On Friday, March 1, 2013, the parent company of the Las Vegas Sands Corp. (Sands), reported in a filing to the Securities and Exchange Commission (SEC) that the company may have violated the “books and records and internal control provisions” of the Foreign Corrupt Practices Act (FCPA). In a subsequent release, Sands reiterated that its agents did not bribe foreign officials and that it just did not properly track expenditures as required by the FCPA. Media reports have linked the possible SEC and Department of Justice (DOJ) investigations to a wrongful termination lawsuit by a former employee. Regardless, the Sands’ disclosure and related government investigation will have ripple effects throughout the international gaming industry. The Sands’ report provides an all too familiar case study in regard to FCPA and international trade law compliance.
There are many ways that FCPA investigations are initiated. One of the most frequent is in regard to disgruntled former employees who hope to leverage a possible “whistleblower” action into a significant financial gain. From media reports, it appears that the Sands’ investigation was a result of an allegation made in a wrongful termination lawsuit. In addition to whistleblowers, other sources that initiate FCPA investigations include competitors and elaborate sting operations. A company should take any allegation of a possible FCPA violation seriously and consider initiating an internal investigation.
The Sands’ case also highlights the differences in FCPA violations. The FCPA is not only about bribing foreign officials. Any individual or entity under the jurisdiction of the United States is subject to this first prohibition. However, public companies, like Sands, must also ensure that its accounting system is able to properly “catch” any possible violations. It is this second prohibition that Sands states is the subject of the DOJ and SEC investigations. This is also the same FCPA provision that led to a large settlement by Chevron in 2007, when it failed to properly account for payments related to luxurious travel for Iraqi government officials during the United Nations’ Oil for Food program. Historically, it is much easier for the government to substantiate cases related to a failure to comply with the accounting provisions of the FCPA. Companies should, therefore, ensure that its compliance policies and procedures are not only in place, but also being adhered to by the various internal (and external) stakeholders.
The Sands’ case also highlights the cross-border cooperation among governments when it comes to anti-corruption investigations. According to media reports, Chinese authorities are also investigating Sands and cooperating with the DOJ in its investigation. Most foreign countries do not recognize the “due process” or “search and seizure” requirements afforded in the United States. As such, the foundation for DOJ and SEC investigations is first developed through legwork done in foreign countries. A company should consider not waiting until an event occurs to determine how to respond to a government investigation. Rather, the company may want to have a plan in place of what action is necessary if the company discovers directly or indirectly that it is the subject of a governmental investigation, regardless of what country the investigation originates.
Finally, the Sands’ investigation will only bring further attention to the gaming industry, one of the most heavily regulated industries regardless of the FCPA. As gaming has spread over the Internet or grown in foreign destinations, such as Macau, the regulation and scrutiny has only grown. But, with the increase in regulation, licensing, and other restrictions, more opportunities exist for an unscrupulous rogue employee to bribe a foreign official to gain an unfair competitive advantage. Such employees are sometimes the first to become “whistleblowers” to mitigate their own wrong-doing and take advantage of any potential reward related to reporting FCPA violations. Gaming companies should consider taking this opportunity to review their own policies and procedures and audit past transactions to ensure compliance or the necessity of a voluntary self-disclosure.
For the past several years, the DOJ and SEC have constantly reiterated that enforcement of the FCPA and other international trade laws is a top priority. In November 2012, the DOJ added to its reiteration by issuing A Resource Guide to the U.S. Foreign Corrupt Practices Act (Guide). The Guide is an important addition to any compliance or legal department library. Upon request, Snell & Wilmer will provide a bound copy of the Guide along with the firm’s recent FCPA enforcement articles from its experienced team of former U.S. attorneys, federal and state prosecutors and military prosecutors. If you are interested in receiving a free copy of the Guide with additional reference material, please contact Brett Johnson at email@example.com.