Top Menu

FCPA … the “Law Version” of Baseball

October is a month for baseball – the playoffs are under way and the World Series is right around the corner. Baseball aficionados are found of their statistics, and with good reason, there are a ton of baseball statistics to digest.

Well, the FCPA is quickly becoming the “law version” of baseball when it comes to statistics. Every few weeks it seems (see here for a prior post) FCPA aficionados have new statistics to digest.

The latest FCPA statistics come courtesy of Fulbright & Jaworski’s 6th Annual Litigation Trends Survey (see here for download).

According to a survey of over 400 corporate counsel in the U.S. and the U.K.:

(1) “the percentage of companies that has engaged outside counsel in the past 12 months to assist with a corruption or bribery investigation (i.e., FCPA and U.K. equivalent) has nearly doubled …” (see p. 37) and;

(2) “the incidence of due diligence for bribery or corruption relating to mergers, acquisitions or other transactions in foreign countries has more than doubled …” (p. 38).

These statistics should come as no surprise to followers of this blog who well know that FCPA compliance is a hot topic given the current aggressive enforcement climate.

Yet, the Fulbright survey (much like the prior Deloitte survey – see here) also shows that very few companies address FCPA risks on a pro-active basis. For instance, even though Fulbright’s survey found that the incidence of FCPA/bribery due diligence in M&A transactions has doubled, the number of companies engaging in such due diligence remains below 20%.

As to the “big picture” issue of whether perceived levels of corruption in a foreign country result in a company doing less business in that country, the survey shows that “only about half as many respondents as last year say their companies, at some point in the past, have decided against doing business in a country due to the perceived degree of local corruption.” (see p. 38). The one exception appears to be in the manufacturing sector “where 39% have made that decision v. 27% last year.”

Potpourri

The SEC recently posted on its website (see here) a draft “Strategic Plan for Fiscal Years 2010-2015” setting forth the Commission’s “mission, vision, values, and strategic goals” for the future.

Part of strategic goal 1 – to “foster and enforce compliance with the federal securities laws” – is a commitment to expand its “coordination efforts with foreign authorities, including […] close cooperation with foreign authorities in investigations relating to […] the Foreign Corrupt Practices Act.” (see pg. 16).

While not FCPA specific, a performance metric the SEC intends to use to gauge its progress of “fostering and enforcing compliance with the federal securities laws” is the percentage of enforcement cases successfully resolved (see pg. 17). The SEC notes that “[i]n general, the SEC strives to successfully resolve as many cases as possible, but, at the same time, aims to file large, difficult, or precedent-setting cases when appropriate, even if success is not assured.”

Setting FCPA precedent through the filing of a complaint, even if success is not assured, that is then subject to valid legal defenses based on the statute in a transparent, adversarial proceeding?

Wow, that’s a novel concept and in contrast to the current situation where FCPA “precedent” is set (or at least viewed as being set with the SEC’s encouragement) by the SEC alone through its enforcement program wherein the SEC is both a party and an adjudicator.

****

I previously posted about the “War of Words in Ecuador” (see here)- a post about Chevron’s mammoth legal battle in Ecuador involving allegations of environmental contamination and how the long, messy battle now includes an FCPA component.

The posted ended by saying “this long, messy legal battle is getting more murky by the day.”

As detailed in a recent story in the New York Times (see here) “in recent days the plot has thickened further.”

FCPA Training – “The First Few Minutes”

The A&E Network has a show, “The First 48,” that I watch on occasion (see here). The show follows real-life homicide detectives from around the country during the “first 48 hours” of an investigation as they race against time to find the suspect.

Why is the “first 48 hours” so important? Because the chance of solving the case is apparently reduced by approximately 50% if the detectives do not get a lead in the “first 48 hours.”

So what in the world does this have to do with FCPA training?

Just as the “first 48 hours” are critical to the success of a homicide investigation, the “first few minutes” are critical to the success of FCPA training.

During those critical “first few minutes” one needs to properly set the tone and engage participants on their level.

If one starts off an FCPA training session like this … “today I will be talking about a U.S. law that makes it a crime to bribe foreign government officials to get business” – you just lost a good portion of your audience and, regardless of what you say during the rest of the training sesssion, your training session will not be as successful as it could have been.

Crime? Steve in the second row of the audience has a clean record and wouldn’t hurt a fly. He coaches his son’s soccer team and worships on the weekend. Joe is thinking to himself, “I have never committed a crime and I don’t intend to – what does this FCPA training session have to do with me?”

Government? Melissa is in the first row of the audience. Her job function is internal audit and finance. She has absolutely no contact or communication with government officials and is thinking to herself “does this company even do business with foreign governments – what does this FCPA training session have to do with me?”

Business? Francisco, the logistics manager from outside the U.S., has been flown in for the FCPA training session. He is thinking “business – I’m not a sales and marketing guy, I just make sure our product gets into and out of the country and I occasionally help secure various licenses and permits for the company – what does this FCPA training session have to do with me?”

For reasons described in other postings on this blog, FCPA training is indeed relevant to the Steve, Melissa and Francisco’s in a company.

To avoid having participants’ minds wander during the “first few minutes” of FCPA training, it may be more effective to start off the training session along these lines.

