DOJ and SEC Release New Edition of FCPA Resource Guide

Kramer Levin Naftalis & Frankel LLP

On July 3, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) released the Second Edition of their joint Resource Guide to the U.S. Foreign Corrupt Practices Act (Resource Guide or Guide).[1] Originally published in November 2012, the Resource Guide is a critical, consolidated resource for practitioners and companies, offering insight into the government’s enforcement priorities, policies and practices regarding the Foreign Corrupt Practices Act (FCPA), which prohibits overseas bribery and efforts to conceal it.

The Second Edition is the first substantive update to the Resource Guide since its initial publication, and it reflects a variety of changes and developments in FCPA case law and government policy that have occurred over the past eight years. Among other things, the updates reflect the government’s continued focus on incentivizing corporate cooperation and robust, proactive compliance programs. Also evident in this update is the growing tension between the government’s efforts to push the boundaries of the FCPA and the jurisdictional limitations of the statute as interpreted by the courts.

We summarize below some of the more significant changes and updates reflected in the Second Edition.

Updated Guidance on Enforcement Priorities and Decision-Making

The Second Edition incorporates the DOJ FCPA Corporate Enforcement Policy (first issued in November 2017 and since amended), which formalizes the process through which companies may receive leniency, including a presumption of declination of prosecution for violators that adequately self-disclose, remediate improper conduct and fully cooperate with law enforcement. In addition to summarizing the corporate enforcement policy, the Second Edition includes examples of recent cases where, despite the presence of aggravating circumstances that might otherwise have warranted prosecution, the DOJ determined that a declination was warranted. (Absent from the Resource Guide is similarly specific guidance from the SEC, which has not issued guidelines regarding declinations or leniency other than the more general, and less helpful, guidance included in the SEC Enforcement Manual.)

Refinements to Guidance Relating to Penalties

The updated Resource Guide reflects the DOJ’s policy for coordination of Corporate Resolution Penalties, known as the “Anti-Piling on Policy” (first issued in May 2018), addressing the imposition of financial penalties by multiple law enforcement agencies stemming from the same misconduct. The Second Edition also notes the SEC’s commitment in this regard, including with respect to recognizing fines imposed by foreign authorities. The Second Edition reflects an acknowledgment that, during the past several years, foreign governments have become more aggressive in investigating bribery, and the issue of overlapping jurisdiction has become more common.

With respect to disgorgement, the Resource Guide makes clear the government’s position that the remedy remains a viable tool to ensure violators do not profit from their misconduct, noting the Supreme Court’s recent decision in Liu v. S.E.C.[2] In Liu, the Court upheld the SEC’s authority to seek disgorgement as an equitable remedy, provided the disgorgement does not exceed the defendant’s net profits and that it is awarded for the benefit of victims. The Guide does not address how Liu’s narrowing of the SEC’s disgorgement power is likely to play out in the FCPA context, where identifying victims who have been deprived of money as the result of a bribery scheme is not always a straightforward task. The Guide also notes the Supreme Court’s ruling in Kokesh v. S.E.C.,[3] which held that disgorgement of ill-gotten gains constitutes a penalty and therefore is subject to a five-year statute of limitations.

Updates to the Scope of Conspiracy and Aiding and Abetting Liability

In the face of increased enforcement activity by U.S. authorities in the years since the Guide’s initial publication, the Second Edition now incorporates certain limitations on the scope and reach of the FCPA that have been imposed by U.S. courts, most notably in the areas of agency and conspiracy law as interpreted by the Second Circuit in its 2018 decision United States v. Hoskins.[4] The Guide now incorporates the holding in Hoskins prohibiting the government from charging foreign nationals with conspiracy and aiding and abetting violations of the FCPA unless the defendant is an agent, employee, officer, director or shareholder of a U.S. issuer or domestic concern, as set forth in the statute. But the Second Edition makes clear the government’s views on the limits of the decision. It advises that this holding limits only the reach of the FCPA’s anti-bribery provisions (and not its accounting provisions) and states that Hoskins applies only to cases brought in the Second Circuit, highlighting a contrary decision in the Northern District of Illinois.

Notable as well is the absence of significant updated guidance or insight concerning the government’s view of the definition of “agent,” or when an agency relationship will be found to exist — a key issue litigated in Hoskins that we recently explored in an article in the New York Law Journal.[5] With regard to parent-subsidiary liability, the Second Edition notes that a subsidiary’s actions and knowledge will be imputed to the parent under traditional agency law principles “[i]f an agency relationship exists and the subsidiary is acting within the scope of authority conferred by the parent.”[6] This reflects a change in, and perhaps a narrowing of, the scope of such liability as described in the first edition.

