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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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Unique Compliance Perspectives from Business Ethics Expert Bruce Klaw

John Peterson — Wed, 07 Jun 2023 20:48:40 +0000

Business ethics expert Professor Bruce Klaw speaks to FBR as part of the Corporate Accountability Leadership Series

In this interview, Professor Klaw gives a unique perspective on a host of compliance topics including, why we should consider decriminalizing the giving of foreign bribes under US law to increase transparency and prevention, how Uber’s compliance turnaround has set a good example for companies, and why Legal and Compliance personnel need to become problem-solvers within their organizations. The article is a must read for anyone interested in promoting compliance within their organization.

Q: Professor Klaw, thank you for joining us. Before we dive into some business ethics issues, can you tell our readers a little about what brought you to this career path as an expert on business ethics?

A: Of course, John. It’s great to be with you. Since my undergraduate days studying Philosophy, Politics and Law at Binghamton University, I have been attracted to issues of justice and ethics because they lie at the root of so many societal problems. While in law school, I became fascinated with the question of how society aims to prevent, deter, and punish criminality at the individual, firm, and state levels. I was fortunate to translate my passion into an early professional career by concentrating my legal practice on white collar criminal issues and international disputes in both an advisory and litigation capacity, working on matters related to foreign bribery, market manipulation, money laundering, international legal violations and more. Eventually, however, I realized that the way that I could make the greatest difference would be to help educate our next generation of leaders through scholarship and teaching. This allows me to translate the legal and ethical pitfalls that I’ve studied and encountered in practice into lessons that students can use to make better decisions and avoid problems before they start.

Q: Can you tell us about the Department of Business Ethics and Legal Studies at Daniels? Where does the department fit into the business school and how important is it for business schools to have specialized departments that focus on ethics?

The “BELS” Department is an interdisciplinary academic unit in the University of Denver’s business school that is dedicated to research, teaching, and community engagement in the areas of business ethics, business law and compliance, non-market risk and public policy, and sustainable business.

Faculty in the BELS Department teach courses in the College’s undergraduate Bachelor of Science in Business Administration, its MBA programs, and in the Department’s undergraduate business ethics and legal studies minor. The Department strongly supports the Daniels mission to benefit the public good by developing ethical business leaders through impactful scholarship, challenge-driven education, and lifelong learning.

Thanks in part to our namesake, Bill Daniels, we are one of the few business schools in the country to have a department devoted to ensuring that our graduates have the ethical awareness, legal acumen, public policy savvy, and responsible business mindset necessary to thrive in today’s complex business landscape. By having a dedicated department, we are able to ensure that our focus on the public good permeates our curriculum and goes beyond traditional business education.

Q: A few years ago, you wrote a fascinating article on a new strategy for preventing bribery and extortion by decriminalizing bribe givers and mandating increased disclosures. Two questions: Why did you think there was a need for a new strategy, and, why do you think increased disclosure could reduce bribery?

I published this work because our current approach to preventing bribery and extortion under the Foreign Corrupt Practices Act simply isn’t working as well as it could, in part because it focuses only on the supply side of corruption. Although the effort to ensure bribe payer accountability is laudable, corruption unfortunately remains widespread and hidden while its economic, social and political effects are both obvious and widely felt. Companies that engage in international business are not consistently disclosing corrupt transactions and propositions due to the fear of punishment, which allows corrupt foreign officials continue to practice their dark trade with impunity. Meanwhile, the real victims of foreign public corruption—including honest competitors, extorted companies, and foreign citizenry—are seldom provided recourse or restitution. If we can alter incentives for bribe payers to remain quiet, officials may be less likely to solicit or receive bribes. And if implemented alongside other reforms like a private right of action under the FCPA, mandatory disclosure, and greater intergovernmental cooperation, bribe payers may be less likely to make them out of fear of civil suits by competitors and criminal sanctions by foreign governments. In this way, US decriminalization of foreign bribery could aid in prevention.

Q: Most of our readers work in the field of legal, compliance and audit. Often these people are put in a position where they need to convince business counterparts to invest in compliance or adhere to anti-corruption laws. As a lawyer who has become a successful professor at a business school, do you have any practical advice for lawyers who may find it difficult to communicate the importance of compliance to business counterparts?

This is a challenging problem that I hear about regularly. It’s unfortunately easy for business units dedicated to ethics, legal, compliance, and audit to be viewed simply as cost centers rather than critical components of sustainable value creation. To avoid the perception of being the people in a firm who just say “no” and who don’t generate value, people in these vital roles must become adept at providing timely, viable and ethical solutions to thorny business problems. Transitioning from a problem-identifier to a problem-solver requires both speaking and listening.

