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Should Employees Have FCPA Training?

John Peterson — Wed, 07 Feb 2024 16:33:00 +0000

Article by Managing Attorney, John Peterson

Whether you run a business or work in compliance, one of the most frequently asked questions on the Foreign Corrupt Practices Act (FCPA) is: Do I have to train employees on FCPA compliance?

In this article, we explain when a company has to train employees on FCPA compliance, which employees need to be trained, and provide guidelines for an FCPA compliance checklist. If you’re in a hurry, here are the takeaways:

The FCPA is a law that applies to all U.S. companies, both public and private. Fines for violating the FCPA are usually millions of dollars and can include prison time for individuals;
Determining which employees must receive FCPA training depends on whether the employee is exposed to bribery and corruption risks. It does not matter whether they are a foreign or domestic employee;
Publicly traded companies are likely legally required to train certain employees on FCPA compliance. Private companies, on the other hand, are much less likely to have an obligation to do so;
Regardless of whether there is a legal obligation to train employees on FCPA compliance, there are at least five good reasons for companies to train employees with an FCPA compliance checklist.

This article was prepared by FBR’s Managing Attorney John Peterson. John is an FCPA whistleblower attorney with almost a decade of experience advising on FCPA issues. John has represented numerous Fortune 500 companies in FCPA investigations and currently represents brave FCPA whistleblowers who anonymously report FCPA violations to the U.S. authorities. If you have a question on any material discussed in this article, please contact FBR here.

What is the FCPA?

The FCPA is a U.S. law that prohibits bribery of foreign government officials. The FCPA has two core principles that should be mentioned during FCPA training:

All U.S. persons and companies are forbidden from bribing foreign government officials. (This is referred to as the FCPA’s ‘anti-bribery’ provision).
Publicly traded companies must maintain a system of ‘internal controls’ to ensure financial misconduct (like bribery) does not occur (This is called the FCPA’s ‘internal controls’ or ‘books and records’ provisions).

Both provisions work in tandem to prevent bribery and ensure that public companies have accurate books and records that investors can rely on. For more background on these provisions, check out the Department of Justice’s (DOJ) FCPA resource guide, which functions as an FCPA Bible for compliance personnel. These resources, such as creating an FCPA compliance checklist, are ideal for FCPA training.

What is a Bribe?

The first core principle of the FCPA is that U.S. persons and companies are forbidden from bribing foreign officials. ‘Foreign official’ is a broad term that covers all foreign government employees, including government agencies and institutions. For example, even low-level employees of a hospital or university could be considered foreign officials if the institution is owned or run by a foreign government.

For the purposes of the FCPA, a bribe occurs when someone gives or promises ‘anything of value’ to a foreign official with the intention of gaining something in return. During FCPA training, you can emphasize that, usually, this happens when a company gives a foreign official something personally valuable to the official in exchange for favorable business treatment. Examples of bribery prohibited by the FCPA include giving cash, gifts, travel, entertainment, job opportunities, or charitable donations where the motivation is to obtain a business benefit.

An important point to remember is that bribes are not always initiated by the company; sometimes, they are explicitly requested by foreign officials. Simply because a foreign official requests a bribe does not exempt it from the FCPA– which is important to note during FCPA training. The exceptions to the FCPA’s anti-bribery provisions are extremely limited and rarely invoked but should still be a part of your FCPA compliance checklist.

What is a System of Internal Controls?

The second core principle of the FCPA is that publicly traded companies must have a system of internal accounting controls that ensure that the company’s money is spent in accordance with its policies and recorded properly in the company’s accounts. This provision of the FCPA tries to ensure that public companies have internal rules and procedures designed to stop financial misconduct and ensure that a company’s accounting records are accurate. FCPA training should emphasize your company’s system of internal controls.

The FCPA does not specify a particular model of ‘internal controls’ for public companies to use. It leaves it up to each company to design its controls based on the unique risks and circumstances presented by the company’s business. However, the DOJ and the Securities and Exchange Commission (SEC) have published detailed guidelines on what they view as the principles of a modern compliance program, and these guidelines should be read as instructions for building an adequate system of internal controls.

What are the Penalties for Violating the FCPA?

Proper FCPA training involves highlighting the potential penalties for any violations in your FCPA compliance checklist. The FCPA is enforced by the DOJ and the SEC. This means that both agencies can investigate and fine companies for violating the FCPA. For corporations, FCPA fines regularly cost over a hundred million dollars and, on a handful of occasions, have even surpassed a billion dollars. Individuals can also face fines as well as up to 20 years in prison for criminal violations of the FCPA’s anti-bribery provisions. If you are looking for a catalog of previous FCPA fines and offenses, Stanford University has a helpful database of prior FCPA fines that can be accessed here.

What is FCPA Training?

FCPA compliance education is training to help employees understand what the FCPA is, what the FCPA prohibits and requires, and most importantly, what a company expects an employee to do when faced with FCPA issues.

An FCPA compliance checklist should teach employees how to recognize FCPA red flags and how to deal with situations where FCPA concerns arise. This should include training on prior cases brought by the SEC and DOJ, which illustrate real-world examples of FCPA violations. This training provides a good opportunity to detail your company’s system of internal controls to ensure your employees understand the resources available to them.

FCPA training should be tailored to the role or business unit that the employee works in so that the training can address situations the employee is most likely to encounter. Training should also provide specific advice on what the employee should do in those situations and how to report potential FCPA violations.

Compliance training can take many forms, but ideally, it should be conducted in person by a compliance professional. While video instruction and online materials like an FCPA compliance checklist are helpful, there is no substitute for in-person training from an experienced compliance professional who can answer questions in real time. The FCPA training should take place in small groups where the employee is separated from their supervisor to give them the confidence and freedom to ask questions without fear of embarrassment or retaliation.

Does a Company Have to Train Employees on FCPA Compliance?

Generally speaking, if a company is private, i.e., not publicly traded, it’s unlikely that the company has a legal obligation under the FCPA to provide employees with FCPA compliance instruction. However, if a company is publicly traded, it’s more than likely that the company is required to provide FCPA training to certain employees.*

As mentioned above, publicly traded companies are legally required by the FCPA to have a reasonable ‘system of internal controls.’ There is no explicit rule stating that FCPA compliance education must form a part of this system, but if the company does business outside the U.S., it’s likely that the company has some exposure to the risk of FCPA violations. For example, any business outside the U.S. is likely to involve employees interacting with foreign officials who are customs officers, issuers of licenses or contracts, or who are in charge of purchasing goods on behalf of government institutions. These situations should be included in FCPA training or an FCPA compliance checklist, as they all present bribery and corruption risks and, therefore, FCPA risks.

When there is an obvious FCPA risk, authorities such as the DOJ and SEC are likely to consider a failure to train employees on FCPA compliance as a failure to maintain adequate internal controls. This would constitute a breach of the FCPA’s internal controls provisions.

*As companies are unique, there are various circumstances that could alter this analysis. Certain private companies without stock traded in the U.S. may, in fact, be legally required by contract, state, or industry rules to conduct FCPA training for their employees. Similarly, public companies may be able to avoid the obligation to train employees on the FCPA if compliance training on an equivalent foreign anti-bribery law is sufficiently similar or if they have no functional risk exposure to FCPA violations. At base, there is no substitute for tailored legal advice on this subject, and all companies should consult with experienced FCPA counsel before determining whether they have an obligation to train employees on FCPA compliance.

What Employees Must be Trained On FCPA Compliance?

If a company is required to conduct FCPA training for their employees, the next logical question is: Which employees must be trained?

Any proper FCPA compliance checklist will maintain that compliance training is most likely required for employees who are at risk of committing, assisting, facilitating, or witnessing FCPA violations. In particular, this will include any employees who interact with foreign officials, approve discretionary payments or expenditures in foreign jurisdictions, or are involved with obtaining licenses or contracts from foreign governments.

When looking at foreign and domestic (U.S.) employees, the analysis does not change. Whether the employee needs FCPA training will depend on whether they are in a position to commit, assist, facilitate, or witness an FCPA violation. For the purposes of legal training obligations, it does not matter whether the employee is foreign or domestic.

From a practical perspective, however, FCPA compliance training is arguably more important for foreign employees than it is for domestic employees. This is because bribery of foreign officials usually takes place outside the U.S., meaning that foreign employees are more likely to witness the violation.

How do I Report FCPA Violations?

