For the first time since its initial publication in November 2012, the US Department of Justice (DOJ) and US Securities and Exchange Commission (SEC) jointly published a revised edition of the Resource Guide to the US Foreign Corrupt Practices Act (“the Second Edition”). This handbook provides the most recent guidance of how the DOJ and SEC may view and approach actions or investments involving the US Foreign Corrupt Practices Act (“FCPA”). The revisions in the Second Edition primarily include those reflecting the DOJ and SEC’s interpretations of key FCPA cases decided since 2012, changes echoing the DOJ policies and guidance statements regarding the FCPA since 2012, and updated examples and citations to recent FCPA enforcement actions.

While many of the changes are not unexpected, the revisions related to FCPA cases and policies merit further discussion as potentially signaling enforcement priorities and positions US enforcement authorities may adopt going forward. For instance, these revisions may forecast how the US enforcement authorities may approach important prosecutorial decisions, like whether to grant a declination or charge an individual or entities with limited jurisdictional nexus to the US. Companies and individuals subject to FCPA scrutiny would benefit from accounting for these priorities in approaching potential FCPA issues.

Revisions related to changes in the law and what they signal re future enforcement positions

The Second Edition largely incorporates changes to the relevant law that have occurred since the original Edition. The changes primarily focus on United States v. Hoskins,¹ which limited the use of accomplice liability against non-resident foreign nationals operating outside the US, in addition to Kokesh v. SEC² and Liu v. SEC,³ which curtailed SEC-imposed disgorgement—an oft-used remedy in FCPA enforcement actions involving the SEC. The method in which the DOJ and SEC incorporated these cases, however, may signal how they will approach investigations and actions involving these issues.

United States v. Hoskins

While the US enforcement authorities’ expansive view of long-arm jurisdiction was tempered by Hoskins, the method in which the Second Edition references the case suggests the enforcement authorities are adopting a narrow interpretation of the ruling.⁴ In the US Second Circuit Court of Appeals’ ⁵ 2018 Hoskins decision, the court considered whether an individual whose conduct is not directly covered by the FCPA anti-bribery provisions could nonetheless be found liable under conspiracy or aiding and abetting theories of liability. The explicit language of the anti-bribery provisions apply to (1) “issuers”—defined as companies that either list securities on a US stock exchange or are required to file reports with the SEC; (2)“domestic concerns”—defined as US persons or companies, and (3) individuals or entities acting within the US. The DOJ and SEC had historically used accomplice theories of liability, like conspiracy or aiding and abetting, to pursue individuals that did not fall neatly within these categories.

The Second Circuit ultimately found that an individual could not be found liable under these accomplice theories of liability if the individual does not fall within one of the statutory categories above.⁶ It held instead that to be liable, the individual must be acting as an agent, employee, officer, director, or shareholder of an issuer or domestic concern or acting within the US at the time of the misconduct.⁷ The Second Edition references the Hoskins ruling and removes previous statements that co-conspirators could be held liable for FCPA misconduct.

But notably, the Second Edition does not reference the recent trial court ruling, decided on remand of Hoskins, in which the court rejected the DOJ’s expansive theory of agency and overturned a guilty verdict on the grounds that the DOJ produced insufficient evidence to support its theory.⁸ This omission suggests US enforcement authorities will likely push back on any reliance upon this case during negotiations until the pending appeal is decided. ⁹ In the interim, corporations that are cooperating with regulators may not only be asked to provide information about individuals responsible for the misconduct, but also provide information that shows an agency relationship between the individual and a US entity, issuer or other indicia of US contact or impact that might create a stronger case for direct or agency jurisdiction over the bribe conduct.

Importantly, the Second Edition also notes that one district court has rejected the Second Circuit’s reasoning in Hoskins. ¹⁰ This reference may suggest the DOJ/SEC will challenge reliance upon Hoskins where an action would not be brought in the Second Circuit. It also suggests that the DOJ/SEC may also attempt to bring cases outside of the Second Circuit to avoid this ruling when there is the opportunity to do so, potentially leading to a circuit split on the issue. 

The Second Edition also references a government-claimed exception to Hoskins as applied to the FCPA books and records and internal controls provisions.¹¹ Specifically, the Second Edition notes that the reasoning in Hoskins does not apply to limit the use of conspiracy and aiding and abetting liability for violations of the FCPA accounting provisions. Companies subject to FCPA scrutiny and within SEC jurisdiction should therefore expect the SEC may use conspiracy and aiding and abetting liability to pursue individuals who engaged in bribery conduct for the benefit of the company for violations of the FCPA’s books and records and internal controls provisions.

