Updated DOJ-SEC FCPA Resource Guide Provides Enriched Clarity to Businesses

Last month, the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) jointly published the Second Edition of A Resource Guide to the U.S. Foreign Corrupt Practices Act (Updated Guide). This detailed manual is an important revision to the original Resource Guide (Original Guide), issued in November 2012. The Original Guide, at 120 pages, replaced the much-shorter (six-page) 2008 Lay Person’s Guide to the FCPA. In doing so, it commendably summarized the majority of relevant sources important to a meaningful interpretation of the Foreign Corrupt Practices Act (FCPA), merging them into a single, comprehensive manual for businesses and practitioners (both of which were eager for a fulsome, government-issued FCPA resource). Importantly, the Original Guide also included vital insight into the government’s expectations and requirements for FCPA compliance.

Synopsis of the Updated Guide

The Updated Guide assimilates cases, policies, guidance, and pronouncements issued since 2012 by the DOJ and SEC to provide continued transparency with respect to FCPA guidance and enforcement. The transparency is manifested by spotlighted changes in FCPA enforcement priorities, lessons from recent individual and corporate FCPA resolutions, highlighted case law developments, and the integration of contemporary DOJ policy enhancements – such as the Evaluation of Corporate Compliance Programs (2020), the so-called "Piling On" Policy" (2018, relating to coordinating multiple enforcement actions for same misconduct), the Selection of Monitors in Criminal Division Matters (2018), and the FCPA Corporate Enforcement Policy (2017). Given these critical updates, the amendments in the Updated Guide provide needed clarity to businesses, corporate legal and compliance teams, FCPA practitioners, and others who want to understand better how the DOJ and SEC enforce the statute.

Notably, the construct, design, and layout of the Original Guide remain mostly the same in the Updated Guide, including a large portion of the original substantive guidance. Thus, we focus here on an analysis of the most important modifications, extracting key takeaways from these for the benefit of practitioners.

Carefully Assess What Qualifies as an "Instrumentality" of a Foreign Government

Under the FCPA, the term "foreign official" incorporates officers or employees of a department, agency, or "instrumentality" of a foreign government. The statute does not include a definition of "instrumentality," nor were there any appellate court decisions construing that term at the time of the Original Guide. Instead, the first guide included 11 factors to help businesses conduct a "fact-specific analysis of an entity’s ownership, control, status, and function" to determine whether a particular entity, such as a state-owned or –operated enterprise, was an instrumentality under the FCPA.

Soon thereafter, however, in United States v. Esquenazi, the Eleventh Circuit defined "instrumentality" as "an entity controlled by the government of a foreign country that performs a function the controlling government treats as its own."¹ The court set forth two lists of non‑exclusive factors to determine whether the requisite government "control" and "function" prongs were met. The Updated Guide highlights the Esquenazi "instrumentality" test, supplanting the original elements from the 2012 Guide, and noting that "other circuits have approved final jury instructions [with] a similar non-exclusive list of factors."² Thus, companies must consider these factors when evaluating the risk of FCPA violations.

In Certain M&A Transactions, Extensive Pre-Acquisition Due Diligence May Not be Feasible

While the DOJ and SEC continue to encourage pre-acquisition due diligence, they recognize that it may not be practicable to conduct rigorous due diligence prior to all M&A transactions. For instance, market conditions can change, companies may need to finalize acquisitions to remain solvent, or other exigencies can arise requiring flexibility. The Updated Guide, therefore, affirms that corporations need not, in all circumstances, delay important mergers or acquisitions to complete comprehensive FCPA due diligence.

Recognizing the difficulties companies face when attempting to complete an acquisition in a timely manner, the amended guidance recognizes that, "in certain instances, robust pre-acquisition due diligence may not be possible" and "[i]n such instances, DOJ and SEC will look to the timeliness and thoroughness of the acquiring company’s post-acquisition due diligence and compliance integration efforts."³ The DOJ may actually be more likely to pursue enforcement against the predecessor company (rather than the successor), "particularly when the acquiring company uncovered and timely remedied the violations or when the government’s investigation of the predecessor company preceded the acquisition."⁴

The Updated Guide indicates that even more favorable outcomes may be available to acquiring companies who self-report violations of their predecessors and swiftly undertake remedial measures. As noted above, the revised guidance incorporates the recent FCPA Corporate Enforcement Policy, stating in relevant part that "in appropriate cases, an acquiring company that voluntarily discloses misconduct may be eligible for a declination, even if aggravating circumstances existed as to the acquired entity."⁵

