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H-P Under Scrutiny

A few weeks ago the U.S. wrapped up an FCPA enforcement action against a German company for improper conduct in, among other places, Russia (see here).

This week, it is German and Russian authorities investigating a U.S. company for improper conduct in Russia.

It’s an ironic world we live in.

Tit for tat or merely a coincidence?

Likely the later.

As widely reported, German and Russian authorities are investigating whether Hewlett-Packard Co. (H-P) executives paid millions of dollars in bribes to win a contract in Russia with … get this … the office of the prosecutor general of the Russian Federation – the office that handles criminal prosecutions in Russia, including corruption cases.

According to “investigation-related documents submitted to a German court and reviewed by the Wall Street Journal,” the payments, approximately $11 million, were reportedly funneled through a “network of shell companies and accounts in places including Britian, Austria, Switzerland, the British Virgin Islands, Belize, New Zealand, Latvia, Lithuania, Delaware and Wyoming.”

According to the Wall Street Journal, “H-P learned details of the probe in December when police in Germany and Switzerland presented search warrants detailing allegations against 10 suspects.”

Media reports indicate that earlier this week Russian investigators raided H-P’s Moscow headquarters in connection with the investigation.

According to the Wall Street Journal, both the DOJ and SEC have joined the probe.

According to the Wall Street Journal, “the investigation was started in 2007 when a tax auditor discovered bank records showing that between 2004 and 2006, the H-P subsidiary paid €22 million into the account of ProSoft Krippner GmbH, a small computer-hardware company in Leipzig” and that “the size of the payment to ProSoft Krippner caught the tax auditor’s attention, and that he flagged the transfer to a special prosecution team in Dresden that handles major corruption cases.” The Wall Street Journal reports that ProSoft Krippner’s Chief Executive, Ralf Krippner, is also a member of the local parliament in the German district of North Saxony.”

According to the WSJ, “an H-P spokeswoman said the company had discussions Thursday with the SEC regarding the German probe ‘and is fully cooperating with U.S. and German authorities on this matter.'”

A U.K. First

History was made in the U.K. today when Robert John Dougall, a former DePuy executive, pleaded guilty to conspiring with other “to make corrupt payments and/or give other inducements” to “medical professionals within the Greek state health care system” contrary to Section 1 of the UK Prevention of Corruption Act of 1906 (see here).

According to the SFO release (here) and media reports (here and here), Dougall, a former Director of Marketing with responsibility for business development in Greece, blew the whistle on others within the company thus becoming the “first ‘co-operating defendant’ in a major SFO corruption investigation.”

According to the SFO release, DePuy made commission payments to a distributor “to induce or reward surgeons to use” DePuy products.

A SFO spokesperson said that Dougall’s seniors “were clearly consenting and driving the [improper] activity” and Dougall reportedly told investigators that he considered the payments “distasteful” but that he didn’t feel like he had any other choice.

Dougall was sentenced to 12 months imprisonment. In sentencing Dougall, the judge rejected a joint suggestion by the SFO and the defense that he should be given a suspended sentence.

According to the SFO, Dougall is cooperating and providing substantial assistance in connection with the ongoing investigation. The case commenced following a referral to the SFO by the DOJ in October 2007.

Even though the charge Dougall pleaded guilty to does not contain a “foreign official” or “foreign public official” element, it is clear that the SFO is taking an expansive view as the recipients in this case were Greek surgeons. This is not surprising given that the SFO has stated its intention to model its enforcement on the DOJ’s enforcement of the FCPA.

In November 2009, Assistant Attorney General Breuer, speaking before a pharma audience (see here), provided an expansive interpretation of the “foreign official” element in the context of the health care industry.

Dougall may be thinking, “what if I worked for BAE” or what if my name was “Count Alfons Mensdorff-Pouilly”?

Why? (see here)

But then again, the “I was speeding just like the rest of traffic” has never been a good legal defense.

Mendelsohn To Paul Weiss

The Wall Street Journal is reporting (see here) that Mark Mendelsohn (DOJ Deputy Chief – Fraud Section responsible for overseeing FCPA prosecutions) is headed to the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP.

According to a source, Mendelsohn “stands to earn $2.5 million annually.” The WSJ notes that this is a significant sum “particularly for a lawyer arriving at firm without a ready list of clients.”

The WSJ notes that “Mr. Mendelsohn has overseen a hot field in prosecution in recent years” and that “it has been up to the Justice Department – and specifically to Mr. Mendelsohn – to interpret the law.”

The WSJ notes that “corporations are likely to be eager for his inside views on how the Justice Department goes about deciding which cases to investigate and prosecute among the many that it comes across every year.”

According to the WSJ, Mendelsohn was courted by several other firms.