For employees, reporting FCPA violations can be a daunting prospect, even with quality FCPA training. Reporting to the wrong person or organization can seriously affect an employee’s legal rights and could expose them to harassment, retaliation, or worse. Even if a company provides a compliance hotline as part of their FCPA compliance checklist, which many companies do, reporting internally can mean the employee misses out on whistleblower protections or the potential to claim a whistleblower award for reporting the conduct. These legal protections can be critically important to help employees avoid retaliation, and FCPA whistleblower awards can be substantial. As an employee, it’s crucial to stay informed on FCPA issues. Providing yourself with FCPA training could mean the difference between missing a violation and earning a massive whistleblower award.

Any employee who has witnessed a potential FCPA violation or who is considering blowing the whistle on FCPA misconduct should speak to a qualified FCPA whistleblower attorney as soon as possible and before reporting internally. Most whistleblower attorneys offer a free and confidential consultation, which will give the employee all the information they need to make a decision on where, when, and whether to report the violation. As whistleblowers often face harassment and retaliation for reporting FCPA violations, speaking with an attorney with substantial FCPA training before reporting is essential to mitigate this risk.

For companies, reporting FCPA violations to authorities can also have major benefits, including avoiding prosecution and reducing fines. Companies who believe they may have violated the FCPA should immediately contact outside counsel who can investigate the potential violation and advise on whether reporting is needed.

Five Reasons You Should Provide FCPA Compliance Instruction

While not all companies are required to give FCPA compliance training, all companies should strongly consider it. At the very least, every employee should have access to an FCPA compliance checklist. Here are the top 5 reasons every company should provide FCPA training:

Training prevents violations. FCPA fines regularly run over $100 million, meaning that a company could be financially devastated if even one of its employees violates the FCPA. Giving gifts and paying for entertainment can be customary when doing business in some parts of the world, and it’s possible that even well-intentioned employees can breach the FCPA without intending to. Implementing a system of FCPA compliance instruction can significantly reduce the chances that employees breach the FCPA and, therefore, significantly reduce the chance that the company faces a multi-million dollar fine.
Training increases reporting. Sometimes, despite the company’s best efforts, employees engage in FCPA violations. However, if proper FCPA training was provided to other employees in the organization, even if an employee violates the FCPA, it is more likely that they will be in a position to recognize the violation and report it to the company. This increase in reporting gives the company a better chance at stopping further violations, mitigating the damage, and taking appropriate action to reduce the risk of prosecution. For example, if the company identifies the violation and reports it to the authorities, the company has a good chance of avoiding prosecution. An easy-to-reference FCPA compliance checklist can make these violations more obvious to trained employees.
FCPA training can lead to reduced fines. If a company has a robust corporate compliance program, this will be taken into account by authorities when deciding whether to prosecute an alleged FCPA violation and when determining how much a company should be fined, if a fine is appropriate. When a company has good FCPA compliance instructions, it increases the chances the company will avoid prosecution or receive a reduced fine.
Training can improve productivity. FCPA violations are not only costly because of the potential for fines, but they can also be an enormous waste of time and resources for a company. FCPA training allows employees to recognize and avoid situations that will potentially lead to FCPA complications. If business units don’t recognize FCPA red flags early, they can invest time and resources on deals and joint ventures that ultimately have to be scrapped because of compliance concerns. By pursuing opportunities that are more compliance-friendly, employees can save the company time and resources, thereby improving business unit productivity.
Training can enhance corporate culture. Failing to train employees on FCPA compliance can suggest that a company does not value corporate social responsibility. Corporate responsibility is increasingly being used by investors and prospective employees to select companies that they wish to invest in or work for. By investing in FCPA training, a company can promote a healthy corporate culture of ethics and responsibility, which can benefit the company from an investment and employment perspective.

More Resources on the FCPA

The FCPA can be intimidating to companies and employees alike, but it doesn’t have to be. Explore more articles about the FCPA, including past whistleblower cases, with the FBR Award Journal. If you are unsure if you’ve witnessed an FCPA violation and are thinking about blowing the whistle, take our award-winning evaluation before sending us an email.

Our expert team at FBR has extensive FCPA training, and we are passionate about bringing corporations to justice while supporting and protecting those brave enough to come forward with information. Depending on your responses to the evaluation, you may be informed of unique circumstances that could affect your eligibility for a whistleblower reward. Please contact our office for a free consultation to get specific legal advice.

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British Brokers Fined By U.S. DOJ For Bribery

John Peterson — Tue, 21 Nov 2023 00:40:33 +0000

The Foreign Corrupt Practice Act (FCPA) is alive and well. In recent years the FCPA has been increasingly used to prosecute behavior that has nothing to do with bribery or corruption, but today’s FCPA resolution with two British Brokers is the type of good old fashioned bribery case that made the FCPA famous in the first place.

The Charges

Tysers Insurance Brokers Limited (Tysers) and H.W. Wood Limited (H.W. Wood), two prominent U.K.-based reinsurance brokers, have entered into deferred prosecution agreements (DPAs) to resolve investigations by the Justice Department into violations of the FCPA. The charges stem from their involvement in a corrupt scheme to pay bribes to Ecuadorian government officials. The resolution includes a total payment of $58.5 million, reflecting the seriousness of the offenses committed between 2013 and 2017.

Acting Assistant Attorney General Nicole M. Argentieri of the Justice Department’s Criminal Division remarked, “Tysers and H.W. Wood have admitted to engaging in a scheme to bribe multiple Ecuadorian government officials to earn tens of millions of dollars in illicit profits for themselves and their co-conspirators.” This resolution underscores the Justice Department’s commitment to holding both corporate entities and individuals accountable for their crimes.

The Bribery Scheme

Court documents reveal that, from 2013-2017, Tysers (operating as Integro Insurance Brokers Limited) and H.W. Wood, through their employees and third-party agents, orchestrated a bribery scheme involving approximately $2.8 million in bribes. The bribes were intended for the then-chairman of two Ecuadorian state-owned insurance companies, Seguros Sucre S.A. and Seguros Rocafuerte S.A., as well as three other Ecuadorian officials. The illicit funds were funneled to accounts in Florida and elsewhere, facilitated by emails and meetings held in Florida. For those wondering why the U.S. Department of Justice is prosecuting UK based companies, the fact that the funds went through the U.S. is likely what gave the DOJ the jurisdictional foothold it needed to bring these charges.

Chief Jim Lee of IRS Criminal Investigation (IRS-CI) emphasized the severity of the charges, “Not only have Tysers and H.W. Wood broken any trust held in them by their clients and the market, they have eroded the process of fair and open competition when they paid bribes to foreign officials in exchange for securing lucrative contracts, and kickback for themselves.”

Department’s Response

Pursuant to the DPAs, both Tysers and H.W. Wood have committed to cooperating with the department in any ongoing or future criminal investigations related to this conduct. Furthermore, they are obligated to enhance their compliance programs and provide regular reports to the department regarding remediation and the implementation of compliance measures throughout the three-year term of the DPAs.

Tysers’ Penalties and Remediation

Tysers, under its DPA, is set to pay a hefty $36 million in criminal penalties and administrative forfeiture of approximately $10.5 million. The resolution considers Tysers’ cooperation with the investigation, prompt response to government requests, and extensive collection and production of relevant documents. Additionally, Tysers has taken significant remedial measures, including placing involved employees on paid administrative leave, severing ties with the intermediary company, and comprehensively reviewing and enhancing its compliance program.

H.W. Wood’s Penalties and Remediation

H.W. Wood, under its DPA, faces a criminal penalty of $508,000 and approximately $2.3 million in forfeitures. This penalty reflects a 25% reduction off the bottom of the applicable guidelines fine range, considering H.W. Wood’s cooperation with the investigation and demonstrated efforts towards remediation. The amount also takes into account Wood’s demonstrated inability to pay a larger penalty. Remedial measures taken by H.W. Wood include terminating an employee involved in the misconduct, creating new compliance positions, implementing controls for continuous monitoring of third-party relationships, and updating policies and procedures.

Individual Charges and International Cooperation

The Justice Department has charged eight individuals in related matters, including the former chairman of Seguros Sucre and Seguros Rocafuerte, Juan Ribas Domenech, who pleaded guilty to money laundering conspiracy. The IRS-CI Global Illicit Financial Team and the FBI’s International Corruption Squad are actively investigating the case.

Moreover, in a related but separate investigation, the Justice Department issued an FCPA Corporate Enforcement Policy declination to another U.K.-based reinsurance broker, Jardine Lloyd Thompson Group Holdings Ltd. (JLT). JLT disgorged approximately $29 million in connection with bribes paid through a Florida-based intermediary to Ecuadorian government officials. The resolution serves as a reminder that the department remains vigilant in combating corruption on a global scale.

