FCPA Digest Cites Increased Prosecution of Individuals and Sharpened Focus On Judicial Opinions and Trials

NEW YORK, Dec. 29, 2011 /PRNewswire/ -- Although the overall number of new FCPA enforcement actions fell somewhat in 2011 – just 16 corporate cases, compared with 20 in 2010 – US authorities have continued their aggressive and proactive enforcement of the statute and are now being joined by their foreign counterparts, according to global law firm Shearman & Sterling LLP.

Shearman & Sterling's semi-annual "Recent Trends and Patterns in FCPA Enforcement" report, part of the firm's renowned FCPA Digest (http://fcpa.shearman.com), showed that, despite the claims of some commentators and legislators, FCPA penalties against corporations have remained fairly stable and under $20 million in most cases.

"It's more than a numbers game," says Philip Urofsky, a Washington, DC- and London-based partner at Shearman & Sterling and head of the firm's FCPA and Global Anti-Corruption Practice. "High fines often result directly from high profits. When a company does not make much money as a result of corrupt conduct, the penalties are significantly lower." 

In 2011, US enforcement authorities continued their emphasis on prosecuting individuals, charging 18 individuals and, at the same time, going to trial in several important cases. Urofsky notes, however, that a number of these recent trials have underlined the difficulty that US enforcement authorities, once in court, have in proving foreign bribery beyond a reasonable doubt. Still, judicial opinions have largely supported the government's expansive interpretation of what constitutes an "instrumentality" of a foreign government, including state-owned entities indirectly controlled by a foreign government.

Interestingly, most of the individuals charged in 2011 were foreign nationals. This presents a twist on the previously noted trends of US enforcement authorities targeting non-US companies.

"US enforcement officials seem to be saying, 'Enough is enough,'" Urofsky says. "In the past they have targeted non-US companies and now they are reaching out to charge those companies' employees, particularly those in jurisdictions that do not appear to be exercising sufficient energy and commitment to enforcing their own laws implementing the OECD Convention."

It remains to be seen, Urofsky added, if the US will ever be able to bring these individuals to trial, which will depend on whether the countries whose nationals have been indicted – Germany, Argentina, Switzerland, and Israel (all of whom are signatories to the OECD Convention) – will extradite these individuals to the US, will bring their own enforcement actions against them or will do nothing.

UK Bribery Act

The Bribery Act 2010 finally came into effect in the UK on July 1, 2011, following publication of guidance by the Ministry of Justice in March 2011 on the "adequate procedures" defense to the corporate offense of failure to prevent bribery.

"The Bribery Act represents a brave new world here in the UK," explains Richard Kelly, a Shearman & Sterling partner in London who advises clients on the Bribery Act. "The Ministry of Justice guidance is useful as far as it goes, but it still remains uncertain how the courts will interpret a number of key provisions of the Bribery Act."

The Director of the Serious Fraud Office has indicated that an SFO focus from the outset will be prosecuting non-UK companies with a business presence in the UK to help ensure that UK companies which behave properly are not subject to unfair competition from non-UK companies which do not. In contrast, US authorities, after years of focusing on US companies, have only recently targeted non-US companies as part of an apparent effort to spur non-US enforcement agencies to be more active in this area with respect to their own companies.

Increased self-monitoring in the US

Back in the US, there was a withdrawal by both the Department of Justice and the Securities and Exchange Commission from routinely requiring an independent monitor in all cases and agreeing to various forms of self-monitoring. But even that did not diminish the importance of self-monitoring and self-reporting.

"The message here has remained generally consistent: companies that make voluntary disclosures and cooperate with the government receive a tangible benefit," says Dan Newcomb, one of the leaders of Shearman & Sterling's FCPA practice in New York.

Shearman & Sterling's analysis of penalties over the past five years indicates that the DOJ has often, but not always, granted discounts ranging from 3% to 67% in cases involving voluntary disclosures and negotiated resolutions. The court filings in a number of these cases list the reasons for the DOJ's decision to depart, including: voluntary and thorough disclosure; nature and extent of cooperation; penalties imposed or to be imposed by other US and foreign enforcement agencies and international organizations; and "extraordinary" remediation, including self and independent monitoring.

