Expect more FCPA enforcement: Biden administration names corruption a national security interest
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News: 03 November 2023
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On December 6, 2021, the Biden administration announced a sweeping new anti-corruption strategy.
The “United States Strategy on Countering Corruption” (the SCC) follows President Biden’s declaration this summer, in a June 3, 2021 memorandum, that corruption enforcement is a “core United States national security interest.” This strategy is even more striking in the context of multiple Department of Justice (DOJ) announcements made throughout the fall to “surge resources” for corporate enforcement, revise its corporate criminal enforcement policies, and adopt a new stance on corporate recidivism. With the SCC, the Biden administration outlines its ambitious approach to fighting corruption utilizing several parts of the U.S. government. The strategy calls for coordinating intelligence sharing between U.S. government departments and agencies and foreign partners, adding transparency to U.S. finance laws, and intensifying corporate criminal liability. This series of recent policy developments—and folding them into the national security agenda—make clear that the Biden administration is serious about leading the efforts to “prevent and combat corruption at home and abroad.”Of the nine open Foreign Corrupt Practices Act (FCPA) investigations disclosed by public companies in 2021, five are of companies headquartered outside the U.S. and all four corporate resolutions in 2021 involved non-U.S. companies. Additionally, of the top ten FCPA fines of all time, nine have been levied against non-U.S. companies. For our global clients, this underscores the importance of implementing an effective compliance program that can withstand the scrutiny of aggressive FCPA enforcement. Put another way: we anticipate an increase in FCPA enforcement actions, so now is a good time to review your compliance programs and make any necessary improvements.
Here, we highlight key elements of the SCC and related developments that are likely to affect corporate operations going forward.
Coordinated Intelligence Sharing
Under the SCC, the U.S. government will devote additional resources to “synchronize anti-corruption work as a core domestic and foreign policy priority.” The U.S. government aims to improve its ability to collect, analyze, and share corruption related intelligence between its departments and with foreign governments and non-government partners to better “map corruption networks and related proceeds” and develop a more comprehensive understanding of the “threat picture.”
To that end, the U.S. government is surging resources to established groups working to fight corruption, such as the DOJ’s FCPA Unit, the Treasury Department’s Anti-Corruption team, and U.S. Agency for International Development (USAID)’s Anti-Corruption Task Force. For example, the DOJ has embedded a new squad from the Federal Bureau of Investigation (FBI) into its Criminal Fraud section, and has been expanding its corporate compliance expertise by bringing in new hires with significant private sector compliance experience, including those who served alongside DOJ-appointed corporate monitors. Now, the Department of Commerce will create a new anti‑corruption task force, and the State Department will prioritize anti-corruption measures within its diplomacy efforts. The SCC further envisions that these groups will support “cross-cutting teams” to facilitate intelligence sharing.
The U.S. government will also strengthen its ongoing cooperation efforts with foreign governments and law enforcement authorities to increase the number of tips and referrals received from abroad. The SCC provides that, through the DOJ, State Department, and USAID, the U.S. government will “deepen cooperation with and assistance to countries with the political will for meaningful anti‑corruption efforts,” including through partnering with countries in joint investigations and prosecutions. The U.S. government will also link governmental actors with counterparts at all levels to “foster greater cooperation in detecting, tracking, and referring corruption cases.” And this is not merely aspirational, but is occurring in practice as David Last, Chief of the DOJ’s FCPA unit, recently noted, referrals from foreign governments have been “one of the game changers” in terms of increasing the pipeline of FCPA investigations. Given that it is time-consuming and difficult to obtain evidence abroad through formal challenges, this informal cooperation facilitates the DOJ’s ability to bring more cases.
The Biden administration’s plan for coordinated intelligence collection and sharing, both between U.S. departments and with foreign governments, will inevitably arm U.S. law enforcement authorities with more actionable information and increase the number of FCPA enforcement actions.
