Securities Enforcement Forum 2014 -- FCPA, SEC/DOJ Joint Actions, and Other Recent Criminalization Trends

Today I'm blogging from Securities Enforcement Forum 2014, Bruce Carton's excellent one-day conference, this year being held at the Four Seasons hotel in Washington, D.C.  The posts will be fairly raw, and certainly not verbatim accounts of what is being said. This post covers the FCPA panel. Chuck Duross at MoFo is the moderator. 

Kara Brockmeyer, the SEC's FCPA chief: Our cases are all over the world and in every industry. Also, size doesn't matter. We're suing large companies and small companies that are moving into the international space for the first time. Also, some of our investigations are spinning out of earlier investigations. Your competitors are probably ratting you out, and problems run across industries. 

Jeff Knox,  formerly at DOJ's Fraud Section and now at Simpson Thacher: lots of tech companies are having FCPA issues. Factors: they operate in high-risk markets. Large government contracts in competitive markets. IT people in these industries have a lot of discretion in selecting winners. They rely heavily on third party distributors who are former government officials. The deals tend to be complex and lend themselves to excess margin to hide corrupt payments. You can't police hundreds of sales people effectively, but you have to apply heightened due diligence to the highest risk transactions. What role is this entity playing with respect to that entity? 

Jon Barr at Baker Hostetler: In the Marubeni case, the DOJ brought the stick out and said if you don't cooperate, here's what's going to happen. Forfeiture in the Alcoa settlement was noteworthy. Where does the forfeiture go? Also, monitors. 

Duross: What's the trend on monitors? He suspects the government is opportunistic and looks for chances. It really depends on the case. The "trend" goes up and down over time. 

Brockmeyer: It matters if a company is getting a handle on their compliance. If they can demonstrate that, a monitor might not be necessary. But we'll see more going forward. 

Alex Bourrelly at Baker Botts: There can be rational reasons not to cooperate, especially if you're a non-U.S. issuer. 

Duross: Debarment can be a real issue. A guilty plea by the parent corporation can be a big negotiating point. 

Knox: Some companies make a calculated risk that the government won't be able to put a case together. Parent-level guilty pleas are possible. DOJ is more skeptical of collateral consequence claims now, and getting more experience in dealing with them. Not buying the sky-is-falling arguments. 

Duross:  Government is letting the spectre of Andersen fade away. The company may well survive without mass layoffs. 

Brockmeyer: Administrative actions are the new normal because Dodd-Frank allows civil penalties. We're exploring using those more frequently. 

Bourrelly: If you have a settled case in an AP, it allows you to avoid a meddlesome federal judge. Can lessen uncertainty. The staff has the authority, but as a practical matter, it can be very bad for a defendant to get a case together on that compressed time schedule. New administrative law judges, but not sure there will be tons of litigated FCPA cases in administrative court. 

Barr: With a litigated case against an individual, discovery is limited and it can be very hard. No jury. Very little time. Not like you have all the documents. Drinking from a fire hose. I'd hope the SEC would not use the administrative process for those cases. 

Brockmeyer: You do get the whole record in seven days. 

Barr: Terabytes of information! 

Brockmeyer: Hopefully not terabytes. 

Barr: It's very difficult. 

Duross: Hybrid monitor of 18 months with an option to go longer can be a reasonable option. DOJ and SEC are becoming more sophisticated in recommending them. 

WSJ question: What's the disadvantage from not having a monitor in place? 

Brockmeyer: If they've remediated the problem, a monitor might not be useful. 

Knox: Monitors are not just passive observers. They are in the middle and creating policy. If the compliance function is working, a monitor might not be good for the company or the public. 

Duross: A monitor is not supposed to be punitive, and it carries costs. It has to be necessary. 

Brockmeyer: Many companies are doing a much better job now. Question used to be, how are you going to test that? The company wants to find the problem long before the government does. Companies are being much more proactive these days. Corporate sophistication is helpful here. 

Barr: Goal is to make the government comfortable with getting continued self-reports. 

Brockmeyer:  Same conduct that can minimize monitors is also the best way to a declination.

Question from Jacob Frenkel at Shulman Rogers: What about tips from foreign whistleblowers, non-issuers? 

Brockmeyer: We have strict confidentiality provisions with respect to whistleblowers. Question about overlapping jurisdiction. 

Brockmeyer: If a company has problems with internal controls, those problems often aren't going to be confined to a single area. 

Knox: Reality is sometimes prosecutors are focused on one particular kind of conduct. Also, sometimes people aren't incentivized to report different kinds of conduct. 

Bourelly: You want to resolve everything with the government at once if you can. 

Duross: International cooperation. Looking at the last year, the government put thought into who gets thanked at the bottom of press releases. 

Knox:  Level of international cooperation is much higher these days. Three tools: traditional ones, corporate cooperators, cooperation from international governments. Lots of times the only window into bribe recipients is going to come from foreign governments. 

Brockmeyer: IOSCO lets us get critical bank and brokerage records. 

Barr:  Lots of cooperation going on.  If you're going to walk something in you have to be careful about proffer letters to limit what DOJ can share with foreign regulators. Also NPAs. If you're not careful, you'll be compelled to cooperate with a foreign government, and you won't necessarily have any protections as to that government. DOJ has been sensitive to that. 

Bourrelly: To what degree do foreign governments feel cut out of deals like that? 

Barr: We've had luck negotiating additional terms. Most you can really get is an agreement to share if the government agrees to X protections. 

Duross: DOJ has understood that there can't be a proffer where the defendant is then immediately turned over to the Serious Fraud Office. 

Barr: You have to ask for it.