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What You Need To Know From Q1

This post provides a summary of enforcement actions, other events, and U.K. developments from the first quarter of 2011.

As to enforcement, this post covers DOJ and SEC enforcement separately. With the exception of the Jeffrey Tesler plea that is noted, this post only covers enforcement actions initiated and resolved during the first quarter of 2011. For a summary of other indictments, guilty pleas and sentences during the first quarter see here – the FCPA Blog’s Q1 Enforcement Report.

DOJ Enforcement

The DOJ resolved two FCPA enforcement actions in the first quarter: Maxwell Technologies and Tyson Foods. Total DOJ recovery in these enforcement actions was $12 million. Both cases resulted from voluntary disclosures and both cases were resolved via deferred prosecution agreements (DPAs). Neither enforcement action has, at present, resulted in any individual prosecutions.

Including the Jeffrey Tesler plea agreement (an enforcement action that began in 2009) in which Tesler agreed to forfeit approximately $149 million (see here), the DOJ’s FCPA enforcement program in the first quarter of 2011 brought in approximately $161 million to the U.S. treasury.

Maxwell Technologies (Jan. 31st)

See here for the prior post.

Charges: FCPA anti-bribery violations and knowingly violating the FCPA’s books and records provisions.

Resolution Vehicle: Criminal information resolved through a DPA (three year term).

Guidelines Range: $10.5 million to $21 million.

Penalty: $8 million (25% below the minimum amount suggested by the guidelines).

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

Tyson Foods (Feb. 10th)

See here for the prior post.

Charges: Conspiracy to violate the FCPA’s anti-bribery and books and records provisions; FCPA anti-bribery and books and records violations.

Resolution Vehicle: Criminal information resolved through a DPA (two year term).

Guidelines Range: $5.04 to $10.08 million.

Penalty: $4 million (approximately 20% below the minimum amount suggested by the guidelines)

Disclosure: Yes, voluntary disclosure.

Monitor: No.

Individuals Charged: No.

For a similar analysis of 2010 DOJ FCPA enforcement actions, see here.

SEC Enforcement

The SEC resolved five FCPA enforcement actions in the first quarter: Paul Jennings, Maxwell Technologies, Tyson Foods, IBM Corp. and Ball Corp. Total recovery in these enforcement actions was approximately $18 million.

As with DOJ FCPA enforcement in the first quarter, all of the SEC’s enforcement actions resulted from disclosures (i.e. voluntary disclosures in the traditional sense, such as the company disclosing the conduct at issue to the enforcement agencies, as well as other forms of public disclosure, such as identification in the U.N. Oil for Food Report, or the result of prior foreign law enforcement agency investigations).

Of the $18 million the SEC recovered thus far in FCPA enforcement actions, approximately $15.9 million (88% has been disgorgement and prejudgment interest).

Paul Jennings (Jan. 24th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations; FCPA books and records and internal controls violations; knowingly falsifying books and records; knowingly circumventing internal controls; and signing false certifications required by SOX.

Settlement: Approximately $230,000 (approximately $116,000 in disgorgement, $13,000 in prejudgment interest, and a $100,000 civil penalty).

Disclosure: Yes, the enforcement action was related to the Innospec matter – an enforcement action prompted by the U.N. Oil for Food Report.

Related DOJ Enforcement Action. Yes as to Innospec in 2010.

Maxwell Technologies (Jan. 31st)

See here for the prior post.

Charges: Settled civil complaint charging: FCPA anti-bribery, books and records and internal controls violations; and Section 13 disclosure violations.

Settlement: Approximately $6.3 million (approximately $5.6 million in disgorgement and $700,000 in prejudgment interest)

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

Tyson Foods (Feb. 10th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA anti-bribery violations and books and records and internal control violations.

Settlement: $1.2 million in disgorgement and prejudgment interest.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: Yes.

IBM Corporation (March 18th)

See here for the prior post.

Charges: Settled civil complaint charging FCPA books and records and internal controls violations.

Settlement: $10 million ($5.3 million in disgorgement, $2.7 million in prejudgment interest, and a $2 million civil penalty).

Disclosure: Yes, the action is reportedly the result of a prior South Korean government investigation.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

Ball Corporation (March 24th)

See here for the prior post.

Charges: Administrative cease and desist proceeding finding FCPA books and records and internal controls violations.

Settlement: $300,000 penalty.

Disclosure: Yes, voluntary disclosure.

Individuals Charged: No.

Related DOJ Enforcement Action: No.

For a similar analysis of 2010 SEC FCPA enforcement actions, see here.

