Defending an FCPA investigation

• Author: Robert W. Tarun
• Pages: 213-245

CHAPTER 9

Defending an FCPA Investigation

I. U.S. GOVERNMENT INVESTIGATIONS

The Department of Justice and the Securities and Exchange Commission may

jointly or separately initiate and conduct a Foreign Corrupt Practices Act investiga-

tion. They are increasingly conducting joint or parallel civil and criminal investi-

gations of the same FCPA allegations and have substantially increased resources

dedicated to enforcement of the statute. 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. The Fraud Section of the DOJ’s Criminal Division in Washing-

ton, 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 viola-

tions to the Fraud Section of the Criminal Division of the DOJ. No prosecution of

alleged FCPA violations may be instituted without the express permission of the

DOJ Criminal Division 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 a

company or individuals, it may ask cooperating companies to voluntarily provide

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

such cooperation may not be immediately public. 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 considered a subject or target, the conventional

213

214 CHAPTER 9

wisdom is that he or she should assert a Fifth Amendment privilege in a grand jury

proceeding and also decline to be interviewed.4 This privilege protects individuals

and sole proprietorships but not corporations, 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 Commission5

The Securities and Exchange Commission is the primary regulator of the nation’s

securities markets. Allegations of civil violations of the anti-bribery and recordkeep-

ing provisions are investigated by the SEC’s Division of Enforcement. 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 staff who 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 at http://www.sec.

gov/divisions/enforce/enforcement_manual.pdf.

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.7

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

Commission and are used whenever the staff need 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 formal order

will describe the investigation in general terms and the suspected statutory violations.

The various federal securities laws grant broad authority to the Commis-

sion to conduct investigations.8 A challenge to the SEC’s right to investigate a

public company has virtually no chance of success.9 However, a challenge to the

breadth of documents the SEC initially requests or subpoenas has some possibil-

ity of success. The scope of such requests is often negotiable with SEC staff. SEC

civil enforcement matters may lead to a criminal referral to the Criminal Divi-

sion.10 Full access to SEC files is routinely granted to federal prosecutors by the

SEC Director of the Division of Enforcement. A U.S. Attorney may independently

request access to SEC files.11

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

eral prosecutors. Defense counsel should normally ask SEC attorneys whether

Defending an FCPA Investigation 215

prosecutors 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 prudent 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.12 Wit-

nesses 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 privi-

lege, 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 crimi-

nal 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.13

II. SOURCES OF ALLEGATIONS

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

• Agents

• Contractors

• Subcontractors

• Freight forwarders

• Distributors or resellers

• Foreign government officials or party representatives

• Joint venture partners

• Internal audits

• Independent auditors

• Federal agency audits (e.g., Department of Defense, Inspector General)

• Worldwide media reports of “corruption” or “bribery” tracked through pro-

grammed Google searches

• Internet surveillance

• Department of State and Embassy staff

• Merger or acquisition due diligence

Occasionally, an FCPA investigation arises from the federal investigation of another

offense, for example, antitrust or money laundering violations.14