The FCPA: Sanctions

 

Introduction

 

The Foreign Corrupt Practices Act (“FCPA”) was enacted in 1977 in response to revelations of widespread global corruption discovered during the Watergate investigation.  The legislation was structured to achieve two goals.  First, Congress hoped to raise standards of ethical business conduct by banning the practice of bribing foreign officials.  Second, the legislation sought to increase transparency and accuracy in an organization’s corporate financial records.  To meet these goals, the statute includes two sets of provisions:  (1) the anti-bribery provisions; and (2) the accounting provisions.  Our April and May articles detail the standards of conduct required by each of these parts.

 

The FCPA’s anti-bribery provisions and accounting provisions operate independent of each other.  That is, an organization can violate one set of provisions without the other.  Likewise, each part of the legislation includes its own penalty provisions for civil and criminal violations.  In this article, we will discuss the maximum civil and criminal penalties authorized by the FCPA.

 

Statutory Penalties

 

The consequences of an FCPA violation can be significant.  In addition to collateral damage such as reputational harm, loss of future business, or debarment from government contracting opportunities, FCPA violations trigger significant statutory criminal and civil penalties.  Both the anti-bribery and accounting provisions establish maximum penalties that may be imposed for violations of their respective standards.  The precise sanction authorized by the FCPA involves the interplay of different statutory provisions and regulations including those that provide alternative penalties or adjust monetary fines to account for inflation.  Collectively, the maximum penalties for an FCPA violation are as follows:

 
Anti-bribery Provisions. The FCPA’s anti-bribery provisions authorize both criminal and civil penalties.  For a criminal violation, corporations and business entities are subject to a criminal fine of up to $2 million.[1]  Individuals, on the other hand, face a criminal fine of up to $100,000 and/or imprisonment of up to five years.[2]  As an alternative to the preceding criminal fines, a person or entity may be fined twice the benefit (monetary gain or monetary loss to a third-party) gained by the corrupt conduct.[3]  For a civil violation, corporations and other business entities are subject to a civil penalty of not more than $16,000.[4]  Likewise, the maximum civil penalty that may be assessed against an individual is $16,000.[5]
 
Accounting Provisions. The FCPA provides different statutory penalties for violations of the accounting provisions.  For a criminal violation, business entities are subject to a criminal fine of up to $25 million.[6]  Individuals, on the other hand, are subject to a criminal fine of up to $5 million and/or imprisonment of up to 20 years.[7]  For a civil violation, the maximum penalty authorized by the statute is based on the severity of the conduct underlying the violation.  The maximum penalty ranges from $7,500 to $160,000 for an individual and $80,000 to $775,000 for a business entity.[8]  Alternatively, if greater than the statutory amounts, a person or business entity may be subject to a maximum civil fine in an amount equal to the gross monetary gain resulting from the violation.[9]
 

It is important to note that civil or criminal fines imposed on individuals may not be paid, directly or indirectly, by their employer.[10]

 

The statutory penalties discussed above are on a per violation basis.  As such, even a single scheme can result in significant penalties under the FCPA if it involves a number of corrupt transactions.  To illustrate the significant potential consequences of an FCPA violation, below are the top ten FCPA enforcement actions ranked by monetary penalties:

 
• On December 15, 2008, Siemens AG pled guilty to FCPA violations and agreed to pay a fine of $800 million.[11]
 
• On December 22, 2014, Alstom S.A. pled guilty to FCPA violations and agreed to pay a fine of $772,290,000.[12]
 
• On February 11, 2009, KBR/Halliburton pled guilty and agreed to pay a fine of $579 million.[13]
 
• On March 1, 2010, BAE Systems pled guilty to FCPA violations and was sentenced to pay a $400 million[14]
 
• On May 29, 2013, Total, S.A., resolved charges related to FCPA violations by entering into a Deferred Prosecution Agreement (“DPA”). As part of the agreement, Total, S.A. agreed to pay $398.2 million in fines.[15]
 
• On February 18, 2016, VimpelCom Ltd. reached a global settlement agreement with the Department of Justice, the Securities and Exchange Commission and Dutch regulators to resolve violations of the FCPA. VimpelCom agreed to pay $397.6 million in fines to United States authorities.[16]  In addition, VimpleCom agreed to pay an additional $397.5 million to Dutch regulators.
 
• On January 9, 2014, Alcoa World Alumina, LLC pled guilty to FCPA violations and agreed to pay a fine of $384 million.[17]
 
• On July 7, 2010, Snamprogetti Netherlands B.V. resolved charges related to FCPA violations by entering into a DPA. As part of the agreement, Snamprogetti Netherlands B.V. agreed to pay $365 million in fines.[18]
 
• On June 28, 2010, Technip S.A. resolved charges related to FCPA violations by entering into a DPA. As part of the agreement, Technip S.A. agreed to pay $338 million in fines.[19]
 
• On April 6, 2011, JGC Corporation resolved charges related to FCPA violations by entering into a DPA. As part of the agreement, Technip S.A. agreed to pay $218.8 million in fines.[20]
 

The substantial penalties that can result from an FCPA violation require organizations to take proactive action to assess, address and mitigate their bribery and corruption risk.  Failing to do so is a risky gamble and leaves an organization exposed to significant criminal and civil penalties.

