On January 4, 2017, President-elect Trump announced that he intended to nominate Jay Clayton, a Mergers & Acquisitions partner at Sullivan & Cromwell LLP, to succeed Mary Jo White as Chair of the SEC. According to his firm biography, Mr. Clayton has some experience in the area of FCPA enforcement, having been part of Sullivan’s team on the 2010 FCPA investigation of ENI S.p.A and having chaired a committee at the New York City Bar Association that drafted a white paper in 2011 entitled, “The FCPA and Its Impact on International Business Transactions – Should Anything be Done to Minimize the Consequences of the US’s Unique Position on Combating Offshore Corruption?” It is the latter that may provide some insight into whether Mr. Clayton, if confirmed, would lead the SEC into a different path with respect to FCPA enforcement.
The NYCBA paper was published around the same time as the US Chamber of Commerce’s white paper, “Restoring Balance,” which was drafted by the current Chief of the DOJ’s Fraud Section, Andrew Weissmann. Both papers argued, in part, that the DOJ’s and SEC’s aggressive enforcement of the FCPA had significantly disadvantaged companies that are subject to the law and the US markets more generally. The fact that senior officials in the two agencies responsible for enforcing the FCPA have taken public positions critical of the DOJ’s and the SEC’s interpretation and application of the FCPA, obviously raises some interesting questions as to the future direction of FCPA enforcement.
In the NYCBA paper, although carefully declaring, of course, that bribery is not a good thing, the committee that Mr. Clayton chaired critiqued certain expansive enforcement theories and advocated inter alia that the US should “dial back the scope of FCPA enforcement with respect to companies and focus more on individuals engaged in foreign corruption.” In addition, the NYCBA paper argued that the FCPA was responsible for causing fewer foreign companies registering as issuers in the US and increasing the costs for US issuers to do business overseas. To some degree, the increasing internationalization of corruption prosecutions—as indicated in the past year’s cases involving multilateral prosecutions of Vimpelcom, Embraer, and Odebrecht as well as the Lavo Jato cases in Brazil and increased enforcement activities in Europe, may have overtaken some of the concerns expressed in the NYCBA paper. Further, the DOJ’s FCPA Pilot Program, implemented by Mr. Weissmann, and the SEC’s adoption of various alternative resolution mechanisms have provided some of the relief advocated by Mr. Clayton and Mr. Weissmann in their papers.
On the other hand, some of the critiques are relevant to—and contrary to—current SEC enforcement approaches. It will be interesting to see if Mr. Clayton, if he is confirmed as SEC Commissioner, will seek to implement some of the recommendations in the NYCBA paper. Indeed, at one extreme, he could revisit the decision made under Ms. White’s regime that the FCPA is one of the key priorities of the SEC’s Enforcement Division, downgrading it in favor of other securities initiatives that are more directly tied to investor protection. At the other end, both as Chair and through his appointments of senior staff, Mr. Clayton could cause the SEC to take a more business-friendly approach, encouraging an approach to internal controls that focuses more on what a business might reasonably be expected to do in terms of due diligence and compliance controls rather than applying 20/20 hindsight, or dialing back some of the more outlandish liability theories the SEC has applied in terms of territorial jurisdiction (foreign emails that pass through US servers) or parent/subsidiary liability (subsidiaries as agents regardless of authorization, direction, or control of corrupt conduct).
We expect that Mr. Clayton’s views on the FCPA may well be the subject of some questions at his confirmation hearings. Even more, it will be interesting to see if, as SEC Commissioner, he is able to turn the ship—assuming, of course, that is what he wants to do after he puts on the badge!