DOJ and SEC Release Second Edition of FCPA Resource Guide

1. Jurisdictional Reach: The Guide has been updated in light of the significant 2018 U.S. Court of Appeals for the Second Circuit decision in United States v. Hoskins (which we previously analyzed here and here), which narrowed the applicable scope of conspiracy and accomplice liability under the FCPA. In Hoskins, the Second Circuit held that an individual can be liable for violating the FCPA under the principles of aiding and abetting and conspiracy only if he/she falls into one of the specifically enumerated categories of individuals who can be prosecuted directly under the FCPA anti-bribery provisions. While the Guide refers to Hoskins, it interprets the decision narrowly, in part because the Guide also highlights one contrary authority from a district court in the Seventh Circuit. The Guide’s treatment of Hoskins suggests that the government may continue to pursue aggressively conspiracy and accomplice FCPA cases outside the Second Circuit.
2. Accounting Provisions: The Guide includes a number of updates regarding the FCPA’s accounting provisions, including several that emphasize the government’s view of the breadth of those provisions.
   • First, in the context of discussing Hoskins (described above), the Guide notes that individuals and companies may be subject to liability under the FCPA’s accounting provisions for conspiracy or aiding and abetting even where they cannot be charged directly for violating those provisions. The Guide suggests that the jurisdictional limitations in Hoskins do not apply to the FCPA accounting provisions because those provisions apply to “any person,” not just those categories of persons expressly covered by the FCPA’s anti-bribery provisions.
   • Second, the Guide also clarifies that “a company’s internal accounting controls are not synonymous with a company’s compliance program,” suggesting that some compliance program violations may not constitute violations of the internal controls provisions. Nonetheless, other language in the Guide emphasizes the government’s broad interpretation of the internal controls provisions in enforcement actions, suggesting that the government will likely continue to take an aggressive view of internal controls violations despite this clarification.
   • Third, the Guide now notes that the statute of limitations period for criminal violations of the accounting provisions is six years, in comparison to the five-year limitation period that the first edition provided was applicable to violations of both the anti-bribery and accounting provisions. In support of this change, the Guide cites to a statute — 18 U.S.C. § 3301, which was in effect but not applied to the accounting provisions in the first edition of the Guide — that provides a six-year statute of limitations period for “securities fraud offense[s].”
   • Finally, the Guide clarifies that companies and individuals can be criminally liable if they knowingly and willfully fail to comply with the FCPA’s accounting provisions. The previous edition of the Guide specified only “knowingly” as the mens rea requirement.
3. Successor Liability in Mergers and Acquisitions: The Guide’s section on mergers and acquisitions has been expanded to provide more guidance on successor liability in the merger and acquisition context (some of which we previously analyzed based on a 2018 DOJ policy announcement here). While describing successor liability as an “integral component of corporate law,” the Guide recognizes the “potential benefits” of mergers and acquisitions, especially when a company with a more robust compliance program acquires another company and implements its program in the acquired entity. In light of this, the Guide now states that where it is impracticable to conduct pre-acquisition due diligence, the DOJ and the SEC will consider the acquiring company’s post-acquisition due diligence and compliance integration efforts.
4. Local Law Defense: The Guide emphasizes the government’s narrow view of the affirmative defense under the FCPA for “the payment, gift, offer or promise of anything of value that was made [and] was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s, or candidate’s country.” In describing a 2017 Southern District of New York case to illustrate the application of the local law defense, the Guide states that the district court rejected the defendant’s request for a jury instruction that if the jury finds that the payments at issue were not unlawful under the relevant local laws, it would require acquittal of the defendant on FCPA-related charges. The Guide instead highlights that the defendant has the higher burden to establish that the payment was lawful — that is, expressly authorized — under the relevant foreign law.
5. Definition of “Foreign Official”: Under the FCPA, foreign officials include officers or employees of a department, agency, or instrumentality of a foreign government. The Guide provides further elaboration on the expansive meaning of “instrumentality” of a foreign government, taking into account the U.S. Court of Appeals for the Eleventh Circuit’s decision in United States v. Esquenazi, which involved a state-owned and controlled telecommunications company in Haiti. In that case, the court concluded that an “instrumentality” under the FCPA means “an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.” In determining whether an entity is controlled by the government, the Guide cites to relevant factors that the Eleventh Circuit considered, including whether the government has a majority interest in that entity, the government’s ability to hire and fire the entity’s principals, and the extent to which the entity’s profits (if any) go directly to the government’s accounts.
6. New Policies: The Guide incorporates recent FCPA-related policies announced by the DOJ, including:
   • FCPA Corporate Enforcement Policy, describing the DOJ’s corporate leniency policy when companies self-disclose misconduct under the FCPA, cooperate with the government’s investigation, and appropriately remediate;
   • Selection of Monitors in Criminal Division Matters, describing when and how the DOJ determines to impose a corporate monitor;
   • Policy on Coordination of Corporate Resolution Penalties, generally stating a policy against “piling on” penalties where other regulators are investigating and resolving enforcement actions related to the same misconduct; and
   • Criminal Division’s Evaluation of Corporate Compliance Programs, reflecting the topics and detailed questions that the DOJ considers when evaluating the effectiveness of a company’s corporate compliance program during an investigation.
7. The SEC’s Disgorgement Authority: The Guide discusses the SEC’s disgorgement authority in light of the Supreme Court’s recent rulings in SEC v. Liu and Kokesh v. SEC (which we recently analyzed here). The Guide now acknowledges that the SEC’s ability to obtain disgorgement is subject to a five-year statute of limitations period. Previously, the SEC’s positions had been that “[t]he five-year limitations period … does not prevent the SEC from seeking equitable remedies, such as … the disgorgement of ill-gotten gains, for conduct pre-dating the five-year period,” a position squarely rejected in Kokesh. The Guide also describes the Supreme Court’s decision in Liu as holding that disgorgement “is permissible equitable relief when it does not exceed a wrongdoer’s net profits and is awarded for victims.” Historically, the SEC’s position had been that the measure of disgorgement was a defendant’s gross profit, and that the disgorgement sum could be deposited in the U.S. Treasury. Interestingly, in discussing the SEC’s disgorgement authority, the Guide does distinguish federal district court actions from administrative proceedings, one of the related issues that was left open by Liu.

The second edition of the Guide contains a thorough summary of information related to FCPA enforcement as well as a reminder of the government’s aggressive enforcement positions and expansive statutory interpretations. Given this, and despite being “non-binding, informal, and summary in nature,” the Guide is a key resource for companies that are under investigation, identify potential FCPA issues, or are evaluating their anti-corruption compliance programs.

Sidley’s White Collar practice spans the globe and is consistently recognized as a leader for criminal investigations, agency enforcement actions, False Claims Act matters, and other governmental inquiries and litigation. If you have questions regarding this update, please contact the Sidley lawyer with whom you work, or one of our White Collar partners or counsel.

Associates Sally Bohmfalk, Allison L. Dapper, Emmanuel Hampton, and P. Kai Knight contributed to this Sidley Update.