FCPA Enforcement Shatters Records

Melissa Aguilar

January 04, 2011

Compliance Week

Multinational companies beware: That promised new era of Foreign Corrupt Practices Act enforcement has already arrived.

The number of FCPA enforcement actions jumped 85 percent in 2010, shattering the prior record set in 2009, according to data tracked by the law firm Gibson Dunn & Crutcher. The Department of Justice and the Securities and Exchange Commission brought a combined 74 FCPA enforcement actions in 2010, far surpassing any prior year in the statute’s 33-year history.

The SEC brought 26 enforcement actions, beating a previous high of 20 actions in 2007, while the DoJ filed 48 cases, demolishing 2009’s record 26 actions, according to GDC’s 2010 Year-End FCPA Update. Eight of the top 10 monetary settlements in FCPA history occurred in 2010.

One recent FCPA enforcement trend that’s expected to continue is the use of tactics like those seen in the landmark January 2010 undercover FBI sting operation that netted 22 arrests. “Those types of investigative methods are being used much more frequently,” says Joseph Warin, co-chair of GDC’s white collar defense and investigations practice. “That’s a substantial sea change that places prosecutors, regulators, and law enforcement in a much more proactive mode.”

A second trend is what Warin describes as “pulling on the thread.” “Every aspect of a given transaction that might be tainted is examined and the behavior of individuals scrutinized,” he says. While the classic FCPA prosecution has typically involved U.S. residents and corporations, recipients of the improper payments and the intermediaries that carry them are implicated more often.

Two of the major trends cited by GDC include U.S. regulators’ increasing focus on industry-wide sweeps and prosecution of individuals. Nearly all of the FCPA enforcement actions in the past 12 months can be traced to a multi-defendant or industry-wide investigation that revealed numerous companies or persons engaged in coordinated or parallel schemes of unlawful conduct. A prime example is the November settlements against global freight forwarder Panalpina World Transport and six oil and oil services firms. Notably, The SEC reached Panalpina by charging that it aided and abetted and acted as an agent of its U.S.-issuer customers in their violations of the statute-a theory that could bring many more companies within the reach of the SEC’s enforcement powers, according to the alert.

Warin noted that the DoJ is seeking substantial jail time in nearly every case, which he says could result in more defendants going to trial. The alert highlights lengthy sentences in FCPA cases that also involved substantial non-FCPA counts of conviction. In April 2010, Charles Paul Edward Jumet was sentenced to 87 months in prison for his 2009 convictions on FCPA and false statements charges, and two of the defendants in the ongoing Haiti Teleco investigation were sentenced to 48 and 57 months, respectively, for FCPA and money laundering convictions.

Enforcement actions arising from the United Nations Oil-for-Food Program continued in 2010, bringing the total number of companies to settle FCPA charges in connection with the program since 2007 to 16, plus two individual defendants. Additional OFF investigations are still pending. A number of prosecutions focused on corruption in the telecommunications industry, including the recent DoJ/SEC joint settlement with Alcatel-Lucent.

2010 also saw a marked increase in collateral civil litigation. Even though the FCPA doesn’t provide for a private right of action, “plaintiffs continue to shoehorn a variety of standard civil liability theories-including securities fraud, breach of fiduciary duties, torts, and breach of contract-into a device for recovering supposed damages stemming from suspected FCPA violations,” the alert states.

Companies should also keep an eye on FCPA-related legislation introduced last year that could resurface in Congress’s next session. For instance, the Overseas Contractor Reform Act, H.R. 5366, which would mandate debarment from federal government contracting for issuers and domestic concerns “found to be in violation” of the FCPA’s anti-bribery provisions, passed the House without opposition in September. It was referred to the Senate Committee on Homeland Security and Governmental Affairs before it expired. The bill’s sponsor, Rep. Peter Welch (D-VT) is expected to reintroduce it in the new Congress.

FCPA enforcement and proposals for reform were also the subject of a November Senate Judiciary Sub-committee. While it remains to be seen whether any of the reform recommendations will gain traction, in the near term, the Sub-committee’s dissatisfaction with the level of prosecutions of individual defendants, as expressed at the hearing by Sen. Arlen Specter (D-PA), is more likely to have an effect on FCPA enforcement activity, according to the alert.

The legislative development likely to have the greatest impact on FCPA enforcement is the whistleblower program under the Dodd-Frank Act which rewards whistleblowers who voluntarily provide original information about violations of the securities laws that leads to monetary sanctions in excess of $1 million. “No matter how the SEC ultimately decides to implement the details of the Dodd-Frank whistleblower program, it is clear that the end result will be an increase in the number of suspected FCPA violations being brought to the attention of government regulators, either by whistleblowers directly or by companies that decide to make a voluntary disclosure because of the likelihood that a whistleblower will report the conduct anyway,” the alert states.

The new Dodd-Frank extractive industry disclosure provisions may also implicate future FCPA enforcement activity. The requirement to disclose all payments made to foreign governments might trigger even closer anti-corruption scrutiny of the natural resource development industry, GDC says.

Finally, while the United States is still the most active cop on the global corruption beat, foreign regulators have stepped up their anti-corruption enforcement efforts. Countries such as Denmark, Italy, and the United Kingdom implemented and actively enforced anti-graft legislation in 2010. At the same time, U.S. and foreign regulators stepped up their cross-border cooperation.