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FCPA Goes Main Street

Growing up in a village of 1,054 in central Wisconsin, I was not exposed to oil and gas companies, defense contractors, or other companies that tend to have a high FCPA risk profile.

Yet one person I did have contact with on a near daily basis, because she lived around the corner, was the “Avon Lady.”

Thus, a bit of my youthful innocence was taken away upon learning last week that Avon Products Inc. (here) of all companies “suspended four executives amid an internal investigation into alleged bribery that began with the company’s China operation” and “now involves a dozen or more countries” according to the Wall Street Journal. According to the WSJ, the executives suspended include the president, chief financial officer and top government affairs executive of Avon’s China unit as well as a senior executive in New York who was Avon’s head of internal audit until the middle of last year.

According to the WSJ, Avon’s chief exectuive, Andrea Jung is a “corporate celebrity” in China and she has met frequently with “senior government officials.”

The conduct at issue involves alleged “purchase of trips to France, New York, Canada, and Hawaii for Chinese government officials with ties to Avon’s business.” However, according to the WSJ, “the scope of the investigation has since widened to regions including Latin America, where the company garners the bulk of its sales and profits.”

According to the WSJ, what sparked the investigation was “an employee who wrote a letter to Ms. Jung alleging improper spending related to travel with Chinese government officials.”

Here is what the company had to say in its 2009 Annual Report (filed in March 2010):

“As previously reported, we have engaged outside counsel to conduct an internal investigation and compliance reviews focused on compliance with the FCPA and related U.S. and foreign laws in China and additional countries. The internal investigation and compliance reviews, which are being conducted under the oversight of our Audit Committee, began in June 2008. We voluntarily contacted the United States Securities and Exchange Commission and the United States Department of Justice to advise both agencies of our internal investigation and compliance reviews and we are, as we have done from the beginning of the internal investigation, continuing to cooperate with both agencies and have signed tolling agreements with them.

The internal investigation and compliance reviews, which started in China, are focused on reviewing certain expenses and books and records processes, including, but not limited to, travel, entertainment, gifts, and payments to third-party agents and others, in connection with our business dealings, directly or indirectly,
with foreign governments and their employees. The internal investigation and compliance reviews of these matters are ongoing. At this point we are unable to predict the duration, scope or results of the internal investigation and compliance reviews.”

Based on information that is publicly available, this potential FCPA enforcement action fits the mold of Lucent Technologies and UTStarcom (here), in that it appears focused on excessive travel and entertainment benefits to Chinese “foreign officials.”

However, looking to the prior “on-point” Lucent and UTStarcom enforcement actions may not provide much useful guidance. But you probably already knew that, this is FCPA enforcement after all, where predictabilty and transparency are not distinguishing features.

If ever two FCPA enforcement actions were carbon-copies of each other, it would be the December 2007 enforcement action against Lucent and the December 2009 enforcement action against UTStarcom (“UTS”) Both enforcement actions involved telecommunications companies, both enforcement actions principally concerned business conduct in China, both enforcement actions involved payment of excessive travel and entertainment expenses, and both enforcement actions were resolved through a DOJ NPA and an SEC settled civil complaint and consent decree. Despite these similarities the end results were significantly different.

UTS settled its matter by agreeing to pay $3 million in total fines and penalties for FCPA antibribery, books and records and internal control violations. However, Lucent settled its matter by agreeing to pay $2.5 million in total fines and penalties for merely FCPA books and records and internal controls violations – in other words no antibribery violations. This despite the fact that, per the government’s statement of facts and allegations, Lucent sponsored more trips than UTS (315 compared to 225) and spent more money on the problematic trips than UTS ($10 million compared to $7 million) to influence more foreign officials in the hopes of winning billion dollar and multi-million contracts. Also relevant is that UTS was charged with antibribery violations and paid a higher combined fine/penalty amount compared to Lucent (based on less severe allegations) despite the fact that UTS, per the DOJ’s release, voluntarily disclosed the conduct at issue – a factor noticeably absent in the DOJ’s Lucent release.