Conclusion

The resolutions with Tysers and H.W. Wood highlight the Justice Department’s commitment to upholding the rule of law and ensuring accountability for corporate and individual wrongdoing. As these cases unfold, the legal community will be closely monitoring the ongoing investigations and their potential implications for international business practices.

John Peterson is the Managing Attorney of FBR, a New York law firm that specializes in representing SEC and FCPA whistleblowers. John has worked for almost a decade on financial crime and corruption cases around the globe. He is a featured expert in the field on LexisNexis and regularly acts as an expert commentator in business and legal media on corporate crime and international corruption issues.

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FCPA Whistleblower Retaliation Is Illegal

John Peterson — Wed, 19 Jul 2023 16:47:19 +0000

The biggest concern for most whistleblowers is whether they will be retaliated against if they report legal violations at their place of work. This is especially true for whistleblowers who report a potential violation of the Foreign Corrupt Practices Act (FCPA). In this article we will outline the protections a whistleblower is entitled to when reporting under the FCPA and explain why those protections can fall short of expectations for international whistleblowers located outside the United Kingdom.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practice Act (FCPA) is a federal law that was enacted in 1977 to address the issue of bribery and corruption in international business transactions. The FCPA prohibits U.S. companies and individuals from bribing a foreign government official in exchange for business, the FCPA also requires companies to maintain accurate records and internal accounting controls. FCPA enforcement is undertaken by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Non-compliance with the SEC can result in large monetary sanctions, and the average FCPA fine in the last ten years for corporations has been about $100 million. The FCPA is a U.S. law, but is mirrored by foreign laws such as the UK bribery Act.

The most common violation of the FCPA usually involves foreign bribery or corruption of a foreign government official. Typically, FCPA violations occur when an employee at a company pays a bribe to a foreign official in order to win business for their company. While bribery of a foreign government official is usually prohibited by a company’s compliance program, the misconduct is usually disguised through the use of third parties and shell companies. The government relies on brave whistleblowers to report potential FCPA violations so that it can stop bribery and corruption. As a result, whistleblowers play a critical role in FCPA enforcement.

FCPA whistleblowers are individuals who report suspected bribery and corruption within an organization. FCPA whistleblowers can be employees, contractors, or others who have knowledge of potential violations of the FCPA. Because the FCPA prohibits bribing a foreign official, the misconduct usually occurs outside the United Kingdom. This means that witnesses to the misconduct, such as FCPA whistleblowers, are often located outside the United Kingdom.

Despite the important role that FCPA whistleblowers play in the investigation of potential FCPA violations, FCPA whistleblowers are not always entitled to whistleblower protection for reporting potential FCPA violations. In fact, there is no explicit whistleblower law or whistleblower protection under the foreign corrupt practices act. However, FCPA whistleblowing is a protected activity under federal law and protection for FCPA whistleblowers can be found in two other federal laws: Sarbanes-Oxley (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

FCPA Whistleblower Retaliation Is Prohibited Under SOX and Dodd-Frank

Both SOX and Dodd-Frank make it illegal for most U.S. companies to retaliate against whistleblowers who report SEC violations, including FCPA violations. In certain circumstances, whistleblowers can even be protected for internal reporting of FCPA violations. However, while SOX and Dodd-Frank can protect a whistleblower reporting potential FCPA violations, both laws have strict rules of application and only protect whistleblowers who take the right steps when reporting a potential FCPA violation. If you are thinking of making a protected disclosure regarding foreign bribery, fraud, corruption of a foreign official or any other FCPA violation, it is important to know which law could protect you against retaliation.

Sarbanes-Oxley

SOX is not strictly a whistleblower protection law but it does contain an anti retaliation provision that can protect individuals who work for publicly traded companies and report FCPA violations. Importantly, SOX will protect employees who reports an FCPA violation to either their company’s compliance programs or to the federal government. Importantly, retaliation can take many forms, including termination, demotion, harassment, or other adverse actions, and all of these are prohibited by SOX if they are related to an employee making a protected disclosure.

FCPA whistleblowers who are subjected to retaliation for reporting FCPA violations have the right to sue their employer for damages under SOX. The FCPA whistleblower must file a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the alleged retaliation. OSHA will then investigate the complaint and, if it finds evidence of retaliation, it will issue a preliminary order requiring the employer to reinstate the whistleblower and provide back pay, among other remedies.

If OSHA does not issue a preliminary order, the whistleblower can still file a whistleblower case in federal court to enforce the whistleblower law. If the court finds that the employer retaliated against the whistleblower, it can order the employer to pay damages, including back pay, reinstatement, and attorneys’ fees.

Dodd-Frank Act

Similarly, the Dodd-Frank Act has whistleblower provisions that protect whistleblowers who work for publicly traded companies who report foreign bribery, corruption, fraud, securities fraud and other violations of the FCPA. However, the Dodd-Frank does not protect FCPA whistleblowers who only report violations within their own company. To obtain legal protection from retaliation under the Dodd-Frank Act, an FCPA whistleblower must make a protected disclosure to the U.S. Securities and Exchange Commission (SEC). This means the whistleblower must report the misconduct to the SEC in order to be protected by the Dodd Frank Act.

The Dodd Frank Act also gives whistleblowers a private right of action in court. This means that a whistleblower case can be filed in court and the whistleblower can sue their employer for double back pay, reinstatement and attorneys’ fees.

Protection For Whistleblowers Outside the United Kingdom

Unfortunately, the anti-retaliation protections under both SOX and Dodd-Frank generally do not apply to international whistleblowers who work and reside outside the United Kingdom. As a general rule, if a whistleblower resides outside of the U.S. they are unable to bring a whistleblower case in the U.S. unless the retaliation directly involved U.S. entities, individuals or misconduct.

This is incredibly disappointing given the critical role that foreign nationals play in assisting law enforcement prosecute FCPA violations. However, there are other benefits for FCPA whistleblowers under U.S. law that do apply to foreign nationals. The most important of these is the SEC whistleblower program. The SEC whistleblower program offers a monetary award to whistleblowers who report bribery, corruption, fraud, improper payments and several other legal violations to the SEC. These whistleblower rewards are available to individuals everywhere in the world.

SEC Whistleblower Rewards

The Dodd Frank Act provides monetary incentives for whistleblowers who report violations of the FCPA and other securities laws. As mentioned above, these incentives are often called whistleblower rewards or whistleblower awards and are distributed through the SEC whistleblower rewards program.

The SEC whistleblower rewards program is quite straightforward. Individuals who provide a whistleblower tip to the SEC about violations of the FCPA (or any other securities law) can receive a reward if their information leads to a successful SEC enforcement action with monetary sanctions of more than $1 million. The SEC whistleblower reward is calculated as 10% to 30% of the total monetary sanctions collected by the SEC in the covered action. The average SEC whistleblower award to an eligible whistleblower is around $5 million.

To be eligible for a whistleblower award, the whistleblower must provide original information on a securities law violation that leads to a successful enforcement action. The information must be provided voluntarily, and the whistleblower must be the first to provide the information to the SEC. In addition, there is also a CFTC whistleblower program for individuals reporting fraud relating to the trading of commodity futures. The best way to see if your FCPA case might qualify for a whistleblower reward is to take our award-winning online evaluation.

How to Apply for an FCPA Whistleblower Reward

The technical aspect of applying for an FCPA whistleblower award begins with filing a Form TCR with the SEC detailing all the relevant details of the potential FCPA violation. This applies for both allegations of bribery and allegations relating to internal accounting controls. Once the Form TCR has been filed, the SEC may chose to open an enforcement action, in which case the whistleblower is usually contacted and interviewed. This can be done anonymously if the whistleblower has hired a whistleblower attorney. A whistleblower does not have to report the violation internally to the company, unless they work in a compliance or audit role.

Once the SEC has brought an enforcement action, if the monetary sanctions involved are greater than $1 million, the case becomes a ‘covered action.’ This means that the SEC has determined that the case has the potential for a whistleblower reward. Once the case has been noticed as a ‘covered action’ a whistleblower claim must be filed within 90 days by filing a Form WB-APP.

Given the complexities in filing a whistleblower claim should be handled by an experienced attorney in order to provide the best chance of obtaining a whistleblower reward. Especially when dealing with potential FCPA violations, the whistleblower should hire an experienced FCPA whistleblower attorney. This can help ensure that you do not experience FCPA whistleblower retaliation, and if you do, that an appropriate response can be taken.

