Debevoise Partner Kara Brockmeyer on FCPA Enforcement

Kara Brockmeyer was head of the Foreign Corrupt Practices Act (FCPA) unit at the Securities and Exchange Commission from 2011 until earlier this year.

Kara Brockmeyer
Debevoise & Plimpton
Washington DC

She’s now a partner at Debevoise & Plimpton in Washington, D.C.

How did you end up doing FCPA work at the SEC?

“When I became an assistant director in late 2005, the group that I took over was in the midst of beginning an investigation into the oil services company Halliburton,” Brockmeyer told Corporate Crime Reporter in an interview last week. “We were looking into allegations of bribery in connection with a large liquefied natural gas project in Bonny Island Nigeria. From the perspective of an enforcement attorney, it was a great introduction to the FCPA.”

“Those Halliburton KBR Bonny Island set of cases became one of the largest set of cases brought under the FCPA. It had suitcases of cash, it had bribes going to high and low levels of government, it had cloak and dagger meetings. It had everything. In retrospect, it was a terrific time – back in 2005 and 2006 – to start doing FCPA work. That was the beginning of what I think of as the modern era of FCPA enforcement. At the time my group was doing the Halliburton investigation, another group was doing the Siemens investigation, and a third group was doing Daimler.”

“The FCPA program at the SEC was going from a program where the largest previous case had been a $28 million case to investigations resulting in cases where the disgorgement of profits, the criminal fines and the civil penalties were over $500 million to $1 billion. It was a sea change in the program. The Department of Justice was having a similar experience.”

What is the case load of the unit?

“The unit doesn’t officially report the number of investigations. There are public sources out there that say that at any one time, there are probably one hundred open investigations.”

Is there a dollar cut off for the SEC FCPA unit to take a case?

“There is not a dollar cut off per se. But just like any other enforcement action, there does have to be a triage. You have a limited amount of resources that you can bring to bear. Historically, small dollar limited conduct are the types of things where the unit is not going to open an investigation. That being said, it’s possible that a lot of small low level bribes does indicate there is an internal controls problem. And you may very well see an investigation and even an enforcement action.”

Let’s take a snapshot of those 100 investigations. Can you give me a sense as to percentage wise how they are being resolved?

“It’s difficult to say because the SEC does not announce the number of declinations. These are public companies. But companies will announce when the SEC has declined a matter. But that number will undercount the true number of companies that were involved in an investigation that was closed.”

“There are cases where a company reports a minor matter, the SEC opens an investigation to look into it, and then at the end of that process, the SEC concludes that the company acted appropriately and there was not evidence of a violation and the investigation was closed without action.”

Of those 100 investigations, what would be your guess as to how many are closed without action?

“It could be anywhere from ten to fifteen, even twenty percent of allegations brought to the SEC’s attention that they decline to go further on.”

Does the SEC announce declinations?

“No, the SEC does not announce declinations. Declinations can be made public by the company or the individual who receives one. Often, if a company has disclosed that it is under investigation, it will of course want to announce that it has received a declination. But the SEC itself does not announce declinations.”

I’m looking at the Justice Department’s FCPA declinations page. There are seven announced declinations on the page.

“They are not announcing all of the declinations that they are giving. And if you search, you will find companies other than the seven on that page.

“On this page that you are referring to, these are companies that get declinations under the FCPA Pilot Program. That program encourages companies to self report. The program allows for declination with disgorgement. If you look at the seven cases, in three of them, there was a parallel SEC action where the SEC was getting disgorgement and possibly civil penalties as well. And the Department of Justice declined to bring an action. In four of them, they did not involve public companies so there was not a corresponding SEC action. In those cases, the Justice Department is saying that it is declining to take action but that it is requiring that the company pay back the ill gotten profit.”

Does the SEC have an equivalent to the Department of Justice’s Pilot Program?

“The SEC uses a series of factors to determine cooperation and self reporting credit. It starts with the Seaboard Report that came out in 2001 and continues with the cooperation program. But it doesn’t have anything specific to the FCPA.”

Of the 100 investigations or so, how many are triggered by self-reports by the company?

“When I was at the SEC, on average, about 25 percent to 35 percent of the cases brought in any given year were the result of self-reporting. That means that on average about two-thirds of the cases brought were sourced through some other mechanism.”

“I can’t give you direct numbers but I can tell you anecdotally that the percentage of self-reports among investigations is higher. There are a significant number of self-reports involving conduct that is limited in scope, time and size. And those are cases that generally would end in a declination. But I don’t know that for sure. And I haven’t looked at that data.”

Overall is self-reporting decreasing?

“With the government, we don’t actually know how many cases are out there that we don’t hear about. When I was with the government, the number of self-reports over five years stayed relatively constant. But I do hear as well from defense counsel that there are fewer self reports.”

Is there a declinations with disgorgement practice at the SEC?

“No. The SEC does not have a similar policy to the Justice Department’s FCPA Pilot Program. There are multiple forms of resolution at the SEC. You could have a civil injunctive action filed in federal court. You could have a settled cease and desist proceeding done administratively. On rare occasions, it could be a deferred or non prosecution agreement. But there would always be some form of resolution along with the disgorgement.”

How did deferred and non prosecution agreements come about at the SEC?

“Historically, the agency did not use deferred or non prosecution agreements. That was changed in 2010 or so – at the same time the agency announced its cooperation program – basically extending the Seaboard factors to individuals and providing incentives to individuals to come forward and cooperate with the government. At that point, the agency also explored using deferred and non prosecution agreements.”

“In the FCPA space, they have been used in several cases. It’s a relatively rare resolution and I would continue to expect it to be relatively rare. It’s unlike at the Department of Justice where a deferred prosecution agreement or a  non prosecution agreement is used instead of a guilty plea. A guilty plea can have a significant impact. For the SEC, being a civil regulatory agency, a cease and desist order or a civil injunctive action is often the appropriate way to resolve a case with a public company.”

“But the unit did use deferred and non prosecution agreements in certain circumstances. When I was there, it was used when we felt that the conduct of this company in self-reporting, cooperating and remediating the problem was exceptional, and the agency wanted to recognize that.”

Would companies and defense lawyers prefer deferred and non prosecution agreements over a neither admit nor deny consent decree?

“Sometimes the company did because of the fact that it was very rare. And it means that there is no order in place against the company.”

How many of these deferred and non prosecution agreements have there been in SEC FCPA cases?

“Maybe a half a dozen. You can find them on the SEC web site. There is a spotlight page that lists every enforcement action in the FCPA space going back to 1978.”

Companies are concerned about adverse publicity from SEC FCPA cases. Does the SEC allow for negotiation of press releases?

“When I was at the SEC, we did not allow a company to negotiate a press release. If the company had been cooperating, sometimes we would allow the company a short period of time to see the press release so that if they felt there was a factual error, they could point out the factual error.”

The company had the opportunity to review the press release?

“Not in all cases.”

How did you make a determination which companies could review the press release?

“Part of it was if the company was cooperative and was getting cooperation credit.”

[For the complete q/a format Interview with Kara Brockmeyer, see page 31 Corporate Crime Reporter 45(12), Monday November 20, 2017, print edition only.]


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