DOJ and SEC Publish Second Edition of the FCPA Resource Guide
The Situation: On July 3, 2020, the Department of Justice ("DOJ") and the Securities and Exchange Commission ("SEC") published a second edition of the "Resource Guide to the Foreign Corrupt Practices Act," almost eight years after the first edition, to provide additional guidance to companies and individuals on navigating the Foreign Corrupt Practices Act ("FCPA").
The Result: The second edition expands the anti-bribery provisions, accounting provisions, and penalties sections with discussions of recent cases and developments; incorporates new and revised DOJ policies from the past several years; and provides additional guidance on how the DOJ and the SEC evaluate effective corporate compliance programs and make charging decisions.
Looking Ahead: The second edition demonstrates the DOJ's and the SEC's continued commitment to provide companies with guidance for complying with the FCPA. However, as with prior DOJ and SEC guidance, the Resource Guide is nonbinding on the government, and several provisions of the FCPA still remain open to interpretation and prosecutorial discretion.
On July 3, 2020, the DOJ Criminal Division and the SEC Division of Enforcement published the second edition of "A Resource Guide to the U.S. Foreign Corrupt Practices Act" ("Resource Guide"). Originally published in November 2012, the Resource Guide provides companies with guidance on how the DOJ and SEC interpret the FCPA and relevant case law and make enforcement decisions. As such, the Resource Guide has become essential reading for companies and counsel interested in gaining an understanding of the U.S. government's perspective on the FCPA's various provisions. The now-updated Resource Guide reflects key policy modifications, cases, and other developments that have emerged over the past eight years.
Incorporated DOJ Enforcement Policies
The Resource Guide's sections on the DOJ's guiding principles of enforcement are updated to include the following four DOJ policies and pronouncements issued since 2017.
FCPA Corporate Enforcement Policy (Resource Guide, pages 51–54). This November 2017 (updated in April 2019) DOJ policy incentivizes companies to self-disclose, cooperate, remediate, and pay any applicable disgorgement by offering the possibility of a DOJ declination. The Resource Guide also provides three examples of public declinations issued pursuant to this policy. The Resource Guide notes that the policy does not bind or apply to the SEC.
Memorandum on the Selection of Monitors in Criminal Division Matters (pages 73–74). This memo sets forth the Criminal Division's principles for determining whether a monitor is needed. It states that a monitor typically should not be required and instead should be "the exception, not the rule." The Resource Guide lists three additional factors the DOJ and SEC may consider for determining whether a monitor is needed, which also appear in the DOJ's memo: (i) the risk profile of the company, including its nature, size, geographical reach, and business model; (ii) subsequent remedial efforts; and (iii) whether the company's current compliance program is fully implemented and tested. The Resource Guide also states the DOJ and SEC's shared view that a monitor "should never be imposed for punitive purposes."
Policy on Coordination of Corporate Resolution Penalties (page 71). The Anti-Piling On Policy, released in May 2018, states that the DOJ will coordinate with its U.S. and foreign counterparts when entering into a resolution to avoid "piling on" penalties. The Resource Guide describes the DOJ and SEC's mutual goal to "avoid imposing duplicative penalties, forfeiture, and disgorgement for the same conduct." Citing a few recent resolutions, the Resource Guide describes a few examples in which the DOJ and SEC have coordinated resolutions with one another and with foreign authorities, with U.S. authorities crediting foreign authorities' fines, penalties, forfeiture, and disgorgement involving the same company for the same conduct.
Criminal Division Guidance on the Evaluation of Corporate Compliance Programs (page 20). The Resource Guide now contains a citation to the DOJ's April 2019 (updated in June 2020) compliance programs guidance, which describes the factors the DOJ considers when evaluating the effectiveness of a company's compliance program for the purposes of determining an appropriate resolution of a DOJ matter.
The SEC has not issued any major FCPA-related enforcement policy pronouncements over the past eight years, and the description of its enforcement policies in the Resource Guide is largely unchanged.
Updated Anti-Bribery and Accounting Provisions Sections Reflect Recent Case Law
The Resource Guide is updated to reflect recent FCPA-related case law.
Definition of Instrumentality of a Foreign Government (page 20). The FCPA defines "foreign official" as "any officer or employee of a foreign government or instrumentality thereof." Elaborating on that definition, the Resource Guide adopts the definition of "instrumentality" offered by the U.S. Court of Appeals for the Eleventh Circuit. The Resource Guide explains that "instrumentality" means "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own." The Resource Guide then provides a list of factors that can be used to determine whether a foreign government "controls" an entity.
Types of Persons Liable for Conspiring or Aiding and Abetting (pages 36, 46). The Resource Guide references two recent cases (one from the U.S. Court of Appeals for the Second Circuit and the other from a federal court in the Northern District of Illinois) that came to different conclusions on the question of whether individuals not directly covered by the anti-bribery provisions can be found guilty of conspiring to violate those provisions or of aiding and abetting another person's violation of those provisions. According to the Resource Guide, the DOJ and SEC's assertion is that individuals not directly covered by the anti-bribery provisions could nevertheless be liable for conspiring to violate, or aiding and abetting the violation of, the anti-bribery provisions, except in the Second Circuit. The Resource Guide further asserts the DOJ and SEC's view that the FCPA's accounting provisions apply to "any person" and thus are not subject to any limitations.
