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Coming Soon … Panalpina

No, it’s not another Hollywood FCPA movie like Syriana (see here), although it sort of sounds like it.

Rather it is the Panalpina enforcement action. And its coming soon. According to Panalpina, a Swiss company and one of the world’s leading suppliers of forwarding and logistics services, “last week” it “commenced settlement discussions” with the DOJ concerning its FCPA exposure and the matter is “coming to a close.” (see here).

Not familar with the Panalpina matter?

In February 2007, DOJ announced (see here) the guilty pleas of three Vetco International Ltd. subsidiaries for violating the FCPA. In the plea documents, the Vetco entities acknowledged making improper payments to employees of the Nigerian Customs Services “through a major international freight fowarding and customs clearance company.”

In July 2007, Panalpina announced (see here) that the above guilty plea triggered a number of events. First, Panalpina’s U.S. subsidiary was requested to produce documents relating to the services it provided to the Vetco entities in Nigeria. Second, and more broadly, Panalpina announced that “several other customers have announced to U.S. authorities the review of their practices related to Nigerian importation procedures.” Further, the company noted that “U.S. authorities have extended the scope of their review to Panalpina’s documents related to services into Nigeria, Kazakhstan and Saudi Arabia for a limited number of customers.”

Soon thereafter, Panalpina “suspended part of its service offering in Nigeria including its temporary importation services for oil and gas customers.” (see here). Later, Panalpina stopped all domestic services in Nigeria. (see here).

When announced, the Panalpina FCPA enforcement action is likely to be broad in scope and potentially entangle other companies as well.

Some Data to Chew On

It’s been a while (see here) since I passed along what seems like a constant stream of FCPA survey results.

This morning in my inbox were the results of the Dow Jones State of Anti-Corruption Compliance Survey which I pass along (here).

The survey included responses from 182 company executives worldwide and among the more interesting survey results is that “51% of companies delayed key business plans such as new business partnerships and entry into new or developing markets and another 14% abandoned them completely because of legal questions arising from unclear anti-corruption regulations.”

The managing director of Risk & Compliance at Dow Jones & Company noted that the “findings appear to indicate improvements should be made” including that “regulators must provide clearer guidance to help companies better understand and comply with current laws.”

Today is U.N. International Anti-Corruption Day.

In observance of this day, the U.S. government agencies which enforce the FCPA (the Department of Justice and the Securities and Exchange Commission) should commit to providing those subject to the FCPA clear guidance, reasoned rationale and legal support for certain of their FCPA prosecution theories. As reflected by the Dow Jones survey results, such clarity and transparency is greatly needed.

Indicting a “Foreign Official”

Yesterday, the DOJ announced (see here) the unsealing of an indictment (see here) against Joel Esquenazi, Carlos Rodriguez, and Marguerite Grandison which charges (among other things) conspiracy to violate the FCPA and substantive FCPA violations for an alleged scheme to bribe two former employees of Haiti Teleco, the alleged “state-owned national telecommunications company.”

Esquenazi and Rodriguez are former executives of a privately owned, Florida-based telecommunications company and Grandison was the President of Telecom Consulting Services Corp., a Florida based company which served as an intermediary.

The unsealed indictment is the latest chapter in this matter; in May 2009, the DOJ announced (see here) the guilty pleas of Juan Diaz and Antonio Perez in connection with the same scheme.

This matter is also yet another example of an FCPA enforcement action in which the “foreign official” is an employee of an alleged state-owned or state-controlled entity.

That, however, is not why this enforcement action is noteworthy.

It is noteworthy because DOJ also indicted Robert Antoine and Jean Rene Duperval – the alleged “foreign officials.” According to the indictment, Antoine and Duperval both served as the “Director of International Relations of Haiti Teleco” and were responsible for negotiating contracts with international telecommunications companies on behalf of Haiti Teleco.

Of course, the charges were not FCPA charges, because the FCPA only covers “bribe-payers” not “bribe-takers” (see here, here, for prior posts on this subject).

Rather the charges against Antoine and Duperval were money laundering conspiracy and/or substantive money laundering charges.

According to the DOJ release, Antoine is from “Miami and Haiti” and Duperval is from “Miramar, Fla. and Haiti.” Further, according to the indictment, both individuals had bank accounts in the U.S. and these accounts were used in connection with the bribery scheme. (I wonder if Washington Mutual, Wachovia, or Miami Federal Credit Union were aware that Haitian “foreign officials” were among its customers!)

