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“It’s Not Easy Being Under Investigation for Two Years …”

Panalpina is dealing with some FCPA issues (see here for the prior post).

Now, the company’s shareholders are getting a bit testy.

According to this report, during the company’s annual meeting last week, a shareholder demanded that someone “step up and take responsibility” for the company’s poor performance over the last two years.

According to the report, CEO Monika Ribar said, “[i]t is not easy being under investigation for two years, and [the FCPA investigation] is not making the situation any easier.”

According to the report, COO Karl Weyeneth added: “You can say the whole FCPA and Nigeria situation reflects badly on the management, but the fact is that as long as we are still involved in the investigation we will continue to lose market share, because our customers have internal regulations which prevent them from doing business with companies which are under investigation by the DoJ.” “As soon as this investigation is over, we will win some of this business back. Customers have told us ‘as soon as you have settled the FCPA, we will do business with you again’.”

Time will no doubt tell whether the FCPA investigation is a convenient excuse for company management for poor performance or whether this instance demonstrates the difficulty of running a company and maintaining customer relationships during the lifespan (often times several years) of an FCPA investigation / enforcement action.

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The seemingly minor case involving Telecommunications D’Haiti (“Haiti Teleco”) (see here) keeps on giving.

Last Friday, the DOJ announced (here) that Robert Antoine, one of the “foreign officials” (at least according to the DOJ given that Antoine served as the “Director of International Relations of Haiti Teleco” – an alleged state-owned entity), in the far-reaching case pleaded guilty to a money laundering conspiracy charge.

U.S. Attorney Jeffrey Solman (S.D. of Florida) is quoted as saying, “[t]oday’s conviction should be a warning to corrupt government officials everywhere that neither they nor their money will find any safe haven in the United States.”

Such get-tough language is difficult to reconcile with the BAE bribery, yet not bribery circus in which an identifiable Saudi official was widely alleged to have received from BAE over a billion dollars in a U.S. bank account (see here) and in light of this situation.

Mendelsohn’s Defense of the Siemens Enforcement Action … A Contrarian View

Mark Mendelsohn (DOJ Deputy Chief, Fraud Section and the DOJ’s FCPA “top cop”)recently defended the 2008 Siemens enforcement action.

Given that Mendelsohn signed the Siemens charging documents and plea agreement, this is a rather unremarkable event and is sort of like me saying I defend the substantive content on this blog.

In any event, and in the interest of sparking thought within the FCPA community, this post takes issue with Mendelsohn’s defense of the Siemens enforcement action.

In an “exclusive interview with the International Bar Association towards the end of 2009,” (see here) Mendelsohn stated that the Siemens enforcement action sends a “very, very strong message” and a “strong deterrent message.”

Among other things, Mendelsohn notes that the overall total of $1.6 billion that Siemens paid to U.S. (DOJ and SEC) and German authorities is “only a fraction of the costs that Siemens incurred as a result of the bribery conduct.” Mendelsohn legitimately notes that Siemens also was subject to a debarment proceeding at the World Bank which required Siemens to pay $100 million to help fight corruption over a period of time. Mendelsohn points out that “the cost of the investigation for the company and the remediation” “probably exceeded the fines that were assessed” and he also cites the “costs of disruption to Siemens’ business,” the replacement of members of Siemens’ board, and the discipline of “lots of sales people.”

Based on the Siemens’ resolution documents, the DOJ’s own statements about the case, and other information in the public domain, I strongly disagree that the Siemens enforcement action sends a “strong deterrent message.”

For starters, since when is the cost of getting caught, the legal and professional fees associated with getting caught, and the remediation associated with getting caught in a bribery scheme “unprecedented in scale and geographic scope” (those are DOJ’s words – not mine) part of the deterrence conversation?

I think every company in the world probably already assumed prior to the Siemens enforcement action that engaging in a bribery scheme “unprecedented in scale and geographic scope” would no doubt entail substantial legal and professional fees, employee terminations and other internal remediation costs upon getting caught. Thus, it is difficult to see how these pieces of the Siemens enforcement action send a “very strong message” or a “deterrent message.”

In a prior post (see here), I took a look at some of the Siemens numbers per the DOJ’s resolution documents. Looking at these numbers again is instructive in light of Mendelsohn’s comments.

The criminal information (see here) describes approximately $1.36 billion in payments Siemens made through various mechanisms, including approximately $555 million paid for unknown purposes (including approximately $341 million in direct payments to business consultants for unknown purposes) and approximately $806 million intended, in whole or in part, as corrupt payments to foreign officials. The criminal information, of course, does not charge Siemens with FCPA antibribery violations, so from the outset it is difficult to see how this case sends a “very strong message” or a “strong deterrent message.”

The Siemens resolution also included charges against certain of Siemens’ subsidiaries.