Other Events

“Foreign Official” Challenges

A significant event from the past quarter was the historic “foreign official” challenge in U.S. v. Carson (see here). This challenge in the C.D. of California, utilizing a detailed and complete overview of the FCPA’s extensive legislative history on the “foreign official” element, asks the court to rule on the DOJ’s interpretation that employees of alleged state-owned or state-controlled enterprises are “foreign officials” under the FCPA. DOJ will soon be filing its response brief in the case and further developments are likely to occur in the second quarter.

The Carson challenge sparked two other challenges to the DOJ’s “foreign official” interpretation in the Lindsey and O’Shea matters – two prosecutions both focused on alleged improper payments to employees of a Mexican entity – Comisión Federal de Electricidad (CFE), an alleged state-owned utility company. Although filed after the Carson challenge, both challenges are further along than the Carson challenge.

The Lindsey matter was fully briefed (see here for the prior post including links to the briefing) and on April 1st U.S. District Court Judge Howard Matz issued an oral ruling denying the defendants’ challenge. (See here for the prior post). It is expected that Judge Matz will author a written decision in the near future.

In the O’Shea matter, the DOJ has filed its opposition brief. (See here for the prior post).

Prosecutorial Common Law

This past quarter had one of the best guest posts contributed to this site (see here) by Michael Levy, co-chair of the White Collar Investigations and Enforcement Group at Bingham McCutchen. Levy, a former Assistant United States Attorney in the District of Columbia and law clerk to U.S. Supreme Court Justice Lewis F. Powell Jr., described what he called “prosecutorial common law.”

With the DOJ arguing in its “foreign official” opposition briefs that its position is strengthened by “more than 35 guilty pleas by individuals who have admitted to violating the FCPA by bribing officials of state-owned entities,” Levy’s guest post was indeed timely.

China Law Development

As noted in this prior post, in February, the legislature of the People’s Republic of China (PRC) passed certain amendments to the Criminal Law, one of which is a provision that criminalizes paying bribes to non-PRC government officials and to officials of international public organizations. The prior post contains a analysis of the significant development – the first instance in which PRC law has prohibited PRC nationals and PRC companies from paying bribes to non-PRC government officials.

Global Changes

The first quarter of 2011 witnessed several regime changes or similar events around the world. Will these events lead to FCPA scrutiny, future enforcement actions, or changes in corporate compliance? These issues are explored in prior posts here, here and here.

U.K. Developments

The first quarter of 2011 also witnessed several developments in the United Kingdom.

Certain high-ranking U.K. Serious Fraud Office officials left the agency to join private law firms in what is becoming a vibrant Bribery Act Inc. industry. (See here).

The SFO continued to enforce existing U.K. laws as it prepares to enforce the Bribery Act. (See here for the prior post on the M.K. Kellogg Ltd. enforcement action and Mabey & Johnson sentences).

Finally, and most significantly, in a much anticipated development, the U.K. Ministry of Justice released its long awaited guidance as to the U.K. Bribery Act – a delayed law now set to go live on July 1, 2011. (See here for the prior post which includes links to the relevant guidance material and an analysis by Robert Amaee, a former SFO official).

Food For Thought

Given the enforcement agencies’ interpretations of the FCPA, a wide variety of seemingly routine interactions with “foreign officials” are subject to FCPA scrutiny.

For instance, in February, Tyson Foods, one of the world’s largest processors of chicken and other food items, agreed to resolve an FCPA enforcement action focused on payments to Mexican veterinarians responsible for certifying product for export. As noted in this prior post, the enforcement action involved both a DOJ and SEC component and the total settlement amount was approximately $5.2 million – a figure in addition to the pre-enforcement action and post-enforcement action fees and expenses.

The Tyson Foods enforcement action was an example of yet another recent Foreign Corrupt Practices Act enforcement action dealing with licenses, permits, certifications, and the like.

On January 4, 2011, President Obama signed the Food Safety Modernization Act (“FSMA”) (here for more information).

In a recent piece published by Law360 (“Growing Risk: FCPA Exposure For Foreign Food Food Cos. – March 16, 2011), Foley & Lardner attorneys Lisa Noller (here) and Carmen Couden (here) state that new provisions in the FSMA “unintentionally create foreign bribery risks for foreign importers of food.”

The FCPA risk, the authors note, is all about foreign certifications. The FSMA will require importers of food to have a certification issued by “an agency or a representative of the government of the country from which the article of food at issue originated” that the “article of food complies with applicable requirements” under the FSMA.

As further noted by the authors, “food is often a commodity that cannot wait for clearances – if it does not ship immediately, it spoils and the value is destroyed.”

