Increasing International Cooperation and Other Key Trends in Anti-Corruption Investigations

John F. Savarese is a partner in the Litigation Department of Wachtell, Lipton, Rosen & Katz. This post is based on a Wachtell Lipton client memorandum by Mr. Savarese, Ralph M. Levene and Carol Miller.

Last Fall, we noted that countries other than the United States were stepping up their efforts to combat international bribery and corruption. (See International Anti-Corruption Enforcement on the Rise – October 19, 2009.) Consistent with that trend, earlier this week the U.K. Serious Fraud Office in conjunction with the U.S. Department of Justice settled corruption charges with BAE Systems PLC, one of Europe’s largest defense contractors (learn more here). The charges relate to illegal payments to government officials in various countries. Under the terms of the settlements BAE will plead guilty to charges in both countries and pay $400 million to resolve U.S. charges, and a fine of £30 million – a record criminal fine for a company in the U.K. – to resolve the SFO investigation. The BAE settlement marks the first time that the SFO and DOJ have cooperated to jointly resolve an investigation and the SFO has called it a “groundbreaking global agreement.”

In another illustration of this trend, 22 executives and employees of 16 different companies in the military and law enforcement products industry based in the U.S., the U.K. and Israel were arrested on January 18, 2010 and charged with FCPA violations as a result of an undercover operation conducted by the FBI and DOJ, with assistance from the U.K.’s City of London Police (learn more here). According to the indictments, the defendants attempted to make improper payments to FBI agents posing as foreign procurement officials. The case represents the largest single investigation and prosecution in the history of DOJ’s enforcement of the FCPA. It also represents the first large-scale use of undercover law enforcement techniques, previously seen only in organized crime cases, to uncover FCPA violations.

These latest developments reflect substantial changes in anti-corruption enforcement priorities and techniques that all international businesses need to consider:

  • (i) Increased law-enforcement cooperation across borders. Companies with significant international operations are more likely than ever, if an issue arises, to face criminal and regulatory investigations on multiple fronts, as prosecutors and regulators from different countries increasingly work together to share the investigatory labor and the resulting fines and penalties. U.S. prosecutors have indicated they intend to pressure their foreign counterparts to prosecute companies and executives in their own jurisdictions. The Organization for Economic Co-operation and Development’s Anti-Bribery Convention, which sets forth standards for anticorruption legislation in its signatory countries, anticipates the possible conflicts posed by competing jurisdictional claims and provides in Section 4.3 that “when more than one Party has jurisdiction over an alleged offense described in this Convention, the Parties involved shall, at the request of one of them, consult with a view to determining the most appropriate jurisdiction for prosecution.” This provision, which appears to have drawn limited attention to date, may turn out to be useful to companies seeking to manage competing claims of international enforcement agencies. BAE Systems is but the latest example in a recently emerging trend that includes Siemens, Akzo-Nobel and Statoil, in which DOJ and a home jurisdiction took action and shared in the fine and penalty recovery.
  • (ii) More prosecutions of individuals. Individuals are increasingly being targeted by both U.S. and foreign prosecutors and regulators, and in 2009 more individuals were tried for FCPA violations than in any prior year. This developing trend suggests that U.S. authorities believe individual cases will help underscore the expectation that senior managers will act to prevent and detect violations. Indeed, Lanny Breuer, Assistant Attorney General for DOJ’s Criminal Division, stressed in a recent speech that “prosecution of individuals is a cornerstone of our enforcement strategy.” (learn more here). The SEC similarly made clear when it settled claims against Nature’s Sunshine Products Inc. that holding individuals accountable was part of its enforcement strategy as well. Thus, the SEC charged the company’s former COO and CFO with FCPA violations as “controlling persons” under the securities laws, without any allegation that they knew of the improper payments or accounting inaccuracies.
  • (iii) New aggressive enforcement techniques. The use of undercover agents in an FCPA “sting” operation reflects federal prosecutors’ increasing willingness to use aggressive investigative techniques in white collar cases. The wiretaps supporting the indictments in the Galleon insider trading investigation are another example of this trend. The government’s ability to employ these kinds of investigatory tactics in connection with cases outside of the organized crime arena will make it easier for federal prosecutors to establish previously hard-to-prove elements of these cases, and decrease the government’s need to rely on whistleblowers who come forward after the fact.

Finally, these recent cases underscore how critical it can be to have adequate compliance systems in place so that any possible wrongdoing comes to management’s attention as quickly as possible, permitting companies to react promptly and appropriately to credible warning signs of improper payments. Assistant A.G. Breuer recently emphasized that “every company should have a rigorous FCPA policy that is faithfully enforced,” and that companies that discover potential FCPA issues should fully investigate and take action to address them. In a recently settled FCPA enforcement action against NATCO Group, Inc., the SEC specified that the relatively small civil penalty assessed against the company was due, in large part, to the company’s cooperation and remedial efforts (learn more here). The Order specifies the steps taken by the company that the SEC considered to be significant, including that NATCO discovered the payments itself during a routine internal audit review, conducted an internal investigation and self-reported to the SEC, undertook numerous remedial measures, and enhanced its monitoring and audit process for its compliance programs. Assistant A.G. Breuer has stated that DOJ, too, encourages “and will appropriately reward” voluntary disclosure and that companies will receive “meaningful credit” for disclosure and cooperation. In recognition of such cooperation, DOJ also recently allowed two companies settling FCPA investigations to employ a self-monitoring mechanism, rather than having a court appointed monitor.

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