FCPA Compliance

Feds Encouraging FCPA Self-Reporting

The government is offering companies lower fines if they disclose Foreign Corrupt Practices Act violations.
By: | June 14, 2016 • 5 min read

Companies can take a more proactive role in managing their Foreign Corrupt Practices Act (FCPA) exposures since the federal government launched a new program in April to encourage self-disclosure of misconduct.

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The government’s focus on this area is much more robust now than it has been for many years. The good news is if companies voluntarily disclose a violation, they face much more lenient penalties.

The U.S. Department of Justice increased its FCPA unit this year by more than 50 percent by adding 10 new prosecutors, according to the Washington-based law firm Wiley Rein LLP.

In the spring of 2015, the FBI also began an effort to increase its presence in this area. That agency invested an additional $15 million for FCPA investigations and set up three new fraud squads, increasing the number of agents working on FCPA matters to 23 agents from five.

The FCPA bans U.S. companies and individuals from offering bribes or anything of value to a foreign official in an attempt to get or keep business.

Ralph J. Caccia, attorney, Wiley Rein LLP

Ralph J. Caccia, attorney, Wiley Rein LLP

“The government is putting their money where their mouth is in terms of their intention to aggressively investigate and prosecute these cases,” said Ralph J. Caccia, an attorney with Wiley Rein.

Caccia is a former federal prosecutor, who now defends companies and their executives in cases involving the FCPA.

The law firm hosted a conference call on June 9 to share trends and information on FCPA enforcement with other attorneys and corporate executives.

On the call, speakers said there are about 79 FCPA investigations underway, and about 80 percent of thoses cases have roots in China.

The industries that seem to “catch the eye” of investigators include pharmaceutical, health care, telecommunications and increasingly, financial services companies, Caccia said.

$133 Million in Fines

Government investigators are not looking at small cases where, for example, there’s a one-time bribe to get a shipment in early.  They are focusing on the large cases that may result in big settlements, he said.

Larger targets result in increased settlements. In 2015, there were 11 corporate enforcement actions, with $133 million collected in fines.

So far this year, the SEC reached 11 corporate resolutions for settlements amounting to more than $506 million, according to Wiley Rein.

“They handled it the right way and got expeditious resolutions as a result.” — Kara Brockmeyer, chief, FCPA unit, Securities and Exchange Commission

This year’s settlement includes two non-prosecution agreements. In each case the companies self-reported the misconduct promptly, and they cooperated extensively with investigators, the SEC announced on June 7.

As a result, the companies were not charged with violations of FCPA and did not face extra penalties.

One company, Akamai Technologies, agreed to pay $671,885 after it found employees at a foreign subsidiary violated company policies by giving gift cards, meals and entertainment to foreign officials to build business relationships.

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Nortek Inc. agreed to pay $322,058 after disclosing that a subsidiary made improper payments and gifts to Chinese officials to gain preferential treatment, relaxed regulatory oversight or reduced customs duties, taxes and fees.

“When companies self-report and lay all their cards on the table, non-prosecution agreements are an effective way to get the money back and save the government substantial time and resources while crediting extensive cooperation,” said Andrew Ceresney, director of the SEC enforcement division.

Kara Brockmeyer, chief of the SEC enforcement division’s FCPA unit, said in a statement that “Akamai and Nortek each promptly tightened their internal controls after discovering the bribes and took swift remedial measures to eliminate the problems. They handled it the right way and got expeditious resolutions as a result.”

Increase in Global Cooperation

To snare larger violators, federal agents are increasingly working alongside law enforcement and regulatory authorities in all corners of the globe to share leads, documents and even, witnesses.

The pilot program is designed to investigate and prosecute FCPA violations, while offering companies that voluntarily disclose violations up to 50 percent below the low end of the fine range, based on U.S. sentencing guidelines.

At the end of the one-year pilot period on April 5, 2017, the DOJ will determine whether to extend or modify the program.

In addition to voluntarily disclosing misconduct and fully cooperating with the DOJ investigation, companies also must take all appropriate actions to remediate the offense and surrender all profits from the violation.

Additionally, voluntarily disclosed cases may be acted upon and closed within one year from start of the investigation and the DOJ may not appoint a monitor afterward.

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“If a company opts not to self-disclose, it should do so understanding that in any eventual investigation that decision will result in a significantly different outcome than if the company had voluntarily disclosed the conduct to us and cooperated in our investigation” said Assistant Attorney General Leslie R. Caldwell of the Justice Department’s criminal division, when the pilot program was announced.

At the end of the one-year pilot period on April 5, 2017, the DOJ will determine whether to extend or modify the program.

“The government is upping the ante in terms of what they expect to see in the way of cooperation in these cases,” Wiley Rein’s Caccia said. “They want companies to realize these violations can’t be viewed as simply the cost of doing business anymore, but that individuals could possibly go to jail.”

Appropriate Compliance Programs

Increased FCPA activity should compel changes in the way corporations conduct and document internal investigations.

Corporation should increase internal documentation to include not just what they are doing right, but also what has gone wrong and how it’s been addressed, said Daniel B. Pickard, an attorney with Wiley Rein.

Daniel B. Pickard, attorney, Wiley Rein LLP

Daniel B. Pickard, attorney, Wiley Rein LLP


“The Department of Justice continues to deputize private industry to investigate itself,” Caccia said.

Companies can stay FCPA compliant by conducting more sophisticated risk analysis and increasing periodic outside audits.

“It is undeniable we will see compliance changes matching enforcement trends,” said Pickard.

His firm sees corporations spending more money on compliance infrastructure, especially on the chief compliance officer, he said.

