DOJ and the SEC Publish Long-Awaited Update to the FCPA Resource Guide
By Ephraim (Fry) Wernick and Lincoln Wesley
On July 3, 2020, the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) published the Second Edition of “FCPA: A Resource Guide to the U.S. Foreign Corrupt Practices Act” (the “Guide”). Originally published in 2012, the Guide is considered the “Bible” for those operating in the FCPA space as it provides the best understanding of the government’s view of the statute, its enforcement policies, and compliance expectations for companies. The Guide also offers helpful and more recent summaries of enforcement actions, declinations, hypotheticals, case law, and DOJ opinion releases. While the central themes of the second edition remain the same as the first, the updated version was long-overdue, given several key developments in FCPA enforcement over the past eight years. Below are five of the more notable updates in the Guide.
- Jurisdictional Reach of the FCPA
Under normal principles of conspiracy liability, foreign individuals and companies may be liable for conspiring to violate a U.S. law even if they could not be charged independently with a substantive violation. As we reported in April, the jurisdictional reach of the FCPA was significantly curtailed following the Second Circuit’s opinion and recent post-trial judgment of acquittal on FCPA charges in United States v. Hoskins.1 Acknowledging a contrary ruling by a district court in the Seventh Circuit, the Guide now recognizes that, at least in the Second Circuit, a defendant who is not among the specifically enumerated categories of defendants in the FCPA cannot be found guilty of conspiring to violate the FCPA’s anti-bribery provisions.2 Notably, DOJ and the SEC express their view that Hoskins’ reasoning would not apply to the FCPA’s accounting violations because, unlike the anti-bribery provisions, they expressly apply to “any person.”
- FCPA Enforcement Involving Mergers & Acquisitions (“M&A”)
Typically, when companies merge with or acquire another company, the successor company assumes the predecessor company’s liabilities, including criminal liabilities such as FCPA violations. The Guide continues to emphasize the importance of successor liability in preventing companies from escaping FCPA liability simply by reorganizing. However, as we noted in July 2019, DOJ has been particularly focused on FCPA enforcement in the M&A space and even added a specific section on M&A in the FCPA Corporate Enforcement Policy.3 The Guide incorporates the DOJ guidance and includes additional language suggesting that the DOJ and SEC are unlikely to pursue FCPA enforcement actions against successor companies that properly address, remediate, and self-report misconduct that they identify during post-acquisition due diligence and integration of an acquired asset. The Guide recognizes “the potential benefits of corporate mergers and acquisitions, particularly when the acquiring entity has a robust compliance program in place and implements that program as quickly as practicable at the merged or acquired entity.” It also states that the DOJ and SEC will more often pursue enforcement actions against predecessor companies for FCPA violations, particularly when the acquiring company uncovers and timely remediates the violations, or when the government’s investigation of the predecessor company preceded the acquisition. Notably, the Guide acknowledges that “robust pre-acquisition due diligence may not be possible” and states that in those instances the DOJ and SEC will “look to the timeliness and thoroughness” of post-acquisition due diligence and compliance integration efforts.
- Incorporating Recent Updates to Compliance Guidance
The Guide includes important updates recognizing that while a company’s internal accounting controls are not determinative of the success of its overall compliance program, an effective compliance program will likely contain significant overlap. As we noted last month, DOJ has been active in promulgating updated compliance guidance, including its “Evaluation of Corporate Compliance Programs” document, which was first published in April 2019 and updated in June 2020.4 The Guide helpfully incorporates its compliance guidance and updates its previous Hallmarks of Effective Compliance Programs to more closely mirror the recent guidance documents that have been issued.
- Six-Year Statute of Limitations for Accounting Provisions of the FCPA
The Guide now includes a significant change in the government’s view of the applicable limitations period in FCPA cases. Previously, it was understood that a five-year limitations period applied to both the FCPA’s anti-bribery and accounting provisions. The Guide now asserts the government’s view that the five-year limitations period only applies to the FCPA anti-bribery provisions, while violations of the FCPA accounting provisions have a six-year limitations period.
- Defining “Foreign Official”
The FCPA’s anti-bribery provisions apply to corrupt payments made to foreign officials, which the FCPA defines to include employees or officers of a department, agency, or “instrumentality” of a foreign government. The Guide addresses the Eleventh Circuit’s decision in United States v. Esquenazi in which the Court upheld a broad interpretation of the term “instrumentality” of a foreign government under the FCPA as “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”5 As with the previous edition, the Guide lists the key factors that courts will analyze to determine whether a foreign government adequately controls an entity, and whether the entity performs a function that the government treats as its own.
Even though the Guide itself mostly harmonizes recent policy initiatives and summarizes case law and developments over the past eight years, its publication is a welcome development. The recent spike in FCPA enforcement has led to more trials and increased litigation of late,6 but there remains a very small body of case law for practitioners to rely on, giving the Guide outsized importance. The Guide thus remains an invaluable resource and should be required reading for members of the white collar bar, in-house counsel and compliance professionals who counsel and defend companies and individuals involved in international transactions.
1 See Ephraim “Fry” Wernick, Christopher James and Peter Thomas, After Hoskins: Critical Takeaways from the Most Important FCPA Trial in Years, V&E Report (Apr. 15, 2020), available at https://www.velaw.com/insights/after-hoskins-critical-takeaways-from-the-most-important-fcpa-trial-in-years/.
2 United States v. Hoskins, 902 F.3d 69, 76-97 (2d Cir. 2018).
3 See Fry Wernick and Francis Yang, DOJ Signals FCPA Policy Shift Focusing on M&A Transactions, Creating New Incentives and Heightened Risks for Companies on Both Sides of Deals, V&E Report (July 23, 2019), available at https://www.velaw.com/insights/doj-signals-fcpa-policy-shift-focusing-on-ma-transactions-creating-new-incentives-and-heightened-risks-for-companies-on-both-sides-of-deals/.
4 See Ephraim (Fry) Wernick, Michael Ward and Lincoln Wesley, DOJ Updates Its Guidance on Corporate Compliance Programs, V&E Report (June 2, 2020), available at https://www.velaw.com/insights/doj-updates-its-guidance-on-corporate-compliance-programs/.
5 United States v. Esquenazi, 752 F.3d 912, 925 (11th Cir. 2014).
6 See Ephraim “Fry” Wernick and Pete Thomas, How Companies Can Respond to the Boom in FCPA Enforcement Fueled by International Cooperation, V&E Report (Nov. 15, 2019), available at https://www.velaw.com/insights/how-companies-can-respond-to-the-boom-in-fcpa-enforcement-fueled-by-international-cooperation/.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.