Defending An Fcpa Investigation

• Author: Robert W. Tarun
• Profession: Former Executive Assistant U.S. Attorney in Chicago
• Pages: 287-336

CHAPTER 9

Defending an FCPA Investigation

I. U.S. GOVERNMENT INVESTIGATIONS

The Department of Justice (DOJ) and the Securities and Exchange Commission

(SEC) are jointly responsible for enforcing the Foreign Corrupt Practices Act

(FCPA) and may jointly or separately initiate and conduct an investigation. The

two increasingly conduct joint or parallel civil and criminal investigations of the

same FCPA allegations and have substantially increased resources for enforcement

of the statute: approximately 60 DOJ prosecutors and SEC enforcement attorneys

are dedicated to FCPA matters. Not surprisingly, it has become common for the

DOJ and SEC to announce settlements of FCPA investigations simultaneously or

within a day or so of each other.

A. Department of Justice

The DOJ is solely responsible for the criminal enforcement of the FCPA. Allega-

tions of FCPA criminal violations are generally investigated by the Federal Bureau

of Investigation, but the Department of Homeland Security and the Internal Rev-

enue Service—Criminal Investigation Division regularly investigate potential FCPA

violations. The Fraud Section of the DOJ’s Criminal Division in Washington, D.C.,

has FCPA expertise and frequently coordinates with the SEC on FCPA matters. The

FBI is required by internal regulation to bring alleged FCPA violations to the Fraud

Section of the Criminal Division of the DOJ. No prosecution of alleged FCPA viola-

tions may be instituted without the express permission of the DOJ Criminal Divi-

sion in Washington, D.C.1

Grand juries have broad latitude and “can investigate merely on suspicion that

the law is being violated.”2 Individual clients need to understand, particularly in

weighing whether to testify before a grand jury, that decisions to charge a company

or its officers and employees with a criminal FCPA violation will be made by the

Fraud Section of the Criminal Division in Washington, D.C., not by a grand jury.

Justice William O. Douglas most succinctly captured the reality of the grand jury

when he observed: “Any experienced prosecutor will admit he can indict anybody

at any time for almost anything before any grand jury.”3

Grand jury investigations normally proceed first with the issuance of subpoe-

nas duces tecum for records followed by subpoenas ad testificandum for the tes-

timony of witnesses. However, if the government secures early cooperation from

287

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288 CHAPTER 9

a company or individuals, it may ask cooperating companies to voluntarily pro-

vide documents and cooperating individuals to meet and record others covertly,

and their cooperation may not be immediately public or known for a long time.

Cooperating individuals can remain secret and provide the factual basis to secure

a search warrant.

In criminal investigations it is the custom and practice of the DOJ to advise

counsel whether a client is a subject or target. If an individual client is consid-

ered a subject or target, the conventional wisdom is that he or she should assert a

Fifth Amendment privilege in a grand jury proceeding and also decline to be inter-

viewed.4 This privilege protects individuals and sole proprietorships but not cor-

porations, partnerships, and other business entities. If subpoenaed, corporations

will in most investigations have to produce a broad range of documents, subject to

primarily the attorney-client privilege.

B. Securities and Exchange Commission

The SEC is the primary regulator of the nation’s securities markets.5 Allegations

of civil violations of the antibribery and accounting provisions (books and records

and internal controls) are investigated by the SEC’s Division of Enforcement. The

SEC takes a strong interest in the accounting provisions that apply to public com-

panies. In August 2009, the SEC Enforcement Division announced the creation of

a specialized unit dedicated to FCPA enforcement. The specialized unit is headed

by a unit chief and is staffed around the country by SEC enforcement attorneys,

many of whom already have FCPA expertise as well as new hires who have FCPA

experience from the private sector.6

The SEC has the authority to bring an action in federal court or before an

administrative law judge when it concludes that an FCPA violation has occurred

and that enforcement is appropriate. The Division and its staff employ attorneys,

accountants, and analysts and may proceed on their own initiative to informally

investigate without subpoena power, or with subpoena power through a “formal

order of investigation” issued privately by the Commission. In 2008 the SEC pub-

lished an enforcement manual, which is available on its website.7

In informal investigations, SEC enforcement staff ask companies and employ-

ees to provide information on a voluntary basis. Interviews can be in person or by

telephone and on or off the record. Informal investigations can include extensive

document production and sworn testimony. The Division staff may request com-

pilation of data or counsel may elect to submit to the SEC a chronology or simi-

lar data. Counsel should understand that while the SEC staff have no authority

to compel the production of such data, the voluntary submissions will likely be

deemed admissible.8

Staff requests for orders for formal investigations are routinely granted by the

Commission and are used whenever the staff needs subpoena authority to obtain

the testimony of persons who are reluctant to appear or production of documents

that cannot be obtained voluntarily, such as telephone and bank records. The for-

mal order will describe the investigation in general terms and the suspected statu-

tory violations.

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Defending an FCPA Investigation 289

The various federal securities laws grant broad authority to the Commission to

conduct investigations.9 A challenge to the SEC’s right to investigate a public com-

pany has virtually no chance of success.10 However, a challenge to the breadth of

documents the SEC initially requests or subpoenas has some possibility of success.

The scope of such requests is often negotiable with SEC staff. SEC civil enforce-

ment matters may lead to a criminal referral to the Criminal Division.11 Full access

to SEC files is routinely granted to federal prosecutors by the SEC Director of the

Division of Enforcement. A DOJ Fraud Section Attorney or a U.S. Attorney may

independently request access to SEC files.12

SEC staff do not use the “subject” or “target” terminology common to federal

prosecutors. Defense counsel should normally ask SEC attorneys whether prosecu-

tors have been granted access to SEC files—unless there is a slim likelihood and a

concern that merely raising the question could prompt the staff to refer the matter

to the DOJ. Given the increase in parallel government proceedings, it is today pru-

dent to assume a referral to the DOJ and to ask the question.

Unlike in grand jury proceedings, witnesses who testify in SEC investigative

proceedings are entitled to copies of their transcripts upon payment of a fee.13

Witnesses in SEC proceedings also have a right to assert attorney-client, attorney

work-product, and Fifth Amendment privileges. However, the Commission may

draw an adverse inference from an individual’s assertion of the Fifth Amendment

privilege, and such an assertion makes an enforcement action highly probable.

Still, in most if not all cases, an SEC civil enforcement action is preferable to a DOJ

criminal charge. However, when bribery is the subject or focus of an investigation,

dual enforcement proceedings by the DOJ and SEC are far more common.

In considering whether to bring an enforcement action, the SEC will ask: “Did

the company commit to learn the truth, fully and expeditiously? Did it do a thor-

ough review of the nature, extent, origins, and consequences of the conduct and

related behavior?” A public company conducting an internal investigation that is

either cooperating with the SEC or intends to disclose the investigation to the SEC

should be mindful of this standard.14 In FCPA matters, the SEC intends to charge

more individuals.15

II. SOURCES OF ALLEGATIONS AND INVESTIGATIONS

Potential sources of FCPA and, in particular, bribery allegations are many and include

• former or current employees, including whistleblowers,

• public filings,

• investigations of one FCPA matter that leads to discovery of another FCPA

matter,

• competitors—often cooperating with one or more governments,

• computer hacking (e.g., Sony Corporation),

• agents,

• consultants,

• contractors,

• subcontractors,

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