DOJ and SEC Release Second Edition of FCPA Guide
On July 3, 2020, the Criminal Division of the Department of Justice (DOJ) and the Enforcement Division of the US Securities and Exchange Commission (SEC) released the second edition of “A Resource Guide to the US Foreign Corrupt Practices Act” (2020 Guide), providing the first comprehensive update to the 100+ page publication in nearly eight years. Like the original Guide published in November 2012 (2012 Guide), the 2020 Guide does not announce any new policies or offer many real surprises for those familiar with the Foreign Corrupt Practices Act (FCPA); rather, it collects and compiles in a single resource a discussion of the FCPA provisions as well as other related US laws, and most importantly, updated key guidance and information on how US officials interpret and enforce the FCPA against companies and individuals.
The 2020 Guide retains the same structure and much of the same content as the 2012 Guide, but it incorporates important developments in governmental guidance and enforcement policies, relevant case law and recent enforcement actions. For a comprehensive analysis of the substantive changes between the 2012 Guide and 2020 Guide, please see the Appendix below. A redline comparing the two editions can also be found here.
Incorporation of Recent DOJ and SEC Policies and Practices
Since the 2012 Guide, DOJ has announced numerous FCPA-related policies and other guidance documents that are now discussed in the 2020 Guide along with examples of how the policies have been implemented in certain cases.
- FCPA Corporate Enforcement Policy (December 2017, updated November 2019): describes DOJ’s corporate leniency policy when companies timely and voluntarily self-disclose misconduct under the FCPA, cooperate fully with the government’s investigation and take appropriate remediation measures (p. 51–54, 76–77, 79);1
- Policy on Coordination of Corporate Resolution Penalties (May 2018), also known as the no “piling-on” policy: explains a general policy against imposing duplicative penalties where other state, federal or foreign authorities are investigating and resolving enforcement actions related to the same misconduct (p. 71);
- Selection of Monitors in Criminal Division Matters (October 2018): provides guidance on when and how DOJ decides whether to impose a monitor as part of a corporate resolution (p. 74); and
- Criminal Division’s Evaluation of Corporate Compliance Programs (April 2019, updated June 2020): emphasizes the importance of corporate compliance programs, as well as outlines factors that federal prosecutors should consider and questions they should ask when assessing the effectiveness of corporate compliance programs for the purposes of charging decisions, sentencing recommendations, and determining reporting and monitoring requirements as part of a corporate resolution (p. 67–68).2 The 2020 Guide’s addition of a new section on “Investigation, Analysis, and Remediation of Misconduct” (p. 67) to its “Hallmarks of Effective Compliance Programs” brings it in closer alignment with the Compliance Guidance, with both documents emphasizing that a key measure of an effective compliance program is how it responds to misconduct.
Additional Guidance on Successor Liability, Scope of Accounting Provisions and Limitations Periods for FCPA Violations
The 2020 Guide also provides additional guidance on areas of FCPA enforcement that are frequently the subject of uncertainty or confusion. For example, while the 2012 Guide discussed successor liability in the context of mergers and acquisitions, the 2020 Guide acknowledges that, in some cases “robust pre- acquisition due diligence may not be possible” and confirms that, in such instances, enforcement officials will consider the speed and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts. The 2020 Guide uses two recent enforcement actions—one in which the successor entity was held liable and one in which DOJ and SEC brought only charges against the predecessor companies—to illustrate the factors that authorities consider when making such charging decisions and to highlight that “more often, DOJ and SEC have pursued enforcement actions against the predecessor company (rather than the acquiring company), particularly when the acquiring company uncovered and timely remedied the violations or when the government’s investigation of the predecessor company preceded the acquisition.” (p. 29–30)
In addition, the 2020 Guide clarifies that the accounting provisions refer to internal accounting controls, not just internal controls. The updated guidance addresses the intersection of internal accounting controls and compliance programs, noting that while the two may have overlapping elements, they are “not synonymous.” (p. 40–41)