Kokesh v. S.E.C.

The Second Edition adds a reference to Kokesh v. S.E.C.¹² While not directly an FCPA case, this case has significant implications for those involved in negotiations with the SEC in FCPA matters because of its impact on the availability of SEC-imposed disgorgement of ill-gotten gains—often used as a remedy in FCPA resolutions. In Kokesh, the Supreme Court ruled that the five-year catch-all statute of limitations governing a “penalty” applies to limit the imposition of SEC-imposed disgorgement SEC.¹³ FCPA actions can take many years to be discovered and may take many more years to reach resolution. By incorporating a reference to Kokesh and recognizing a five-year statute of limitations for SEC-imposed disgorgement, the SEC acknowledges this limitation to its authority in the Second Edition. However, cooperating companies may expect the SEC to continue to request companies to enter tolling agreements, and if a company declines to do so, the SEC may expedite the action so that this remedy is preserved.

Liu v. S.E.C.

The Second Edition also incorporates the Supreme Court’s recent decision in Liu v. S.E.C.¹⁴ In Liu, the Supreme Court recognized three major limitations to SEC-imposed disgorgement.¹⁵ First, the Court found disgorgement awards must be limited to a wrongdoer’s actual illicit profits and thus, should include deductions for legitimate business expenses. This was a significant develop because historically the SEC’s position, as well as that of the majority of courts, was that only gross profits could be used to calculate disgorgement. Second, the Court recognized that the disgorged amounts must be distributed to victims. As FCPA actions often do not have identifiable victims, the Court’s ruling leaves an open question whether disgorgement can be used in FCPA cases where no such victims exist—especially since the Court expressly declined to decide whether disgorgement can ever be deposited into Treasury funds. Third, the Court barred the use of joint-and-several liability in disgorgement awards, finding that the use of joint-and-several liability was more akin to a penalty. Notably, the Second Edition only includes a cursory reference to the Court’s ruling allowing disgorgement to include deductions for net profits, but does not mention the other rulings in Liu—possibly indicating that the DOJ/SEC may intend to challenge these aspects of the Court’s ruling.

Revisions for Post-2012 Policy and Guidance Emphasize Department Attempts to Provide Clarity to Cooperation Credit Calculations, International Enforcement Cooperation, and Compliance Program Effectiveness Determinations

The Second Edition also incorporates policies adopted, and guidance issued, by US enforcement agencies since November 2012. Specifically, these revisions include policies on FCPA enforcement actions and cooperation credit (the “FCPA Corporate Enforcement Policy”); the selection of monitors in criminal division matters; the coordination of corporate resolution penalties in parallel and/or joint investigations and proceedings arising from the same misconduct (the “Anti-Piling On Policy”); and a guidance document addressing the questions DOJ attorneys should ask in evaluating corporate compliance programs. These policies govern DOJ and SEC attorneys responsible for prosecuting FCPA cases and provide companies extensive insight into enforcement agency expectations of compliance programs, corporate cooperation and self-disclosure, whether post-resolution monitoring may be required and important acknowledgements about global enforcement cooperation and resolutions. Many of these policies have been incorporated into the DOJ’s Justice Manual (formerly known as the US Attorney’s Manual), which establishes agency policy governing federal prosecutors bringing enforcement actions, including FCPA actions. Others have been established as stand-alone DOJ policy or guidance. These revisions incorporating these documents nonetheless emphasize the current priorities and positions of the US enforcement agencies.

FCPA Corporate Enforcement Policy

The Second Edition references the FCPA Corporate Enforcement Policy that was enacted as a pilot program in April 2016 and later updated and adopted into the DOJ’s Justice Manual in November 2017. ¹⁶ This policy formalized the process for obtaining declinations of enforcement or mitigating fine range (cooperation credit) for companies that (1) voluntarily self-disclosed FCPA violations, (2) fully cooperated with the government investigation, and (3) timely and appropriately remediated identified issue. The policy further provides for mitigated damages for companies that cooperated and remediated the misconduct but did not self-disclose. It also lays out the considerations for when various resolution options at the DOJ’s disposal short of a formal indictment or information may be considered (such as declinations of prosecution, non-prosecution agreements, and deferred prosecution agreements), and defines the benefits that can accompany self-disclosure, cooperation and remediation. The policy also notes that appointment of a monitor will generally not be required if the company has implemented an effective compliance program at the time of the action’s resolution.