This dynamic would seem to increase the motivation a low-ranking, poorly paid “foreign official” has to make an improper, extortionate payment related to food certification.

A facilitating payment exempted from the FCPA (at least per the FCPA’s terms – enforcement is separate question) or prosecutable bribe payment?

What type of journey did your banana, scallop – create your own dish – take on its way to the U.S.?

Interesting food for thought.

A Blast From the Past

Proud to be a Butler Bulldog. It was a fun ride!

*****

It is always enjoyable hearing from readers.

Richard Tarlton of California recently contacted me about an apparent bribery demand from the past …. the way past.

In the 1930’s, Richard started a stamp collection. One of the stamps, given to him by his father, was still attached to an envelope received from Venezuela with the correspondence inside.

As you can see here, the January 6, 1911 letter is hard to read, but as Richard said, my occupation has been pharmacy, thus I am good at reading bad handwriting.

The context of the letter is as follows.

Richard’s grandfather, P.E. Tarlton, was an inventor and very much into applications of electricty for new uses. In 1911, P.E. Tarlton owned the American Magnetic Firm Alarm Company in Ada, Ohio. P.E. Tarlton’s first big invention was an electric fire alarm system that could be installed in a large city, and when someone turned on the fire alarm, it would indicate which fire area in the city was in need of help. P.E. Tarlton’s first patent is here.

American Magnetic Fire Alarm Company, Richard explains, evidently advertised or was listed in a trade publication called the “Thomas Register of American Manufacturers and First Hands.”

Apparently, Dr. C.A. Bosi of Caracas, Venezuela and a friend, Dr. Pensa, were studying, with the agreement of local authorities, the installation of a fire extinction service in Caracas and evidently saw the listing. Dr. Bosi, in the letter, is requesting a catalogue and pictures of the equipment.

In the letter, Dr. Bosi wants to know the conditions P.E. Tarlton would make to him if he were to get the order. Dr. Bosi emphatically states, “in this country, it is always necessary for succeeding in business to leave some benefit to the authorities who pass the order.”

According to Richard, he has never seen any evidence that his grandfather secured the Caracas order.

Let’s assume P.E. Tarlton and American Magnetic Firm Alarm did “leave some benefit to the authorities” in securing the order.

Assuming the FCPA was on the books in 1911, what issues would the company have faced?

Voluntary disclosure? Related civil litigation such as derivative suits? Would American Magnetic Fire Alarm Company been required to engage a compliance monitor? How much money would the company have spent on investigating the conduct at issue? Would the company have expanded its investigation and compliance review to other countries?

What about Dr. Bosi, would there be jurisdiction over him? What about the local Venezuelan authorities – any proceeds laundered through U.S. accounts?

Of course none of these were issues in 1911.

But they are some of the issues in 2011.

What will the issues be in 2111?

Lindsey “Foreign Official” Motion Denied

I gotta feeling – that tonights gonna be a good night!

GO BUTLER!

*****

Today’s post was originally published late Friday evening. It is a guest post from Mike McCollum (Foley & Lardner – here), who was present Friday afternoon for the “foreign official” hearing in the Lindsey matter, and Jaime Guerrero (Foley & Lardner – here).

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[Friday] afternoon, United States District Judge Howard Matz issued an oral ruling in the Lindsey case that is scheduled to begin trial on April 5 in the Central District of California. The Court denied defendants’ motion to dismiss the indictment on the “foreign official” issue. The issue presented was whether the officials of Mexico’s state-owned utility company, CFE, were “foreign officials” under the FCPA. Giving his ruling orally from the bench, and emphasizing that his precise reasoning will be spelled out in a written ruling to follow, District Judge Matz held that they were foreign officials, giving some insight into his thinking.

District Judge Matz noted several undisputed facts, including that CFE supplies electricity to all of Mexico except for Mexico City, that the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function, that Mexican statutory law defines CFE as a “decentralized public entity with legal personality and its own patrimony,” that CFE’s Governing Board is composed of Mexican government officials and its Director General is appointed by the President of Mexico, and that CFE’s English language website describes it as an agency of the Federal Government. District Judge Matz further confirmed that it was the defendants’ position, as stated in their briefs, that the issue presented was one of “pristine” undisputed facts and issues of law, and thus no further facts that might be introduced at trial could bear on the issue.

