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Focus on Pharma

Yesterday, Acting Deputy Attorney General Gary Grindler spoke at the National Institute on Health Care Fraud in Miami. Part of his remarks (see here) included the following:

“… in the months ahead, you can expect to see the department increasingly using the Foreign Corrupt Practices Act to prosecute kickbacks and bribes paid to foreign government officials by pharmaceutical companies. As the drug companies do more and more of their business overseas where so much of the health care business is government run, we unfortunately see the opportunities for FCPA violations proliferating. In some foreign countries, nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a “foreign official” within the meaning of the FCPA. The department will not hesitate to charge pharmaceutical companies and their senior executives under the FCPA if warranted to root out foreign bribery in the industry.”

If the above “nearly every aspect” snippet sounds familiar, you have a good memory.

It is nearly verbatim what Assistant Attorney General Lanny Breuer said during a keynote address to the 10th Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum last November. (See here).

Innospec’s Positive Financial Results

In March, Innospec got hit on both sides of the Atlantic (see here) and agreed to pay $40.2 million in combined DOJ/SEC/SFO fines and penalties for violating the Foreign Corrupt Practices Act and other laws.

However, it could have been worse.

The SEC release (see here) notes that Innospec, without admitting or denying the SEC’s allegations, was ordered to pay $60,071,613 in disgorgement, but because of Innospec’s “sworn Statement of Financial Condition” all but $11,200,000 of that disgorgement was waived.

The release states that “[b]ased on its financial condition, Innospec offered to pay a reduced criminal fine of $14.1 million to the DOJ and a criminal fine of $12.7 million to the SFO. Innospec will pay $2.2 million to OFAC for unrelated conduct concerning allegations of violations of the Cuban Assets Control Regulations.”

In other words, Innospec got a pass on approximately $50 million.

This occured on March 18th.

Last week, Innospec announced (see here) it financial results for the first quarter ended March 31th (i.e. approximately two weeks from March 18th).

The results?

“Total net sales for the quarter were $163.5 million, up 10% from $148.1 million in the corresponding period last year. Net income was $7.4 million, or $0.30 per diluted share, a 16% increase from $6.4 million, or $0.26 per diluted share, a year ago. EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) for the quarter was $15.4 million, compared with $16.0 million a year ago.”

“As of March 31, 2010, Innospec had $67.5 million in cash and cash equivalents, $22.5million more than its total debt of $45.0 million.”

Innospec’s President and Chief Executive Officer stated, “we are very pleased with our first quarter operating results …”.

I am a lawyer by training, not a finance professional.

So forgive me, but I am scratching my head over this one.

March 18th – Innospec gets a pass on $50 million in an FCPA case because of its financial condition.

March 31st – Innospec reports positive financial results, including $67.5 in cash and cash equivalents.


Some items of interest to pass along.

The Business Case for Fighting Bribery and Corruption

Principles for Responsible Investment, a coalition of investor groups that collectively manage over $1.7 trillion in assets, recently wrote to “21 major companies in 14 countries asking them to improve their disclosure of bribery and corruption risks and avoidance measures.” For more information see here.

Upcoming Events

Hungry for more information on the FCPA and related topics? Mark your calendar for these upcoming events.

“Foreign Corrupt Practices Act (FCPA) Overview 2010: Enforcement and Compliance Strategies” – May 18th – Winston & Strawn (see here).

“The Role of HR in FCPA Compliance and Ethics” – May 18th – Thomas Fox (see here).

“The Implications of the UK Bribery Bill: Preparing for a New Era of Enforcement” – May 18th – Steptoe & Johnson (see here).

“A Focus on FCPA Investigations” – May 25th – Morgan Lewis (see here).

“Corruption: The New Global Landscape” – June 10th, June 25th – Venable and Field Fisher Waterhouse (see here).

“The Bribery Racket” – Additional Commentary

A previous post (see here) covers Nathan Vardi’s “The Bribery Racket” piece in the current issue of Forbes. For additional commentary see here from Mary Jacoby at Main Justice.

SEC Seeking “Corporate Intelligence Specialist”

Have what it takes to join the SEC’s new FCPA unit? See here to find out.

