Fears that FCPA enforcement would slow down to a trickle under the Trump administration were proven to be unfounded in 2017 and the same can be said of 2018. The DOJ and SEC imposed fines and measures totaling USD 2.89 billion in 2018. Last year also proved to be a year of change for FCPA enforcement, as U.S. enforcement agencies rolled out a number of new policies and increased cooperation with foreign authorities. Let’s explore the most significant developments and what to expect going into 2019.
No Longer Piling On
The USD 1.78 billion action against Brazilian state-owned energy company Petrobras was by far the biggest action of 2018, comprising over half of the total fines. The penalty represented the largest penalty in FCPA history. However, the fine is most notable for how it was composed. The fine consisted of a criminal penalty of USD 853.2 million in addition to a USD 933.5 million disgorgement order. 80% of the criminal penalty will be paid to Brazilian authorities and all of the disgorgement was allowed to be offset against payments Petrobras had made to a settlement fund for a U.S. class action by shareholders.
The Petrobras resolution is consistent with the DOJ’s policy against piling on announced in May this year. A key aspect of the new policy is to cooperate with other federal, state, and foreign authorities to determine whether crediting and apportioning penalties, fines, and disgorgements is desirable to avoid disproportionately punishing a corporation. The new policy was also put on display when the SEC declined to prosecute Dutch banking group ING after it paid nearly USD 897 million in fines and disgorgement to Dutch authorities. Moving into 2019, we can expect cooperation between authorities across national borders to strengthen even further.
Late last November, Deputy Attorney General Rod Rosenstein announced significant changes to the Yates Memorandum. Under the memorandum, the DOJ previously required companies to provide “all” evidence about “any” individuals involved in the alleged misconduct, in order for the company to qualify for any cooperation credit. Rosenstein indicated that under the revised policy, companies will no longer have to identify all individuals, but only persons “substantially involved in or responsible for” the alleged misconduct. Of course, the definition of “substantially involved” will now become a point of contention between DOJ officials and corporate lawyers; look out for more clarity on this policy going forward. Nonetheless, a significant increase in the number of individual prosecutions for FCPA offenses was registered this year; expect this trend to continue even with the revised Yates memo in place. These changes in policy can be seen as an extension of the DOJ’s FCPA Corporate Enforcement Policy announced in November 2017, which placed further emphasis on self-reporting and remediation.
This year is the first year that the DOJ’s revised FCPA Corporate Enforcement Policy has been in full effect. The November 2017 policy included a presumption that the federal government would decline to prosecute any company that meets the requirements for “voluntary self-disclosure”, “full cooperation”, and “timely and appropriate remediation”.
Somewhat surprisingly, only three relatively small cases (see here, here, and here) were resolved using a “declination with disgorgement”. One of them, Guralp Systems, did not even have to pay declination, as the DOJ noted that it was under investigation by the UK’s Serious Fraud Office (SFO) for the same conduct. However, a significant number of declinations without disgorgement were issued this year. It is likely that these cases predated the revised enforcement policy (and also the Pilot Program dating from 2016), presented a jurisdictional conflict, or otherwise did not warrant disgorgement.
It seems unlikely that the DOJ is moving away from an instrument it formally introduced only slightly over a year ago. Moreover, the DOJ has continued to beat the drum of cooperation, self-reporting, and strengthening compliance programs as areas of focus this year. Regardless, it’s clear that companies with strong compliance programs will continue to benefit from the DOJ’s new policies when things go wrong. Compliance officers should pay attention in 2019 to gain more clarity on how the Justice Department will apply the policy going forward.
Weaponizing the FCPA?
One of the oldest accusations against U.S. authorities is that they use the FCPA as a tool to (unfairly) prosecute foreign corporations for acts of bribery in an effort to hand a competitive advantage to U.S. companies. The merits of this claim will not be debated further here, but the argument has once again gained prominence as the DOJ announced a new “China Initiative” which includes the goal to “[i]dentify Foreign Corrupt Practices Act (FCPA) cases involving Chinese companies that compete with American businesses.”
It remains unclear for now how the DOJ will apply this policy in practice, but drawing on arguments of national security and economic interests exposes the Justice Department to criticism of selective prosecution and ‘weaponizing’ the FCPA for the purposes of a trade dispute. The announcement is also unprecedented, as the DOJ has never before announced it was targeting companies based in a specific country. It is likely that the implementation of the China Initiative will depend on the ongoing trade negotiations between the U.S. and China. This one will be a worrisome trend to watch this year.
How FCPA Enforcement is Changing
It’s likely that we will continue to see active FCPA enforcement throughout 2019, albeit with an increasingly strong emphasis on self-reporting and remediation. The new “declination with disgorgement” policy was slow to take off in 2018; enforcement actions in the new year are likely to crystallize the policy. It appears particularly uncertain how the DOJ will approach Chinese companies going forward, as those initiatives are related to broader U.S.-Chinese tensions. The Petrobras settlement is also a sign of things to come; expect stronger cooperation between authorities across national borders as U.S. authorities have vowed to stop piling on. Compliance officers should keep an eye out in 2019 to see how the DOJ and SEC will apply the policy revisions announced in 2018.