CCO salaries jumped in the past 12 months and those executives are getting more authority; frequently reporting to the CEO.

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Cyber Liability

Fresh Worries for Boards of Directors

New cyber security regulations increase exposure for directors and officers at financial institutions.
By: | June 1, 2017 • 6 min read

Boards of directors could face a fresh wave of directors and officers (D&O) claims following the introduction of tough new cybersecurity rules for financial institutions by The New York State Department of Financial Services (DFS).

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Prompted by recent high profile cyber attacks on JPMorgan Chase, Sony, Target, and others, the state regulations are the first of their kind and went into effect on March 1.

The new rules require banks, insurers and other financial institutions to establish an enterprise-wide cybersecurity program and adopt a written policy that must be reviewed by the board and approved by a senior officer annually.

The regulation also requires the more than 3,000 financial services firms operating in the state to appoint a chief information security officer to oversee the program, to report possible breaches within 72 hours, and to ensure that third-party vendors meet the new standards.

Companies will have until September 1 to comply with most of the new requirements, and beginning February 15, 2018, they will have to submit an annual certification of compliance.

The responsibility for cybersecurity will now fall squarely on the board and senior management actively overseeing the entity’s overall program. Some experts fear that the D&O insurance market is far from prepared to absorb this risk.

“The new rules could raise compliance risks for financial institutions and, in turn, premiums and loss potential for D&O insurance underwriters,” warned Fitch Ratings in a statement. “If management and directors of financial institutions that experience future cyber incidents are subsequently found to be noncompliant with the New York regulations, then they will be more exposed to litigation that would be covered under professional liability policies.”

D&O Challenge

Judy Selby, managing director in BDO Consulting’s technology advisory services practice, said that while many directors and officers rely on a CISO to deal with cybersecurity, under the new rules the buck stops with the board.

“The common refrain I hear from directors and officers is ‘we have a great IT guy or CIO,’ and while it’s important to have them in place, as the board, they are ultimately responsible for cybersecurity oversight,” she said.

William Kelly, senior vice president, underwriting, Argo Pro

William Kelly, senior vice president, underwriting at Argo Pro, said that unknown cyber threats, untested policy language and developing case laws would all make it more difficult for the D&O market to respond accurately to any such new claims.

“Insurers will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure,” he said.

Going forward, said Larry Hamilton, partner at Mayer Brown, D&O underwriters also need to scrutinize a company’s compliance with the regulations.

“To the extent that this risk was not adequately taken into account in the first place in the underwriting of in-force D&O policies, there could be unanticipated additional exposure for the D&O insurers,” he said.

Michelle Lopilato, Hub International’s director of cyber and technology solutions, added that some carriers may offer more coverage, while others may pull back.

“How the markets react will evolve as we see how involved the department becomes in investigating and fining financial institutions for noncompliance and its result on the balance sheet and dividends,” she said.

Christopher Keegan, senior managing director at Beecher Carlson, said that by setting a benchmark, the new rules would make it easier for claimants to make a case that the company had been negligent.

“If stock prices drop, then this makes it easier for class action lawyers to make their cases in D&O situations,” he said. “As a result, D&O carriers may see an uptick in cases against their insureds and an easier path for plaintiffs to show that the company did not meet its duty of care.”

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One area that regulators and plaintiffs might seize upon is the certification compliance requirement, according to Rob Yellen, executive vice president, D&O and fiduciary liability product leader, FINEX at Willis Towers Watson.

“A mere inaccuracy in a certification could result in criminal enforcement, in which case it would then become a boardroom issue,” he said.

A big grey area, however, said Shiraz Saeed, national practice leader for cyber risk at Starr Companies, is determining if a violation is a cyber or management liability issue in the first place.

“The complication arises when a company only has D&O coverage, but it doesn’t have a cyber policy and then they have to try and push all the claims down the D&O route, irrespective of their nature,” he said.

“Insurers, on their part, will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure.” — William Kelly, senior vice president, underwriting, Argo Pro

Jim McCue, managing director at Aon’s financial services group, said many small and mid-size businesses may struggle to comply with the new rules in time.

“It’s going to be a steep learning curve and a lot of work in terms of preparedness and the implementation of a highly detailed cyber security program, risk assessment and response plan, all by September 2017,” he said.

The new regulation also has the potential to impact third parties including accounting, law, IT and even maintenance and repair firms who have access to a company’s information systems and personal data, said Keegan.

“That can include everyone from IT vendors to the people who maintain the building’s air conditioning,” he said.

New Models

Others have followed New York’s lead, with similar regulations being considered across federal, state and non-governmental regulators.

The National Association of Insurance Commissioners’ Cyber-security Taskforce has proposed an insurance data security model law that establishes exclusive standards for data security and investigation, and notification of a breach of data security for insurance providers.

Once enacted, each state would be free to adopt the new law, however, “our main concern is if regulators in different states start to adopt different standards from each other,” said Alex Hageli, director, personal lines policy at the Property Casualty Insurers Association of America.

“It would only serve to make compliance harder, increase the cost of burden on companies, and at the end of the day it doesn’t really help anybody.”

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Richard Morris, partner at law firm Herrick, Feinstein LLP, said companies need to review their current cybersecurity program with their chief technology officer or IT provider.

“Companies should assess whether their current technology budget is adequate and consider what investments will be required in 2017 to keep up with regulatory and market expectations,” he said. “They should also review and assess the adequacy of insurance policies with respect to coverages, deductibles and other limitations.”

Adam Hamm, former NAIC chair and MD of Protiviti’s risk and compliance practice, added: “With New York’s new cyber regulation, this is a sea change from where we were a couple of years ago and it’s soon going to become the new norm for regulating cyber security.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]