Africa Sting – Will Economic Realities Result in Additional Pleas?

The Africa Sting case (see here for numerous prior posts) is best known as the largest undercover sting operation in FCPA history.

The sting operation resulted in lots of video recordings, telephone recordings, documents and search warrant material.

According to a recent DOJ discovery filing (see here) the following, among other things, have been turned over to defense counsel:

“615 audio and video recordings of more than 150 meetings;”

“5,287 recorded telephone calls between the defendants and the cooperating witness, identified as Individual 1 in the indictments, and between the defendants and undercover FBI agents;”

“recordings of telephone calls between Individual 1 and FBI agents;”

“certain calls, approximately a minute or less in length, recorded in connection with the undercover investigation;”

“in excess of 5,000 pages of documents relating to Individual 1, including reports, expense paperwork, bank statements, quotes, emails, notes, drug tests results, payment receipts, and Skype text messages, among others;”

“emails from the accounts of Individual 1 and the undercover FBI agents;”

“nearly 3,000 pages of text messages from the telephone Individual 1 used in connection with the undercover operation;”

“documents related to the undercover investigation that are not directly related to Individual 1, including case administration documents, FBI reports, bank records, product information, and search warrant materials;” and

“materials seized during the 13 search warrants executed in connection with the undercover investigation relating to the defendants” including a total of “approximately 242,000 pages of documents,” “electronic media, including desktop computers, laptop computers, USB drives, zip discs, memory cards and DVDs, among other items, seized during the searches,” and “photographs taken in connection with the search warrants and logs of those photographs, as well as search diagrams and seizure inventories.”

The government had vast resources at its disposal in conducting the sting and continues to have vast resources at its disposal in prosecuting the case.

The defendants do not.

Another distinguishing feature of the Africa Sting case is that it involves many small-business owners.

The lawyers for the Africa Sting defendants have a duty to competently represent their clients.

That means the lawyers will have to review all of the above-referenced material (as well as other material) to better understand the facts of the case and their client’s exposure.

That is going to be very expensive. And all this is required before “active” lawyering (i.e. motions to dismiss, etc.) even begins.

Some will say, well, the Africa Sting defendants should have thought about this before (allegedly) violating the law.

Others will say, this case points out the difficulties of litigating against a DOJ with vast resources.

Will the economic realities of this situation lead to more plea deals over the summer?

Will the cost of testing an innocence claim simply be too high such that additional defendants may raise the “white flag” of surrender? If so, is it because the defendants are guilty of the crimes charged, or because of the economic realities of the situation?


For the latest Main Justice update on the Africa Sting case (see here).

Breuer – Siemens Investigation (As to Individuals) Remains Open

Last week, Lanny Breuer (Assistant Attorney General – Criminal Division) testified before The Criminal Law Subcommittee of the Senate Judiciary Committee. During his Q&A exchange with Senator Arlen Specter, Breuer stated that “individuals, executives and others who were involved [in the Siemens bribery scandal], remain exposed and the matter is not closed.”

Why was Specter asking Breuer about the Siemens enforcement action?

A bit of background.

In December 2008, right in time for the holidays, the DOJ put a nice “bribery, yet no bribery” bow on the Siemens enforcement action.

According to the DOJ, for much of Siemens operations around the world “bribery was nothing less than standard operating procedure.” The egregious nature of Siemens conduct is set forth in the criminal information (see here).

Among other allegations, the information details how Siemens paid out, through various mechanisms, $805.5 million in “corrupt payments to foreign officials” including: (i) payments made by various subsidiaries, including those with offices in the U.S., to “purported business consultants, knowing that at least some or all of those funds would be passed along to foreign government officials;” (ii) money withdraw from “cash desks within Siemens’ offices” for “corrupt payments;” and (iii) “slush funds to generate cash for corrupt payments.”

As to the amount of business Siemens obtained or retained through these corrupt payments, the DOJ’s sentencing memorandum (see here) states that calculating a traditional loss figure under the Sentencing Guidelines “would be overly burdensome, if not impossible” given the “literally thousands of contracts over many years.”

Yet, Siemens was not charged with violating the FCPA’s anti-bribery provisions.

