Expect corruption crackdown to widen, intensify

April 15, 2014

By Stuart Gittleman, Compliance Complete

NEW YORK, Apr. 15, 2014 (Thomson Reuters Accelus) – Companies and financial firms that are potentially subject to the Foreign Corrupt Practices Act and other anti-corruption regimes should expect more of the enforcement crackdown they have seen in recent years, except in greater quantity and intensity, two former U.S. government officials said last week.

The ex-officials, Cheryl Scarboro, a law partner at Simpson Thacher & Bartlett, and Greg Andres, a partner at the law firm Davis Polk & Wardwell, respectively headed the Securities and Exchange Commission Enforcement Division FCPA unit and the Department of Justice Criminal Division fraud section. They spoke at an FCPA and anti-corruption seminar at the New York City Bar Association.

The focus on bribery and corruption is resulting in more investigations of high-profile businesses and individuals by the SEC, the DoJ and other regulators, Scarboro, Andres and other panelists warned.

As SEC Chair Mary Jo White has called for, some corporate defendants have been required to admit to some or all of the agency’s allegations in certain cases, but this has not yet occurred in FCPA cases, Scarboro noted. Such admissions, like guilty pleas and factual statements of misconduct in deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs), can have serious collateral consequences such as debarment from federal and World Bank business opportunities, she added.

The SEC has been using authority granted by the Dodd-Frank Act to increasingly bring proceedings before its administrative law judges rather than filing civil complaints in federal district court, Scarboro said.

Such administrative proceedings offer fewer opportunities for obtaining discovery from the SEC. They also avoid the growing likelihood that federal district judges will publicly question settlements negotiated by the SEC and corporate defendants, and they require greater assurances of future compliance, Scarboro said. Judicial scrutiny will remain, but it will be increasingly difficult to get a “package deal” approved by a federal judge, especially if there are cross-border aspects to the investigation, she warned.

There is “greater cooperation and coordination” among regulators globally, especially if the bribery recipients and other individuals involved in the corruption scheme violated the laws of their own country, Andres said, citing multinational efforts to investigate financial rate-rigging allegations.

On the other hand, the settlement amounts seem “discounted” from the guidelines of the U.S. Sentencing Commission – as it should be since the companies have not been convicted of any violations – said Kathleen E. Troy of Raytheon Corporation, a federal government and international contractor. But this does not occur in a vacuum, she added, since the settlements take into consideration self-reporting and cooperation in the continuing investigation, remediation and enhanced compliance, she added.

The new normal can be a two-edged sword, Andres warned, saying the DoJ and the SEC have been more likely to publicly announce that they are declining to bring charges, but they are also adding to the penalties if the company fails to cooperate in – or worse still, obstructs – the government investigation.

Especially in such cases, the DoJ is going after individuals more, and more effectively, and is using aggressive techniques that until recently were limited to organized crime, such as wiretaps and “flipping” participants in the scheme and having them inform on and record their co-conspirators, said Andres.

The use of these techniques, and of the SEC’s whistleblower award and anti-retaliation program, raise the likelihood that any wrongdoing will eventually be discovered, so potential investigative targets should consider whether, when and how to self-report as soon as they smell misconduct, said Scarboro.

The target will have more control of the government investigation, and more trust from the investigators, but self-reporting should not be a knee-jerk reaction, Scarboro noted, saying, “You have to go in there with a clear plan from the start.”

(This article was produced by the Compliance Complete service of Thomson Reuters Accelus. Compliance Complete provides a single source for regulatory news, analysis, rules and developments, with global coverage of more than 400 regulators and exchanges. Follow Accelus compliance news on Twitter: @GRC_Accelus)

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