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Thinking About The FCPA’s Facilitating Payment Exception?

The Foreign Corrupt Practices Act specifically states that its anti-bribery provisions “shall not apply to any facilitating or expediting payment to a foreign official […] the purpose of which is to expedite or to secure the performance of a routine governmental action by a foreign official …”.

The term “routine governmental action” means an action “which is ordinarily and commonly performed by a foreign official in,” among other things, “obtaining permits, licenses, or other official documents to qualify a person to do business in a foreign country.”

The 1988 Conference Report (here), which ironed out the differences between House and Senate bills creating the exception, states:

“The Conferees wish to make clear that ‘ordinarily and commonly performed’ actions with respect to permits or licenses would not include those governmental approvals involving an exercise of discretion by a government official where the actions are the functional equivalent of obtaining or retaining business for or with, or directing business to, any person.”

This is what the FCPA says and the DOJ acknowledges, at least on paper (see here), that “there is an exception to the anti-bribery prohibition for payments to facilitate or expedite performance of a ‘routine governmental action.'”

However, corporations tend to be risk averse.

Thus, against the backdrop of enforcement agencies seemingly incapable of recognizing that the FCPA does indeed contain a “facilitating payment” exception, a risk averse corporation may just say the heck with it, why risk making a payment exempted from the FCPA’s anti-bribery provisions if enforcement agencies are likely to nevertheless conclude that the payment violates the FCPA.

It is against this backdrop that the recent SEC filing (see here) of Transocean, the world’s largest offshore drilling contractor, caught my eye.

It states, in relevant part, as follows:

“We are currently involved in several investigations by the DOJ and the SEC involving our operations and whether or not we or any of our
employees have violated the FCPA.”

“Our current investigations include a review of amounts paid to and by customs brokers in connection with the obtaining of permits for the temporary importation of vessels and the clearance of goods and materials. These permits and clearances are necessary in order for us to operate our vessels in certain jurisdictions. There is a risk that we may not be able to obtain import permits or renew temporary importation permits in West African countries, including Nigeria, in a manner that complies with the FCPA. As a result, we may not have the means to renew temporary importation permits for rigs located in the relevant jurisdictions as they expire or to send goods and equipment into those jurisdictions, in which event we may be forced to terminate the pending drilling contracts and relocate the rigs or leave the rigs in these countries and risk permanent importation issues, either of which could have an adverse effect on our financial results. In addition, termination of drilling contracts could result in damage claims by customers.”

Based on the above disclosure, it is difficult to analyze whether Transocean is legitimately entitled to the permits and clearances it is seeking.

Let’s assume this is the case, but that a low-level government bureaucrat with a hand out is demanding a payment to do what he otherwise has a legal obligation to do – and that is grant licenses and permits pursuant to the applicable governing rules and regulations.

If this is the case, it is unfortunate that a company feels no other option than to breach contracts and materially restructure its operations because the enforcement agencies are seemingly incapable of recognizing that Congress specifically authorized companies subject to the FCPA to make facilitating payments such as those that perhaps Transocean would have to make in order to secure the permits and clearances at issue.

While some find facilitating payments to be a corrupt payment under a different name (see here) and while the soon-to-be implemented U.K. Bribery Act contains no such exemption, the fact remains that the FCPA contains an express exception for facilitating payments and it is this statute that the enforcement agencies are obligated to enforce.

FBI Awards BAE $40 Million Contract

Yesterday’s post (here) discussed the shortcomings of HR 5366 (the Overseas Contractor Reform Act). As highlighted in that post, HR 5366 represents impotent legislation because it exhibits little understanding of how conduct violating the FCPA is typically resolved.

One matter discussed in the post was the February 2010 enforcement action against BAE in which the DOJ alleged, among other things, that the company “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. (See here). The bribery was so extensive per the DOJ’s allegations, that just one BAE employee submitted $5 million in invoices for benefits to the official during a one year period.

