GCs offer tips on how to deal with increasing regulator pressure

At InsideCounsel’s Global Lawyer Forum, Suzanne Rich Folsom and Tara Lee provided tips for global in-house counsel

Tara Lee, DLA Piper partner and head of cross-border litigation

What is the biggest threat for global in-house counsel and the businesses they represent today? It may not be criminal dealings or declining stock shares, but rather the extraordinary penalties ascribed to companies through by U.S. regulators and regulatory actions taken under statutes such as the Foreign Corrupt Practices Act (FCPA).

At the Global Lawyer Forum sponsored by InsideCounsel in Chicago, U.S. Steel general counsel Suzanne Rich Folsom and DLA Piper partner and head of cross-border litigation Tara Lee shared their experiences on succeeding as in-house counsel in an increasingly globalized world. According to Lee, one of the biggest challenges facing general counsel is the increased role of regulators.

“U.S. regulators have always had a tremendous amount of power in investigations, and internationally, regulators are also becoming more aggressive,” Lee said.

Lee said this aggressiveness comes to some extent from a common motivation: money. “I think, frankly, it comes at least in part from a profit motive,” Lee said. “The Department of Justice, in the past three to six years, has made more money from two categories of enforcement — the FCPA and the False Claims Act — than they have in every kind of criminal fine combined. ... They’re grading prosecutors on those kinds of recoveries.”

Statistics from recent years back up Lee’s statement. Gibson Dunn’s 2013 Year-End FCPA Update says that the DOJ and the Securities and Exchange Commission (SEC) initiated 32 FCPA cases between 2004 and 2006. Just a few years later, however, that number had spiked to 162 DOJ and SEC cases between 2009 and 2011.

And while the number of companies implicated declined slightly in 2013 — the DOJ and SEC initiated 27 combined cases last year — the dollar amounts have not subsided. In 2013 alone, the SEC raked in $3.4 billion in FCPA penalties.  Every one of the Top 10 highest FCPA sanction settlements has occurred since the beginning of 2008, with the fourth-highest (total S.A.) and ninth-highest (Weatherford) occurring in 2013 alone. And that’s not counting Alcoa’s $384 million fine from early 2014, which would also make the list.

However, Folsom and Lee also offered ideas to in-house counsel in order to avoid these costly regulatory fines. One of Folsom’s key ideas seems simple, yet not many in-house counsel follow it: Establish effective working relationships with the regulators you will be dealing with.

“I find it remarkable how few programs proactively take the time to establish and nurture effective relationships with regulators,” Folsom said. She later added that establishing a dialogue and relationship is simply a matter of "taking the time to reach out to the regulatory body to introduce yourself and request a meeting.”

She said that establishing these relationships ahead of time allows for easier dialogue when the company does experience a potential issue. “If they know that you’re an ethical person and have established a working relationship with them, they’re more likely to give you an opportunity to discuss the potential issue, to objectively seek answers to their questions or concerns, and provide an opportunity for more meaningful dialogue and response before they reach a decision,” Folsom said.

Lee added that these conversations not only allow the GC to get to know the regulator and vice versa, but it also prevents the opposite: when a regulator judges a GC that does not contact the government until a crisis occurs.

“It probably hasn’t happened to [Folsom], because she's one of the general counsel who takes the time to make positive relationships with the regulators,” Lee said, referring to her co-panelist. “But when a regulator or prosecutor has never met the general counsel, never heard from the general counsel before, they're going to form a judgment about your company before they ever contact you. Your opportunity to influence the narrative is always strongest before the crisis, and it’s absolutely worth your time to try.”

Folsom noted that, especially abroad, many regulators rise up through the ranks, so that the lower-level regulator that one might be dealing with on today's concern may be a senior member of the regulatory body further down the road. In addition, she said, maintaining contact and interaction with regulators is easier than ever with the addition of social media sites such as LinkedIn, giving a more personal feel to the relationship.

The invitation-only Global Lawyer Forum kicked off the three-day SuperConference in Chicago, sponsored by InsideCounsel. The Forum also included topics such as managing IP across the globe and financial acumen for in-house counsel. Folsom will also be a panelist for a SuperConference panel on May 13, entitled “Illegal Behavior in the Corporate C-Suite: Ways to Properly Confront 5 Common Misdeeds.”

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Zach Warren

Zach Warren is Assistant Editor of InsideCounsel magazine, where he oversees online content submissions and administers InsideCounsel's enewsletters. Zach specializes in new media and multimedia...

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