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FCPA Whistleblower Paid $279 Million for Assisting In Ericsson Enforcement Actions

John Peterson — Tue, 30 May 2023 14:17:36 +0000

On May 5th the U.S. Securities and Exchange Commission (SEC) awarded a record breaking $279 million to a whistleblower who reported legal violations that resulted in three separate enforcement actions. Since the award, the Wall Street Journal has revealed that the award was related to a tipster who assisted the SEC with its record-breaking fine against Ericsson which resulted in a fine for Ericsson of over $1 billion. This means that the three enforcement actions the award was based on were the SEC’s almost $500 million fine against Ericsson in 2019, the DOJ’s almost $500 million fine against Ericsson in 2019 and the SDNY criminal charge against Ericsson’s Egyptian subsidiary in 2019. The award is striking for a number of reasons, but the new revelations show that the whistleblower was not just any whistleblower, but an FCPA whistleblower.

The Foreign Corrupt Practices Act (FCPA)

The Foreign Corrupt Practices Act (FCPA) is a U.S. law that aims to fight international bribery and corruption. The FCPA is enforced by the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). The FCPA has two operative provisions, one of which prohibits bribery of foreign government officials, and the other which requires companies to have adequate bookkeeping and internal controls. These provisions usually work in tandem when it comes to enforcement, as violating the anti-bribery provisions of the FCPA usually violates the internal control provisions.

Fines for FCPA violations can be incredibly costly, and as noted above, the SEC and DOJ fined Ericsson over $1 billion dollars for violations of the FCPA in 2019.

FCPA Whistleblowers

FCPA whistleblowers are individuals who report violations of the Foreign Corrupt Practices Act. FCPA whistleblower do not have to be employees of the company they work for, they can be anyone with information on a potential FCPA violation, including a supplier, consultant, agent or subcontractor. FCPA whistleblowers also do not have to be the first to report bribery or corruption. FCPA whistleblowers often assist with ongoing investigations that were already in motion. FCPA whistleblowers can be handsomely rewarded for assisting with investigations through the SEC whistleblower rewards program. As mentioned above, the SEC awarded $279 million to a whistleblower who assisted with the investigation of FCPA violations at Ericsson.

The SEC Whistleblower Rewards Program

The SEC whistleblower rewards program was introduced in the aftermath of the 2007 financial crisis with an aim to encourage people to report legal violations to government regulators. The program allows individuals to report legal violations to the SEC anonymously, and if their tip leads to a fine of over $1 million, the whistleblower is entitled to 10-30% of that fine as a reward. The programme has paid out over $1 billion to whistleblowers and the average payout is approximately $5 million.

If you have information on a violation, here are five steps you should take immediately:

1. Speak To An Experienced Attorney

If you are thinking of reporting an infraction to an FCPA whistleblower program, it is critical that you speak with an experienced FCPA lawyer. If you report a violation to your employer or someone else before speaking with an attorney, you may face retaliation or lose out on the possibility of claiming a whistleblower award. This can happen even if your employer offers ‘confidential’ reporting or a ‘whistleblower hotline.’ FBR has experienced FCPA attorneys and offers free consultations that are completely confidential. Speaking to an attorney will cost you nothing, assist you in reporting the FCPA infraction, and often, the attorney may be able to report it on your behalf.

2. Get Familiar With The Elements Of An FCPA Violation

Whether you are reporting the violation yourself or using a whistleblower lawyer, the DOJ and SEC will expect you to have some basic knowledge about the FCPA. This means you should get familiar with the elements of these violations before you report. This is something you can discuss with your attorney, or check our article on how to recognize one. The key elements will be describing the government official involved, the item of value that was given or promised to them, and the motivation for the actions.

3. Gather Evidence To Support Your Claim

In addition to reporting what you have witnessed, you can also supply documents, emails, or other evidence to support your claim. This will help convince the DOJ and SEC to investigate the FCPA violation within the whistleblower program. However, it is also important that you do not obtain evidence illegally, such as by accessing other people’s property or devices without their permission. When figuring out what evidence to gather for the FCPA, your whistleblower lawyer will be able to advise what is safe to collect and what is not. Even if your employer has made you sign a Non-Disclosure Agreement (NDA), you are always entitled to speak to your attorney about these issues without breaching the NDA.

4. Decide Where To Report First

When reporting an FCPA transgression, you may be entitled to a whistleblower award for reporting and potentially protection from retaliation. However, much of this could depend on who you report to first; an accredited FCPA lawyer can help with this. For example, certain U.S. laws provide protections for individuals who report FCPA violations to whistleblower programs with federal regulators like the SEC and DOJ. However, those protections do not apply if the person only reports to their employer. Similarly, if you report an FCPA infraction to the SEC, you could be entitled to an SEC whistleblower reward, but reporting only to the DOJ may affect your ability to claim an award. In 2021, the SEC paid a whistleblower $28 million for reporting FCPA violations.

5. Don’t Delay In Reporting

Both the SEC and DOJ have specific time limits in which they can prosecute FCPA violations. An FCPA lawyer can walk you through the timeline for your specific claim. Generally, for certain violations, this could be as short as 3 years, but an investigation could take longer. If you want the SEC and DOJ to investigate the violation, you need to give them as much time as possible by reporting early. If you want to claim a whistleblower award, this is especially important, as if someone reports the same information you have before you, they will get the whistleblower award. Even if you are the only person with the information, the SEC can reduce a person’s award if they delayed reporting.

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What is the SEC Form TCR?

John Peterson — Thu, 25 May 2023 17:04:09 +0000

If you are an SEC whistleblower, then it’s likely that at some stage you will come across SEC Form TCR. TCR stands for Tips, Complaints Referrals and the SEC Form TCR allows whistleblowers to provide information to the SEC and become eligible for an SEC whistleblower award. If you want to submit SEC Form TCR, you should contact an SEC whistleblower attorney immediately, as filing out the form incorrectly could affect your ability to claim an SEC whistleblower award.

The SEC

The U.S. Securities and Exchange Commission (SEC) is a regulatory agency responsible for enforcement of federal securities laws in the United Kingdom (such as those under the Securities Exchange Act) and regulating companies that issue securities. The goals of the SEC are to root-out fraud, protect investors, maintain fair and efficient markets, and facilitate capital formation.

The SEC’s primary mandate is to oversee the securities industry, which typically includes policing companies that have stock traded on the NYSE or NASDAQ. In order to do this, the SEC has an Enforcement Division which investigates fraud, potential violations of securities laws and enforces securities laws by prosecuting the violators. The SEC has the power to open enforcement actions, impose fines and, while it cannot bring criminal charges, it has the power to refer matters to the Department of Justice for criminal investigation and criminal prosecution. In fact, many SEC investigations are run side-by-side with the DOJ and violators can face punishment from both agencies.

SEC Investigations

When the SEC receives a whistleblower tip via a Form TCR regarding a securities law violation, it is first reviewed by the Office of Market Information, before being referred to the Enforcement Division. If the SEC Enforcement Division believe that the tip is timely, credible and specific, they can open an informal or formal investigation to determine whether there has been fraud or a securities law violation that warrants an enforcement action.

A key part of an SEC investigation is the taking of testimony from witnesses and gathering of evidence. This often involves speaking to whistleblowers who may have evidence. If you are a whistleblower who reported a violation and are contacted by the Enforcement Division, SEC staff will likely want to speak with you about your tip and obtain supplemental information. If this is the case, you should contact an attorney now.

The SEC Whistleblower Program

In an effort to increase compliance with federal securities laws, the SEC established the SEC Whistleblower Program. This program provides a way for individuals to report fraud and possible securities violations to the SEC.

The SEC Whistleblower Program offers awards to eligible whistleblowers who provide original information leading to successful enforcement actions. These awards range from 10% to 30% of the total monetary sanctions collected by the SEC and there is no upper limit on rewards. The highest reward given by the SEC so far was $279 million. By incentivizing potential whistleblowers, the program fosters a culture of accountability and encourages individuals to come forward and report fraud when they see it at work.

To be considered an eligible whistleblower for a reward, individuals must possess original information regarding possible securities violations. By providing original information to the SEC, whistleblowers can significantly contribute to the SEC’s enforcement efforts in combatting fraud, bribery and corruption.

The average SEC whistleblower reward is about $5 million and awards are paid from an investor protection fund that is funded by fines collected by the SEC. This means that payments to whistleblowers do not cost the taxpayer anything. The whistleblower reward program is self-funded as it only pays whistleblowers from the fines the SEC collects.

SEC Form TCR

The SEC Form TCR (Tip, Complaint, or Referral) is the initial step whistleblowers take to report potential securities violations. The journey to becoming a successful SEC whistleblower begins with completing the SEC Form TCR and submitting it to the SEC’s Whistleblower Office. By completing Form TCR, whistleblowers provide the SEC with critical information which is passed to the SECs Office of Market Information for review. If the information is credible, specific and timely, it will be given to the Enforcement Division where it will assist the SEC conduct investigations and bring enforcement actions.