As foreshadowed by the policy, all references to corporate declinations in the Second Edition involved voluntary self-disclosures of misconduct. But, the examples do not highlight that, even with a declination, the disgorgement of ill-gotten gains required as part of the disgorgement may still be significant. 

Ultimately, while the policy and declination examples in the Second Edition implicitly encourage companies to self-disclose FCPA violations by showing the benefits of doing so,  decisions whether to self-report violations of the FCPA should include a cost-benefit analysis of whether the potential benefits outweigh the risks of doing so. For example, companies should consider whether aggravating circumstances are present, or whether the company is a recidivist, such that a declination is foreclosed. Companies should also consider whether publication of the disclosure would result in reputational harm or loss of contracts that may outweigh the benefits of a declination, among other considerations. Companies can look to the factors referenced in the Justice Manual and the Second Edition, but should also consider with experienced counsel whether the company is in a position to fully meet the factors required for a declination or reduction in penalty.

Anti-Piling On Policy

Emphasizing the increasing trend of cross-border cooperation and joint enforcement actions between international and US enforcement authorities, the Second Edition also incorporates the “anti-piling on policy.”¹⁷ This policy encourages DOJ prosecutors to avoid imposing duplicative penalties, forfeiture and disgorgement for the same conduct being investigated or resolved with fines paid to other department components, other US enforcement agencies, or other enforcement authorities (including non-US enforcement authorities). Recognizing the unfairness of multiple FCPA penalties for the same conduct, and increased cooperation between the DOJ and international enforcement authorities, the aim of the policy is to credit entities for penalties, fines, forfeiture and disgorgement imposed for the same conduct by other enforcers, while still allowing the US to recover government funds lost due to the misconduct, to pay restitution to victims, or to collect fines needed beyond those of other enforcement actions required to “vindicate” the interests of justice.¹⁸  

Inclusion of this policy in the Second Edition indicates that joint enforcement actions are likely to continue in the coming years and that companies can potentially reduce damages to the DOJ based on amounts paid to other enforcers for the same conduct. Entities and individuals subject to FCPA scrutiny should also consider this policy when making a decision whether to self-disclose, as they may want to consider disclosing to and negotiating with multiple enforcement agencies simultaneously in order to increase their chances of obtaining equal credit and reduction of the risk of multiple penalties for the same conduct. Otherwise, there is a risk that a company may not receive credit for penalties paid to foreign enforcement authorities from the DOJ. Further, failure to simultaneously disclose may result in a failure to receive voluntary disclosure credit from the DOJ if another enforcement agency is approached first without a contemporaneous disclosure to the US.

Selection of Monitors

The Second Edition also references the DOJ’s policy regarding imposition of a monitor in criminal cases. ¹⁹ Generally, the new verbiage notes that in making this decision, “prosecutors should assess (1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation.”  In evaluating the potential benefits of a monitor, prosecutors will consider, among other factors: (a) whether the underlying misconduct involved the manipulation of corporate books and records or the exploitation of an inadequate compliance program or internal control systems; (b) whether the misconduct at issue was pervasive across the business organization or approved or facilitated by senior management; (c) whether the corporation has made significant investments in, and improvements to, its corporate compliance program and internal control systems; and (d) whether remedial improvements to the compliance program and internal controls have been tested to demonstrate that they would prevent or detect similar misconduct in the future. 

The Second Edition emphasizes the importance of complying with this guidance early in the process. Notably, the Second Edition states “Where a corporation’s compliance program and controls are demonstrated to be effective and appropriately resourced at the time of resolution, a monitor will likely not be necessary.” As such, it is important to invest up front in documenting what the company’s compliance and control systems look like before a disclosure ever occurs, so that there is information the company can point to mitigate the risk of a monitor in addition to addressing these concerns when in the midst of self-disclosures. Lastly, where a compliance program was not fully developed at the outset of a disclosure decision, investment in meeting enforcer’s expectations of an effective compliance program at the time of resolution may help prevent imposition of a monitor.