District Judge Matz then presented to counsel for the moving defendants a two-page written hypothetical. Because he only distributed the hypothetical to the attorneys, we can only go from the summary described in open court, which was essentially this: Exxon and Occidental bid for a large oil contract from Pemex, Mexico’s state-owned oil company. It is a public bid, and Occidental offers to pay more than Exxon. At the publicly televised contract award ceremony, however, Exxon hands a $10 million check to Pemex, which thanks Exxon publicly, and then Pemex awards the contract to Exxon instead. Question put to the defense: Is it the case that Congress, in enacting the FCPA, would have said that the FCPA would not have applied to these circumstances? Counsel for the moving defendants argued that what was important was not what Congress would have wanted to say, but what they did say, and Congress did not say that the statute should apply to state-owned-enterprises. In an era (1970s) when states owned large sectors of industry around the world, Congress chose not to include state-owned-enterprises within the reach of the FCPA.

District Judge Matz responded, in essence, that what was most convincing to him, in combination with the undisputed facts regarding CFE noted above, was the definition of the word “instrumentality.” He noted the defendants’ Webster Dictionary definitions (“serving as a means or agency: implemental” and “of, relating to, or done with an instrument or tool”) and American Heritage Dictionary definition (“[a] subsidiary branch, as of a government, by means of which functions or policies are carried out”). Based on this definition of “instrumentality” and on the undisputed facts regarding CFE, District Judge Matz noted that it was unnecessary to delve into the legislative history because it could be determined as a matter of statutory construction that the officials of CFE were “foreign officials.”

Opening statements are set for Tuesday morning, and the trial is expected to go until the end of April.

*****

For additional coverage see here from the FCPA Blog.

For briefing on the “foreign official” issue, see prior posts here, here, and here.

Lindsey “Foreign Official” Motion Denied

Mike McCollum (Foley & Lardner – here), who was present for today’s hearing, and Jaime Guerrero (Foley & Lardner – here) provide this guest post.

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This afternoon, United States District Judge Howard Matz issued an oral ruling in the Lindsey case that is scheduled to begin trial on April 5 in the Central District of California. The Court denied defendants’ motion to dismiss the indictment on the “foreign official” issue. The issue presented was whether the officials of Mexico’s state-owned utility company, CFE, were “foreign officials” under the FCPA. Giving his ruling orally from the bench, and emphasizing that his precise reasoning will be spelled out in a written ruling to follow, District Judge Matz held that they were foreign officials, giving some insight into his thinking.

District Judge Matz noted several undisputed facts, including that CFE supplies electricity to all of Mexico except for Mexico City, that the Mexican Constitution provides that the supply of electricity in Mexico is solely a government function, that Mexican statutory law defines CFE as a “decentralized public entity with legal personality and its own patrimony,” that CFE’s Governing Board is composed of Mexican government officials and its Director General is appointed by the President of Mexico, and that CFE’s English language website describes it as an agency of the Federal Government. District Judge Matz further confirmed that it was the defendants’ position, as stated in their briefs, that the issue presented was one of “pristine” undisputed facts and issues of law, and thus no further facts that might be introduced at trial could bear on the issue.

District Judge Matz then presented to counsel for the moving defendants a two-page written hypothetical. Because he only distributed the hypothetical to the attorneys, we can only go from the summary described in open court, which was essentially this: Exxon and Occidental bid for a large oil contract from Pemex, Mexico’s state-owned oil company. It is a public bid, and Occidental offers to pay more than Exxon. At the publicly televised contract award ceremony, however, Exxon hands a $10 million check to Pemex, which thanks Exxon publicly, and then Pemex awards the contract to Exxon instead. Question put to the defense: Is it the case that Congress, in enacting the FCPA, would have said that the FCPA would not have applied to these circumstances? Counsel for the moving defendants argued that what was important was not what Congress would have wanted to say, but what they did say, and Congress did not say that the statute should apply to state-owned-enterprises. In an era (1970s) when states owned large sectors of industry around the world, Congress chose not to include state-owned-enterprises within the reach of the FCPA.

District Judge Matz responded, in essence, that what was most convincing to him, in combination with the undisputed facts regarding CFE noted above, was the definition of the word “instrumentality.” He noted the defendants’ Webster Dictionary definitions (“serving as a means or agency: implemental” and “of, relating to, or done with an instrument or tool”) and American Heritage Dictionary definition (“[a] subsidiary branch, as of a government, by means of which functions or policies are carried out”). Based on this definition of “instrumentality” and on the undisputed facts regarding CFE, District Judge Matz noted that it was unnecessary to delve into the legislative history because it could be determined as a matter of statutory construction that the officials of CFE were “foreign officials.”

Opening statements are set for Tuesday morning, and the trial is expected to go until the end of April.

*****

For additional coverage see here from the FCPA Blog.

For briefing on the “foreign official” issue, see prior posts here, here, and here.

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