On the eve of the July 4th holiday, the Criminal Division of the Department of Justice (the “DOJ”) and the Enforcement Division of the Securities and Exchange Commission (the “SEC”) quietly published the second edition of the Resource Guide to the U.S. Foreign Corrupt Practices Act (the “Second Edition”),[1] an update of the first edition published in 2012 (the “First Edition”).[2] Since its initial publication in November 2012, the Resource Guide has been an invaluable tool for companies and practitioners to understand the DOJ’s and the SEC’s interpretations of the Foreign Corrupt Practices Act (FCPA) and its requirements, their expectations concerning what constitutes best compliance and remediation practices, and the factors these agencies will consider in exercising their prosecutorial discretion. The Resource Guide also describes in detail certain important aspects of each agency’s FCPA enforcement program. For example, the Second Edition includes discussions of the following three policies implemented after the release of the First Edition: the DOJ’s FCPA Corporate Enforcement Policy, Evaluation of Corporate Compliance Programs, and Monitor Selection Criteria.
The Second Edition was a welcome update given that during the eight years since the First Edition’s publication there have been significant judicial opinions interpreting elements of the FCPA and significant new DOJ policy pronouncements. For those who have kept up-to-date on developing caselaw, the government’s positions taken during litigation, and the new DOJ and SEC initiatives, the Second Edition does not reveal any new bombshell pronouncements. However, the Second Edition does helpfully cite to many more recent examples of cases brought by the regulators and the regulators’ view of the implications of recent caselaw. Moreover, there are some interesting takeaways from the revisions contained in the Second Edition—particularly regarding the government’s approach to describing the import of the Second Circuit’s decision in United States v. Hoskins[3] and the liability of foreign nationals for violations of the FCPA’s anti-bribery and books and records provisions. Other interesting areas updated, which we highlight below, are the Second Edition’s discussion relating to DOJ policies in the context of mergers and acquisitions; the updating of the section dealing with the definition of an “instrumentality” of a foreign government to incorporate the standards set forth in United States v. Esquenazi;[4] the updating of the discussion of the local law affirmative to reflect the district court decision in United States v. Ng Lap Seng;[5] and liability under the FCPA’s accounting provisions.
The primary takeaway from the Second Edition, however, is the regulators’ continued and consistent message emphasized in the First Edition, and in policies issued since the First Edition, of the importance of corporations choosing to voluntarily self-disclose and remediate significant FCPA misconduct. The Second Edition highlights, through its discussion of the DOJ Corporate Enforcement Policy and recent guidance on compliance programs and monitorships, the regulators’ “carrot and stick” strategy of offering significant potential rewards to corporations that self-disclose and remediate FCPA misconduct while emphasizing the more negative treatment non-disclosing corporations will receive.
I. Highlights of Significant Updates in the Second Edition
A. The Second Edition’s Treatment of the Hoskins Decision Limiting FCPA Liability for Certain Foreign Nationals
The Second Circuit’s decision in United States v. Hoskins[6] was widely viewed as a significant defeat for the DOJ, and directly contradicted the First Edition’s guidance that foreign nationals and companies “may . . . be liable for conspiring to violate the FCPA . . . even if they are not, or could not be, independently charged with a substantive FCPA violation.”[7] The Second Circuit in Hoskins ruled that foreign nationals, who cannot be charged as principals under the FCPA, cannot be held liable for violating the statute under the conspiracy or aiding and abetting statutes.[8] The Second Circuit, however, clarified that foreign nationals could still be charged under the FCPA if they acted as agents of someone who could be charged as a principal violator of the statute, such as a domestic concern.[9]
The Second Edition’s treatment of Hoskins is noteworthy. Rather than describe Hoskins as universally applicable, it states, “at least in the Second Circuit, an individual can be criminally prosecuted for conspiracy to violate the FCPA anti-bribery provisions or aiding and abetting an FCPA anti-bribery violation only if that individual’s conduct and role fall into one of the specifically enumerated categories expressly listed in the FCPA’s anti-bribery provisions.”[10] Thereafter, the Second Edition cites a contrary ruling from an Illinois district court in United States v. Firtash.[11] Additionally, with respect to violations of the accounting provisions, the Second Edition boldly states that the accounting provisions are not subject to the limitations of Hoskins because these provisions apply to “any person.”[12] Thus, the Second Edition appears to strongly signal that the DOJ may consider charging foreign nationals outside of the Second Circuit with conspiracy and aiding and abetting violations in a manner specifically rejected by Hoskins.
Notably, the district court in Hoskins granted the defendant’s post-verdict motion for acquittal, finding that there was insufficient evidence for a jury to find that he was an agent of a domestic concern. Specifically, the district court ruled that, for the defendant to be an agent used in an FCPA offense, the principal must be able to control the agent’s actions. The court held that there was “no evidence introduced at trial which, even when drawing inferences favorable to the Government, could entitle a rational finder of fact to conclude beyond a reasonable doubt that there was an understanding between Mr. Hoskins and [the domestic concern at issue] that [it] would be in control of Mr. Hoskins’s actions” or that it “did control Mr. Hoskins’s actions in a manner consistent with agency relationships.”[13] Given that the DOJ is appealing the district court’s ruling, it is not surprising that the Second Edition does not cite to, or incorporate with attribution the reasoning and holdings of, the district court’s post-judgment acquittal opinion on the FCPA charges.
B. Mergers and Acquisitions
The Second Edition adds a new discussion about the importance of due diligence after a merger or acquisition. The Second Edition recognizes that, at times, robust due diligence prior to a merger or acquisition is impossible. In these instances, the DOJ and SEC will evaluate an acquiring company’s post-acquisition due diligence and implementation of compliance procedures at the merged or acquired entity. This method of evaluation is particularly beneficial, the Second Edition provides, where the acquiring entity has a robust compliance program already in place.[14]
The Second Edition also references mergers and acquisitions in its discussion of the FCPA Corporate Enforcement Policy. If a company uncovers misconduct in a merged or acquired entity, there will still be a presumption of a declination if the company self-discloses the misconduct, remediates, and meets the Corporate Enforcement Policy’s other requirements.[15]
C. The Definition of ‘Instrumentality’ of a Foreign Government
The Second Edition incorporates the Eleventh Circuit’s definition of “instrumentality” in United States v. Esquenazi.[16] Under the FCPA, a foreign official is defined as “any officer or employee of a foreign government or any department, agency, or instrumentality thereof[.]”[17] In Esquenazi, the court addressed the...
