SEC FCPA Enforcement Year in Review
The US Securities and Exchange Commission (SEC) has the authority to bring civil enforcement actions against companies with securities listed on US exchanges, both for bribery of foreign officials as well as for books and records and internal controls violations. As expected, in the first full year of its new leadership, the SEC expanded the use of its whistleblower program and other tools to identify and bring new cases. This year saw several high-profile FCPA actions by the SEC. In bringing such cases, the SEC works closely both with the DOJ and with foreign authorities.
The SEC’s Leadership and Continued Enhancements to the Whistleblower Program
This marks the end of the SEC’s first full year under the leadership of Chairman Gary Gensler and Enforcement Division Director Gurbir Grewal, who, in a pair of speeches shortly after his appointment, stressed the importance of active cooperation by respondents and of pressing companies to admit wrongdoing in appropriate cases. This agenda manifested in sustained enforcement efforts across the SEC’s jurisdiction in 2022, although the agency brought fewer FCPA enforcement actions compared to recent years. The FCPA settlements the SEC entered in 2022 demonstrate the SEC’s focus on a company’s cooperation in deciding how to resolve its investigations.
Consistent with the SEC’s focus on identifying and bringing new FCPA cases, the Commission has continued to tweak the whistleblower program established under Section 922 of the Dodd-Frank Act, which allows whistleblowers to receive between 10 and 30 percent of the ultimate recovery from any SEC enforcement action taken in response to or in conjunction with provided information. In August 2022, the SEC amended its whistleblower rules to permit awards in connection with actions brought by other regulators and to increase the available awards in certain cases. Under the new rules, the SEC may pay a whistleblower an award for a related enforcement action brought by another regulator if the other regulator’s award program would pay a smaller award or would pay an award on a discretionary basis. The SEC will also pay awards where the other regulator had a “more direct or relevant connection” to the action if the SEC’s award would not exceed $5 million. The new rules also permit the SEC to consider the dollar amount of a potential award only for the purpose of increasing the award and bar it from doing so to decrease the award.[1]
1. Enforcement Actions from 2016 to 2022
In 2022, the SEC continued its practice of bringing FCPA actions for payments and/or gifts under the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The agency brought such charges in proceedings that both did and did not involve parallel criminal proceedings. These cases involved alleged misconduct around the globe, including in South Korea, Vietnam, India, Turkey, the United Arab Emirates, Argentina, Brazil, and Mexico.
Key Proceedings
Although the SEC brought a limited number of FCPA actions in 2022, each action highlighted important principles relevant to companies’ FCPA risk analysis. First, in a case against KT Corporation, South Korea’s largest telecommunications operator, the SEC emphasized the importance of establishing internal controls designed to fit the key aspects of a corporation’s business. The SEC alleged KT Corporation violated the books and records and internal accounting controls provisions of the FCPA in connection with improper payments to foreign officials in Korea and Vietnam. The SEC’s case focused on the company’s alleged lack of sufficient internal accounting controls over charitable donations, third-party payments, executive bonuses, and gift card purchases. The SEC alleged that this resulted in employees, including high-level executives, being able to create slush funds that were used for gifts, illegal political contributions, and payments to government officials. KT Corporation consented to the SEC’s order without admitting or denying the findings and agreed to pay approximately $3.5 million in civil penalties and $2.8 million in disgorgement.[2]
Second, in April 2022, the SEC charged Stericycle, Inc. with violating the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. In doing so, it highlighted the importance of ensuring that a company’s internal controls address increased risk that comes from rapid growth in a new jurisdiction. The SEC alleged that Stericycle, during its rapid growth in Latin America, failed to have sufficient internal accounting controls and oversight in place, such as a centralized compliance department, to prevent or even detect the misconduct. The SEC charges arose out of alleged bribery schemes in Argentina, Brazil, and Mexico. The SEC claimed that Stericycle paid millions of dollars in bribes using code names and sham third-party vendors to conceal cash payments to government officials. The SEC further claimed that Stericycle failed to implement any FCPA policies or procedures prior to 2016. Stericycle agreed to cease and desist the violations and to pay more than $80 million to settle parallel civil and criminal charges, including nearly $28.2 million to settle the SEC’s charges. Stericycle also agreed to retain an independent compliance monitor for two years.[3]
