SEC Continues to Tout Benefits of FCPA Self-Reporting
In a March 3, 2015 speech at a pharmaceutical conference, the SEC’s enforcement director, Andrew Ceresney, continued to tout the agency’s carrot and stick approach to FCPA self-reporting. Ceresney remarked that: “[t]here has been a lot of discussion recently about the advisability of self-reporting FCPA misconduct to the SEC. Let me be clear about my views – I think any company that does the calculus will realize that self-reporting is always in the company’s best interest.” On the other hand, Ceresney continued, the “risk of suffering adverse consequences from a failure to self-report is particularly acute in light of the continued success and expansion of our whistleblower program. The SEC’s whistleblower program has changed the calculus for companies considering whether to disclose misconduct to us, knowing that a whistleblower is likely to come forward. Companies that choose not to self-report are thus taking a huge gamble because if we learn of the misconduct through other means, including through a whistleblower, the result will be far worse.”
Ceresney pointed in particular to two recent FCPA cases, the Goodyear Tire & Rubber case and the Bio-Rad Laboratories case. In the Goodyear matter, the company settled an investigation concerning possible bribery at subsidiaries in Kenya and Angola. Although Goodyear agreed to disgorge $14.1 million in profits and $2.1 million of prejudgment interest, the SEC did not require the company to pay a civil penalty. In the Bio-Rad case, the company paid a total of $55 million to settle parallel SEC and DOJ allegations that over $7.5 million was improperly paid to Russian, Vietnamese, and Thai officials.
However, commentators and defense counsel continue to question the benefits of self-reporting. Although the fact that Goodyear paid no civil penalty suggests that the company benefitted from self-reporting the conduct, it is harder to gauge whether Bio-Rad would have had to pay more if it had not self-reported (or whether the conduct would have been detected at all). There is also the example of cases like the Ralph Lauren settlement in 2013, where it appeared that the company did everything right according to the government’s guidance but nevertheless had to pay $1.6 million to settle with the SEC and DOJ. Ralph Lauren’s conduct occurred over a relatively brief time period and was limited to one Argentine subsidiary. The company discovered the conduct while conducting routine FCPA compliance training. Although both the SEC and DOJ allowed Ralph Lauren to settle with non-prosecution agreements (such that no civil or criminal charges were filed), the facts of the case and the company’s cooperation suggest that if Ralph Lauren’s conduct warranted the payment of $1.6 million, going forward it may be that self-reporting will never result in no action being taken against a company.
In practice, companies make decisions about whether to self-report potential FCPA violations by weighing three factors. First, there are situations, such as in the case of companies regulated by FINRA, where self-reporting is required. See FINRA Rule 4530(b) (“Each member shall promptly report to FINRA, but in any event not later than 30 calendar days, after the member has concluded or reasonably should have concluded that an associated person of the member or the member itself has violated any securities-, insurance-, commodities-, financial- or investment-related laws, rules, regulations or standards of conduct of any domestic or foreign regulatory body or self-regulatory organization.”). Second, companies general decide to self-report when it is clear that the conduct will inevitably be detected by the government, such as where the company is aware of a whistleblower or ongoing civil discovery makes it likely. Third, companies also weigh the likely benefits of self-reporting compared to the additional adverse consequences if the government discovers the conduct on its own. These decisions have to rely on judgment and the experience of counsel, because there will never be perfect information. For example, even when the company has no knowledge of likely whistleblowers, employees may become or already be disgruntled such that they decide to report to the SEC or DOJ.