Last year, we saw more enforcement actions brought against individuals than ever (up to 34, depending on how you’re counting), and a record number of convictions secured after trial (three). The cost of violating the FCPA continued to skyrocket. The DOJ and SEC collectively imposed $2.8 billion in fines and penalties.
Two of the ten largest corporate resolutions of all time occurred in 2019 (Ericsson and MTS). Another two corporate actions landed among the top twenty (Walmart and TechnipFMC). While reasonable people can disagree on how best to calculate FCPA fines and penalties, the real lesson is that the FCPA has once again shown that it is here to stay. It’s also proven to be a bi-partisan statute, enforced in equal measure by both Republican and Democratic administrations.
2019 also saw a number of other remarkable trends. We continued to see the ascendancy of the SEC in corporate resolutions. While this has been building for a number of years now, the SEC in 2019 used the FCPA’s internal controls provision to stake out some rather aggressive positions — positions that I believe will be challenging for even the most responsible company to satisfy in practice.
Let’s briefly examine the SEC’s enforcement actions against Microsoft and Juniper Networks. In those actions, the SEC scrutinized situations in which the companies offered discounts above their standard corporate rates. The SEC asserted that it was a violation of the internal controls provision not to confirm that 100 percent of an increased discount was passed along to the government end-user. It is difficult to imagine how a company could do this in practice.
Will the company have to audit the distributor in each instance where it deviates from its standard discount? Will it have to engage with the end user to ascertain the final price the distributor charged? Moreover, why is such a step necessary? There are numerous legitimate situations in which a distributor might retain some of an increased discount. For example, what if they retain some of the increased discount to pay bonuses to hard-working employees? What if they intend to retain some of the discount simply because they’d like to have a larger profit margin for a hard-earned sale?
The Microsoft and Juniper Networks cases highlight another trend from 2019 – increased scrutiny on tech companies. Five of the SEC’s 13 corporate enforcement actions featured companies working in the tech sector. That’s almost 40 percent of all SEC enforcement actions last year – and a major warning shot across the industry’s proverbial bow. The DOJ and SEC have figured out that the tech sector makes use of third parties as much as other industries. They’ve also caught wind of the fact that many tech companies have focused primarily on revenue generation and market share growth, and viewed compliance as an after-thought. Put another way, the agencies have sternly reminded the tech sector that while it’s changing the way we live and work, the same old laws still apply.
In 2019, we also saw several landmark court decisions that wrestled with the FCPA. Most notably, the DOJ secured a conviction of Lawrence Hoskins, the former Alstom SA executive and UK national who apparently never visited the United States.
In 2018, the Second Circuit Court of Appeals had overturned an earlier conviction for conspiring to violate the FCPA, holding that defendants cannot be charged with conspiracy and aiding and abetting the statute unless they otherwise directly subject to FCPA jurisdiction. At Hoskins’ retrial, the DOJ argued that Hoskins was subject to the FCPA because he had acted as an agent of a domestic concern – one of Alstom’s U.S. subsidiaries.
The jury agreed, and after one day of deliberation, it found Hoskins guilty on six counts of violating the FCPA (among other things). The 2nd Circuit’s 2018 decision had been viewed by many at the time as a serious setback to the DOJ’s focus on prosecuting individuals involved in FCPA violations (a view I do not share); Hoskins’ 2019 conviction has done much to overcome such views.
As I’ve said before, longing for a reprieve from robust and expansive FCPA enforcement is wishful thinking. It is more important than ever for companies and individuals to understand the statute’s requirements and the way FCPA enforcement continues to evolve.
In my first live webinar of 2020, I’ll examine these and other key FCPA developments and explain the lessons that companies should draw to understand their exposure to corruption risks. I’ll boil down the latest trends into practical steps that companies should take to ensure that their compliance programs reflect the agencies’ evolving interpretation of the FCPA. As always, there will be plenty of time for participants to pose questions.
Hi Bill: I enjoyed this article. I’m wondering how the SEC expects companies to comply with global competition laws if it is going to hold them liable for discounting levels and ensuring discounts are passed along to end-users. Generally speaking, manufacturers are not supposed to be influencing pricing (or even seeing the pricing) that distributors and resellers are charging to end-users. Has the SEC commented on this issue?
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