For instance, Siemens Argentina (see here) agreed to pay a $500,000 fine based on allegations that it made over $31 million in corrupt payments in exchange for favorable business treatment in connection with a $1 billion project in Argentina. Siemens Venezuela (see here) also agreed to pay a $500,000 fine based on allegations of making over $18 million in corrupt payments in exchange for favorable business treatment in connection with two major metropolitan mass transit projects in Venezuela. Likewise, Siemens Bangladesh (see here) agreed to pay a $500,000 fine based on allegations of making over $5 million in corrupt payments in exchange for favorable treatment during the bidding process on a mobile telephone project in Bangladesh?

When a fine amounts to a sliver of the improper payments allegedly made, and a sliver of a sliver of the business allegedly obtained or retained, since when does that send a “very strong message” or a “strong deterrent message?”

Finally, what sort of “very strong message” or “strong deterrent message” is sent when, on the same day a company settles a case for engaging in a bribery scheme “unprecedented in scale and geographic scope” the company also announces that it will be allowed to keep its coveted “responsible contractor” status with the U.S. government. It is further difficult to see the deterrence achieved by the Siemens enforcement action when, in the year since resolution, various U.S. government agencies, including the DOJ, continue to do substantial amounts of business with Siemens and its affiliate companies (see here for a prior post on this subject).

Far from sending a “very strong message” or a “strong deterrent message,” the Siemens enforcement action sends the message that corporate bribery, even if caught, can still result in a net positive.

Benchmarking FCPA Compliance

The Organization for Economic Co-Operation and Development (“OECD”) recently released (see here) “the most comprehensive guidance ever provided to companies and business organizations by an international organization” on internal controls, ethics and compliance programs to combat bribery.

Mark Mendelsohn, the DOJ’s current FCPA “top cop” was recently quoted (see here) as saying that the new OECD guidance has the “endorsement of the U.S. government.”

Thus, those subject to the FCPA would be wise to take notice.

The OECD guidance, “Good Practice Guidance on Internal Controls, Ethics and Compliance” is included as Annex II in the “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (see here). The guidance is “intended to serve as non-legally binding guidance to companies in establishing effective internal controls, ethics, and compliance programs or measures for preventing and detecting foreign bribery.”

Substantively, the new OECD guidance is similar to the effective elements of an FCPA compliance program the DOJ frequently includes in its FCPA resolution documents (see here) as well as the elements of an “Effective Compliance and Ethics Program” in the U.S. Sentencing Guidelines (see here).

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While on the topic of the OECD, it has always intrigued me that the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see here), on which numerous anti-corruption laws are based, uses the term “foreign public official” rather than the “foreign official” term used by the FCPA.

Is a “foreign public official” the same as a “foreign official?” In most cases, the answer would seem to be yes. However, is an employee of a state-owned or state-controlled enterprise (often a commercial entity with publicly traded stock and other attributes of a commercial enterprise) a “foreign public official?”

We all know the enforcement agencies’ view – yes such employees are “foreign officials” under the FCPA.

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While still on the topic of the OECD, in light of the BAE bribery, yet no bribery circus (see here for prior posts) it is interesting to review Annex I of the above referenced document titled “Good Practice Guidance on Implementing Specific Articles of the Convention of Combating Bribery of Foreign Public Officials in International Business Transactions.”

Article 5: Enforcement states – “Member countries should be vigilant in ensuring that investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved, in compliance with Article 5 of the OECD Anti Bribery Convention.”

Both the U.S. and U.K. are “member countries.”

Sovereign Wealth Funds and the FCPA

Numerous previous posts have discussed the enforcement agencies’ interpretation of the key “foreign official” element of an FCPA antibribery violation and how that interpretation includes employees (regardless of title or position) of state-owned or state-controlled enterprises (“SOEs”) – even if the SOE has attributes of a purely commercial enterprise such as publicy traded stock. Part of this interpretation includes the notion that all employees of SOE subsidiaries are also “foreign officials” under the FCPA.

This interpretation has never been accepted by a court, yet it remains a central feature of FCPA enforcement.

Two-thirds of 2009 FCPA enforcement actions against business entities involved, in whole or in part, “foreign officials” under this dubious legal interpretation.

The most aggressive application of the enforcement agencies’ “foreign official” interpretation was in the KBR / Halliburton enforcement action (here and here) in which the enforcement agencies alleged that officers and employees of Nigeria LNG Limited (“NLNG”) were “foreign officials” despite the fact that NLNG is owned 51% by a consortium of private multinational oil companies – Shell, Total, and Eni (see here).

In other words, even if an entity is undeniably majority owned by private companies, the enforcement agencies will not retreat from the dubious legal interpretation that employees of that entity are “foreign officials” under the FCPA.

I’ve noted before that this dubious legal interpretation can lead to strange results such as employees of a Delaware company perhaps being Venezuelan “foreign officials” (see here) and an American citizen perhaps being a Dubai “foreign official” (see here).

Strange and unexpected results can also occur when applying the enforcement agencies’ “foreign official” interpretation to so-called sovereign wealth funds (i.e. foreign government owned investment vehicles).

