I've already mentioned this month that the federal government has promised to crack down on Federal Corrupt Practices Act violations. Now it is making good on that promise. Thursday, law.com featured an interview between The National Law Journal and Shearnan & Sterling partner and former federal prosecutor Philip Urofsky about a recent FCPA case in which the Securities and Exchange Commission took a new -- or different -- course of action.
Some background, courtesy of law.com: The SEC filed a settlement enforcement action against a nutritional supplement company whose Brazilian subsidiary allegedly bribed Brazilian officials to get its products on the market. The company agreed to pay a $600,000 civil penalty, and its CEO and CFO also paid $25,000 apiece. No one had to admit liability under the settlement.
The officers were charged individually under section 20(a) of the Securities Exchange Act of 1934 as those who were "in control" of the Brazilian employees who paid the bribes. Urofsky says this case was the first time the "control officer" section has been used in an FCPA action. He explained:
What they allege is that the current CEO, who was at the time the COO, had overall responsibility for the international operations of the company, including the export of products to Brazil. And the people who would know about these issues were under his control, and that the former CEO had authority and responsibility for the internal controls and books and records. This is a departure from the former practice. It's consistent with Section 20A as it's used in private litigation, but I've never seen the SEC use it in an FCPA action.
What can we learn from this company's experience? Urofsky says this means that the Commission will "use all the tools at its disposal" in FCPA cases. He also warns that active directors could also be subject to such liability along with those in the C-suite.