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SEC’s Sought-After Powers May Not Affect FCPA – Corruption Currents – WSJ

December 2, 2011 By Leave a Comment

New powers sought by the Securities and Exchange Commission seem likely to have a limited effect on the agency’s enforcement of the Foreign Corrupt Practices Act.

As the Wall Street Journal reported Wednesday, SEC Chairman Mary Schapiro is seeking to impose much larger penalties on financial firms and individuals that commit fraud, after U.S. District Judge Jed S. Rakoff spurned a $285 million settlement between the SEC and Citigroup. That pact addressed civil-fraud charges that the New York company failed to disclose to investors its role in selecting investments in a $1 billion mortgage-bond deal that it was simultaneously betting would fail.

In a letter sent to senators late Monday, Schapiro asked Congress to pursue legislation that changes the legal formulas used by the agency to calculate penalties. Her proposals would allow the SEC to impose fines up to nine times greater than the maximum currently allowed by U.S. law. But the new formula wouldn’t apply to the primary tool used by the SEC in FCPA enforcement: disgorgement of profits.

Under the Securities Exchange Act of 1934, the SEC is authorized to pursue ill-gotten gains obtained through violation of federal securities law, a penalty called disgorgement. Disgorgement is a so-called “equitable remedy,” meaning the SEC is only allowed to recover the approximate amount earned from the crimes. Disgorgement is not intended to be punitive, but acts as a deterrent to illegal profit (See here for a good explanation).

The SEC has increasingly relied on disgorgement in its ramped-up enforcement of the FCPA. In April, Johnson & Johnson disgorged $48.6 million in profits including  prejudgment interest to settle allegations that it violated the FCPA. The drug maker also paid a $21.4 million criminal penalty to the Department of Justice as part of a coordinated settlement.

While the SEC can and does levy civil fines for FCPA violations, it usually chooses disgorgement from its toolbox of civil penalties. Danforth Newcomb, counsel at Shearman & Sterling LLP, said that reliance stemmed, in part, from increased coordination with the Justice Department and foreign law enforcement authorities on FCPA settlement proceedings.

via SEC’s Sought-After Powers May Not Affect FCPA – Corruption Currents – WSJ.

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Does the Mighty FCPA Need Reining in? – Law Blog – WSJ

November 29, 2011 By Leave a Comment

After five years and billions of dollars in penalties, enforcement of the Foreign Corrupt Practices Act shows no signs of cooling. But there are many in Corporate America that think the U.S. government is stretching the anti-bribery law in ways that are hurting U.S. business.

In this story in today’s Journal, we look at a widespread debate over how the legislation is enforced, spurred in large part the U.S. Chamber of Commerce’s efforts to amend the 1977 law.

Justice Department officials reject the need for legislation changes to the FCPA and say strong enforcement of the law, which reaches foreign and U.S. companies, helps create a level playing field in business transactions by eliminating corruption from the equation. But the Chamber and lawyers who support amending the FCPA say there is still substantial confusion over what is legal and what isn’t.

The law bars companies from paying bribes to foreign officials, but the Chamber wants clarity on whether employees of companies with state ownership or control behind them qualify as such. The Justice Department has taken an expansive view, arguing, for instance, that virtually every employee a pharmaceutical company encounters in a state-run health-care system could be considered a foreign official.

via Does the Mighty FCPA Need Reining in? – Law Blog – WSJ.

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Why FCPA Prosecution Risk Has Become Personal

November 23, 2011 By Leave a Comment

There was a time when the U.S. Department of Justice primarily focused its attention on prosecuting companies responsible for bribing foreign officials. Critics of this practice argued that the resulting fines had become just another cost of doing business. So, about eight years ago, the DoJ announced a new strategy of targeting corporate officers and directors for criminal prosecution under the Foreign Corrupt Practices Act (FCPA) in order to more significantly deter global corporations from engaging in corrupt practices.

If the number of convictions is any indication, the strategy may be paying off: since 2005, dozens of corporate executives have been convicted of violating the FCPA, paid hefty fines from their personal assets, and spent years in prison. (Of course, companies are still the subject of federal agencies’ wrath: the most recent case will result in Pfizer paying more than $60 million to settle FCPA charges, according to the Wall Street Journal.)

Last month, law firm Chadbourne & Parke released a study of the 61 FCPA prosecutions involving individual defendants over the past six years. A surprising number, 35%, of the defendants were the president, chief executive officer, or chief operating officer of their firm. In all, 53 of the individuals charged with violating the FCPA during this period were senior officers — a staggering 87% of all defendants.

These findings should be of concern to corporate executives worldwide. Though the U.K. Bribery Act — which went into effect earlier this year — has captured headlines as a force to be reckoned with, in many ways, the 33-year-old FCPA still reigns supreme in its threat to CEOs and CFOs who do business in the United States.

To understand the potential magnitude, one need look no further than the recent News of the World phone-hacking scandal that has consumed Rupert Murdoch and his News Corp. for much of the year. The gravest threat of criminal prosecution facing the Murdochs and other senior executives of News Corp. might come not from British authorities, who would directly oversee the publication, but from the FCPA.

via Why FCPA Prosecution Risk Has Become Personal.

