Trends in Enforcement Actions – What 2014 Can Tell Us about the Road Ahead

By Rosemary Weghorst

Changes in international legislation and trends in enforcement have continued to be a moving target for 2014 and 2015. In the area of FCPA enforcement, several trends provide guidance on what companies need to be conscientious about in the coming year. In the area of international regulations, there continues to be an upswing in the number of countries that have added new regulations or tightened requirements around existing legislation to send a message regarding their efforts to reduce corruption.

Highlights in FCPA Enforcement

Overall, FCPA enforcement actions by the DOJ and SEC stayed relatively the same in 2014 as in 2013: DOJ enforcement actions went down slightly, from 19 to 17, and SEC-initiated enforcement actions went up slightly, from 8 to 9. While there has been some leveling off since 2010, when the DOJ and SEC combined enforcement actions reached an all-time high of 74, both agencies have indicated that “the pipeline of active investigations remains full” for 2015 and beyond. The Federal Bureau of Investigation announced in January that it is “tripling the number of agents focusing on FCPA investigations, with two new dedicated FCPA units based in New York and Los Angeles joining the existing unit in Washington.”

While the number of enforcement actions seems to have remained relatively stable over the past few years, the average amount that a company pays to resolve its particular case has grown exponentially. In 2005, companies paid on average $7.27 million per case. Compare that to 2014, when then the average amount paid was $157 million per case. 2014 was also another milestone year for the largest penalty ever determined under FCPA, a $772 million settlement against Alstom SA, a French power and transport company. The DOJ and SEC in 2014 collected a total of approximately $1.5 billion, the most since the peak of FCPA enforcement activity in 2010.

The case against Alstom highlights that due diligence and the ongoing monitoring of third parties will continue to be important for companies as part of a comprehensive compliance plan and program. The Alstom case highlighted the issues around consulting and consulting payments, and how their fees were actually the method used in bribing foreign officials.

The case against Alstom also highlights issues associated with cooperation and self-disclosure. The DOJ and SEC continue to inform companies that they can reduce their penalties through early self-disclosure and cooperation in investigations. Alstom did not self-disclose and chose not to cooperate in the FCPA investigation. As a result, Alstom’s fine under the U.S. Sentencing Guidelines was significantly higher that it would have been otherwise. If it had self-disclosed and cooperated, its fine could have been a little under $237 million, a savings of $535 million.

In terms of individual versus company liability, there is mixed news as to what the trends will be for this year and beyond. While the DOJ indicated that it would be more focused on individual liability in 2015 and beyond, the totally number of enforcement actions against individuals decreased in 2014 from 13 to 6.

Trends Abroad

Many countries are shifting their focus, tightening their reviews, and/or adding new legislation to their repertoire of legal enforcement options. Items of note from 2014 include:

Greater Scrutiny in China

China’s prosecution of GlaxoSmithKline plc (GSK) demonstrates the country’s shifting emphasis to bribe givers, not just bribe recipients. The approach moves to those suspected of committing the initial bribery violation instead of focusing on corrupt government officials. In 2014, China fined GSK $489 million. “Chinese authorities accused Glaxo of bribing hospitals and doctors, channeling illicit kickbacks through travel agencies and pharmaceutical industry associations — a scheme that brought the company higher drug prices and illegal revenue of more than $150 million. In a rare move, authorities also prosecuted the foreign-born executive who ran Glaxo’s Chinese unit.”

China has criminalized both the taking and receiving of bribes and specifically criminalizes three types of bribery: official, commercial, and foreign. Penalties vary, but official bribery includes the harshest sentences, including the death penalty.

New Anti-Corruption Law in India: The Companies Act

This new law requires additional requirements over and above the Prevention of Corruption Law (PCA) of 1988. From a compliance perspective, the most significant new provisions from a compliance perspective is that include that 1) companies must have some type of mechanism in place by which to report significant concerns (called a “vigil mechanism) and 2) there are significant fines and potential prison terms for fraud and non-compliance. Convictions under the PCA doubled between 2011 and 2013.

New Anti-Corruption Law in Brazil: The Clean Company Act

This act, which went into effect in January, has similarities to FCPA and the UK Bribery Act. The Act covers both Brazilian companies (including both their domestic and foreign activities) as well as international companies that engage in bribery within Brazil. The law expressly prohibits the following activities: (1) direct bribery, indirect bribery, and attempted bribery; (2) support of bribery activity; (3) concealment of bribery activity (4) fraud and/or rigging in the public procurement process, and (5) tampering with a government investigation.

Anti-Corruption Updates in Russia:

Between 2012 and 2015, legislative changes in Russia required companies to proactively prevent corruption through their compliance programs. Their compliance programs may include items such as adoption of a code of business ethics, appointment of a compliance expert, relevant training programs, and actively preventing the creation of false records or documents. Public officials are required to surrender gifts of more than 3,000 rubles.

The Culture of Cooperation and Other Issues

In the next few years, it will be interesting to see how countries collaborate on investigations, or how an inquiry by one country may lead other countries to put certain companies under scrutiny because of the existence or result of that investigation. One critical example of this is the Siemens AG case. Germany started the investigation in 2005, and the DOJ and SEC joined the investigation in 2006. By the time the case settled, Siemens paid the government entities involved close to $1.6 billion. As recently as two months ago, Siemens faced scrutiny from China, which is conducting a probe of its marketing and business practices. Companies should look for more of this multilayered country enforcement approach, involving either countries working together or multiple countries investigating as a result of an initial investigation or inquiry.

In all, multinational companies should continue to keep a watchful eye on the changing regulatory environment as it relates to bribery in all countries where they do business. Companies should ensure that they 1) have an effective and comprehensive compliance program in place, 2) are monitoring their due diligence around third parties and acquisitions, and 3) are actively monitoring and auditing in all countries where there are activities or transactions for potential review.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions, position, or policy of Berkeley Research Group, LLC or its other employees and affiliates.

 

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