Corporate FCPA Enforcement in the Era of Trump

The Netherlands is not alone in enacting new laws. In December 2009, the multinational Organization for Economic Co-operation and Development (OECD) revised its recommendations to its members on best practices for anti-bribery laws and enforcement. Each member country now undergoes a three-tiered peer review of its anti-corruption effectiveness and implementation to determine strengths and areas for potential improvement. The UK Bribery Act was passed in April 2010 and gave British law enforcement a tool for virtual worldwide jurisdiction, unlimited financial penalties on corporations and a maximum prison term of 10 years. Germany has enacted a series of new anti-corruption laws in the past few years, including a law passed on Nov. 26, 2015, that expanded the scope of what is considered a “public official,” and extended the definitions of “money laundering;” and a second law on May 13, 2016, that extended the existing anti-bribery law to the health care sector. This trend should only continue, further reducing any previously perceived “asymmetry” among countries in enforcement.

Expansion of Anti-Bribery Statutes Has Led to Increased Cooperative Partners for the U.S.

The proliferation of foreign anti-corruption laws also means the proliferation of potential partners with whom the United States can cooperate in its investigations. The DOJ's Pilot Program, recently renewed by the Attorney General, stated the department's programmatic intent to increase cooperation with foreign law enforcement on anti-corruption cases. This statement, however, merely formalized what already had been an increasing trend in FCPA enforcement. Most emblematic of this cooperative spirit was the recent settlement with Odebrecht and Braskem. Those companies' $3.5 billion penalty was split among not only the DOJ and SEC, but also Swedish and Brazilian law enforcement. In its release in conjunction with the VimpelCom settlement, the DOJ acknowledged the governments of no fewer than nine other countries — the Netherlands, Sweden, Switzerland, Latvia, Belgium, France, Ireland, Luxembourg and the UK — for their assistance in the investigation of the case. Of the $809 million that Rolls Royce paid, only $170 million went to the DOJ.

The degree of cooperation and the extent to which U.S. law enforcement shared their penalties with other countries is a relatively new phenomenon, but it is by no means an invention of the Pilot Program. In 2010, BAE Systems settled with the DOJ for $400 million and also sent $47 million to Great Britain's fraud office. Also in 2010, Halliburton paid the government of Nigeria $35 million to settle bribery charges nearly two years after the company (and its subsidiary Kellogg Brown & Root) paid $579 million to settle with the DOJ and SEC.

The shape of international cooperation in FCPA cases has morphed over time as well. The United States increasingly has taken advantage of requests under mutual legal assistance treaties to investigate potential crimes overseas, and memoranda of understanding with foreign securities regulators have similarly increased the flow of information cross-border. The U.S. now also regularly relies on foreign countries for tracking down and forfeiting assets of malfeasants held in bank accounts overseas. For example, in connection with its VimpelCom FCPA investigation, the DOJ filed a civil forfeiture action to recover more than $550 million in assets it claimed to have resulted from the receipt of illegal bribes. The money was located in accounts held in Belgium, Luxembourg and Ireland, and allegedly had been laundered through accounts in, among other places, Latvia and Switzerland. Each of those countries worked cooperatively with the DOJ to help it achieve its goals.

The trend of increasing international cooperation is not limited to enforcement of only the FCPA. For example, the LIBOR settlements in 2012 and 2013 with Lloyd's of London, Royal Bank of Scotland, UBS AG, Barclays, and Rabobank were all global, and collected fines were shared variously with Swiss, Dutch and British law enforcement. FCPA cases are by definition international so we can safely assume that cooperation will only increase. The FCPA may once have created anticompetitive pressure on American corporations upon its first passage, but because the FCPA — and the penalties it made available to U.S. law enforcement — created the model for anti-corruption law that is now being copied worldwide, any disadvantage to U.S. companies due to zealous enforcement here is dissipating.

Business Reasons Alone May Encourage Strong Compliance

A number of U.S. companies have found that good compliance might also just be good business. In fact, a number of companies have found that they have a leg up as a subcontractor if they can demonstrate a strong anti-corruption culture and rigorous internal compliance program. General Electric, which has a strong reputation for having top-of-the-line compliance, trumpets on its website that its “reputation for integrity and compliance is a competitive advantage,” and its executives commonly have touted the positive effects the compliance program has for the company.

Indeed, sophisticated companies and purchasers of services are discovering that hiring subcontractors or engaging partners with strong compliance for projects in countries where anti-corruption measures are not as robust help to safeguard them from the business and legal effects of illegal conduct. Along with the increased international enforcement of anti-corruption measures and the reduction of the previously noted asymmetry, the President and SEC chairman Jay Clayton likely will rely on this evolution as a rationale to justify a change in their view on the importance of FCPA enforcement.

Conclusion

The United States still leads the way in enforcing international anti-bribery and anti-corruption laws, and the new administration as yet has given no indication that it intends to change that position. The DOJ and SEC currently have extensive experience in building such cases, and that experience allows them to investigate and prosecute larger and more complicated cases. The world is quickly getting up to speed, however, and as the gap closes, the supposed competitive disadvantage that American companies face overseas as a result of FCPA enforcement will dissipate and the perceived benefits to U.S. companies of having strong internal compliance programs will increase. The new administration, therefore, likely will be inclined to continue on with what to law enforcement appears to be a successful undertaking.

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

Editor's note: In last month's newsletter (see http://bit.ly/2q2ZSo5), the authors began discussion of whether we should expect changes in enforcement of the Foreign Corrupt Practices Act (FCPA) in the Trump era. Trump once called application of the law to deals done in countries where bribery is the cultural norm “absolutely crazy.” But that was when he was purely a businessman, and a private citizen. What about now?