Yet, these bribery, but no bribery allegations (see here) did not result in any FCPA anti-bribery charges against BAE – the largest defense contractor in Europe and the fifth largest in the U.S. as measured by sales.

Thus, even if HR 5366 was enacted prior to February 2010, it would not have prevented BAE from securing federal government contracts because the DOJ did not charge BAE with any FCPA anti-bribery offenses.

How many federal government contracts has BAE secured since the DOJ alleged that the company “provided substantial benefits” to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract?

Judging just by BAE’s press releases (see here) many – so many that separate links would be distracting.

None stand out more than the $40 million contract BAE was recently awarded by the FBI “to provide critical information security safeguards, including certification and accreditation, to ensure the confidentiality and privacy of FBI computer networks in the United States and around the world.” (see here).

BAE’s conduct giving rise to the February 2010 enforcement action, in which BAE agreed to pay a $400 million criminal fine, “was investigated by FBI special agents who are part of the Washington Field Office’s dedicated FCPA squad.” (See here).

In connection with the BAE resolution, the FBI issued its own press release (see here).

In the release, Shawn Henry, Assistant Director in Charge of the FBI’s Washington Field Office stated: “competition is one of the foundations of our economic system,” and “corporations and individuals who conspire to defeat this basic economic principle not only cause harm but ultimately shake the public’s confidence in the entire system.”

I agree.

The public’s confidence in the entire system is shaken, but not for the reason Henry articulated.

House Passes Impotent Debarment Bill

The façade of Foreign Corrupt Practices Act (FCPA) enforcement is so deep that the House of Representatives recently passed legislation that will fail to accomplish its stated purpose – to debar corporations committing FCPA violations from federal government contracts.

On September 15th, the House, by a unanimous 409-0 vote, passed H.R. 5366 (“Overseas Contractor Reform Act”) (see here). The Act generally provides that a corporation “found to be in violation of the [FCPA’s anti-bribery provisions] shall be proposed for debarment from any contract or grant awarded by the Federal Government within 30 days after a final judgment of such a violation.”

The Act’s key trigger term for debarment – “found to be in violation” of the FCPA’s anti-bribery provisions – is a trigger that is not reached in nearly every FCPA enforcement action because of the façade of FCPA enforcement. Thus, the Act represents impotent legislation.

Nearly every FCPA enforcement action against a corporation is resolved through a non-prosecution agreement (“NPA”) or a deferred prosecution agreement (“DPA”). In an NPA, such as the recent NPAs against UTStarcom, Inc. (here) and Helmerich & Payne, Inc. (here), criminal charges are not filed in court. Rather, the “charges” are resolved via a private letter agreement that is subject to no judicial scrutiny. In a DPA, such as the recent DPAs against Technip S.A. (here) and Snamprogretti Netherlands BV (here), criminal charges are technically filed in court, but those charges are never prosecuted if the company adheres to compliance undertakings set forth in the DPA. Because of the prevalence of NPAs or DPAs in the FCPA context, a corporation entering into such an agreement with the Department of Justice (“DOJ”) is never “found to be in violation” of the FCPA’s anti-bribery provisions.

The Act will be even more impotent given the frequency by which the DOJ resolves clear instances of corporate bribery without charging FCPA anti-bribery violations. Three recent examples highlight this troubling feature of the façade of FCPA enforcement. In March 2010, the DOJ alleged that Daimler AG (“Daimler”) “engaged in a long-standing practice of paying bribes” to foreign officials in at least 22 countries. Despite these allegations, the DOJ resolved the matter against Daimler without charging FCPA anti-bribery violations (see here). In February 2010, the DOJ alleged that BAE Systems Plc (“BAE”) “provided substantial benefits,” including through U.S. payment mechanisms, to a Saudi public official “who was in a position of influence regarding” a lucrative fighter jet contract. Despite these allegations, the DOJ resolved the matter against BAE without charging FCPA anti-bribery violations (see here). In December 2008, the DOJ alleged that Siemens AG engaged in pattern of bribery “unprecedented in scale and geographic reach” and that the “corruption involved more than $1.4 billion in bribes to government officials in Asia, Africa, Europe, the Middle East and the Americas.” Despite these allegations, the DOJ resolved the matter against Siemens without charging FCPA anti-bribery violations (see here).

