Part VIII: SEC Enforcement Trends And Priorities, 2008 – The FCPA
Like insider trading, the FCPA is a traditional enforcement area which has become a recent priority of the SEC and the Department of Justice. Last year, there were 38 FCPA cases compared to 15 the prior year. At the end of 2007, there were reportedly more than 100 open FCPA investigations, as well as a docket of significant cases heading toward trial.
The FCPA, 15 U.S.C. §§ 78dd-1 et seq., is rooted in the Watergate scandal and the SEC’s “volunteer program” of the 1970’s. Under that program, hundreds of companies self-reported after conducting internal investigations focused on “questionable foreign payments” and the failure to properly record those payments in the books and records of the company. Since the statutes were passed in 1978, and amended in 1988, this has been a traditional enforcement area.
The statutes have two key sections. First, and perhaps best known, is the anti-bribery provisions. Generally, these sections prohibit payments to foreign officials to obtain or retain business. The “obtain or retain business” provision was intended to be a key limitation on this section, denoting the determination of congress that not every payment to a foreign official was prohibited.
Second, is the books and records and internal control provisions which are perhaps less well known than the anti-bribery provisions, but more expansive. Unlike the ant-bribery provisions, these sections do not apply only to certain payments to foreign officials. Rather, they apply generally to all of the books and records and internal controls of all issuers. Since they substitute a standard of “reasonable detail” for the usual “materiality” standard applied under the federal securities laws, they can have a far reaching impact.
Enforcement of the sections is generally shared between the SEC and DOJ. Generally, the SEC is responsible for civil enforcement as to all issuers. In those actions, the SEC can utilize all of its traditional enforcement weapons – civil injunctive actions, including seeking equitable relief such as disgorgement and requesting penalties. The agency can also bring administrative proceedings.
DOJ is generally responsible for criminal prosecutions of the anti-bribery provisions as well as the books and records and internal control provisions. The Department also has limited civil enforcement authority over “domestic concerns,” which are generally non-SEC reporting U.S. companies.
Many SEC investigations in this area have a parallel DOJ criminal investigation. The SEC’s policies on parallel proceedings, discussed in an earlier post here, are thus of particular importance in this area.
Next: SEC and DOJ FCPA enforcement – an expansive view