In early February, the US Department of Justice announced it was temporarily pausing Foreign Corrupt Practices Act (FCPA) enforcement and adjusting future FCPA enforcement to prioritize Cartels and Transnational Criminal Organizations. At the time, we noted that it was too early to predict the long-term ramifications of these announcements on corruption enforcement but predicted that “[i]f the US were to substantially reduce its FCPA enforcement, one likely result is that other regulators would enhance their enforcement efforts to compensate for the US’s absence.” A series of announcements in the past several weeks suggests that enhancement is already underway.

The first major announcement was the creation of a joint anticorruption task force by regulators in the UK, France and Switzerland, dubbed the International Anti-Corruption Prosecutorial Taskforce (“IACPTF”). This was followed last week by a release from the California Attorney General’s office, in which Attorney General Rob Bonta reiterated that California can and will pursue violations of the FCPA under a host of state laws, including California’s Unfair Competition Law, a civil statute.

These announcements have the potential to be hugely significant to businesses subject to the FCPA, as California and the European triumvirate represent some of the largest and most significant economies in the world. Indeed, California alone would be the world’s fifth largest economy were it a standalone country, and the UK, France and Switzerland currently rank as the world’s sixth, seventh, and twentieth largest economies as measured by GDP, respectively. Perhaps even more significant than the sheer size of their economies, however, is the fact that almost all multinational corporations have a physical presence in at least one of those jurisdictions, and many more rely upon technology infrastructure present in California and banking infrastructure in Switzerland. As such, these two announcements collectively have the potential to reach almost every entity already subject to the FCPA. Moreover, it would not be surprising to see other regulatory bodies in states such as New York or Illinois, or countries like Germany, Japan and Brazil, follow suit in stepping up enforcement in the absence of the US DOJ.

While these developments could mitigate a reduced presence by the DOJ and SEC’s FCPA units, there is still a great deal that will need to be determined both in practice and in the courts. Moreover, the decentralization of foreign bribery enforcement could create a number of complications for practitioners in this space. Let’s briefly consider some of the practical ramifications.

1. Enforcement Capability

While the reach of the regulatory bodies pledging to pick up the baton is substantial, it is impossible to deny the unique expertise and resources of the US federal government’s FCPA enforcement agencies. Put simply, at this point, no other regulator or collection of regulators has the depth of prosecutorial experience or armies of investigators that the US federal government possesses. While it would not be surprising to see former DOJ and SEC lawyers aiding these regulators in a formal or informal capacity, they simply do not have the bandwidth or firepower that US enforcement agencies can bring to bear. Moreover, the nearly 50-year history of the FCPA means that there is a well-established body of caselaw that supports the use of the FCPA in cross-border prosecutions. These regulators will be starting from a much less advanced position.

That said, there are reasons to think that the IACPTF will be formidable. Each country brings something unique to the table. The UK has the most robust foreign bribery laws and the strength of the Serious Frauds Office behind it. France has not been an active player prosecuting foreign bribery, but has developed significant domestic expertise as a result of the Sapin II law, knowledge that can easily be shared with National Financial Prosecutor’s Office. And Switzerland may be the most experienced hand in prosecuting foreign bribery of the three countries, having played important roles in a number of major corruption enforcement actions in recent years. The financial strength of these countries and depth of their legal bars are other reasons to expect the IACPTF to be able to ramp up more quickly than most. Meanwhile, while California prosecutors have almost no experience with foreign bribery matters, they have a number of broadly worded laws that could apply to foreign bribery at their disposal. Perhaps more importantly, there are a number of former DOJ and SEC lawyers who live in California who do have substantial expertise in these matters, and they could be recruited formally or informally to support these efforts. Overall, the strengths of these agencies appear to outweigh their relative lack of experience enforcing corruption laws.