Other key findings

Among the other key findings in this semi-annual update to the firm's FCPA Digest:

• The first half of the year started off with the US authorities continuing their record pace of the past previous years, bringing 9 actions.  In the latter half of the year, the pace dropped somewhat, perhaps because the DOJ in particular was largely pre-occupied with the trials in the Lindsay Manufacturing, Haiti Telecom, and SHOT Show cases and in preparing for additional SHOT Show trials as well as upcoming trials in O'Shea and CCI.  Included in the 16 cases in 2011 was the last corporate case involving the Bonny Island consortium and the first FCPA case against a major pharmaceutical company, Johnson & Johnson. 
• The 18 additional individuals charged in 2011 represents the second highest total in FCPA history, eclipsed only by 2009 in which the government charged the 22 individuals in the SHOT Show case and 7 of the 8 defendants in CCI. 
• The case against the Siemens individuals may also reflect the pressure from commentators, the courts, and Congress to see that individuals are held accountable for corporate crimes. 
• This past year also saw the highest financial sanctions ever assessed against individuals in an FCPA case -- a TSKJ case relating to the bribes paid for contracts in Bonny Island, Nigeria. Earlier this year, the courts ordered forfeiture of $148,964,569 in Geoffrey Tesler's Swiss bank accounts.
• Since the record-holding $800 million penalty for Siemens in 2008, each subsequent year has seen at least one corporate FCPA case with a penalty of several hundred million dollars. But these headline-grabbing high penalties and resulting high annual totals tend to obscure the reality of what companies, on average, pay for FCPA violations. When the highest and lowest "outlier" cases are excluded, the averages-per-year are lower still. When the outliers are excluded, the averages have ranged from $3 million to $33 million – not inconsequential, but certainly not as severe and extreme as the annual total penalties might suggest.
• Several actions this year highlighted the importance of post-closing due diligence in M&A transactions where the target company poses potential corruption risks. In Watts Water, Diageo and Ball Corp., the SEC entered settlements with companies for violations of the books and records and internal controls provisions of the FCPA arising out of misconduct by recently-acquired subsidiaries. Taken together, these actions seem to send a strong message that SEC expects acquirers to conduct due diligence and undertake measures to address existing FCPA issues in the aftermath of a merger.

"I would expect that we will see a very active 2012," Urofsky says. "For example, the adoption of Dodd-Frank whistleblower regulations in the US will have implications for FCPA enforcements. I would also expect the UK Bribery Act to gain some momentum, which could also spark increased enforcement in other OECD jurisdictions."

Shearman & Sterling's updated Recent Trends and Patterns in FCPA Enforcement report provides insightful analysis and serves as an executive summary to the firm's FCPA Digest, a compendium of cases and review releases relating to bribes of foreign officials under the FCPA. The Digest, which is updated regularly, is considered the authoritative source on all FCPA-related proceedings, featuring proceedings related to bribes to foreign officials under the Foreign Corrupt Practices Act of 1977, including those related to foreign bribery criminal prosecution, DOJ foreign bribery civil actions, SEC actions, DOJ opinion releases, ongoing FCPA investigations and pre-FCPA prosecutions.

Shearman & Sterling's FCPA web site, http://fcpa.shearman.com, allows users to quickly learn enforcement trends by retrieving in-depth, original source materials and summaries based on category type, location, fines imposed, as well as numerous other searchable criteria.  

ABOUT SHEARMAN & STERLING

Shearman & Sterling LLP is a global law firm with approximately 900 lawyers in 20 offices in 12 countries around the world. The firm is a leader in mergers and acquisitions, capital markets, project development and finance, complex business litigation and international arbitration, asset management and tax.  

Contact:
Ron Brandsdorfer, Shearman & Sterling
(212-848-5081/[email protected])
Lauren Hatch, Edelman
(212-704-4514, [email protected])

SOURCE Shearman & Sterling LLP