SEC rules don’t require reporting companies to disclose the names of law firms hired to investigate potential FCPA offenses, and not all companies even disclose information about ongoing investigations. But of companies that disclose FCPA investigations, which ones also publicly name their law firms, and why? Here’s what I’ve found.
Non-U.S. companies with securities registered in the United States are about four times more likely than U.S. public companies to disclose the names of law firms investigating their potential FCPA-related offenses, according to data from FCPA Tracker.
Overall, about ten percent of the companies that disclose FCPA-related investigations reveal the names of law firms hired to investigate potential offenses.
And of companies that both disclose FCPA-related investigations through SEC filings and identify law firms hired for the investigation, about 80 percent are headquartered in jurisdictions outside the United States.
Currently, for ongoing FCPA investigations disclosed by non-U.S. companies, those headquarters jurisdictions include the UK, China, Germany, Spain, and Colombia, among others, according to data from FCPA Tracker.
Most of those non-U.S. companies have hired U.S.-based law firms to conduct or lead their FCPA-related investigations. In some cases, the companies also named local firms hired to assist with the investigations.
Why are non-U.S. companies four times more likely to disclose the names of law firms hired for FCPA-related investigations?
FCPA allegations that require investigation may have a more profound impact on non-U.S. companies. For some overseas issuers, phone calls from the FBI and subpoenas from U.S. government agencies will cause shock, stress, and perhaps some trauma. Even the name of the law — the Foreign Corrupt Practices Act— is provocative and inflammatory.
One reason for this response is simply unfamiliarity with the process and what it might mean. Also, U.S. investigations can trigger a cascade of knock-on trouble, such as parallel investigations by local agencies, aggressive press inquiries, and questions from local stakeholders — shareholders, lenders, suppliers, and so on.
FCPA investigations can also have political consequences in other countries, often starting with opposition parties demanding to know more.
Foreign companies can get ahead of events by hiring well-known American law firms to conduct independent investigations. It demonstrates, at least initially, that the board will deal honestly with the situation and won’t allow a cover-up. Hiring prominent local law firms to assist with investigations and disclosing their names similarly can help calm local waters.
There are also purely practical considerations. FCPA practice is a specialty. The statute is unusually complex, with both criminal and civil aspects, and is probably well outside the experience of most foreign issuers and their local counsel. Non-U.S. companies can demonstrate that they’re plugging the knowledge gap by hiring the right professionals and announcing the action.
Foreign companies also know they can gain needed credibility with the DOJ and SEC by retaining a law firm with recognized FCPA expertise. Publicly disclosing the representation is an early positive step. It may also signal that the board and management intend to cooperate with U.S. authorities.
Many of the same factors apply to U.S. companies as well. Some U.S. companies are likewise motivated to disclose the names of law firms they’ve retained for FCPA investigations, although that happens in a smaller number of cases.