Numerous other examples could also be cited and because of how FCPA violations are typically resolved by the DOJ, the Act’s debarment provisions will only be triggered in the rarest of instances.

Yet this salient fact was presumably not understood by Representatives who unanimously voted for the Act and championed it as common sense, effective legislation. Who can blame the Representatives for not understanding the full effects of the façade of FCPA enforcement? Most Representatives probably assumed that the DOJ prosecutes companies that commit FCPA anti-bribery violations with FCPA anti-bribery charges in a transparent manner subject to judicial oversight and scrutiny. Yet in this current façade of FCPA enforcement era nothing can be taken for granted.

Perhaps those who championed the Act were aware of its impotence yet voted for it because the costs of voting against it were too great a few months before an election. Representative Peter Welch (D-VT) sponsored the Act in response to an occurrence that is merely tangential to the FCPA – the conduct of Xe Services (formerly known as Blackwater Worldwide) following the 2007 shooting in Nissour Square Iraq that left 17 dead. (See here, here and here). It is clear from the floor statements of various Representatives (see here) that Blackwater’s conduct, and a desire to rein in military contractors, motivated passage of the Act.

Whatever the motivations for unanimous House passage of the Act, because of the façade of FCPA enforcement, the Act is impotent in addressing the conduct it seeks to address. The Act now moves to the Senate Committee on Homeland Security and Governmental Affairs. If the Senate is serious about imposing a debarment penalty on those who commit FCPA anti-bribery violations, a penalty deserving of serious consideration to best effectuate deterrence, the Senate first needs to understand the façade of FCPA enforcement and draft a bill that can actually accomplish its stated purpose.

Friday Roundup

In one way, shape or form, whistleblowing is the theme of this week’s Friday Roundup.

SEC Timeline on Various Dodd-Frank Provisions

The SEC has a lot on its plate in implementing various rules pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

Included on that list is the new whistleblower provisions established by Dodd-Frank (see here for a prior post).

Interested in following the SEC’s progress?

If so, here are the important dates (or months as the case may be) to keep in mind.

October – December 2010

SEC plans to “propose rules to implement a Whistleblower Incentives & Protection Program,” “report to Congress on Whistleblower Program,” and “Establish Whistleblower Office.”

January – March 2011

SEC plans to “adopt rules to implement a Whistleblower Incentives & Protection Program.”

Another Dodd-Frank provision many in the FCPA universe are following is Section 1504 – “Disclosure of Payments by Resource Extraction Issuers” (see here for a prior post).

Here is the planned timeline for that provision.

October – December 2010

SEC to “propose rules regarding disclosure by resource extraction issuers”

January – March 2011

SEC to “adopt rules regarding disclosure by resource extraction issuers”

Khuzami on the SEC’s Whistleblower Program

Earlier this week Robert Khuzami (Director, Division of Enforcement – SEC) had this to say about the SEC’s whistleblower program in testimony before the Senate:

“The Division currently is in the process of drafting the proposed rules applicable to the Whistleblower Program, including rules setting forth the procedures for whistleblowers to submit original information to the Commission and for the Commission to make awards to whistleblowers. We also have begun the process of staffing the Commission’s Whistleblower Office. As we create the Program and the Office, we will be mindful of competing interests, including: (i) a desire to encourage whistleblowers to provide the Commission with high-quality tips regarding potential violations of the federal securities laws, and (ii) a need to avoid creating undue burdens on the Commission and the constituencies that we protect and regulate that could result from groundless whistleblower submissions.”

