Regulatory: Top 10 compliance trends for 2013

Compliance professionals should focus on these key areas this year

If the best time to fix a leaky roof is when the sun is shining, then the best time to fix gaps in a compliance program is prior to an enforcement deluge. What follows is our view of the key areas that will garner more attention from compliance professionals in 2013.

1. Government contractors  face the new executive order on trafficking. As previously discussed, President Obama on Sept. 25, 2012, signed his landmark executive order aiming to eradicate trafficking from all federal contracts and subcontracts. 

By this March, the Federal Acquisition Regulation will be amended, requiring federal contractors and subcontractors to be able to report that their supply chains have a clean bill of anti-trafficking health (note that “trafficking” is defined broadly to include coerced labor, indentured servitude, etc.; no movement of the person is required). These new regulations rather exceptionally will also require self-reporting and full cooperation with investigators. The consequences of noncompliance are severe, ranging from serious criminal liability to debarment and suspension to significant fines. Considering that the U.S. government is the world’s No. 1 purchaser of goods and services, the order’s reach is extensive—and its substantive enforcement all but certain.  

2. California Transparency in Supply Chains Act enforcement begins. Effective since Jan. 1, 2012, the landmark Transparency in Supply Chains Act of 2010 requires qualifying manufacturers and retailers to publicly disclose the precise nature and scope of their efforts to eradicate human trafficking, slavery, child labor and forced labor from their worldwide supply chains.

The California Franchise Tax Board recently provided the California attorney general with the list of U.S. and foreign companies that, based on their tax filings, fall under the act. There can be little doubt that, once some of these estimated 6,000 companies get hit with enforcement inquiries in 2013, compliance counsel will take notice.

3. Foreign Corrupt Practices Act (FCPA) and Travel Act enforcers regroup and refocus. Despite its recently released guidance, there can be little debate that FCPA enforcers didn’t have a great 2012. Following a string of bumps in the prosecutorial road, the much-anticipated ramping up of investigation and prosecution of individual defendants has not come to pass. Investigative activities will likely be dialed back while prosecutors enter a regrouping phase. However, practitioners should be ready for the potential resurgence of cases after this regrouping, possibly in a prosecution-friendly “rocket docket.”  

4. Non-U.S. anti-corruption enforcement ramps up. Although the U.S. accounts for some 75 percent of the world’s foreign anti-bribery actions, and will almost certainly continue to lead the world in these prosecutions, other nations, including the U.K., China and India, have in recent years fortified their laws and their enforcement outlooks. As a result, we anticipate foreign enforcers stepping up their game and requiring more attention by compliance professionals.

5. “Carbon copy” prosecutions emerge as a new global trend. “Carbon copy prosecutions,” a term fully developed in a recent University of Chicago Legal Forum article, refers to successive, duplicative prosecutions by multiple sovereigns for conduct transgressing the laws of several nations, but arising out of the same facts.  

The four elements are:

  • Jurisdiction A
  • Files an enforcement action
  • Based on charging document/guilty plea/admissions
  • From Jurisdiction B

If a corporation reaches a negotiated resolution with U.S. or foreign authorities on international bribery-related charges—whether through a non-prosecution agreement, a deferred prosecution agreement or a guilty plea—there is a bona fide risk that other countries will initiate prosecutions based on the same facts as, and admissions arising out of, the initial case. Given the relative ease with which enforcers can bring such actions, we believe that carbon copy prosecutions, such as those brought against KBR, Shell, Snamprogetti/ENI, BAE Systems and Innospec Inc., may soon become the norm.

6. “Anticipatory” obstruction of justice charges. 18 U.S.C. § 1519 makes it illegal to engage in activity calculated to “impede, obstruct or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States.” As illustrated by the federal “honey laundering” case brought by federal prosecutors about a year ago, as well as the 2009 prosecution of Hong “Rose” Carson, prosecutors are beginning to realize that not having to prove which specific proceeding a defendant sought to obstruct is a huge advantage. Employees who destroy evidence or lie to counsel conducting interviews because of a fear that, sometime in the future, some federal agency might be investigate their misconduct may well cause anticipatory obstruction of justice charges. Counsel performing such internal investigations are, thus, well advised to keep this powerful provision in mind.

7. Conflict minerals rules enforcement begins. This “prediction” is perhaps our least remarkable, in that Aug. 22, 2012’s final rules specify that companies subject to these new rules will be required to comply beginning Jan. 1. The first report on Form SD will be due May 31, 2014 (and annually thereafter). 

8. Anti-smuggling provisions’ potential is tapped. Against the backdrop of ever-intensifying efforts to fight human trafficking  lies a pair of powerful, little-known (and almost never associated) statutes—18 U.S.C. § 545 (prohibiting certain categories of smuggling) and 19 U.S.C. § 1307 (prohibiting importation of products made by forced labor). Read in tandem, the statutes provide that, if a person or company is found in mere possession of the smuggled products, there automatically is a rebuttable presumption of guilty knowledge (and it then is up to the accused to prove otherwise). With a potential sentence of 20 years’ imprisonment, forfeiture of goods and significant financial penalties, 2013 could well be the year these statutes are taken out of mothballs.

9. Lag in investigation of whistleblower complaints. In its 2012 year-end summary, the Securities and Exchange Commission (SEC) announced that it received 3,001 whistleblower submissions from individuals in all 50 states as well as 49 other countries. It does not take a leap of faith to say that the SEC, already strapped in terms of its capacity to handle cases, will have difficulty keeping up with these tips.

10. In-house focus shifts to broader expertise. In the face of the groundswell of recent laws and regulations, compliance professionals will be widening their areas of expertise. Businesses will begin to seek out compliance professionals with broader real-world compliance expertise to help them devise customized, integrated compliance programs responsive to the broad spectrum of today’s domestic and foreign risks. Not only is this a more economical approach, but it is also more likely to result in robust compliance.

Contributing Author

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T. Markus Funk

T. Markus Funk is a White Collar Defense and Internal Investigations partner at Perkins Coie, where he co-heads the firm’s Corporate Social Responsibility...

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Contributing Author

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Elizabeth Banzhoff

Elizabeth M. Banzhoff is an associate at Perkins Coie in Denver. She previously served as a law clerk to Judge Richard Smoak, U.S. District Court...

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