Search for:

As Foreign Corrupt Practices Act (“FCPA”) enforcement efforts by the U.S. Department of Justice (“DOJ”) and the U.S. Securities and Exchange Commission (“SEC”) continue to increase, so too have shareholder lawsuits based upon the underlying bribery allegations. Indeed, the public announcement of the initiation or resolution of a government-led FCPA investigation almost invariably triggers a shareholder class action suit alleging issues with the company’s public disclosures, or a derivative action charging that directors and officers breached fiduciary duties by failing to implement necessary internal controls and policies to ensure compliance with relevant anti-corruption laws. While many “follow-on” lawsuits do not survive a defense motion to dismiss – because they are often lacking specific facts to establish the requisite state-of-mind on the part of directors/officers or demonstrate that the company’s public statements were false or misleading — the costs of settling FCPA-related litigation can be substantial. A number of FCPA-related securities lawsuits have settled for amounts in excess of the penalty paid to resolve the DOJ or SEC charges. By way of example:

  • Nature’s Sunshine paid a civil penalty of $600,000 in 2009 to settle SEC bribery charges, subsequently settling the related securities fraud class action for $6 million.
  • FARO Technologies Inc. resolved its FCPA charges with the DOJ/SEC in 2008, paying a total of $2.95 million; the company settled the related securities class action lawsuit for $6.875 million.
  • Immucor, Inc. consented to entry of a cease-and-desist order with the SEC to resolve bribery allegations in 2007, and paid $2.5 million to settle the related class action lawsuit.

In addition to the settlement amount, the cost of defending civil litigation − often on multiple fronts − can be substantial (and not necessarily covered by directors and officers liability insurance). Given the financial stakes and reputational costs of collateral civil litigation, companies with global operations need to think strategically while navigating an FCPA investigation to mitigate further risk and limit potential exposure. This article highlights the key questions each company should ask before and during an investigation, and spotlights the resulting best practices for limiting collateral litigation risk.

Before an FCPA Investigation

Does the company have a robust FCPA compliance program? Each company with potential collateral civil litigation exposure should be able to demonstrate that its compliance program embodies the essential elements of corporate compliance — leadership (i.e., “tone at the top”), effective risk assessment, meaningful standards and internal controls, appropriate training and communication within the organization, and sufficient monitoring, auditing, and response capabilities. (For a detailed discussion of each of the five essential elements of corporate compliance, please see The Five Essential Elements of Corporate Compliance.) Are the company’s ongoing compliance efforts being disclosed? The company’s disclosures about its FCPA compliance efforts − especially actions that it may have taken prior to discovery of any wrongdoing − to evaluate, verify the effectiveness of, and/or enhance its anti-corruption program may be useful in the event the company needs to respond to a shareholder claim that, for example, board members breached fiduciary duties by failing to implement FCPA-related controls. Have FCPA risks been sufficiently disclosed? Before any FCPA issue arises, companies should evaluate the areas that potentially give rise to FCPA risks and, where risks are measurable, consider crafting appropriate disclosures for inclusion in 10-Qs, 10-Ks, etc. that will eliminate or limit the scope of follow-on claims that the company’s SEC filings were materially misleading. Potential risk disclosures could discuss the following:

  • Risks associated with doing business in countries with elevated perceived corruption risk (i.e., China, Russia, Brazil, etc.);
  • Risks associated with potential gaps in implementation of the compliance program; and
  • Risks associated with violations of anti-corruption laws and regulations.

After Discovery (or Announcement) of a Potential FCPA Violation

Are progressive disclosures warranted to rebut shareholder allegations that material information was not disclosed in a timely manner? Once potential wrongdoing has been discovered, a company should consider disclosing the steps that the company has undertaken − including internal efforts to uncover the issue, the thoroughness of any internal investigation, and the enlisting of external resources and support − to mitigate further damage in follow-on litigation. Identify any issues that the company may have encountered in the course of an investigation (i.e., information that may have been withheld from management/the board, specific issues related to the geographic area in which the issue arose, etc.). Periodically evaluate disclosures made before and throughout the investigative process. Consider whether any disclosures previously issued may need to be updated and whether additional disclosures are warranted. Progressive disclosures, as material information becomes available, can help to rebut shareholder claims that shareholders were damaged by the withholding of material information. Have disclosures been evaluated in light of privilege issues? All FCPA investigations implicate potential privilege issues. Procedures must be established at the outset to ensure the preservation of applicable privileges. Cross-border internal investigations, in particular, give rise to challenging privilege issues including, but not limited to:

  • Complexities with conducting witness interviews;
  • Differences between U.S. privilege law and the laws of other jurisdictions;
  • Considerations when communicating with foreign in-house counsel; and
  • Problems associated with ignoring data privacy rules.

To the extent possible, companies must structure an internal investigation in a manner that protects privileged information from discovery while facilitating a comprehensive investigation. While disclosure of privileged information in the context of a government investigation may at some point be deemed necessary or strategically appropriate, any such disclosure must also be evaluated in light of the potential impact it may have in collateral civil litigation. Voluntary waivers of privilege in a government investigation should be made with the assumption that any privilege with respect to the information will likely also be considered waived in subsequent lawsuits. When negotiating the content of documents resolving an FCPA investigation, is there factual information that could help the company respond to follow-on claims? Where a company is negotiating resolution of an FCPA investigation with the government, the information incorporated in the documents resolving the charges should be considered in a light that will best position the company to respond to FCPA-related litigation. To the extent possible, consider including information to establish the following:

  • The existence of internal controls and an FCPA anti-corruption compliance program in place prior to the discovery of the conduct at issue;
  • The company’s efforts to evaluate the effectiveness of the program and to improve or enhance any aspect (especially steps taken prior to resolution of the investigation);
  • The manner in which the wrongful conduct was uncovered − particularly if it was the result of an internal probe;
  • Challenges the company may have faced when investigating the wrongdoing (i.e., material information that was concealed and which could not have been discovered sooner); and
  • The company’s response upon discovery of the problem and steps taken to combat against future FCPA violations.

While not bullet-proof, inclusion of the above information will substantiate arguments that the company may need to make in response to allegations in follow-on collateral litigation that directors and management failed to implement and effectively monitor the necessary anti-corruption controls and/or disregarded red flags that should have alerted the company (sooner) to the existence of a problem.


Companies with multinational operations cannot oversee every action taken by employees and business partners throughout the world. Rather, the company needs to be in a position to demonstrate − whether to the government in an investigation or to the court in related collateral litigation — that it did everything it reasonably could have done to prevent an FCPA violation and to discharge fiduciary obligations owed to shareholders. Managing an FCPA investigation while being mindful of its potential to trigger and impact collateral civil litigation helps to facilitate optimal resolution of material issues on both fronts


Barrie Brejcha is a partner in Baker McKenzie's Compliance & Internal Investigations practice group in Chicago. Barrie represents public companies and their directors and officers in federal securities class action litigation, SEC investigations and related enforcement actions, and with FCPA compliance and due diligence. Ms. Brejcha served as Co-Chair of the Securities Litigation Committee for the American Bar Association’s Section of Litigation.

Write A Comment