Corporations facing bribery charges under the U.S. Foreign Corrupt Practices Act (“FCPA”) will pay significantly higher fines to resolve their cases, at least if recent settlements are a reliable guide. Last year, FCPA settlements averaged $157 million – the highest average since the statute was enacted in 1977 – and totaled $1.6 billion. In 2014, the U.S. Department of Justice (“DOJ”) imposed the second largest penalty ever in an FCPA case – $772 million – and settled four cases for over $100 million each. These large, unprecedented settlements demonstrate a significant trend in FCPA enforcement and provide guidance for corporate clients with FCPA exposure.
The FCPA prohibits (1) companies and individuals from bribing foreign officials to obtain or retain business; and (2) false accounting related to such bribery. See 15 U.S.C. §§ 78m(b)(2), 78dd-1 to -3. The statute is prosecuted by the DOJ and the U.S. Securities and Exchange Commission (“SEC”). Bribes can be offers, even if rejected, and need not be money, goods, or services. See, e.g., § 78dd-1(a) (“anything of value”). “Foreign official” is also defined broadly. See United States v. Esquenazi, 752 F.3d 912, 925-26 (11th Cir. 2014) (providing a multi-factor test subject to interpretation for a foreign official as an “instrumentality” of a foreign government). For example, a bribe to a foreign official could be an offer of an internship at an American company to the relative of an employee at a foreign government-owned company. See Bank of N.Y. Mellon Corp., Current Report (Form 8-K) at 2 (Jan. 23, 2015) (discussing recommended FCPA action against a bank for similar conduct).
The FCPA applies to foreign companies that issue U.S. securities or commit an act violating the FCPA in the United States, including through an agent. See §§ 78dd-1(a), -3(a). In addition, as demonstrated by the 2014 settlement with Japan-based Marubeni Corp., foreign companies that conduct business with U.S. companies may face FCPA exposure under U.S. conspiracy laws. Eight of the ten largest FCPA settlements since 1977 involved foreign companies.
2014 saw the second largest penalty ever imposed by the U.S. government in an FCPA case in United States v. Alstom Grid, Inc., No. 3:14-cr-247 (D. Conn. Dec. 22, 2014). Alstom S.A. (“Alstom”), a French power company, pleaded guilty to violating the FCPA accounting provisions in connection with bribes paid by Alstom “consultants” to foreign officials in several countries, including Indonesia, Saudi Arabia and Egypt. As part of the plea agreement, Alstom agreed to pay a $772 million fine, which was over two and half times its profit from the bribery. Along with the corporate prosecution, the DOJ charged four Alstom executives with conspiracy and direct violations of the FCPA.
Three other FCPA cases settled in 2014 for more than $100 million each. In what is the sixth largest FCPA settlement in history, Alcoa World Alumina LLC, a subsidiary of Alcoa Inc. (“Alcoa”), a global aluminum producer, pleaded guilty to violating the FCPA anti-bribery provisions in connection with bribes paid by the subsidiary’s agent to foreign officials in Bahrain. As part of the settlement, Alcoa and its subsidiary paid $384 million in fines and returned profits to the DOJ and the SEC.
ZAO Hewlett-Packard A.O., a Russian subsidiary of Hewlett-Packard Co. (“HP”), the California technology company, pleaded guilty to conspiracy and direct violations of the anti-bribery and accounting provisions of the FCPA. In addition, HP subsidiaries in Poland and Mexico entered into deferred prosecution and non-prosecution agreements with the DOJ. As part of the settlement, the entities paid $108 million.
Avon Products (China) Co., a subsidiary of Avon Products Inc. (“Avon”), the New York-based cosmetics company, pleaded guilty to conspiring to violate the FCPA accounting provisions. As part of the settlement, Avon and its subsidiary paid $135 million.
Court filings for these settlements acknowledge the companies’ (1) comprehensive internal investigations; (2) improved internal compliance functions; (3) remedial measures, including taking appropriate disciplinary action against responsible employees; and (4) cooperation with the DOJ.
Overall, the U.S. government collected $1.6 billion in fines and penalties in ten FCPA actions against corporations in 2014. (See Table 1 below.)
In addition to the record-breaking fines, the 2014 settlements suggest that the U.S. government is increasingly focused on (1) individuals in FCPA actions; and (2) cooperation by companies in FCPA investigations.
In 2014, the U.S. government indicted or unsealed charges against 11 individuals for FCPA-related violations. Nine individuals pleaded guilty or consented to FCPA-related charges. William Burck and Juan Morillo of Quinn Emanuel’s Washington, D.C. office and William Price of the firm’s Los Angeles office represent one of the indicted individuals, an executive of PetroTiger Ltd., a British Virgin Islands oil and gas company. The trial is scheduled to begin on June 1, 2015.
In addition, statements by the DOJ in connection with the 2014 settlements suggest that cooperation, coupled with a voluntary disclosure of FCPA violations, may lead to reduced fines and non-prosecution or deferred prosecution agreements. For example, in the press release for the Bio-Rad Laboratories Inc. settlement, the DOJ stated that it entered into a non-prosecution agreement due “in large part” to the company’s voluntary disclosure and cooperation.
Despite the DOJ’s emphasis on cooperation in FCPA investigations, the benefits are unclear. If the 2014 settlements are a reliable indicator, companies that cooperate with the U.S. government will still pay high fines and may be required to enter guilty pleas. Moreover, in contrast to the DOJ Antitrust Division’s Corporate Leniency Policy, which sets forth specific guidelines as to how the government quantifies and values cooperation for settlement purposes, there are no such guidelines in FCPA investigations. Accordingly, there is no mechanism in the FCPA context for companies to adequately predict the value, if any, of cooperating with U.S. authorities. Furthermore, even if a company obtains a reduced fine or avoids prosecution by cooperating with U.S. authorities (1) the company may suffer reputational harm and lost business; (2) its employees may be indicted; and (3) shareholders, competitors and foreign enforcement agencies may initiate legal actions.
Based on the record-breaking settlements in 2014 and the controversy surrounding the benefit, if any, of cooperating with the U.S. government, companies with FCPA exposure should: (1) conduct a comprehensive internal investigation; (2) improve internal compliance functions, particularly with respect to foreign subsidiaries and agents; (3) implement remedial measures, if warranted, including taking appropriate disciplinary action against responsible employees; and (4) weigh the advantages and disadvantages of voluntary disclosure or cooperation with the U.S. government.
While 2014 was a record-setting year in terms of FCPA enforcement, there is every indication that the trends toward increased fines and a focus on individuals will continue in the coming year.