Scope of the Anti-Bribery Provision's Local Law Defense (page 24). The Resource Guide references an action against an individual in which the court denied an affirmative local law defense instruction on the grounds that, while a person cannot be guilty of violating the FCPA if the payment was lawful under foreign law, there is no defense if a person could not be prosecuted in the foreign country because of either a technicality or a provision in the foreign law that "relieves" the person of criminal responsibility.
New Section on Civil Forfeiture and Disgorgement Reflect Two Recent Supreme Court Cases
The Resource Guide includes a new section on forfeiture and disgorgement, incorporating two recent U.S. Supreme Court rulings regarding the SEC's remedy of disgorgement:
Kokesh v. SEC (pages 37, 71). The Resource Guide notes that in Kokesh v. SEC, the Supreme Court ruled that the civil disgorgement remedy is a "penalty" and therefore subject to a five-year statute of limitations under 28 U.S.C. § 2462.
Liu v. SEC (page 71). The Resource Guide acknowledges that under the Supreme Court's recent decision in Liu v. SEC, disgorgement as a general matter is permissible as equitable relief only when disgorged profits do not exceed a wrongdoer's net profits and the recovered funds are paid to victims of the wrongdoing.
The Resource Guide, however, does not discuss the government's view on the impact of Kokesh and Liu on civil FCPA resolutions moving forward. Liu sharply limits the SEC's ability to seek disgorgement in cases where there is no obvious ill-gotten gain or no identifiable victims to whom funds should be returned. Before Liu, the SEC collected hundreds of millions of dollars of disgorgement in FCPA cases. It remains to be seen how Liu will impact FCPA resolutions in the future. Anti-bribery and accounting provision cases typically do not involve identifiable victims who could be compensated by a return of funds.
Another unanswered question is whether the SEC will seek to increase the amount of civil money penalties from FCPA defendants in light of the new limits on disgorgement. If this occurs, it may impact the SEC's coordination of FCPA resolutions with the DOJ and foreign authorities.
Updated Guidance for Effective Corporate Compliance Programs
The Resource Guide contains an additional, new hallmark for an effective compliance program titled "Investigation, Analysis, and Remediation of Misconduct," which draws on elements from the existing hallmarks and is discussed in the DOJ's Evaluation of Corporate Compliance Programs guidance (page 67). Under this hallmark, the Resource Guide states that the "truest measure of an effective compliance program is how [the company] responds to misconduct." To evaluate the effectiveness of the company's response, the Resource Guide notes that the DOJ and the SEC might ask whether the company:
- Employs a well-functioning and appropriately funded mechanism for the timely and thorough investigations of any allegations or suspicions of misconduct by the company, its employees, or agents;
- Implements a means of documenting the company's response, including any disciplinary or remedial measures taken;
- Integrates lessons learned from misconduct into the company's policies, training, and controls;
- Analyzes the root causes of the misconduct; and
- Timely remediates the misconduct.
There were no significant revisions to the DOJ's and the SEC's original 10 hallmarks of an effective compliance program.
The Resource Guide also contains additional guidance on how the DOJ and the SEC will evaluate corporate compliance programs.
- The DOJ and the SEC will consider the effectiveness of a company's compliance program both at the time of the misconduct and at the time of the resolution when making a charging decision (page 51).
- A company's compliance program must be tailored to the risks specific to the company's operations (page 56).
- The DOJ and the SEC do not consider a company's internal accounting controls and its compliance program as one and the same (pages 40–41). The Resource Guide notes that internal accounting controls "are not synonymous" with a company's compliance program but recognizes that an effective compliance program contains a number of components that may overlap with critical components of an issuer's internal accounting controls.
The updated Resource Guide does not announce new policies and will not alter the FCPA enforcement landscape, but it is a useful resource for companies that want to better understand the government's view of the FCPA's requirements and to develop and evaluate appropriate compliance programs. While several provisions still remain open to interpretation and prosecutorial discretion, the Resource Guide underscores the need for companies to establish and maintain robust anti-corruption compliance policies and procedures to prevent, identify, investigate, and remediate any compliance issues that may arise.
Three Key Takeaways
- The second edition of the DOJ and SEC's Resource Guide to the FCPA has been updated to reflect policies, cases, and other relevant developments from the past eight years.
- The Resource Guide's key updates include the following: formal adoption of the DOJ's FCPA Corporate Enforcement Policy and other DOJ enforcement pronouncements (which apply only to the DOJ), a new section on disgorgement and forfeiture, and updated guidance on effective corporate compliance programs.
- The Resource Guide remains nonbinding, and several provisions of the FCPA, such as whether the DOJ or SEC will issue a declination in a particular case, remain open to prosecutorial discretion.
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