FCPA Violations and SEC Enforcement: Investigation and Settlement Strategies

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Last Updated on: 24th September 2023, 11:12 pm

 

FCPA Violations and SEC Enforcement: Investigation and Settlement Strategies

Dealing with an SEC investigation into potential FCPA violations can be daunting for any company. The stakes are high, and the legal complexities immense. But with the right strategy and approach, it is possible to navigate these choppy waters and reach a reasonable settlement with the SEC. This article provides an overview of key considerations for companies facing an FCPA investigation, with a focus on practical tips for developing an effective response plan.

Understanding FCPA Enforcement Trends

Enforcement of the Foreign Corrupt Practices Act (FCPA) continues to be a high priority for the SEC. In 2010, the SEC’s Enforcement Division even created a specialized FCPA unit to enhance enforcement efforts. FCPA cases now represent a significant portion of the SEC’s total enforcement docket each year. For example, in 2022 the SEC brought numerous FCPA cases, including a $23 million settlement with Oracle and charges against a Texas-based water management company.

When reviewing FCPA enforcement trends, a few key patterns emerge:

• Technology, pharmaceutical, and financial services companies are frequent targets of FCPA investigations, as they often operate globally and interact with foreign officials.
• The SEC focuses both on instances of direct bribery, as well as more indirect schemes like creating slush funds or falsifying books and records.
• Settlements frequently include multi-million dollar fines, disgorgement of profits, and requirements to reform internal controls.

So companies in high-risk industries operating abroad need to ensure they have robust FCPA compliance programs. Otherwise, they may end up in the SEC’s crosshairs.

Responding to the Initial Stages of an Investigation

For companies that find themselves under SEC investigation, the early stages present critical opportunities to get ahead of the inquiry. The SEC typically initiates investigations through an initial document request, seeking emails, financial records, internal audit reports, and other materials. How a company engages with the SEC during this document collection process can shape the trajectory of the entire investigation.

Here are some tips for responding to an initial FCPA investigation request:

• Move quickly to gather documents, but balance speed with conducting a thorough search across all relevant records.
• Consider negotiating the scope of the request if any aspects seem unduly broad or burdensome.
• Designate an internal point person to coordinate with the SEC’s lead investigator for an efficient process.
• Use technology like predictive coding to efficiently sift through large volumes of documents.
• Be cooperative, but protect privileged materials and sensitive information through careful review.

This stage presents risks, but also a chance to demonstrate the company’s willingness to engage constructively with regulators. Handled well, it can set the stage for resolving the investigation smoothly.

Navigating the FCPA Investigative Process

Once the SEC has obtained and reviewed initial case materials, the investigation will typically enter a more intensive phase. The SEC may issue a formal order of investigation, allowing staff to issue subpoenas rather than just requests. The SEC will also likely take sworn testimony from company witnesses regarding the alleged FCPA violations.

Here are some strategies for navigating the FCPA investigative process:

• Prepare witnesses thoroughly for interviews and testimony, refreshing recollections of relevant events.
• Assert attorney-client privilege and other protections appropriately to avoid disclosing sensitive information.
• Maintain a cooperative stance, but avoid rushing to disclose violations or make damaging admissions.
• Use each witness interview to gain insight into the SEC’s focus areas and theories of wrongdoing.
• Stay in ongoing communication with the lead SEC investigator to clarify open questions.

The middle stages of an FCPA investigation can feel invasive and adversarial. But keeping calm and engaging thoughtfully with the SEC will yield the best results.

Considering Settlement Options

Once its investigation has progressed, the SEC will typically look to reach a settlement agreement rather than pursuing litigation against the company. Settlement negotiations present high-stakes decisions about how to resolve the matter. Companies should carefully weigh options like:

• The size of any monetary fine or disgorgement payment.
• Requirements to reform internal controls and compliance programs.
• Whether to admit or deny the SEC’s allegations.
• Potential collateral impacts like reputational damage or class action lawsuits.

Settlement discussions will involve tough judgment calls. But understanding the SEC’s priorities and sticking to positions grounded in the facts and law can produce reasonable outcomes.

Implementing Post-Settlement Reforms

For companies that reach settlements with the SEC, the work does not end there. Settlements often require strengthening of internal controls, training programs, and other reforms aimed at preventing future violations. Developing and executing an effective post-settlement plan is crucial for demonstrating to the SEC that the company takes compliance seriously. Areas to focus on include:

• Revamping policies and procedures related to interactions with foreign officials.
• Implementing robust FCPA training for all relevant personnel.
• Enhancing monitoring of high-risk operations and business units.
• Improving record-keeping and auditing around payments and expenses.
• Periodically evaluating program effectiveness and identifying gaps.

Post-settlement reforms present a major undertaking. But embracing the opportunity to enhance compliance and controls can help transform the lessons of the investigation into longer-term gains.

Key Takeaways

Here are some key lessons for companies working to resolve an SEC FCPA investigation:

• Understand the SEC’s priorities, patterns, and typical settlement terms.
• Respond promptly and collaboratively to initial requests, but protect privileges.
• Prepare thoroughly for the investigative phase while maintaining cooperation.
• Evaluate settlement options carefully, weighing risks and benefits.
• Develop and execute a robust plan for post-settlement reforms.

While FCPA investigations bring immense challenges, a thoughtful strategy focused on engagement and reform can lead to reasonable outcomes. By following these tips, companies can navigate this difficult process successfully.