Charm Offensive: Three Top DOJ, SEC Officials Describe “New Chapter” in FCPA, Other White Collar Criminal Enforcement

March 1, 2010

In interviews and public appearances last week, several high ranking members of federal law enforcement discussed their intention to increase and reshape the resources and tools dedicated to investigating and prosecuting white collar crimes, such as financial fraud and Foreign Corrupt Practices Act (FCPA) violations.

On Feb. 24, Mark Mendelsohn, deputy chief of the DOJ’s Fraud Section within the Criminal Division, addressed the Global Ethics Summit 2010 in New York. Mendelsohn, the DOJ’s top FCPA enforcement official, described a potential 50 percent increase in the size of his section over the next year or two. At the same time, he stressed that the DOJ expects companies to “adopt stricter standards” with regard to corruption.

He spoke positively about the Bribery Bill before Parliament in the UK, which is expected to become law by April, but he described progress in collaboration with law enforcement in other countries as “modest and mixed, but there have been pockets.”

Among FCPA enforcement trends, Mendelsohn highlighted the rise in prosecutions of individuals in 2009. Last year saw 44 individual prosecutions, which almost doubled the total from the prior three years combined (25). He described corruption as “a national security issue” that affects the stability of developing countries, and said that the DOJ approaches corruption cases with a comprehensive view, considering FCPA, money laundering, wire fraud, antitrust and other potential theories of prosecution.

On Feb. 25, Assistant Attorney General for the DOJ’s Criminal Division Lanny Breuer addressed the ABA’s 24th Annual National Institute on White Collar Crime in Miami, and described “a new chapter in white collar criminal enforcement” that will involve the use of tools “not often seen in white collar cases.” This includes wiretaps, undercover agents, and other techniques recently deployed in the Galleon hedge fund insider trading case, and the 22-person FCPA sting operation that occurred in late January. Citing these and other examples, Breuer said we are entering a new era of “proactive and innovative white collar enforcement.”

Breuer echoed Mendelsohn’s statements about individual prosecutions, warning that “the prospect of significant prison sentences for individuals should make it clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.” He described “the aggressive prosecution of individuals” as a cornerstone of the DOJ’s “very robust FCPA program,” which he held out as a model that “typifies how we are approaching crime in corporate America.” This is a consistent warning that Breuer has given in other recent public comments.

Breuer also warned that corporations will face criminal charges “when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct.” He stressed that the DOJ will insist on corporate guilty pleas and stiff corporate fines in appropriate cases. At the same time, he strongly urged corporate voluntary disclosure of FCPA violations, assuring his audience that the DOJ’s “commitment to meaningfully reward voluntary disclosures, and full and complete corporate cooperation will continue to be honored in both letter and spirit.”

Breuer cited other focus areas for financial fraud enforcement, including healthcare and mortgage fraud, both of which are being vigorously investigated and prosecuted throughout the country via a number of different strike forces and specialized teams within the DOJ, Department of Health and Human Services, and FBI.

Finally, also on Feb. 25, an interview with Associate Director Cheryl Scarboro, the newly appointed head of the SEC’s new FCPA investigative unit, was released in which she outlined her plans for the new unit.

Although staffing is still underway, Scarboro already envisions the unit expanding into regional offices with central coordination. She described her intention to create an FCPA “think tank” with people becoming “much more creative about their investigations as they become experts in that subject area.” At the same time, she foresees a more consistent approach to investigations, settlements and resolutions.

Scarboro said there are ongoing investigations similar to the approach of investigations related to the Iraq Oil-For-Food program, where the focus is less on a single company, and more on a “widespread practice in particular areas.” She cited the pharmaceutical industry as a current focus area, and said she “would expect filed cases in the short term, in a matter of months.” She also described “many ongoing investigations in which we’re working with foreign regulators,” and said that is “something we’d like to do more of.”

The comments by these officials reinforce a consistent and strong message to corporations and individuals cautioning them to take a fresh look at their compliance programs, and internal approaches to preventing and remediating white collar issues. As these comments and other recent developments such as pending proposals to amend the U.S. Sentencing Guidelines make clear, the most valuable weapons a corporation and its officers and directors have against potential white collar issues are preparedness, responsiveness, and the deployment of a robust compliance program designed to identify, address and prevent issues before they become government investigations.

McGuireWoods’ Government, Regulatory and Criminal Investigations Department has attorneys with extensive experience in handling FCPA and other white collar criminal matters, including the defense of government investigations, the conduct of internal investigations, and counsel on corporate compliance programs. This includes having designed, revised, and/or helped to implement various compliance programs and program elements such as internal audits, reporting structures and training.