The 2020 Guide also addresses the limitations periods applicable to FCPA violations in two important ways. First, the new guidance discusses the US Supreme Court’s unanimous decision in SEC v. Kokesh, finding that disgorgement is a penalty and thus subject to the five-year limitations period in 28 USC § 2462. (p. 37, 71). Second—and one of the few surprises in the updated guidance—the 2020 Guide states that DOJ applies a six-year statute of limitations for criminal violations of the FCPA’s accounting provisions on the basis that such violations are “securities fraud offense[s]” under 18 USC § 3301. (p. 36)
New Case Law
While the case law interpreting the FCPA remains thin, the focus on individual accountability in enforcement actions in recent years has resulted in more cases proceeding to trial and thus more insight into how courts think about the FCPA and related issues. In addition to the Kokesh case discussed previously, the 2020 Guide addresses several other prominent cases and their significance for FCPA-related jurisprudence on several important issues:
- Definition of “Instrumentality”—United States v. Esquenazi, 752 F.3d 912 (11th Cir. 2014), in which the Eleventh Circuit concluded that the state-owned-and -controlled telecommunications company in Haiti is an instrumentality of a foreign government such that its employees are foreign officials. The court made clear that whether an entity constitutes an “instrumentality” of a foreign government is a fact-bound inquiry and provided a nonexhaustive list of factors to determine whether the government “controls” the entity and whether the entity performs a function that the government treats as its own. (p. 20)
- Narrowness of the Local Law Affirmative Defense—United States v. Ng Lap Seng, No. 15-cr-706 (SDNY July 26, 2017), in which a federal district court rejected the defendant’s proposed jury instruction for the local law defense where the defendant argued that a finding by the jury that the payments were not unlawful under the written local laws would require acquittal. The court held that the proposed instruction was “inconsistent with the plain meaning of the language of the written laws and regulations affirmative defense contained in the FCPA,” and that, if applied, the requested instruction “would lead to impractical results.” (p. 24)
- Remaining Uncertainty Over Aiding and Abetting and Conspiracy Charges—United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018), in which the Second Circuit found that an individual who could not be held liable for direct violations of the anti-bribery provisions could not be prosecuted for conspiracy to violate the FCPA or aiding and abetting a violation of the FCPA. The 2020 Guide appears to downplay the significance of the Hoskins decision, neglecting to discuss subsequent developments in the case, noting at least one district court in another circuit has rejected the Hoskins decision, and taking the position that conspiracy and aiding-and-abetting theories are still applicable in the context of the FCPA’s books and records and internal controls provision because they apply by their terms to “any person.” (p. 36)
Recent Enforcement Actions
The 2020 Guide includes a number of updates to case studies and hypotheticals and adds examples from post-2012 enforcement actions to discuss topics including gifts or payments to third parties; payments to employees of agencies and instrumentalities of foreign governments; liability for the misconduct of third-party agents or intermediaries; ineffective internal controls and compliance programs; and the assessment of FCPA penalties, among other subjects.
The 2020 Guide helpfully highlights some of the more significant developments in the interpretation and application of the FCPA over the past eight years through policy guidance, case law and enforcement actions. Like the original 2012 Guide, the 2020 Guide is a useful and comprehensive compendium of valuable information and instructive insights on DOJ and SEC’s views on these issues, and it will serve as a go-to resource by practitioners and companies alike for the foreseeable future.
Overview of All Substantive Changes Between the 2012 Guide and the 2020 Guide
Chapter 1: Introduction (p.1)
The Costs of Corruption (p.2)
- Adds a series of cases involving allegations of kickbacks to footnote 9 about embezzlement.
National Landscape: Interagency Efforts
Law Enforcement Partners (p.5)
- Updates the list of other federal agencies involved in the fight against international corruption, including the Board of Governors of the Federal Reserve System, the Commodity Futures Trading Commission and the Financial Crimes Enforcement Network.
- Includes new contact information and a description of services provided by the International Trade Administration’s United States and Foreign Commercial Service (Commercial Service) and the Office of Trade Agreements Negotiations and Compliance in the Department of Commerce’s Internal Trade Administration.