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Why FCPA Prosecution Risk Has Become Personal | CFO.com

November 23, 2011 By Leave a Comment

There was a time when the U.S. Department of Justice primarily focused its attention on prosecuting companies responsible for bribing foreign officials. Critics of this practice argued that the resulting fines had become just another cost of doing business. So, about eight years ago, the DoJ announced a new strategy of targeting corporate officers and directors for criminal prosecution under the Foreign Corrupt Practices Act (FCPA) in order to more significantly deter global corporations from engaging in corrupt practices.

If the number of convictions is any indication, the strategy may be paying off: since 2005, dozens of corporate executives have been convicted of violating the FCPA, paid hefty fines from their personal assets, and spent years in prison. (Of course, companies are still the subject of federal agencies’ wrath: the most recent case will result in Pfizer paying more than $60 million to settle FCPA charges, according to the Wall Street Journal.)

Last month, law firm Chadbourne & Parke released a study of the 61 FCPA prosecutions involving individual defendants over the past six years. A surprising number, 35%, of the defendants were the president, chief executive officer, or chief operating officer of their firm. In all, 53 of the individuals charged with violating the FCPA during this period were senior officers — a staggering 87% of all defendants.

These findings should be of concern to corporate executives worldwide. Though the U.K. Bribery Act — which went into effect earlier this year — has captured headlines as a force to be reckoned with, in many ways, the 33-year-old FCPA still reigns supreme in its threat to CEOs and CFOs who do business in the United States.

To understand the potential magnitude, one need look no further than the recent News of the World phone-hacking scandal that has consumed Rupert Murdoch and his News Corp. for much of the year. The gravest threat of criminal prosecution facing the Murdochs and other senior executives of News Corp. might come not from British authorities, who would directly oversee the publication, but from the FCPA.

via Why FCPA Prosecution Risk Has Become Personal.

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FCPA Map: Where the Bribes Are – Mintz Group

November 21, 2011 By Leave a Comment

The Foreign Corrupt Practices Act, passed in 1977, has led to more than 200 cases covering activity in about 80 countries. On this map, the darker red that a country appears, the larger the total penalties assessed for FCPA violations in that country. Roll over a country to see the FCPA cases there (the bigger the box, the larger the penalty in that case). Click on each box for case details. Click on the sector list (lower left) for a breakdown by industry.

via Where the Bribes Are – Mintz Group FCPA Map.

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Bribery law breaches can cost U.S. firms dearly | Business Insurance

October 18, 2011 By Leave a Comment

As global expansion among mid-market companies and the federal government’s enforcement of the Foreign Corrupt Practices Act trend upwards, experts say now is the time for executives and their employees to educate themselves on the law’s finer points.

Helping executives at midsize firms address people risks, such as benefits, workers comp and professional liability; property and liability risks, including insurance and loss control; and operational growth risks such as M&A and product development.

Enacted in 1977 to combat bribery among U.S. companies doing business overseas, the law essentially prohibits firms and their representatives from paying any operative of a foreign government in exchange for contracts, unfair business advantages or other considerations.

The U.S. Department of Justice’s enforcement of the law has increased 300% in the past 10 years, rising to 24 such enforcement actions in 2010. The U.S. Chamber of Commerce has made it a high priority to try to win changes in the law. Other business groups also have criticized on the law saying it puts U.S. companies at a competitive disadvantage in markets where bribery or other conduct prohibited by the law is customary.

While publicly traded companies are held to a stricter standard—including bookkeeping and internal control documentation—experts said smaller and midsize private companies and nonprofits should expect just as much scrutiny from federal regulators as their larger counterparts.

Criminal penalties for violation of the FCPA can carry fines of up to $2 million for companies and $100,000 for individuals—not to mention jail time—or, under the Alternative Fines Act, up to twice the cash value of the benefit sought in making the bribe or other corrupt payment. The government also can impose civil fines of up $10,000 per employee convicted of violating the anti-bribery law.

via Bribery law breaches can cost U.S. firms dearly | Business Insurance.

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US Enforcement Agencies Seek Increased International Collaboration on FCPA and Other Anticorruption Efforts – PR Newswire – sacbee.com

July 18, 2011 By Leave a Comment

While Foreign Corrupt Practices Act (FCPA) prosecutions in the United States continued apace, the first half of 2011 showed some signs that judicial decisions and congressional scrutiny were leading to more – or, in some cases, less – clarity concerning the scope of the statute and the government’s enforcement policy, according to global law firm Shearman & Sterling’s semiannual report, “Recent Trends and Patterns in FCPA Enforcement,” part of the firm’s widely distributed FCPA Digest.

Although the US government continues to collect record and headline-making fines in some FCPA prosecutions, the average corporate penalty continues to be relatively moderate, the analysis found. At the same time, overseas developments, particularly the coming into force of the UK Bribery Act, demonstrated the possible globalization of anti-corruption enforcement efforts.

