Increased International Fallout from the Petrobras Scandal
The ongoing investigation into corruption at Petrobras will continue to dominate the Brazilian and international press in 2016, with new details of pleadings and plea bargains sure to reveal further hidden skeletons at a number of international companies. Although media reporting on the scandal in Brazil is often politically driven, a number of new allegations will put affected companies into various regulators’ spotlights.
Even those entities that consider their exposure to the scandal to be behind them should be wary, as fresh allegations could refocus international regulatory attention, as appears to be the case with SBM Offshore and Rolls Royce.
UK: The Serious Fraud Office Continues Its Momentum
Under David Green’s leadership, the SFO has been gaining momentum. In 2014 and 2015, the SFO opened 16 new investigations (including probes into the Forex scandal and into accounting irregularities at the UK grocer Tesco), and boasted a conviction rate of 78 percent. This culminated in two major successes in 2015 for the enforcement agency: the conviction of UBS trader Tom Hayes for manipulation of LIBOR, and Sweett Group PLC pleading guilty to Bribery Act breaches for conduct in the Middle East.
Add to this the first UK Deferred Prosecution Agreement with ICBC Standard Bank in November 2015 and the upcoming EURIBOR case against ex-Deutsche Bank, Barclays, and Société Générale employees in early 2016, and it seems that the SFO will look to build on its improving reputation throughout the year.
Foreign Corrupt Practices Act: SEC and DOJ Get Back in the Game
2015 was a relatively quiet year in terms of resolutions of FCPA enforcement actions by the SEC and DOJ, with 11 companies paying a total of US$133 million to settle FCPA cases. This was a reduction of 91 percent from the US$1.56 billion recouped in 2015, and the lowest recovery amount in several years.
However, in recent years FCPA recoveries have been big business for U.S. regulators, netting on average US$913 million each year from 2008 to 2014. Given the large number of companies and high-profile individuals with a U.S. footprint under international scrutiny at present, it is unlikely that 2016 will be as calm on the FCPA enforcement front.
FIFA: More to Come
Bribery and corruption within FIFA had been suspected by many for years, so it came as little surprise when senior individuals in the organization were indicted in May 2015 following a U.S.-led investigation. What did perhaps surprise some was the extent to which corrupt arrangements allegedly pervade the ranks and geographical reach of the organization. Deals relating to unwritten agreements and awards of tournaments and broadcasting rights are understood to have involved officials in Europe, North America, Latin America, and the Caribbean, many of whom are apparently under investigation.
The new year will see these investigations intensify. Communication between international regulators and prosecutors will result in further criminal investigations into the alleged activities as well as civil recovery actions brought by those who believe they have suffered as a result of the corruption.
M&A Activities Will Uncover Historical Issues
Strengthened international economies and increased investor demand for growth made 2015 an intense year for high-value M&A activity, with some circles reporting the highest deal activity since 2007.
Huge transactions, such as Shell’s agreed acquisition of BG Group, the merger between Heinz and Kraft Foods, and AB InBev’s agreed acquisition of SABMiller, require substantial integration of previously competing business units across the world in order to recognize value.
Such international integration processes often uncover historical bribery and corruption issues for which the new parent company carries a substantial risk of regulatory censure. We anticipate this causing major headaches for executives in 2016.
Increased International Action
The new year will also see more stringent compliance and corruption monitoring across the globe, often as result of increasingly vocal and influential anticorruption campaigners, and the increasing application of modern governance standards to historical transactions.
A number of international elections will have an anticorruption slant, and those regimes elected on such a ticket will be under pressure by their electorates to deliver quick results while stamping out corruption in their own parties.