International Landscape: Global Anti-Corruption Efforts (p.7)
Chapter 2: The FCPA: Anti-Bribery Provisions (p.9)
Who Is Covered by Anti-Bribery Provisions? (p.9)
- Clarifies that the FCPA applies to stockholders when they act “on behalf of” an issuer or domestic concern.
Issuers-15 USC § 78dd-1 (p.10)
- Updates the number of foreign companies registered with SEC from 965 on December 31, 2011, to 923 as of December 31, 2015.
Domestic Concerns—15 USC § 78dd-2 (p.10)
- Clarifies that “domestic concerns” are distinct from “issuers.”
What Is Covered? (p. 11)
What Does “Corruptly” Mean? (p.13)
What Does “Anything of Value” Mean?
- Adds discussion of United States v. Odebrecht SA, No. 16-cr-643 (EDNY Dec. 21, 2016), in which Odebrecht allegedly developed a secret financial structure, which included the use of external moneychangers, that operated to make and account for corrupt payments to foreign officials.
Gifts, Travel, Entertainment, and Other Things of Value (p.15)
- Discusses United States v. SBM Offshore, N.V., No. 17-cr-686 (SD Tex. Nov. 21, 2017) as an example of extravagant gift-giving in the form of paying for foreign officials to travel to sporting events and providing them with spending money, paying for school tuition for the children of foreign officials and shipping luxury vehicles to foreign officials.
- Adds discussion of United States v. Telefonaktiebolaget LM Ericsson, No. 19-cr-884 (SDNY Dec. 6, 2019) to illustrate the types of improper travel and entertainment expenses that may violate the FCPA.
- Describes the conduct at issue in DOJ and SEC enforcement actions against Credit Suisse, one of the “princeling” cases involving the alleged hiring, promotion and retention of the children of Chinese officials to win business.
Who Is a Foreign Official? (p. 19)
Department, Agency or Instrumentality of a Foreign Government (p.20)
- Indicia of government “control” (per the Esquenazi court)
- the foreign government’s formal designation of that entity;
- whether the government has a majority interest in the entity;
- the government’s ability to hire and fire the entity’s principals;
- the extent to which the entity’s profits, if any, go directly into the governmental fiscal accounts, and, by the same token, the extent to which the government funds the entity if it fails to break even; and
- the length of time these indicia have existed.
- Indicia of a function that the government treats as its own (per the Esquenazi court)
- whether the entity has a monopoly over the function it exists to carry out;
- whether the government subsidizes the costs associated with the entity providing services;
- whether the entity provides services to the public at large in the foreign country; and
- whether the public and the government of that foreign country generally perceive the entity to be performing a governmental function.
- Notes that courts in other circuits have approved final jury instructions providing similar nonexclusive lists of factors to be considered.
Public International Organizations (p.22)
- Cites United States v. Ng Lap Seng and United States v. Dmitrij Harder as cases in which DOJ has charged individuals for making payments to employees and representatives of public international organizations—in Ng, ambassadors to the United Nations, and, in Harder, an official at the European Bank for Reconstruction and Development.
How Are Payments to Third Parties Treated? (p.22)
What Affirmative Defenses Are Available?
The Local Law Defense (p.24)
Principles of Corporate Liability for Anti-Bribery Violations (p.28)
Parent Subsidiary Liability (p.28)
Successor Liability (p.29)
- TechnipFMC plc and Technip Offshore USA Inc.—following the merger of two companies (one an issuer and one a former issuer) that had each engaged in pre-merger bribery, DOJ and SEC brought enforcement actions against the new successor entity and DOJ brought charges against the successor’s US-based subsidiary.
- Alstom SA and Alstom Grid Inc.—example of a case in which DOJ and SEC brought charges against the predecessor companies that engaged in pre-acquisition bribery but not against the acquiring new parent which had uncovered and timely remedied the violations.
Additional Principles of Criminal Liability for Anti-Bribery Violations: Aiding and Abetting and Conspiracy (p.36)
- Discusses United States v. Hoskins, in which the Second Circuit held that individuals not directly covered by the FCPA anti-bribery provisions could not be guilty of conspiring to violate or aiding and abetting a violation of those provisions.
