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6 FCPA enforcement lessons from 2017... fewer actions, but higher fines.

January 11th, 2018 - Posted by Mark Dunn in Anti-Bribery And Corruption

Fines are getting bigger

The total number of FCPA enforcement actions in 2017 was less than 2016—when 27 companies paid $2.48 billion—but that figure remains the second highest total in the last decade. Moreover, the average fine per company in 2017 was double that of 2016. Here are the biggest settlements:

  • In September, Swedish telecommunications firm Telia Company agreed to pay $965 million to resolve allegations that its subsidiary paid bribes in Uzbekistan—one of the biggest FCPA settlements of all time. Some of the penalties and disgorgement will be paid to authorities in the Netherlands and Sweden.
  • In December, the world’s biggest builder of oil rigs Keppel Offshore & Marine and its US subsidiary agreed to pay more $422 million to authorities in the US, Brazil and Singapore to settle allegations of bribing officials in Brazil.
  • In November, SBM Offshore agreed to pay $238 million to resolve charges of bribing officials in Brazil, Angola, Equatorial Guinea, Kazakhstan and Iraq. The Dutch-based provider of services to the oil and gas industry violated the FCPA for more than a decade, according to the DOJ.
1. Rise of Deferred Prosecution Agreements (DPAs) and other incentives for self-disclosure

Regulators continued to incentivise companies to self-disclose bribery and corruption and cooperate fully with the subsequent investigation. In November, the US Department of Justice (DOJ) made its FCPA Pilot Programme permanent. The programme offers companies a reduced punishment for voluntary disclosure of compliance failures. Some changes have been made to the pilot: for example, companies that qualify for a reduced punishment will now receive a 50% reduction from the bottom end of the sentencing guidelines range (the pilot only guaranteed "up to 50%"), and they must analyse the root cause of the conduct which led to a violation. The DOJ also introduced the FCPA Corporate Enforcement Policy, which offers "additional benefits" to companies that self-disclose an FCPA breach, cooperate with the investigation, and remediate the offence.

This trend is spreading beyond the US. The law Sapin II came into force in France in June. It introduced an equivalent of DPAs for companies that cooperate with bribery and corruption investigations. France secured its first DPA under Sapin II in November, when the Swiss-based private banking unit of HSBC agreed to pay €00 million for helping French clients to evade local taxes and launder money. DPAs could reach Australia in 2018, after new legislation that would establish a regime for DPAs and new foreign bribery offences was introduced in the Australian parliament in December. The bill will be debated in February and March.

Patrick Moulette, Head of the OECD’s Anti-Corruption Division, told LexisNexis that the rise of DPAs is one of the main trends in anti-bribery and corruption. He said they have become "common practice", so the OECD now plans to investigate what international guidelines on

negotiated settlements might look like. "DPAs are mostly used in the US but several other countries have developed similar systems," he said. "Our 2014 report showed that in 69% of cases where a company was sanctioned for foreign bribery offences, it was resolved with a negotiated settlement."

2. Global reach of enforcement

FCPA enforcement actions in 2017 targeted bribery committed by companies in jurisdictions from India to Brazil and Angola to China. There is no longer any doubt that companies can be held accountable for FCPA violations irrespective of where they are based. For example, in January Rolls Royce agreed to pay £671 million to settle separate bribery and corruption claims by the UK Serious Fraud Office, the US DOJ, and Brazil’s Ministério Público Federal. It is increasingly common for countries to share information and work together to prosecute bribery and corruption – known as ‘mutual legal assistance’. Anti-bribery and corruption demands more of companies’ resources, and is increasingly international in scope.

Last year, the DOJ and Securities and Exchange Commission (SEC) structured resolutions to FCPA investigations in a way that encouraged other countries to enforce their anti-corruption laws. To resolve claims against Keppel and Telia Company for $422 million and $965 million respectively, the US enforcement agencies imposed a total penalty on the defendant, then allowed a proportion to be paid to other countries with a bribery claim against each company. The agreement with Keppel required half of the penalty to be paid to Brazil, a quarter to Singapore, and a quarter to the US. Richard L. Cassin, editor of the FCPA Blog, welcomed this new policy because it lets countries receive significant sums of money "if they bring their own enforcement actions but coordinate the process through the US." "Welcome to the era of enlightened global enforcement," he added.

3. Any industry with global operations is vulnerable

The list of enforcement actions in 2017 is a reminder that the risks of bribery and corruption are particularly high in the most globally-focused industries. Two of the biggest fines were against companies connected to the oil and gas industry—the settlements involving Keppel and SBM Offshore involved bribery violations in Brazil, Angola, Equatorial Guinea, Kazakhstan, Iraq and Singapore. Companies in the extractive industries face a higher risk of exposure to foreign bribery because so much oil and gas comes from developing countries, where there is often more local corruption. But many industries are vulnerable—enforcement actions were also taken against companies in telecommunications, medicine, and food and beverages.

4. Subsidiary oversight is critical to compliance

Bribery and corruption by the subsidiary of a multinational company was the cause of some of 2017’s biggest FCPA enforcement actions. For example, Telia Company’s $965 million settlement involved a guilty plea by its Uzbek subsidiary, Coscom LLC. Companies must extend their compliance procedures—and ongoing monitoring—to their subsidiaries.

5. CEOs are adopting global standards to address bribery and corruption

Some of the world’s biggest companies have now adopted the ISO 37001, a standard which was introduced by the International Standards Organisation in 2016. It allows companies in 37 countries to certify their anti-bribery and corruption compliance processes. Significantly, Microsoft and Wal-Mart are both seeking certification. Alstom SA was certified for its European operations in June, having been fined $772 million over foreign bribery charges in

the US in 2014. The standard has even been adopted by governments including the Singapore, Peru and the Canadian city of Montreal.

A commitment to anti-bribery and corruption is a driver for sustainable, transparent business, and investors, customers, employees are putting more pressure on firms to tackle bribery and corruption. So it is likely that many more companies will seek ISO accreditation in 2018, particularly if early adopters’ financial performance improves as a result of certification. David Howard, Microsoft's Corporate Vice President & Deputy General Counsel, Litigation, Competition Law and Compliance, said: "We hope other companies will do the same. A common consistent and rigorous standard for anti-bribery will cut across countries, industries and all segments of the value chain."

6. Individual executives are being held accountable

The statistics show an increase in the number of individuals who faced enforcement action for FCPA offences. Last year, 12 individuals pleaded guilty or were convicted, seven were indicted, and eight were sentenced. This is higher than 2016, when ten people pleaded guilty and two were sentenced for FCPA offences, and 2015, when four individuals pleaded guilty and two were indicted. This follows guidance issued by the DOJ in September 2015, which said that investigations into corporate misconduct should focus on individuals from the start of the investigation, and required that companies provide the DOJ with "all relevant facts about individuals involved in corporate misconduct" to be eligible for a negotiated settlement.

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