Third, the SEC brought charges against Tenaris in June 2022 for an alleged bribery scheme involving agents and employees of its Brazilian subsidiary to obtain business from a Brazil state-owned entity in violation of the anti-bribery, books and records, and internal accounting controls provisions of the FCPA. The SEC alleged that Tenaris, a global steel pipe manufacturer, failed for years to implement sufficient internal accounting controls despite known corruptions risks. In support of these charges, the SEC claimed that between 2008 and 2013 approximately $10.4 million in bribes were paid to Brazilian government officials in connection with bids to obtain or retain business from Brazil’s state-owned oil company, Petrobras. Tenaris consented to the SEC’s order and agreed to pay more than $78 million in combined disgorgement, prejudgment interest, and civil penalties. Tenaris also agreed to report to the Commission about its remediation and implementation of compliance measures for two years.[4]
The SEC’s actions brought in 2022 again highlighted the role of cooperation in the SEC’s analysis of the appropriate sanction. In another case involving Brazil, the SEC brought charges against Brazil’s second largest domestic airline, GOL Linhas Aéreas Inteligentes, in September 2022. The Commission claimed that GOL violated the books and records and internal accounting controls provisions of the FCPA in connection with improper payments to Brazilian government officials in exchange for favorable payroll and aviation fuel tax reductions. The SEC’s press release focused on the need for sufficient internal accounting controls at all levels of the organization. GOL agreed to the SEC’s order and entered into a deferred prosecution agreement with DOJ that required paying more than $87 million to settle the criminal charges. Because GOL was unable to pay the fine in full, the SEC and DOJ required payment of only approximately $41 million in total. The SEC considered GOL’s cooperation and remedial action when determining whether to accept the offer, including GOL’s disciplining of the director who orchestrated the scheme and the company’s enhancement of its internal accounting controls and anti-corruption policies and procedures. GOL will also pay approximately $3.4 million in additional penalties or restitution to Brazilian authorities.[5]
Similarly, the SEC highlighted the role of cooperation in its resolution against Oracle. In September 2022, Oracle settled charges that subsidiaries in Turkey and the United Arab Emirates (UAE) bribed foreign officials to obtain business between 2014 and 2019 and engaged in improper accounting that presented a risk of bribery in India in 2019, thereby violating both the anti-bribery and books and records provisions of the FCPA. According to the SEC, employees in these subsidiaries used improper discounts and sham reimbursements for marketing expenses to create off-the-books slush funds, which, at least in Turkey and the UAE, were then used to pay cash bribes and to fund travel and accommodations to technology conferences and other places for foreign officials. As the SEC’s cease and desist order highlights, these alleged violations might have been averted through better internal accounting controls, such as a requirement that sales employees seeking higher level approval for discounts provide documentary support for their reasons for requesting a discount. In settling the charges, the SEC gave consideration to Oracle’s having self-reported unrelated conduct, its cooperation in the investigation, and its remedial efforts, which included terminating senior regional managers and other employees involved in the alleged misconduct, separating from other employees with supervisory responsibility for the alleged misconduct, ending business with third parties involved in the alleged misconduct, and a number of improvements to its compliance, due-diligence, and accounting mechanisms. Oracle agreed to pay a total of $23 million—comprising $8 million in disgorgement and a $15 million penalty—to resolve these charges. Notably, this was Oracle’s second settlement of FCPA charges with the SEC; in 2012, it settled charges that also centered on the alleged creation of side funds worth millions of dollars by its Indian subsidiary.[6]
Continued International Cooperation
Cooperation with foreign authorities remains an important factor shaping and strengthening the SEC’s FCPA enforcement activity. Of the five enforcement actions resolved in 2022, four involved coordination between the SEC and authorities from a total of five countries: Brazil, India, Turkey, Panama, and Italy. The case against Tenaris in particular, which involved contributions from Brazilian, Panamanian, and Italian authorities, illustrates the continued interest of regulators around the world in the ongoing fallout of the bribery scandals that have surrounded Petrobras for most of the last decade.
Footnotes
[1] SEC, “SEC Amends Whistleblower Rules to Incentivize Whistleblower Tips,” Press Release No. 2022-151 (Aug. 26, 2022), https://www.sec.gov/news/press-release/2022-151; SEC, “Fact Sheet: Amendments to Whistleblower Program Rules” (Aug. 26, 2022), https://www.sec.gov/files/34-95620-fact-sheet.pdf.
[2] See SEC, “Largest South Korean Telecommunications Co. Agrees to Pay the SEC to Settle FCPA Charges,” No. 2022-30 (Feb. 17, 2022), https://www.sec.gov/news/press-release/2022-30.
[3] See SEC, “SEC Charges Stericycle with Bribery Schemes in Latin America,” No. 2022-65 (Apr. 20, 2022), https://www.sec.gov/news/press-release/2022-65.
[4] See SEC, “SEC Charges Global Steel Pipe Manufacturer with Violating Foreign Corrupt Practices Act,” No. 2022-98 (June 2, 2022), https://www.sec.gov/news/press-release/2022-98.
[5] See SEC, “SEC Charges Gol Intelligent Airlines, Brazil’s Second Largest Airline, with FCPA Violations,” No. 2022-164 (Sept. 15, 2022), https://www.sec.gov/news/press-release/2022-164.
[6] See SEC, “SEC Charges Oracle a Second Time for Violations of the Foreign Corrupt Practices Act,” No. 2022-173 (Sept. 27, 2022), https://www.sec.gov/news/press-release/2022-173; SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21158 (Sept. 27, 2022), https://www.sec.gov/litigation/admin/2022/34-95913.pdf.