On Thursday, August 2, 2012, the United States Securities and Exchange
Commission announced that it was investigating Israeli pharmaceutical giant TEVA
for alleged violations of a US law known as the Foreign Corrupt Practices Act.
While it might seem strange that TEVA, a company situated thousands of miles
outside the United States’ borders, is being investigated by a US government
regulatory agency; perhaps more interesting is that the investigation stems from
alleged wrongful conduct in Latin America.
Non-US companies, including
TEVA, that trade, or issue their stock on US exchanges, are subject to the full
panoply of US securities laws including the Foreign Corrupt Practices Act, a law
which precludes the bribery of foreign officials in order to facilitate
In some countries, bribery has become routine business. Yet it
is illegal under US law, the long arm of which can reach as far as South America
and the Middle East to impose sanctions on companies that engage in this
conduct. Any company that issues its stock on US exchanges is subject to
liability under the US Foreign Corrupt Practices Act.
One would think
that those running companies the size of TEVA fully understand their obligations
under US law and the potential for extra-territorial enforcement.
large multi-nationals, including Siemens, IBM, Johnson & Johnson and a host
of others, have either been investigated by the US SEC for bribery of foreign
officials or paid hefty sanctions to settle potential agency actions. Even a
company as big as Walmart is not immune from SEC scrutiny.
year, revelations surfaced that Walmart allegedly bribed Mexican officials to
If there is a heightened awareness regarding the
requirements of the Foreign Corrupt Practices Act and other obligations under US
securities laws, it is only because recent legislation passed during President
Barack Obama’s tenure in office now allows the US SEC to pay bounties to those
who come forward and report fraud.
Where the SEC imposes a monetary
sanction exceeding $1 million for violations of US securities laws, those who
blow the whistle may be entitled to split bounties of up to 30 percent of the
The bounty system, established by the US
government’s Dodd-Frank Act, provides opportunities for both US and foreign
whistleblowers. Even Israeli citizens who report wrongdoing to the SEC can
secure a bounty.
The bounty system bolted into the Dodd- Frank Act
actually finds its roots in a US law called the False Claims Act which was
passed during the administration of Abraham Lincoln in 1864. That law allows
private individuals, without regard to their citizenship, to initiate a lawsuit
in the name of the government against individuals and corporations that have
cheated the US government. Individuals, known as realtors, can initiate
litigation when they base their lawsuit on information that is not derived from
news reports or generally on information made available by the government
itself. Those who initiate False Claims Act litigation are entitled to
In 2012 alone, bounties totaling several hundred
million dollars were paid to whistleblowers that took action under the False
Claims Act. Of particular significance is that this law can be utilized by even
foreign citizens who work for contractors that provide goods and services that
are paid for or financed with US government dollars, which includes even foreign
military assistance monies.
Whether through Dodd-Frank or the False
Claims Act, the opportunity for Israelis to participate in the enforcement of US
laws, and the exposure faced by Israeli enterprises traded on US exchanges or
operating with US government dollars, is not to be understated. First, while
language barriers and the ability to collect evidence in many countries may make
collection of evidence and enforcement of US laws complicated, the bilingual
capabilities of Israelis and similarities in judicial process make Israel a ripe
environment for whistleblowers to aid in enforcement of US laws. In addition, as
Israeli technology expands, and entrepreneurs seek investors through US
exchanges, there will continue to be more situations where Israeli enterprise
will subject themselves to US compliance enforcement.
For those working
in Jerusalem’s hi-tech corridor and in technology centers throughout Israel, the
TEVA investigation is undoubtedly going to be an important point of focus and,
at the end of the day, will provide additional guidance on extraterritorial
compliance enforcement of US securities laws. Stay tuned.The writer
heads the whistleblower practice at US law firm Grant & Eisenhofer. He is an
adjunct professor and Senior Fellow at the Emory University School of Law Center
for Advocacy and Dispute Resolution. He founded the website