Pow! Whack! Slam! Bam! – DOJ Finishes the FCPA Year with a Bang
Giving away my old age, we all loved the 1960s Batman series starring Adam West. Thanks to the Batman show we were given a long list of words to underscore Batman and Robin’s slugfests with the weekly villain (e.g. Penguin, The Riddler and the Joker). See the list of exclamations here.
The Justice Department finished the FCPA year 2014 in grand style, resolving two major enforcement actions: Avon and Alstom, and doing so with profound sound effects – Pow! Zowie!
I always enjoy the FCPA Paparazzi’s “predictions” and “analyses” because they are nothing more than warmed over marketing pitches for clients. In recent months they have all been lamenting the “shortage” of FCPA enforcement actions and looking for trends from “run-of-the-mill” FCPA enforcement actions (e.g. focusing on gifts, meals and entertainment). All of that changed with the Avon and Alstom announcements.
FCPA enforcement in 2014 came back with a vengeance as total penalties and fines totaled approximately $1.5 billion, leaving only 2010 as a more successful year for FCPA prosecutors.
The Avon and Alstom enforcement actions, however, both present some important trends and lessons.
- Follow-On Individual Prosecutions: The Avon investigation is still continuing as to criminal prosecution of several former senior executives who were involved in the cover-up of Avon’s massive bribery scheme. With the cooperation of Avon, DOJ is likely to indict or resolve these cases with the individuals in 2015. With respect to Alstom senior officials, DOJ already prosecuted several officials with respect to the events in Indonesia. It is not clear whether or not DOJ will bring individual enforcement actions against other Alstom senior officials outside of Indonesia. My guess is that they will not since they prosecuted the Indonesia events as the most significant of all of Alstom’s bribery schemes. It will be interesting to see whether DOJ launches any additional criminal prosecutions.
- Resistance and Cover-Ups: Avon and Alstom demonstrated once again the importance of senior management commitment and corporate culture. For Avon, the question is what was its culture if senior executives could ignore a critical audit report uncovering the China bribery scheme and order revisions to the report and an unsupported closing of the audit allegation as “unsubstantiated”? What exactly was Avon’s culture and how did it get to that point?Reviewing Alstom’s bribery culture, it is easy to characterize and understand what occurred inside the company. Alstom was a lawless state in which a systemic breakdown not only occurred but was promoted as a way to grow the company. Siemens and Alstom go hand-in-hand, not only in the size of their eventual FCPA penalties but in the lawless culture that permeated their respective business operations.
- Senior Management Involvement: Alstom and Avon represent serious cases (profound grasp of the obvious, I know) where senior managers were actively involved in the bribery schemes. For that reason, DOJ has an important mission – to prosecute individual senior managers to send an important message, not by fining the company, but by punishing individual senior executives who were no less guilty than the actual bribers.
- Focus on Sources of Money: It would be a mistake to take the Avon case and relegate it to a compliance message on the importance of gifts, meals, entertainment and travel. To the contrary, the Avon case underscores the importance of maintaining proper internal controls governing access to money and recording of expenditures. In every case, Avon employees gained access to Avon’s money through circumvention of internal controls, and then falsely recorded the expenditures in Avon’s books. I often repeat myself (ask my kids) but the number one challenge in China for compliance practitioners is maintaining focus on access to money. It is a critical function in China and can easily lead to misuse and bribery with company funds.