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Feb 27, 2024

FCPA enforcement trends for boards and management to follow in 2024

Amid a continued focus on FCPA enforcement, John Davis explains US agencies’ priorities and evolving practices

In 2024, the US Foreign Corrupt Practices Act (FCPA) and related laws will continue to present potentially significant risks requiring attention by senior management and boards. Here are six key trends to watch.

1. Case numbers are down but enforcement remains a priority
Although the number of announced corporate FCPA dispositions has been lower in the past several years than pre-pandemic levels, the US Department of Justice (DoJ) and the SEC will continue to focus on FCPA enforcement, as indicated by recent speeches and cases.

The recent announcement that SAP had entered into a deferred prosecution agreement (DPA) and a cease-and-desist order agreeing to pay more than $220 mn to resolve DoJ and SEC actions, shows that the agencies remain active in the area. Like all companies that settle FCPA cases under current enforcement policies, SAP will also have continuing expenses related to co-operating in related investigations and compliance reporting commitments over the DPA’s three-year term. Several other resolutions are expected in 2024.

The DoJ also continues to prioritize prosecutions of culpable executives and officials, which can take longer to run their course through the US court system but often result in jail time and substantial fines and forfeitures for defendants.

2. Court decisions may force the DoJ and SEC to change their enforcement practices and interpretations of key FCPA provisions
FCPA cases against corporations are almost always settled through instruments such as DPAs, and such settlements are routinely approved by courts. Given the stakes for individuals charged with FCPA and related crimes, however, individual defendants sometimes choose to go to trial. Such trials are the main source of precedent-setting court decisions in the FCPA space, and some defendants have prevailed against the DoJ or SEC in the past.

The individual trials that will happen in 2024 could produce new precedents that affect the DoJ’s and SEC’s assertive interpretations of key legal elements of the FCPA and related laws, such as who counts as a ‘foreign official’ under the act. A US Supreme Court decision this year also could force the SEC to move away from its extensive use of in-house administrative dispositions – including for FCPA cases – requiring more court involvement and potentially longer timelines to completion.
 

SEC building

3. Enforcers will use increasingly sophisticated data analytics tools to expand investigations and conduct industry sweeps
The DoJ and SEC have emphasized their development and increasing use of their own data analytics systems to identify and pursue FCPA and related investigations. For example, in a speech in late November 2023, assistant attorney general Nicole Argentieri noted that the DoJ has ‘improved our ability to harness and analyze available data – both public and non-public – [and that] [t]his approach has already generated successful FCPA investigations and prosecutions.’

Although the DoJ has admitted that the available tools are not ‘cutting edge’ and that more resources are needed from Congress, the department’s dedicated data analytics team is creating new leads for potential prosecution outside of traditional methods, such as company disclosures. In 2024, data analytics may well drive an already evident renewed interest by the agencies in conducting sector and industry sweeps, as has happened recently with FCPA investigations involving, for example, commodities trading firms and the healthcare sector.

The DoJ also expects companies to harness their own data to assess potential corruption risks and identify weaknesses in their compliance programs and related internal controls. The DoJ’s current guidelines on the ‘evaluation of corporate compliance programs’ emphasize the importance of data analytics in, for example, risks assessment, management of third-party risks and effectiveness of reporting mechanisms.

In her November speech, Argentieri emphasized that in 2024 and beyond, ‘if misconduct occurs, our prosecutors are going to ask what the company has done to analyze or track its own data – both at the time of the misconduct and when we are considering a potential resolution.’

4. Corruption investigations will continue to involve multiple fronts across multiple countries
Continuing a trend from the past few years, FCPA cases in 2024 will involve co-operation by the DoJ and SEC with enforcement agencies in other countries. Both US agencies will continue to expand their networks of mutual legal assistance with enforcers in other countries. For example, the DoJ recently announced its International Corporate Anti-Bribery (ICAB) initiative designed to ‘facilitate co-operation and information sharing’ among various country agencies and to ‘determine how we can force multiply and assist foreign authorities in their parallel investigations.’

Cases in 2023 involved first-time formal co-operation with Colombian and South African authorities, in addition to continuing co-operation with traditional partners in jurisdictions such as the UK, Switzerland and Brazil. The ICAB will likely expand this growing list in 2024.

Co-ordination among various authorities in different countries can be challenging, particularly with enforcers that are less experienced in investigation techniques or that operate under different legal concepts of due process and the rights of defendants. Other countries’ different laws on, for example, data privacy, national security-based restrictions on sharing of information with other governments (such as in China) and attorney-client privilege protections can create substantial additional legal risks and costs and should be considered in planning for companies’ investigation responses. In 2024, any self-disclosure calculus will need to encompass multiple jurisdictions.

In a related trend, authorities in other countries will likely continue to pursue large corporate cases and potentially reap substantial penalties, even where the US agencies are not involved.

 

DoJ

5. FCPA enforcers will scrutinize companies’ handling of corruption risks related to M&A activity
In 2024, the DOJ will be collecting data on the effect of its recently announced Mergers & Acquisitions Safe Harbor policy, which is designed to incentivize companies to self-disclose potential misconduct discovered during M&A-related due diligence.

The safe harbor establishes a presumption of a declination for companies that disclose misconduct discovered at an acquired entity within six months of closing (regardless of whether the misconduct was discovered pre or post-acquisition) and that remediate the misconduct within one year of the transaction’s date of closing. Several other considerations can affect the reporting timeline and ultimate result of any self-reporting. In addition to the safe harbor analysis, information on merger and divestment activity is likely to be an input used by the DoJ’s and SEC’s data analytics units.

Whether or not companies choose to avail themselves of the M&A safe harbor in specific circumstances, the DoJ’s focus makes M&A activity a priority for compliance risk management in 2024. Senior DoJ officials have noted that ‘[c]ompliance must have a prominent seat at the deal table if an acquiring company wishes to effectively de-risk a transaction.’

Indeed, involving the compliance function starting at the deal-planning stages allows compliance personnel to efficiently spot and address risks – including risks that could materially alter the deal structure or pricing – as the transaction develops and moves forward. Many companies do not follow this practice, however, which can hobble the consideration of risks and opportunities that may arise when due diligence uncovers potential misconduct.

6. National security considerations will continue to affect anti-corruption enforcement
Since 2021, the current administration has viewed the fight against foreign corruption as a core national security interest. In 2024, this continuing focus will have several effects on enforcement priorities. The DoJ has specifically called on companies to assess risks through a national security lens and to take assertive action to remediate such risks, including by ‘where necessary, exiting markets that pose undue risk’.

The DoJ and other agencies, such as the US Department of the Treasury’s Office of Foreign Assets Control, are aggressively pursuing investigations at the intersection of corruption and national security issues. Examples include cases involving links between corruption and terrorism; the use of targeted economic sanctions and asset seizures to counter corruption related to Russian oligarchs and their worldwide interests; money-laundering cases against corrupt Latin American officials seen as undermining the rule of law; and sanctions and visa restrictions under the Global Magnitsky Sanctions Program.

This national security focus likely will contribute to continued scrutiny of corporate operations in China, which has been the country involved in the most FCPA-related cases since 2010 for various reasons, including the prevalence of state-owned entities in its economy.

John Davis, a member of the firm, is the FCPA and international anti-corruption practice lead with Miller & Chevalier