The anti-corruption journey of the DOJ and SEC

in Advisory, 05.12.2016

Approximately six month ago, I highlighted in my previous article the recent developments and current enforcement trends, and also discussed in detail the new United States Department of Justice’s (DOJ) pilot called “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance”.

In this article, I will continue focusing on recent Foreign Corrupt Practices Act (FCPA) trends and, specifically, address the impact of the new DOJ pilot and the FCPA enforcements. I will also touch on other relevant developments in the anti-bribery and corruption space.

The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance – a mid-year review

On 5 April 2016, the Fraud Section of the DOJ Criminal Division published “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance”; a one-year FCPA enforcement pilot program applicable to all FCPA matters handled by the Fraud Section. You may remember, the program encouraged companies to:

  • voluntarily self-disclose FCPA violations;
  • fully cooperate with the DOJ; and
  • apply timely and appropriate remediation of FCPA matters

The DOJ’s Fraud Section also outlined that if a company has met all the above criteria to the full satisfaction of the Fraud Section and if a criminal resolution is warranted, the company will qualify for the whole range of potential mitigation credits:

  • Reduction of up to 50 percent of the bottom end of the U.S. Sentencing Guidelines fine range;
  • Appointment of an independent corporate monitor might not be required; and
  • Consideration to stop prosecution (Note here that a disgorgement of all profits resulted from the FCPA misconduct is still required)

The FCPA in practice

So, you may wonder what happened in the six months since the introduction of the pilot. In late September of this year, the DOJ entered new ground based on its pilot: It released statements that two (US-based and privately owned) companies would not be prosecuted for violations of the FCPA provisions, but (and here is the catch) the companies would have to disgorge the profits earned from the alleged violations.

According to the same statements, the DOJ declined the prosecutions (notwithstanding FCPA violations) based on, among other, the following aspects[1]:

  • Timely, voluntary self-disclosure;
  • Thorough and comprehensive global investigation;
  • Full cooperation (including providing all known relevant facts about the individuals involved in or responsible for the misconduct) and its agreement to continue to cooperate in any ongoing investigations of individuals;
  • The disgorgement of all profits made from the illegal conduct;
  • Continued efforts to enhance the compliance programs and internal accounting controls; and
  • Full remediation (including terminating employees involved in the illegal conduct, severing business relationships with the intermediaries involved in the bribery, etc.).

So, six month after announcing the new pilot, we have real-life examples from the DOJ of how it applies the pilot in practice. Needless to say, I expect more companies to make use of the pilot to minimize the burden of prosecution and monitoring.

Dodd-Frank’s Resource Extraction Payment Disclosure Rule

As of the end of September, the SEC has adopted the Dodd-Frank’s Resource Extraction Payment Disclosure Rule 13(q)-1 (the “rule”)[2], is applicable to issuers (including its subsidiaries and other entities under their control) working in the commercial development of oil, natural gas, or minerals. Though the scope of companies affected by the new rule is limited to extracting industry (the SEC estimates that there will be approx. 755 companies in scope[3]), the intent of the new rule is far reaching – the covered companies will have to disclose payments made to a foreign government or the US Federal Government connected to their resource extraction activities.

Let’s have a more detailed look at how the SEC defines the new rule:

  • Companies which fall within the scope of the rule generally are required to do their first disclosure with 150 days after the fiscal year ended not earlier than 30 September 2018;
  • The payments to be disclosed include, among others: production entitlements; taxes; royalties; dividends; signature, discovery, and production bonuses; license fees, rental fees, entry fees, and other considerations for licenses and/or concessions; and payments for infrastructure improvements; and
  • The SEC sets a minimum threshold (de minimis) of USD 100’000, meaning that a payment or series of payments below this threshold are not required to be disclosed

In essence, this new rule increases the disclosure requirements (and therefore the transparency) and pressure on the industry, which traditionally has been facing corruption problems for many decades.

The minimum threshold set by the SEC for payments falling under the rule is set relatively high; payments (single or a series of payments) below USD 100,000 will not have to be reported. However, it is important to note that the threshold is set for reporting purposes and does not mean that the DOJ and SEC will not pursue potential violations involving lesser monetary amounts. Remember, the FCPA does not put a monetary threshold on corrupt payments, it can be “anything of value.”

As illegal payments, in this or other industries, will still be subject to FCPA provisions, it remains to be seen whether the new initiative will further increase the amount of self-disclosure of potential FCPA violations or the enforcement activity. However, it will certainly further increase the awareness and scrutiny of companies with respect to their payments to foreign government officials.

Furthermore, the first disclosure is foreseen for not earlier than 30 September 2018;  a rather long time period for companies to either prepare for disclosure, or to get a grasp on all of such payments and timely disclose anything potentially illegal.

As previously mentioned, the rule currently applies to a limited number of companies (755, as estimated by the SEC). However, companies in different jurisdictions will need to consider the new development as similar rules most likely will be implemented by other governments.

Last but not least, the rule will also result in higher costs for companies in scope. Interestingly, the SEC has published a calculation of the additional approximate costs caused by the new rule, based on historical data as well as certain assumptions (such as compliance fixed costs, not depending on size / scale of operations). Accordingly, the range of costs varies from USD 0.13m to USD 1.4m (assuming no fix costs for compliance) and from USD 0.6 to USD 1.5m (assuming fix costs for compliance of USD 0.5m).


[1] Statement
[2 +3] Disclosure of Payments by Resource Extraction Issuers


Further information:


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