Chapter Four:
SEC FCPA Enforcement Year in Review

The United States Securities and Exchange Commission has the authority to bring civil enforcement actions against companies with securities listed on United States exchanges (or who are otherwise required to file periodic reports with the SEC), both for bribery of foreign officials as well as for books and records and internal controls violations. In 2023, the SEC continued the agenda it established in 2022, including its expanded use of its whistleblower program and other tools to identify and bring new cases. The year also saw several high-profile FCPA actions by the SEC. In bringing such cases, the SEC works closely both with the DOJ and with foreign authorities.

Continued Reliance on the Whistleblower Program

The SEC aggressively pursued its enforcement agenda in 2023, and that included filing more FCPA enforcement actions than in 2022. As in past years, the SEC continued to rely on the whistleblower program established under Section 922 of the Dodd-Frank Act, which allows whistleblowers to receive between 10 and 30 percent of the ultimate recovery from any SEC enforcement action taken in response to or in conjunction with information the whistleblower provided. In May 2023, the SEC announced the “largest-ever award” in the program’s history, awarding nearly $279 million to a whistleblower who led to a successful enforcement of SEC and related actions. Media reports highlighted that this award was likely given to a tipster who provided information leading to the 2019 resolution between Ericsson and US authorities that included $1.1 billion in total financial sanctions. When speaking about this record-breaking award, the SEC’s Enforcement Division Director Gurbir Grewal stated, “[a]s this award shows, there is a significant incentive for whistleblowers to come forward with accurate information about potential securities law violations.”[1]

Enforcement Actions from 2016 to 2023

In 2023, the SEC continued its practice of bringing FCPA actions for payments and/or gifts under the Act’s anti-bribery, books and records, and internal accounting controls provisions. The agency brought such charges in proceedings that both did and did not involve parallel criminal proceedings. These cases involved alleged misconduct around the globe, including Angola, China, Colombia, Guinea, India, Indonesia, Russia, South Africa, United Arab Emirates, and Vietnam.


2016 2017 2018 2019 2020 2021 2022 2023
Standalone Enforcement Actions 528 446 490 526 405 434 462 501
Follow-On Administrative Proceedings 195 196 210 210 180 143 169 162
Delinquent Filings 125 112 121 126 130 120 129 121
Total Actions 868 754 821 862 715 697 760 784

2023 FCPA Cases

The SEC’s FCPA cases resolved in 2023 fall under one of two categories: (a) cases involving violations of only the books and records and internal accounting control provisions and (b) cases involving violations of the anti-bribery provisions (in addition to violations of the books and records and internal accounting provisions).

a. Violations of Only the Books and Records and Internal Accounting Control Provisions of the FCPA

This subset of cases involved the SEC’s findings that the company failed to maintain sufficient books and records and internal accounting control provisions to detect and/or prevent misconduct by third-party vendors and/or employees. None of these cases indicated the existence of a parallel criminal proceeding, unlike some of the cases involving the anti-bribery provisions discussed later. The companies that resolved violations of only the books and records and internal accounting control provisions are:

  • Flutter Entertainment, plc: The SEC claimed that, between 2015 and 2020, The Stars Group (for whom Flutter Entertainment served as successor-in-interest) paid approximately $8.9 million to consultants in Russia who were used in part to reimburse New Year’s gifts to individuals including Russian officials. Although reimbursements of this nature were prohibited by The Stars Group’s policies, the SEC further claimed that The Stars Group lacked a sufficient internal accounting control system for third-party consultant payments in Russia and failed to keep accurate books and records for those same payments. Without admitting to wrongdoing, Flutter Entertainment agreed to pay a $4 million civil penalty.[2]

