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Follow the Bouncing Ball – Tracking DOJ Investigations

A Bouncing Ball in Diminishing ArcsLooking back on 2013, the Department of Justice and SEC had a strong enforcement year.  It is interesting to analyze how prosecutors exercised their discretion – what industries were subjects of FCPA investigations?  How did the company come to the attention of the DOJ and SEC?

There is no question that most subjects of FCPA investigations are “discovered” through the voluntary disclosure process.  Companies continue to weigh the costs and benefits of the voluntary disclosure process.  It is an issue that generates controversy among lawyers and business executives.

I have been critical of DOJ and the SEC for not defining specific standards for voluntary disclosures. Too much of the calculation is defined in very general terms – e.g., a “substantial discount,” and “extraordinary cooperation.”

Prosecutors know how to define a benefit and regularly do so in criminal cases prosecuted in the 94 districts by US Attorney’s Offices.  For example, prosecutors will make a plea offer to a defendant that includes a specific discount in the defendant’s base offense level calculation under the Sentencing Guidelines.  There is no reason why DOJ and the SEC cannot articulate a set of standards for cooperation and potential benefits to companies that are considering making a voluntary disclosure.

Once an investigation starts in a specific industry, the level of risk rises for other companies in the same industry.  Prosecutors gain important intelligence about how the industry works and other companies in the same industry.

A company that decides to cooperate in a DOJ and SEC investigation typically provides information about misconduct committed by other companies in the same industry. Companies that cooperate in criminal antitrust cartel investigations often provide important leads on foreign bribery by competitors.bouncingball3

Another significant risk is when competitors use the same agent or distributor as part of their operations.  Once DOJ and the SEC identify a risky third-party involved in a bribery scheme, the logical question is which other companies used the same agent or distributor.

DOJ has used this tactic in the “pharmaceutical and medical device sweep” and related oil and gas industry investigations.  DOJ has launched investigations in these industries based on common third-party entities involved in bribery schemes.

Given this risk, companies have to monitor their third parties to make sure the third parties notify the company when the third party learns that it is the subject of a government inquiry.  To make sure the third party notifies the company, contracts between the company and the third party should include an appropriate notification provision.

The tracking of FCPA and antitrust investigations provides important intelligence on DOJ and SEC investigations. Companies should monitor FCPA disclosures, settlements and Railroad conceptother public information about DOJ and SEC enforcement actions.  In addition, companies should track DOJ antitrust cartel investigations and enforcement actions.

Putting this information together will provide companies with additional risk factors to consider when dealing with third parties.

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