions undertaken when the companies suspect and uncover FCPA misconduct.  The Fraud Section has commenced a one-year pilot program (effective April 5, 2016) that is designed to motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with DOJ prosecutors, and remediate flaws in corporate controls and compliance programs, as appropriate. 

Features of Voluntary Self-Disclosure

DOJ will evaluate the circumstances of corporate self-disclosure during the pilot period and award credit to companies for voluntary self-disclosure of FCPA wrongdoing where:

  • The voluntary disclosure occurs "prior to an imminent threat of disclosure or government investigation";
  • The company discloses the conduct to the DOJ "within a reasonably prompt time after becoming aware of the offense," with the burden being on the company to demonstrate timeliness; and
  • The company discloses all relevant facts known to it, including all relevant facts about the individuals involved in any FCPA violation.

"Full Cooperation" In FCPA Matters

In addition to the Principles of Federal Prosecution of Business Organizations, DOJ requires a company to do the following in order to receive full cooperation (beyond credit already available under the U.S. Sentencing Guidelines):

  • Disclosure on a timely basis of all facts relevant to the wrongdoing at issue, including facts related to the criminal activity of the company's officers, employees, or agents;
  • Proactive cooperation; this requires the company to disclose facts that are relevant to the investigation (even when not specifically asked to do so) and to identify opportunities for prosecutors to obtain relevant evidence not in the company's possession or otherwise known to the government;
  • Preservation, collection, and disclosure of relevant documents and information relating to provenance;
  • Timely updates on a company's internal investigation;
  • De-confliction of an internal investigation with the government's investigation when requested;
  • Provision of all facts relevant to potential criminal conduct by all third-party entities and third-party individuals;
  • Upon request, making company officers and employees available for DOJ interviews (including former employee/officers and overseas personnel);
  • Disclosure of all relevant facts from a company's independent investigation, including attribution of facts to specific sources, except those that create violations of the attorney-client privilege;
  • Disclosure of overseas document location and details regarding who, how, and where they were found;
  • Facilitation of third-party document production and witnesses from foreign jurisdiction, unless legally prohibited; and
  • Document translations, when appropriate and requested.

Timely and Appropriate Remediation In FCPA Matters

If the DOJ determines that a company is eligible for cooperation credit, DOJ will then also determine if the company should receive remediation credit based on:

  • Whether the company has implemented an effective compliance and ethics program featuring criteria that will be periodically updated to include:

    • Whether the company has a culture of compliance;
    • Whether the company dedicates sufficient resources to its compliance function;
    • Whether the compliance personnel have the quality and experience to understand and identify transactions with potential risk;
    • The independence of the compliance function;
    • Whether the compliance program has performed an effective risk assessment tailored to the compliance program based on the risk assessment;
    • How the compliance personnel are compensated and promoted compared to other employees;
    • Extent of auditing of the compliance program effectiveness and the reporting structure of the compliance personnel within the company;
    • Extent of discipline of employees responsible for misconduct, oversight of responsible individuals, and how compensation is affected for offending personnel and for those who fail to adequately supervise; and
    • Any additional steps that demonstrate the seriousness of the corporate misconduct, acceptance of responsibility, and implementation of measures to reduce the risk or reoccurrence of the misconduct.

Maximum Credit For Companies That Voluntarily Disclose During The Pilot Program

Companies that voluntarily disclose, fully cooperate, and engage in timely and appropriate remediation of FCPA issues could receive up to 50% reduction off of the bottom end of the Sentencing Guidelines fine range, if a fine is sought.  The DOJ may also not require the appointment of a compliance monitor, if at the time of resolution the company has implemented an effective compliance program.  In some instances, DOJ may also consider a declination of prosecution of a company, if the company has disclosed information that permits the prosecution of individuals, among other factors considered.  Companies that do not timely voluntarily disclose (but cooperate later and remediate) may receive only up to a 25% reduction off of the bottom end of the Sentencing Guidelines fine range, if a fine is sought.


Thus, if a company learns of a suspected FCPA violation by employees, contractors, business partners, or third-party intermediaries, it should conduct a timely investigation, attempt to identify individual wrongdoers, take corrective and remedial action as compliance gaps and responsibility are uncovered, voluntarily report the FCPA wrongdoing to DOJ, and then fully cooperate with the prosecutors in order to be eligible for full corporate cooperation credit.

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.

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Sharie A. Brown
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