In July of this year, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) released the second edition of their Resource Guide to the U.S. Foreign Corrupt Practices Act (“FCPA”).[1] The 2020 revamp is the first complete revision since the agencies’ original edition released in 2012, and the first update since 2015. Although much of the Guide remains the same, the 2020 edition includes key updates that attorneys, compliance professionals and corporations and their employees are wise to review and understand. The brief overview below explains key caselaw and noteworthy DOJ/SEC policy updates in this year’s Guide.
Incorporation or Reference to Independently Issued Policy Updates
DOJ Corporate Enforcement Policy
The Guide provides an overview of the DOJ Corporate Enforcement Policy originally put into action in 2016 in the form of a pilot program and formally and fully adopted in 2017.[2] The policy incentivizes companies’ self-reporting, remediation of misconduct and engagement and cooperation with DOJ in investigations by offering degrees of leniency in exchange for such actions. The Policy goes as far as offering a presumption of declination where, absent aggravating circumstances, “a company voluntarily self-discloses misconduct, fully cooperates and timely and appropriately remediates.”[3] Even where DOJ finds prosecution appropriate and moves forward with criminal enforcement, a cooperative company that timely discloses and remediates may receive up to “a 50% reduction off of the low end of the U.S. Sentencing Guidelines fine range . . . and generally will not require appointment of a monitor” if an effective compliance program is already in place.[4] The Guide includes several examples of DOJ declinations since 2012, explains the cooperative action taken by companies that led to declination and notes that all declinations are publicly available on the Department’s website.[5]
Anti-Piling On Policy
The Guide also incorporates the DOJ/SEC Policy on Coordination of Corporate Resolution Penalties or “Anti-Piling On Policy,” first recognized in a 2018 memorandum authored by Rod Rosenstein.[6] Pursuant to the Policy, SEC and DOJ aim to coordinate resolution of investigations and prosecutions – i.e., to “endeavor, as appropriate, to coordinate with and consider the amount of fines, penalties and/or forfeiture paid to other federal, state, local or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct.[7] In addition to the agencies’ coordination with each other, the Guide notes DOJ and SEC have coordinated resolutions with foreign authorities in greater than 10 and 5 cases, respectively.[8] The Guide lists factors prosecutors are to consider when determining how much to credit and offset other authorities’ penalties, including “the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities.”[9]
Compliance Monitor Policy
Finally, the Guide discusses additional DOJ guidance issued in 2018 regarding appointment of an independent corporate monitor as a component of resolution.[10] The Guide clarifies a monitor “should never be imposed for punitive purposes” and is instead appropriate where a company does not have an adequate and effective compliance program and/or system of internal controls.[11] It also explains that, when determining whether to impose a monitor, DOJ prosecutors should weigh “(1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation,” and lists factors to evaluate when weighing the monitor’s benefits.[12] The Guide recognizes DOJ and SEC have commonly coordinated imposition of compliance monitors, so that a company’s retainer of one monitor fulfills requirements of both SEC and DOJ resolutions, as appropriate.[13]
Implication of Recent Caselaw
Kokesh and Liu
As was to be expected, the 2020 Guide includes discussion of recent Supreme Court decisions affecting disgorgement awards in FCPA resolutions. The Guide recognizes that in the 2017 Kokesh decision, the Supreme Court held that disgorgement awards are considered “penalties” for statute of limitations purposes, meaning the five-year limitations period in 28 U.S.C. § 2462 applies to such awards.[14]
Three years later, in Liu v. SEC, the Court analyzed whether the nature of disgorgement as practiced (or the labeling of disgorgement as a “penalty” in Kokesh) removed disgorgement awards from the realm of equitable relief allowed the SEC in civil enforcement actions.[15] The Court held disgorgement awards remain available to the SEC as a form of equitable relief, so long as the awards do not exceed the net profit realized by wrongdoers and the funds recouped are passed on to victims.[16] Whether the Liu decision will result in increased challenges to disgorgement awards as not heeding the restrictions announced remains to be seen in FCPA actions and others.
Hoskins
The Guide also acknowledges, but cabins, a 2018 decision out of the Second Circuit Court of Appeals.[17] In Hoskins, the Second Circuit delineated limitations on foreign nationals’ criminal liability for conspiring to violate or aiding and abetting violation of the FCPA. The Hoskins court held that a foreign national not directly liable under the statute may only be held criminally liable for conspiring to violate or aiding and abetting violation of the Anti-Bribery provisions if it acts as an agent, employee, director or shareholder of an issuer or domestic concern or if the foreign national acts in furtherance of an FCPA violation while in the United States.[18]
The SEC and DOJ appear keen to limit the holding of Hoskins – the Guide notes the issue of foreign nationals’ liability for conspiracy is not settled outside the Second Circuit; points out “[a]t least one district court from another circuit has rejected the reasoning in the Hoskins decision;” and omits mention of the District Court’s grant of a judgment of acquittal as to all FCPA allegations on remand in Hoskins. The Guide also pointedly notes that the holding in Hoskins, in any jurisdiction, applies only to the Anti-Bribery provisions of the FCPA; the Accounting provisions, by their explicit language, apply to “any person.”[19] The agencies’ treatment of the Hoskins case in the 2020 Guide may signal their hesitation to admit a limited view of the FCPA’s jurisdictional reach.
