SEC’s Clayton bemoans international anti-graft enforcement

SEC chair Jay Clayton has expressed concern that, in his view, some authorities around the world are not doing what they should to combat bribery and corruption.

In remarks to the Economic Club of New York earlier this week, Clayton said his agency has brought almost 80 FCPA cases over the past five years, involving alleged misconduct in more than 60 countries.

Two companies settled FCPA actions in late August alone: Sunnyvale, California-based Juniper Networks agreed to pay almost $12 million to settle allegations that it violated the FCPA through subsidiaries operating in Russia and China. A few days earlier, Deutsche Bank agreed to pay more than $16 million to resolve claims it too had violated the anti-corruption law, in the bank’s case through alleged recruitment practices outside the US. Both Juniper and Deutsche Bank settled the separate actions without admitting or denying wrongdoing.

‘To be clear, I believe this is important work. Corruption is corrosive. We see examples where corruption leads to poverty, exploitation and conflict,’ Clayton told his audience on Monday. ‘Yet we must face the fact that, in many areas of the world, our work may not be having the desired effect. Why? In significant part, because many other countries, including those that have long had similar offshore anti-corruption laws on their books, do not enforce those laws.’

He added: ‘To be clear, I do not intend to change the FCPA enforcement posture of the SEC. We should, however, recognize that we are acting largely alone and other countries are incentivized to play, and I believe some are in fact playing, strategies that take advantage of our laudable efforts.’

Pointing to what he said is the FCPA-driven withdrawal of US and US-listed firms from certain jurisdictions, Clayton said ‘globally oriented laws, with no, limited or asymmetric enforcement, can produce individually unfair and collectively sub-optimal results.

‘I assure you that this reality is at the front of my mind when I engage with my international counterparts on matters where common, co-operative enforcement strategies are essential, including the recent calls for greater securities law-based regulation of environmental and social issues.’

Clayton pointed to economic game theory as highlighting potential incentives for countries to avoid enforcing offshore corruption laws against local companies. If all other countries pursue a common, co-operative policy of not allowing their companies to engage in offshore corruption, a country with endemic corruption may change its practices so that cross-border business would be conducted competitively and legitimately, he noted.

But if this co-operative anti-corruption approach is being pursued by others, there are significant benefits of playing a non-co-operative strategy, particularly if your company is the only one that is ‘cheating’ and thereby secures offshore business with no competition, he added.

‘Speaking generally, the response to this observation has long been to acknowledge the need for greater international co-operation and cite a few isolated indicia of improvement. Speaking for myself, I have not seen meaningful improvement,’ Clayton said.

He also noted that SEC and US Department of Justice (DoJ) FCPA enforcement is limited in terms of jurisdiction to where US and US-listed companies do business, and pointed to ‘the reality that there are countries where the business opportunities are attractive but corruption is endemic.’

Although the FCPA has been in effect since the 1970s, the number of cases being brought under it ticked up sharply 12 years ago. Having brought a maximum of seven cases in any year until 2005, the SEC launched 21 cases in 2007, according to Stanford Law School. The agency has continued to be active in the field since then, filing a record 29 cases in 2016, the law school data states. The DoJ has shown a similar increase in FCPA activity over that period.