  • 3M Company: The SEC claimed that, at least between 2014 and 2017, employees of a 3M Company China-based subsidiary paid nearly $1 million to fund several overseas trips that included guided tours, shopping visits, and other leisure activities for Chinese officials. The SEC further claimed that, to conceal these trips, the employees provided false itineraries to compliance personnel to obtain approval, falsified internal compliance documents, instructed attending Chinese officials to conceal the actual itinerary, and directly transferred money to a Chinese travel agency to pay for some of the improper tourism activities. Without admitting wrongdoing, 3M agreed to pay over $6.5 million, which consisted of a $2 million civil penalty and over $4.5 in disgorgement plus prejudgment interest.[3]

  • Rio Tinto plc: The SEC order found that Rio Tinto hired a consultant to help the company retain certain mining rights in Guinea. After Rio Tinto retained the mining rights, it paid the consultant $10.5 million without verifying his services. The SEC claimed that the consultant, in his efforts to help Rio Tinto retain its mining rights, attempted to bribe a Guinean official for at least $822,000. The SEC further claimed that Rio Tinto failed to detect or otherwise prevent the consultant’s bribery scheme because of its failure to accurately reflect its payments to the consultant and its insufficient internal accounting controls. Without admitting to wrongdoing, Rio Tinto agreed to pay a $15 million civil penalty.[4]

  • Koninklijke Philips N.V.: The SEC order found that two of Koninklijke Philips’s China-based subsidiaries engaged in several instances of misconduct in connection with the sale of medical diagnostic equipment. Some instances included the subsidiaries providing a special discount that could be used to fund improper payments to government employees. Other instances included the subsidiaries’ employees and third-party vendors attempting to influence hospital officials to draft public tenders to favor Philip’s products as well as engaging in improper bidding intending to create the appearance of legitimate public tender under Chinese law. The SEC specifically claimed that Philips failed to have sufficient internal accounting controls given the scale of its business. Without admitting wrongdoing, the company agreed to pay over $62 million, which consisted of a $15 million civil penalty and over $47 in disgorgement plus prejudgment interest. The SEC also noted that this was not the first time that a Philips’s subsidiary had engaged in such conduct; the SEC had charged Philips in 2013 for similar misconduct in Poland between 1999 and 2007.[5]

b. Violations of the Anti-Bribery (and Other) Provisions of the FCPA

Turning to cases where the SEC specifically pointed to violations of the anti-bribery provisions of the FCPA (in addition to the books and records and internal accounting control provisions), these cases all involved instances in which either an employee or a third-party consultant was alleged to have bribed a foreign official to the company’s benefit. Two of the five companies that resolved violations of the anti-bribery provisions brought by the SEC also resolved parallel criminal proceedings brought by DOJ. In both cases, the SEC forewent imposing civil penalties in light of the criminal penalties imposed by DOJ. Also, in both cases, the companies resolved their cases with the SEC while acknowledging wrongdoing. The companies that resolved parallel SEC and DOJ investigations are:

  • Grupo Aval S.A.: Although Grupo Aval was charged only with violating the books and records and internal accounting control provisions of the FCPA, its bank subsidiary Corficolombiana was charged with violating the anti-bribery provisions. The SEC claimed that Corficolombiana—through its former president’s knowledge, approval, and assistance—offered Colombian officials a bribe of at least $28 million to build a highway construction project, providing Grupo Aval with approximately $32 million in improper financial benefit. The SEC further claimed that Grupo Aval’s lax control environment, from accepting invoices lacking supporting documentation or permitting third-party contracts for vaguely described services, allowed for this bribery scheme to occur. In the parallel criminal proceeding—which led to the SEC imposing no civil penalties—Corficolombiana entered into a deferred prosecution agreement and agreed to pay over $20 million in criminal penalties.[6]

  • Albemarle Corp.: The SEC order found that, from at least 2009 through 2017, Albemarle used agents to bribe officials in India, Indonesia, and Vietnam. The SEC further claimed insufficient accounting controls related to third-party agents in those same three countries plus China and the United Arab Emirates. Although the SEC forewent imposing a civil penalty in light of the parallel criminal proceeding, the SEC did order Albemarle to pay more than $103.6 million in disgorgement plus prejudgment interest. In the parallel criminal proceeding, Albemarle entered into a non-prosecution agreement and agreed to pay $99 million in criminal penalties plus approximately $98 million in forfeiture (of which $81.8 million will be satisfied by Albemarle’s disgorgement payment).[7]