Additional Updates on Best Practices and Guiding Principles
Statute of Limitations Distinction
The 2020 Guide notes a previously unclear distinction between the statutes of limitations applicable to violations of the Anti-Bribery and Accounting provisions. Violations of the Anti-Bribery provision are subject to the general five-year statute of limitations set out in 18 U.S.C. § 3282.[20] On the contrary, violations of the Accounting provisions are considered “securities fraud offenses” subject to the six-year statute of limitations in 18 U.S.C. § 3301.[21]
Mens Rea
The Guide also clarifies by brief mention the mens rea required for criminal violation of the accounting provisions. To be liable, a company or other actor must knowingly and willfully fail to maintain accurate books and recommendations or implement an adequate system of internal accounting controls.[22] Thus, to be liable, an actor must know its actions are prohibited under the law. The Guide includes several examples of companies found to have satisfied this mens rea requirement.[23]
Guidance on Liability in the context of Mergers and Acquisitions
The 2020 Guide offers additional guidance in an area fraught with concern among corporations, compliance analysts and attorneys advising on FCPA matters: the nature and scope of successor liability in the context of mergers and acquisitions.[24] SEC and DOJ acknowledge the difficulty in uncovering FCPA violations during pre-deal due diligence and recognize robust due diligence may not always be feasible prior to an acquisition’s completion.[25] The Guide supports a view that an acquired subsidiary and/or its responsible agents or employees remain the primary actors at risk for enforcement actions involving its wrongdoing.[26] Moreover, in alignment with the Corporate Enforcement Policy discussed above, an acquiring company that voluntarily discloses wrongdoing and purposefully and promptly remediates damage caused may be eligible for lesser penalties or, at best, a declination to prosecute.[27]
Best Practices for Compliance Programs
As in the 2012 edition, the 2020 Guide includes guiding principles and examples of best practices for effective compliance programs with three additional distinct subsections unique to the edition.[28] Of note, in a new subsection on “Investigation, Analysis, and Remediation of Misconduct,” the Guide characterizes companies’ response to misconduct as “[t]he truest measure of an effective compliance program” – an emphasis that does not bode well for repeat FCPA offenders.[29]
The Guide also acknowledges a distinction between companies’ compliance program and internal accounting controls not recognized in the 2012 edition.[30] Notwithstanding this distinction, the Guide notes “an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls.”[31] Whether in building a compliance program or internal accounting controls, the Guide makes clear that a company must consider “operational realities and risks attendant to the company’s business;” that is, the nature of the company’s industry – including its risk profile and vulnerability to situations in which FCPA violations easily occur – will be a factor in the agencies’ evaluation of internal controls’ or compliance programs’ sufficiency.[32]
Conclusion
In sum, the 2020 Guide builds on the helpful lay-person guidance provided by SEC and DOJ released in 2012 and incorporates recent developments largely as expected. The Guide continues to be a useful resource for those in the FCPA compliance realm.
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Note:
[1] Criminal Division, U.S. Dep’t of Justice and Enforcement Division, U.S. Securities and Exchange Comm’n, FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act (2020) [hereinafter, “2020 Guide”].
[2] See Dep’t of Justice, Justice Manual 9-47.120: FCPA Corporate Enforcement Policy, https://www.justice.gov/criminal-fraud/file/838416/download (last updated March 2019).
[3] 2020 Guide at 51.
[4] Id. at 51-52.
[5] Id. at 52-54.
[6] Id. at 71 (citing Rod J. Rosenstein, Deputy Attorney General, U.S. Department of Justice, Letter to Heads of Department Components on Policy in Coordination of Corporate Resolution Penalties (May 9, 2018), https://www.justice.gov/opa/speech/file/1061186/download).
[7] Id. at 71 (citing Rosenstein, supra, note 2).
[8] Id. at 71.
[9] Id. at 71 (citing Rosenstein, supra, note 2).
[10] Id. (citing Brian A. Benczkowski, Assistant Att’y General, U.S. Department of Justice, Memo to All Criminal Division Personnel on Selection of Monitors in Criminal Division Matters (Oct. 11, 2018), https://www.justice.gov/opa/speech/file/1100531/download).
[11] Id. at 74.
[12] Id.
[13] Id.
[14] Id. at 37 (citing Kokesh v. SEC, 137 S.Ct. 1635 (2017)).
[15] Id. at 71 (citing Liu v. SEC, 591 U.S. __ (2020)).
[16] Id. at 71 (citing Liu v. SEC, 591 U.S. _(2020)).
[17] Id. at 36 (citing United States v. Hoskins, 902 F.3d 69, 76-97 (2d Cir. 2018)).
[18] Id.
[19] Id. at 46 (citing 15 U.S.C. § 78ff(a)).
[20] Id. at 36 (citing 18 U.S.C. § 3282).
[21] Id. (citing 18 U.S.C. § 3301).
[22] Id. at 45 (citing 15 U.S. § 78ff(a)).
[23] Id. at 45-46.
[24] Id. at 29-30.
[25] Id. at 29.
[26] Id. at 30.
[27] See 32.
[28] See 56-68.
[29] Id. at 67.
[30] Id. at 40.
[31] Id.
[31] Id.
