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The Role Of Regional Offices In The SEC FCPA Unit
Law360, New York (September 30, 2011, 1:51 PM ET) -- By now, it is well known that the U.S. Securities
and Exchange Commission has a specialized unit dedicated to investigating and prosecuting violations of
the Foreign Corrupt Practices Act. It is also well known that this unit has been actively working both on
its own and in conjunction with the U.S. Department of Justice and bringing record numbers of FCPA
cases.
However, in all the discussion of the FCPA unit, there has been relatively little mention made of the fact
that more than half the unit resides not in the SEC’s home office in Washington, D.C., but in its regional
offices. Indeed, relatively little attention has been paid to identifying the offices that have an FCPA unit
presence and considering what impact this regional presence is having, and is likely to have, on the SEC’s
prosecution of FCPA cases.
The Creation and Composition of the FCPA Specialized Unit
In January 2010, in the wake of its massive restructuring, the SEC’s Division of Enforcement created five
specialized units, including the FCPA unit. Cheryl Scarboro was named as the first unit chief.[1] In the
weeks that followed, interested SEC staff applied and interviewed for positions in the respective units.
When the process was concluded, 30 attorneys, comprised of 21 staff attorneys, eight assistant
directors and the unit chief, were named to staff the FCPA unit. The majority of the attorneys selected
had substantive experience dealing with FCPA matters. Those that did not had significant investigative
or trial experience from other matters, and they brought new perspective and skill sets to the unit.
The staff numbers do not tell the whole story. For example, while there are eight assistant directors in
the unit, six of them (those working in the regional offices) are not dedicated full-time to FCPA matters
but also supervise anywhere from two to five non-unit staff attorneys working on non-FCPA matters.
Then again, FCPA matters are not investigated solely by unit members. Non-unit members are often
brought in to help out on investigations where there is both the need and the flexibility to do so. Given
the demands on and for SEC staff attorneys, however, the ability to tap non-unit members can be
somewhat limited.
The Regional Offices with FCPA Unit Presence
As might be expected, almost half of the unit is based in the home office. However, the remaining staff
members are located in the following regional offices: Boston, Los Angeles, Miami, Salt Lake City, San
Francisco and Fort Worth, Texas. More specifically, each of the regional offices has slots for one or two
unit members (depending on the office) and an assistant director. In the SEC’s overall enforcement
scheme, these offices have typically had responsibility for the following areas:
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Boston: Massachusetts, Connecticut, Rhode Island, New Hampshire, Maine and Vermont;
Fort Worth: Texas, Oklahoma, Arkansas and Kansas;
Los Angeles: Southern California, Arizona, Nevada, Hawaii and Guam;
Miami: Florida, Mississippi, Louisiana, U.S. Virgin Islands and Puerto Rico;
Salt Lake City: Utah;
San Francisco: Northern California, Washington, Oregon, Alaska, Idaho and Montana.
In April 2010, an article referencing the FCPA unit in San Francisco received wide circulation. In the
article, Tracy L. Davis, the assistant director in that unit, was quoted as stating, “The fact that we have a
significant presence of companies in Silicon Valley who do business internationally, specifically in Asia,
makes us well-suited for addressing these kinds of issues. That’s one of the reasons why San Francisco is
a particularly good location for an FCPA unit.”*2+
Because there has been relatively little in print about the regional FCPA units, commentators have
seized upon the mention of the San Francisco FCPA unit and to a large extent overlooked the unit’s
presence in the other offices. However, the presence of FCPA unit members in the other regional
offices, and their activity, has been just as noteworthy.
For example, the Fort Worth office, working with the home office and the DOJ, helped bring the
Panalpina series of actions, in which seven companies agreed to pay a total of $236.5 million in
settlement.[3] Working with DOJ, the Miami office brought the Alcatel-Lucent action, where the
company agreed to pay over $137 million.[4] The Salt Lake City office was responsible for bringing the
Tenaris matter, pursuant to which Tenaris SA agreed to pay $5.4 million in the first deferred prosecution
agreement entered into by the SEC since the rollout of its cooperation program.[5]
In addition, it has been widely reported that the Boston office has been active seeking information from
banks and private equity firms regarding their dealings with sovereign wealth funds.[6] In short, whether
publicized or not, each of the regional offices has been active in bringing or investigating significant
FCPA matters.
Considerations Influencing the Involvement of a Regional Office
How does a case end up being investigated by a particular regional office? Within the unit, as in the
Enforcement Division as a whole, there are no hard and fast rules governing how or where cases are
staffed. However, three criteria are given significant consideration: geographic nexus, availability of staff
resources, and the source of the investigation.
Geographic Nexus
In the past, the staff throughout the agency might seek to lay claim to a particular matter, regardless of
where the conduct occurred, by being the first to open an investigation into it. This practice lead to turf
battles and awkward situations where staff from one region would be investigating or even bringing an
action in another region. The Enforcement Division has sought, with some success, to avoid such turf
battles by pressing supervisors to work with their counterparts in other offices to make sure that
investigations are being conducted by the appropriate regional offices.