That would have hurt too much, a point made in the DOJ’s sentencing memorandum which notes that a key factor the DOJ considered in resolving the case against Siemens in the way it did was the “collateral consequences” that could have resulted from criminal antibribery charges including the “risk of debarment and exclusion from government contracts.”

All of this troubled Senator Specter who has “long been concerned about the acceptance of fines instead of jail sentences in egregious cases.” (see here). In a release, Senator Specter notes that “there are many illustrative cases but three will suffice to make the point. In each of these cases, I registered my complaint with the Department of Justice.”

One such case was the Siemens enforcement action.

As Senator Specter’s release notes:

“On December 15, 2008, Siemens AG entered guilty pleas to violations of the Foreign Corrupt Practices Act and agreed to pay $1.6 billion in fines, penalties and disgorgements with no jail sentences. Again, that amounts to a calculation as part of the cost of doing business for a company which had revenues of $104 billion and a net income of $2.5 billion in fiscal year 2008 after the penalty.”

Thus, the reason Senator Specter questioned Breuer about the Siemens enforcement action during last week’s hearing.

Set forth below is the exchange.


SPECTER: Are you familiar with the Siemens prosecution, Mr. Breuer?

BREUER: I am, Senator, to a degree, I am familiar with the Siemens prosecution.

SPECTER: Well, that’s a — that’s a case where Siemens, according to the information provided to me, agreed to pay a total criminal fine of $450 million and a disgorgement of $350 million in profits. And nobody went to jail. Siemens’ income, according to the information I have, was $104 billion, and income in excess or approximately $2.5 billion in fiscal year 2008. Did that conviction arise during the course of the current administration?

BREUER: It did, Senator. It was in — it did, Mr. Chairman. It was an ongoing investigation. And you’re right. Let me just add a little to what you say. First, Siemens, its total monetary penalties were actually $1.6 billion. That would include both from the U.S. and in Germany. The company was incredibly cooperative and very, very — very, very helpful in the information it provided over an extensive period. In making Siemens’ plea, we made it as an absolute explicit provision that there was absolutely no protection for any of the individuals of Siemens, and therefore the individuals, executives and others who were involved, remain exposed and the matter is not closed. The matter — simply all that we have done is have a plea against the corporation, we have not closed out nor have we claimed to have closed out investigations with respect to individuals. They’re ongoing. And, Mr. Chairman, I agree with you, I think the hallmark of an effective criminal justice plan must be that we will prosecute individuals when appropriate and ongoing. And I should say in that vein, Mr. Chairman, just two weeks ago we received the longest sentence in an FCPA case in the history of the FCPA when we attained an 87-month sentence against a fellow who had violated and was convicted of the FCPA. So we will continue to pursue that.

SPECTER: Well, you are saying that even though the case was concluded against the corporation that the matter is ongoing as to the individuals. Ordinarily a case is wrapped up once and for all and that before a corporation will pay a fine they want to know that that’s the limit of their liability.

BREUER: Right.

SPECTER: And there’s obviously a motivation to not have a jail sentence, for the corporation to pay a fine. And this morning we heard very extensive testimony — not that it was surprising — that fines are added into the cost of doing business. One testimony related to one defendant who paid $50 million and said if it had been a criminal prosecution he would have fought it to the teeth — tooth and nail. But you are saying that you’re really going to go after some people in this Siemens matter?

BREUER: Well, Mr. Chairman, what I’m saying is that I don’t want to say whether we are or not, for the reasons that I know you understand well. But I will say is the following. We’re not willing — and you’re absolutely right. Corporations do want to settle these cases. They do want to pay money, and they do want the assurance that the matters will be closed against the individuals of their company. We’re not — we’re not going to — we didn’t allow that to happen in that case, and we won’t let it happen, for the reasons you said. Now, in the Siemens case, I do want companies to feel an enormous incentive to come in and to disclose. And in Siemens, they did come in — they did come in. They did disclose. And they provided us with an enormous amount of information. And so there was a real judgment that there was a real merit to having closure with respect to that and for the company to be rewarded for providing us with almost unparalleled cooperation.

SPECTER: Did you (inaudible) the prosecution before they made the disclosures?

