Remember 1995? It was a long time ago, so you can be forgiven for not recalling much of it. To re-orient you: it was President Clinton’s first term; the Oklahoma City bombing happened in April; a jury found O.J. Simpson not guilty of two murders; Apple was still trying to sell the Newton. And Total, S.A., a France-based oil and gas company, began a scheme to bribe foreign officials in Iran to win contracts with the National Iranian Oil Company. The Justice Department and SEC got around to redressing it on Wednesday.
Gabelli v. SEC
SEC critics breathed a sigh of relief in February when the Supreme Court held in Gabelli v. SEC that the five-year statute of limitations that applies to enforcement actions seeking civil penalties means what it says. The SEC had argued successfully in the Second Circuit that the statute of limitations does not begin to run until the Commission discovered (or reasonably could have discovered) the wrongful acts at issue. As the Supreme Court put it, though:
[T]he agency’s “central ‘mission’” is to investigate and root out violations of the securities laws and it “has many legal tools at hand to aid in that pursuit.” Because it is always on the lookout for fraud, the agency does not need the benefit of the doubt afforded by the discovery rule.
Casual observers might think Gabelli would put an end to the SEC’s pursuit of old conduct. Au contraire, mon frère. Because while the Court shut one door, it left open another in the form of the fraudulent concealment doctrine. That rule tolls the five-year statute when “the defendant takes steps beyond the challenged conduct itself to conceal that conduct.” That is, if a defendant separately conceals the alleged violation, the SEC can argue that it has more time to file an enforcement action in federal court.
The fraudulent concealment doctrine seems almost tailor-made for FCPA violations, which forbids (1) bribery of foreign government officials but also (2) accounting tricks that conceal those bribes. Witness Wednesday’s settled FCPA matters brought by the SEC and Justice Department against Total, S.A. According to the SEC’s press release:
Total made more than $150 million in profits through the bribery scheme. Total attempted to cover up the true nature of the illegal payments by entering into sham consulting agreements with intermediaries of the Iranian official and mischaracterizing the bribes in its books and records as legitimate “business development expenses” related to the consulting agreements. Total had inadequate systems to properly review the consulting agreements and lacked sufficient internal controls to comply with federal laws prohibiting bribery.
It’s a big case, and with $398 million in total monetary sanctions, Total, S.A. will enter the pantheon of massive FCPA actions. But wow, is it old. This scheme started eighteen years ago. It was complete nine years ago, in 2004. It’s hard to tell what brought us to this point, whether the enforcement agencies entered into tolling agreements or sought to take advantage of the fraudulent concealment doctrine. But it is not great for companies operating in global markets that conduct this old could be on the table from an FCPA enforcement perspective. It’s not that great for the law enforcement agencies, either. One of the constructive policies of the recently departed Rob Khuzami regime in the SEC’s Enforcement Division was a not-so-subtle pushing of the staff to bring cases faster, when facts were fresh. The SEC and DOJ want to be seen as nimble, effective agencies, but actions as old as this one do not contribute to that image. Unfortunately, the age of Total, S.A. is not quite an outlier, but it ought to be.
UPDATE: Thanks to Mike Koehler for help in re-thinking the last sentence of this post.