Corporate FCPA Enforcement in the Era of Trump

Reading the above limited tea leaves, one might anticipate a marked drop-off in FCPA enforcement. Other evidence, however, convincingly suggests the trend of increased international cooperation and direction of enforcement resources in the FCPA arena is likely to continue. First, although the new Department of Justice (DOJ) and SEC have not fully taken shape, early indications from the new administration suggest that it will continue the FCPA focus of recent years. Second, the impact of FCPA enforcement predominantly has been borne of late by foreign companies, easing the concerns about the FCPA's anti-competitive effect on domestic companies. Third, an increasing number of countries are improving their anti-bribery enforcement efforts, perhaps attracted by the escalating disgorgement and fines being extracted in the United States for FCPA violations. Fourth, stronger foreign anti-corruption laws and increased use of mutual legal assistance treaties have led to greater cooperation between the United States and its allies. Finally, and perhaps ironically, a number of American companies are learning as of late that good compliance can be good for business, making conscientious American businesses sought after in the international marketplace.

Early Signs of the New Regime Foretell Continued Zealous Enforcement

Predicting the shape of FCPA enforcement over the ensuing four years is perhaps premature, but the administration's early actions are a better indication than statements made years in the past. The president has yet to put in place much of his law enforcement and regulatory team. Jeff Sessions has been confirmed as Attorney General, but, as of this writing, Dana Boente is still acting as Deputy Attorney General while Rod Rosenstein awaits confirmation. Outside of Washington, the makeup of the DOJ is even murkier. On March 10, the president asked 46 holdover United States Attorneys to resign — all of those positions are yet to be filled. With respect to the SEC, the regulator that most often enforces the FCPA, its new chairman, Jay Clayton, was confirmed by the Senate only in March, and has yet to announce a Director of Enforcement.

The first definitive sign that has come from the new administration with respect to the FCPA, however, is an unequivocal endorsement of the Fraud Section of the DOJ's prior policies. The Sessions DOJ announced on March 10 that it would be renewing its Fraud Section's Obama-era FCPA Enforcement Plan and Guidance, more commonly known as the FCPA “Pilot Program.” This program, created in April 2016, sets forth multiple programmatic goals, including increasing international cooperation, refocusing attention on individual violators of the FCPA, and increasing resources and staffing for FCPA enforcement. The Pilot Program also defined the circumstances under which DOJ would give a declination. It is perhaps best known for a new incentive it announced for noncompliant corporations: a 25% reduction to the bottom of the Sentencing Guidelines fine range for companies that cooperate fully and remediate and settle in an expedient manner, and an additional 25% reduction for companies that also self-report their violations.

The Pilot Program appears to have been a success in its first year. In roughly the fourth quarter of 2016 alone, the DOJ settled five significant FCPA cases against corporations each with penalties over $100 million. The SEC and DOJ combined collected nearly $2.5 billion in penalties, fines and disgorgement in all of last year. According to The FCPA Blog, of the 10 largest FCPA settlements of all time, four of them took place in 2016. The new administration is unlikely to ignore such “profitable” results in defining its enforcement priorities.

The Limited Impact of the FCPA on American Companies' Competitiveness Overseas

The articulated assumption that in theory might lead policymakers to reduce enforcement going forward — that enforcement of the FCPA hurts American business interests abroad — could well be faulty, or at least outdated, given recent enforcement trends. Recent multi-million dollar settlements have not been borne by what are generally considered “American companies.” The DOJ's recent success in settling massive enforcement actions have, more often than not, been at the expense of multinational foreign-based corporations with sufficient domestic contacts or activities to fall within the broad jurisdictional reach of the FCPA.

VimpelCom Ltd., a Russian company owned primarily by Russian and Norwegian parent companies and headquartered in the Netherlands, but which trades on NASDAQ, settled FCPA (and Dutch equivalent) charges in February 2016 for a total of $795 million, split among the DOJ, the SEC, and Dutch law enforcement. Teva Pharmaceuticals, an Israeli company trading on the New York Stock Exchange, settled in December 2016 with the DOJ for $283 million and with the SEC for $236 million. Odebrecht and Braskem, parent and subsidiary Brazilian conglomerates subject to U.S. jurisdiction due to improper conduct occurring in the United States, settled in December 2016 with a number of government agencies for a combined total of $3.5 billion. The trend has continued this year. In January 2017, Rolls Royce, based in the UK, paid $809 million to American, Brazilian, and British authorities. If American companies' ability to compete overseas is harmed by the obligations of the FCPA, then, at least as of late, they likely are no worse off than much of their competition.

In Part Two of this article, the authors will discuss the current state of enforcement efforts in other countries and their likely future moves to combat corruption in the business world.

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Robert J. Anello, a member of Business Crimes Bulletin's Board of Editors, is a partner in the firm of Morvillo, Abramowitz, Grand, Iason & Anello PC. Peter Janowski is an associate with the firm.

The start of a new presidential administration brings along changes to personnel, policies and enforcement priorities. During the transition period, counsel to businesses and individuals try to anticipate which way the enforcement wind will be blowing in order to best advise anxious clients. One high-stakes area of enforcement focus, the Foreign Corrupt Practices Act (FCPA), has been subject to much speculation in this regard. Because of the enormous resources multinational companies must devote to compliance with FCPA's anti-corruption and record-keeping requirements — and, when things go awry, to paying ever-increasing penalties to the government here and abroad — the new administration's likely approach is of paramount importance. Despite predictions of a substantial pullback in the FCPA enforcement area, the writing on the wall does not necessarily suggest such a relaxation.