Quiz Time Answer

In a prior post (here), I noted that in 2009 there were three FCPA trials – Frederic Bourke, William Jefferson, and Gerald and Patricia Green.

I then posted the question – what is the common thread in these three FCPA enforcement actions – a fact which speaks to the great difficulty individual FCPA defendants generally have in mounting a legal defense?

Before the answer, the background.

Individual FCPA defendants tend to work for companies. Under respondeat superior theories of liability, the company is going to have a very difficult time “distancing” itself from its employees conduct.

Thus, all corporate FCPA enforcement actions tend to be resolved through a non-prosecution agreement, a deferred prosecution agreement, or a plea. Entering into one of these resolution vehicles is often easier, more cost efficient, and more certain than actually mounting a legal defense based on the FCPA’s statutory elements. Further, because these resolution vehicles are subject to little or no judicial scrutiny and are entered into the context of the DOJ possessing certain “carrots” and “sticks” they do not necessarily reflect the triumph of one party’s legal position over the other.

While these resolution vehicles may indeed avert “another Arthur Anderson” here is the problem.

A key feature of each resolution vehicle is a statement along the following lines:

“[company] admits, accepts, and acknowledges responsibility for the conduct set forth in [the statement of facts] and agrees not to make any public statement contradicting [the statement of facts]” (see UTStarcom NPA here);

“[company] admits, accepts and acknowledges that it is responsible for the acts of its officers, employees and agents as set forth in the Statement of Facts […] and that the facts described […] are true and accurate […] and that should the DOJ initiate prosecution that is deferred by this agreement [company] agrees that it will neither contest the admissibility of, nor contradict, in any such proceeding, the Statement of Facts” (see AGA Medical DPA here); or

“Defendant admits,agrees and stipulates that the factual allegations set forth in the Statement of Facts […] are true and correct, that it is responsible for the acts of its former officers and employees described in the Statement of Facts, and that the Statement of Facts accurately reflects CCI’s criminal conduct” (see Control Components Inc. Plea Agreement here).

So what can you do if you are the targeted employee of such a company?

More likely than not, your employee has already terminated you (even before all the facts may be known) to demonstrate to the DOJ that it is implementing “prompt remedial actions” – a factor DOJ will consider when making its charging decision (see here).

Then, because of the resolution vehicle your employer entered into to make the DOJ go away, you are stuck with your employer admitting and accepting responsibility for your misconduct, even though there has been no finding that your conduct was even misconduct.

Against this backdrop, it is no surprise that nearly all FCPA individual defendants plead. What choice do they really have?

So that brings us back to the quiz answer.

Perhaps it was pure coincidence, perhaps not, but the three individual FCPA trials all occurred in the context of there being no parallel NPA, DPA or plea with a corporate entity.

Africa Sting – Superseding Indictment, Additional Guilty Plea Expected

During a February hearing, Judge Richard Leon, the judge assigned to the Africa Sting cases, reportedly said he had “zero sense that there was an omnibus grand conspiracy” alleged in the 16 separate indictments charging 22 individuals with, among other things, conspiracy to violate the FCPA and substantive FCPA violations (see here). Judge Leon also reportedly told the DOJ that “what you think is so transparent is not” and he urged the DOJ to “take a step back” given that the DOJ may be so “close to trees that it can’t see the forest.” (see here).

The DOJ presumably took a step back, went back to the grand jury, and the grand jury returned a superseding indictment (see here) charging, among other things, all 22 individual defendants in one big conspiracy to violate the FCPA.

The superseding indictment, unlike the previously filed superseding indictment against Daniel Alvirez (see here), does not add much in terms of substance, although it does contain greater detail regarding certain e-mails, meetings, and telephone calls relevant to the conduct at issue compared to the original indictments. Further, this allegation in the superseding indictment was not apparent from the original indictments – “the defendants would agree that the products they would supply in connection with Phase One [of the deal] would be consolidated for shipment to Country A.”