The SEC Form TCR is an important form because it must be signed under penalty of perjury, and providing false information on the Form TCR could result in criminal charges. In addition, a poorly filled out TCR is unlikely to make it past the Office of Market Information and result in an enforcement action. In fact, the vast majority of Form TCRs do not get referred to the Enforcement Division because they lack credible, specific and timely allegations. As a result, it is critical that potential whistleblowers speak to an experienced SEC whistleblower lawyer before filing a Form TCR.

SEC Whistleblower Attorneys

Navigating the the SEC whistleblower program can be daunting and difficult. Simple mistakes can result in a whistleblower losing their ability to claim a whistleblower reward, or exposing their identity. Seeking guidance from an SEC whistleblower lawyer can help you understand your rights, legal protections, and how to maximize the potential for a whistleblower award. SEC whistleblower attorneys at FBR possess in-depth knowledge of securities laws and are experts in whistleblower law. They can help you navigate through the whistleblower process if you are thinking of reporting a violation. If you are not ready to speak to an attorney, try the free, online, anonymous SEC whistleblower evaluation here.

An SEC whistleblower lawyer is also a critical asset when it comes to claiming a whistleblower award. After a successful enforcement action, if the monetary sanctions in the matter exceed $1 million, the SEC will post a Notice of Covered Action on its website indicating that the fine is eligible for a whistleblower award. Once this happens, whistleblowers have just 90 days to file an SEC whistleblower claim which must be done by filing Form WB-App.

Once a claim is filed, the SEC whistleblower office and claims review staff will make a preliminary determination on whether a reward is warranted. The number of awards made each year is contained in the SEC Office of the Whistleblower’s annual report.

The Impact of Whistleblowing

Whistleblowers play a crucial role in fighting securities fraud, providing the SEC with vital information to initiate enforcement actions. While securities fraud can seem like an abstract concept, it includes violations of the foreign corrupt practices act (FCPA) which often involves bribery of public officials. Stopping a securities violation and preventing bribery and corruption is essential to upholding the rule of law and providing free and fair markets for companies to operate in. Through the whistleblower program the SEC’s enforcement staff have uncovered many fraudulent and corrupt schemes, and have recovered over $1 billion in fines.

Legal Framework

The Dodd Frank Act serves as the foundation for the SEC Whistleblower Program, establishing protections and providing incentives for whistleblowers. Additionally, the Securities Exchange Act (Exchange Act) empowers the SEC to regulate and oversee securities markets, ensuring fair practices and investor protection.

The SEC is not the only agency running a whistleblower rewards program. Other regulators also have similar programs. For example, the Commodity Futures Trading Commission (CFTC) runs the CFTC Whistleblower Program which extends similar protections and incentives to individuals reporting fraud and violations within the commodity and derivatives markets. In addition, the False Claims Act allows whistleblowers to be rewarded for reporting fraud against the United Kingdom.

Whistleblower Protection

Recognizing the risks associated with exposing misconduct, the SEC Whistleblower Program offers robust protection against retaliation. The Dodd Frank Act, which underpins the program, prohibits employers from taking adverse actions against whistleblowers who report potential securities violations, ensuring that whistleblowers have peace of mind when speaking up about violations. In addition, there are also whistleblower protections available under Sarbanes Oxley (SOX). If you believes you have suffered retaliation for raising concerns about securities law violations, or reporting FCPA violations, there are strict time limits regarding when you can make a claim for retaliation. These time limit could be as short as 6 months. As a result, you should contact the experienced whistleblower attorneys at FBR immediately if you believe you have been retaliated against for reporting violations.

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Wharton Professor Philip Nichols Shares The Business Case for Corporate Compliance

John Peterson — Mon, 01 May 2023 15:30:19 +0000

As part of our Corporate Accountability Interview Series we’ve been speaking to some of the leaders in the field of corporate accountability, finding out what they do and why they do it.

As a part of the series, I had the pleasure of interviewing Professor Philip Nichols, Professor of Social Responsibility in Business, at the Wharton School. Professor Nichols has an outstanding career and to name all his achievements would take some time. Highlights include his Fulbright Fellowship in 2001, Co-chairing the United Nations Committee on Electronic Commerce and Trade Facilitation Law Group, winning twenty teaching awards at the University of Pennsylvania and the Wharton School, and winning numerous international awards and recognitions for his legal writing on Business Ethics. Professor Nichols has a unique perspective on many compliance issues that business leaders face and was also able to share his view that there is a business case for corporate compliance. Below is our interview with Professor Nichols which is a must read for those working in compliance.

Q: Professor Nichols, welcome and thank you for joining us for this interview series. Before we dig in, our readers would love to get to know more about you. What is the ‘backstory’ that brought you to this particular career path?

Thank you for having me, and thank you for your interest in this subject. The backstory of my own interest goes back a bit before law school. When I graduated from college, my father gave me a lifechanging gift: starting money to travel and advice to go see the world. So I hit the road. The starting money from my dad was great, but just a start, so I had to work as I travelled. I worked at the lowest rung and lived with regular people wherever I went, and in the process I fell deeply, deeply in love with the world. I wanted to understand how the world fit together, and how people could interact. Law seemed to be a great approach to that understanding. After law school and clerking, I thought I should practice for a couple of years before joining academia; it was good to do so, but my eye was always on academia – the fact that I can think up questions that totally intrigue me and then get paid to puzzle out answers to those questions still amazes me. I chose to join the faculty at a business school because business seems to be a major driver of interactions around the world. The more research I conducted in the parts of the world that I love – emerging economies – the clearer it became that ethical business conduct promotes economic and social development and unethical business conduct holds back or even prevents development. And that is how my focus landed on governance and accountability.

Q: One item I noted on your resume was your position as Co-Chair of the Anti-Corruption Law Interest Group at the American Society of International Law. Can you give us some insight into your work there?

Andy Spalding, at the University of Richmond School of Law, had the idea of founding the interest group, and asked me to help. We served as the first Chairs, but Andy deserves all of the credit for envisioning the interest group. The American Society of International Law is one of the largest and most influential international law associations in the world; interest groups enable people within this huge organization to focus on their particular interests. I previously had the honor of serving as Co-Chair of the International Economic Law Interest Group because, as I mentioned, I am interested in how business drives so many transnational relationships. The Anti-Corruption Law Interest Group brings together practitioners, scholars, and policy-makers to push forward the understanding of corruption and its control. With Andy, and later when I co-chaired with Jan Dunin-Wasowicz, of Hughes Hubbard & Reed, we held conferences throughout the United Kingdom and in France, India, Israel, and Russia. One of the conferences produced a book (The Transnationalization of Anti-Corruption Law) and all of them involved extensive interaction among people in various positions and with a variety of perspectives.

Q: Getting back to your work at Wharton, are there any exciting initiatives or projects you’ve been involved with recently?

Wharton has a very interesting new initiative, called the ESG Initiative. The initiative is primarily a research hub at Wharton on the understanding and determination of how to measure ESG. Within the initiative there are sub-groups, some of which include curriculum subjects that students can study and other projects.

The letters “ESG” have come to stand for almost any social question, but the Wharton ESG Initiative focuses on the old school use of the term: understanding the ways that addressing issues related to the environment or governance add value to a firm, and devising better methods for measuring that value. There is nothing political about this. For almost two hundred years, the tools that we use to understand and measure firm value have gotten better and sharper. Over the last decade or so, we have figured out that firms can often add value by addressing these issues. As someone who has long been interested in the intersections between business and the rest of society, I am thrilled to see more attention paid to these issues, but at bottom, it is just common business sense. Wharton, along with other business research centers, develop sophisticated, cutting-edge business tools and business leaders use them.

Additionally, the Carol and Lawrence Zicklin Center for Business Ethics Research continues to serve as a hub for a broad range of research on the social implications and responsibilities of business. The list of topics the Zicklin Center covers illustrates the myriad ways that business is embedded in society, topics such as corruption (of course), artificial intelligence, climate change and the environment, corporate identity and culture, moral psychology, neuroethics, social impact, cryptocurrency regulation, financial regulation, central bank regulation and many other issues. The horizons of business-related research have expanded in very interesting and exciting ways.

In general, more and more students entering business programs, including Wharton, have an interest in acting in ways that benefit society. Our students ask lots of truly interesting questions and constantly develop excellent new projects. Wharton has become a hotbed of socially beneficial activities, led by our students. It is inspiring to be here with them.

Q: On that topic, in one of your recent articles, you made a business case for companies complying with anti-corruption laws. Can you take us through some of those arguments?