To my knowledge this is the first time “foreign officials” have been specifically charged as defendants in connection with an FCPA enforcement action. This indictment of “foreign officials” comes on the heels of AG Holder’s recent speech (see here) in which he stated that the U.S. government was committed to recovering funds obtained by “foreign officials” through bribery.

Dubai “Foreign Officials”?

Financial news the last two weeks or so has been dominated by news that the Dubai government apparently will not back the debt of Dubai World, Dubai’s wholly-owned investment vehicle.

Because I tend to view news with “FCPA goggles on,” the Dubai story got me thinking again about a critical FCPA topic and that is the DOJ/SEC’s untested and unchallenged theory that all employees (regardless of rank or title) of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA. See here for my prior posts on this subject. This theory has been applied not just to business entities wholly or majority owned by a foreign government, but also minority owned entities as well (see the KBR / Halliburton matters involving Nigeria).

So just who are Dubai “foreign officials”?

Dubai World owns a host of real estate, leisure and financial service assets both inside and outside of Dubai. In fact “the sun never sets on Dubai World” (at least that is what it says on its website see here) and its investment portfolio extends across 100 different cities in the world.

Many of Dubai World’s entities bear all the resemblences of a private sector business, such as public stock offerings, loan agreements from private banks, etc.

Are such entities, which in theory are suppose to advance the public sector goal of their government “owners or controllers,” state-owned or state-controlled entities even though another purpose of these entities is to maximize profit for the benefit of private investors?

Consider also that “westerners” run some of Dubai World’s main holdings. Under the Dubai World umbrella is Nakheel (“the world’s largest privately held real estate company”) (see here). The CEO of Nakheel is an Australian (see here). Same with Istithmar World (an investment house 100% owned by Dubai World, which is in turn wholly owned by the Government of Dubai) (see here). The CEO of Istithmar is an American (see here).

Would DOJ/SEC consider an Australian and an American to be Dubai “foreign officials” under the FCPA simply because they work for Dubai World?

If DOJ/SEC prosecution theories in other FCPA enforcement actions were to be consistently applied, the answer (it seems) would have to be yes.

This result would seem to be at odds with common sense and, more importantly, the intent of Congress in enacting the FCPA (as reflected in the FCPA’s extensive legislative history).

The Dubai World example is not unique, there are countless other examples that could also be discussed.

With foreign government owned sovereign wealth funds making investments around the world (including in U.S. companies) and with alleged “state-owned or state-controlled” entities listing public shares on various exchanges and otherwise doing business around the world, there has never been a more opportune (and critical) time for the government to make clear its reasoning and support for its prosecuting theory on this issue.

This is not merely a side issue.

Most FCPA enforcement actions in recent years (i.e. the time period during which FCPA enforcement has escalated) involve not core government officials, but rather “foreign officials” only under this untested and unchallenged theory. Case in point, the FCPA enforcement action announced late this afternoon (see here) involving employees of Haiti’s alleged state-owned national telecommunications company – a matter I will post on shortly.

Did An FCPA Enforcement Action Contribute to a Foreign Coup?

Law firms crank out FCPA news releases, client alerts, etc. all the time to inform clients and potential clients about FCPA risks or the who, what, and where of a recent enforcement action ending with a few compliance lessons.

These pieces are informative, but rarely do they raise provocative questions.

That is, until Gregory Paw’s (Pepper Hamilton LLP) recent piece (see here) in which he asks whether the Latin Node FCPA enforcement action in the U.S. contributed to the June 2009 coup of Honduran president Manuel Zelaya.

By way of background, in April 2009, DOJ announced (see here) that Latin Node, Inc. (a privately-held telecommunication services company headquartered in Miami) pled guilty to violating the FCPA’s anti-bribery provisions in connection with improper payments made to officials in Honduras and Yemen in order to obtain and retain business. The criminal information (see here) details Latin Node’s efforts to obtain and retain business with Hondutel (the Honduran government-owned telecommunications company) and charges that despite recognized “financial weaknesses” in Latin Node’s proposal, Hondutel ultimately selected Latin Node for the agreement because of various improper payments Latin Node made or authorized to various Honduran “foreign officials.”

*****

Hungry for more?

Yesterday, Magyar Telekom, the leading Hungarian telecommunications service provider with shares traded on a U.S. exchange, issued what is perhaps the longest, most detailed press release ever about a potential FCPA issue (see here).

The potential issue was first voluntarily disclosed in February 2006 (see here – p. 14) and yesterday the company announced that it’s Audit Committee issued the final report of FCPA’s counsel investigation.

I will leave it for you to think about potential application of the issues/questions I raised earlier this week in this post.

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