Active Enforcement and Aggressive Investigative Tactics Continue

The forecast for global anti-corruption and bribery risk in 2015 is shaped by continued intense enforcement of the U.S. Foreign Corrupt Practices Act (FCPA), aggressive investigative tactics by U.S. authorities, increased multilateral cooperation, and growing prosecution of bribery offenses outside of the United States. While Transparency International’s 2014 Progress Report of the OECD Anti-Bribery Convention found that only four countries—the United States, Germany, the United Kingdom, and Switzerland—pursued “active enforcement” in anti-corruption matters, other noteworthy developments have occurred. Countries like Brazil, the Netherlands, Canada, and China show signs of increased attention to countering transnational bribery, albeit in different ways. The global landscape is indeed changing rapidly, however one looks at it.

These developments place a premium on sustained efforts by companies to implement and continually improve their anti-corruption compliance programs. Enforcement authorities hold the bar high when describing their compliance expectations. They are assigning special importance to areas like risk assessments, testing, and internationalized compliance infrastructures.

Current and Anticipated Enforcement Trends

The current and anticipated enforcement picture is dynamic. Many note a marked shift in tone from FCPA enforcement officials toward a more aggressive posture. The U.S. Department of Justice (DOJ) and Securities and Exchange Commission (SEC) are bringing to bear investigative techniques in bribery cases traditionally reserved for organized crime and drug cases. They are actively cooperating with their enforcement counterparts throughout the world.

Robust FCPA Enforcement
In 2014, FCPA enforcement remained steady and robust compared to the previous year. Based on data from Miller & Chevalier Chartered, as of November 2014 authorities were on track to collect approximately US$800 million in fines and penalties in 2014, roughly on par with those collected in 2013. While the average corporate penalty in 2013 was approximately US$72 million, as of November 2014 it was on track to be roughly US$107 million in 2014.

Over the last five years, the statistics appear even more gripping. The White House reports that, since 2009, the United States has resolved criminal FCPA cases against more than 50 corporations worldwide and has collected penalties of approximately US$3 billion.

It is important to highlight that, though considerable, the total corporate settlement penalties collected over the last two years have not been as high as in years prior. FCPA enforcement officials state that companies should not misinterpret this dip. Senior Deputy Chief of the DOJ Criminal Division’s Fraud Section James Koukios said in October 2014, “It’s fair to assume that the penalty amounts are not going to be going down,” and that there are a “bunch” of FCPA cases in the pipeline. He said that the DOJ has “more prosecutors and more resources than we’ve ever had before” dedicated to FCPA, and that the Department’s prosecutions will remain “vibrant, aggressive and appropriate.” Regional enforcement officials echo Mr. Koukios’s statements. In October 2014, SEC and DOJ officials based in Miami described a “good inventory” of cases to come involving Latin America, representing “about every type of industry that one could imagine.”

Continued Focus on Individuals
U.S. authorities continue to pursue a high-profile strategy of holding individuals accountable for foreign bribery offenses. Since 2009, they have convicted more than 50 individuals for FCPA and FCPA-related crimes, like conspiracy and money laundering. Because of the deterrent effect, the DOJ’s FCPA Unit Chief Patrick Stokes has described the agency as “very focused” on prosecuting individuals.

Perhaps more surprising, in September 2014, the DOJ Criminal Division’s Acting Principal Deputy Assistant Attorney General Marshall Miller stated that companies seeking to cooperate with the government should be prepared to give the government names of individual wrongdoers: “If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation.” This type of pronouncement from the DOJ is new.

Enforcement authorities in non-U.S. jurisdictions are targeting individuals as well. Brazilian prosecutors are investigating numerous former executives of the national oil company Petrobras and the airline manufacturer Embraer for corruption-related offenses. The United Kingdom secured sentences in August 2014 for former employees of Innospec and Aluminium Bahrain. The Royal Canadian Mounted Police is investigating three former employees of the engineering firm SNC-Lavalin for alleged bribery in Bangladesh and Libya.

Aggressive Investigative Tactics
The DOJ and SEC, with the assistance of the FBI, increasingly rely on wiretaps, body wires, border searches, physical surveillance, and other aggressive tools to investigate foreign bribery cases. These tactics were used in the recent FCPA investigations of BizJet International executives involving improper payments in Mexico, Frederic Cilins related to mining concessions in the Republic of Guinea, and PetroTiger executives who oversaw oil exploration and production services contracts in Colombia.

The DOJ’s Miller stated in late 2014 that, “Such proactive investigative tools—previously used primarily in organized crime and drug cases—have become a staple in our white-collar investigations…. I can promise you we will continue to use them.” The DOJ’s Stokes offered a similarly stern warning: “Corporate executives should wonder who is listening in on their calls and conversations.” The DOJ and SEC are also enlisting the help of a host of other government agencies in their investigations, including the Internal Revenue Service, Homeland Security, and the Department of Treasury.

Growing Multilateral Cooperation
U.S. enforcers describe a growing responsiveness from and cooperation with their counterparts throughout the world. Law enforcement officials in different jurisdictions share tips with one another. The SEC and FBI periodically host training conferences for investigators from abroad. The SEC’s Chief FCPA enforcer Kara Brockmeyer describes “more cooks in the kitchen” during investigations. Miller explains, “We’re frequently working in parallel with foreign prosecutorial law enforcement and regulatory partners. And through those relationships that we’ve developed with our foreign partners we are able to ensure that the fact multiple jurisdictions are engaging in parallel investigations doesn’t somehow render the investigation either unfair in some way or slow it down by having conflicting requests.”

U.S. officials note that such collaboration is particularly important since witnesses and documents related to schemes are often located outside of the United States. The SEC’s Miami Regional Director Thierry Olivier Desmet explains, “Having more sophisticated partners is making an impact…it is here to stay.”