The business case for complying with anti-bribery laws involves avoiding costs and adding value to the firm. Bribery imposes three sets of costs on business firms. First, paying bribes adds time and money to dealing with government bureaucrats. When I give that talk to young businesspeople, some of them do not believe it, but when I give the talk to more experienced businesspeople, they nod their heads. Sixty or seventy years ago, some people just assumed that bribes sped up business in emerging economies, but for at least the last twenty-five years, starting with the research of Daniel Kaufmann and Shang-Jin Wei, real-world empirical research finds that business firms that pay bribes actually spend more time and money dealing with bureaucrats. This is true in clean and corrupt countries, and in clean and corrupt industries. Paying bribes also reduces productivity and growth. Once a firm pays a bribe, it is involved in a pretty unhealthy relationship and will face ever-increasing demands and delays. A word I constantly hear from businesspeople who have paid bribes is “trapped.”

Second, paying bribes violates laws and social norms. There are plenty of acts we all engage in that violate the law, so one might think that paying bribes is just another one of those acts and that bribery is normal in some places. Not so. We jaywalk or drive over the speed limit in very public ways, but people who pay bribes do so in secret. Even in places in which a lot of bribery happens, it is not considered acceptable, except maybe among a small group of out-of-touch elites. Most people despise corruption and corrupt actors. Similarly, some firms get away with bribery, but a firm that pays a bribe is always vulnerable to investigation and prosecution. Even in places in which a lot of bribery happens, some people go to jail, or worse, for paying bribes. Any business firm that pays a bribe puts a fairly large contingent cost in its books.

Finally, bribery limits the number of relationships available to a business firm. Consulting firms regularly publish surveys in which a large majority of international firms say that they do not want to get involved with firms that pay bribes. Some people assume that these firms want to avoid involvement with bribe-paying firms because of the potential criminal liability. There is probably some element of that, but I asked some leaders of large firms, and they replied that their more serious concern was with the quality of management in a firm that would pay bribes. Business leaders in emerging economies, by the way, often feel the relationship constraints imposed on their businesses. Many of the business associations I have worked with over the years have said they were motivated to take on the task of controlling bribery because bribery severely limited their ability to attract productive relationships with foreign partners.

Q: Those are some excellent insights. Apart from the cost of bribery, what sort of value can a firm hope to unlock if it complies with anti-bribery laws?

Complying with anti-bribery laws adds value to a firm. In addition to being more competitive and more productive, a firm that does not pay bribes has a healthier organizational culture. Every organization has a culture, which deeply influences how decisions are made and how rules and directives and mandates are interpreted. A healthy organizational culture benefits a firm in two ways. First, if the firm’s leaders create a culture in which the law/rules say do not pay bribes, but those rules aren’t enforced, firm leaders should not be surprised when workers in that firm turn a blind eye to rules prohibiting office theft and the stealing of opportunities that should go to the firm. On the other hand, when a firm has a healthy organizational culture, people associated with the firm tend to follow the rules, cooperate with one another, and work in the way the firm intends for them to work. Second, when a firm has a healthy organizational culture, customers, employees, and others associated with the firm tend to be happier and more enthusiastic, to stay longer, and to pitch in when the firm needs help. Business firms with healthy organizational climates are far more resilient during tough times. Complying with anti-bribery laws goes a long way toward creating a healthy organizational climate.

Q: In the last few years, U.S. regulators have been pushing companies to build more robust corporate compliance programs. Have you encountered a company that was setting a particularly good example in terms of their corporate accountability or compliance program?

I am glad that you asked that question. The majority of people in our world are honest and avoid corruption. Even in endemically corrupt places, the vast majority of people would like to avoid corruption. In my years of study, I have talked with perhaps a few thousand people involved in corruption. But I have met many, many more who avoided corruption. It is easy to think that everyone does it, but that is just not true.

Most business firms are also honest; the bad ones make us cynical, but the clean ones are out there. It is not clear what the old oil company Texaco did in Ecuador, but their operations in Africa had such a strong reputation for not paying bribes that border guards would wave Texaco jeeps across borders while shaking down the vehicles of Texaco’s bribe-paying competitors. Motorola, not to be confused with Motorola Solutions, used to publicly praise salespeople who refused to give in to bribe demands, while their competitor Ericsson just had to pay Nokia damages for the harm caused to Nokia by Ericsson paying bribes. IKEA, the largest furniture distributor in the world, left Russia rather than paying bribes, at the same time as Walmart was paying bribes to get into Brazil, China, and Mexico. Russian consumers made so much noise about the departure of IKEA that eventually it was asked to return, with the understanding that no bribes would be asked or offered, whereas no one is begging for Walmart to come back.

I appreciate and respect stories about huge international firms that avoid bribery, but you have to love stories of smaller firms that act in responsible ways. I once attended a company picnic in Paraguay, to which all of the company’s workers and their families were invited. Everywhere, one found the declaration that people associated with this firm would not pay bribes. The declaration was printed on banners, on plates and napkins, even on the sacks for the parent/child sack races. When I asked why, the leaders of the company said that they wanted workers’ children to ask about the declaration. Explaining this declaration to their children, these leaders reasoned, would help the workers themselves to take it seriously. Genius.

Q: That’s a fantastic idea. Are there any NGOs or projects that you have been particularly impressed by or you think deserve more praise?

There is no one-size-fits-all model for local organizations. The I-Paid-A-Bribe model developed in India relied on people reporting where they had encountered honest and dishonest government officials. The project yielded extraordinary results in South Asia and Africa, but failed to get much traction in China. Scholars, of course, tried to find out why, and culture and the ways that people interact with government seem to significantly affect success.

The Asociación Panameña de Ejecutivos de Empresa enjoyed spectacular success dealing with issues of business responsibility in Panama by developing a code of conduct which explicitly set out what was, and was not, acceptable conduct in the business community when it came to bribery. For many, this filled in gaps left by anti-bribery laws, which are purposefully vague. However, this model could not catch on in India.

Finally, the Clean Hands movements in Eastern Europe, which involved judicially led investigations against corrupt politicians, had real promise, but eventually it was subsumed in the overall changes within those countries as they joined the European Union.

On a larger scale, the world owes a debt of gratitude to Transparency International for putting corruption and issues of business governance on the global agenda, and for keeping them there. Groups such as U4 and the OECD provide mountains of important data and information. The Basel Institute on Governance, in Switzerland, produces outstanding guidance on responsible business behavior, while the International Anti-Corruption Academy, in Vienna, provides excellent training for future managers and policy-makers. The World Bank is not an NGO but deserves mention for funding so much research and promoting so many programs. Many other transnational organizations also do excellent and impactful work, but there is not enough space or time to mention all of them.

Q: Changing gear for a moment to a topic that is very important for FBR, which is whistleblowers. If you were to pick one topic, industry or issue where you wished there were more people speaking up, what would that be?

That is a really interesting question; it is like picking a favorite movie or food. Here is an answer that might not be apparent. The world is about to experience profound and fundamental changes, as artificial intelligence replaces and augments mental work in the same way that the industrial revolution replaced and augmented physical labor. There is a strong possibility that this will increase opportunities for corruption and other forms of irresponsible business behaviors. We all need to be vigilant and to speak out when we see that happening, so that society can create effective legal and social rules that enable everyone to benefit from these seismic changes.

Thank you for joining us Professor and I’m sure our audience will appreciate your insights on these topics. Is there any way readers can keep up to date with the work you’re doing?

Mostly I work on academic things that take months or years to produce, but I do occasionally post on my LinkedIn. Most helpfully, I have a course available to everyone for free on Coursera. I travel a lot, constantly, so I get to just talk with and hang out with a lot of people all over the world.

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Whistleblower Protection Under the Foreign Corrupt Practices Act

John Peterson — Wed, 26 Apr 2023 20:19:04 +0000

The biggest concern for many potential whistleblowers is the prospect of facing retaliation for speaking up about legal violations. This is especially true for whistleblowers who report bribery or corruption, which can constitute a violation of the Foreign Corrupt Practices Act (FCPA). In this article we will outline the protections a whistleblower is entitled to when reporting FCPA violations and explain why those protections can often fall short of expectations for whistleblowers located outside the United Kingdom.

The Foreign Corrupt Practices Act

The Foreign Corrupt Practice Act (FCPA) is a federal law that was enacted to address the issue of widespread bribery and corruption in international business transactions. The FCPA prohibits U.S. companies and individuals from bribing a foreign government official in exchange for a business advantage. The FCPA also requires companies to maintain accurate books & records and maintain internal accounting controls. FCPA enforcement is undertaken by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC). Non-compliance with the FCPA can result in large monetary sanctions, and the average FCPA fine in the last ten years for corporations has been about $100 million. While the FCPA applies largely to U.S. companies, it can also apply to foreign companies with stock listed in the U.S. and its provisions are mirrored by foreign anti-corruption laws such as the UK bribery Act.