BREUER: I don’t think so, in that case. I think, Senator, I’ll have to go back. That’s a good question. So my — my colleague is right. In this case, of course, one of the challenges that I was going to go into is, in this particular case, the prosecution began in Germany. And then we, of course, as we try now, more and more, to deal with the challenges we have, are working closely with our international colleagues and partners. That was the case where it began with the German prosecutors. And, of course, many of the individuals involved are in Europe. But there — nonetheless, it began in Germany. The company — we reached out, I believe. The company provided us with an enormous amount of information.

SPECTER: Mr. Breuer, what I’m getting at is, did they provide you with information after you already had the case?

BREUER: No. I mean, Mr. Chairman, in a case like this, these are very complicated cases. And this, of course, was a massive example of — of violations of the FCPA in different countries. And so, there, there’s no question that the law firm providing us, and Siemens providing us with information, were able to provide us with information that we would not have had but for them giving us the information. It was all over the world. Frankly, we would not have had the resources to have investigated to the degree that the company provided us the information. And so they did get a benefit for that. The benefit they got was certainty in their — in the resolution of the corporate deal. What they did not get was closure for the individuals.


As the above exchange demonstrates, Senator Specter also seems troubled that Siemens received cooperation credit even though the credit came after the company was busted.

The DOJ’s release (see here) states:

“The resolution of the U.S. criminal investigation of Siemens AG and its subsidiaries reflects, in large part, the actions of Siemens AG and its audit committee in disclosing potential FCPA violations to the Department after the Munich Public Prosecutor’s Office initiated searches of multiple Siemens AG offices and homes of Siemens AG employees.” (emphasis added).

If Senator Specter is troubled by this aspect of the Siemens enforcement action, he may want to take a close look at the Daimler enforcement action as well.

Daimler, like Siemens, was another “bribery, yet no bribery” case as to the parent entity that orchestrated the bribery scheme (per the DOJ’s own allegations). However, unlike Siemens, Daimler was not required to plead guilty to anything – it received a deferred prosecution agreement.

In arriving at a fine amount, Daimler, like Siemens, also received cooperation credit.

The DOJ’s sentencing memorandum (see here) notes that Daimler received a sentencing credit (a credit which reduces the overall fine amount) because the “organization fully cooperated in the investigation and clearly demonstrated recognition and affirmative acceptance of responsibility for its criminal conduct.”

This despite the fact that elsewhere in the sentencing memo the DOJ notes that the entire investigation started in March 2004 when a “former Daimler employee filed a whistleblower complaint with the U.S. Department of Labor Occupational Safety & Health Administration … allege[ing] that he was terminated for voicing concerns about Daimler’s practice of maintaining secret accounts, including accounts in its own books and records, for the purpose of bribing foreign government officials.”

In other words, even though the Daimler enforcement action was hatched by an internal whistleblower, the company still received a sentencing credit for cooperating in the eventual investigation.

The sentencing range set forth in the DOJ memo is $116 – $232 million.

The ultimate $93.6 million DOJ penalty was 20% below the bottom fine range of $116 million.

DOJ justified this reduction by stating that such a “reduction is appropriate given the nature and extent of Daimler’s cooperation in this matter, including sharing information with the Department regarding evidence obtained as a result of Daimler’s extensive investigation of corrupt payments around the world.”

The DOJ further stated, “indeed, because Daimler did not voluntarily disclose its conduct prior to the filing of the whistleblower lawsuit, it only receives a two-point reduction in its culpability.” However, in a rather odd statement, DOJ then said that it “respectfully submits that such reduction is incongruent with the level of cooperation and assistance provided by the company in the Department’s investigation.”

In other words, Daimler, like Siemens, received cooperation credit even though disclosure of the conduct at issue was involuntarily. Also, the DOJ gave Daimler cooperation credit greater than that allowed under the guidelines.

In conclusion, the DOJ noted that the disposition “promotes respect for the law, provides just punishment, and affords adequate deterrence to criminal conduct for Daimler and the marketplace generally.”


Mr. Breuer had a busy week last week (see here for a prior post). During his Council of Foreign Relations speech, Breuer was asked about some of the DOJ’s “old cases.” See here for the Main Justice story and his response.

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