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The Justice Department and FCPA Enforcement — Ending the Year with a Bang

The Justice Department is making sure that 2012 will be a very interesting year in FCPA enforcement.  Two new and significant trends, which the Justice Department telegraphed, are now a reality.

First, and most significantly, the Justice Department is moving its FCPA enforcement program more and more toward the Antitrust Division’s model.  What do I mean?  In the antitrust context, the Justice Department frequently secures the cooperation of the companies involved in a criminal cartel through its leniency program and discounting fine structure.  With that cooperation, the Justice Department then targets individual executives at the companies for criminal prosecution.  The Antitrust Division has been doing this for nearly 20 years and been very successful.

The Justice Department’s recent indictment of eight former executives at Siemens for an elaborate $100 million bribery scheme is a strong indication that the Justice Department will now turn cooperating companies into sources of evidence to prosecute individual executives at the same company.  It is surprising that it has taken the Justice Department so long to adopt such a policy.  Given Congress’ ‘ harsh criticism of the Justice Department for failing to prosecute individual executives involved in bribery schemes, I expected the Justice Department to bring more of these cases. 

The Justice Department’s recent indictment sends a very strong message to the business community — not only will the government make companies pay sigificant fines but the government will use the company’s cooperation to charge individual executives with criminal offenses.

The second important trend at the end of 2011 is the opening of FCPA enforcement actions against large retailing companies.  Wal-Mart’s disclosure of its internal investigation is not surprising but will have significant implications for all retail businesses seeking to expand into foreign markets. 

With Wal-Mart’s cooperation, the Justice Department will gain valuable insight into global retail businesses and corruption risks.  Knowledge of the industry and the risks will give prosecutors greater ability to focus additional investigations against other large retailers.  Retail businesses are likely to fall under some kind of industry review by the Justice Department and the SEC.

In response, every major retailer should be re-examining its anti-corruption policies and practices to address corruption risks in foreign countries.  Retailers face significant challenges given the large number of government interactions in their businesses — labor, health, tax, real estate and customs regimes are critical for global retailers. 

For example, retailers require real estate in every area where they set up a store.  Once they acquire the land, they need operating permits and need to comply with environmental, labor and related agencies, whcih may be established in local, regional and even national government bodies. 

In these situations , there is plenty of risk to go around in these countries, particularly in high risk countries like Russia, Brazil, India and China.  Consumer spending is predicted to grow the largest in Russia over the next ten years.  Economic opportunity often translates into significant corruption risks.  

Global retailers need to plan accordingly, especially as they enter the BRIC countries.  The Justice Department will be following their actions, and Wal-Mart will be quick to report any illegal actions by its competitors which may harm them in the competitive marketplace.

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1 Response

  1. December 16, 2011

    […] The Justice Department and FCPA Enforcement — Ending the Year with a Bang: Michael Volkov, Corruption, Crime and Compliance, takes a look at two trends we’ve seen from the Justice Department that will make 2012 an interesting year in FCPA enforcement. […]