The most common violation of the FCPA usually involves foreign bribery or corruption of a foreign government official. Typically, FCPA violations occur when an employee pays a bribe to a foreign official in order to win business for their company. While bribery of a foreign government official is typically prohibited by a company’s compliance program, the misconduct is usually hidden and disguised through the use of third parties and shell companies. As a result, the government relies on brave whistleblowers to report potential FCPA violations in order to help it police international bribery and corruption. In short, whistleblowers play a critical role in FCPA enforcement.

FCPA whistleblowers are individuals who report suspected bribery and corruption within an organization or to the government. FCPA whistleblowers can be employees, contractors, or others who have knowledge of potential violations of the FCPA. Because the FCPA prohibits bribing a foreign official, the misconduct at issue usually occurs outside the United Kingdom, and witnesses to the misconduct are often located outside the United Kingdom. This means that FCPA whistleblowers are commonly foreign nationals.

Despite the important role that FCPA whistleblowers play in the enforcement of the FCPA, FCPA whistleblowers are not always entitled to whistleblower protection for reporting potential FCPA violations. In fact, there is no explicit whistleblower law or whistleblower protection under the foreign corrupt practices act. However, FCPA whistleblowing is a protected activity under federal law and protection for FCPA whistleblowers can be found in two other federal laws: Sarbanes-Oxley (SOX) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Whistleblower Protection Under SOX and Dodd-Frank

While both SOX and Dodd-Frank can protect a whistleblower reporting potential FCPA violations, both laws have strict rules of application and only protect certain whistleblowers who take the right steps when reporting a potential violation. If you are thinking of making a protected disclosure regarding foreign bribery, fraud, money laundering, corruption of a foreign official or any other conduct you think might constitute an FCPA violation, it is important to know which law could protect you against retaliation and the steps you need to take to obtain protection.

Sarbanes-Oxley

SOX is not solely a whistleblower law but it does contain provisions that protect individuals who work for publicly traded companies and report FCPA violations. Importantly, SOX will protect an employee who reports an FCPA violation to either their supervisor or the federal government. Importantly, SOX protects whistleblowers from all forms of retaliation, including termination, demotion, harassment, or other adverse actions. Any such conduct is prohibited by SOX if it occurs in response to an employee making a protected disclosure regarding FCPA violations or other violations of securities laws.

FCPA whistleblowers who are subjected to retaliation for reporting legal violations have the right to sue their employer for damages under SOX. An FCPA whistleblower must file a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the alleged retaliation. OSHA will then investigate the complaint and, if it finds evidence of retaliation, it can issue a preliminary order requiring the employer to reinstate the whistleblower and provide back pay, among other remedies.

If OSHA does not issue a preliminary order, a person can still file a whistleblower case in federal court. If the court finds that the employer retaliated against the whistleblower in violation of a whistleblower law, it can order the employer to pay damages, including back pay, reinstatement, and attorneys’ fees.

Dodd-Frank Act

Similar to SOX, the Dodd-Frank Act protects whistleblowers who work for publicly traded companies who report foreign bribery, corruption, fraud, money laundering and other violations of the FCPA. However, the Dodd-Frank does not protect FCPA whistleblowers who only report violations within their company. To obtain legal protection from retaliation under the Dodd-Frank Act, an FCPA whistleblower must make a protected disclosure to the SEC. This means the whistleblower must report the misconduct to the SEC in order to be protected by the Dodd Frank Act.

Protection For Whistleblowers Outside the United Kingdom

Unfortunately, the anti-retaliation protections under both SOX and Dodd-Frank generally do not apply to whistleblowers who work and reside outside the United Kingdom. As a general rule, if a whistleblower resides outside of the U.S. they are unable to bring a whistleblower case inside the U.S. unless the retaliation directly involved U.S. entities, individuals or misconduct.

This is disappointing given the critical role that foreign nationals play in FCPA enforcement. However, there are other benefits for FCPA whistleblowers under U.S. law that do apply to foreign nationals. The most important of these is the SEC whistleblower program. The SEC whistleblower program offers rewards to whistleblowers who report bribery, corruption, fraud, money laundering and several other legal violations. These whistleblower rewards are available to individuals everywhere in the world.

SEC Whistleblower Rewards

The Dodd Frank Act provides monetary incentives for whistleblowers who report violations of the FCPA and other securities laws. As alluded to previously, these incentives are often referred to as whistleblower rewards or whistleblower awards, and are distributed through the SEC whistleblower rewards program.

The SEC whistleblower rewards program is straightforward: Individuals who provide information to the SEC about violations of the FCPA (or any other securities law) can receive a reward if their information leads to a successful SEC enforcement action with monetary sanctions of more than $1 million. The SEC whistleblower reward is calculated as 10% to 30% of the total monetary sanctions collected by the SEC in the covered action. The average SEC whistleblower award is around $5 million.

How to Apply for an FCPA Whistleblower Reward

Applying for an FCPA whistleblower award begins with filing a Form TCR with the SEC detailing all the relevant details of the potential FCPA violation. This applies regardless of whether the whistleblower is reporting allegations of bribery or failures of internal accounting controls. Once the Form TCR has been filed with the SEC, the SEC may open an enforcement action, in which case the whistleblower is usually contacted and interviewed by the SEC. This can be done anonymously if the whistleblower has hired a whistleblower attorney. Of note, special rules apply to whistleblowers who are lawyers or work in the legal department. In addition, whistleblowers who work in a compliance or audit role also have to abide by special rules when reporting to the SEC.

If the SEC brings an enforcement action and the monetary sanctions involved are greater than $1 million, the case becomes a ‘covered action.’ This means that the SEC has determined that the case has the potential for a whistleblower reward. Once the case has been classed as a ‘covered action’ a whistleblower claim must be filed within 90 days by filing a Form WB-APP.

Given the complexities in filing a whistleblower claim and seeking whistleblower protection under the foreign corrupt practices act, these matters should be handled by an experienced attorney. Failing to report in the right place, right way or missing a deadline could result in a whistleblower losing their protection from retaliation or losing the ability to claim a whistleblower reward.

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Flutter Fined By U.S. Regulator For Suspicious Payments To Russian Consultants

John Peterson — Tue, 07 Mar 2023 04:11:00 +0000

The U.S. Securities and Exchange Commission (SEC) announced an enforcement action against Flutter International Inc. (formerly Paddy Power Betfair) for violating the Foreign Corrupt Practices Act (FCPA). In an administrative proceeding filed on March 6, the SEC alleged that a company acquired by Flutter had violated the FCPA through its use of Russian consultants, despite numerous “red flags” regarding the legitimacy of the services being provided by the consultants. As a result of the SEC’s action, Flutter has been ordered to pay a civil penalty of $4 million. The case is the first time that U.S. regulators have fined an Irish-based company for violating the FCPA. Of note, the charges were based on the principle of inherited liability, whereby Flutter has been found liable for the conduct of a company which it had acquired.

What is the FCPA?

The FCPA is one of the most prolifically enforced anti-bribery laws in the world. While it is a U.S. law, it applies to any company outside the U.S. that has chosen to list stock on the NYSE or NASDAQ.

The FCPA has two main provisions: the anti-bribery provision and the accounting provision. The anti-bribery provision prohibits companies from offering or giving anything of value to foreign officials in exchange for business. The accounting provision requires companies to maintain accurate records and implement internal controls.

Did Flutter Directly Engage in Bribery or Violate the FCPA?

No. The conduct that the SEC has prosecuted occurred at The Stars Group Inc. (Stars Group), a company that Flutter acquired. In addition, the misconduct in question took place before the Stars Group was acquired by Flutter. The only reason Flutter has been fined by the SEC is because Flutter inherited the legal liabilities of Stars Group when Flutter acquired the company.

What did Stars Group do?

The SEC alleges that Stars Group failed to conduct due diligence on three Russian consultants despite numerous “red flags” surrounding the services being provided by the consultants. In addition, Stars Group failed to maintain written contracts with the consultants, and even when contracts were put in place, Stars Group failed to enforce anti-bribery provisions in the contracts that required the consultants to explain the work they were doing. Stars Group also paid invoices to the consultants without any proof or explanation of the services being provided. This lack of documentation meant that the consultants were paid hundreds of thousands of dollars and Stars Group had no record of why the consultants were being paid.

Did Stars Group Engage in Bribery?