Given the budgetary restrictions under which the Enforcement Division staff has had to operate, and the
need to avoid travel costs where at all possible, the division has reinforced the importance of a
geographic nexus to the region. Thus, if an FCPA matter concerns a company within a geographic area
traditionally covered by a regional office that has unit membership, there will be a preference within the
unit that the matter be handled by that office.
Availability of Staff Resources
Even if other considerations would dictate that a particular regional office might be the best home for
an investigation, the availability of staff resources may dictate that the matter go to the home office or
another region. For example, a case may go elsewhere because (1) the staff in the optimal region is too
busy on other matters to take on a new case, (2) there is excess capacity elsewhere or (3) another office
has particular experience or expertise concerning the company, industry, or country involved.
Source of the Investigation
Tips, complaints and referrals (TCRs) that come into the SEC through the agency’s TCR system and relate
to FCPA violations are reviewed by unit members in the home office and then based upon factors
discussed above, routed to the appropriate office for investigation. On the other hand, when a regional
office receives a self-report or develops a case by means of a proactive approach, that office will likely
handle the investigation or at least help out on it, unless the other factors dictate that it should be sent
elsewhere.
Cases derived from self-reports have historically made up the majority of the SEC’s FCPA caseload.
However, as the Enforcement Division has done in other areas, the FCPA unit has tried to take more
proactive approaches, by examining industry analytics and undertaking risk-based investigations.[7] In
other areas, the Enforcement Division has been mining the mountains of data available to it for signs of
securities violations in such things as aberrational performance by investment advisers and public
issuers or in suspicious trading or other market activity.
The FCPA unit is now using these tools and techniques, as well as a skeptical mindset, and applying them
to seek out FCPA violations. Among other things, the FCPA unit is critically looking at the countries and
industries in which corruption is most prevalent and looking also at the companies that do the most
business in those countries. If a company is successful doing business in countries where bribes of
foreign officials are seemingly commonplace, the staff will be asking how that company managed to
achieve its success without itself engaging in bribery.
Consequences of Regional Office Membership in the FCPA Unit
What are some of the practical consequences of the presence of the FCPA units in the regional offices?
First, companies operating in the areas traditionally covered by the regional offices with unit
membership should expect that they may receive increased scrutiny from the FCPA unit. In considering
what proactive approaches to take, a staff member in a given region is likely to look most closely at the
companies and industries within its region. The staff member is likely to have a greater familiarity with
those companies and industries. The staff will also have an easier time explaining the geographic nexus
to its supervisors than it would if the companies and industries were in another region.
Second, in those regions, there is a greater likelihood that staff investigating non-FCPA violations at a
given company will also be on the lookout for signs of potential FCPA violations and will confer with
their colleagues in the FCPA unit when they find them.
Until the creation of the unit, FCPA violations were handled primarily by the home office; regional staff
members, who did not deal with such violations, were less likely to be looking for them or to even know
what to look for. The designation of unit members in the regions, however, has elevated the profile of
FCPA violations in the regions. To varying degrees, even non-unit staffers in the regions now have an
awareness of the FCPA investigations handled by the office, and perhaps more importantly, they know
who in the office to turn to when they encounter possible signs of foreign bribery.
Third, the existence of regional offices creates new options for companies that discover a possible FCPA
violation and want to cooperate with the government and get credit for self-reporting. Rather than selfreporting to the SEC’s home office or the DOJ in Washington, a company may now report to and work
with the closest SEC office with unit membership and unless other factors override, that office will likely
end up keeping and working the matter.[8] Given the importance of establishing credibility and a
cooperative relationship with the staff, the ability to exercise some control over who conducts the
investigation should not be overlooked.
--By Luke Cadigan, K&L Gates LLP
Luke Cadigan is a partner in the government enforcement practice group in the Boston office of K&L
Gates. Before joining K&L Gates, he was an assistant director in both the Boston Regional Office and the
FCPA Unit of the SEC’s Enforcement Division.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its
clients, or Portfolio Media, publisher of Law360. This article is for general information purposes and is
not intended to be and should not be taken as legal advice.
[1] Scarboro left the agency in June 2011. On Sept. 27, 2011, Kara Brockmeyer was named to fill the
position.
*2+ “HP Bribery Case Throws Spotlight on Enforcement,” San Francisco Daily Journal, April 19, 2010
*3+ “SEC Charges Seven Oil Services and Freight Forwarding Companies for Widespread Bribery of
Customs Officials,” SEC Press Release, Nov. 4, 2010
*4+ “SEC Charges Alcatel-Lucent with FCPA Violations,” SEC Press Release, Dec. 27, 2010
*5+ “Tenaris to Pay $5.4 Million in SEC's First-Ever Deferred Prosecution Agreement,” SEC Press Release,
May 17, 2011
*6+ “SEC’s Sovereign Wealth Fund Probe Is More Than Name Suggests,” Corruption Currents, Feb. 9,
2011; “Sovereign Wealth Fund Letters Came From SEC’s Boston Unit”, Main Justice: Just Anti-Corruption
Feb. 1, 2011
*7+ “‘Moneyball’ for Investigators: SEC Using ‘Risk Metrics’ in Search of FCPA Cases,” Main Justice: Just
Anti-Corruption, June 8, 2011
[8] Of course, a company may also self-report a potential FCPA violation to an SEC office without unit
membership, but it is less likely that the office would then handle the investigation.
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