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Richard L. Cassin Publisher and Editor

Andy Spalding Senior Editor

Jessica Tillipman Senior Editor

Elizabeth K. Spahn Editor Emeritus

Cody Worthington Contributing Editor

Julie DiMauro Contributing Editor

Thomas Fox Contributing Editor

Marc Alain Bohn Contributing Editor

Bill Waite Contributing Editor

Shruti J. Shah Contributing Editor

Russell A. Stamets Contributing Editor

Richard Bistrong Contributing Editor 

Eric Carlson Contributing Editor

Bill Steinman Contributing Editor

Aarti Maharaj Contributing Editor


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Wednesday
Sep132017

U.S. commitment to enforcing the FCPA – A discussion with Philip Urofsky

Last week I spoke with Philip Urofsky, a partner at Shearman and Sterling, and a former federal prosecutor, responsible for investigating and advising on matters involving potential violations of the Foreign Corrupt Practices Act.

Our discussion revolved around some of the FCPA compliance topics that I have seen debated recently, such as the perception of a smaller number of enforcements, more declinations, and smaller penalties.

I asked him if a lax federal oversight in the FCPA arena prevailed today.

Urofsky said no.

He believes recent declinations are a clearing out of older cases, which is routine practice, and measuring enforcement activity over just a six-month period featuring new agency heads (with some important agency positions still vacant) is not a wise exercise.

Companies are still having to announce declinations in their public filings (with the government sometimes disclosing them), paying penalties and compensatory fines, and there has been no cessation in holding individuals accountable when they have engaged in egregious conduct.

Plus, using deferred prosecution agreements (DPAs), the Department of Justice and Securities and Exchange Commission have the ability to order that a compliance monitor be placed in the company and have the company pay for it.

Not that non-prosecution agreements (NPAs) are less effective tools for the government. In an NPA, Urofsky says, the same goals are being met, as with a DPA -- it's just that the government isn't filing the agreement in court to make a point.

He notes that the same five goals are accomplished: (1) There's an admission of wrongdoing; (2) a tolling of the statute of limitations; (3) cooperation and remediation of compliance program deficits; (4) a payment of some fine or remediation; and (5) a monitor is appointed.

Urofsky believes the public perception of a company that has been accused of violating the FCPA is such that fines might not even need to be that big, as the public abhors bribery.

That's also why so many companies that might otherwise have some decent defenses to FCPA charges choose to settle as well: the process is drawn out with repeated negative news cycles, and, at the end, juries don't tend to side with companies in the bribery or money laundering arenas.

SEC Chairman Jay Clayton, stated in a co-authored report in 2011 that the FCPA puts U.S. companies at a disadvantage, as (at the time of his writing) although the OECD laws were in place, few other countries had demonstrated a willingness to pursue similarly tough enforcement of those laws.

Clayton has since publicly walked back his sentiment, noting that this is not the case today, as many other nations are joining the United States in crafting foreign bribery legislation and actually using them.

Urofsky does not see Clayton's previous stance having an effect on the SEC's enforcement agenda: The SEC is there to bring cases, and it will continue to do so, he said.

OK, so the U.S. government remains committed to FCPA enforcement.

But, given that commitment and questioning its effect on U.S. businesses, as current elected officials have done: Are foreign companies avoiding the United States capital markets because of the FCPA and the due diligence requirements that comprise it?

Urofsky said, "Probably not -- or if they are, it is not because of the FCPA as much as the Sarbanes-Oxley Act and U.S. litigation."

That due diligence can only help a company craft a more effective compliance program and develop more transparency in its foreign dealings. Helping it avoid regulatory fines, lawsuits, and negative public perception and return money to shareholders.

Finally, Urofsky mentioned what he sees as tension between the DOJ's FCPA Pilot Program and the Department's Yates Memo.

In the Justice Department's FCPA Pilot Program, a company can receive a percentage off of U.S. Sentencing Guidelines penalties for cooperating early with voluntary disclosure.

The DOJ's Yates Memo instructs companies to inform the Department of individuals who engaged in wrongdoing, also as early as possible, to receive cooperation credit.

The tension, Urofsky believes, is that individuals in businesses now have no incentive to come forward to disclose their part in any actual or possible wrongdoing.

That leads to less information getting to top executives and compliance professionals in a less timely way, making the company have a harder time achieving the cooperation expectation of both initiatives.

Urofsky says the FCPA itself offers companies an opportunity to manage risk, even if the government's recent initiatives regarding corporate cooperation credit are somewhat at odds with one another.

The FCPA forces global companies to appreciate the level of risk posed to their business, allocate resources accordingly, and insure that their internal controls are reasonably designed to counter illicit transactions, such as unlawful payments to foreign government agents.

The goal should be to ensure these functions occur without slowing any legitimate business down.

These challenges have not changed and likely won't any time soon.

____

Julie DiMauro is a regulatory compliance expert whose analysis appears on Thomson Reuters’ Regulatory Intelligence subscription service designed for compliance and risk professionals in financial services. Follow her on Twitter @Julie_DiMauro and email her here.

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