As has by now been widely chronicled, in the past, then-private citizen Donald J. Trump remarked that he believes enforcement of the FCPA harms United States companies' economic interests by hindering their ability to compete on an international scale. In his words, prosecution of FCPA violations for business activities that take place in countries where bribery often is considered the cost of doing business is “absolutely crazy.” Though no changes have been announced with respect to FCPA enforcement, in an analogous vein, the White House has moved to roll back consumer protections and financial regulations passed under the Dodd-Frank Act. The administration also has announced its intention to deconstruct aspects of the executive branch and regulatory scheme such as the Department of State and the Environmental Protection Agency (EPA).

In the face of such an approach, few were surprised when Trump selected as the next chairman of the Securities and Exchange Commission (SEC) the highly qualified W. Jay Clayton. When Clayton was the chair of the International Business Transactions Committee of the New York City Bar Association, the committee took a position similar to Trump's in a December 2011 article in which it wrote that ongoing enforcement of the FCPA may not be effective at achieving its purpose of combating global corruption, or may even exacerbate it, and that it also creates an international “asymmetry in regulation and enforcement.”

Reading the above limited tea leaves, one might anticipate a marked drop-off in FCPA enforcement. Other evidence, however, convincingly suggests the trend of increased international cooperation and direction of enforcement resources in the FCPA arena is likely to continue. First, although the new Department of Justice (DOJ) and SEC have not fully taken shape, early indications from the new administration suggest that it will continue the FCPA focus of recent years. Second, the impact of FCPA enforcement predominantly has been borne of late by foreign companies, easing the concerns about the FCPA's anti-competitive effect on domestic companies. Third, an increasing number of countries are improving their anti-bribery enforcement efforts, perhaps attracted by the escalating disgorgement and fines being extracted in the United States for FCPA violations. Fourth, stronger foreign anti-corruption laws and increased use of mutual legal assistance treaties have led to greater cooperation between the United States and its allies. Finally, and perhaps ironically, a number of American companies are learning as of late that good compliance can be good for business, making conscientious American businesses sought after in the international marketplace.

Early Signs of the New Regime Foretell Continued Zealous Enforcement

Predicting the shape of FCPA enforcement over the ensuing four years is perhaps premature, but the administration's early actions are a better indication than statements made years in the past. The president has yet to put in place much of his law enforcement and regulatory team. Jeff Sessions has been confirmed as Attorney General, but, as of this writing, Dana Boente is still acting as Deputy Attorney General while Rod Rosenstein awaits confirmation. Outside of Washington, the makeup of the DOJ is even murkier. On March 10, the president asked 46 holdover United States Attorneys to resign — all of those positions are yet to be filled. With respect to the SEC, the regulator that most often enforces the FCPA, its new chairman, Jay Clayton, was confirmed by the Senate only in March, and has yet to announce a Director of Enforcement.

The first definitive sign that has come from the new administration with respect to the FCPA, however, is an unequivocal endorsement of the Fraud Section of the DOJ's prior policies. The Sessions DOJ announced on March 10 that it would be renewing its Fraud Section's Obama-era FCPA Enforcement Plan and Guidance, more commonly known as the FCPA “Pilot Program.” This program, created in April 2016, sets forth multiple programmatic goals, including increasing international cooperation, refocusing attention on individual violators of the FCPA, and increasing resources and staffing for FCPA enforcement. The Pilot Program also defined the circumstances under which DOJ would give a declination. It is perhaps best known for a new incentive it announced for noncompliant corporations: a 25% reduction to the bottom of the Sentencing Guidelines fine range for companies that cooperate fully and remediate and settle in an expedient manner, and an additional 25% reduction for companies that also self-report their violations.

The Pilot Program appears to have been a success in its first year. In roughly the fourth quarter of 2016 alone, the DOJ settled five significant FCPA cases against corporations each with penalties over $100 million. The SEC and DOJ combined collected nearly $2.5 billion in penalties, fines and disgorgement in all of last year. According to The FCPA Blog, of the 10 largest FCPA settlements of all time, four of them took place in 2016. The new administration is unlikely to ignore such “profitable” results in defining its enforcement priorities.

The Limited Impact of the FCPA on American Companies' Competitiveness Overseas

The articulated assumption that in theory might lead policymakers to reduce enforcement going forward — that enforcement of the FCPA hurts American business interests abroad — could well be faulty, or at least outdated, given recent enforcement trends. Recent multi-million dollar settlements have not been borne by what are generally considered “American companies.” The DOJ's recent success in settling massive enforcement actions have, more often than not, been at the expense of multinational foreign-based corporations with sufficient domestic contacts or activities to fall within the broad jurisdictional reach of the FCPA.

VimpelCom Ltd., a Russian company owned primarily by Russian and Norwegian parent companies and headquartered in the Netherlands, but which trades on NASDAQ, settled FCPA (and Dutch equivalent) charges in February 2016 for a total of $795 million, split among the DOJ, the SEC, and Dutch law enforcement. Teva Pharmaceuticals, an Israeli company trading on the New York Stock Exchange, settled in December 2016 with the DOJ for $283 million and with the SEC for $236 million. Odebrecht and Braskem, parent and subsidiary Brazilian conglomerates subject to U.S. jurisdiction due to improper conduct occurring in the United States, settled in December 2016 with a number of government agencies for a combined total of $3.5 billion. The trend has continued this year. In January 2017, Rolls Royce, based in the UK, paid $809 million to American, Brazilian, and British authorities. If American companies' ability to compete overseas is harmed by the obligations of the FCPA, then, at least as of late, they likely are no worse off than much of their competition.

In Part Two of this article, the authors will discuss the current state of enforcement efforts in other countries and their likely future moves to combat corruption in the business world.

*****
Robert J. Anello, a member of Business Crimes Bulletin's Board of Editors, is a partner in the firm of Morvillo, Abramowitz, Grand, Iason & Anello PC. Peter Janowski is an associate with the firm.