By Peter Pang*
The Foreign Corrupt Practices Act (the “FCPA”) is a U.S. federal statute that requires companies to observe certain accounting transparency standards and prohibits individuals and companies from bribing foreign officials. Because of its international reach, it can be used to impose civil and criminal sanctions against both companies and individuals operating anywhere in the world, regardless of nationality, as long as a sufficient connection with the United States is shown.
The FCPA is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). 2018 was a record-breaking year for FCPA enforcement, as 16 companies paid a total of $2.89 billion in penalties. The biggest loser was Brazilian multinational Petrobras, which paid $1.78 billion in penalties, nearly as much as the amount paid by all companies in 2017. Several new trends in FCPA enforcement appeared in 2018 as detailed below.
Enforcement Authorities Take Aim at the “Big Boys”
Both the SEC and the DOJ have announced their intention to focus more on high profile cases involving large penalties. Although the Petrobras case was the centerpiece of 2018’s enforcement efforts, it represents the tip of the iceberg – 70 percent of the all-time highest value FCPA settlements have taken place since 2016. High-profile cases are expected to continue to make up the majority of FCPA penalties, at least in terms of cumulative dollar value.
International Enforcement Cooperation Is Becoming the Norm Rather Than the Exception
It wasn’t all that long ago when global efforts to combat corruption were relatively isolated and fragmented, with little cooperation between various national entities responsible for enforcing anti-corruption laws. This state of affairs, of course, worked to the advantage of multinational companies whose operations were scattered across the globe. But globalization has now caught up with international anti-corruption enforcement.
In 2018, the SEC and the DOJ cooperated extensively with Brazilian authorities on the Petrobras case, and the DOJ cooperated with French authorities on the Société Général S.A. case. These two agencies have also built strong cooperative relationships with enforcement authorities in the United Kingdom and the Netherlands as well. This uptick in international cooperation illustrates how international anti-corruption enforcement is becoming more robust throughout the world.
Chinese Companies Are Now in the Bull’s Eye
FCPA enforcement against Chinese companies has long been highly charged with national security issues. In 2018, the DOJ launched its “China Initiative,” which specifically targets Chinese companies. The now-famous detention of Huawei executive Meng Wanzhou followed shortly thereafter. Two highly politicized concerns stand at the forefront of this initiative: national security threats generated by new technology (cell phones, for example) and trade secret theft.
China’s new International Criminal Judicial Assistance Law (ICJA) could turn out to be a significant countermeasure against the China Initiative – in part because it can be interpreted to require Chinese companies to obtain permission from the PRC government before providing evidence in criminal proceedings held outside of China .
DOJ Announces Corporation-Friendly Policy Changes
The DOJ commenced three major policy initiatives in 2018:
- It issued guidelines aimed at preventing the imposition of multiple fines for the same offense when a company is being investigated by more than one agency.
- It issued guidelines on monitorships in which a company submits to external monitoring and burdensome reporting obligations in order to ensure its compliance with the FCPA. The new guidelines are expected to narrow the scope of monitorships and allow target companies more input into the selection of monitors.
- It revised the Yates Memorandum, which provides guidelines detailing how companies reporting their own employees for misconduct can receive credit for cooperating with the DOJ. These revisions are expected to reduce the burden of compliance with DOJ investigations and to simplify the process of qualifying for cooperation credit.
All of these initiatives are thought to be corporation-friendly, and they are consistent with prior expectations regarding the Trump administration’s general posture towards FCPA enforcement.
United States v. Hoskins Limits FCPA Enforcement Jurisdiction
The reach of the FCPA is broad, and it has been widely criticized both at home and abroad for its extraterritorial application of US law. In United States v. Hoskins, the federal Second Circuit Court of Appeals limited FCPA enforcement against non-US nationals to individuals whose conduct occurred in the United States or who acted as employees or agents of US companies.
Previously, although individuals who fell outside the scope of this jurisdiction could not be charged with a substantive FCPA offense, they were still pursued by the SEC or the DOJ under federal conspiracy statutes (such as RICO) instead. The Hoskins court, however, ruled that defendants who cannot be charged with substantive offenses cannot be charged under federal conspiracy statutes either.
Look for (Mostly) More of the Same in 2019
Most of the FCPA trends established in 2018 look set to continue throughout 2019:
- The DOJ and the SEC will probably continue to focus on targeting high-profile corporate defendants with large fines. This emphasis might come at the expense of enforcement actions against lower-priority targets.
- International cooperation is likely to expand in 2019, particularly in the realm of information-sharing among the various national anti-corruption agencies. US authorities may be more willing to yield to foreign regulators when circumstances indicate that US jurisdiction over a case would be inappropriate.
- FCPA enforcement authorities are likely to offer significant incentives (in terms of lenient treatment) to companies that self-disclose and cooperate with investigations.
- In light of the Hoskins decision, the DOJ will likely rely on laws other than the FCPA to target corruption, especially where the targets are individuals rather than companies. Money laundering and wire fraud statutes, which enjoy extraterritorial reaches that exceeds even the FCPA, are likely to be seen as particularly tempting legal weapons.
The fate of the Trump administration’s China Initiative is the only real wild card in the deck. Due to its highly charged political nature, it is difficult to predict how US internal politics and diplomatic friction between the US and China will affect the aggressiveness of the DOJ. No matter what happens in 2019, however, it seems all but certain that the SEC and the DOJ will continue to prioritize FCPA enforcement far more than they used to.
*Peter Pang is the Chairman and Managing Partner of IPO PANG XINGPU LAW FIRM, a premier international law firm founded in the early 1990’s and is headquartered in Shanghai, PRC. The firm’s primary practice focuses on assisting foreign companies in doing business in China and has legal expertise in Intellectual Property, Foreign Direct Investments, including equity joint ventures, employment and labor laws and mergers and acquisitions. Mr. Pang has studied both in the US and China, and is a frequently speaker and contributor to topics such as US China trade, franchising and protection of intellectual property and trade secrets. He is the author of a number of articles and chapters in books on the same topics, including transfer of technology.