Regulators Flex Foreign Corrupt Practices Act Enforcement Muscles
Piazza, Michael A., Ayers, Lindsay A., National Defense
* Continuing a trend that started late in the last decade, the Securities and Exchange Commission this year continues to raise the bar on the enforcement of the Foreign Corrupt Practices Act of 1977.
This statute, quasi-dormant at the SEC for decades, has rapidly developed into one of its most powerful enforcement tools against public companies traded on U.S. markets. And while the act's record-keeping and accounting provisions were designed to operate in tandem with its criminal anti-bribery provisions, which are enforced solely by the Department of Justice, recent SEC cases demonstrate a new resolve to act alone.
Empirical data underscores the commission's increased emphasis on the act's enforcement. Consider both the greater number of SEC enforcement cases and progressively higher settlement amounts in just the past three years. These have resulted in increasingly large monetary remedies, both for disgorgement and civil penalties. And the enforcement pipeline appears full. Since early 2010, the commission has filed more than 30 FCPA cases.
Important are the new enforcement tactics the SEC is using. First, the commission now brings cases even when the Justice Department has decided not to pursue a target on criminal charges. Second, it is now using deferred prosecution agreements, a routine enforcement tool at Justice, but new to the commission.
Historically, the SEC and Justice have worked hand-in-glove on such cases. For the first time this year, Justice declined to pursue two FCPA cases that the commission later took up. In fact, the department did not even enter into non-prosecution agreements with the two companies.
One example of the SEC going solo involved Rockwell Automation Inc., a producer of industrial automation components and software. Alleging that Rockwell failed to accurately record payments made by a subsidiary to Chinese state-owned businesses, the SEC settled with Rockwell for books, records and internal control violations, within the scope of the FCPA's record-keeping and accounting provisions. Without admitting or denying the allegations, Rockwell paid $1.8 million plus interest for disgorgement, and a penalty of $400,000.
The commission is also borrowing another Justice tool: the deferred prosecution agreement. This is a voluntary alternative to adjudication whereby the enforcing agency --- here the SEC--agrees not to bring an enforcement action, in exchange for agreement that a fine be paid and/or certain conditions performed.
In May, the SEC entered into such an agreement with Tenaris S.A., a global manufacturer of steel pipe products charged with FCPA violations for bribing Uzbekistan government officials on government contracts. …