The Perfect Storm for FCPA Enforcement in 2012

A few things in the FCPA enforcement arena for 2011 are clear – the Justice Department and the SEC are not going to come close to repeat their 2010 stats –$1.6 billion in fines and penalties.  DOJ prosecutors have been tied up in trials and unable to move ongoing investigations as fast as usual.  As a result, DOJ prosecutors are not able to follow up on outside counsel and internal investigations.  

But the signs for an explosive year in 2012 are there, and the impact may stretch into 2013, depending on how fast the Justice Department can move a few investigations.  There are four industries which seem to be the focus of FCPA enforcement,  

For several years, the pharmaceutical and medical device industries have been the focus of FCPA enforcement.  With the recent disclosures, more companies in these industries will fall under the FCPA axe in the next year and settle their investigations.

Private equity and hedge funds have already come under scrutiny for their operations of portfolio companies and their acquisition and sale of companies.  In combination with the Serious Fraud Office in the UK, joint enforcement actions are likely to begin, especially as sovereign wealth funds in the Arab countries begin to review their operations under prior leadership.  The SEC launched the inquiry last year with a series of enforcement letters issued to financial institutions and private equity funds. 

Two other industries to watch are the logistics and the aerospace industries. 

In the logistics area, there is a real potential for enforcement actions initally against logistics companies and then their industry customers.  Like the Panalpina enforcement action, which started with logistics and then turned to their oil and gas customers, the Justice Department has already secured the cooperation of one logistics company in the defense space and is likely to secure more cooperation from others.  Their customers will then be targeted.  

The aerospace industry and their dealings with state-owned airlines has now come under the FCPA microscope as well.  With the recent disclosure of an ongoing investigation in this area, you can certainly expect to see more.  Once under the microscope, others are sure to follow.

That leaves one big industry which is already flirting with trouble – the high-tech sector.  Given the industry structure, the layers of distribution of its product and its dependency on China for manufacturing, all of the signs are there for more scrutiny.  Companies have already settled, some are under investigation, and more will surely follow.  With the Justice Department beginning to increase cooperation with China, there is a potential for even more enforcement actions.

For businesses developing compliance prograams, 2011 has been a respite — for the future, compliance will be even more important.

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3 Responses

  1. Sandy Boucher says:

    Michael – what are your thoughts on the resources sector especially mining? Is there likely to be a tie in with the The Extractive Industries Transparency Initiative (EITI) and other national and regional efforts on that front. Here is Canada this is an important sector and it seems logical that enforcement will look here at some point.

    • Michael Volkov says:

      Hi Sandy — I think the extractive industries will always be the focus of anti-corruption enforcement — oil, gas, and minerals — Canada has already show this as a priority.

  2. Evan Wright says:

    I wonder if the JD/SEC can get the $60mil bill out to Pfizer before the end of the year to improve the stats? The UK is calculating the profitability of the the DPA and I see it on the horizon.