In February, the Department of Justice’s Fraud Section offered a new perspective on what the government expects in a compliance program in the form of a series of questions that companies should be prepared to answer about their program. Although some reported these questions provided limited, if any, new information, we see it differently. The guidance offers companies an unusually detailed roadmap for building or assessing their compliance program when it is explored in conjunction with past guidance.
This is the first in a series of posts where we will explore key topics for companies of all sizes from the questions posed within the recent guidance.
A commitment from high-level management is typically the first compliance component discussed in government guidance and Deferred Prosecution Agreements. Commonly referred to as “Tone at the Top,” this critical concept has previously been described in vague, generic ways. See, for example, this excerpt from Attachment C of DOJ’s recent DPA with Embraer S.A., which is identical to language in many other agreements:
“The Company will ensure that its directors and senior management provide strong, explicit, and visible support and commitment to its corporate policy against violations of the anti-corruption laws and its compliance code.”
Without fanfare or forewarning, the US Department of Justice released new anti-corruption compliance guidance on February 8, 2017. The eight page document provides rare insight into the government’s evaluation of corporate compliance programs. Companies designing compliance programs, conducting internal investigations, or facing a bribery or books and records-related government inquiry can now look to the appropriately titled “Evaluation of Corporate Compliance Programs” for a hint at the types of questions they should be prepared to answer.
As emphasized in the Department of Justice and Security and Exchange Commission’s November 2012 FCPA Resource guide, DOJ’s recent guidance again reinforces that a compliance program should be individualized to a company’s risk profile, and so should the government’s evaluation of the program. The guidance is clearly not a checklist that applies to all. It does, however, provide more detail about the way a company should evaluate its own program. Companies can leverage the information to design more robust compliance programs and better respond to potential violations. READ MORE
On September 12, 2016, the SEC announced that it had reached a settlement with Jun Ping Zhang (“Ping”), a former executive of a Chinese subsidiary of Harris Corporation (“Harris”), regarding alleged violations of the Foreign Corrupt Practices Act (“FCPA”). The settlement was unusual, in that the SEC declined to also bring charges against Harris, an international communications and information technology company.
In a move that highlights both the increased focus on holding individuals accountable and the credit that can be earned through cooperation, the U.S. Securities and Exchange Commission (“SEC”) announced last week that, for the first time, it entered into a deferred prosecution agreement (“DPA”) with an individual allegedly involved in a Foreign Corrupt Practices Act (“FCPA”) case. On February 16, 2016, the SEC announced a DPA with Yu Kai Yuan, a former employee of software company PTC Inc.’s Chinese subsidiaries. The SEC agreed to defer civil FCPA charges against Yu for three years in recognition of his cooperation during the SEC’s investigation. PTC also reached a settlement with the SEC, in which the company agreed to disgorge $11.8 million. Prior to the Yu DPA, the SEC had entered into one DPA with an individual in November 2013, in a matter involving a hedge fund manager allegedly stealing investor assets. However, never before this time was a DPA with the SEC related to an FCPA case.
Internal investigations are an ever-present challenge for companies. They can involve virtually any topic and arise in myriad ways. Embezzlement, accounting improprieties, bribery, and financial statement adjustments can all lead to a closely scrutinized investigation, with likely triggers of whistleblower reports, news articles, litigation demands, or regulatory inquiries. The common denominator is that they present high pressure and/or high stakes. Consequently, it is imperative that matters not be made worse through a flawed internal investigation. In today’s post, we cover some of the essential topics to keep in mind when managing an internal investigation to ensure that the investigation itself does not cause or exacerbate harm to the company.
As we have previously discussed in prior posts, shareholder demands to inspect confidential corporate information are being made with increased frequency, and are forcing more and more companies to grapple with their legal obligations to respond. Earlier this month in Fuchs Family Trust v. Parker Drilling, the Delaware Court of Chancery issued further guidance, and explained why in certain cases, companies need not provide any information at all.
On February 24, 2015, the SEC announced that it had reached an agreement with Goodyear Tire & Rubber Co. (“Goodyear”) for Goodyear to disgorge more than $16 million to settle FCPA charges stemming from its Kenyan and Angolan subsidiaries. This settlement is notable because it focuses on bribery involving private companies as opposed to official corruption, which is typically prosecuted by the SEC. While the FCPA’s anti-bribery provisions apply only to improper payments to foreign officials, the SEC charged Goodyear with violations of the FCPA’s books and records provisions, which have no such requirement and instead require a company to keep records that “accurately and fairly reflect the transactions and dispositions of the assets of the issuer” and to “devise and maintain a system of internal accounting controls” sufficient to ensure the integrity of the company’s financial records. This use of the books and records provisions is important because it signals the SEC’s intent and ability to use the FCPA to bring broad, far-reaching enforcement cases that have the potential to ensnare any public company.
In recent years, the DOJ and SEC have significantly increased their Foreign Corrupt Practices Act (FCPA) enforcement efforts, and in the process, have successfully advocated the theory that state-owned or state-controlled entities should qualify as instrumentalities of a foreign government under the FCPA. The FCPA defines a foreign official as “any officer or employee of a foreign government or any department, agency or instrumentality thereof.” In August 2014, the government’s broad definition of who constitutes a “foreign official” came into question for the first time when two individuals (Joel Esquenazi and Carlos Rodriguez) filed a petition for writ of certiorari with the Supreme Court to challenge their convictions under the FCPA and argued for the high court to limit the FCPA’s definition of the term. However, on October 6, 2014, the Supreme Court declined to consider the potential landmark case effectively upholding the government’s broad view of the term “foreign official.” READ MORE
Comments made by Kara N. Brockmeyer, the Securities Exchange Commission’s chief of the Foreign Corruption Practices Act (FCPA) unit, and Charles E. Duross, deputy chief of the Department of Justice’s FCPA unit, at the recent International Conference on the FCPA suggest that both agencies are increasing their scrutiny of possible FCPA violations for the next year. Both units have increased their resources for tackling investigations of possible FCPA violations. Additionally, both agencies have increased awareness among other U.S. and international government agencies so that those agencies could also be on the lookout for possible FCPA violations. Having strengthened their relationships with overseas regulators, both agencies are optimistic that they are in the position to bring significant FCPA cases in the following year.
According to Andrew Ceresney, co-director of the SEC’s enforcement division, the SEC also expects that FCPA violations will be “increasingly fertile ground” for the Dodd-Frank whistle-blower program. The SEC received 149 FCPA violation tips from whistle-blowers in just the last year and the SEC expects more enforcement cases to arise from whistle-blowers. READ MORE