FCPA: The SEC's Lucrative Multifunction Power Tool

Time well spent. While the Securities and Exchange Commission (SEC) focused a lot of its time and resources planning and coordinating resolutions of Foreign Corrupt Practices Act (FCPA) cases in 2015, it is proving to pay off in 2016. The SEC has already collected a staggering $895 million plus this year in resolutions with four pharmaceutical and life sciences companies, five tech companies, a casino operator and three individuals.

The SEC's landmark resolution with Vimpelcom, a Dutch telecommunications giant, is the indisputable headliner. Vimpelcom paid $795 million to resolve alleged violations of the FCPA and certain Dutch laws for funnelling over $114 million in ''old-fashioned'' bribe payments to a shell company and charities associated with a government official in Uzbekistan, presumed to be the Uzbek President's daughter. This case seems tailor-made for prosecution under the anti-bribery provisions that the FCPA is generally known for, although the SEC did charge Vimpelcom with ''books and records'' violations under the FCPA, observing that ''(t)hese old-fashioned bribes, hidden through sham contracts and charitable contributions, left the company's books and records riddled with inaccuracies.'' The SEC also charged California-based Sci-Clone Pharmaceuticals with anti-bribery and ''books and records'' violations for a scheme in which employees of SciClone's subsidiaries gave money, gifts, and other things of value to health care professionals, resulting in millions of dollars in sales of pharmaceutical products to China's state health institutions. Sci-Clone agreed to pay $9.426 million in disgorgement of sales profits plus $900,000 in prejudgment interest and $2.5 million in penalties.

The Multiple Functions of the FCPA

The SEC settled for a seasonal low of $75,000 with an individual, Ignacio Cueto Plaza, an airline executive for Chilean airline, LAN Airlines. To help LAN Lines penetrate the Argentine market, Sr. Cueto allegedly arranged to make payments of $1.15 million to the Virginia-based brokerage account of a third party consultant, an honorary Cabinet advisor to the Argentinean Department of Treasury, who ''may have'' directed funds to the unions to induce them to accept lower wages and compromise over other terms of employment. Even though the allegations against Sr. Cueto sounded in anti-bribery, the SEC confined its charges to violations of the generic ''books and records'' requirements under the FCPA.

Pharmaceutical company Nordion, Inc. and a Russian employee settled for a total of $500,000 to resolve ''books and records'' charges where the employee had paid officials for drug approvals and Nordion ''lacked sufficient internal controls to detect and prevent the scheme.'' Software company SAP-SE agreed to disgorge $3.7 million in profits because ''its deficient internal controls enabled an executive to pay bribes to procure business in Panama.'' The Swiss-based pharma ceutical company Novartis, AG settled for $25 million to resolve ''books and records'' charges against the backdrop of an alleged ''pay-to-prescribe'' scheme of its China-based subsidiaries to increase sales. To resolve FCPA ''books and records'' violations for a ''slush fund'' for Russian and other foreign distributors, Massachusetts-based Analogic Corp. agreed to disgorge $7.7 million in profits and pay $3.8 million in prejudgment interest to SEC; its Danish subsidiary paid $3.4 million and in criminal fines to the Department of Justice (DOJ) in parallel criminal proceedings and former CFO of subsidiary paid $20,000 in penalties to SEC.

The mundane, but potent, ''books and records'' provisions of the FCPA require ''issuers'' of securities registered under Section 12 of the Securities & Exchange Act of 1934 (the ''Act'') or entities obligated to file reports under the Section 15 (d) of the Act to:

maintain books and records that accurately and fairly reflect the transactions of the corporation in reasonable detail and employ a system of internal accounting controls reasonably calculated to ensure that the issuer accurately and fairly state its financial statements. 15 U.S.C. § 78m(b)(2) (2002). The SEC investigates and bring civil enforcement actions against alleged violators of the ''books and records'' provisions. The DOJ is responsible for criminal prosecutions of ''wilful'' violations of these provisions and the applicable SEC rules.

Unlike the anti-bribery...