While we have understandably been distracted by the challenges of 2020 – from serious concerns about our health and the well-being of our loved ones to not-so-serious concerns of how we look on video conferences – things in the FCPA world have been humming along. In fact, this year has seen some remarkable FCPA developments that will put it in the record books.
We’ve seen several court cases interpreting the FCPA, major enforcement actions, and new policy pronouncements from the enforcement agencies. All while we’ve been working in our PJs at our dining room tables.
Let’s start with the biggest buzz of 2020 – the second edition of the official FCPA Resource Guide, released by the DOJ and the SEC on July 3rd. There are lots of edits in the new edition, but only a handful of major changes. In my view, the biggest news is how the agencies addressed the 2nd Circuit’s ruling in United States v. Hoskins. Readers will recall that the court in Hoskins limited the ability of federal prosecutors to charge foreign nationals with conspiring to violate, or aiding and abetting violations of, the FCPA.
In particular, the appeals court observed that the FCPA applies to three specific categories of defendant – domestic concerns, issuers, and others within the territory of the United States. It then held that an individual who does not fall into one of those categories, and therefore cannot be directly prosecuted under the FCPA, also can’t be charged with aiding or abetting an FCPA violation, or conspiring to violate the FCPA. Since Lawrence Hoskins wasn’t a U.S. national, and apparently never set foot in the United States, he was in the clear.
The agencies begrudgingly accept the court’s decision in the updated Resource Guide . But in one of my favorite passages from the second edition, the DOJ and SEC coyly point out that the ruling in Hoskins applies “at least in the Second Circuit.” In other words, the DOJ and SEC are taking the loss, but only conceding defeat in Connecticut, New York, and Vermont. Indeed, the agencies then point out that there is a nascent conflict brewing among federal courts, citing United States v. Firtash. In Firtash, federal prosecutors charged Dmitry Firtash, a Ukrainian national residing in Austria, with conspiracy to violate the FCPA in connection with a scheme to bribe Indian government officials to obtain mining licenses.
Citing Hoskins, Firtash moved to dismiss the FCPA indictment, arguing that since he was not subject to the three jurisdictional categories in the FCPA, he could therefore not be charged with conspiracy to violate the statute. The trial court – which is situated in the 7th Circuit – disagreed. Judge Pallmeyer held that 7th Circuit cases have long held that defendants who cannot face prosecution under federal criminal statutes could nonetheless be charged with conspiracy to violate them. She therefore denied Fritash’s motion to dismiss the FCPA-related count. In citing Judge Pallmeyer’s ruling in United States v. Firtash, the DOJ and SEC make it clear that they are not deterred by Hoskins, and intend to keep bringing aiding and abetting and conspiracy charges against individuals who are not themselves be subject to the FCPA. We’ll have to stay tuned.
Another eye-catching change in the second edition of the Resource Guide is the reference to the six-year statute of limitations contained in 18 USC § 3301, which applies to “securities fraud offenses.” This provision defines such offenses to include violations of, and conspiracies to violate, Section 32(a) of the Securities Exchange Act of 1934 (among other things). Section 32(a) – codified at 15 U.S.C. § 78ff(a) – makes it a crime to willfully violate the provision of the Securities and Exchange Act, including the FCPA’s books and records and internal controls provisions (though specifically excluding the anti-bribery provisions).
I suspect that the agencies cited 18 USC § 3301 as a response to the U.S. Supreme Court’s 2017 ruling in Kokesh v. SEC. In Kokesh, the high court held that the SEC’s disgorgement powers are penalties, and therefore subject to the five-year statute of limitations contained in 15 U.S.C. § 2462. Before Kokesh, the SEC had taken the position that its ability to disgorge ill-gotten gains – including in FCPA enforcement actions – was not limited by the federal statute of limitations.
According to the SEC in its 2019 annual report, the Kokesh decision has prevented it from collecting more than a billion dollars in disgorgement. By evoking 18 USC § 3301 in the updated Resource Guide, I believe the agencies are trying to undo a bit of that damage. While the SEC will still face a five-year limitations period on disgorgement in civil enforcement actions, the DOJ will be able to lend a hand and pursue violations of the accounting provisions under 18 USC § 3301 for an additional year.
While the Resource Guide has filled the FCPA headlines of late, we mustn’t forget that the DOJ separately updated its Guidance on the Evaluation of Corporate Compliance Programs in June. Though not limited to the FCPA, the document nevertheless makes clear what federal prosecutors expect companies to include in their compliance programs. There were a number of key developments that companies should address sooner rather than later, including the following:
- Policies and procedures should be made available in searchable formats, to allow personnel to easily find the requirements that apply to them.
- Training should include opportunities to ask questions. This is a clear endorsement of live training.
- Third party risk management is not a one-shot deal limited to onboarding due diligence, but should continue throughout the relationship.
- Companies should track access to their policies and procedures to see which provisions attract the most attention from their personnel.
In addition to new agency pronouncements, 2020 has been noteworthy for the volume of fines and penalties imposed to date. We started the year with the record-smashing $2.09 billion fine that the DOJ imposed against Airbus for improper conduct to secure aircraft sales in China. This is the largest FCPA fine ever imposed. It also helped to propel the aggregate fines and penalties imposed in 2020 thus far to $2.495 billion. That means that 2020 already ranks as the third largest year in terms of fines and penalties since the FCPA was enacted.
Many have rightly pointed out that the DOJ gave Airbus substantial credit for fines levied by enforcement authorities in the U.K. and France. As a result of these credits, Airbus’ payment to the U.S. Treasury will actually be $294 million. That’s a whole lot smaller. But to use the vernacular, it still isn’t chump change.
It would still put Airbus squarely within the top 20 largest FCPA enforcement actions. This is particularly significant because the fines were imposed for relatively minor contacts with the United States under the FCPA’s territorial provision, 15 U.S.C. § 78dd-3. $294 million is a lot to pay for a handful of emails sent by French nationals while on trips to the United States, and two lavish vacations masquerading as business conferences. And not to put too fine a point on it, how many companies have almost $300 million lying around that they’re willing to give away, particularly given the current state of the economy? All of this is to say that even if the right number to pin on the Airbus enforcement action is $294 million rather than $2.09 billion – and I’m not willing to concede that – it’s still a major fine.
I’ll be discussing these and other developments in our first-ever FCPA Mid-Year Review live webinar. As always, I’ll focus on the practical lessons that companies should take from the numerous FCPA developments of 2020. I’ll delve into other changes in the Resource Guide, examine recent court decisions interpreting the FCPA, and break down 2020 by the numbers. As always, there will be plenty of time for participants to pose questions. As an added bonus, the webinar will not feature video conferencing – you can join while in your pajamas.