Foreign Corrupt Practices Act (FCPA) Enforcement Highlights

For the last year or so there have been a number of articles and CLE programs targeting the FCPA compliance "market" and pointing out to in-house counsel of international corporations and other international practitioners the dangers of recent U.S. Department of Justice (DOJ) enforcement activities. I personally attended an FCPA workshop organized by the Houston Bar Association in February and watched another unrelated FCPA program in June, both of which contained extensive discussions of recent FCPA enforcement trends. I realize that much of this hype is motivated by the presenters' business development efforts and is (usually) underwritten by large transactional law firms seeking to get their name out to the in-house crowd. However, I also came across some recent FCPA enforcement statistics and it appears that the DOJ is indeed up to something as far as increased FCPA investigations, prosecutions, monitoring and fines. A few clear trends appear:

1. The DOJ has increased its investigation activities regarding potential FCPA violations. The number of investigations practically doubled from 2005 through 2007. Foreign companies seem to have been hit particularly hard. The number of US companies under investigation is still higher, but the ratio is changing with a substantially higher number of foreign companies being investigated as well.

2. There were several large scale consolidated investigations in the last several years. E.g., in 2007 the DOJ opened an investigation against several oil companies' customs payments in Nigeria.

3. The number of cases prosecuted has pretty much doubled. There is a clear trend of increased number of FCPA prosecutions against individual executives, sales personnel, etc. The total penalties imposed by the DOJ in FCPA-related cases have increased as a result.

4. A lot of FCPA investigations these days seem to be conducted in tandem with similar investigations in other countries. The German company Siemens stands out as having been investigated in numerous jurisdictions for FCPA-type violations.

5. There is a trend of appointing FCPA monitoring consultants. It appears that the default term for such monitoring is up to three (3) years.

6. Lastly, as a result of the increased enforcement and the increased advertisement of FCPA issues among the international legal practitioners, the DOJ has seen a lot more self-reporting of FCPA violations. There are at least three cases where potential FCPA issues were uncovered during M&A due diligence and were voluntarily reported to the DOJ.

In light of the tougher FCPA enforcement environment, international companies may find it practical to apply for a DOJ opinion/release letter in advance of adopting some potentially questionable practice. They could also benefit if they pay better attention to potential FCPA issues during due diligence investigations of M&A targets and self-report the cases where wrongful conduct has been uncovered.

Updated UK Rules on Short Positions in Certain Derivatives

In June of this year, the UK Financial Services Authority (FSA) amended its Code of Market Conduct to require holders to disclose short positions of 0.25% or more of an issuer’s share capital where the issuer’s securities are listed on an exchange (except AIM) and where the issuer is undertaking a rights issue. In addition, in July, the FSA released the result of a study on current disclosure of derivative holdings, concluding that certain derivative long positions must be reported at a 3% holding. Final rules are expected early in 2009.

A few highlights on the UK rules:

-- 3% holdings in voting rights must be disclosed;

-- transactions in securities, where the issuer is under a takeover offer, by any person who holds gross long derivatives on 1% of those securities must be disclosed;

-- open net short positions of 0.25% or more of a listed company (excluding AIM-listed companies) which is undertaking a rights issue must be disclosed.

New SEC Interpretive Release on Website Disclosure

On August 1, 2008 the U.S. Securities and Exchange Commission released intepretive guidance regarding website disclosures by public companies. Among others, the new release attempts to deal with some of the issues concerning applicability of Regulation FD, some securities fraud and liability issues, enhance the way public companies can communicate with investors via features such as RSS feeds, blogs and discussion forums. However, in well-established SEC tradition, the interpretation leaves numerous matters into a sort of securities law gray area. For example, it is unclear how the selective disclosure requirements of Regulation FD will be enforced, or how the proxy solicitation rules would apply in the context of online disclosure. If anything, the interpretation leaves room for even further interpretation and clarification and I seriously doubt that it will open the gates to diversified online public disclosure by U.S. issuers. If anything, I expect public companies to continue to operate within their current websites' status quo.

If you crave some dense reading into the more obscure SEC disclosure and Exchange Act compliance rules, you may visit:

http://www.sec.gov/rules/interp/2008/34-58288.pdf