FCPA: Managing Civil and Criminal Exposure of In-House Counsel
by Wes Loegering and Arielle Swartz
The Securities Exchange Commission and U.S. Department of Justice are increasingly prosecuting individuals under the Foreign Corrupt Practices Act (FCPA). During 2010 and 2011, the Criminal Division of the U.S. Department of Justice charged more than 50 individuals with FCPA-related offenses—a sharp increase over the number of such cases just a few years earlier. As such, the million-dollar question for in-house counsel is how to best serve the company while also minimizing personal civil and criminal exposure in the event of an alleged FCPA violation.
In-house counsel inherently has a uniquely difficult task when tackling a potential FCPA violation. Counsel are frequently responsible for implementation of litigation holds, document collection, assertions of privilege and overall management of internal investigations. In-house attorneys must navigate these responsibilities while subject to executive management oversight and pressures. The best way for an in-house lawyer to manage civil and criminal exposure during an FCPA investigation is to set up the proper investigative infrastructure to review the conduct at issue, step aside and let outside counsel take the wheel.
Protect Yourself and the Company
Knowledge of an FCPA violation is requisite to civil or criminal penalties under the FCPA. The statute provides that an individual’s state of mind will be deemed “knowing” if they are “aware that such person is engaging in such conduct, that such circumstance exists, or that such result is substantially certain to occur; or such person has a firm belief that such circumstance exists or that such result is substantially certain to occur.” However, the Second Circuit held in U.S. v. Ferrarini and again in U.S. v. Frederick Bourke that “a jury might conclude that no actual knowledge existed but might nonetheless convict, if it believed that the defendant had not tried hard enough to learn the truth.”
The implication of this holding for in-house counsel is substantial: internal structures that do not lend themselves to learning about potential issues on a real-time basis can lead to personal criminal and civil exposure.
One way to mitigate this risk is to create an efficient and effective compliance hotline. It is critical that individuals who answer the phones or respond to web based submissions should be well trained, carefully supervised and not involved in business operations that could potentially produce FCPA violations. Every contact with the compliance team should be documented, responses tracked, the proposed resolution should be assigned to specific personnel and follow up steps should have firm performance deadlines. Management level supervisors should actively review the work of intake personnel. Furthermore, potential FCPA issues must be referred directly to the legal department to evaluate the risk.
Assist the Investigation, Not Control It
If faced with an FCPA investigation, in-house lawyers should promptly obtain independent advice about the scope and course of the internal investigation. In every FCPA investigation there is a risk that the SEC and/or DOJ will later argue that in-house counsel attempted to influence the investigation—potentially in an effort to protect themselves or management. Using outside counsel with substantial experience in conducting FCPA internal investigations will minimize this risk. Once retained, outside counsel should guide the company through difficult issues such as to whom does outside counsel report—whether it be the Audit Committee and/or the General Counsel. Other important decisions to be addressed by outside counsel include determining appropriate remedial measures, whether and when to disclose the issues involved to the DOJ and SEC, selection of qualified counsel to represent employees and engagement of independent forensic auditors.
In January 2011, Lanny Breuer, head of the DOJ's Criminal Division said, “If we find credible evidence of criminal conduct—by corporate executives or the lawyers and accountants who advise them—we will not hesitate to charge it.” There have not yet been instances of in-house attorneys charged with obstructing an FCPA investigation, but in 2010 a grand jury indicted Lauren Stevens, an in-house attorney for a pharmaceutical company, charging her with obstructing justice in connection with an investigation by the FDA. While the Court granted a motion for acquittal at the conclusion of the government’s case, the mere indictment illustrates the peril faced by in house counsel when dealing with highly charged white collar maters. Your ability to sleep at night will be substantially improved by stepping out of the role of attempting to manage an FCPA investigation. Rely on outside counsel to help you make these critical decisions.