Evaluation of Corporate Compliance Programs Guidance

The DOJ Criminal Division’s Evaluation of Corporate Compliance Programs Guidance ²⁰ assists prosecutors’ evaluation of the effectiveness of a company’s compliance program at the time of the offense, disclosure, charging decision and resolution. ²¹  This guidance is important because it informs prosecutors  how they should structure the (1) form of any resolution or prosecution; (2) require a monetary penalty, if any; and (3) whether compliance obligations are necessary in any corporate criminal resolution (e.g., monitor-ship or reporting obligations). Thus, this guidance provides companies insight into the types of questions that prosecutors may ask to evaluate and assess a company’s compliance program, and can be used to gauge strengths and weaknesses in a compliance program before an FCPA issue ever occurs. The evaluation guidance focuses on compliance program deign, application, function and effectiveness by focusing on topics like risk assessments, policies and procedures, training and communication, reporting and investigation procedures, third party management, mergers and acquisitions, management commitment, resource investment, incentive and disciplinary measures, monitoring, remediation and improvement over time. 

Notably, this guidance document was recently updated at almost the same time as this Second Edition to signal important updates to the government’s view of what a compliance program should be. Global companies’ compliance programs may adapt to meet these enhanced expectations as they become the new industry standard, so now is a perfect time to reassess risk assessments tied to the old version of this document or to benchmark programs against this guidance if never performed before.²² Proactively checking a compliance program against these questions can help prevent, detect and mitigate FCPA risk before an issue ever arises, and document the effectiveness of a compliance program should a violation ever occur.

Conclusion

Although the Second Edition is unsurprising in the cases and policies it incorporates into the updated Resource Guide, the revisions potentially signal important enforcement priorities or positions the DOJ and SEC may adopt going forward. These revisions suggest that the US enforcement authorities will continue to adopt a broad interpretation of their prosecutorial power in pursing potential FCPA violators. The DOJ and SEC will also likely continue to pursue an expansive view of jurisdiction over non-resident foreign nationals and take a more limited outlook on Hoskins, Kokesh and Liu in charging and disgorgement decisions. Further, the revisions in the Second Edition regarding policy and guidance also show that the DOJ and SEC will continue to emphasize and encourage self-disclosure, even though the decision to disclose requires additional analysis by the disclosing party than that presented in enforcement guidance. US enforcement priorities in coordination of corporate resolution fines, penalties and forfeiture in parallel/joint investigations and proceedings arising from the same misconduct signal a continuing trend of international cooperation, while the use of monitors and evaluating corporate compliance programs guidance signals the importance of developing and truly implementing an effective compliance program well before a violation occurs. Companies should keep these priorities in mind in having their legal and compliance teams, as well as outside counsel, approach potential FCPA issues going forward and, to the extent they have not already, consider updating their compliance programs to incorporate this guidance.

1. United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018).↩
2. Kokesh v. SEC, 137 S. Ct. 1635 (2017). ↩
3. Liu v. SEC, 140 S. Ct. 1936 (2020). ↩
4. Second Edition at 36. ↩
5. The Second Circuit has appellate review over federal courts in Connecticut, New York, and Vermont.↩
6. Hoskins, 902 F.3d at 97. ↩
7. For more information regarding United States v. Hoskins and related analysis, see Dentons’ prior client alert discussing the ruling here.↩
8. United States v. Hoskins, No. 3:12CR238 (JBA), 2020 WL 914302 (D. Conn. Feb. 26, 2020).↩
9. For more information regarding the District Court of the District of Connecticut’s decision in United States v. Hoskins  and related analysis, see Dentons’ prior client alert discussing the ruling here.↩
10. See Second Edition at 36 (citing United States v. Firtash, 392 F. Supp. 3d 872 (N.D. Ill. 2019)).↩
11. Second Edition at 46.↩
12. Id. at 37 (citing Kokesh, 137 S. Ct. at 1635).↩
13. For more information regarding Kokesh v. SEC and related analysis, see Dentons’ prior client alert discussing the ruling here.↩
14. Second Edition at 71 (citing Liu, 140 S. Ct. at 1936).↩
15. For more information regarding Liu v. SEC and related analysis, see Dentons’ prior client alert discussing the ruling here.↩
16. Second Edition at 51–52; Justice Manual § 9-47.120 (as amended).↩
17. Second Edition at 71.↩
18. Id.↩
19. Second Edition at 73–74.↩
20. Available at Evaluation of Corporate Compliance Programs Guide.↩
21. Second Edition at 67–68.  An assessment of a compliance program’s effectiveness is a component of prosecutors’ charging and resolution considerations in the Principles of Federal Prosecution of Business Organizations, the US Sentencing Guideline’s fine calculations, and a determination in whether appointment of a monitor should be part of a corporate resolution.↩
22. For more information regarding the revision to the Evaluation of Corporate Compliance Program Guidance, see Dentons’ recent client alert discussing the updates here.↩