- Cites United States v. Dmitry Firtash as an example where a district court in another circuit rejected the reasoning in Hoskins and held that defendants who could not be held criminally liable for a substantive FCPA violation could nonetheless be charged with and found guilty of conspiracy to violate the FCPA’s anti-bribery provisions and aiding and abetting a violation.
What Is the Applicable Statute of Limitations?
Statute of Limitations in Criminal Cases (p.36)
Statute of Limitations in Civil Actions (p.37)
- Discusses the Supreme Court’s ruling in Kokesh v. SEC, finding that disgorgement constitutes a “penalty,” and accordingly is subject to the five-year statute of limitations under 28 USC § 2462. More analysis of the Kokesh decision can be found in Arnold & Porter’s “Supreme Court Unanimously Holds That Five-Year Limitations Period Applies to SEC Civil Disgorgement Claims” advisory(June 7, 2017).
Chapter 3: The FCPA: Accounting Provisions (p.38)
What Is Covered by the Accounting Provisions?
Books and Records Provision (p. 39)
- Confirms that DOJ and SEC consider the nature and seriousness of the conduct in determining whether to pursue an enforcement action based on the books and records provision.
Internal Accounting Controls Provision (p.40)
- Changes the name of this section from “Internal Controls Provision” to “Internal Accounting Controls Provision” and includes the word “accounting” at various points when discussing “internal accounting controls.”
- Links the connection between internal accounting controls with a company’s overall compliance program, explaining that “[a]lthough a company’s internal accounting controls are not synonymous with a company’s compliance program, an effective compliance program contains a number of components that may overlap with a critical component of an issuer’s internal accounting controls.”
- Notes that both internal accounting controls and corporate compliance programs must be tailored to each company’s operations and attendant risks.
Who Is Covered by the Accounting Provisions?
Criminal Liability for Accounting Violations (p.45–46)
- Highlights that criminal liability for FCPA accounting violations requires a demonstration that the person or company charged “knowingly and willingly” failed to comply with FCPA’s books and records or internal controls provisions.
- As an example, discusses in detail the deferred prosecution agreement from United States v. Och-Ziff Capital Mgmt. Group LLC, in which a US hedge fund falsified its books and records and failed to implement a system of internal controls relating to due diligence for a wide range of conduct.
- Also mentions the deferred prosecution agreement that Panasonic Avionics Corporation entered into to resolve charges that the company knowingly and willfully caused its Japanese-parent issuer to falsify its books and records in connection with the improper retention of consultants and concealment of payments to third-party sales agents.
Conspiracy and Aiding and Abetting Liability (p.46)
- Takes the position that the FCPA’s accounting provisions are not subject to the reasoning underlying the Second Circuit’s decision in Hoskins limiting conspiracy and aiding and abetting liability under the FCPA anti-bribery provisions, because the accounting provisions apply to “any person.”
Chapter 4: Other Related US Laws (p.48)
Money Laundering (p.49)
- Warns that, even though foreign officials cannot be prosecuted for FCPA violations, “they can be prosecuted for money laundering violations where the specified unlawful activity is a violation of the FCPA.”
Chapter 5: Guiding Principles of Enforcement (p.50)
What Does DOJ Consider When Deciding Whether to Open an Investigation or Bring Charges? (p.50)>
DOJ Principles of Federal Prosecution of Business Organizations (p.50–51)
- Updates and expands the number of factors set forth in the “Principles of Federal Prosecution of Business Organization” (Chapter 9-27.000 in the Justice Manual) that federal prosecutors consider when conducting an investigation, determining whether to charge, and negotiating a plea or other agreements. New or revised factors include:
- “the corporation’s willingness to cooperate with the government’s investigation, including as to potential wrongdoing by the corporation’s agents;”
- “the adequacy and effectiveness of the corporation’s compliance program at the time of the offense, as well as at the time of a charging or resolution decision;”
- the adequacy of remedies like civil or regulatory enforcement actions, “including remedies resulting from the corporation’s cooperation with relevant government agencies;” and
- “the adequacy of the prosecution of individuals responsible for the corporation’s malfeasance.”
