There has been a couple news items related to the Foreign Corrupt Practices Act this week, with the Justice Department announcing a one year pilot program to encourage self-disclosure and the SEC settling its investigation of Las Vegas Sands with an enforcement action totaling $9 million.
The One-Year Pilot Program
The Justice Department has been beefing up its FCPA practice recently, with a decision to hire ten more attorneys to work on these matters and the hiring of a compliance individual to assist the enforcement staff in the evaluation of corporate compliance measures.
The new one-year pilot program announced by the DOJ this week offers a mitigation credit to companies that “fully cooperate” in the investigation and remediation of the problem with up to a 50 percent reduction off the low end of the potential fines. Companies will also have to voluntarily and timely self-disclose the FCPA violation in order to be eligible for the cooperation credit, which some have called a “super credit” since the department already offers cooperation credit.
It is set forth in a 9 page document called “The Fraud Section’s Foreign Corrupt Practices Act Enforcement Plan and Guidance”. The document is in essence a guide to prosecutors on when to allow full credit to corporation and to corporate counsel on what measures to take in order to receive the maximum cooperation credit from the Justice Department. It seems to be a part of an initiative to provide greater transparency to corporations with the declination, cooperation and prosecution process.
In order to receive the cooperation credit, the companies are also going to have to provide information about all individuals involved. This is part of the government’s initiative, outlined in the Yates memo, to do additional evaluation of whether criminal actions against individual corporate insiders are warranted for the misconduct of corporations.
Further, footnote six makes clear that companies will still have to disgorge all profits in order to get a discount on the fine amount. This prevents a perverse incentive to commit the crime and then disclose it and keep the profits. However, given the costs of internal investigations in this area, it seems an unwise move regardless.
The new cooperation credit won’t directly impact how the Securities and Exchange Commission handles its enforcement of the law and apportionment of cooperation credits.
Las Vegas Sands to Pay $9 Million to SEC over Macau, China Conduct
Las Vegas Sands will pay $9 million to the Securities and Exchange Commission over poor accounting controls from 2006 through 2011. The company owns casino resorts in Las Vegas, Macau, Singapore and Pennsylvania.
Las Vegas Sands is publicly traded on the New York Stock Exchange and is thus subject to the Foreign Corrupt Practices Act. The FCPA prohibits offering or providing anything of value to foreign officials in order to obtain or retain business. It also requires sufficient internal accounting controls as well as accurate books and records.
The allegations of misconduct by Sands in Macau became public in 2010. A Reuters report on improprieties in Macau at that time detailed suspected connections with the Chinese triad and the hiring of government officials. After the former Sands China CEO filed a wrongful termination lawsuit in 2010, he reportedly assisted the SEC and DOJ with their investigation into corruption at the company.
The SEC investigation found that the company failed to keep accurate books and records, as well as supporting documentation, with regard to tens of millions of dollars in payments made to a consultant. The company continued to transfer money to him even though he could not account for more than $700,000 in expenses at one point. The consultant was used to obscure the involvement of the company in the purchase of an ownership stake in a basketball team and a building.
It also discovered various other accounting control issues, including cash advances to employees without proper authorization, insufficient documentation regarding the disbursement of reimbursement that was claimed for travel expenses , and the failure to track comps provided by the casino to customers to ensure that they were not providing gifts to government officials.
As the SEC was launching its whistleblower program, an SEC official said at the time that he expected the FCPA to be fertile ground for whistleblowers with the potential for large awards. It sounds like there may be another opportunity for the SEC to issue an award to a FCPA whistleblower in this case, if the public reports in the media are to be believed. However, LVS issued a press release following the settlement that noted that none of the allegations made by the SEC whistleblower were in the judgment, so it will still be disputed.