March 7, 2013

SEC Speaks 2013: Enforcement Division Highlights Need for Strong Compliance Programs and Continued Efforts to Expand Reach of FCPA Investigations

By Daniel J. Collins, Charles S. Leeper and Gregory P. Miller

The United States Securities and Exchange Commission held its annual “SEC Speaks” conference in Washington, D.C. on February 22-23, 2013. Senior officials recapped its recent successes and highlighted a number of priorities for the upcoming year. Acting Director George Canellos led a panel of senior officials from the Division of Enforcement, who outlined expected enforcement efforts in a broad range of areas, including traditional fraud, FCPA violations, insider trading, and other instances of market abuse. AD Canellos noted that the Division intends to use its broad enforcement authorities to seek more “conduct specific” injunctions rather than “obey the law” orders, and utilize its new authority under Dodd-Frank to obtain stiff civil penalties in “cease-and-desist” proceedings. In light of the promise of more aggressive enforcement, AD Canellos and other members of the Enforcement panel repeatedly emphasized the need for strong compliance programs. A number of panel members explained that the Division of Enforcement would key on the “gatekeepers” – accountants, boards of directors, and supervisory personnel.

In a workshop session following the main panel discussion, Kara Brockmeyer, Chief of the FCPA Unit, re-emphasized the need for strong compliance programs to avoid exposure under the FCPA. Ms. Brockmeyer explained that companies should not take a “one-size-fits-all” approach in developing and maintaining its programs. Instead, companies should take a more “holistic” approach and design programs that address the specific risks to the company and to the industry. Further, she stressed that companies should periodically reassess those risks and adjust their programs accordingly. Ms. Brockmeyer noted that a good compliance program needs to be “intertwined” with the financial controls of the company. Ms. Brockmeyer invited company officials to make use of the recently issued “Resource Guide to U.S. Foreign Corrupt Practices Act,” a joint release from the SEC and the Department of Justice.1

Ms. Brockmeyer also discussed two recent significant decisions in FCPA enforcement actions brought by the SEC. At issue in both rulings was the extent to which U.S. courts should exercise personal jurisdiction over foreign nationals for alleged FCPA violations. On February 8, 2013, Judge Richard Sullivan denied a motion to dismiss filed by three former executives of a Hungarian telecommunications company.2 The government alleged that the executives had bribed Macedonian government officials in order to gain preferential treatment for their company, which had traded American depositary receipts on a U.S. exchange. As part of those alleged efforts, emails between individuals outside the United States containing “sham” contracts were routed through and stored on servers in the United States. In seeking dismissal, the executives argued that the government had not alleged “use of United States interstate commerce,” stressing that the emails were not intended to be directed to servers within the United States. Citing legislative history and criminal statutes with similar provisions, Judge Sullivan denied the motion. The Court explained that the FCPA did not require a showing of intent to use instrumentalities inside the United States, but only that such instrumentalities had been used.

On February 19, 2013, Judge Shira Scheindlin granted a motion to dismiss filed by a former executive at AG Siemens.3 The executive, a German citizen and one of seven individual defendants charged in the complaint, argued that the Court lacked personal jurisdiction over him, noting that he had never worked in the United States. The SEC countered that the executive had pressured a Siemens employee in Argentina to authorize bribes, eventually resulting in false SEC filings. In dismissing the charges against the German executive, Judge Scheindlin expressed her concern over the lack of any “limiting principle” in evaluating minimum contacts for purposes of personal jurisdiction. The Court explained that if “support for the bribery scheme satisfied the minimum contacts analysis, even though he never authorized the bribe, nor directed the cover-up, much less played any role in the false filings, minimum contacts would be boundless.”4

Ms. Brockmeyer reconciled the decisions by explaining that the executives in Straub clearly directed their conduct at the United States by making misrepresentations to auditors and signing the false SEC filings, whereas the Siemens executive was much further removed from the conduct. Ms. Brockmeyer cited both cases as examples of the SEC’s aggressive stance on the extraterritorial reach of the FCPA. Based on the conference’s overall theme of aggressive enforcement, the SEC clearly intends to continue to investigate executives regardless of their location.

For more information on the SEC Speaks 2013 conference or the issues discussed in this Bulletin, please contact one of our practice group members above.

1 A number of business groups, including the United States Chamber of Commerce, have criticized the Resource Guide for not adequately defining government expectations in common factual scenarios. Without addressing this criticism directly, Ms. Brockmeyer explained that the Resource Guide was intended for a broad audience, including non-lawyers, and meant to be a desktop reference that would assist compliance managers and other professionals in identifying issues.

2 SEC v. Straub, No. 11 Civ. 9645, 2013 WL 466600 (S.D.N.Y. Feb. 8, 2013)

3 SEC v. Sharef, 11 Civ. 9073, 2013 WL 603135 (S.D.N.Y. Feb. 19, 2013)

Id., at 18.

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