Each January, I look forward to receiving Gibson Dunn’s year-end updates that cover a variety of hot topics. Today I wanted to share three related updates on securities enforcement, corporate deferred and non-prosecution agreements and FCPA enforcement. Here are excerpts and links to each:
In many respects, 2012 was another year of aggressive SEC enforcement. The SEC’s Division of Enforcement again logged a near record number of enforcement actions. More important, the cases reflected a marked increase in the number and proportion of actions against registered investment advisers and broker-dealers, and their associated persons. This increased focus derives from a culmination of factors, including Enforcement’s creation of specialized units for the asset management industry and for structured products, the hiring of industry experts, and the close collaboration between staff from Enforcement and the SEC’s Office of Compliance Inspections and Examinations (“OCIE”). With the expansion of the registered private fund adviser population under financial reform legislation, and the launch of an initiative to conduct focused, risk-based examinations of these new registrants, this trend will likely continue for the foreseeable future.
At the same time, in the latter half of 2012 the SEC confronted significant challenges in litigating previously filed enforcement actions against individuals in cases related to the financial crisis. Whether these cases will cause the SEC to reevaluate its approach with respect to charging decisions in the future is unknown. However, in the short term, Enforcement seems undeterred by individual litigation results in its pursuit of continued enforcement actions.
The last six months of 2012 mark the beginning of another transition for the SEC generally, and for Enforcement in particular. As the year drew to a close, Mary Schapiro announced her departure as Chairman, followed by several division directors. Most notably, on January 9, 2013, the SEC announced that Robert Khuzami would step down as Director of Enforcement. As we look ahead to 2013, a new leadership team at the SEC and in Enforcement will seek to make their own imprint on the SEC’s priorities and processes. In addition, as more time has passed since the depth of the financial crisis, Enforcement’s priorities will shift to more recent conduct and emerging industry risks.
“Over the last decade, DPAs [Deferred Prosecution Agreements] have become a mainstay of white collar criminal law enforcement,” Lanny Breuer, the head of the U.S. Department of Justice’s Criminal Division, declared on September 13, 2012. Corporate Deferred Prosecution Agreements (“DPAs”) and Non-Prosecution Agreements (“NPAs”) (collectively, “agreements”) have, in Mr. Breuer’s words, ameliorated the “stark choice” that prosecutors faced: either to employ “the blunt instrument of criminal indictment” that he likened to using “a sledgehammer to crack a nut” or to “walk away” and decline prosecution outright. Mr. Breuer declared that DPAs and NPAs “have had a truly transformative effect on . . . corporate culture across the globe” resulting in “unequivocally far greater accountability for corporate wrongdoing–and a sea change in corporate compliance efforts.” Mr. Breuer’s comments are timely, coming in a year during which such agreements yielded a record level of monetary penalties and related payments totaling nearly $9.0 billion and are increasingly used to resolve front-page criminal matters.
This client alert, the ninth in our series of biannual updates on DPAs and NPAs, (1) summarizes the DPAs and NPAs from 2012, (2) considers detailed remarks from leading enforcement officials with the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (the “SEC”) regarding settlement agreements, (3) examines compliance measures presented in recent non-FCPA agreements as examples of DOJ-endorsed good practices in various industries, and (4) looks across the Atlantic to evaluate the United Kingdom’s prospective use of DPAs. As in previous updates, Appendix A lists all agreements announced in 2012, in addition to agreements executed in 2011 but not widely available until this year.
The whispers have begun. By comparison to the blistering pace set in recent years, FCPA prosecutions were down in 2012 (though still far higher than in any of the first 30 of the statute’s 35-year existence). Does this portend the end of the FCPA Era–left on the cutting room floor of the Sequester? Can U.S. companies relax their vigilance? Not according to Lanny A. Breuer, Assistant Attorney General for DOJ’s Criminal Division, who recently commented that “robust FCPA enforcement has become part of the fabric of the Justice Department” and a “reality that companies know they must live with and adjust to”–a reality from which “there is no turning back.”
We agree. The relative downtick in 2012 FCPA enforcement is a slight blip in the landscape, attributable to, among other things, vast government resources being poured into the comprehensive FCPA Resource Guide released in November–the signature FCPA development of 2012–and multiple, team-intensive trial and pre-trial trench warfare being waged by both DOJ and the SEC in numerous venues across the country. This is a marathon, not a sprint, and as the statute celebrates its 35th birthday, both DOJ and the SEC appear to have hit their stride.
This client update provides an overview of the Foreign Corrupt Practices Act (“FCPA”) and a survey of FCPA enforcement, litigation, and policy developments for 2012. It also analyzes recent trends and offers practical guidance to help companies and their executives avoid or minimize liability under the FCPA.