On June 25, 2020, pharma giant Novartis AG and two of its subsidiaries agreed to pay the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) $346.7 million in penalties and disgorgement to resolve FCPA offenses in Greece, Vietnam and South Korea. This settlement highlights that, irrespective of economic downturns various countries are experiencing or a pandemic gripping the world, the FCPA will continue to be enforced by the relevant authorities.
Background of the issue
As is relatively well-known, The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. According DOJ’s website, “[s]pecifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.” In addition to U.S. persons, the FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.
When Donald Trump took office of the President of the Unites States it was unclear how much of a priority enforcement of the FCPA would be for the DOJ and the SEC. After all, in 2012 he did famously say that the FCPA was a “horrible law and it should be changed” as the reason citing that it puts U.S. business at a “huge disadvantage.” Thus, the lack of clarity.
What only added to the confusion was Andrew Weissmann, at that time the head of the criminal fraud section at DOJ, which oversees FCPA enforcement, joining Robert Muller’s special counsel team in June 2017, but without actually stepping down from his post at the DOJ, meaning that the post would be occupied by an interim head (ultimately only in July 2019 would it be filled on a permanent basis with the appointment of Robert Zink).
Nevertheless, the last three-and-a-half years have proven to be very active on the FCPA scene. The enforcement actions from 2017 to June 2020 have completely taken over the top-5 of FCPA enforcement actions in terms of penalties, fines and disgorgement. The current tally for those five actions is a whopping $6.745 billion. Interestingly, all five of those actions were against non-U.S. headquartered companies.
Therefore, at this point it is safe to say that the FCPA is alive and offenses are being pursued with vim and vigor.
Why it is important
A new obstacle, however, arose for compliance professionals looking to keep their employer from emerging on DOJ’s or SEC’s radar: Covid-19. Many companies have been forced to fundamentally alter their routines, of which internal compliance in-person trainings and audits were an integral part.
One of the challenges the new reality (at least for the near future) presents is the inability of compliance officers to meet and talk with people they are overseeing, i.e. “to be there.” Technology undoubtedly has been a lifesaver in today’s times. Nevertheless, it is no secret that much of what compliance officers observe is non-verbal, i.e. body language, interactions with others, etc. It all forms parts of a picture. Similarly, without “being there” a compliance officer is not able to ascertain how seriously her or his words are being taken. The simplest example is remote compliance trainings. It is all too easy for employees to put their microphone on mute and go about their home routine without absorbing the material.
Moreover, if a compliance officer is an image on a screen from a distant land, it is highly doubtful that there can be any meaningful candidness, which is important for the work of a compliance officer. Many people, especially in countries where personal interaction is still key (like Russia), may be uncomfortable discussing sensitive or whatever serious matters over a video chat. In addition, without actually being there a compliance officer will not see and ascertain where the people work and how it happens.
Finally, there is human nature. The old adage “when the cat’s away, the mice will play” may, unfortunately, be accurate in observing compliance measures. When employees do not feel the presence of compliance professionals, they may be more tempted to disregard company procedures, no matter how well written.
So, what to do? One option is to utilize outside local counsel to perform compliance duties if those charged with them within the company objectively cannot. You need an experienced and trustworthy team on the ground.