Enforcement Outside of the United States
Examples of anti-bribery enforcement outside of the United States are more and more numerous. At the end of 2014, Dutch authorities reached a US$240 million settlement with oil and gas services company SBM Offshore for bribery offenses in Brazil, Angola, and Equatorial Guinea. U.S. authorities declined to prosecute in that case, despite apparent jurisdictional links to the United States. This suggests they are prepared to extend a level of deference to other countries in multijurisdictional investigations. The U.K.’s Serious Fraud Office has ongoing investigations into Rolls-Royce’s activities in China and Indonesia and the Sweett Group’s efforts to win contracts in Morocco. Brazilian authorities have exercised mutual legal assistance mechanisms to gather evidence from the United States in their investigation of Embraer executives, representing a remarkable reversal in roles—usually the United States is the country seeking the evidence.

Rise of China Enforcement
China’s investigations of medical device and pharmaceutical companies and their executives for bribery offenses raise speculation of more to come with other industries. For example, in September 2014, after a one-day trial performed in secret, a Chinese court fined GlaxoSmithKline US$492 million for improper payments to Chinese officials, drug associations, medical foundations, hospitals, and doctors. The former head of the company’s China operations, a British national, was also charged and found guilty, receiving a three-year suspended sentence and deportation. This marked the first time since 2009 that a foreign national had been charged with violating Chinese bribery laws. Cases like this raise questions over how China’s enforcement appetite will play out going forward.

Civil Litigation
For publicly listed companies, shareholder litigation will continue to stem from disclosed FCPA investigations. For example, in an ongoing suit against Wal-Mart, a federal judge in late 2014 denied the company’s motion to dismiss the securities fraud class action claims. Around the same time, a federal judge in a suit against Avon dismissed a shareholder’s argument that the company had an inadequate compliance program and misleading financial disclosures. Regardless of the ultimate success of lawsuits like these, shareholders will likely continue to bring them against companies with apparent compliance weaknesses.

Complicated Voluntary Disclosure Calculations
U.S. enforcement authorities still encourage companies to self-report violations, promising credit for cooperation and more lenient treatment. But the calculation for companies has grown more difficult. On the one hand, the Dodd-Frank whistleblower provisions mean that, if the company does not disclose an uncovered bribery issue to the government, someone else with a bounty incentive might do so. On the other hand, by self-reporting, companies can now assume that any information provided to U.S. authorities will be shared with authorities in other countries, creating a larger potential set of liabilities. Companies that choose to disclose should be careful not to inadvertently waive the attorney client privilege, making the information about the internal investigation susceptible to discovery in subsequent litigation. In late 2014, defendant Joseph Sigelman, the former CEO of PetroTiger, unsuccessfully attempted to seek production of PetroTiger’s internal investigation materials after the company voluntarily reported his misconduct to the DOJ.

Areas of Particular Importance in Anti-Corruption Compliance Programs

Enforcement authorities continue to emphasize anti-corruption compliance as a baseline expectation in international business. In addition to tone from the top, codes of conduct, policies, training, third party due diligence, internal reporting mechanisms, and other basic components of an adequate program, authorities highlight some other areas of particular importance.

Risk Assessments
One area of attention will continue to be whether companies are performing formal corruption risk assessments to understand their profiles in detail. The DOJ’s Patrick Stokes recently said, “What we want are companies that are thoughtfully identifying where their real FCPA risks are and focusing on those.” For example, a company should analyze its business with governments, reliance on third parties to interact with officials, regulatory requirements, gifts and hospitality activity, and geographic scopes of operation. Instead of adopting a template policy, a company should adopt a policy that is tailored to its actual corruption risks.

Testing and Auditing
FCPA officials emphasize the testing and auditing component of a compliance program. Companies must ensure that compliance is checked on the backend. Officials say it is not enough to rely on employees not to break the law. The SEC’s Brockmeyer explains that she has seen a “lot of paper programs, lots of boxes, forms, but no teeth, no testing.” Assistant Attorney General for the DOJ’s Criminal Division Leslie Caldwell instructs companies to “kick the tires regularly.”

Internationalized Programs
Companies should take steps to ensure that their programs are effectively implemented throughout their operations in the world. For example, policies only available in English and not translated are a sign that a compliance policy is no more than paper in nature. Miller recently said, “Despite its entrance into the market in Mexico, Orthofix failed to translate its compliance policy into Spanish or even implement its compliance policy at the subsidiary.” Programs should grow as a company grows geographically. Internal reporting mechanisms, training strategies, and communications of tone from the top should all be designed to reach a company’s personnel located throughout the globe.

Responding to Multiple Legal Regimes
Depending on the exposure of a company, an FCPA-specific program might not be sufficient to fully address risk. This is because different countries have different nuances in their legal regimes. The UK Bribery Act extends to commercial bribery and prohibits facilitating payments. The Brazilian Clean Companies Act prohibits fraud more generally in public procurements. Mexico’s Criminal Code creates strict value limits for gifts to Mexican officials. Sanctionable conduct at multilateral development banks reaches further than corruption and fraud. Because of these variations, programs should be fine-tuned to address potential liabilities in all applicable jurisdictions.

Matteson Ellis ECA Expert Matteson Ellis has extensive experience in international anti-corruption compliance and enforcement, including the U.S. Foreign Corrupt Practices Act (FCPA). He has worked on anti-corruption matters in multiple capacities, including prevention, detection, remediation, investigation, defense, and enforcement. Mr. Ellis focuses particularly on the Americas, having spent several years in the region working for a Fortune 50 multinational corporation and a government ethics watchdog group.