DOJ FCPA Corporate Enforcement Policy (p.51–54)
- Adds an entirely new subsection on DOJ’s FCPA Corporate Enforcement Policy (CEP), announced in 2017, which provides that when a company voluntarily self-discloses misconduct in an FCPA matter, fully cooperates, and timely and appropriately remediates, there will be a presumption that DOJ will decline prosecution of the company absent aggravating circumstances. For additional details and analysis on the CEP, see Arnold & Porter’s “DOJ Announces New FCPA Corporate Enforcement Policy” advisory (Dec. 4, 2017).
- Notes that the CEP is a DOJ policy and does not apply to SEC.
- Describes in detail three cases in which DOJ declined to bring charges in FCPA matters based on a variety of factors, including:
- Timely, voluntary self-disclosure of the misconduct;
- Thorough and comprehensive investigation by the company;
- Cooperation (including provision of all known relevant facts about the misconduct) and agreement to continue to cooperate in DOJ’s ongoing investigations and/or prosecutions;
- Agreement to disgorge to DOJ all profits from the illegal conduct;
- Existence of and effectiveness of preexisting compliance program;
- Enhancements to the company’s compliance program and internal accounting controls;
- Remediation measures, including termination and/or discipline of all the executives, employees and/or contractors involved in the conduct;
- Fact that DOJ was able to identify and charge the culpable individuals;
- Nature and seriousness of the offense; and
- Adequacy of remedies such as civil or regulatory enforcement actions, including a company’s resolution with SEC and agreement to pay civil penalties.
- Changes section’s title from “What Does SEC Consider When Deciding Whether to Open an Investigation or Bring Charges” to “What Does SEC Staff Consider When Deciding Whether to Open an Investigation or Recommend Charges.”
- Adds link to SEC’s Enforcement Manual.
Self-Reporting, Cooperation and Remedial Efforts; Criminal Cases (p.55)
Corporate Compliance Program (p.57)
- “Is the company’s compliance program well designed?
- “Is it being applied in good faith? In other words, is the program adequately resourced and empowered to function effectively?”
- “Does it work in practice?”
Continuous Improvement: Periodic Testing and Review (p.66):
- Deletes a reference to a 2009 survey finding that 64 percent of general counsel whose companies were subject to the FCPA reported that there was room for improvement, training and compliance programs.
Investigation, Analysis and Remediation of Misconduct (p.67)
Other Guidance on Compliance and International Best Practices (p.67)
Chapter 6: FCPA Penalties, Sanctions and Remedies (p.69)
Civil Penalties (p.71)
- Updates the amount of the civil penalty that corporations, other business entities and individuals, including officers, directors, stockholders and agencies of companies, may be charged per violation of the anti-bribery provision from $16,000 to $21,410.
- Clarifies that SEC can obtain a civil penalty for violations of the accounting provisions “in district court actions.”
- Updates for inflation the specified dollar limitations of the civil penalties that SEC may impose for violations of the accounting provisions to a range of $9,639 to $12,768 for an individual and $96,384 to $963,837 for a company (from $7,500–$75,000 for an individual and $75,000–$750,000 for a company).
Forfeiture and Disgorgement (p.71)
Coordinated Resolutions and Avoiding “Piling On” (p.71)
- Adds a new section focused on the efforts of DOJ and SEC to avoid imposing duplicative penalties for the same conduct when resolving cases against companies.
- Notes that enforcement officials try to credit fines, penalties, forfeitures, and disgorgement of foreign authorities dealing with the same company for the same conduct and cites United States v. Braskem SA as a case in which DOJ, SEC, Brazilian authorities, and Swiss authorities credited one another in imposing fines and disgorgement.
- Reports that DOJ has coordinated resolutions with foreign authorities in more than 10 cases and that SEC coordinated resolutions with foreign authorities at least five times.
