The latest issue of InSights, entitled “The Foreign Corrupt Practices Act: A 70’s Revival?” (here), presents an overview of a frequent topic on this blog – the growing significance of FPCA enforcement activity. Not only is the heightened activity a regulatory and operational concern for all companies with overseas operations, but it also presents a growing source of potential liability in the form of follow-on civil litigation.


Many of the themes discussed in the InSights article are underscored in a July 7, 2008 Gibson, Dunn & Crutcher memorandum entitled “2008 Mid-Year FCPA Update” (here). The memo reports that the “frenetic pace” of FCPA enforcement activity “has carried through the first half of 2008.” Year to date prosecutions are up “substantially” from “last year’s record-setting totals.” Indeed, the memo notes that in the first half of 2008, there were more FCPA prosecutions than in any prior full year except 2007.


Among the many topics addressed in the Gibson Dunn memo is a theme I have frequently sounded on this blog and that I reviewed at length in the InSights article, which is the threat of civil litigation following along in the wake of an FCPA enforcement action. The Gibson Dunn memo characterizes the level of this litigation activity as an “outburst,” adding that “our recurring advice to clients and friends has been to expect and prepare for ‘tag along’ civil litigation when a new governmental FCPA investigation becomes public.”


In addition to the specific FCPA-related securities class action lawsuits I note in the InSights article, the Gibson Dunn memo also cites the recent settlement in the FARO Technologies securities litigation. According to the company’s press release (here), the company’s D&O insurers paid $6.875 million to settle securities law claims alleging, among other things, that the company or its representatives had made payments in connection with the company’s Asian sales in possible violation of the FCPA. The company apparently was also named as nominal defendant in a related shareholders’ derivative lawsuit.


As an aside, and in addition to the FCPA-related litigation described in the Gibson Dunn memorandum, a loyal reader advised me of yet another FCPA securities class action lawsuit settlement of which I was previously unaware, involving Titan Corporation. (Background regarding the lawsuit can be found here.) The plaintiffs in that case alleged that Titan Corporation, in order for its planned merger to go forward, had failed to disclose that foreign consultants had made improper payments to foreign officials in violation of the FCPA, and that the company had improperly accounted for funds used in those payments. The case settled in 2005 for $61.5 million.


In addition to the FCPA-related shareholder lawsuits, the Gibson Dunn memo also notes a “new diversity of FCPA-inspired civil litigation theories.” The memo specifically notes the arrival of civil litigation brought by foreign governments alleging that U.S. companies had corrupted the government’s own officials. The memo specifically references the Alcoa action, which I discussed in a prior post, here.


The memo also refer to an action brought in June 2008 by the Republic of Iraq against Chevron and ninety other companies, alleging that the defendants conspired with Saddam Hussein’s regime to corrupt the Oil-for-Food program by diverting as much as $10 billion to Hussein’s government. Iraq claims that the defendants violated RICO, as well as other fraud and money laundering statutes.


These FCPA-related cases and others are proceeding even though there is no private right of action under the FCPA itself. However, the Gibson Dunn memo notes that on June 4, 2008, Rep. Ed. Perlmutter (D. Colo.) introduced the “Foreign Business Bribery Prohibition Act of 2008” (H.R. 6188), which would provide for a limited private right of action under the FCPA. However, potential litigation targets are limited to “foreign concerns,” so the class of potential defendants is restricted to foreign persons unaffiliated with U.S. stock exchanges. While the Bill itself is still before the relevant Congressional committees, it represents yet another part of the increasing focus on corrupt activity as well as the increasing risk of civil litigation arising out of  that process.


The Gibson Dunn memo concludes that the trend of “continually increasing enforcement is here to stay for the near future.” As the FCPA enforcement activity continues to grow, an increasing number of companies will find themselves involved in FCPA-related civil litigation. Even though the FCPA enforcement fines and penalties generally would not be covered under the D&O policy, the policy could be called upon to respond to the costs of defending against an FCPA enforcement action. In any event, any follow-on civil litigation would also trigger the company’s D&O coverage, subject to all of the policy’s terms and conditions.


The growing importance of this litigation activity makes this an increasingly important issue to be considered in connection with the policy placement process. The specific issues involved are discussed at greater length in the InSights article.