SEC: Wall Street, Meet The FCPA

Ashby Jones

Wall Street Journal

January 14, 2011

When we think of Foreign Corrupt Practices Act cases, we tend to think of big, multi-national companies. Technology behemoths. Manufacturing companies. Shipping concerns.

But scrutiny under the FCPA, a 1977 law that essentially criminalizes bribery of foreign officials, seems to be making its way to Wall Street.

The Securities and Exchange Commission is investigating whether banks and private-equity firms violated bribery laws in their dealings with sovereign-wealth funds, according to people familiar with the matter. Click here for Dionne Searcey and Randall Smith’s article in today’s WSJ; click here for the NYT story; here for the Bloomberg story; here for a story from earlier in the week from Main Justice.

According to the WSJ, the SEC has sent letters of inquiry to banks such as Citigroup as well as private-equity firms including Blackstone Group, the people said. Though the letters didn’t contain specific allegations of bribery, they requested that firms retain documents and asked about the firms’ dealings with sovereign-wealth funds, the people said.

Sovereign-wealth funds, which are investment funds owned and generally operated by overseas governments, have invested in both private-equity managers and the biggest Wall Street firms over the past several years. In some cases, the sovereign funds have helped the firms stave off collapse.

Sovereign wealth funds also invest in funds managed by private-equity firms.

The letters appear to be tied to a broad Foreign Corrupt Practices Act investigation of the banking industry, said attorneys who are familiar with past FCPA investigations of other industries. Foreign employees who work on sovereign-wealth funds would be considered government officials and covered by the FCPA, legal experts said.

“Those financial institutions that have in place effective FCPA compliance programs presumably are already addressing their FCPA risks,” said Simeon Kriesberg, a lawyer who works on FCPA issues in the Washington, D.C., office of Mayer Brown. “Those that do not have compliance programs in place may get a rude awakening.”