Everyone's 2011 predictions for FCPA enforcement have turned out to be wrong. It is obvious that 2011 will go down as the year of the FCPA trial. The previous year, 2010, was the year of record settlements, most of which involved non-US companies, and exceeded $1 billion.
In 2011, the Justice Department's FCPA resources have been stretched by trials -- the DC Sting, Lindsey, Carson, and Terra Telecomm. DOJ's record so far has been pretty good but a reversal of the Lindsey convictions could have a dramatic impact. The DC Sting cases are now scheduled for multiple trials through next year.
If you want to know what the Justice Department's priorities are, all you have to do is follow the resources (or as we say from the Watergate days -- follow the money). DOJ's FCPA resources are now being allocated in large part to trial work. That leaves less time to manage the voluntary disclosure process, to move internal investigations being conducted by outside counsel, and to wrap up cases and get all the internal approvals needed before filing a settlement or deciding not to prosecute. The number of settlements and the fines collected have dropped significantly during this year.
The increase in trial work also reflects the importance DOJ is now placing on prosecuting individuals in FCPA investigations. The Antitrust Division has been prolific in prosecuting individuals while securing the cooperation of corporate defendants. The FCPA prosecutors are increasing individual prosecutions but still have a long way to go to measure up to the Antitrust Division's record.
Some have argued that individual prosecutions provide a more effective deterrent than large fines against companies. It is hard to say and there have been no empirical studies on what impact such prosecutions have in deterring future violations.
Some argue that corporations pay large fines as merely a "cost of doing business." In my view, that depends on the facts. Assuming that a bribe of $10,000 of a foreign official will secure a $1 million contract, and the company goes ahead and pays the bribe but then is caught and fined $10 million -- whether the company made a rational decision depends on the missing factor in the equation: what was the likelihood of being caught by the company and/or the government? If you add in the potential prosecution of individual actor(s), then this risk may alter the equation by reducing the number of available actors willing to engage in risky conduct to bribe the foreign official.
For now, the Justice Department has made it clear -- they intend to prosecute individual FCPA violators and are ready, willing and able to go to trial to do so.