Och-Ziff enforcement and industry sweep preparation
The Och-Ziff Foreign Corrupt Practices Act (FCPA) enforcement action was one for the record books. It came in at number four on the Top Ten list of all-time FCPA enforcement actions, with total fines and penalties of US$412 million. It was also a rare FCPA enforcement action because it had both civil and criminal elements: a three-year deferred prosecution agreement (DPA); a criminal plea to four criminal counts – including two FCPA conspiracy counts, a books and records count, and a violation of internal controls count; the appointment of a three-year monitor; and a civil settlement between the Securities and Exchange Commission (SEC) and the company CEO, Daniel Och, and CFO, Joel Frank. All in all, a stunning result.
For the compliance professional, there are several key takeaways. High on that list is the genesis of the enforcement action. It did not come from a self-disclosure but from an SEC letter of inquiry to several hedge funds and private equity firms that have done business with sovereign wealth funds. This clearly demonstrates the power of what is termed an ‘industry sweep’, whereby the SEC or Justice Department examines a specific industry. It can only be assumed that more such enforcement actions will be in the offing. The Bank of New York Mellon enforcement action from mid-2015 around hiring was the first, and it would not be surprising to see others, particularly in light of the recently won trial by Goldman Sachs against the Libyan Sovereign Wealth Fund in London.
There have previously been industry sweeps in the energy, pharmaceutical and tech industries. Once United States regulatory authorities figure out the lynchpin among an industry, they move in for investigation and enforcement. The central figure is usually around some form of distribution. In the energy sector, it was the freight forwarder Panalpina. In the tech industry, it was around aggregators of foreign government and state owned enterprises. In pharma, meanwhile, it centered on the purchasers of products.
If you are in the private equity space or if your company does business with sovereign wealth funds, the message is loud and clear: the United States will be looking at your operations. Are you prepared?