The More Things Change, The More They Stay the Same
With 2018 officially behind us, Michael Volkov looks at FCPA enforcement in 2018, discussing some of the DOJ’s most notable actions.
Happy New Year!
Another year is in the books for FCPA enforcement and compliance. The headline for this past year (like many other years) is/was – The more things change, the more they stay the same.
FCPA enforcement is bipartisan and immune from political winds. I may live to regret this assertion. Whether the DOJ is under Republican or Democrat control, FCPA enforcement will continue.
The DOJ’s Corporate Enforcement Policy has taken root and is beginning to show results. The number of declinations for this year has increased, although there has been no appreciable increase in declinations with disgorgements.
The numbers tell an interesting story: The Justice Department’s individual prosecutions increased over 2017. The 26 individuals include those charged with FCPA and money-laundering offenses.
The four declinations were issued pursuant to the FCPA Corporate Enforcement Policy, two of which involved disgorgement. Also, the total fines and penalties excluded amounts that were paid or offset by payments to foreign law enforcement agencies. So, for example, for the Petrobras settlement with the DOJ and SEC, a total of $170 million, was included (roughly $85 million each, excluding the discount of the DOJ criminal penalty and the alternative disgorgement to the SEC paid to settle the shareholder class action).
Criminal prosecutions of individuals have increased (and will continue to). The recent changes announced concerning Yates Memo compliance will have no impact on the DOJ’s continuing focus on individual prosecutions.
We are continuing to witness the global expansion of coordinated enforcement actions as individual countries join the enforcement fold. This year, France joined the club in a big way, and we can expect more countries to enlist.
Three big cases were brought this year: Petrobras, Panasonic Avionics and Société Générale/Legg Mason.
The Petrobras case was massive in scope and impact, with Brazil taking the bulk of the settlement. Petrobras paid the DOJ and SEC a total of approximately $170 million.
The Panasonic Avionics case was bold in that its president (now, ex-president) orchestrated a massive bribery scheme using C-Suite funds and evading basic financial controls. Panasonic Avionics also tried to shuffle its third parties by enlisting prohibited third-party agents to serve as subagents to approved agents in order to evade due diligence scrutiny.
Société Généralé paid $585 million for FCPA violations (and $275 million in a separate LIBOR matter) involving bribes to Libya’s Gaddafi-era officials. Société Généralé paid half of the penalty to the French banking regulator, Parquet National Financier. Legg Mason, a private equity fund that assisted in the bribery scheme, agreed to pay $64 million in criminal penalties.
Along with the corporate settlements and enforcement actions, the DOJ continued to focus on individual prosecutions. For 2018, the DOJ prosecuted 26 individuals for FCPA and related money-laundering charges. Approximately one-half of the individuals were charged as part of the ongoing PDVSA investigation.
The DOJ continued to fine-tune its corporate enforcement policies. The FCPA Corporate Enforcement Policy has been expanded as non-binding guidance on all criminal prosecutions of corporations. Further, the DOJ has expanded the FCPA Corporate Enforcement Policy to apply to mergers and acquisitions that involve potential FCPA violations.
The DOJ’s Anti-“Piling On” policy and its modifications to the Yates Memorandum will have little discernible impact, since they have been applied in principle prior to the formal announcement of the respective policies.
In the compliance arena, the DOJ and SEC continue to focus on corporate internal controls and adherence to aggressive remediation principles. The DOJ and SEC have identified weaknesses in internal controls in their enforcement actions and held companies to high standards when it comes to following internal controls.
Similarly, the DOJ and SEC have required companies to terminate or discipline senior executives and responsible persons for violations under a broad “knew or should have known” standard as part of remediation requirements. Companies that seek the benefits of the FCPA Corporate Enforcement Policy have to impose rigorous remediation requirements to qualify for a declination with disgorgement resolution.
This article was republished with permission from Michael Volkov’s blog, Corruption, Crime & Compliance.