People in these roles help ensure trust between the firm and its internal and external stakeholders. Without these functions, shareholders would not invest, creditors would not lend, customers would not do business with the firm, and employees would not devote their time to a shared enterprise. Some tactics for flipping this perception include surveying internal stakeholders, benchmarking against industry peers, highlighting ethical successes, seizing opportunities to learn from mistakes, and taking responsibility for the all-important task of establishing an ethical and healthy firm culture.

Q: In the last few years, the Department of Justice (“DOJ”) and Securities and Exchange Commission (“SEC”) have pushed for companies to build more robust corporate compliance programs. There are plenty examples of companies who have fallen short on this front, but in your career, have you encountered a company or organization that was setting a particularly good example in terms of their corporate accountability or compliance program?

You’ve hit the nail on the head, John. In the realm of corporate compliance, it’s much easier to find bad examples than good ones. Firms with well-functioning internal controls and compliance programs seldom make the front page. Fortunately, organizations like Ethisphere and others exist to highlight and celebrate some of the world’s most ethical companies. By highlighting successes, firms can learn from each other.

From my perspective, I like to look at companies that weren’t always a paragon of corporate ethics and compliance but have made notable strides to turn the ship around and refocus corporate culture. One standout of late is Uber. As you know, Uber wasn’t always practicing model behavior and its firm culture was often the subject of public rebuke, much of it well-deserved. In the last few years under new leadership, however, Uber appears to have substantially cleaned up its act. That’s the result not only of a different tone-at-the-top, but also a function of numerous personnel in Ethics & Compliance who have done the hard work of listening to concerns and engaging with stakeholders. There’s continued room to improve, but it’s important that we recognize incremental positive change.

Q: Are there any NGOs or projects that you have been particularly impressed by or you think deserve more praise for the initiatives they’ve used to promote corporate accountability?

I’m a huge fan of the work of Transparency International (“TI”). Year after year, TI does the painstaking work of tracking both progress and backsliding in the global effort to fight transnational corruption. Without civil society organizations like TI, firms would have a more difficult time assessing geographic corruption risk and states would have a harder time holding each other to account to live up to their anti-corruption commitments through legislation and enforcement.

Q: Our practice focuses exclusively on representing whistleblowers rather than the corporations they work for. In your experience, how important are whistleblowers to advancing the goal of corporate accountability?

Whistleblowers are vital to the functioning of our justice system and efforts to ensure corporate accountability. At great personal cost, whistleblowers are the brave few who speak out when they see something wrong. Their insider perspectives are an invaluable source of evidence. While there’s still substantial work to be done to protect whistleblowers from retaliation, I have been heartened by legislation that aims to ensure that good-faith whistleblowers don’t lose their jobs. And I was happy to see the SEC’s recent announcement that it has awarded its largest ever whistleblower bounty, a staggering $279 million, for providing material assistance to regulators. Awards like these provide incentives for others to come forward.

Q: Thank you so much for joining us 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?

Absolutely. I encourage your readership to join our BELS Department mailing list by reaching out to me directly at Bruce.Klaw@du.edu or connecting with me on LinkedIn. This will help them keep up with the initiatives we’re pursuing and join us at one of our public events.

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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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Make Big Changes in Corporate Culture by Changing Small Behaviors

John Peterson — Tue, 23 May 2023 19:31:21 +0000

Business ethics and behavioral science expert Todd Haugh speaks to FBR as part of the Corporate Accountability Leadership Series

As part of our Corporate Accountability Leadership 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 Todd Haugh, Associate Professor of Business Law and Ethics at the Kelley School of Business at Indiana University. Professor Haugh has extensive experience as a white-collar criminal defense attorney, a federal law clerk, and in 2011, he was chosen as one of four Supreme Court Fellows of the Supreme Court of the United Kingdom. Prior to joining the Kelley School, Professor Haugh taught at DePaul University College of Law and Chicago-Kent College of Law. His work has appeared in top law and business journals, he is the co-author of two textbooks on white-collar crime and the legal environment of business, and he is regularly quoted in national news publications such as the New York Times, Wall Street Journal, Forbes, Bloomberg News, and USA Today. For business and compliance leaders looking to make positive changes at their organization, this interview is a must read.

Q: Professor Haugh, thank you for joining us. Before we get into your work in the field of corporate accountability, perhaps you could give our readers a sense of how you became an expert in business ethics.

A: Absolutely, and thanks for having me. So first of all, I definitely didn’t consider that I would end up a professor teaching and writing on topics related to corporate accountability when I started out my career. When I started law school, I wanted to be a trial lawyer and so I began my career at a boutique, white-collar criminal defense firm in Chicago. It was a fantastic place to learn. I would be in front of executives who were dealing with corporate crime issues, and these people had very little exposure to the criminal justice system. While it was rewarding helping people through that challenging experience, what really fascinated me was how those executives ended up in that position—the question of why good people do bad things. Many of the people who are caught acting unethically are good people—they’re great parents, great community members, oftentimes great employees. I wanted to understand why those people got caught up in wrongdoing and that question led me into academia.

