Last week, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) released an FCPA Resource Guide update: A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT SECOND EDITION (2020 Resource Guide). Here, I’ll highlight the key updates.
The New Hallmark: Investigation, Analysis, and Remediation of Misconduct
There are many interesting aspects to this new Hallmark, not the least that it begins with “The truest measure of an effective compliance program is how it responds to misconduct.” This builds upon the language found in the “Confidential Reporting and Internal Investigations Hallmark, which stated, “once an allegation is made, companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response,”. Now beyond being properly funded, you must have a “well-functioning mechanism” for the “timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents.”
This clearly mandates that once an allegation or even suspicion comes to the attention of compliance, it must be properly triaged, and your investigation protocol should kick in with a detailed and effective investigation that is completed in a reasonable time and provides a response to the investigative findings. Moreover, an investigation is not the ending point and should be followed by a robust root cause analysis. This builds upon several sources.
Initially, the FCPA Corporate Enforcement Policy brought forward this requirement for a root cause analysis with the following language:
Demonstration of thorough analysis of causes of underlying conduct (i.e., a root cause analysis) and, where appropriate, remediation to address the root causes.
The 2020 Evaluation also raised the following questions under Root Cause Analysis: “What is the company’s root cause analysis of the misconduct at issue? Were any systemic issues identified? Who in the company was involved in making the analysis?”
FCPA Corporate Enforcement Policy
Obviously, there have been multiple developments by the DOJ and SEC since the 2012 release of the First Edition of the FCPA Resource Guide (2012 Resource Guide). The evolution in the DOJ’s thinking has clearly been at the forefront of many of these developments. These all came to a head in 2017, which saw two significant additions to both FCPA enforcement and compliance programs. February 2017 saw the release of the first version of the Evaluation of Corporate Compliance Programs, which was most recently updated in June 2020. In November 2017, came the new FCPA Corporate Enforcement Policy, which provide a presumption of a declination for FCPA enforcement actions when four criteria were met: (1) self-disclosure, (2) extensive remediation, (3) thorough investigation, and (4) profit disgorgement. This FCPA Corporate Enforcement Policy was discussed in detail in the 2020 FCPA Resource Guide update.
The Accounting Provisions
The next area of focus in the 2020 FCPA Resource Guide update is the chapter on Accounting Provisions, including both books and records and internal controls. There are two key clarifications regarding the application of the books and records and internal controls provisions of the FCPA. First, the Second Edition violations of the anti-bribery provisions are subject to a five-year statute of limitations, and criminal violations of the FCPA accounting provisions are subject to the six-year statute of limitations. Second, criminal penalties for violations of the FCPA accounting provisions are imposed only where the defendant knowingly and willfully failed to maintain accurate books and records.
DOJ Policy and Case Law Updates
a. Developments in DOJ Policy – One Pie to Anti-Piling On to Coordinated Resolutions
Originally, there was the ‘one pie’ concept. This concept intoned that enforcement authorities were moving towards one total cost to anti-corruption violators which would be equitably split up by authorities where the corruption occurred or by the countries which had jurisdiction. The ‘one pie’ concept was later memorialized by the DOJ in its Anti-Piling On Policy. It has now become the “Coordinated Resolutions” initiative.
This focus has taken hold internationally as well. The 2020 FCPA Resource Guide update discussed the case involving a publicly-traded Brazilian petrochemical company, Petróleo Brasileiro S.A. (Petrobras), where DOJ, SEC, Brazilian and Swiss authorities credited one another in imposing fines and disgorgement. The 2020 Resource Guide reports that the DOJ has coordinated resolutions with foreign authorities in more than 10 cases, and the SEC has coordinated resolutions with foreign authorities in at least five.
b. Successor Liability
The 2020 FCPA Resource Guide update provides heightened lucidity into successor liability under the FCPA. If your organization cannot (as opposed to does not) engage in pre-acquisition thorough due diligence prior to a merger or acquisition, there are steps which can be taken post-closure. These steps include timely and thorough integration efforts, deep dive forensic audit, and voluntary disclosure of uncovered wrongdoing post-acquisition.
c. Case Law Update – Hoskins
The case law updates may well be the most controversial part of the 2020 Resource Guide. The most controversial case discussed in the 2020 Resource Guide is the Hoskins case. In Hoskins the Second Circuit interpreted the FCPA to hold that foreign nationals are subject to the FCPA anti-bribery provisions only if they are agents, employees, officers, directors, or shareholders of a US issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States. Here, the DOJ believes this interpretation will only be followed in the 2nd Circuit.
The original FCPA Resource Guide was without any doubt, the single best one-volume reference book for all things FCPA related. The 2020 Resource Guide is a most welcome update to the original documents released by the DOJ and SEC. The 2020 FCPA Resource Guide update brings forward the top FCPA and compliance resource from the past eight years to lead us all into this decade. Every compliance practitioner should give a round of hearty applause to the DOJ and SEC for their great work. We are all better off for this volume.
P.S. Last month, the DOJ released an update to its guidance for corporate compliance programs as well. Click below to download my whitepaper on that update and how it will impact your compliance program.