FCPA COMPLIANCE: CIRCUMVENTING INTERNAL CONTROLS
One of the most interesting aspects of the recent indictment involving a number of former Siemens officials are the charges relating to conspiring to circumvent Siemens' internal controls. Except in extreme cases such as the information filed against Siemens in 2008 where violations of the internal control provisions were alleged, the adequacy of internal controls under the internal controls provisions of the FCPA can seldom be expected to serve as a basis for a criminal violation.
This result is largely due to the esoteric nature of the FCPA's internal control provisions. As the court stated in Sec. & Exch. Comm'n v. World-Wide Coin Inv., Ltd., 567 F. Supp. 724, 751 (N.D. Ga. 1983), "[t]he main problem with the internal controls provision of the FCPA is that there are no specific standards by which to evaluate the sufficiency of controls; any evaluation is inevitably a highly subjective process in which knowledgeable individuals can arrive at totally different conclusions."
The information filed against Siemens in 2008, in effect, alleged a violation of the internal control provisions of the FCPA by knowingly failing to implement and circumventing a system of adequate internal controls.[1] The recent indictment against the Siemens executives focuses on circumventing internal controls and makes no reference to implementing adequate internal controls.[2]
From a policy perspective, such a focus represents a positive development since it provides a mechanism for enforcement officials to direct their attention to individuals who actively seek to undermine an entity's efforts to deter improper conduct on the part of those acting on its behalf. From a trial standpoint, a challenge is presented in clearly establishing what controls the individuals charged sought to circumvent.
[1]United States v. Siemens Aktiengesellschaft, Case No. CR 08-367 B/L, Information at ¶ 135 (D.D.C., filed Dec. 12, 2008).
[2]United States v. Sharef, Case No. 1-11-cr-01056, Indictment at ¶ 57 (S.D.N.Y., filed Dec. 12, 2011).
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