2011 FCPA Enforcement: All Sticks, No Carrots?

1/4/2011 COMMENTS (0)

In a previous post, The October Surprise, we discussed the significant uptick in the number of high-profile lawsuits and settlements involving the SEC and Department of Justice and the stiff financial penalties for companies and individuals perceived by these agencies as taking lightly their regulatory obligations.  In this post we examine the potential collateral costs of a weak compliance program as governments (foreign and domestic) entering 2011 ratchet-up enforcement efforts under the Foreign Corrupt Practices Act (FCPA) or similar anti-corruption legislation.

As we have noted in other contexts, the decision by companies to voluntarily report past wrongdoing and pursue settlements or other resolutions with regulators is a difficult one.  This challenge is particularly acute in the FCPA arena where multiple jurisdictions may be implicated and, as a result, companies face unknown and unpredictable ranges of possible outcomes.

A recent report by the Organization for Economic Co-Operation and Development (OECD Report) notes, “complications often arise when the law in the U.S. is different from that of the foreign state.”

The OECD is an intergovernmental economic organization tasked with monitoring the implementation and enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, a convention adopted by 38 countries, including the United States, which established legal standards to criminalize bribery of foreign officials.

The OECD Report, which addressed the United States’ enforcement of these standards, provides several examples in which disclosure to U.S. authorities led to unintended but nonetheless difficult consequences, such as public disclosure of confidential information in foreign proceedings.

While the United States has touted the “credit” it offers for self-disclosure and cooperation, that credit may be of limited value if the company faces harsh penalties in a foreign country based on variations in the weight given to certain factors across jurisdictions.  As the record-setting penalties in the cases against Siemens illustrates, the penalties from foreign governments may be just as significant as the sanctions imposed by U.S. authorities under the FCPA; out of a combined total of $1.6 billion in penalties, more than $800 million went to non-U.S. authorities.

Commentators and the defense bar have long argued, in the face of uncertainty, for more specific guidance regarding the use of settlement agreements and for an amnesty program similar to that permitted in antitrust conspiracy cases.  The government’s willingness to provide more guidance or benefits, however, appears to be increasingly limited.  The OECD Report confirmed that the private sector and government continue to disagree about the amount and type of guidance that should be provided.

In his comments before the Senate Judiciary Committee, Deputy Assistant Attorney General of the Justice Department’s criminal division, Greg Andres seemingly ended the debate for amnesty at least from the Department’s perspective.

Stating “[w]e don’t believe that immunity is appropriate, just as we don’t believe that a bank robber could get immunity for disclosing that he robbed a bank,” Mr. Andres gave a more conclusive statement than Assistant Attorney General Lanny Breuer made just one month prior when he said, “[a]lthough I think there are significant differences between foreign bribery and antitrust violations, I can at least tell you that we listen to considered suggestions of [such amnesty programs].”

While we don’t dispute that differences exist between these violations, the incentives created by an amnesty program could align with the Justice Department’s focus on eliminating bribery and corruption on an industry-wide basis.

Increased guidance and assurances, such as amnesty, in exchange for enhanced compliance and cooperation would encourage companies to take a hard look at corporate practices and undertake remedial measures to reduce the possibility of FCPA violations.  Without such assurances, companies may have little incentive to devote the resources needed to uncover potential FCPA violations and may take their chances, by doing a “reasonable” but less than completely vigorous job in their internal investigations and compliance programs.

As a result, we think there is a real danger that these efforts may satisfy the obligations imposed by the FCPA but still miss the opportunity to significantly enhance the quality of compliance policies and implement potentially game-changing steps in the battle against bribery and corruption.