2. Legal Hurdles

One of the most potent attributes of the FCPA is its nearly 50-year enforcement history and the body of caselaw that supports it. By contrast, there is almost no caselaw supporting California bootstrapping its state laws to the FCPA, and even the European laws enforced by the IACPTF are relatively new and unsettled compared to the FCPA. California in particular could see significant legal challenges to its novel use of state civil unfair competition laws as a means to indirectly enforce a federal foreign bribery law.  First, at minimum, there would have to be an injury or activity that physically take place within California for the UCL or other California laws to be triggered. And while AG Bonta cites a California Supreme Court case in his release for the proposition that a “UCL claim may be predicated on [an] FCPA violation,” the Supreme Court in that case explicitly declined to consider the issue, because neither party challenged the appellate court’s decision that an FCPA violation could trigger a UCL claim. And even the unresolved question of whether the UCL can be triggered by an FCPA violation under California state law would not reach questions about whether federal preemption or the Commerce Clause might limit further limit the extent to which California can rely upon it. Finally, there is an open question as to whether California could compel the same sort of compliance with a civil statute as the DOJ did with a criminal one, or the SEC could with its regulatory control over publicly traded companies. (For a more fulsome discussion of these issues, a recent GIR article featuring former DOJ FCPA prosecutor and current head of Willkie Farr’s FCPA practice, Jason Linder, is instructive.) In sum, there are plenty of open questions about the reach, applicability and effectiveness of the laws available to the IACPTF and California.

Again, however, there are countervailing considerations. First and perhaps most importantly, litigating these issues would be a costly, highly public and time-consuming affair. Most companies facing a foreign bribery charge would prefer to resolve things quickly and discretely, which is why almost all FCPA matters result in negotiated settlements. Second, particularly as regards the European enforcers, there is little reason to think courts would adopt significant limitations on their ability to enforce these laws. Third, geopolitical considerations might convince governments to adopt broader, stricter anticorruption laws to make up for the US federal government’s reduced presence. Again, overall, the picture is mostly an encouraging one in terms of enforcement.

If you believe, as I do, that effective corruption enforcement is a benefit to all parties, then you should be very encouraged by these announcements and the prospect of more to come. That said, moving from a world with a dominant regulator to a more decentralized model with dozens of regulators who may or may not cooperate presents many complications for companies and anticorruption practitioners. At this point, it is premature to speculate on the full extent of these complications, but a few issues seem particularly likely to pose challenges.

1. Consistency

   
   

The DOJ and SEC were not only the best-resourced and most experienced anticorruption enforcers, they also were often at the hub of multinational enforcement actions. In this capacity, they not only may have taken the lead on investigations, but they also served to ensure other regulators were informed and involved at an appropriate level.

Without a clearly defined leader in the field, it’s unclear whether the same degree of cooperation we’ve observed over the past decade will continue. At minimum, it will take some time for trust and new relationships to develop amongst the various agencies. The result of this is that we are likely to see less consistent approaches to enforcement. Acts of corruption that might currently be prosecuted could fall through the cracks. But perhaps even more concerning to companies is the possibility that, without an experienced hand to help separate the wheat from the chaff, cases will be pursued where they shouldn’t be.

2. Patchwork Regulations

   
   

The concerns about consistency lead directly into the next issue: without the FCPA as a global gold standard, there is a risk that different regulators will adopt differing and even potentially inconsistent standards for corruption and compliance. We’ve already seen this at a limited level with the UK Bribery Act’s broader definitions than the FCPA, and Sapin II’s highly prescriptive approach to compliance within France, but these subtle differences have not had a significant effect on the ability of companies to stand up a single, global anticorruption compliance program. That could change.

I should acknowledge at the outset that I strongly believe in the value of companies’ having a single, global standard for anticorruption compliance. This is particularly true for multinational companies who may do business in 50 or more countries. A uniform standard enables a company to offer a single global training program, adopt a single policy (or set of policies) to cover acceptable conduct, and perhaps most importantly, employ monitoring tools that enable “apples to apples” comparisons of activity across jurisdictions to help identify red flags and suspicious transactions. Not only does a single standard promote efficiency and uniformity, adopting differing standards increases the risk of non-compliance. It leads to uncertainty and confusion, especially for people working across borders. And it makes it easier for wrongdoers to find and exploit loopholes in a company’s controls.

I should also acknowledge that bodies like the OECD have promulgated standards to which its members adhere. And it is unlikely that the basic definition of corruption – offering something of value to someone with authority in order to induce them to misuse that authority – will vary meaningfully between countries. It is far easier to imagine an environment, however, where each country adopted its own accounting rules, along the lines of the FCPA’s books and records provisions. This would quickly place companies between a rock and a hard place. After all, maintaining multiple sets of books and records for separate countries is an invitation for fraud and abuse. Or imagine local requirements so arduous or comprehensive that they become impossible to fit into a single, global anticorruption policy. All of these issues would greatly complicate the management and effectiveness of a multinational anticorruption compliance program while offering little upside in terms of effective deterrence of corruption.

