How long should the DOJ and SEC keep self reporting companies on the hook?
For example, in 2005 Tyco International Ltd discovered that subsidiaries and agents might have paid bribes overseas. The company launched and investigation and reported what was happening to the DOJ and SEC. It fixed its compliance program, hired outside counsel to help, and continued to make periodic reports to the DOJ and SEC.
It wasn't until 2010 that the DOJ and SEC started talking about a settlement of FCPA offenses. The talks, Tyco said last week, are 'ongoing.'
The statute of limitations for FCPA violations is five years. That means formal prosecution must be commenced, usually by return of an indictment or filing of an information, within five years after the completion of the offense. The DOJ can usually extend that by three more years to collect foreign evidence.
But when companies self report, they're routinely asked to waive the statute of limitations. They could refuse but none do; refusal might trigger an instant enforcement action against the company or its people. So the waiver gives the feds limitless time to investigate, deliberate, or procrastinate. And no one can force the DOJ or SEC to move on, either with an enforcement action or a declination.
The result? Companies like Tyco get stuck in FCPA limbo. And it has plenty of company.
In 2003, to pick a year out of the air, Accenture, Eli Lilly, Petro-Canada, and Xerox all self reported FCPA investigations to the DOJ or SEC or both. Today they're still among the dozens of companies that don't know what the feds plan to do.
We're in favor of enforcement. When people pay bribes to foreign officials overseas there should be consequences. And we have no problem with the government's use of deferred and non-prosecution agreements. It's smart to have an enforcement option that keeps companies in business.
But the DOJ and SEC should always keep one eye on the calendar. The threat of FCPA enforcement after a company self reports casts a long shadow. It darkens the future for management, shareholders, lenders, customers, and suppliers. Exactly the problem the statute of limitations was supposed to fix.
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Here's Tyco's FCPA disclosure from its Form 10-Q filed with the SEC on July 31:
As previously reported in the Company's periodic filings, the Company has received and responded to various allegations and other information that certain improper payments were made by the Company's subsidiaries and agents in recent years. The Company reported to the Department of Justice ("DOJ") and the SEC the investigative steps and remedial measures that it has taken in response to these and other allegations and its internal investigations. In 2005, the Company informed the DOJ and the SEC that it retained outside counsel to perform a Company-wide baseline review of its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act ("FCPA"), and that it would continue to investigate and make periodic progress reports to these agencies. The Company has and will continue to communicate with the DOJ and SEC to provide updates on the baseline review and follow-up investigations, including, as appropriate, briefings concerning additional instances of potential improper conduct identified by the Company in the course of its ongoing compliance activities. The baseline review, which has been completed, revealed that some business practices may not comply with Tyco and FCPA requirements, and in February 2010, the Company initiated discussions with the DOJ and SEC aimed at resolving these matters, which remain ongoing. Although the Company has recorded its best estimate of potential loss related to this matter, it is possible that this estimate may differ from the ultimate loss determined in connection with the resolution of this matter, as the Company may be required to pay material fines, consent to injunctions on future conduct, consent to the imposition of a compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being subject to lawsuits brought by private litigants, each of which may have a material adverse effect on the Company's financial position, results of operations or cash flows.
Research courtesy of ethiXbase, the world's largest database of anti-corruption legislation, gift-giving regulations, investigations, and enforcement actions.