Contrary to the expectations of many who thought that enforcement of the Foreign Corrupt Practices Act (FCPA) would dissipate with the arrival of the Trump administration, it is very much alive. And perhaps even more unexpectedly, whistleblowers are not just welcome, but are generously rewarded for valuable information that lead to a Security and Exchange Commission enforcement action and monetary recovery. And it’s not just the SEC; the Commodity Futures Trading Commission (CFTC) just announced that it too will be closely examining and enforcing foreign corrupt practices.
The FCPA prohibits companies from bribing government officials abroad and imposes requirements for financial recordkeeping. Foreign Corrupt Practices Act, 15 U.S.C. §78dd-1 (prohibiting bribes); 15 U.S.C. §78m (requiring recordkeeping measures). Companies can be fined up to $2 million per violation under the bribery provisions of the law and up to $25 million per violation under the accounting provisions.
If a whistleblower submission leads to an SEC penalty, the whistleblower stands to collect 10% to 30% of the amount recovered. The percentage is determined by the SEC, and is based on criteria the Commission makes clear: How important is the information provided by the whistleblower to the successful outcome? Significantly, it appears that the SEC has been pretty generous toward those who come forward with useful information. In 2018, the SEC awarded more than $168 million to just 13 individuals. The previous year, it paid out $50 million to 12 whistleblowers.
Not surprisingly, only a small percentage of whistleblower submissions to the SEC relate to potential FCPA actions. Only 202 of the 5,282 tips received in 2018 were FCPA-related. In contrast, the vast majority of submissions involved alleged securities offering fraud, corporate and financial disclosures, or manipulation. But the FCPA is very much alive, and often results in sizeable fines and the forfeiture of ill-gotten gains.
During the Bush and Obama administrations, enforcement of the FCPA was aggressive. In 2011, Johnson & Johnson ran afoul of the FCPA and paid $70 million in fines after it paid kickbacks to Iraqi authorities in exchange for public contract awards under the United Nations Oil for Food Program. The company’s use of “sham contracts, off-shore companies, and slush funds” to conceal its bribery squarely violated the law. Press Release 2011-87, SEC Charges Johnson & Johnson With Foreign Bribery (April 7, 2011). In 2012, Smith & Nephew, a medical technology company, paid a $22 million fine for bribing government-employed doctors in Greece in exchange for business. And in 2014, aluminum producer Alcoa paid a $384 million settlement (fines and disgorgement) after it was charged with paying more than $110 million in bribes to Bahraini officials (including members of the royal family).
Enforcement of FCPA violations knows few geographic limitations. Whether corruption is a particular problem in China—where it is ranked 87th on Transparency International’s list of most corrupt nations, slightly worse than Turkey and Argentina, but a bit better than Serbia and Indonesia—or just a bigger target, China has been the site of 44 actions over the last 10 years asserting improper payments in violation of the FCPA. That is more than twice as many as any other country. DOJ and SEC Enforcement Actions Per Year, Foreign Corrupt Practices Act Clearinghouse, Stanford Law School.
Notably, FCPA actions are not limited to American companies but can reach foreign corporations that are listed—or whose securities are traded on—U.S. stock exchanges. For example, in 2008, the German engineering company Siemens paid $450 million in criminal fines (plus another $1 billion in penalties in Germany) for a series of corrupt schemes in Argentina, Venezuela and Bangladesh.
The FCPA and the Trump Administration
Following the 2016 Presidential election, there was widespread speculation that the Trump administration would go soft on FCPA enforcement. That was based, at least in part, on Mr. Trump’s 2012 statement that the FCPA was a “horrible law” that made the United States “the policeman for the world.” Jim Zarroli, Trump Used to Disparage An Anti-Bribery Law; Will He Enforce it Now?, NPR News, Nov. 8 2017. Similarly, SEC Secretary Jay Clayton had criticized (in a report drafted for the New York City Bar Association in 2011) the “significant costs” imposed on American companies by the law and its “zealous enforcement.” Jay Clayton (Chairman), et al., N.Y. City Bar Ass’n Comm. on Int’l Bus. Transactions, The FCPA and its Impact on International Business Transactions—Should Anything Be Done to Minimize the Consequences of the U.S.’s Unique Position on Combating Offshore Corruption? (December 2011). These positions led many to expect that the Trump administration and the SEC in particular would relax vigilance on the FCPA.