A very interesting question I’m sure many corporate leaders would like to know more about. But your expertise in ethics has an interesting niche in that you are also an expert in behavioral science as it applies to business ethics. Can you tell us more about that?

Of course. Behavioral compliance is one of my specialties and what that means is really looking at ways to make ethics and compliance programs better and more effective using behavioral science and psychology. Most of my work is aimed at helping companies and compliance leaders think about how we can use a more scientific method to enhance ethics and compliance. And in my opinion that means helping those leaders make more data-driven decisions when it comes to compliance. This includes figuring out how do we test and understand if new policies and procedures are working. It also includes breaking down sometimes vague concepts about values and translating those into actionable and measurable behaviors. When you begin to understand the power of behavioral science, it helps find answers to these questions, because big changes in corporate culture can be achieved by focusing on and changing very small behaviors. And as you aggregate those small changes in ethical behavior over time and across lots of employees, that’s how you build a positive compliance culture as opposed to always looking at compliance as something that needs to be a set of rules ordered from the top down.

This idea of using behavioral science in compliance is something highlighted in Business Ethics Bound. Can you tell us about Business Ethics Bound and what that is?

Of course. Business Ethics Bound is a website that functions as a research portal and library of material related to business ethics and behavioral compliance. I started Business Ethics Bound so people can come together and learn from shared resources and materials around these topics. For example, the site has a Business Ethics Learning Lab that is used by students, lawyers, academics and business professionals. And the project really has its roots in the origins of why I was interested in compliance and ethics in the first place, which is trying to understand this question of why do we have people who are upright members of society, but who sometimes engage in unethical decision making. I believe we can and should get a deeper understanding of that question and Business Ethics Bound is a place where people can find and share resources that help answer that question.

It’s a great resource and I particularly like the “Nudging Ethics” section of the site where you explain how small interventions can influence decision making. On the topic of improving compliance, there is often criticism levelled at western corporations for not doing enough to combat bribery and corruption within their organizations. Do you think that criticism is justified?

That’s a great question. It’s a tough question because companies generally have made strides in what they’re doing and the values they are trying to live by regardless of the jurisdiction they operate in. There is a sense that when you have more regulation and rising standards in a company’s home jurisdiction, generally it filters out from there because it’s difficult for an organization to operate with different values and rules in every jurisdiction. So, it’s important that there is a lifting of ethical standards across the board. I do think there’s a perception that companies aren’t always doing enough and I’m sympathetic to that because what you see in the media and the news is companies repeatedly getting in trouble for ethical violations. However, despite a lot of negative examples of corporate misconduct in the media, I think generally companies are taking ethics and compliance far more seriously now than they were 10 or 15 years ago.

A very fair point. For those organizations who are looking to do more, is there any practical advice you would have for compliance leaders on how to improve business ethics in their organization?

Compliance departments often see their function as being to stop things, stop violations. That’s why compliance is sometimes known as the ‘department of no’. There are behavioral reasons why compliance and the business teams often separate into different camps, but what you want to think about is risk. How can we help someone in the business unit do their job and do it in a way that reduces compliance risk. Both groups have a common goal in helping the business succeed, so it’s important that compliance knows exactly where the business people are coming from. One strategy that I think compliance leaders need to explore is to deeply understand the business units they are overseeing, in particular the pressures and incentives that the company has created for those business units.

Once you understand those incentives, you then have to take the high-level values and principles you want to promote, and translate those into specific behaviors. Importantly, the company’s stated values are not always the values that are the strongest influencers in the company. It could be unstated values that are expressed through incentive plans that we need to be looking at. Once we identify those values, the challenge becomes translating them into specific behaviors that we want to encourage or discourage.

Another issue to be mindful of is that people are unaware of the influences on their own decision making which is why it’s so important for compliance personnel to look beyond what people say they are affected by and measure behavior and collect data. Compliance personnel are often focused on high level values and business people often just want to be told exactly what they can and cannot do, which is why sometimes we see a disconnect between those two groups. The way to bridge that gap is to find the specific behaviors that we want to encourage and discourage, and then focus on doing exactly that.

Yet many times in compliance we treat ethics in terms of making rules, training people on the rules and expecting people to follow them just because they’ve been exposed to them. Compliance has to be a lot more grounded in behavior. It has to be timelier. It has to give people incentives that are aligned with their lives. For example, things like deferred compensation can have a lot of impact because when a person joins an organization knowing their compensation is deferred, the company is signaling and the employee is opting into an understanding that their compensation is contingent on them following the rules for quite a long time. That to me is a more behaviorally cognizant way of thinking about an incentive as opposed to just assuming everyone will be a rational actor and follow the rules.

That’s a fantastic point about assuming that people will be rational actors, because often people who make unethical decisions have found a way to rationalize it.

