CFTC Releases Enforcement Advisory Regarding Self Reporting And Cooperation For CEA Violations Involving Foreign Corrupt Practices

On March 6, 2019, the Commodity Futures Trading Commission's (Commission) Division of Enforcement (Division) released an Enforcement Advisory (Advisory) on self-reporting and cooperation for violations of the Commodity Exchange Act (CEA) involving foreign corrupt practices.¹

Who does the Advisory apply to?

The Advisory applies to companies and individuals who are not registered (nor required to be registered) with the Commission who choose to cooperate with the Commission.

According to the Advisory, what are the benefits of cooperation for these companies?

The Advisory expands on the Commission's cooperation policies² by making clear that where these companies and individuals timely self-report violations of the CEA involving foreign corrupt practices, cooperate fully and take appropriate remedial actions, the Division will apply a presumption that it will not recommend a civil monetary penalty.³

The presumption is rebuttable, however, if there are "aggravating circumstances." In evaluating whether aggravating circumstances exist, the Division will consider, among other things, whether the misconduct was pervasive within the company, executive- or senior-level management of the company was involved, or the company or individual has previously engaged in similar misconduct.⁴

According to the Commission, what violations of the CEA involve foreign corrupt practices?

Announcing the Advisory in a speech at the American Bar Association's National Institute on White Collar Crime, the Commission's Enforcement Director James McDonald noted that engaging in foreign corrupt practices might constitute fraud, manipulation or false reporting, among other violations under the CEA.⁵ For instance, bribes might be employed to secure business in connection with regulated activities such as trading, advising, or dealing in swaps or derivatives.

Even if the Division does not recommend a civil monetary penalty, are there other penalties that these companies, or related parties, could face?

Yes. Where the Division recommends a resolution without a civil monetary penalty, the company or individual in question would still be required to pay all disgorgement, forfeiture and/or restitution resulting from the transgressions at hand. Lastly, the Advisory notes that the Division will seek all available remedies, including substantial civil monetary penalties, against all companies and individuals who were implicated in the misconduct but were not involved in submitting the voluntary disclosure.

What does the Commission hope to gain from instituting this policy?

Director McDonald stated that the Advisory is meant to provide "further clarity surrounding the benefits of self-reporting misconduct, full cooperation and remediation" with respect to foreign corrupt practices and reflect the enhanced coordination between the Commission and other law enforcement entities such as the Department of Justice.⁶ Director McDonald noted that the Commission hopes that with the release of the Advisory, companies and individuals will be incentivized to develop a culture of compliance.⁷

Footnotes

1. See "Advisory on Self Reporting and Cooperation for CEA Violations Involving Foreign Corrupt Practices;" see also "CFTC Division of Enforcement Issues Advisory on Violations of the Commodity Exchange Act Involving Foreign Corrupt Practices."
2. In 2017, the Division issued two advisories outlining (1) the factors the Division considers in evaluating cooperation by individuals and companies during the Division's investigations and enforcement actions, and (2) ways in which the Division will consider voluntary disclosures by a company or individual in the context of its cooperation program, respectively. See "Cooperation Factors in Enforcement Division Sanction Recommendations for Companies;" see also "CFTC's Enforcement Division Issues New Advisories on Cooperation," and "Updated Advisory on Self Reporting and Full Cooperation."
3. Although registrants have existing reporting obligations requiring them, among other things, to report any material noncompliance issues under the CEA, which would include foreign corrupt practices that violate the CEA, registrants that voluntarily and timely self-report misconduct, fully cooperate and appropriately remediate will receive a recommended substantial reduction in the civil monetary penalty assessed. The presumption of a recommendation of no civil penalty, however, will not apply.
4. See Note 1.
5. See "Remarks of CFTC Director of Enforcement James M. McDonald at the American Bar Association's National Institution on White Collar Crime."
6. Id.
7. Id.

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