The remaining three cases involved instances where (1) a third-party consultant or foreign subsidiary allegedly bribed a government official to the company’s benefit and (2) the company should have known of such payments had it maintained sufficient internal accounting controls. Each of these companies incurred civil penalties in resolving its FCPA case. These civil penalties were lower than the criminal penalties as discussed above, although civil penalties were higher when the company’s subsidiary, not a third-party consultant, had engaged in the bribery activity. Also, unlike the companies that also resolved parallel criminal proceedings, these companies resolved their cases without admitting wrongdoing. The companies that incurred civil penalties in 2023 in connection with the anti-bribery (and other) provisions of the FCPA are:

  • Gartner, Inc.: The SEC order found that Gartner contracted with a private South African company with close ties to South African officials despite knowing (or consciously disregarding) that some or all the money Gartner paid to the company would be used to bribe South African officials to help award consulting contracts to Gartner. The SEC further claimed that Gartner failed to keep accurate books and records and lacked sufficient accounting controls to detect or prevent this possible bribery scheme. Without admitting wrongdoing, Gartner agreed to pay over $2.4 million, which consisted of a $1.6 million civil penalty and over $800,000 in disgorgement plus prejudgment interest.[8]

  • Frank’s International N.V.: The SEC order found that, from 2008 to 2014, Frank’s International’s subsidiaries paid commissions to a sales agent despite knowing that there was a high probability that the agent would use those payments to bribe Angolan officials and that the agent did in fact use some of those payments to bribe an Angolan official to help award contracts to Frank’s International’s subsidiaries. The SEC further alleged that Frank’s International lacked sufficient internal accounting controls regarding retention of and payment to agents dealing with government officials. Without admitting wrongdoing, Frank’s International agreed to pay nearly $8 million, which consisted of a $3 million civil penalty and nearly $5 million in disgorgement plus prejudgment interest.[9]

  • Clear Channel Outdoor Holdings, Inc.: The SEC order found that, from at least 2012 through 2017, Clear Channel’s China-based subsidiary both bribed Chinese officials for contracts and used false invoices to generate cash for off-the-book consultants. The SEC further claimed that Clear Channel had deficient internal accounting controls in part because its internal auditors repeatedly identified bribery-related concerns and internal accounting control deficiencies that Clear Channel opted not to address. Without admitting wrongdoing, Clear Channel agreed to pay approximately $26.1 million, which consisted of a $6 million civil penalty and approximately $20.1 million in disgorgement plus prejudgment interest.[10]

Importance of Cooperation

In looking at the 2023 FCPA cases, it is apparent that the agency has high expectations regarding cooperation. In fact, the SEC specifically noted in all resolved FCPA cases that it considered the company’s cooperation and remedial actions when determining whether to accept the settlement offer. In some of these actions, it highlighted the specific steps that the company took to cooperate or to remediate the underlying misconduct. These included:

  • self-disclosing the potential misconduct to the SEC,

  • relaying facts developed through the company’s internal investigation or forensic accounting review,

  • making employees—both current but also former—available to the SEC,

  • encouraging parties outside of the SEC’s subpoena power to provide information,

  • providing translation services of relevant documents and witness statements,

  • terminating involved employees or the business relationship with the implicated third-party vendors,

  • withdrawing from the affected market,

  • instituting or revising compliance training, and

  • improving internal accounting controls and compliance programs.

These actions collectively underscore the reality that parties have determined that the best strategy when dealing with a complicated FCPA action is to find a way to cooperate with the agency.

