Today, I want to conclude my five-part exploration of the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) updated A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT SECOND EDITION (2020 Resource Guide). In today’s final post on the document, I want to provide some final thoughts, highlight the changes and additions and conclude with what it all means.
- The New Hallmark – Investigation, Analysis, and Remediation of Misconduct
There are many interesting aspects to this new Hallmark, not the least that it begins with “The truest measure of an effective compliance program is how it responds to misconduct.” This builds upon the language found in the “Confidential Reporting and Internal Investigations Hallmark, which stated, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response,”. Now beyond being properly funded, you must have a “well-functioning mechanism” for the “timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents.”
This clearly mandates that once an allegation or even suspicion comes to the attention of compliance, it must be properly triaged, your investigation protocol should kick in with a detailed and effective investigation that is completed in a reasonable time and provides a response to the investigative findings. Moreover, an investigation is not the ending point and should be followed with a robust root cause analysis. This builds upon several sources.
Initially, the FCPA Corporate Enforcement Policy brought forward this requirement for a root cause analysis with the following language:
Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes.
The 2020 Evaluation also raised the following questions under “Root Cause Analysis – What is the company’s root cause analysis of the misconduct at issue? Were any systemic issues identified? Who in the company was involved in making the analysis?” The 2020 Resource Guide is a most welcomed document from the DOJ and SEC. It brings forward the top Foreign Corrupt Practices Act (FCPA) and compliance resource from the past decade into this decade.
2. FCPA Corporate Enforcement Policy
Obviously, there have been multiple developments by the DOJ and SEC since 2012 release of the First Edition of the FCPA Resource Guide (2012 Resource Guide). The evolution in the DOJ’s thinking has clearly been at the forefront of many of these developments. These all came to the forefront in 2017, which saw two significant additions to both FCPA enforcement and compliance programs. February saw the release of the first version of the Evaluation of Corporate Compliance Programs, which was most recently updated in June 2020. In November 2017 came the new FCPA Corporate Enforcement Policy, which provide a presumption of a declination for FCPA enforcement actions when four criteria were met: (1) self-disclosure, (2) extensive remediation, (3) thorough investigation, and (4) profit disgorgement. This FCPA Corporate Enforcement Policy was discussed in detail in the 2020 Resource Guide.
The FCPA Corporate Enforcement Policy was expanded in 2019 to give greater benefits during the mergers and acquisition (M&A) process, recognizing “the potential benefits of corporate mergers and acquisitions, 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. Accordingly, where a company undertakes a merger or acquisition, uncovers misconduct by the merged or acquired entity through thorough and timely due diligence or, in appropriate instances, through post-acquisition audits or compliance integration efforts, and voluntarily self-discloses the misconduct and otherwise takes action consistent with the CEP, there will be a presumption of a declination in accordance with and subject to the other requirements of the CEP. In appropriate cases, an acquiring company that discloses misconduct may be eligible for a declination, even if aggravating circumstances existed as to the acquired entity.”
3. The Accounting Provisions
The next area in the 2020 Resource Guide is around the information found in the chapter on Accounting Provisions, including both books and records and internal controls. Gibson, Dunn & Crutcher LLP, in its Client Alert, noted, “The Second Edition includes two key clarifications regarding the application of the books-and-records and internal controls provisions of the FCPA, which have grown in prominence in recent years, particularly in SEC matters, as a powerful tool to bring enforcement actions absent direct allegations of bribery. First, the Second Edition states the government’s view that in the absence of a statute of limitations in the FCPA itself, substantive violations of the anti-bribery provisions are subject to a five-year statute of limitations under 18 U.S.C. § 3282, whereas criminal violations of the FCPA accounting provisions are considered “securities fraud offenses” subject to the six-year statute of limitations provided for in 18 U.S.C. § 3301. Second, the Second Edition clarifies that criminal penalties for violations of the FCPA accounting provisions are imposed only where the defendant knowingly and willfully failed to maintain accurate books and records or implement an adequate system of internal accounting controls.”
4. DOJ Policy and Case Law Updates
Developments in DOJ Policy – One Pie to Anti-Piling On to Coordinated Resolutions
Originally, there was the ‘one pie’ concept. This concept intoned that enforcement authorities were moving towards one total cost to anti-corruption violators which would be equitably split up by authorities where the corruption occurred or by the countries which had jurisdiction. The ‘one pie’ concept was later memorialized by the DOJ in its Anti-Piling On Policy. It has now become the “Coordinated Resolutions” initiative.
This focus has taken hold internationally as well. The 2020 Resource Guide discussed the case involving a publicly-traded Brazilian petrochemical company, Petróleo Brasileiro S.A. (Petrobras), where DOJ, SEC, Brazilian and Swiss authorities credited one another in imposing fines and disgorgement. The 2020 Resource Guide reports that the DOJ has coordinated resolutions with foreign authorities in more than 10 cases, and SEC has coordinated resolutions with foreign authorities in at least five.
a. Successor Liability
The 2020 Resource Guide provides heightened lucidity into successor liability under the FCPA. If your organization cannot (as opposed to does not) engage in pre-acquisition thorough due diligence prior to a merger or acquisition, there are steps which can be taken post-closure. These steps include timely and thorough integration efforts, deep dive forensic audit, and voluntary disclosure of uncovered wrongdoing post-acquisition.
b. Case Law Update – Hoskins
The case law updates may well be the most controversial part of the 2020 Resource Guide. The most controversial case discussed in the 2020 Resource Guide is the Hoskins case. In Hoskins the Second Circuit interpreted the FCPA to hold that foreign nationals are subject to the FCPA anti-bribery provisions only if they are agents, employees, officers, directors, or shareholders of a US issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States. Here the DOJ believes this interpretation will only be followed in the 2nd Circuit.
The original FCPA Resource Guide was without any doubt, the single best one volume reference book for all things FCPA related. The 2020 Resource Guide is a most welcomed update to the original documents released by the DOJ and SEC. The 2020 Resource Guide brings forward the top FCPA and compliance resource from the past eight years to lead us all into this decade. Every compliance practitioner should give a round of hearty applause the DOJ and SEC for their great work. We are all better off for this volume.