Kaplan Hecker & Fink lawyers Marshall Miller, Sean Hecker, Jenna Dabbs and Ana Frischtak published an analysis of the key developments in the recently released Second Edition of the SEC and DOJ’s FCPA Resource Guide. Read it below from Compliance & Enforcement, a blog sponsored by NYU Law's Program on Corporate Compliance and Enforcement.
The Foreign Corrupt Practices Act (PDF: 93 KB) is unique among U.S. criminal statutes in many ways—not least of which is the degree to which its primary enforcers, the Department of Justice and the Securities and Exchange Commission, provide legal and policy guidance as to its scope and application, primarily through the Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Guide (PDF: 3.83 MB)”). On Friday, July 3, DOJ and the SEC issued a Second Edition of this key compendium, providing insight into the government’s continually developing approach to enforcing this far-reaching statute.
The eight years since the Guide’s initial publication in 2012 have witnessed critical developments in FCPA case law, enforcement policy, and DOJ and SEC practice, with the new edition of the Guide reflecting those developments. And while the Second Edition does not contain unexpected new pronouncements, it provides practitioners with a window into DOJ and SEC thinking, including their approaches to thorny enforcement challenges and recurring fact patterns.
For businesses striving to comply with the FCPA, the Second Edition is most informative where it breaks new ground or shifts approach. Here are the key new developments:
- Policy. The Second Edition incorporates FCPA-related enforcement policies announced by DOJ over the past several years, including the FCPA Corporate Enforcement Policy (PDF: 28 KB) and policies on selection of monitors (PDF: 831 KB), evaluation of corporate compliance programs (PDF: 209 KB), and avoiding “piling on (PDF: 296 KB)” through duplicative resolution penalties.
- Key Legal Principles. Critical FCPA terms and jurisdictional provisions have been hotly contested in recent court cases, and the Second Edition reflects the government’s position:
- While acknowledging that the Second Circuit enforced jurisdictional limits in United States v. Hoskins (PDF: 533 KB) —ruling that defendants not covered directly by the FCPA’s anti-bribery provisions could not be prosecuted under conspiracy or aiding-and-abetting theories—the updated Guide implicitly questions Hoskins’ precedential value, noting contrary authority from a court in another circuit and describing Hoskins’ applicability in limiting terms.
- The Second Edition provides case-based guidance as to the factors that render an entity a foreign government instrumentality (PDF: 198 KB), and the hurdles that must be cleared for defendants to establish an affirmative defense based on local law.
- M&A and the FCPA. The Second Edition contains an expanded section on corporate mergers and acquisitions, with transaction-friendly language added to the Guide. After describing successor liability as an “integral component of corporate law,” DOJ and the SEC take pains to “recognize the potential benefits” of mergers and acquisitions, particularly where the acquirer swiftly implements a robust compliance program at the merged or acquired entity. And recognizing that deal dynamics may render robust pre-acquisition due diligence impracticable, the Second Edition emphasizes that companies may effectively address FCPA compliance risks through timely post-acquisition efforts.
- FCPA Accounting Provisions. The Second Edition includes increased attention to the FCPA’s accounting provisions:
- Internal Accounting Controls. The updated Guide emphasizes that the FCPA’s accounting provisions apply to internal accounting controls and “are not synonymous with a company’s compliance program,” though the two systems may have overlapping components—an important clarification that highlights limits on the scope of the FCPA’s internal controls requirement.
- Mens Rea Requirement. The Second Edition concedes that companies, like individuals, are only criminally liable for failing to comply with the FCPA’s accounting provisions if a violation involved knowing and willful conduct.
- Statute of Limitations. The updated Guide clarifies that criminal violations of the FCPA’s accounting provisions are “securities fraud” offenses, carrying a six-year statute of limitations—rather than the five-year limitation period applicable to the FCPA’s anti-bribery provisions.
- Expansive Conspiracy Liability. The Second Edition asserts that individuals and companies, including issuer subsidiaries, may be subject to liability for conspiring to commit, or aiding and abetting, violations of the accounting provisions—even where they could not be charged directly. The updated Guide distinguishes Hoskins on textual grounds, relying on the accounting provisions’ applicability to “any person,” not just those covered by the FCPA’s anti-bribery provisions.
- Updated Case Examples. The Second Edition updates case studies used to exemplify concrete violations of the FCPA. For example, to illustrate the use of corrupt cash payments, a description of a European multinational’s (PDF: 3.64 MB) use of corporate “cash desks” and offshore accounts is replaced by a more recent case study of a secret financial structure used by a South American conglomerate (PDF: 1.84 MB) to funnel cash bribes through the use of doleiros (moneychangers). Additional new examples cover recurring issues, such as payments to third parties or intermediaries, successor liability in M&A transactions, and the provision of gifts, travel, entertainment, and other things of value.
- Forfeiture and disgorgement. The updated Guide contains a new subsection dedicated to the forfeiture of criminal proceeds and disgorgement of profits, which incorporates the Supreme Court’s recent Kokesh (PDF: 101 KB) and Liu (PDF: 193 KB) decisions that subject the SEC’s disgorgement remedy to a five-year statute of limitations and uphold its use where awards do not exceed a wrongdoer’s net profits and are targeted to victims.
The Second Edition is a welcome update to the Guide, given the volume of corporate resolutions, case law developments, and policy announcements over the last eight years. While significant questions remain—some of which will ultimately be decided in court—the updated Guide nonetheless provides key insight into current FCPA enforcement practice and thinking at DOJ and the SEC and will serve as an invaluable resource for years to come.
Read this article at Compliance & Enforcement, a blog sponsored by NYU Law's Program on Corporate Compliance and Enforcement.