We conclude our series on the initial Foreign Corrupt Practices Act (FCPA) enforcement action. It involved the German software giant SAP. While the conduct which led to the enforcement action occurred for a lengthy period of time and was literally worldwide in scope, the response by SAP is to be both noted and commended. The hard and impressive work that SAP did during the pendency of the investigation and enforcement action led to a very favorable result for the company in the reduced amount of its assessed fine and penalty as well as the fact that no monitor was mandated by the Department of Justice (DOJ) or Securities and Exchange Commission (SEC). Today, in our final post, we review key lessons learned from the SAP enforcement action.

Remediation

SAP did an excellent job in its remedial efforts. Whether SAP realized as a recidivist of the dire straits it was in after the publicity in South Africa around is corruption or some other reason, the company made major steps to create an effective, operationalized compliance program which met the requirement of the Hallmarks of an Effective Compliance Program as laid out in the 2020 FCPA Resource Guide, 2^nd edition.

The remedial actions by SAP can be grouped as follows.

1. Root Cause, Risk Assessment and Gap Analysis. Here the company conducted a root cause analysis of the underlying conduct then remediating those root causes, conducted a gap analysis of internal controls, remediating those found lacking; and then performed a comprehensive risk assessment focusing on high-risk areas and controls around payment processes, using the information obtained to enhance its compliance risk assessment process;
2. Enhancement of Compliance. Here the company significantly increasing the budget, resources, and expertise devoted to compliance; restructuring its Offices of Ethics and Compliance to ensure adequate stature, independence, autonomy, and access to executive leadership; enhanced its code of conduct and policies and procedures regarding gifts, hospitality, and the use of third parties; enhanced its reporting, investigations and consequence management processes;
3. Change in sales models. On the external sales side, SAP eliminated its third-party sales commission model globally, and prohibiting all sales commissions for public sector contracts in high-risk markets and enhanced compliance monitoring and audit programs, including the creation of a well-resourced team devoted to audits of third-party partners and suppliers. On the internal side, SAP adjusted internal compensation incentives to align with compliance objectives and reduce corruption risk;
4. Data Analytics. Here SAP expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally; and comprehensively used data analytics in its risk assessments.

Data Analytics

The references to data analytics and data driven compliance warrant additional consideration. SAP not only did incorporate data analytics into its third-party program but also expanded its data analytics capabilities to cover over 150 countries, including all high-risk countries globally. The SEC Order also noted that SAP had implemented data analytics to identify and review high- risk transactions and third-party controls. The SAP DPA follows the Albemarle FCPA settlement by noting that data analytics is now used by SAP to measure the compliance program’s effectiveness. This language follows a long line of DOJ pronouncements, starting with the 2020 Update to the Evaluation of Corporate Compliance Programs, about the corporate compliance functions access to all company data; this is the second time it has been called out in a FCPA settlement agreement in this manner. Additionally, it appears that by using data analytics, SAP was able to satisfy the DOJ requirement for implementing controls and then effectively testing them throughout the pendency of the DOJ investigation; thereby avoiding a monitor.

Holdbacks

Next was the holdback actions engaged in by SAP. The DPA noted, SAP withheld bonuses totaling $109,141 during the course of its internal investigation from employees who engaged in suspected wrongdoing in connection with the conduct under investigation, or who both (a) had supervisory authority over the employee(s) or business area engaged in the misconduct and (b) knew of, or were willfully blind to, the misconduct, and further engaged in substantial litigation to defend its withholding from those employees, which qualified SAP for an additional fine reduction in the amount of the withheld bonuses under the DOJ’s Compensation Incentives and Clawbacks Pilot Program.

Self-Disclosure

While this factor was not present in the SAP enforcement action, the message sent by the DOJ could not be clearer on not simply the expectation of the DOJ for self-disclosure but also the very clear and demonstrable benefits of self-disclosure. Under the Corporate Enforcement Policy, SAP’s failure to self-disclose cost it an opportunity of at least 50% and up to a 75% reduction off the low end of the U.S. Sentencing Guidelines fine range. Its actions as a criminal recidivist, resulted in it not receiving a reduction of at least 50% and up to 75% from the low end of the U.S.S.G. fine range but rather at 40% from above the low end. SAP’s failure to self-disclose cost it an estimated $20 million under the Sentencing Guidelines. It’s failure to self-disclose and recidivism cost it a potential $94.5 million in discounts under the Corporate Enforcement Policy. The DOJ’s message could not be any clearer.

Extensive Cooperation

There were also lessons to be garnered from SAP’s cooperation with the DOJ. While there was no mention of the super duper, extra-credit giving extensive remediation which Kenneth Polite discussed last year; when SAP began to cooperate, it moved to extensively cooperate. The DPA noted SAP “immediately beginning to cooperate after South African investigative reports made public allegations of the South Africa-related misconduct in 2017 and providing regular, prompt, and detailed updates to the Fraud Section and the Office regarding factual information obtained through its own internal investigation, which allowed the government to preserve and obtain evidence as part of its independent investigation…” Most interestingly, the DPA reported that SAP imaged “the phones of relevant custodians at the beginning of the Company’s internal investigation, thus preserving relevant and highly probative business communications sent on mobile messaging applications.” This is clear instruction around messaging apps in FCPA enforcement actions.

Resources

SEC Order

DOJ DPA