On March 6, 2019, the US Commodity Futures Trading Commission issued an advisory which, for the first time, provides guidance to the business community on incentives for self-reporting violations of the Commodity Exchange Act (CEA) that involve foreign corrupt practices. On the same day, James McDonald, the director of the CFTC's Enforcement Division, discussed the advisory at the American Bar Association's National Institute on White Collar Crime. In McDonald's remarks and in the advisory, the CFTC indicated that the CFTC is now seriously focused on prosecuting violations of the CEA that primarily entail foreign conduct.
The CFTC has previously incentivized companies and individuals registered with the CFTC whose domestic conduct violates the CEA to self-report violations in exchange for leniency. The advisory is the first time that the CFTC is publicly incentivizing market participants (i) that are not (required to be) registered with the CFTC and (ii) whose conduct is completely foreign to self-report their CEA violations to the CFTC. In the advisory, the CFTC announced that it will give credit to market participants that: (i) "timely and voluntarily disclose" their foreign corrupt practices that violate the CEA; (ii) cooperate with the CFTC's investigation of those violations; and (iii) appropriately remediate the violative conduct. In these circumstances, the CFTC will presumptively recommend, absent any aggravating circumstances, that the CFTC not issue any civil monetary penalties against the participant. In evaluating the existence of aggravating circumstances, the CFTC will consider whether senior management or executives were involved in the foreign corrupt practices, the pervasiveness of the practice within the company and the participant's history of engaging in similar conduct.
In discussing the advisory, McDonald noted that foreign corrupt practices in the commodities industry can significantly distort commodity prices, potentially undermining the entire US derivatives market. He elaborated that foreign corrupt practices "might constitute fraud, manipulation, false reporting, or a number of other types of violations under the CEA, and thus be subject to enforcement actions brought by the CFTC." Accordingly, McDonald indicated that the CFTC will be increasingly focused on prosecuting foreign corrupt practices that violate the CEA in order to maintain commodity markets' integrity.
McDonald acknowledged that foreign corruption, bribery and money laundering are primarily investigated and prosecuted by the US Department of Justice and Securities and Exchange Commission under the Foreign Corrupt Practices Act (FCPA) – a law that prohibits foreign corruption and bribery. However, McDonald highlighted that foreign corrupt practices cases may also fall under the CFTC's jurisdiction in several instances: (i) bribes paid to secure contracts in regulated activities like trading, advising or dealing in swaps or derivatives; (ii) corrupt practices used to manipulate benchmarks that serve as a basis for derivatives contracts; (iii) prices that are the product of corruption that might be falsely reported to benchmarks; or (iv) corrupt practices in any number of forms that might alter commodity prices. In a comment that caught everyone's attention, McDonald revealed that the CFTC currently has open investigations into conduct involving all of the foregoing.
McDonald also acknowledged that the such violations of the CEA might also violate the FCPA and thus may be subject to parallel prosecution by the DOJ or SEC. He indicated that the CFTC’s cooperation with the DOJ and SEC in FCPA investigations and prosecutions led to the CFTC's new interest in such cases and that, moving forward, the CFTC will coordinate its investigations with the DOJ and SEC to ensure that they are "appropriately aimed at identifying and eliminating any gaps in our investigative and regulatory frameworks." In doing so, McDonald affirmed that the CFTC will "not pile onto other existing investigations" and work "to avoid duplicative investigative steps." Additionally, to the extent that any CFTC action relating to foreign corrupt practices includes a monetary penalty, the CFTC will ensure that the "penalty appropriately accounts for any [penalty] imposed by any other enforcement body"; when a CFTC action imposes disgorgement or restitution, McDonald committed the CFTC to giving a "dollar-for-dollar credit for disgorgement or restitution payments" made in connection with a related DOJ or SEC FCPA action.
In his closing remarks, McDonald reminded the audience that the CFTC has a very active whistleblower office that issued a record number of awards in 2018. This was a clear message to market participants and their attorneys that the CFTC's foreign corrupt practices investigations will often be initiated based on information provided directly to the CFTC by market participants' employees and competitors. This thinly veiled nod clearly underscores the importance for market participants to take it upon themselves to investigate and remediate violations before it is "too late."
The CFTC is the latest to join a chorus of enforcement agencies with the announcement that it is focused on investigating and prosecuting foreign corruption, while promulgating policies designed to encourage cooperation.
Looking ahead, market participants, whether or not they are (required to be) registered with the CFTC, should be aware that their conduct abroad may violate the CEA and subject them to enforcement action by the CFTC.
Participants that identify any potential issues should consult with experienced counsel as soon as possible to determine how to proceed. Possible next steps in responding to allegations of a violation of the CEA or the FCPA typically include: (i) conducting an internal investigation of those issues; (ii) weighing the potential benefits of self-reporting any violations to the CFTC and other agencies; and (iii) determining whether any remedial conduct is appropriate, including the imposition of an enhanced compliance and training program and terminating any responsible employees.
Learn more about the implications of this development by contacting any of the authors.