Increased Transparency and Risk to Gatekeepers
The Biden administration recognizes that, to counter corruption effectively, the U.S. government must at home and abroad “combat money laundering, illicit trafficking, and other forms of criminal activity that fuel corruption and allow criminal actors to launder and shelter the proceeds of their illicit activities.” To address this, the Biden administration will work with Congress to enhance U.S. anti-money laundering laws. Under the SCC, the U.S. will build a “beneficial ownership database” to collect beneficial ownership information for anonymous shell companies, which are often used to hide criminal proceeds. The Treasury Department will also consider prescribing minimum reporting standards for investment advisers and other equity funds.
The U.S. government also seeks to expand laws that hold the gatekeepers of the financial system—including lawyers and accountants—accountable for potentially complicit misconduct. The Biden administration intends to work with Congress to expand criminal laws and to increase penalties, including through professional sanctions. If successful, these objectives may result in additional due diligence requirements, such as enhanced Anti-Money Laundering and Know Your Customer programs, that allow gatekeepers to better understand the nature and sources of income for their clients. The administration’s focus on gatekeeper accountability undoubtedly adds risk to such professions.
Moreover, the Biden administration intends to “implement newly established tools for investigating and prosecuting money laundering offenses.” As examples, the DOJ has expanded its subpoena power for certain financial records maintained abroad and the Treasury Department has administered a financial reward program to incentivize reporting of Bank Secrecy Act violations, which are enforced through the Financial Crimes Enforcement Network (FinCEN). Accordingly, rigorous enforcement of the U.S. anti-money laundering laws may lead to an increased number of parallel DOJ investigations into corruption violations and collateral money laundering offenses.
Corporate Criminal Liability
Less than two months before the SCC announcement, the Biden administration altered DOJ’s policy around corporate criminal liability in a few ways that could have major impact – in FCPA cases as well as other corporate enforcement actions. In October 2021, the DOJ announced three major changes to its corporate enforcement policies:
- When determining how to resolve allegations against corporations, prosecutors must now consider a corporation’s entire history of misconduct, both domestic and foreign, including violations of criminal laws (apart from the instant offense) that indicate gaps in internal controls. Subsequently, the DOJ clarified somewhat that prosecutors will focus on the recency, seriousness, and pervasiveness of the prior misconduct, and on whether the misconduct is similar in nature to the pending matter.
- To qualify for cooperation credit, companies must provide to DOJ all non-privileged, relevant facts concerning all individuals involved in or responsible for the misconduct. This is a small, but—in certain cases—potentially significant, shift back to requirements embodied in the 2015 “Yates Memo” and away from the more recent requirement to disclose only those facts relevant to individuals “substantially involved in or responsible for” in the misconduct.
- Prosecutors should carefully assess the need for independent corporate monitors, but monitors are encouraged in cases where, at resolution, a corporation’s compliance program and controls remain untested, ineffective, inadequately resourced, or not fully implemented. This pronouncement seems intended to result in more resolutions involving the appointment of an independent monitor, a meaningful shift from the prior administration.
The DOJ stated that modifications to the Justice Manual consistent with this announcement are forthcoming.
Additionally, the DOJ appears to be taking more aggressive action against companies that violate the terms of settled matters. The DOJ has announced that companies that breach their deferred or non-prosecution agreements “should expect to see serious repercussions” and, since October 2021, the DOJ has pursued at least three companies for allegedly failing to live up to the compliance obligations provided for in those agreements. While not unprecedented, alleging a breach of a settlement agreement has been quite uncommon, so the announcement of three potential violations in just two months evidences the DOJ’s seriousness in this regard.
With the SCC and the DOJ’s related policy developments, the Biden administration is making very clear that the U.S. government intends to garner the resources and tools needed to “vigorously enforce” the FCPA and related statutory and regulatory regimes. We anticipate an uptick in the number of enforcement actions brought against global companies, which stems from an increase in transparency within the U.S. government and in tips and referrals from foreign governments. We also anticipate an increase in penalties, including the imposition of monitors.
There are steps companies can take now to mitigate against the risk of investigation and enforcement:
- Corruption risk assessments tailored to high-risk parts of the business;
- Ensuring robust diligence and integration of new acquisitions;
- Testing controls in key corruption risk areas; and
- Testing the company’s whistleblower and internal investigations program.