The traditional targets of the DOJ’s and SEC’s anti-corruption efforts have been companies in industries with a high degree of government interaction, such as the defense, healthcare, and extractive industries. Recent trends, however, indicate that the government has been broadening the scope of its FCPA enforcement scrutiny. Indicative of this shift is this week’s announcement that apparel company Ralph Lauren Corp. will pay $1.6 million in disgorgement, penalties, and interest to resolve DOJ and SEC criminal and civil investigations into allegedly corrupt payments made by an Argentine subsidiary.1
Recent comments by senior DOJ and SEC officials indicate that the next wave of FCPA enforcement actions may arise from companies such as Ralph Lauren not traditionally associated with corruption issues. In addition, there are indications that the government may be resuming a more aggressive posture towards enforcement actions and criminal prosecutions against individuals in the near future.
New Industries Under Scrutiny
DOJ and SEC officials have been steadfast in their statements that the agencies do not conduct industry “sweeps”; that is, enforcement officials do not target an industry and investigate the major competitors in that sector from the top-down. Rather, officials have explained that evidence developed in one investigation may lead enforcement authorities to questions concerning other companies in the same field. For example, should investigators identify a third-party agent responsible for funneling illicit payments to a particular government ministry in one investigation, it is likely that the DOJ or SEC would look to see what other companies had made contact with the same ministry through that agent. Likewise, investigators uncovering corruption resulting from a particular practice or structure unique to a specific industry, such as a particular supply chain structure or joint venture arrangement, may look to others in that same industry for similar issues. The result would have the same effect as an industry “sweep” – a wide ranging government investigation of a number of companies in the same industry, but with a tighter focus on activity the government is likely to believe is problematic.
To illustrate the point, Charles Cain, Assistant Director for the FCPA Unit of the SEC Division of Enforcement noted at an FCPA conference in New York last week sponsored by the American Conference Institute that the SEC currently is looking at companies in the following sectors:
In light of this evolving focus, companies who do not think of themselves as traditionally susceptible to corruption risk should re-evaluate the extent of their potential exposure, particularly if they have seen competitors in the same space undergo any anti-corruption issues. Companies should closely examine allegations against others in their industry and geographic regions for common points of contact in order to take proactive measures to detect and prevent corruption.
Focus on Individuals
In addition, there are indications that the DOJ and SEC are increasing their attention once again to enforcement actions against individual defendants. In 2012, the government suffered a number of well-publicized setbacks in litigation against individuals, and during that year brought no more than a half dozen cases against individual defendants. What might have seemed like a lull in individual prosecutions may be ending. The government has begun 2013 at an aggressive pace, already bringing 8 cases against individual defendants for FCPA-related conduct. The DOJ has long said that it will consider the availability of an individual to charge as one of several factors it evaluates in determining whether to charge a company criminally.2 In the FCPA context, a company seeking a declination may be aided in its efforts to avoid prosecution in circumstances where the government can identify culpable individuals.
“In every case we investigate, the Department considers whether there is a case against individuals.”
Matthew Queler, Assistant Chief of the FCPA Unit of the DOJ Fraud Section stated at the ACI conference last week that, “in every case we investigate, the Department considers whether there is a case against individuals.” In that context, he noted that the DOJ has a number of cases “in the pipeline,” expected to be brought later this year.
Practical Effect on Companies and Executives
Companies should expect increased activity from the DOJ and the SEC in areas outside those traditionally identified as at-risk for foreign corruption. When a competitor or another company operating in the same geographic region comes under government scrutiny for corruption issues, companies should be proactive in reassessing the strength of their own compliance programs. In addition, executives should be aware that government officials likely will be looking for any individual culpability in forthcoming investigations.
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1 The resolution includes Non-Prosecution Agreements (“NPA”) with both the DOJ and the SEC – notably, this was the SEC’s first use of an NPA to resolve an FCPA matter. See “Ralph Lauren Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $882,000 Monetary Penalty,” (April 22, 2013) (available at http://www.justice.gov/opa/pr/2013/ April/13- crm-456.html); “SEC Announces Non-Prosecution Agreement With Ralph Lauren Corporation Involving FCPA Misconduct,” (April 22, 2013) (available at http://www.sec.gov/news/press/2013/2013-65.htm).
2 “Principles of Federal Prosecution of Business Organizations,” Memorandum from Mark R. Filip, Deputy Attorney General, to Heads of Department Components and United States Attorneys (Aug. 28, 2008) (available at http://www.usdoj.gov/opa/ documents/corp-charging-guidelines.pdf).