Indeed, the policy states that there will be a presumption of declination "where a company undertakes a merger or acquisition, uncovers misconduct through thorough and timely due diligence or, in appropriate instances, through post-acquisition audits or compliance integration efforts, and voluntarily self-discloses the misconduct and otherwise takes action consistent with [the FCPA Corporate Enforcement Policy]."⁶

Foreign Entities Should Remain Vigilant About Potential FCPA Liability as "Agents"

The DOJ has long taken an expansive approach to the extra-territorial application of the anti-bribery provisions of the FCPA. Conversely, the defense bar has advocated that the government’s efforts to hold foreign nationals accountable based on conspiracy or aiding and abetting was contrary to Congress’s intent in drafting the FCPA. Indeed, if recent rulings are any indication, the government’s ability to prosecute foreign nationals who take no illegal action in the United States may be diminished. As the case law regarding extraterritorial application of the bribery provisions evolves, foreign individuals and companies should be cognizant of potential agency relationships with domestic entities.

In United States v. Hoskins,⁷ the Second Circuit held that foreign nationals are subject to the FCPA anti-bribery provisions if they are agents, employees, officers, directors, or shareholders of a U.S issuer or domestic concern—or "acted illegally on American soil."⁸ In short, "[t]he government may not expand the extraterritorial reach of the FCPA by recourse to the conspiracy and complicity statutes."⁹

Although the Updated Guide recognizes Hoskins, the DOJ and SEC point out that the holding has not been applied outside the Second Circuit, describe the legal issue as "unsettled" and cite to United States v. Firtash,¹⁰ a district court case in Illinois that rejected Hoskins. The Firtash court acknowledged that, while the Seventh Circuit had not ruled on the issue directly, existing Seventh Circuit law took a broader approach to accomplice liability than that of the Second Circuit.¹¹

Moreover, notably, the Updated Guide omits any mention that the Second Circuit remanded Hoskins to the district court, where the court acquitted the defendant on seven FCPA-related counts, finding no evidence upon which a rational jury could conclude he was an agent of an entity (his employer’s U.S. subsidiary) subject to the FCPA’s anti-bribery provisions.¹²

The DOJ and SEC also underscore that foreign companies and their agents can be liable in either civil or administrative proceedings for aiding and abetting FCPA anti-bribery violations,¹³ and emphasize that Hoskins is limited to the anti-bribery provisions—while the accounting provisions apply to "any person."¹⁴ The Updated Guide, therefore, suggests that the government will continue to interpret Hoskins narrowly with respect to the extent of its holding and its influence outside the Second Circuit.

Limitations Period Clarified for Criminal Violations of Accounting Provisions

The Updated Guide clarifies that the appropriate statute of limitations for criminal violations of the FCPA’s accounting provisions is six years, rather than five years (the latter was the time period cited in the Original Guide).¹⁵ As with many criminal laws in the United States, the FCPA does not include a specific statute of limitations. Pursuant to 18 U.S.C. § 3282, the default statute of limitations period is five years. That period, however, is only applicable to the anti-bribery provisions.

As the Updated Guide notes, the accounting provisions are considered "securities fraud offenses" under 18 U.S.C. § 3301, and the appropriate limitations period for violations of those provisions is six years.¹⁶ Of equal importance, the amended guidance explains that criminal penalties for FCPA accounting violations are enforced only where a defendant "knowingly and willfully" failed to maintain accurate books and records or implement a suitable system of internal accounting controls.¹⁷

Consider Voluntary Disclosure in Light of DOJ’s FCPA Corporate Enforcement Policy

The Updated Guide includes a dedicated section on the DOJ’s FCPA Corporate Enforcement Policy, including a discussion of "declinations with disgorgements."¹⁸ It explains the intent of the policy, namely that, where a company voluntarily discloses wrongdoing, fully cooperates with the DOJ during the investigation, and timely and appropriately remediates the misconduct, there is a presumption that DOJ will decline to prosecute, absent aggravating circumstances.¹⁹ Furthermore, to be eligible for such benefits the business "is required to pay all disgorgement, forfeiture, and/or restitution resulting from the misconduct at issue."²⁰

Helpfully, the amended guidance details three declinations under the policy, all of which involved disgorgement.²¹ In doing so, the Updated Guide provides a roadmap for companies that uncover an FCPA violation to pursue a declination. Moreover, where criminal resolution is appropriate, for a company that self-reports, the DOJ will accord a 50% reduction off of the low end of the U.S. Sentencing Guidelines, barring recidivism, and generally not require the appointment of a compliance monitor if, by the time of resolution, the company has implemented an effective compliance program.²²

The government’s clarification of the FCPA Corporate Enforcement Policy in the Updated Guide can, in many circumstances, benefit companies that discover FCPA violations, act quickly to disclose them to authorities, remediate the misconduct, and implement robust and effective compliance programs.