The “Trends and Patterns” report is part of Shearman & Sterling’s renowned FCPA Digest, which is also available as an online, searchable database at http://fcpa.shearman.com. Users can access the on-line database to identify enforcement actions by a number of risk-based criteria, including geography, industry sector, and types of intermediaries and then generate a personalized “mini-Digest” for their own use. In addition, users can access the original source documents relating to the enforcement actions, including indictments, deferred prosecution agreements and other relevant pleadings.

According to Shearman & Sterling’s new analysis, to date in 2011, US enforcement authorities have pursued 9 actions, including deferred prosecutions, against corporate groups, making these enforcement authorities on track to match last year’s 21 actions.

via US Enforcement Agencies Seek Increased International Collaboration on FCPA and Other Anticorruption Efforts – PR Newswire – sacbee.com.

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The FCPA And China. Do You Feel Lucky? Do You? : China Law Blog : China Law for Business

June 15, 2011 By Leave a Comment

The Foreign Corrupt Practices Act (FCPA) should be a constant concern for any U.S. company operating abroad, particularly in China. Intentional or inadvertent violations of the Act, which prohibits payments to foreign officials, can result in severe punishment. Steptoe & Johnson just put out an interesting article that explores recent U.S. District Court rulings on State Owned Enterprises (SOEs) and the FCPA.

SOEs present a particularly difficult challenge for application of the FCPA because the Act fails to concretely define a government “instrumentality.” Both the Department of Justice and the Securities Exchange Commission have consistently held that “instrumentalities” include SOEs. However, this interpretation has been questioned by private counsel numerous times, leading to a number of cases that clarify if and when payments to SOE officers or employees will be considered violations of the FCPA.

In the three cases discussed in the article, U.S. v. Noriega (C.D. Ca. 2010), U.S. v. Carson (C.D. Ca. 2009), and U.S. v. John Joseph O’Shea (S.D. Texas 2009), the courts all held that there are circumstances in which an SOE will be considered an instrumentality for FCPA purposes. Though none of the cases specifically involve Chinese SOEs, the holdings provide good indications as to how U.S. courts will rule in Chinese SOE–based FCPA cases.

All three of the cases look to a similar “non-exclusive list” of characteristics of government agencies and departments to determine if they may be “instrumentalities” within the terms of the FCPA:

The entity provides a service to the citizens of the jurisdictions.

The foreign state’s degree of control over the entity.

The purpose of the entity’s activities

The entity’s obligations and privileges under the foreign state’s law, including whether the entity exercises exclusive or controlling power to administer its designated functions.

The key officers and directors of the entity are either government officials ore were government appointed.

The entity is financed, at least in large measure, through governmental appropriations or through revenues obtained as a result of government-mandated taxes, licenses, fees, or royalties.

The entity is vested with and exercises exclusive or controlling power to administer its designated functions.

The entity is widely perceived and understood to be performing official (i.e., governmental) functions.

via The FCPA And China. Do You Feel Lucky? Do You? : China Law Blog : China Law for Business.

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Law.com – Wining, Dining and Prosecution Under the U.K. Bribery Act

April 5, 2011 By Leave a Comment

The U.K. Bribery Act set to take effect in 12 weeks will do more than present the opportunity for lawyers to advise clients on how the law interacts with the U.S. Foreign Corrupt Practices Act. It could force law firms to examine their own business practices when working in, or dealing with anyone from, the United Kingdom.

“It will have a fairly dramatic effect on law firms, both in the sense of them being law firms and in the sense of them being businesses that routinely entertain clients,” Duane Morris London-based partner Jonathan P. Armstrong said.

Armstrong was in Philadelphia last week talking to a group of attorneys about the new act and was surprised how little is known about the act on this side of the pond. That could mean trouble for U.S. law firms with significant dealings in London.

The biggest impact of the new law that could affect law firms is its focus on hospitality and entertainment. While firms have spent decades advising clients on how to avoid running afoul of the FCPA when dealing with public officials, they will now have to be mindful of interactions with private companies and individuals, both for their clients and themselves.

The FCPA deals only with bribery of public officials, a very uncommon practice for a law firm, Armstrong said. But the Bribery Act criminalizes both the acceptance and the giving of a “lavish” gift to a private individual. The problem, he said, is that the guidelines issued on the law Wednesday by the Ministry of Justice don’t put a dollar figure on what is lavish versus what are routine marketing expenses.

via Law.com – Wining, Dining and Prosecution Under the U.K. Bribery Act.

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Britain Backpedals on Bribery Act – Law Blog – WSJ

March 31, 2011 By Leave a Comment

Lawyers, company executives, and politicians have been waiting feverishly for guidance on how to apply the U.K’s new Bribery Act, the supercharged corruption law dubbed the FCPA on steroids.

Well, the wait is over. The British government today offered guidelines here that some believe indicate that the U.K. has caved into pressure to soften its bribery law, which is due to take effect July 1, the WSJ reports.

For example, the guidance says that gifts and hospitality, which were thought to be verboten under the Bribery Act, will not be prosecuted so long as they are “reasonable and proportionate,” WSJ reports.

Also, the guidelines appear to reduce the geographical scope of the law by saying that companies with subsidiaries or listings in the U.K. may not be impacted.

via Britain Backpedals on Bribery Act – Law Blog – WSJ.

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