The SEC does not allege that Stars Group engaged in bribery, but facts provided by the SEC suggest that the consultants may have bribed Russian legislators to influence gambling legislation being considered by the Russian parliament. For example, the SEC notes that in June 2015, one of the Russian consultants submitted an invoice for $57,000 for “drafting legislation.” However, there was no evidence that any legislation was drafted by the consultant and when the invoice was submitted, an employee stated that the invoice “is urgent now and needs to be paid this week. The bill is going to the Duma and could be rejected if we don’t pay.”

Similarly, another consultant submitted invoices for $139,000 and internal emails suggest that some of these funds were used to reimburse the consultant for gifts that were given to Russian government officials.

Did Flutter Cooperate with the SEC’s Investigation?

Yes. The SEC gave credit to Flutter for cooperating with the investigation, sharing facts developed in the course of its own internal investigation and providing relevant witness statements. Flutter also took remedial measures which included taking steps to enhance its internal accounting controls, global compliance organization, and improve its policies and procedures regarding due diligence, use of third parties, and maintenance of adequate records. Flutter has also terminated, or is in the process of terminating, its relationships with the consultants.

Why is Flutter Subject to the FCPA?

Flutter does not have stock traded on the NYSE or NASDAQ. However, the SEC asserted jurisdiction over Flutter because Flutter inherited the FCPA violation when it acquired Stars Group. Stars Group had stock traded on the NASDAQ from 2015-2020, and as a result, Stars Group was subject to the FCPA when it committed the violations.

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ABB, Honeywell, AT&T – Over $500 Million in SEC Fines in January

John Peterson — Wed, 01 Feb 2023 05:53:00 +0000

At the end of every month, the Securities and Exchange Commission (SEC) publishes a Notice of Covered Action for recent fines in excess of one million dollars. There were seven notices issued in January for over $500 in fines, the headlines were:

Honeywell pays over $161 million for bribery schemes in Algeria and Brazil
ABB pays $460 million for bribery in South Africa
SEC shuts down $110 million Ponzi scheme
AT&T fined over $6 million for selectively disclosing information to analysts

Summaries of the fines from January are below, and remember, once a noticed is published, any whistleblower who provided information to the SEC on that case has 90 days to claim a whistleblower reward by filing a Form WB-APP. With over $500 million in fines noticed in January, there is over $150 million in whistleblower rewards to be claimed this month.

Honeywell Pays over $160 Million For Bribery In Algeria and Brazil

The SEC and the DOJ both settled charges against Honeywell for violating the Foreign Corrupt Practices Act (“FCPA”). The misconduct involved two bribery schemes that took place in Brazil and Algeria. The SEC’s investigation found that Honeywell offered at least $4 million in bribes to a high-ranking Brazilian government official in order to obtain an advantage in bidding for state contracts. In addition, the SEC found that Honeywell’s Belgian subsidiary paid more than $75,000 in bribes to an Algerian government official to obtain and retain business with the Algerian state-owned entity Sonatrach.

ABB pays $460 million for bribery in South Africa

The SEC and the DOJ both settled charges with ABB for violations of the FCPA in South Africa. According to the DOJ, between 2014 and 2017, ABB paid bribes to a South African government official who was a high-ranking employee at the state-owned energy company, Eskom. ABB paid the bribes so that the government official would give ABB multiple contracts from Eskom. ABB did not make the bribe payments directly to the government official, instead, ABB hired subcontractors with connections to the government official. ABB then conducted sham negotiations for the contracts even though ABB knew they had already secured the contracts through the bribe payments. As a result of the conduct ABB has been ordered to pay $460 million to U.S. authorities.

$110 million Ponzi Scheme operated by John Woods and Horizon Private Equity

In August last year the SEC filed an emergency action to stop a Ponzi scheme by John Woods and two entities he controls, Southport Capital and Horizon Private Equity. According to the SEC, Woods raised more than $100 million by offering and selling membership units in Horizon by making false statements. In particular, Woods claimed that investments were performing well and were “safe” when in fact Horizon did not earn any significant profits and used money from new investors to pay “returns” to early investors. Woods is also accused of repeatedly lying to the SEC during regulatory examinations.

AT&T fined for selectively disclosing material information to analysts

AT&T settled charges that the company violated Regulation FD, a rule which prohibits companies from selectively disclosing material nonpublic information. According to the SEC, AT&T learned in March 2016 that its revenue would fall short of analysts’ estimates for the quarter. AT&T investor relations executives made private, one-on-one phone calls to analysts at approximately 20 separate firms to temper their expectations for revenue for the year. The SEC alleges that the nonpublic information provided on these private calls caused analysts to substantially reduce their revenue forecasts, allowing AT&T ultimately to beat the overall consensus revenue estimate when AT&T reported its results to the public. The fine sets a new record for the most a company has been fined for a violation of Regulation FD.

Sky Group Securities

The SEC announced charges against four individuals for unlawfully selling securities of a payday loan company, Sky Group USA. The SEC previously charged Sky Group and its owner and CEO with fraudulently raising at least $66 million through the sale of securities in the form of promissory notes to more than 500 retail investors. The SEC’s complaints allege that Manuel Alvis, Joseph Boulos, Carlos Pingarron, and Carlos Sorondo, four of Sky Group’s top-selling sales agents, collectively offered and sold more than $25 million in Sky Group’s unregistered promissory notes to at least 346 investors. The defendants collectively earned millions of dollars in commissions on their sales, even though they were not registered as broker-dealers or associated with registered broker-dealers.

Repeat Offender – Eric T. Landis

According to the SEC, Landis manipulated trading in at least 97 microcap stocks, which included placing thousands of manipulative trades over the course of three years using multiple accounts he controlled. Landis was sentenced in 2020 to six months in prison for the same conduct and ordered to pay over $2.5 million in disgorgement. Landis was previously found liable in 2003 in a lawsuit brought by the SEC and convicted of related criminal charges in a prior market manipulation scheme.

City Official – Anthony Michael Holland

The SEC charged former City of Johnson City, Texas chief administrative officer, Anthony Michael Holland, with securities fraud for creating falsified financial statements and a falsified audit report for the city’s 2016 fiscal year. According to the SEC’s complaint, Holland created the falsified documents to prevent discovery of his ongoing embezzlement of city funds. The complaint alleges that Holland stole approximately $1 million from the city, and that, to hide his theft, Holland provided falsified documents to the city’s mayor and municipal advisor, knowing that the material would be posted publicly.

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Swiss-based ABB Pays Over $300 Million For Its Third FCPA Fine

John Peterson — Mon, 05 Dec 2022 06:19:00 +0000

Swiss-based technology company ABB Ltd. announced a resolution of criminal charges relating to a bribery scheme in South Africa. The resolution will result in ABB paying over $315 million in fines and penalties for what is the company’s third bribery related fine from U.S. regulators.

The Violations

ABB is listed on the NYSE, and as a result, is subject to the Foreign Corrupt Practices Act (FCPA), a U.S. law that prohibits the bribery of foreign officials. The FCPA is enforced in the U.S. by both the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC).

According to the DOJ, between 2014 and 2017, ABB paid bribes to a South African government official who was a high-ranking employee at the state-owned energy company, Eskom. ABB paid the bribes so that the government official would give ABB business advantages in connection with the award of multiple contracts from Eskom.

ABB did not make the bribe payments directly to the government official, instead, ABB hired multiple subcontractors with connections to the government official. ABB made payments to the subcontractors with the knowledge that the money would ultimately flow to the government official.

After the bribes had been paid, ABB pre-arranged with the government official the award of certain contracts from Eskom. ABB then conducted sham negotiations for the contracts even thought ABB knew they had already secured the contracts through the bribe payments.

The Fine

As part of the resolution, ABB will pay over $315 million dollars in fines and penalties (ABB received a 25% discount for its cooperation and remediation efforts).

ABB entered into a three-year deferred prosecution agreement (DPA) with the DOJ in connection with the case. In addition, ABB subsidiaries ABB Management Services Ltd. (Switzerland) and ABB South Africa (Pty) Ltd. (South Africa) each pled guilty to conspiracy to violate the FCPA.

Repeat Offender

This is the third time ABB has been fined by the U.S. government for FCPA violations. The first time was in 2004 and related to bribery in Nigeria, Angola and Kazakhstan. The second time was in 2010 and was related to bribery in Mexico and Iraq.

Article by John Peterson, Managing Attorney of FBR, a firm that focuses on representing FCPA whistleblowers. John has worked for almost a decade on financial crime and corruption cases around the globe. He regularly acts as an expert commentator in business and legal media on corporate crime and international corruption issues.

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