Take Advantage of Enhanced Advice on Robust FCPA Compliance

The ten "Hallmarks of Effective Compliance Programs" were among the most highly-regarded components of the Original Guide because they provided a benchmark for organizations to calibrate their compliance programs with government expectations. The amended FCPA guidance maintains the "Hallmarks," further demonstrating their value to businesses.²³

Moreover, the Updated Guide builds on the prior edition’s anti-corruption compliance program guidance to companies by integrating the updated expectations and requirements set forth in DOJ’s most recent compliance guide, entitled the Evaluation of Corporate Compliance Programs, released in June 2020.

The Updated Guide also includes a new "Hallmark" entitled "Investigation, Analysis, and Remediation of Misconduct," focusing on the importance of scrutinizing "the root causes of . . . misconduct to timely and appropriately remediate those causes to prevent future compliance breaches."²⁴

The notion of "root cause" evaluation has gained momentum in recent government compliance program guidance, and is showcased in the Evaluation of Corporate Compliance Programs. It also reflects a laser focus on encouraging remediation efforts that apply "lessons learned" from compliance indiscretions, which the Updated Guide lauds as "the truest measure of an effective compliance program."²⁵

Note the Definitive Five-Year Limitations Period for Disgorgement

The Original Guide stated that the five-year statute of limitations period set by 28 U.S.C. § 2462 "does not prevent SEC from seeking equitable remedies, such as . . . the disgorgement of ill-gotten gains, for conduct pre-dating the five-year period." The Updated Guide, however, underscores two recent Supreme Court decisions narrowing the scope of the SEC’s ability to seek disgorgement as an equitable remedy, including in FCPA enforcement matters. It references the Court’s 2017 decision in Kokesh v. SEC,²⁶ which held that disgorgement was a "penalty" subject to the five-year statute of limitations set forth in 28 U.S.C. § 2462.²⁷ The Updated Guide also mentions the Court’s recent decision in Liu v. SEC,²⁸ upholding the SEC’s authority to seek disgorgement as an equitable remedy only if the disgorgement does not exceed the wrongdoer’s net profits and inures to the benefit of the victims.²⁹

Be Cognizant that the DOJ Considers Other Authorities before Assessing Penalties

As former Deputy Attorney General Rod Rosenstein announced in May 2018, pursuant to the "Piling on Policy," the DOJ and SEC are willing to reduce penalties based on fines paid to other U.S. authorities and foreign agencies. Companies under investigation should keep this in mind when negotiating possible resolutions to receive credit for money paid to other agencies arising out of the same FCPA violation(s).

The Updated Guide notes that U.S. authorities have frequently coordinated resolutions with foreign authorities."³⁰ It also confirms that the Justice Manual has been amended to require that prosecutors "endeavor, as appropriate, to coordinate with and consider the amount of fines, penalties, and/or forfeiture paid to other federal, state, local, or foreign enforcement authorities that are seeking to resolve a case with a company for the same misconduct."³¹ Quoting the Justice Manual, the Updated Guide urges that, in deciding whether and how much to credit another authority, prosecutors will consider, among other factors: "the egregiousness of a company’s misconduct; statutory mandates regarding penalties, fines, and/or forfeitures; the risk of unwarranted delay in achieving a final resolution; and the adequacy and timeliness of a company’s disclosures and its cooperation with the Department, separate from any such disclosures and cooperation with other relevant enforcement authorities."³²

Conclusion: Another Significant Step Forward

Eight years after the release of the Original Guide, the newly-published Updated Guide is a welcome beacon of enriched information on FCPA guidance, enforcement, and compliance program priorities for practitioners in the private, public, and firm sectors.

The guidebook sensibly organizes and coalesces key information pertaining to the practice of FCPA law, fusing newer legal developments, recent cases, updated DOJ and SEC policies, and relevant government pronouncements with information from the Original Guide that remains pertinent today.  

Importantly, the Updated Guide also integrates fresh, practical case studies and hypotheticals, which elucidate the manner in which the government views various fact patterns, and can help pave the way for companies seeking to proactively manage the myriad challenges in designing, developing, and consistently updating compliance programs to calibrate with government expectations and requirements.

While "non-binding, informal, and summary in nature," the Updated Guide is a practical and accessible supplement for individuals and companies managing demanding FCPA compliance and enforcement concerns in coordination with seasoned anti-corruption counsel.