On May 26, 2016, the Eleventh Circuit Court of Appeals issued a body blow to the SEC’s ability to go after corporations under the Foreign Corrupt Practices Act (FCPA) by imposing a five-year statute of limitations on disgorgement enforcement actions. The decision in SEC. v. Graham et al. placed a five-year statute of limitations on all SEC disgorgement and declaratory relief enforcement actions. This holding conflicts with decisions previously issued by the D.C. and Ninth Circuits Courts of Appeal.
The harm to FCPA enforcement activity stems from the reality that most of the monetary recoveries obtained under the FCPA come in the form of disgorgement. Disgorgement is the method the SEC uses to force FCPA violators to give up all of the ill-gotten gains that were obtained as the result of paying bribes to foreign government officials or for having engaged in other corrupt practices. The SEC began imposing disgorgement penalties under FCPA in 2004 and ever since disgorgement has represented the hammer the SEC brings down on corporations who violate the FCPA. According to the FCPA Professor Blog, in 2014, some 99% of the SEC’s FCPA recoveries in were derived through disgorgement and prejudgment interest. While this percentage dropped to 51% in 2015, it came in at 98% in 2013, 86% in 2012, 94% in 2011 and 96% in 2010.
There are too many disincentives to blowing the whistle, and the Graham decision manages to add to that list. Whistleblowers often only manage to stumble on the existence of a whistleblower reward program years after they attempted to address the problem internally, and in those situations Graham will amount to a fatal blow to the hopes of corporate accountability. The SEC must immediately seek either en banc review by the entire Eleventh Circuit Court of Appeals or a writ of Certiorari from the Supreme Court.