 

Conclusion

 

FCPA enforcement continues to be a high priority area for the Department of Justice and Securities and Exchange Commission.  Given the substantial penalties that may result from a violation, organizations must prepare a comprehensive analysis to identify the areas of their business that present the most significant FCPA risk.  From there, they must develop a detailed anti-bribery and corruption compliance program (“ABC compliance program”) that prioritizes the organization’s focus and resources consistent with the high-risk areas identified by the risk analysis.  An organization’s investment in developing and implementing an ABC compliance program tailored to its business and risk exposure is well worth the effort as it provides an effective game-plan to prevent, detect and address corrupt conduct within an organization.

 


 

[1]  See 15 U.S.C. §78dd-2(g)(1)(A), 78dd-3(e)(1)(A), 78ff(c)(1)(A).

[2]  See 15 U.S.C. §78dd-2(g)(2)(A), 78dd-3(e)(2)(A), 78ff(c)(2)(A).

[3]  See 18 U.S.C. §3571(d).

[4]  See 15 U.S.C. §78dd-2(g)(1)(B), 78dd-3(e)(1)(B), 78ff(c)(1)(B); see also 17 C.F.R. §201.1005 (providing adjustments for inflation).

[5]  See 15 U.S.C. §78dd-2(g)(2)(B), 78dd-3(e)(2)(B), 78ff(c)(2)(B); see also 17 C.F.R. §201.1005 (providing adjustments for inflation).

[6]  See 15 U.S.C. §78ff(a).

[7]  See 15 U.S.C. §78ff(a).

[8]  See 15 U.S.C. §78u(d)(3); see also 17 C.F.R. §201.1005 (providing adjustments for inflation).

[9]  See 15 U.S.C. §78u(d)(3).

[10]  See 15 U.S.C. §78dd-2(g)(3), 78dd-3(e)(3), 78ff(c)(3).

[11] See Department of Justice (“DOJ”) press release, “Siemens AG and Three Subsidiaries Plead Guilty to Foreign Corrupt Practices Act Violations and Agree to Pay $450 Million in Combined Criminal Fines”, December 15, 2008. Press release can be found here. See United States Securities and Exchange Commission (“SEC”) press release, “SEC Charges Siemens AG for Engaging in Worldwide Bribery”, December 15, 2008. Press release can be found here.

[12] See DOJ press release, “Alstom Pleads Guilty and Agrees to Pay $772 Million Criminal Penalty to Resolve Foreign Bribery Charges”, December 22, 2014. Press release can be found here.

[13] See DOJ press release, “Kellogg Brown & Root LLC Pleads Guilty to Foreign Bribery Charges and Agrees to Pay $402 Million Criminal Fine”, February 11, 2009. Press release can be found here. See SEC press release, “SEC Charges KBR and Haliburton for FCPA Violations”, February 11, 2009. Press release can be found here.

[14]  See DOJ press release, “BAE Systems PLC Pleads Guilty and Ordered to Pay $400 Million Criminal Fine”, March 1, 2010. Press release can be found here.

[15]  See DOJ press release, “French Oil and Gas Company, Total, S.A., Charged in the United States and France in Connection with an International Bribery Scheme”, May 29, 2013. Press release can be found here. See SEC press release, “SEC Charges Total S.A. for Illegal Payments to Iranian Official”, May 29, 2013. Press release can be found here.

[16]  See DOJ press release, “VimpelCom Limited and Unitel LLC Enter into Global Foreign Bribery Resolution of More Than $795 Million; United States Seeks $850 Million Forfeiture in Corrupt Proceeds of Bribery Scheme”, February 18, 2016. Press release can be found here. See SEC press release, “VimpelCom to Pay $795 Million in Global Settlement for FCPA Violation”, February 18, 2016. Press release can be found here.

[17]  See DOJ press release, “Alcoa World Alumina Agrees to Plead Guilty to Foreign Bribery and Pay $223 Million in Fines and Forfeiture”, January 9, 2014. Press release can be found here. See SEC press release, “SEC Charges Alcoa With FCPA Violations”, January 9, 2014. Press release can be found here.

[18]  See DOJ press release, “Snamprogetti Netherlands B.V. Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $240 Million Criminal Penalty”, July 7, 2010. Press release can be found here. See SEC press release, “SEC Charges Italian Company and Dutch Subsidiary in Scheme Bribing Nigerian Officials With Carloads of Cash”, July 7, 2010. Press release can be found here.

[19]  See DOJ press release, “Technip S.A. Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $240 Million Criminal Penalty”, June 28, 2010. Press release can be found here. See SEC press release, “SEC Charges Technip with FCPA Violations”, June 28, 2010. Press release can be found here.

[20]  See DOJ press release, “JGC Corporation Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay a $218.8 Million Criminal Penalty”, April 6, 2011. Press release can be found here.

 

*This article is intended to be a source of general information. It is not intended to provide legal advice. For specific counsel or advice, please consult with an experienced professional.
**For any questions or comments, please contact Three Twelve Group by phone at 404.872.5615 or by email at info@thethreetwelvegroup.com.

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