It has been widely reported that the SEC recently sent letters of inquiry to several banks and private equity firms requesting that they retain documents relating to their dealings with sovereign wealth funds. This may well signal an industry-wide FCPA inquiry similar to that launched against the pharmaceutical industry, which began when many pharmaceutical companies received similar letters.
Why the Financial Services Industry?
Neither the SEC nor DOJ have confirmed whether this is an industry-wide probe. However, financial services companies' dealings with sovereign wealth funds are certainly a logical place to begin a broad inquiry. Over the past several years, particularly in light of the financial crisis in the U.S., sovereign wealth funds have invested heavily with private equity funds and the largest Wall Street firms. They are by definition government owned and funded. Therefore, their employees are foreign government officials under the FCPA, which, broadly speaking, prohibits the paying, or offering to pay, money or anything of value, to a foreign government official to assist in obtaining or retaining business. The FCPA further requires companies, which are publicly traded in the United States to accurately reflect all payments in their books and records, and to maintain adequate FCPA internal controls. Recent violations have resulted in fines exceeding hundreds of millions of dollars and corporate employees and executives have been sentenced to significant prison terms.
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