- References the Justice Manual’s instruction to prosecutors to avoid “piling on” penalties, by coordinating with and considering fines and penalties paid to other state, local or foreign enforcement authorities seeking to address the same conduct.
- Lists certain factors that prosecutors should consider when determining whether and how much to credit another authority, including “the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities.”
- Updates reference from “The US Attorney’s Manual” (USAM § 9-28.1300 (2008)) to “The Justice Manual” (JM § 9-28.1500.B.) to reflect change in resource’s name in explaining that, when a company engages in fraud against the government, a prosecutor cannot negotiate away an agency’s right to debar or delist the company as part of the plea bargaining process.
When Is a Compliance Monitor or Independent Consultant Appropriate? (p.74)
- “(a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems;”
- “(b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management;”
- “(c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and”
- “(d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future.”
- “Nature and seriousness of the offense;”
- “The risk profile of the company, including its nature, size, geographical reach, and business model;”
- “Subsequent remediation efforts and quality of the company’s compliance program at the time of resolution;” and
- “Whether the company’s current compliance program has been fully implemented and tested.”
Chapter 7: Resolutions
What Are the Different Types of Resolutions with DOJ?Deferred Prosecution Agreements (p.76)
- Mentions that other countries like the UK and France have also “instituted DPA-like frameworks to resolve corporate matters whereby a company can avoid prosecution if it adheres to conditions imposed upon it for a set period of time.”
- Reiterates that, in the case of companies, DOJ’s decision to bring or decline to bring an enforcement action under the FCPA is made pursuant to the Corporate Enforcement Policy (CEP) and the Principles of Federal Prosecution of Business Organizations.
- Repeats the new factors from the Principles of Federal Prosecution of Business Organizations: “whether the company voluntarily self-disclosed the misconduct; the extent of the company’s cooperation with the government’s investigation; the company’s remediation; the collateral consequences that would flow from the resolution;” [and] the adequacy of prosecutions against individuals.”
- Discusses DOJ’s implementation of the CEP, noting that it is intended to “provide additional incentives and benefits to companies that voluntarily self-disclose misconduct, fully cooperate, and fully remediate, including a presumption of a declination (with the disgorgement of ill-gotten profits), absent aggravating circumstances.”
- Notes that declinations are made public on the DOJ/FCPA website.
What Are the Different Types of Resolutions with SEC?
Civil Injunctive Actions and Remedies (p.77)
- Clarifies that in a civil injunctive action, SEC seeks a court order “enjoining the defendant from future violations of the laws charged in the action.”
Civil Administrative Actions and Remedies (p.78)
- Notes that SEC can “order other relief to effect compliance with the federal securities laws” under Section 21B of the Exchange Act.
Termination Letters and Declinations (p.79
- Changes language about protecting privacy rights from “SEC does not provide non-public information on matters it has declined to prosecute” to “SEC does not provide non-public information related to closed investigations unless required by law.”
- Notes that DOJ’s announced declinations of companies that voluntarily self-disclose, fully cooperate, and timely and appropriately remediate under the CEP are exceptions to DOJ and SEC’s general practice of not publicizing declinations.
Chapter 8: Whistleblower Provisions and Protections (p.82)
- Adds the web address for SEC’s Tips, Complaints, Referrals (TCR) system, and complaint form.
Chapter 9: DOJ Opinion Procedure (p.84)
- There are no changes to Chapter 9: DOJ Opinion Procedure.
Chapter 10: Conclusion (p.86)
- Only change is to update the number of years since the FCPA was enacted (from 35 to 43 years ago).
For further analysis on the FCPA Corporate Enforcement Policy, see Arnold & Porter’s DOJ Announces New FCPA Corporate Enforcement Policy advisory (Dec. 4, 2017).
See Arnold & Porter’s advisories on the original and updated guidance DOJ Issues New Guidance on Evaluating the Effectiveness of Compliance Programs (May 6, 2019) and Updated DOJ Guidance on Evaluation of Corporate Compliance Programs Provides Additional Detail to the Existing Framework for Program Assessment (June 3, 2020).