The number of Foreign Corrupt Practices Act (FCPA)-related investigations and enforcements reached unprecedented levels last year, according to a recent report from Shearman & Sterling.
The study finds evidence that the US Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) have significantly stepped up their enforcement activities in recent years. It shows that investigations of FCPA violations rose from nine companies in 2003 to 29 in 2007.
According to the report’s co-author, Shearman partner Dan Newcomb, the review confirms there has been a “dramatic increase” in DOJ prosecutions and SEC actions.
Newcomb, the head of Shearman’s FCPA practice, adds that although it is difficult to be precise on the numbers because of the methodology of counting investigations, along with companies’ natural reluctance to divulge information, the public numbers appear to be “only the tip of the iceberg”.
The report states that if closed investigations are counted as well as those moved to prosecutions and multiple investigations against the same corporation, there are currently open investigations reported against 82 corporations.
Shearman’s study, ‘Recent Trends and Patterns in FCPA Enforcement’, also cites a new DOJ opinion on M&A due diligence. This highlights a trend for the disclosure of FCPA violations during the due diligence process in M&A.
This trend is lending weight to the argument put forward by several US firms that, when it comes to international transactional practices, the presence of a strong US litigation team working alongside the deals lawyers is a must.
Debevoise & Plimpton is one US firm that backs this argument. Michael Blair, chair of the corporate department at Debevoise, says the transatlantic litigation market is a big part of the firm’s international strategy in its M&A and private equity group. “There is obviously increased exposure for foreign companies with activities in the US, and for an international law firm having litigation capabilities on both sides of the Atlantic is key,” argues Blair. “The lawyers in these litigation teams act more as crisis consultants than courtroom lawyers, and arguably this can create opportunities for the corporate group. The hope is that, over time, it increases the chances of being instructed on major corporate assignments.”
As well as highlighting the growth in numbers of investigations, the Shearman report also shows that the size of DOJ penalties has grown in recent years. Overall, the study suggests the future trend will be for considerably more focus on FCPA matters than ever before.
“We expect to see continuing efforts on the part of the DOJ and SEC to scrutinise possible FCPA violators, and to punish guilty parties more aggressively than they did in the past,” Newcomb says.
“The message ought to be loud and clear: anti-corruption compliance needs serious management attention.”