Guidance Concerning Successor Liability

Much of the new guidance in the Second Edition concerns FCPA issues that arise in the M&A context. While reiterating its original position that “[s]uccessor liability is an integral component of corporate law and ... prevents companies from avoiding liability by reorganizing,” the Resource Guide now acknowledges the “potential benefits of corporate mergers and acquisitions” for FCPA compliance, “particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.”

The Second Edition also recognizes that pre-acquisition due diligence may not always uncover latent FCPA issues, or that discovery of such issues may not even be possible pre-acquisition, explaining that “DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts” in assessing possible charges or a negotiated resolution, reflecting guidance in the Corporate Enforcement Policy.[7]

Additional Guidance Concerning the FCPA’s Accounting Provisions

In revised guidance, the Second Edition clarifies that the statute’s internal controls provision[8] refers specifically to internal accounting controls. This revision addresses a question that had developed as to whether lax compliance practices separate and apart from a company’s financial controls could form the basis for a violation of the provision. Furthering this distinction, the revised Guide observes that internal accounting controls “are not synonymous with a company’s compliance program.”

Despite this clarification, the Guide reinforces the interrelatedness of the two. The Guide explains that “an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls,” observing that a company’s internal controls in general “must take into account the operational realities and risks attendant to the company’s business,” including the nature of the business, its products, its services and its workforce; the extent of its interactions with governments and degree of regulation; the degree to which it operates in countries with a high risk of corruption; and that both internal accounting controls and compliance programs need to be “tailored to the risks specific to its operations.”[9]

Notably, the Second Edition incorporates the DOJ’s Evaluation of Corporate Compliance Programs policy (issued in February 2017 and most recently updated in June 2020), setting forth the DOJ’s views regarding effective compliance practices. To this end, the Second Edition adds sections emphasizing that, in evaluating compliance programs, the government will consider the robustness of a company’s systems for confidential reporting, conducting internal investigations, and testing. This includes whether the company “integrate[s] lessons learned from any misconduct into the company’s policies, training, and controls.”[10] The Guide also incorporates existing DOJ policies concerning the Selection of Monitors in Criminal Division matters, addressing the circumstances under which the government may impose a monitor as part of a corporate resolution.

Updated Guidance on the Definition of ‘Instrumentality’ of a Foreign Government

The Second Edition provides an extended discussion of what constitutes an instrumentality of a foreign government (such that payment of bribes to it would be prohibited under the FCPA), referencing the 11th Circuit’s 2014 decision in United States v. Esquenazi.[11] The Guide defines “instrumentality” as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own,” and adopts the indicia the court in Esquenzi articulated to assess “government control” and “government function,” including the government’s ownership stake in the entity, its ability to hire and fire its principals, the foreign government’s formal designation of the entity, the foreign government’s receipt of the entity’s profits, and the entity’s receipt of funds from the foreign government.[12]

Additional Guidance Concerning Statutes of Limitations

Finally, the Resource Guide has been updated to set forth the government’s view that violations of the FCPA’s accounting provisions are covered by the extended, six-year statute of limitations applicable to securities fraud offenses, which was created by Dodd–Frank in 2010 (codified at 18 U.S.C. § 3301). Criminal violations of the FCPA’s anti-bribery provisions remain subject to the five-year statute of limitations set forth in 18 U.S.C. § 3282.

The Second Edition also supplements original guidance encouraging those under investigation to enter into tolling agreements, advising that doing so may be helpful in providing those under investigation “additional time to do their own investigation of the conduct, as well as to give them an opportunity to meet with the government to discuss the case and attempt to reach a negotiated resolution.”[13]

[1] U.S. Dep’t of Justice and U.S. Sec. & Exch. Comm’n, A Resource Guide to the U.S. Foreign Corrupt Practices Act (2d ed. 2020),

[2] 140 S. Ct. 1936 (2020).

[3] 137 S. Ct. 1635 (2017).

[4] 902 F.3d 69 (2d Cir. 2018).

[5] United States v. Hoskins, No. 3:12-cr-238 (JBA), 2020 WL 914302 (D. Conn. Feb. 26, 2020).

[6] Resource Guide at 28.

[7] Resource Guide at 29.

[8] 15 U.S.C. § 78m(b)(2)(B).

[9] Resource Guide at 40–41.

[10] Resource Guide at 66–67.

[11] 752 F.3d 912 (11th Cir. 2014).

[12] Resource Guide at 20.

[13] Resource Guide at 37.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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