Continued International Cooperation and Domestic Proceedings

Cooperation with foreign authorities remains an important factor shaping and strengthening the SEC’s FCPA enforcement activity. Most of the enforcement actions resolved in 2023 involved the SEC coordinating with authorities of one or more countries, including but not limited to Armenia, Australia, Belize, Canada, Colombia, Cyprus, India, Indonesia, Latvia, Netherlands, and the United Kingdom.

Domestically, the SEC’s authority to bring civil enforcement actions, at least through administrative proceedings, will be tested as the United States Supreme Court examines the constitutionality of SEC administrative proceedings generally. In May 2022, in Jarkesy v. Securities Exchange Commission, the Fifth Circuit deemed that the statutory provisions that empower the SEC to initiate and adjudicate enforcement proceedings seeking civil penalties violated the right to a jury under the Seventh Amendment. The Fifth Circuit further held that the statutory provisions that authorize the SEC to enforce securities laws through an administrative proceeding instead of through federal court violated the nondelegation doctrine. The SEC appealed, and this case—including these issues—was before the United States Supreme Court in its October 2023 Term. Depending on how the Court rules, this may drastically impact SEC FCPA enforcement going forward.[11] The SEC’s ability to seek disgorgement in situations where there are no identifiable victims (as is true in most FCPA actions) will also continue to be scrutinized in 2024. Late in 2023, the Second Circuit issued a decision against the SEC in SEC v. Bovil in which the court found that the SEC could not seek disgorgement where the SEC had not shown that investors suffered pecuniary harm. The Second Circuit’s decision widens an existing split among appellate courts on this issue. As with Jarkesy, it may ultimately fall upon the Supreme Court to clarify the extent of the SEC’s authority.[12]

Footnotes

[1] See SEC, “SEC Issues Largest-Ever Whistleblower Award,” No. 2023-89 (May 5, 2023)

[2] See SEC, “SEC Charges Pokerstars Parent Company with FCPA Violations,” File No. 3-21330 (Mar. 6, 2023); SEC, Corrected Order Instituting Cease-and Desist Proceedings, Administrative Proceeding No. 3-21330 (Mar. 6, 2023)

[3] See SEC, “SEC Charges 3M with Foreign Corrupt Practices Act Violations Relating to China Subsidiary,” No. 2023-160 (Aug. 25, 2023); SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21581 (Aug. 25, 2023)

[4] See SEC, “SEC Charges Rio Tinto plc with Bribery Control Failures,” No. 2023-46 (Mar. 6, 2023); SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21335 (Mar. 6, 2023)

[5] See SEC, “Dutch Medical Supplier Philips to Pay More Than $62 Million to Settle FCPA Charges,” No. 2023-92 (May 11, 2023)

[6] See SEC, “Colombian Conglomerate Grupo Aval and Its Bank Subsidiary to Pay $40 Million to Settle FCPA Violations,” No. 2023-151 (Aug. 10, 2023); SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21559 (Aug. 10, 2023)

[7] See SEC, “Albemarle Corp. to Pay SEC More Than $103 Million to Settle FCPA Violations,” No. 2023-209 (Sept. 29, 2023)

[8] See SEC, “SEC Charges Gartner, Inc. with FCPA Violations in South Africa,” File No. 3-21470 (May 26, 2023); SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21470 (May 26, 2023)

[9] See SEC, “SEC Charges Frank’s International with FCPA Violations in Angola,” File No. 3-97397 (Apr. 26, 2023)

[10] See SEC, “SEC Charges Clear Channel Outdoor with FCPA Violations Relating to China Subsidiary,” No. 2023-206 (Sept. 28, 2023); SEC, Order Instituting Cease-and-Desist Proceedings, Administrative Proceeding No. 3-21755 (Sept. 28, 2023)

[11] See Jarkesy v. Sec. & Exch. Comm’n, No. 20-61007 (5th Cir. 2022)

[12] See Sec. & Exch. Comm’n v. Govil, No 22-1658 (2d Cir. 2023)