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By Yin Wilczek
Jan. 13 — There were four key anti-bribery enforcement trends in 2014 that likely will further develop in 2015, including the SEC's continuing aggressive enforcement of the FCPA, Davis Polk & Wardwell LLP attorneys said during a Jan. 13 webcast.
“I wouldn't be surprised” to see the Securities and Exchange Commission bring its first administrative action involving a contested Foreign Corrupt Practices Act matter this year, said Linda Chatman Thomsen, a partner in Davis Polk's Washington office. In addition, the SEC has shown it can and will go forward with an FCPA action without a parallel prosecution by the Department of Justice, she said.
In another trend, the panelists warned that multinational corporations can expect greater scrutiny from Chinese authorities and other regulators in Asia. Last year was “truly a year of ‘firsts' in Asia” with respect to anti-corruption measures, with developments in China that were “really groundbreaking,” said Greg Andres, a New York-based Davis Polk partner and a former federal prosecutor.
The SEC has steadily increased the number of actions brought in its administrative forum. According to Davis Polk materials, SEC administrative law judges resolved 223 actions in fiscal year 2014, compared to 165 in FY 2009. As of Sept. 30, the commission has 96 pending cases before its ALJs, compared to 33 pending cases as of Sept. 30, 2009.
The SEC has been “quite explicit” about using its administrative forum more often and in more types of actions, said Thomsen, a former SEC Enforcement Division director. “It's fair to say that the SEC has a higher success rate” in cases contested in administrative proceedings than in federal court, she added.
According to Davis Polk statistics, the SEC in FY 2014 had a 100 percent success rate in its administrative actions, compared to 61 percent in federal courts. In FY 2013, the SEC prevailed in 90 percent of the cases brought in its administrative forum, compared to 75 percent in federal courts.
According to Davis Polk, six of the seven FCPA settlements in 2014 were filed administratively rather than in federal court. The action against Avon was the sole FCPA matter in 2014 that was settled in court.
Thomsen also observed that in the last three years, the SEC has brought three cases a year in which there was no corresponding DOJ prosecution. One notable aspect about those cases is that they are “often resolved on a no-admit-no-deny basis,” as opposed to the commission demanding an admission, she said.
In a recent interview, Mayer Brown LLP attorneys told Bloomberg BNA that the SEC has been diverging from the DOJ in FCPA enforcement. Even in cases involving parallel proceedings, the SEC may bring broader and more aggressive allegations, they said.
Meanwhile, among the anti-corruption developments in Asia, “China presently stands out as the most important and active jurisdiction,” said James Wadham, a partner in Davis Polk's Hong Kong office.
China's unprecedented crackdown is driven by the highest level of the country's leadership to deal with corruption and cronyism among the political and business elite in the country, Wadham said. There also clearly is greater scrutiny of foreign multinationals doing business in China, he said. He added that China's prosecution of GlaxoSmithKline Plc (GSK) “reflects and embodies these trends” and shows the country's new focus on punishing bribe givers, not just bribe recipients.
In September, China fined the London-based company a record $489 million and sentenced five of GSK China's senior managers—including Mark Reilly, formerly GSK's top executive in the country—to suspended prison terms for bribing Chinese doctors.
Wadham said that notably, GSK was convicted of commercial bribery rather than bribery of public officials, which could indicate that at least in this case, Chinese authorities didn't consider the healthcare professionals who were bribed to be government officials. However, “the position taken under Chinese law will not preclude potential FCPA liabilities under the same facts,” he warned.
Wadham observed that the publicity surrounding China's investigation of GSK also has had the “apparent domino effect of triggering” U.S. and U.K. scrutiny. “I thinks it’s fair to say that the U.S. and the PRC regulators appear increasingly to be taking cues from each other, albeit” through monitoring media reports rather than through any “structurally-embedded cooperation,” he said.
In yet another trend, foreign regulators have been increasing their anti-corruption activities, both in cooperating with U.S. authorities and in enforcing their own laws, the panelists said. This has implications for voluntary self-disclosure of FCPA and other violations, Andres said.
“If you're going to self-disclose in the U.S. and you have an issue in U.K. or Europe, you have to consider who you’re going to call,” he said. If a company makes the difficult decision to self-disclose, “you want that self-disclosure to come from you to the DOJ and the” U.K. Serious Fraud Office rather than just disclosing to the DOJ, which then turns around and shares that information with its foreign counterparts.
When foreign countries enforce their local laws, it will be interesting going forward to see if that has an impact on the DOJ and the SEC, Andres continued.
Are we going to get “some sort of second bite at the apple where you have both the local prosecution and a follow-on action by the U.S.?” he asked, adding that in the past, when follow-on prosecutions have occurred in the U.S. and U.K., the authorities have sometimes acknowledged the first fine and reduced the penalty brought by the second country.
In the final trend, the panelists noted that DOJ and SEC officials continue to stress that companies can reduce their penalties through early self-disclosure and cooperation. Recent cases, including the relatively lower penalties against Bio-Rad Laboratories Inc., reflect that trend, they said.
“The DOJ has been trying to get the message out that there are very concrete benefits both” in terms of the form of resolution as well as penalty amounts, said Denis McInerney, a New York-based Davis Polk partner and the former chief of the DOJ's Fraud Section. McInerney added that in trying to assess penalties, the DOJ also factors in the U.S. Sentencing Guidelines, which recommend credits for self disclosure, cooperation and having an effective compliance program.
However, McInerney warned that it will be a “very rare case” in which a company reaching a plea, non-prosecution or deferred-prosecution agreement with the DOJ is deemed to have an effective compliance program at the time of its misconduct. In such agreements over the last five years, no company obtained such credit, he said.
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