The next area I want to explore in the RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT, SECOND EDITION are developments in Department of Justice (DOJ) policy, case law updates and revisions to the FCPA Corporate Enforcement Policy.
Developments in DOJ Policy – One Pie to Anti-Piling On to Coordinated Resolutions
Originally, there was the ‘one pie concept’. This concept intoned that enforcement authorities were moving towards one total cost to anti-corruption violators which would be equitably split up by authorities where the corruption occurred or by the countries which had jurisdiction. Companies who self-disclosed to multiple regulators and extensively remediated, along the lines originally laid out in the FCPA Pilot Program, were more likely to garner credit with US regulators for fines paid to overseas authorities. The ‘one pie’ concept was later memorialized by the DOJ in its Anti-Piling On Policy. It has now become the “Coordinated Resolutions” initiative.
According to the 2020 Resource Guide, in resolving cases against companies, DOJ and Securitas and Exchange Commission (SEC) will attempt to avoid imposing duplicative penalties, forfeiture, and disgorgement for the same conduct. DOJ and SEC will do so through crediting fines, penalties, forfeiture, and disgorgement of foreign authorities resolving with the same company for the same conduct. DOJ has memorialized this practice of coordinating resolutions to avoid “piling on” in the Justice Manual, which instructs prosecutors to “endeavor, as appropriate, to coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct.”
This focus has taken hold internationally as well. The 2020 Resource Guide discussed the case involving a publicly-traded Brazilian petrochemical company, Petróleo Brasileiro S.A. (Petrobras), where DOJ, SEC, Brazilian and Swiss authorities credited one another in imposing fines and disgorgement. The 2020 Resource Guide reports that the DOJ has coordinated resolutions with foreign authorities in more than 10 cases, and SEC has coordinated resolutions with foreign authorities in at least five.
Another DOJ initiative updated into the 2020 Resource Guide is around successor liability. It states, “Companies acquire a host of liabilities when they merge with or acquire another company, including those arising out of contracts, torts, regulations, and statutes. As a general legal matter, when a company merges with or acquires another company, the successor company assumes the predecessor company’s liabilities. Successor liability is an integral component of corporate law and, among other things, prevents companies from avoiding liability by reorganizing. At the same time, DOJ and SEC recognize the potential benefits of corporate mergers and acquisitions, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.” The key for compliance practitioners is recognizing that once a target is acquired and the merger is complete, if bribery and corruption continues in the acquired entity it is no longer ‘them’ but now ‘you’ who are engaging in Foreign Corrupt Practices Act (FCPA) violations.
The 2020 Resource Guide provides heightened lucidity into such liability under the FCPA. If your organization cannot (as opposed to does not) engage in pre-acquisition thorough due diligence prior to a merger or acquisition, there are steps which can be taken post-closure. These steps include timely and thorough integration efforts, deep dive forensic audit, and voluntary disclosure of uncovered wrongdoing post-acquisition.
Moreover, under the FCPA Corporate Enforcement Policy the acquiring company can still move towards a presumption of a declination if it voluntarily discloses post-acquisition conduct by the acquired company and takes appropriate remediation steps. Also, as noted in the Gibson, Dunn & Crutcher LLP Client Alert, the 2020 Resource Guide details “additional interpretive guidance regarding the authorities’ approach to successor liability in M&A transactions”, while retaining the 2012 “Resource Guide’s direction regarding sound practices in this context in relation to pre-acquisition due diligence, the prompt application of anti-corruption policies and procedures to new acquisitions, the training of relevant stakeholders regarding the parent’s anti-corruption obligations and applicable policies, prompt anti-corruption audits of newly acquired businesses or entities, and the prompt and thorough disclosure of any corrupt payments identified through these due diligence and audit processes.”
Case Law Update – Hoskins
The case law updates which may well be the most controversial part of the 2020 Resource Guide. The most controversial case discussed in the 2020 Resource Guide is the Hoskins case. In Hoskins the Second Circuit interpreted the FCPA to hold that foreign nationals are subject to the FCPA anti-bribery provisions only if they are agents, employees, officers, directors, or shareholders of a US issuer or domestic concern, or if they act in furtherance of a bribery scheme while in the territory of the United States.
The Client Alert stated, “Though the Second Edition acknowledges Hoskins, it takes the position that this decision has not been applied outside the Second Circuit, characterizes this legal question as “unsettled,” and cites to a contradictory district court opinion which held, relying on a Seventh Circuit precedent, that defendants can be liable for conspiracy to violate, or for aiding and abetting in violations of, the FCPA even where they do not “belong to the class of individuals capable of committing a substantive FCPA violation.”” The Client Alert goes on to opine, “Such a reluctance to accept the limits of Hoskins speaks volumes regarding the DOJ’s desire to expand the FCPA further than permitted by the Second Circuit… and this suggests that the government will continue to construe Hoskins narrowly, in terms of both the breadth of its holding and its precedential effect outside of the Second Circuit.”
What this would seem to mean for compliance practitioners and white-collar defense counsel is that FCPA criminal actions filed outside the Second Circuit the DOJ will continue to argue for a more expansive reading of such liability. In other words, the answer is not fully settled.
Please join me again tomorrow as I conclude my exploration of the A RESOURCE GUIDE TO THE U.S. FOREIGN CORRUPT PRACTICES ACT SECOND EDITION with some thoughts on the overall importance of the document in both FCPA enforcement and corporate compliance.
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© Thomas R. Fox, 2020