But contrary to expectations, the SEC and the Department of Justice (which is responsible for criminal prosecutions of the law) both have brought FCPA enforcement actions in numbers more-or-less in line with activity during the Obama Administration. In particular, the SEC filed 18 enforcement actions in 2018, up from eight in the first year of the Trump Administration.
How can we account for this unexpected activity? Some critics of the Trump administration have argued that the current levels of enforcement are just holdovers of investigations begun during the Obama years. But other observers have countered that given this administration’s lack of hesitation in reversing Obama-era initiatives in other fields, the level of enforcement activity—both on-going and new—are not merely “happening” on President Trump’s watch.
More dispassionately, it can be argued that these global enforcement efforts are part of a broader effort to level the playing field for American companies by going after foreign companies. Ronak D. Desai, Anticorruption Enforcement In Asia Shows The FCPA Remains Strong Under Trump, Forbes, July 31, 2018; Richard L. Cassin, Is the SEC targeting foreign companies?, FCPA Blog, Nov. 6, 2017. However, enforcement against domestic U.S. entities has by no means stopped, with DOJ charging nine domestic entities charged in 2018 as compared with 12 foreign entities. Foreign Corrupt Practices Act Clearinghouse, Foreign & Domestic Entities Charged Per Year, Stanford Law School.
2018 also saw the largest-ever FCPA monetary sanction, issued against Brazilian oil company Petroleo Brasileiro SA. Foreign Corrupt Practices Act Clearinghouse, Largest U.S. Monetary Sanctions by Entity Group, Stanford Law School. (Its ADRs are traded in the United States.) The SEC and DOJ discovered the company had inflated the costs of infrastructure projects and paid kickbacks to Brazilian politicians. Press Release 2018-215, Petrobras Reaches Settlement With SEC for Misleading Investors (Sept. 27, 2018). The case was investigated with the assistance of multiple Brazilian law enforcement agencies, and a portion of the $933 million disgorgement and $853 million in penalties was directed to authorities there. Id. This landmark case illustrates the current FCPA landscape and favorable prospects for enforcement going forward.
On closer examination, Clayton’s past criticisms of the FCPA focused on its enforcement, not the policy behind the law itself. The 2011 report concludes that “meaningful international alignment of the world’s leading economic powers is a necessary condition for combating foreign bribery.” Clayton, et al., supra. Accordingly, Clayton’s SEC has shown itself willing and able to work with foreign law enforcement to investigate cases and return illicit funds to regulators abroad. Foreign companies Rolls-Royce (United Kingdom), Telia AB (Sweden), and Keppel Offshore (Singapore) all settled with U.S. regulators and paid a combined $2 billion in penalties to foreign governments in 2017. The SEC’s co-director of enforcement, Steve Peikin, noted that assistance from foreign governments has made it possible for the SEC to obtain witness statements, bank records, and other key evidence located outside the country. Steven Peikin, Remarks at the IOSCO/PIFS-Harvard Law School Global Certificate Program for Regulators of Securities Markets (Dec. 3, 2018).
In addition to its broader reach, the SEC is pursuing FCPA violations more quickly than in previous years. This is in part a result of a recent Supreme Court decision limiting disgorgement of companies’ ill-gotten gains to a five-year lookback period. Kokesh v. SEC, 137 S. Ct. 1635, 1640 (2017). Peikin stated the SEC would “have no choice but to respond by redoubling our efforts to bring cases as quickly as possible.” Steven R. Peikin, Co-Director, Div. of Enforcement, U.S. Sec. & Exch. Comm’n, Reflections on the Past, Present, and Future of the SEC’s Enforcement of the Foreign Corrupt Practices Act (Nov. 9, 2017). Peikin has also noted a practical preference for resolving cases quickly in order to maximize the impact of FCPA enforcement. Id.