Judge Leon previously indicated that he would not try 22 individuals together in one case. In response, the DOJ has proposed a “reasonable division” of the defendants into four groups. (See here and here for more).

Also, Christopher Matthews of Main Justice, who attended today’s court hearing, is reporting (here) that another defendant, Jonathan Spiller, is in plea agreement talks with the DOJ and is likely to plead guilty. Matthews reports that neither Spiller, nor his counsel, were present at today’s hearing.

BHP Billiton Discloses

In a statement today (see here), BHP Billiton, announced:

“Following requests for information from the U.S. Securities and Exchange Commission as a part of an investigation relating primarily to certain terminated minerals exploration projects, the Company has disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anti-corruption laws involving interactions with government officials. Accordingly, the Company is cooperating with the relevant authorities including conducting an internal investigation, which is continuing. It is not possible at this time to predict the scope or duration of the investigation or its likely outcome.”

According to the Wall Street Journal:

“The company said it was first contacted about the projects by the SEC last August. It declined to identify the projects other than to say they were small and had ended for “commercial grounds” prior to the SEC’s inquiry. It said it has hired Davis Polk & Wardwell LLP to assist with its internal investigation.”

BHP Billiton, a resource extraction company based in Australia and the United Kingdom, has ADR shares traded on the New York Stock Exchange.

Two-Tiered Justice?

Certain corporations (acting through employees and agents) in certain industries, most often selling certain things, to certain customers can seemingly violate the FCPA’s anti-bribery provisions with very little consequence. In fact, with increasingly frequency, such companies are not even charged with FCPA antibribery violations and/or may not even have to plead guilty to anything. See here for the recent Daimler, here for the recent BAE, and here for the (somewhat) recent Siemens “bribery, yet no bribery” enforcement actions. Sure these companies coughed up hundreds of millions of dollars, in some cases offered up a few subsidiaries to take the fall, but yet were allowed to escape the full legal consequences of their action despite DOJ and SEC allegations that these companies paid hundreds of millions of dollars in bribes to obtain or retain hundreds of millions, and in some cases billions, of dollars of business. The deterrent message in these cases is so strong that the U.S. government continues to do business with these companies – see here for the recent $28 million dollar contract between the U.S. government and a BAE business unit – see here for a general overview of Siemens post-bribery scandal U.S. government contracts.

Charles Paul Edward Jumet of Fluvanna County, Virginia will probably not be getting U.S. government contracts in the near future.

In fact, he probably will not be doing much of anything (other than sitting around) in the near future.

Why?

Because yesterday he was sentenced to approximately 7.25 years in federal prison (see here for the DOJ release).

His crime?

Conspiring to violate the same law that Daimler, BAE, Siemens, its employees, and several other corporations, apparently are immune from violating … the FCPA’s anti-bribery provisions.

Surely, Jumet’s conduct was more egregious than that of Daimler, BAE, Siemens, and others?

Well, not exactly.

Not to make light of his crime, but according to the DOJ, the total amount that Jumet and others paid to Panamanian government officials to receive a lighthouse and buoy contract was approximately $200,000 – an amount that pales in comparison to the hundreds of millions of bribe payments in the above referenced enforcement actions.

Even though Jumet’s sentence is equal part FCPA and equal part making false statements to federal agents, it is not surprisingly being termed the “longest prison term imposed against an individual for violating the FCPA.”

The DOJ release contains the usual get tough language (i.e. “foreign corruption carries with it very serious penalties,” “bribery isn’t just a cost of doing business overseas [… but] a serious crime that the U.S. government is intent on enforcing.”

Serious penalties and intent on enforcing against whom is the question.

The issue is not whether the DOJ was too lenient in the Daimler, BAE, and Siemens case or whether the DOJ was too harsh in the Jumet case.

Rather, the issue is that there appears to be a two-tiered justice system when it comes to FCPA enforcement.

As noted in the DOJ’s release, Jumet’s co-defendant John Warwick, who also pleaded guilty, is scheduled to be sentenced by the same judge on May 14th. (See here for prior posts on this entire enforcement action).

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