Deferred Prosecution Agreements Truly a “Game Changer” at the SEC for FCPA Violations?

Morrison & Foerster LLP

The SEC’s message is consistent and clear: companies that self-report Foreign Corrupt Practice Act (“FCPA”) violations will have better outcomes than companies that do not voluntarily come forward. Critics counter by questioning the benefits of voluntary disclosure, pointing to SEC settlements in which companies that self-reported faced similar (or arguably worse) outcomes as companies that did not.1 And self-reporting does not appear to protect companies from paying hefty monetary fines. After Rockwell Automation, Inc. recently self-reported FCPA violations at a Chinese subsidiary, the SEC nonetheless penalized the company with civil fines, disgorgement, and interest.

Answering its critics, the SEC announced on May 17, 2011 that it had entered into its first-ever deferred prosecution agreement (“DPA”) with Tenaris S.A. (“Tenaris”). The SEC was first authorized to use DPAs in early 2010 as part of a new SEC cooperation initiative that seeks to encourage self reporting by companies through the lure of “cooperation tools.” The cooperation tools include DPAs, non-prosecution agreements, and cooperation agreements. SEC Enforcement Director Robert Khuzami called the initiative a “potential game-changer.”

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