Furmanite Corporation

Kendall Law Group is one of the new breed of FCPA “plaintiff” firms that have sprung up in recent months. The sequence is usually predictable. A company discloses an FCPA issue or inquiry. Within days the firm, or one of the other firms that is also seeking to capitalize on what, at times, seems like an FCPA feeding frenzy, issues a press release such as this one. These releases have become so common, that it is easy to gloss over them.

However, Kendall Law Group’s September 16th release (here) regarding Furmanite Corporation was a bit different. Here is what it said, in relevant part:

“The Kendall Law Group was recently notified by a confidential source of potential violations of the Foreign Corrupt Practices Act (FCPA) by Furmanite. The company was allegedly made aware of potential violations of the FCPA as early as 2008. The firm’s source indicates that cash gifts were given to representatives of state-owned enterprises to maintain and develop customer relations. Furmanite has two subsidiaries in China, Furmanite Mechanical Technology Services Co. Ltd. which operates out of Shanghai and Furmanite East Asia Ltd. which is based in Hong Kong. Furmanite has entered into business relationships with state-owned enterprises in China, such as the recently announced delivery of equipment to China HuanQiu Contracting and Engineering Company, a branch of the China National Petroleum Corporation, China’s largest integrated oil and gas company.”

Is Kendall Law Group representing a whistleblower in connection with Dodd-Frank’s new whistleblower provisions? Pursuant to the new whistleblower provisions, a whistleblower may be represented by counsel.

Furmanite, “the worldwide innovator and leader in comprehensive on-site and on-line plant and pipeline maintenance” according to its website (here), is an issuer on the New York Stock Exchange.

To my knowledge Furmanite has not issued a release / disclosure about this issue.

*****

A good weekend to all.

A Noisy Exit

Robert Bruce, a former Director and Chair of the Audit Committee of China North East Petroleum, is not the only individual to have recently made a noisy exit (see here for the prior post at the FCPA Blog).

Peter Barker-Homek was the Chief Executive Officer of Abu Dhabi National Energy Company PJSC – also known as TAQA (see here) and TAQA New World Inc. (see here).

In an explosive complaint (see here) recently filed in U.S. District Court for the Eastern District of Michigan (Southern Division), Barker (a former pilot in the U.S. Marine Corps and Gulf War veteran as well as State Department official) alleges as follows:

“When Barker tried to put a stop to the kickbacks, bribery, accounting fraud and corruption at TAQA, the Defendants [TAQA, TAQA New World, […] (a NY licensed attorney and chief attorney for and General Counsel of TAQA] fired him. Instead of abiding by the terms of Barker’s employment contract, they summoned him to a meeting and presented him with a so-called ‘severance agreement,’ a one-sided agreement in which Barker purportedly agreed to step down as CEO and forfeit millions of dollars owed to him. Defendant […], a New York-licensed attorney, chief attorney for and General Counsel of TAQA, demanded that he sign the ‘severance agreement’ on the spot, comply with its provisions, or be arrested and sent to prison. Worried for his life and the well-being of his family, Barker signed the ‘severance agreement.’ Thereafter, he was harassed and lived in fear of a ‘knock’ on the door by police, received mysterious phone calls and was followed, until finally he and his family escaped to the safety of the United States.”

According to the complaint, 75% of TAQA’s stock is owned by the Abu Dhabi Ruling Family and 25% is owned by investors and is publicly-traded on the Abu Dhabi Stock Exchange. The complaint asserts that TAQA has offices in North America, including in Ann Arbor, Michigan, and that TAQA does business by and through various subsidiaries including TAQA New World Inc., a Delaware corporation based in Ann Arbor.

In terms of the Foreign Corrupt Practices Act, TAQA New World is a “domestic concern.” The complaint also asserts that TAQA “conducts several of its global business functions out of its Ann Arbor office including: human resources; accounting; tax management; and regulatory affairs.”

While Barker’s complaint does not appear to directly implicate the FCPA, given his general allegations, this case may draw DOJ interest.

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