Clarifying Comments

When I launched this blog in July 2009, part of my mission was to “explore the more analytical ‘why’ questions increasingly present in this current era of aggressive FCPA enforcement” and to “foster a forum for critical analysis and discussion of the FCPA (and related topics) among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons (see here for the complete mission statement).

From time to time, I am in contact with journalists who are interested in learning more about the FCPA, FCPA enforcement, and the issues explored in this blog.

I enjoy these exchanges, including the public service component of assisting (mostly non-lawyer) journalists better understand the FCPA and FCPA enforcement issues.

It is also gratifying to have one’s ideas and scholarship covered by various outlets.

However, from time to time, one’s ideas and opinions can be taken a bit out of context and that is, I believe, what occurred in the Corporate Crime Reporter’s (“CCR”) recent piece (see here).

Thus, the purpose of this post is to provide important clarifying comments – some of which appear in the more “complete” version of the interview in the print edition of CCR.

The CCR piece suggests that I am “constantly butting heads with FCPA Inc.” I don’t believe this is accurate. I have friends working at law firms who have an FCPA practice and through this blog, I have come to know many other FCPA practitioners, some of whom have accepted my invitation to guest post in this space. Other FCPA practitioners have told me “thanks for the very helpful blog … [it] goes a long way toward knitting together the FCPA and anti-corruption bar.”

In speaking of “FCPA, Inc.” I am speaking of an issue previously covered by other news outlets, including the Washington Post (see here). Among other things, the Post pieces notes that “FCPA business is booming, a welcome growth area for Washington law offices just as work on mergers and securities offerings has begun to wane.” The Post piece note as well that also “sharing in the bonanza [are] accounting firms, forensic computer specialists and a growing army of compliance consultants.” The Post piece concludes with this “… don’t think law firms aren’t playing off those fears by aggressively marketing their services as investigators, risk mitigators and compliance counselors” and the article notes that “the result is [a] sudden flood of labor-intensive legal work for both partners and associates, particularly in the local offices of big international firms.”

To suggest, as the CCR piece does, that my position is that the DOJ’s enforcement of the FCPA “is all a facade” is not true. The author of the CCR piece has a copy of my draft article titled “The Facade of FCPA Enforcement” which clearly states on page 1 that “This article does not argue, or even suggest, that every FCPA enforcement action is unwarranted or that no company or individual has never violated the FCPA. Rather, this article demonstrates that a significant majority of recent FCPA enforcement actions are a façade and argues that addressing the façade and subjecting FCPA enforcement actions to judicial scrutiny is in the public interest and of vital importance to those subject to the FCPA as well as the broader marketplace.” When presenting my paper at Georgetown Law School on March 22nd, I also made these clarifying remarks.

The CCR article discusses my contrarian position regarding Mark Mendelsohn’s defense of the Siemens matter and my follow up “point-counterpoint” exchange with Billy Jacobson that I included on my blog with his written permission (see here and here). What was a respectful exchange and critique has been recast in a way that may leave the appearance that I was questioning the integrity of these individuals. Do I disagree with the legal and policy positions of these current and former DOJ officials – often times yes. Am I accusing them of any actual improper conduct – most assuredly no.

Last week the Wall Street Journal ran a piece titled “SEC Lawyer One Day, Opponent the Next” (see here). Among other things, this article noted that “Iowa Sen. Charles Grassley, a Republican who has criticized the SEC’s revolving door, says the commission could include more-stringent limitations than the law requires in employees’ contacts, but more disclosure would help, too.”

In talking about the undeniable fact that most DOJ FCPA enforcement officials have big law firm FCPA experience and that most leading FCPA practitioners have DOJ or SEC FCPA enforcement experience, I am merely extending the WSJ’s SEC piece to the DOJ in the FCPA context.

I continue to believe, like many others, that such dynamics can raise red flags and have the potential for conflicts of interest. In a similar vein, my December 2009 post titled “Voluntary Disclosures and Role of FCPA Counsel” talks about potential conflicts of interest present in representing corporate clients in an FCPA enforcement investigation or action. (That post bolds the word potential at least 15 times).

Finally, I was clear in my more complete comments to CCR that I was raising issues of potential conflicts of interest and potential red flags. Left out of the CCR web article are my significant clarifying comments that I am not accusing anyone of anything, but rather raising, as others have, significant public policy concerns that, as evidenced by the WSJ article, are being raised and debated at the highest levels of government as well.

Quiz Time

With two weeks left in the semester and final exams thereafter, hypotheticals are dancing in my head.

But this question is no hypothetical.

In 2009, there were three FCPA trials – Frederic Bourke, William Jefferson, and Gerald and Patricia Green.

So here is 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?

Please feel free to comment on this blog or otherwise send me your answer (perhaps there is more than one correct answer).

I am a quick grader, so stay tuned for the answer tomorrow.

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