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FCPA Violations: Navigating Parallel SEC and DOJ Investigations
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In recent years, enforcement of the Foreign Corrupt Practices Act (FCPA) has become a high priority for both the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) [1]. Companies found to be in violation of the FCPA’s anti-bribery, books and records, and internal accounting controls provisions often face parallel civil and criminal investigations by the SEC and DOJ.
For companies under investigation, navigating these parallel proceedings can be challenging. This article provides an overview of key considerations when facing concurrent FCPA investigations by the SEC and DOJ.
The FCPA: A Brief Background
The FCPA, enacted in 1977, prohibits companies issuing stock in the U.S. from bribing foreign officials to obtain or retain business [3]. Specifically, the anti-bribery provisions prohibit the payment of money or anything of value to foreign officials to influence an act or decision to obtain or retain business. The accounting provisions require companies to maintain accurate books and records as well as sufficient internal controls.
Violations of the FCPA can result in civil and criminal penalties. The SEC pursues civil enforcement actions seeking injunctions and monetary penalties, while the DOJ pursues criminal charges against both companies and individuals.
The Investigative Process
Investigations into potential FCPA violations often begin when companies voluntarily self-disclose potential issues to the SEC or DOJ. They can also commence after receiving a whistleblower tip or referral from another government agency.
In formal investigations, the SEC and DOJ have broad authority to issue subpoenas for documents and testimony. They often coordinate efforts by sharing information and resources. However, each agency makes independent charging decisions based on its own policies and procedures.
DOJ Investigations
DOJ FCPA investigations are conducted primarily by prosecutors from the Fraud Section of the Criminal Division and local U.S. Attorney’s Offices. Typical steps include:
- Issuing document and testimony subpoenas
- Reviewing email communications, financial records, and other documents
- Interviewing witnesses and subjects
- Working with FBI agents to gather facts and evidence
- Consulting with SEC attorneys and sharing information
- Determining whether to bring criminal charges
SEC Investigations
The SEC Division of Enforcement conducts FCPA investigations through its specialized FCPA Unit. Typical steps include:
- Issuing formal order of investigation
- Requesting documents through voluntary submission or subpoena
- Taking sworn testimony from witnesses and subjects
- Consulting with DOJ attorneys and sharing information
- Determining whether to recommend an enforcement action
Resolving Parallel Investigations
Over 90% of corporate FCPA enforcement actions involve simultaneous settlements with the SEC and DOJ [2]. There are several potential resolution vehicles:
Non-Prosecution and Deferred Prosecution Agreements (NPAs and DPAs)
These are agreements with DOJ where charges are deferred (DPAs) or not filed (NPAs) in exchange for meeting certain conditions like paying penalties, cooperating, and instituting compliance measures. DPAs and NPAs avoid a criminal conviction but require admission of wrongdoing.
Plea Agreements
DOJ may enter plea agreements with companies where they plead guilty to criminal charges in exchange for an agreed-upon sentence. This results in a criminal conviction.
SEC Injunctive Actions
The SEC frequently institutes civil injunctive actions for FCPA violations. Companies agree to an injunction barring future violations without admitting or denying the allegations and pay civil penalties.
Coordinating Resolutions
The SEC and DOJ typically coordinate resolutions and issue public announcements on the same day. Settlement amounts are also coordinated to avoid excessive combined penalties.
However, each agency operates independently. It is possible to reach a resolution with one agency but not the other if discussions break down.
Mitigating Potential FCPA Violations
When facing an FCPA investigation, companies can take certain steps to mitigate potential penalties:
- Voluntary self-disclosure: Promptly notifying DOJ and SEC of potential misconduct can lead to substantially reduced penalties [4].
- Cooperation: Fully cooperating with investigators by providing all relevant facts can yield favorable treatment.
- Remediation: Implementing an effective compliance program with proper controls demonstrates a commitment to preventing future violations.
- Disciplinary measures: Appropriately disciplining employees involved in misconduct shows recognition of the seriousness of the issues.
Taking these steps will not prevent charges altogether. However, DOJ and SEC will consider them as mitigating factors when determining appropriate resolutions and penalties.
Individual Accountability
In recent years, DOJ has emphasized prosecuting responsible individuals in addition to companies. In 2022, DOJ brought FCPA-related charges against 12 individuals [4]
In recent years, DOJ has emphasized prosecuting responsible individuals in addition to companies. In 2022, DOJ brought FCPA-related charges against 12 individuals [4].
This focus on individual accountability represents a major shift in DOJ’s approach to corporate crime. For many years, settlements with companies were the norm while executives and employees avoided charges. However, DOJ now recognizes that holding individuals accountable is critical to deterring misconduct.
There are several key reasons why DOJ is pursuing more individuals in FCPA cases:
- Personal deterrence – Prosecuting individuals has a stronger deterrent effect than just settling with companies.
- Public accountability – Charging executives and employees shows the public that individuals who break laws will face consequences.
- Cooperation incentives – Charging individuals gives them incentive to cooperate with investigations and provide evidence against others.
- Corporate culture change – Removing responsible executives can help reshape corporate culture and prevent future violations.
While most FCPA cases still end in corporate settlements, the uptick in individual prosecutions represents a major enforcement trend. Companies and executives must recognize that both are now squarely in the crosshairs of FCPA investigations.