Shearman & Sterling Report Examines FCPA Prosecutions and Penalties, Analyzes Impact of New DOJ/SEC Guidance

28 Dec 2012

The close of 2012 also closes the book on what has been a largely uneventful year in FCPA prosecutions and developments, according to global law firm Shearman & Sterling.

The firm’s just-released semi-annual “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act” report, part of its renowned FCPA Digest (http://fcpa.shearman.com/), shows that 2012 was marked by slightly fewer enforcement actions against corporations and significantly fewer actions against individuals, lower penalties, and few appointments of independent monitors. The most significant development was the release by the DOJ and the SEC of the much-anticipated US guidance on the FCPA – The Resource Guide to the US Foreign Corrupt Practices Act.

“It’s not surprising that the Guide didn’t break new ground and reflects trends and patterns we have identified in the government’s recent enforcement actions,” says Philip Urofsky, a Washington, DC- and London-based partner at Shearman & Sterling and head of the firm’s FCPA and Global Anti-Corruption Practice. “Indeed, it would have been surprising, and very controversial, had the government attempted to amend the statute through guidance. However, there were some areas in which the Guide could have been more helpful, such as in explaining how the government determines whether to enter into a deferred prosecution agreement or decline a prosecution, when it will impose a monitor, and what it views as the critical factors distinguishing facilitation payments from FCPA bribes—areas that were murky before the Guide and continue to be today.”

Urofsky cautions that lower enforcement and penalty statistics may be more of a timing issue and not have statistical significance over time.

“I certainly would not suggest that the US agencies are placing less emphasis on FCPA enforcement,” he adds. “FCPA prosecution is still a very high priority for the DOJ and the SEC, and statements by the new UK enforcement officials suggest that they are likely to step up the pace of enforcement there. What we also continue to see is increased enforcement outside of the US, the likely adoption of deferred prosecutions in the UK, and increased OECD cooperation and common ground globally.”

Statistically, 2012 shows fewer governmental enforcement actions against corporations (just 12, down from 16 in 2011 and 20 in 2010) and against individuals (just 5, down from 18 in 2011).

“The numbers may represent a bit of a reporting lag rather than a change in focus,” says Danforth Newcomb, one of the leaders of Shearman & Sterling’s FCPA practice in New York. “On the corporation side, for example, a number of companies have announced new investigations and even reserves for enforcement fines, meaning that public announcements of enforcement actions may be coming. The same can be said for individuals, since the government has gone out of its way to single out specific executives by title in its corporate prosecutions, suggesting that individual prosecutions may follow.”

Corporate penalties assessed in 2012 are consistent with those imposed in previous years. The US government collected more than $260 million in financial penalties from corporations in 2012, an average of $21.7 million (ranging from $2 million each for NORDAM and Oracle to $54.6 million for Marubeni and $60 million for Pfizer/Wyeth).

In addition, as in the past, nearly all of the corporate settlements were in the form of deferred or non-prosecution agreements, with only one corporation pleading guilty to an offense.

Other key findings

Among the other key findings in this semi-annual update to the firm’s FCPA Digest:

  • Few appointments of independent monitors, with an emerging default of self-monitoring and reporting;
  • A wealth of sentencings, with widely disparate results, reflecting in part differing judicial attitudes to the FCPA and white collar crimes in general;
  • Continued aggressive theories of jurisdiction and parent-subsidiary liability;
  • The receipt by the SEC, in the past fiscal year, of 115 FCPA-related tips under the Dodd-Frank whistleblower guidelines.

Shearman & Sterling’s report once again looks at M&A due diligence and successor liability. In the Guide, the government emphasized that successor liability was an “integral part of corporate law.” Moreover, although the DOJ and SEC noted that they have almost never prosecuted the acquiring company for the pre-acquisition acts of the acquired company, it is clear from the government’s enforcement actions that the acquiring company nevertheless bears the financial and reputational risk of enforcement against its newly-acquired business. As a result, Urofsky notes, “It is hard to over-emphasize the importance of rigorous pre-acquisition due diligence, both in terms of identifying FCPA risk and in carefully structuring the deal terms to mitigate that risk.”

“All in all, I would expect that we will see a more active 2013,” Urofsky says. “There is considerable activity and focus on the part of the enforcement agencies, and it is very likely that all that activity will turn into actions in the new year.”

Shearman & Sterling’s updated “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act” report provides insightful analysis and serves as an executive summary to the firm’s FCPA Digest, a compendium of cases and review releases relating to bribes of foreign officials under the FCPA. The Digest, which is updated regularly, is considered the authoritative source on all FCPA-related proceedings, featuring proceedings related to bribes to foreign officials under the Foreign Corrupt Practices Act of 1977, including those related to foreign bribery criminal prosecution, DOJ foreign bribery civil actions, SEC actions, DOJ opinion releases, ongoing FCPA investigations and pre-FCPA prosecutions.

Shearman & Sterling’s FCPA web site,http://fcpa.shearman.com/, allows users to quickly learn enforcement trends by retrieving in-depth, original source materials and summaries based on category type, location, fines imposed, as well as numerous other searchable criteria.

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