Badda Bing, Badda Boom!! — DOJ and SEC Make 2016 a Record Year for FCPA Enforcement (Part I of III)

We begin the New Year with a three-part series on the FCPA: (1) A review of FCPA enforcement in 2016; (2) Trends from 2016 FCPA enforcement; and (3) Predictions for FCPA enforcement in 2017.

From the narrow perspective of FCPA enforcement, the Justice Department and the SEC have demonstrated yet again the maturation of their respective aggressive FCPA enforcement programs. As in 2014 (but not 2015), DOJ and the SEC closed out the calendar year with record-setting major FCPA enforcement actions.

DOJ and the SEC collected a total of $1.8 billion in FCPA fines, penalties and disgorgement. Whatever happens to FCPA enforcement under the new administration, which I predict will result in very little change in policy and practice, the Obama Administration will be remembered as an era of unprecedented enforcement, including the FCPA, with the singular exception of lack of enforcement against the financial industry.

When it comes to the FCPA, however, DOJ and the SEC have accomplished much in building international coalitions and relationships with law enforcement agencies around the globe. In effect, DOJ and the SEC have “institutionalized” global anti-corruption enforcement, and it will be extremely difficult for any future administration to dismantle this existing infrastructure. There may be marginal changes in policy or emphasis or credits for compliance programs, but in the end, companies will continue to face aggressive enforcement actions, especially in those systemic cases that we witnessed this past year.

There were six major enforcement actions this year, each of which underscores the existence of systemic corruption within poor corporate leadership and cultures. Let’s briefly review these actions:

VimpelCom: DOJ and the SEC reached a $795 million settlement for a bribery scheme carried out by senior executives to acquire cellular telephone licenses controlled through shell companies by the daughter of the Uzbekistan President. VimpelCom demonstrated a governance failure in the boardroom by corporate directors, continuing into the senior executives who deliberately withheld information, and the failure of legal and internal audit to stand up to what was an obvious failure to identify the beneficial owners of the shell companies. After a slow 2015 and first quarter of 2016, VimpelCom demonstrated that DOJ was back with a vengeance and that there was no such thing as an FCPA enforcement slowdown.

Och-Ziff: DOJ and the SEC brought this first major enforcement action against a private equity company, Och-Ziff, in which they recovered a total of $412 million in fines, disgorgement and penalties. The SEC also charged two individuals, including the CEO of Och-Ziff, and reached settlement agreements with each of them. Och-Ziff broke new ground in terms of transaction monitoring, raising due diligence review standards for joint venture partners, and outlined a massive bribery scheme that rippled through various African countries, especially the Democratic Republic of the Congo.

Embraer: DOJ and the SEC finally closed this long-running investigation of Embraer for bribery in the Dominican Republic, Saudi Arabia and Mozambique. Interestingly, DOJ and the SEC withheld remediation credit from Embraer, despite its aggressive discipline of various executives and employees, based on Embraer’s failure to discipline a senior executive who, at least, was aware of the bribery schemes and failed to report or intervene to stop the conduct.

JP Morgan: After years of investigation and with more enforcement actions promised against other financial institutions, JP Morgan settled with the DOJ and SEC for $202 million for its corrupt hiring program, aka the Sons and Daughters Program. Notwithstanding the stiff penalties, JP Morgan was able to secure a non-prosecution agreement (NPA) with the Justice Department and avoid a corporate monitor, two achievements that were difficult to say the least given JP Morgan’s years of operating the corrupt hiring program. Hiring of former foreign officials and their relatives is certainly a high risk area but can be done in appropriate circumstances assuming that robust controls are in place.

Odebrecht/Braskem: DOJ and the SEC resolved this blockbuster case as part of a coordinated effort with Brazil and Swiss prosecutors. The two cases, jointly resolved, reinforced the growing international cooperation among prosecutors and law enforcement, and the ability of countries to divide corporate fines and proceeds among themselves.

Odebrecht/Braskem is a record setting settlement, totaling close to $4.6 billion, only a relatively small portion of which, approximately $424 million, will end up in the US Treasury. But the facts as outlined eclipse even the systemic and outright blatant conduct involved in the long-cited Siemens enforcement action resolved in 2008. Odebrecht/Braskem reminds us yet again that in the midst of a global crackdown against corruption there are companies that will engage in flagrant, institutionalized bribery operations as a means to increased business. This vast corruption operation touched a number of countries where bribery payments to government officials were made, and underscored the lack of transparency in the US banking system that continues to facilitate global corruption.

Teva: As a further reminder at the close of the year that DOJ and the SEC are far from done with the drug and medical device industries, DOJ and the SEC announced a $519 million settlement with Teva for bribery payments in Russia, Ukraine, and Mexico. It is worth remembering that the largest pharma or medical device settlement until Teva was Johnson and Johnson, totaling roughly $70 million. Teva paid a Russian company owned by a high-ranking government official to repackage and market Copaxone, bribed a senior government official in the Ukraine Ministry of Health and failed to implement adequate internal controls to prevent improper payments to doctors in Mexico to increase prescriptions of the same drug.

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  1. January 5, 2017

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