with co-authors John Carney and Margaret Hirce
Appearing before the annual Securities Docket Conference in Washington, D.C. on October 13, Kara Novaco Brockmeyer, the Chief of the Securities and Exchange Commission’s FCPA Unit, laid out the Commission’s FCPA enforcement priorities, including insight on how to avoid an SEC-imposed monitor.
The conference was held just days after the Commission released its fiscal year 2016 enforcement statistics, which showed a record-high 21 FCPA-related enforcement actions and whistleblower awards totaling $57 million — a monetary amount more than all previous years combined. In releasing the statistics, Chair Mary Jo White noted the enforcement program’s “resounding success holding executives, companies and market participants accountable for their illegal actions.”1 Part of the success, reported White, is due to the development of “new data analytics to uncover fraud, enhancing [the Staff’s] ability to litigate tough cases, and expanding the playbook bringing novel and significant actions to better protect investors and our markets.”2
FCPA actions in 2016 covered activity from Asia to Africa to South America, and according to Brockmeyer, there are more in the pipeline. Brockmeyer highlighted major FCPA actions in 2016, including its first against a hedge fund, Och-Ziff, for not only violations of the FCPA, but also of the Investment Advisor Act related to using investor funds in the bribery scheme. The Commission also pursued five FCPA cases against pharmaceutical companies in connection with a sweep of the pharmaceutical industry. Each of these five actions involved Chinese entities and individuals. In the context of the Department of Justice’s pronouncements in the Yates Memo, Brockmeyer addressed the Commission’s demonstrated commitment to hold individuals accountable for FCPA violations, noting that one-third of the actions in 2016 were against individuals.
Both whistleblower tips and international cooperation played an important role in FCPA actions in 2016. Brockmeyer stated that whistleblowers and international cooperation are two primary sources of FCPA cases. One “more and more useful source” for cases is whistleblower complaints. Brockmeyer urged companies to take whistleblower actions seriously, noting that the Staff has recently brought whistleblower protection cases including for retaliatory acts and the use of inappropriate contract language that “chills” whistleblower communications with regulators. Additionally, reciprocal international cooperation continues to grow as U.S. regulators and criminal authorities work with their foreign counterparts on investigations and global settlements.
Critical to the panel discussion was the Commission’s view on cooperation and remediation, the effect of these factors on corporate penalties and the Commission’s decision on whether to impose a monitor. Brockmeyer noted the significant benefit afforded companies that find and fix problems before the government knocks on the door. Brockmeyer spoke about the Commission’s policy that companies are only eligible for a deferred prosecution agreement (DPA) or a non-prosecution agreement (NPA) with the SEC if they self-report.3 She highlighted that following the announcement of that policy, the Commission announced two NPAs on the same day against Akamai Technologies, Inc. and Nortek, Inc., remarking that both companies self-reported and disgorged profits. The companies were not required to pay additional monetary penalties, and Brockmeyer noted that depending on the level of cooperation and remediation, a company may succeed in being penalized a fraction of the disgorgement amount. Similarly, Brockmeyer, in discussing the benefits the SEC affords to companies that fully cooperated, pointed to the Commission’s recent initiation of a settled enforcement action against Jun Ping Zhang, the former Chairman and CEO of the Chinese subsidiary of Harris Corporation, where the Commission did not pursue an action against the company because of the company’s extensive cooperation and remediation.4 Brockmeyer noted this is only the second time the Commission had approved such a favorable resolution.
Brockmeyer stressed that the staff will take a hard look at cases involving incomplete disclosure or cooperation, noting that imperfect self-disclosure can weigh in favor of prosecution. Brockmeyer cited the case as an example where a Chinese company suffered a much heavier sanction because the Commission learned through a former employee that the company had minimized its disclosure of the misconduct.
According to Brockmeyer, for a company that violated the FCPA, but wishes to avoid a monitor, the company should be making immediate improvements to its compliance program to prevent future violations so that at the end of the investigation, it will be able to demonstrate a track record of having an effective program that is working to prevent violations. Even a state-of-the-art compliance program will not be effective in convincing the SEC not to impose a monitor if the program has been in place only two months. As Brockmeyer noted, “the late-to-the-party company [in implementing effective compliance measures] is much more likely to get a monitor imposed.”
1 Release 2016-212, U.S. Securities and Exchange Commission, SEC Announces Enforcement Results for FY 2016 (Oct. 11, 2016), https://www.sec.gov/news/pressrelease/2016-212.html.
3 See Speech, ACI’s 32nd FCPA Conference Keynote Address, Andrew Ceresney, Director Division of Enforcement (Nov. 17, 2015) (“the Enforcement Division has determined that going forward, a company must self-report misconduct in order to be eligible for the Division to recommend a DPA or NPA to the Commission in an FCPA case”).
4 In the Matter of Jun Ping Zhang, Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order, Securities and Exchange Act of 1934 Release No. 78825, Accounting and Auditing Enforcement Release No. 3800, Admin. Proceeding File No. 3-17535 (Sept. 13, 2016).