Yes, there is a quote that says to have an ethical decision you just need time and the lack of rationalizations. To me that is spot on because a lot of my work draws from criminological theory which demonstrates that rationalizations are the linchpin of ethical violations in business and white-collar crime. It’s an instinct that’s been around for thousands of years, which is that we want to get what’s best for us, but we also want to be seen as someone who’s ethical. Rationalizations are the bridge that allows us those two things to operate at the same time and potentially engage in unethical behavior that benefits us.

For our final question, we mentioned earlier that there are plenty examples of companies who have fallen short in corporate accountability, but have you encountered a company or organization that was setting a particularly good example in terms of their corporate accountability or compliance program?

I’ll avoid talking about specific companies, but I can address some traits of companies who I believe are taking the right approach. But before I get to that, I’ll admit I get a little frustrated with people’s focus on the bad actor when it comes to ethics and compliance. If you think about the total number of transactions that occur in a day across the world, it would most likely be in the trillions. I would estimate that 99.99% of those transactions are done in an ethical way without any problem. Even though there’s wrongdoing and we should be cognizant of it and do our best to stop it, most of the time companies actually do a pretty darn good job from an ethical standpoint.

So having said that, the companies that are thinking about compliance in the right way follow similar steps. They are talking about values and ethics and compliance all the time so that it’s baked into their day-to-day. It’s not a yearly speech from the CEO, it’s something that they really have embedded into the vernacular of their company. The other thing companies who are taking the right approach are doing is they’ve done the work of translating their high-level values into specific behaviors. They get a lot more specific when it comes to compliance than just generic value statements that we often see. The companies who are doing it right are able to articulate the behaviors they want to see in granular form. Another thing these companies are doing is measuring those behaviors and rewarding the behavior they want to encourage. That can be through compensation but it could also include performance evaluations or professional progression in the organization into a leadership position.

And then the final one, which is overlooked a lot, is being accountable for misconduct. Every large organization with enough employees is going to have an ethical breakdown or violation at some moment. It’s the company’s job to deal with that. To me, strongest companies ethically are ones that talk about and own their ethical failures. They don’t try to hide them, they don’t run from them. They don’t try to cover them up and hope for the best. In fact, they use them to educate new employees and build a culture that says we’re a company who’s going to talk about this stuff. We want people to speak up. We want people to own this because we want to be a good company and we want to deal with whatever problems there are as opposed to pretending it doesn’t happen.

That is fantastic advice and thank you so much for joining us and I’m sure our audience will appreciate your insights on these topics. Are there any way readers can keep up to date with the work you’re doing?

Sure, the best place to go is www.Businessethicsbound.com where you can get articles and research. You can also find me at my faculty page and posting on LinkedIn.

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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.

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, without having to go through the OSHA process.

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.

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 usually must be the first to provide the information to the SEC.

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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How to Claim Whistleblower Rewards For Reporting Crypto Fraud

John Peterson — Tue, 21 Feb 2023 07:43:57 +0000

Article by John Peterson, Managing Attorney, FBR.

SEC Crypto Whistleblower Rewards

The SEC operates a whistleblower reward program for people reporting fraud or crime involving “securities.” The SEC believes that some contracts to buy cryptocurrencies are “securities.” If you know about a person or company fraudulently selling cryptocurrencies (through an ICO for example) you may be eligible for an SEC whistleblower award for reporting it. The average SEC whistleblower award is over $4 million dollars, but they are paid to the first person who reports the violation, so its important you act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the SEC.

CFTC Crypto Whistleblower Rewards

The CFTC operates a whistleblower reward program for people reporting fraud or crime relating to “commodities.” The CFTC considers many cryptocurrencies, including Bitcoin, to be commodities. If you know someone who was fraudulently trading or selling cryptocurrencies or crypto derivatives (futures) you may be eligible for a CFTC whistleblower award. The average CFTC whistleblower award is less than $1 million dollars, but they are paid to the first person who reports the violation, so its important to act quickly. If you think you have information relating to fraudulent crypto currency sales speak confidentially to one of our whistleblower attorneys now who can advise you how to anonymously report to the CFTC.

IRS Crypto Whistleblower Rewards

The IRS operates a whistleblower reward program where people reporting tax evasion involving crypto currency can receive up to 30% of any fines recovered by the IRS. Many people evade tax using cryptocurrencies by not declaring their profits from trading cryptocurrency, or using cryptocurrency to hide assets. In either circumstances, this can be a violation of U.S. tax law and by reporting it you could be entitled to a multi-million dollar award from the IRS. As with the other whistleblower programs, IRS whistleblower awards are paid to the first person who reports the violation, so if you have information relating to tax evasion involving cryptocurrency speak confidentially to one of our whistleblower attorneys now who can advise you on how to report it.

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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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