Article Business Crimes Bulletin

New Bumps and Tolls Along the Road to FCPA Settlements

Nothing succeeds like success, and the Foreign Corruption Practices Act (FCPA) is no exception. Settlements have moved from hundreds of thousands of dollars in the early 2000s to hundreds of millions in 2008. This statute, once a footnote to the Watergate Era reforms, is now a main focus of concern for U.S. businesses.

The FCPA has gained new priority and fire power. The Department of Justice (DOJ) says it's now "second only to fighting terrorism in terms of priority," and the SEC has created a specialized FCPA unit. Meanwhile, other countries have joined in, bringing a new dynamic to FCPA corporate counseling and defense.

Foreign governments have used the FCPA as the model for their legislation and, until recently, seemed happy to let the DOJ and SEC serve as the world's corruption police. But when they saw DOJ's mega-settlements, they decided to claim a piece of the action. Fair enough — if only the DOJ (like the Europeans) would avoid "international double jeopardy." Instead, while DOJ watches what its foreign counterparts are doing, "that doesn't necessarily mean we are going to defer to that jurisdiction," says DOJ's FCPA supervisor, Deputy Chief Mark Mendelsohn.

Meanwhile, the SEC thinks "more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations," according to Robert Khuzami, Chief of the Enforcement Division, in his August 2009 speech announcing the new FCPA Unit.

The rise of anti-corruption enforcement overseas brings new tasks for counsel in FCPA investigations:

·         Assessing new risks of potential detection.

·         Incorporating multiple jurisdictions in considering voluntary disclosure.

·         Coordinating U.S. and local counsel.

·         Constructing a work plan for documents and witnesses, including:

·         Dealing with counsel for individuals here and abroad.

·         Considering indemnification and advancement of counsel expenses under varying U.S. and foreign laws.

·         Dealing with overlapping and sometimes conflicting privacy and data protection laws.

·         Handling local employment law is sues, including objections from labor unions and workers' councils.

Consider, for example, the recent empowerment of anti-corruption agencies in the United Kingdom: the Serious Fraud Office (SFO), Financial Services Authority (FSA), and the Overseas Anti-corruption Unit of the City of London Police. The SFO, under fire for its initial failure to investigate payments to Saudi officials by the arms company BAE, hired a former U.S. prosecutor as a consultant and made important institutional changes, including a September 2008 announcement that it would introduce U.S.-style plea-bargaining for overseas corruption cases.

After convicting a UK lawyer for overseas corruption in 2008, the SFO announced last July "the first prosecution brought in the UK against a company for overseas corruption," based on a voluntary disclosure by Mabey & Johnson related to contracts in Jamaica and Ghana from 1993 through 2001. Then, on July 21, 2009, the SFO released its Approach of the Serious Fraud Office to Dealing with Overseas Corruption — a Guide to anti-corruption enforcement and the benefits of self-reporting, which announces the creation of an "Anti-corruption Domain" with a staff of 100. Meanwhile, the Attorney General's Office's issued guidelines in May 2009 on plea discussions in cases of serious or complex fraud.

Concurrent Voluntary Disclosure

Even before the Guide, the SFO ran a press release asking "lawyers and accountants who become aware of fraud or corruption problems faced by their clients to come forward and bring the SFO in." Although corporate voluntary disclosure is not new to the UK, the dynamic now may change as more corruption authorities arrive on the scene. For a corporation subject to both U.S. and UK jurisdiction, this may influence the voluntary disclosure analysis and deter corporate reporting.

For example, in the Guide, the SFO lays out criteria for corporate cooperation similar to the DOJ's, such as establishing that "the company is genuinely committed to resolving the issue, changing the corporate culture, conducting additional investigations, and resolving the matter, which may include restitution through civil recovery, training, human resources actions and in some cases an external monitor." It notes the SFO's intent to "settle self-referral cases that satisfy paragraph 4 civilly wherever possible." The Guide says the SFO expects to be notified "at the same time as the DOJ" of corruption with its jurisdiction, adding that "learning about the matter from a foreign jurisdiction will be considered a failure to self report."

Before rushing to kill two birds with one stone, corporate counsel has to ask whether a coordinated voluntary disclosure will result in a coordinated investigation and, more importantly, a coordinated settlement. There remains much uncertainty when entering negotiations with the SFO, as demonstrated by the collapse of BAE's settlement negotiations with the announcement on Oct. 1, 2009, that the SFO intends to prosecute.

Other areas of uncertainty in UK enforcement abound. Nobody knows how judges will react to "global settlements," or whether current UK anti-bribery laws apply to overseas corruption prior to Feb. 14, 2002. A draft Bribery Bill on businesses operating out of the UK reaches more conduct than the FCPA, since it covers private bribery, does not permit facilitation payments, and has created a corporate crime of negligent failure to prevent bribery. The Bill includes the defense of having adequate procedures in place, but it would not be available if a senior officer is involved in the wrongdoing.

Achieving the New 'Global Settlement'

With countries jumping on the FCPA enforcement bandwagon, the road to global settlement now has many stops and multiple toll collectors along the way. Here are some questions corporate clients need to answer:

Who Gets the Money?

A company might wind up paying penalties and disgorgement more than once for the same conduct. The DOJ historically has taken into account foreign settlements. For example, the 2006 Statoil Deferred Prosecution Agreement considered $3 million satisfied by a 2003 Norway fine. However, that was $3 million of $21 million, leaving $18 million for U.S. coffers. The SFO, however, may look for the same amounts as U.S. authorities, including "civil recovery to include

the amount of unlawful property." This leaves the door open for double penalties and — perhaps of more concern— double disgorgement.

Who's First?

While the SFO's Guide states a willingness to discuss whether the company wants "our assistance and involvement in a settlement with other authorities," this is far from a guarantee of a coordinated process, much less a "global settlement." In fact, the SFO has featured timely resolution as a benefit of self-reporting. In the Mabey & Johnson Release, the SFO noted that the case was resolved "in just over a year and is a model for other companies who want to self report corruption and have it dealt with quickly and fairly by the SFO." While Mabey & Johnson may have been concluded in a timely manner, that was a domestic prosecution. It is still unclear how a global investigation will be resolved by the SFO and in a UK court.

Who Gets the Monitor?

FCPA consultants and monitors have become fixtures in the FCPA settlements since the 2004 Vetco Gray settlement. Now, U.S. authorities are not the only ones that may impose a monitoring requirement. The Mabey & Johnson SFO resolution includes an agreement that the company "will submit its internal compliance program to an SFO approved independent monitor." For financial-services firms, FSA can impose regulatory monitoring of its own. Cases like Siemens, that resulted in a four-year monitorship by a former finance minister of Germany, suggest that multinational authorities in some cases may be able to coordinate monitoring. Since the DOJ and SEC have no stated policy on coordinated monitoring, its future remains unclear.

While U.S. and foreign enforcement authorities may want to coordinate multi-jurisdictional cases and avoid multiple penalties, corruption cases may arise in countries with legal systems which lack the tools to support a U.S.-style global resolution. For example, in many foreign jurisdictions prosecutors are not permitted to plea bargain or provide credit at sentencing for cooperation and voluntary disclosure. Defense lawyers and prosecutors around the world will need to collaborate in each case to achieve fair, balanced and coordinated global settlements. For now, it's an open question whether the promulgation of anti-corruption enforcement overseas will achieve a level playing field, or just create a minefield.