In the mid-1970's, the U.S. Securities and Exchange Commission lead a heated investigation into over 400 U.S. companies accused of making questionable or illegal payments to foreign government officials, politicians and political parties. These payments, ranging from blantant bribery of high officials to so-called "facilitating payments" for low level functionaries, totaled more than US$300 million. As such, Congress set forth, gavel in hand, to "restore public confidence in the integrity of the American business system"1 by establishing the Foreign Corrupt Practices Act (FCPA).
And yet it is only now, more than thirty years after the Act's implementation, that we are seeing dramatic increase in the number of SEC and the Department of Justice ("DOJ") enforcement actions. In 2010, these two entities took a total of seventy four FCPA enforcement actions, up from only five in the year 2004. Looking at this "historic" growth, Assistant Attorney General Larry Breuer announced "a new era of FCPA enforcement."2
The reason for this dramatic increase in enforcement actions? Some attribute it to testing and reporting requirements of financial books introduced under the Sarbanes Oxley Act of 2002. The more cynical imply that fines, penalties and profit disgorgement under the Act have proven to be an effective revenue source for the government. Richard Cassin, author of the FCPA Blog, has postulated that the events of 9/11 significantly changed the U.S. Government's perception of corruption and its effect on national security. He also contends that the more current Dodd-Frank Whistleblower program is generating more tips, and, combined with the hiring of more government agents and attorneys, is allowing the SEC and DOJ to carry out more enforcement activity.
In the past year, the DOJ has imposed well over US$1 billion in criminal penalties— more than in any prior 12-month period. In comparison, in 2004 it collected US$11 million. The Department is now focused on prosecuting individuals, as well as levying substantial criminal fines against companies. In addition to the DOJ's enforcement activity, the SEC brought in US$529 million in corporate FCPA settlements: US$20 million in civil penalties, and US$509 million in profit disgorgement and prejudgment interest. Enforcements were both small (Natco; US$65,000) and large (Daimler; US$91.4 million), although the SEC, unlike the DOJ, seldom focused on prosecuting individuals. Nevertheless, the risk of noncompliance has become a serious matter for all companies subject to the FCPA.
While the number of enforcement actions remains low when compared to the number of organizations governed by the FCPA's rules, two significant trends in the current enforcement environment have increased the chance that a company...