Enforcement Efforts By Other Countries

As the penalties being extracted by the United States from multinational corporations for violations of anti-corruption statutes have skyrocketed in recent years, an increasing number of other countries have begun to pass or enhance their own laws prohibiting, among other things, bribery of foreign officials, and have increased the financial penalties applicable to businesses that violate those laws. For example, Dutch law enforcement's ability to extract large penalties for violations of its anti-bribery laws was expanded immensely by a new law enacted on Jan. 1, 2015, that increased the maximum sanctions available to be imposed on Dutch companies to a cap of 10% of the violating company's annual turnover.

The Netherlands is not alone in enacting new laws. In December 2009, the multinational Organization for Economic Co-operation and Development (OECD) revised its recommendations to its members on best practices for anti-bribery laws and enforcement. Each member country now undergoes a three-tiered peer review of its anti-corruption effectiveness and implementation to determine strengths and areas for potential improvement. The UK Bribery Act was passed in April 2010 and gave British law enforcement a tool for virtual worldwide jurisdiction, unlimited financial penalties on corporations and a maximum prison term of 10 years. Germany has enacted a series of new anti-corruption laws in the past few years, including a law passed on Nov. 26, 2015, that expanded the scope of what is considered a “public official,” and extended the definitions of “money laundering;” and a second law on May 13, 2016, that extended the existing anti-bribery law to the health care sector. This trend should only continue, further reducing any previously perceived “asymmetry” among countries in enforcement.

Expansion of Anti-Bribery Statutes Has Led to Increased Cooperative Partners for the U.S.

The proliferation of foreign anti-corruption laws also means the proliferation of potential partners with whom the United States can cooperate in its investigations. The DOJ's Pilot Program, recently renewed by the Attorney General, stated the department's programmatic intent to increase cooperation with foreign law enforcement on anti-corruption cases. This statement, however, merely formalized what already had been an increasing trend in FCPA enforcement. Most emblematic of this cooperative spirit was the recent settlement with Odebrecht and Braskem. Those companies' $3.5 billion penalty was split among not only the DOJ and SEC, but also Swedish and Brazilian law enforcement. In its release in conjunction with the VimpelCom settlement, the DOJ acknowledged the governments of no fewer than nine other countries — the Netherlands, Sweden, Switzerland, Latvia, Belgium, France, Ireland, Luxembourg and the UK — for their assistance in the investigation of the case. Of the $809 million that Rolls Royce paid, only $170 million went to the DOJ.

The degree of cooperation and the extent to which U.S. law enforcement shared their penalties with other countries is a relatively new phenomenon, but it is by no means an invention of the Pilot Program. In 2010, BAE Systems settled with the DOJ for $400 million and also sent $47 million to Great Britain's fraud office. Also in 2010, Halliburton paid the government of Nigeria $35 million to settle bribery charges nearly two years after the company (and its subsidiary Kellogg Brown & Root) paid $579 million to settle with the DOJ and SEC.

The shape of international cooperation in FCPA cases has morphed over time as well. The United States increasingly has taken advantage of requests under mutual legal assistance treaties to investigate potential crimes overseas, and memoranda of understanding with foreign securities regulators have similarly increased the flow of information cross-border. The U.S. now also regularly relies on foreign countries for tracking down and forfeiting assets of malfeasants held in bank accounts overseas. For example, in connection with its VimpelCom FCPA investigation, the DOJ filed a civil forfeiture action to recover more than $550 million in assets it claimed to have resulted from the receipt of illegal bribes. The money was located in accounts held in Belgium, Luxembourg and Ireland, and allegedly had been laundered through accounts in, among other places, Latvia and Switzerland. Each of those countries worked cooperatively with the DOJ to help it achieve its goals.

The trend of increasing international cooperation is not limited to enforcement of only the FCPA. For example, the LIBOR settlements in 2012 and 2013 with Lloyd's of London, Royal Bank of Scotland, UBS AG, Barclays, and Rabobank were all global, and collected fines were shared variously with Swiss, Dutch and British law enforcement. FCPA cases are by definition international so we can safely assume that cooperation will only increase. The FCPA may once have created anticompetitive pressure on American corporations upon its first passage, but because the FCPA — and the penalties it made available to U.S. law enforcement — created the model for anti-corruption law that is now being copied worldwide, any disadvantage to U.S. companies due to zealous enforcement here is dissipating.

Business Reasons Alone May Encourage Strong Compliance

A number of U.S. companies have found that good compliance might also just be good business. In fact, a number of companies have found that they have a leg up as a subcontractor if they can demonstrate a strong anti-corruption culture and rigorous internal compliance program. General Electric, which has a strong reputation for having top-of-the-line compliance, trumpets on its website that its “reputation for integrity and compliance is a competitive advantage,” and its executives commonly have touted the positive effects the compliance program has for the company.

Indeed, sophisticated companies and purchasers of services are discovering that hiring subcontractors or engaging partners with strong compliance for projects in countries where anti-corruption measures are not as robust help to safeguard them from the business and legal effects of illegal conduct. Along with the increased international enforcement of anti-corruption measures and the reduction of the previously noted asymmetry, the President and SEC chairman Jay Clayton likely will rely on this evolution as a rationale to justify a change in their view on the importance of FCPA enforcement.

Conclusion

The United States still leads the way in enforcing international anti-bribery and anti-corruption laws, and the new administration as yet has given no indication that it intends to change that position. The DOJ and SEC currently have extensive experience in building such cases, and that experience allows them to investigate and prosecute larger and more complicated cases. The world is quickly getting up to speed, however, and as the gap closes, the supposed competitive disadvantage that American companies face overseas as a result of FCPA enforcement will dissipate and the perceived benefits to U.S. companies of having strong internal compliance programs will increase. The new administration, therefore, likely will be inclined to continue on with what to law enforcement appears to be a successful undertaking.

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