Statements by SEC officials suggest that this FCPA revival is likely to continue apace. At the time of his nomination, Secretary Clayton praised the FCPA as “powerful and effective” at combating corruption. Nomination of Jay Clayton: Hearing Before the S. Comm. On Banking, Housing and Urban Affairs, 115th Cong. 99 (2017) (Responses to Written Questions of Sen. Brown from Jay Clayton). Peikin has echoed this sentiment in a speech marking the 40th anniversary of the FCPA, asserting that the law “remains an increasingly important tool in the ongoing fight against corruption worldwide.” Peikin, supra.
Finally, the CFTC’s recent announcement with respect to foreign corrupt practices further suggests that government enforcement efforts are only growing. The CFTC aggressively pursues and prosecutes the use of manipulative devices in the trading of commodities (ranging from pork bellies to forex to bitcoin). 7 U.S.C. §9; 17 CFR §180.1. And the CFTC’s recent enforcement alert puts such commodity traders on notice that it won’t hesitate to pursue market manipulation by way of foreign bribery. CFTC Division of Enforcement Issues Advisory on Violations of the Commodity Exchange Act Involving Foreign Corrupt Practices, March 9, 2019.
Whistleblowers and the FCPA
Whistleblowers play an important role in FCPA enforcement. For example, a whistleblower was instrumental in alerting the SEC to FCPA violations by Anheuser-Bush InBev in 2016. Thanks to a tip from an InBev employee, the SEC discovered that one of the company’s joint ventures had made improper payments to government officials in India in order to pump up beer sales. The bribes were then recorded as legitimate business expenses. InBev was forced to pay $6 million in monetary sanctions. Press Release 2016-196, SEC Charges Anheuser-Busch InBev With Violating FCPA and Whistleblower Protection Laws (Sept. 28, 2016).
The SEC is remarkably “customer friendly” in supporting whistleblowers. The SEC’s Whistleblower website posts every enforcement action that results in monetary sanctions over $1 million. Anyone who believes that he or she is entitled to a whistleblower award may submit an application. Whistleblowers may receive awards even if they are foreign nationals or residents of foreign countries at the time that they submit their tips. Id. at 17.
The CFTC also has its own whistleblower program. Paralleling the SEC program, if a whistleblower submission leads to a CFTC penalty, the whistleblower stands to collect 10% to 30% of the amount recovered. 7 U.S.C. §26.
An employer cannot prevent employees from communicating with SEC as whistleblowers. And whistleblowers who file a complaint with the SEC or CFTC are protected from retaliation by the Dodd-Frank Act (15 U.S.C. §78u-6(h)(1) (2018)) and Sarbanes-Oxley Act (18 U.S.C. §1514A(a) (2018)). These laws also provide monetary remedies—on top of the whistleblower bounty—in order to make whistleblowers whole any resulting job loss or other adverse employment action. The SEC also protects the confidentiality of whistleblowers by redacting all identifying information, including the associated enforcement action, when announcing awards. Moreover, anonymous tips are allowed where the whistleblower is represented by an attorney. These protections are appropriate to ensure that those who witness unfair behavior are not pressured to remain silent.
Despite these important (and effective) protections, blowing the whistle takes a significant toll on the whistleblower. Yet most whistleblowers decide to move ahead and not necessarily because of the prospect of financial reward, but typically because of the ideal of a fair and level playing field—abroad as well as at home.
Adam Pollock is a partner at Pollock Cohen and was an Assistant Attorney General in New York. Sarah Bayer, a rising 3L at Harvard Law School, assisted in the preparation of this article.