3. Piling On

One of the most nettlesome problems of multinational enforcement is the risk of “piling on.” Since there is no double jeopardy between sovereigns, and since most foreign bribery laws are written broadly to sweep up as much conduct as possible, there has always been a risk that a company could work closely and responsibly with its primary regulator to resolve a corruption matter, only to have another regulator swoop in after the fact and attempt to “free ride” on the work that had already been done to extract a second settlement. When the US DOJ was at the center of most investigations, it mitigated this risk by coordinating a single universal settlement with all relevant parties and with its own “anti-piling-on” policy. This not only protected companies from duplicative judgments against them, but it also encouraged companies to come to the table and negotiate a comprehensive resolution, knowing they could likely put the matter behind them. Again, that is a benefit that may now disappear.

4. Self-Disclosure

And all of this leads into perhaps the most pernicious side effect of a move towards a disaggregated enforcement model: it will greatly complicate the decision of a company to self-disclose misconduct. Under the system that has existed over much of the past two decades, companies had powerful incentives to make voluntary disclosures. The US in particular offered significant and concrete benefits, including the DOJ’s presumptive declination of criminal charges, if companies self-reported and fully cooperated. And when the DOJ was the world’s primary regulator of foreign bribery, this was often a dispositive consideration. But other regulatory bodies have either offered more opaque benefits or promised nothing at all. And Deferred Prosecution Agreements, a popular means of resolving matters with the DOJ, are either unavailable or much more limited elsewhere. How will companies evaluate whether it makes to cooperate in such an amorphous model, especially where there is a risk of other regulators piling on to boot?

My fear is that many companies will choose not to disclose, and that would be bad for many reasons. For one, while most companies want to do the right thing, carrots and sticks are still powerful drivers of compliance. The absence of disclosure and cooperation with a regulator is likely to lead to companies failing to adopt appropriate remedial controls, discipline wrongdoers, or disgorge ill-gotten gains. Even where a company makes a sincere effort to remediate matters internally, there is not the same degree of objectivity and expertise that comes from working with an experienced regulator to evaluate the appropriateness of a company’s response.

Second, there is great educational value in companies making disclosures, because it is the single best way for compliance officers at other companies to learn about trends in fraud and bribery. I can say that many of the decisions I make every day are based upon fact patterns I’ve seen described in disclosures by my peers at other multinationals. If this companies do not make this information public in the form of disclosures and settlements, compliance officers will be left to guess based only on their own internal experience, and that could contain significant blind spots. To give one example, most companies that I spoke to did not have significant anticorruption controls around intern hiring until after the publicity that resulted from the so-called Princeling cases. Now, almost every company I speak to has adopted intern hiring controls that mirror those in place for permanent hires. This is a huge improvement in compliance that came about as a direct result of fact patterns being made public.

Conclusions

There is good reason to be encouraged about the announcements from the IACPTF and California AG’s office. We can all agree that corruption is an evil that ultimately harms everyone: it steals roughly 5% from our global GDP, makes the world a less safe and predictable place to do business, and undermines trust in government. More enforcement of anticorruption laws is almost invariably a good thing. But that doesn’t mean it will be without significant and potentially costly challenges. The bottom line is that everyone’s job is going to be more complicated in a world with decentralized corruption enforcement.

There is, however, at least one unquestionably good aspect of moving to a more decentralized model, and that is that it will prevent political developments in any one country from destabilizing corruption enforcement as a whole. And as beneficial as the US government’s FCPA enforcement has been for the world, it has had the perverse effect of making the rest of the world more reliant upon the priorities of US enforcement agencies. Those days are hopefully behind us.

Now, as always, the best thing any company can do is to commit to a zero-tolerance stance on bribery and start thinking ahead to the risks, challenges and opportunities that tomorrow may bring. No change in enforcement priorities will ever change that.

Dan Seltzer

Managing Director - Legal Senior Director of Anticorruption and Government Compliance