While no FCPA enforcement action has yet involved a sovereign wealth fund, such funds and the investments these funds make in private companies, are clearly on the radar screen of the enforcement agencies as both DOJ and SEC officials have in the past publicly stated that sovereign wealth funds pose FCPA risks because the funds are government owned (see here and here).

The next frontier of the enforcement agencies’ dubious “foreign official” interpretation may thus be application to the investments made by sovereign wealth funds.

Against this backdrop, it is interesting to take a peek inside one of the largest sovereign wealth funds, China Investment Corporation (here), “an investment institution established as a wholly state-owned company under the Company Law of the People’s Republic of China and headquartered in Beijing.”

According to CIC’s recent SEC filing (here), the exact reason for that filing appears unclear (see here), CIC owns equity stakes in more than 60 U.S. corporations including Abbott Labs, Apple, Bank of America, Coca-Cola, Goodyear Tire and Rubber, Metlife, Pfizer, Pulte Homes, Visa, and Wells Fargo.

At present, CIC’s holdings are small, minority stakes. However, if CIC’s holdings grow, would Coca-Cola, Wells Fargo, etc. employees be considered Chinese “foreign officials?” Can it truly be the case that such U.S. citizen employees (regardless of title) are percentage points away from becoming Chinese “foreign officials?”

The rise in sovereign wealth funds, particularly CIC, is not just a U.S. issue, as CIC has acquired substantial stakes in Canadian and Australian companies as well. Does that mean that a Canadian or Australian citizen can be a Chinese “foreign official?”

The above questions are not merely hypotheticals and it seems ridiculous to think that the answers would be “yes” – but that would seem to be the answer if the enforcement agencies’ dubious “foreign official” interpretation were applied in an intellectually honest fashion to the above questions.

With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with SOEs listing public shares on various exchanges and otherwise doing business around the world, there has never been a more critical time for the enforcement agencies to make clear its legal reasoning and support for its dubious legal theory.

Africa Sting – Alvirez Superseding Indictment and Expected Plea – New Charges Relating to the Republic of Georgia

When the Africa Sting indictments were first unsealed, I noted as follows:

“Given the number of individuals indicted, and the motivations for pleading under the Sentencing Guidelines, it would seem inevitable that one or more individuals will soon “flip” and cooperate with the government thereby potentially complicating the defenses of the remaining individuals.”

Christopher Matthew’s at Main Justice reports this evening (see here) that Daniel Alvirez, the President of ALS Technologies, Inc., is expected to plead guilty to charges of conspiracy to violate the FCPA set forth in a superseding indictment and cooperate in the government’s investigation.

The superseding indictment (here) contains two conspiracy charges. The superseding indictment drops the substantive FCPA violations and conspiracy to commit money laundering charges in the original indictment.

The first charge in the superseding indictment is substantively similar to the conspiracy charge and substantive FCPA charges in the original indictment (here) and involves the same core set of facts as in the original indictment, but with more detail. For instance, the superseding indictment specifically lists the names of the Africa Sting defendants and references specific telephone calls and e-mails. The superseding indictment also newly alleges that Alvirez and others were not in Las Vegas merely to attend the Shot Show, but also “for the purpose of attending a meeting between the suppliers” in the deal and the hypothetical “Minister of Defense of Country A.” According to the superseding indictment, at this meeting Alvirez and others “expected to receive a payment at that meeting amounting to 60% of the inflated sales price” of the goods initially sold in the deal.

The second conspiracy charge in the superseding indictment is new and contains facts not yet alleged in this case concerning the Republic of Georgia.

According to the superseding indictment, Alvirez participated in “conversations and meetings with sales agents who Alvirez knew were making corrupt payments to Ministry of Defense officials of the Republic of Georgia (‘Georgia’) in order to assist in obtaining business from the government of Georgia.” The superseding indictment alleges that “Alvirez would facilitate the sale of military and law enforcement equipment to the government of Georgia, with the assistance of corrupt sales agents, knowing that the sales agents would make corrupt payments to Georgian government officials to assist in obtaining and retaining business from the government of Georgia” and that Alvirez accepted “commission payments from the corrupt sales agents for facilitating the corrupt deals with the government of Georgia.”

The Republic of Georgia charge references an “Israeli sales agent” “an executive of a company that supplied ammunition to facilitate the Israeli sales agent’s purchase (“Co-Conspirator 1”) and “Miami sales agent.”

Unlike the original Africa Sting charge, the Republic of Georgia charge does not mention any involvement by FBI agents and/or a sting.

Matthews quotes an individual familiar with the case who says that “Alvirez is a key part of the widespread conspiracy because he introduced many of the defendants to the government’s cooperating witness, Richard Bistrong, who facilitated meetings between the defendants and the undercover FBI agents.” According to this source, “other defendants were likely to work out plea agreements and that the government is using the cases to go after other defense-industry companies” including “corrupt deals in several specific countries, including the Republic of Georgia and Guatemala.”

Clearly this new development complicates the defense of the remaining Africa Sting defendants and foreshadows a much larger government investigation seemingly not involving the entrapment defense at issue in the original charges.

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