“Today, I will be talking about a U.S. law that applies to all of you – regardless of whether you are in the sales and marketing department, the executive office suite, the finance and audit department, or the logistics department. This law can cover a wide range of payments the company makes, or could make, either directly or indirectly, in doing business or seeking business in foreign markets. Your understanding of this law and how it may relate to your specific job function will best ensure that the company remains compliant with this law and is able to achieve its business objectives.”

HP To Channel Partners – You MUST Complete FCPA Training

Engaging a foreign agent, representative, distributor or channel partner (collectively “channel partners”) can greatly assist a company in increasing foreign sales. After all, these individuals or entities “know the landscape.”

As readers of this blog well know, engaging a foreign channel partner can also be risky business under the FCPA.

In a previous post, I talked about certain minimum elements of an effective FCPA compliance program as typically set forth in DOJ non-prosecution or deferred prosecution agreements (see here).

One of those elements is the “promulgation of a compliance code, standards and procedures designed to reduce the prospect of violations of the FCPA” which “should apply to all directors, officers, and employees and, where necessary and approopriate, outside parties acting on behalf [of a company] in a foreign jurisdiction, including agents, consultants, representatives, distributors, teaming partners, and joint venture partners.”

HP has apparently determined that it is necessary and appropriate for its global network of approximately 155,000 channel partners to complete HP’s regulatory compliance training program or risk losing their partner status (see here).

A HP spokesperson confirmed that “HP is, in fact, working to have all of its global channel partners undergo training regarding government legal and regulatory compliance [including the FCPA] as part of establishing or renewing their Business Development Agreement” with HP.

The FCPA As A Foreign Policy Stick

Michael Jacobson’s piece (see here) about using the FCPA as perhaps a way to increase pressure on Iran has been discussed elsewhere (see here).

Below are some additional issues to consider.

The suggestion that the FCPA “gives the government extraterritorial reach over non-U.S. companies” and that “any foreign company listed on the U.S. stock exchange falls under FCPA jurisdiction” is not entirely accurate.

True, the FCPA’s books and records and internal control provisions apply to non-U.S. companies which issue stock on a U.S. exchange, and true the books and records and internal control provisions contain no specific jurisdictional requirement. If a company is an issuer (including a foreign issuer) it must comply with the books and records and internal control provisions.

However, the jurisdictional reach of the anti-bribery provisions as to foreign companies is a different story.

The anti-bribery provisions were amended in 1998 to include an alternative “nationality” jurisdictional test for U.S. issuers and domestic concerns (see 78dd-1(g) and 78dd-2(i)).

As a result of these amendments, the original “use of the mails or any means or instrumentality of interstate commerce” nexus is no longer required and the reach of the anti-bribery provisions as to U.S. companies and U.S. citizens is indeed extraterritorial.

However, for a foreign issuer, the old “use of the mails or any means or instrumentality of interstate commerce” jurisdictional nexus is still applicable because the alternative jurisdictional test in 78dd-1(g) only applies to an “issuer organized under the laws of the U.S.”

The other way in which a foreign company (other than an issuer) or foreign national can become subject to the FCPA anti-bribery provisions is through application of 78dd-3 (also added by the 1998 amendments). However, 78dd-3 has a “while in the territory of the U.S. […] make use of the mails or any means or instrumentality of interstate commerce” jurisdictional requirement as well.

Big picture, for foreign companies (whether issuers or not) there is a U.S. jurisdictional requirement for the anti-bribery provisions to apply.

One sees this when looking at the Statoil enforcement action, which as Jacobson points out, is indeed the first time the U.S. held a foreign company accountable under the FCPA’s criminal anti-bribery provisions – in the Statoil case for improper payments to Iranian officials to secure oil and gas rights in Iran.

However, the U.S. did not assert anti-bribery jurisdiction over Statoil merely on the basis of “its listing on the U.S. stock exchange.”

Rather, Statoil was subject to the anti-bribery provisions because the improper payments were routed through a U.S. bank in New York, thus providing the U.S. the nexus needed to hold a foreign company accountable (see here for the criminal information describing the payments through the U.S. bank account and invoking the “means and instrumentality of interstate commerce” jurisdictional clause and here for the SEC cease and desist order finding violations of the anti-bribery provisions and finding that the improper payments were routed through a U.S. bank account in New York).

The point is, because of the U.S. nexus jurisdictional requirement of the anti-bribery provisions as to foreign companies, using the FCPA to hold foreign companies accountable in Iran is not as simple as Jacobson makes it seem.

Two “bigger picture” points as well.

First, I remain skeptical as to the suggestion that increased FCPA focus by U.S. enforcement authorities as to conduct in a particular country “could sufficiently deter many companies from doing business” in that particular country.

Those that adhere to this theory have, for instance, a “China issue” to address (i.e. it is common knowledge that U.S. enforcement authorities have announced several FCPA enforcement actions relating to conduct in China, yet such increased focus by the U.S. as to China business conduct has done little to deter companies from doing business in China).

Second, and more relevant to Jacobson’s assertion that “even the suggestion of increased focus by the United States […] could sufficiently deter many companies from doing business with Iran,” is the following fact regarding Statoil in Iran.

In 2006 (as discussed above) Statoil paid $21 million in combined DOJ and SEC fines and penalties for improper payments that assisted the company in securing contracts for the South Pars field in Iran.

To my knowledge, the Statoil enforcement action is the only FCPA enforcement action concerning business conduct in Iran.

The Statoil case is thus the only “test case.”

And it is a unique test case at that because both the DOJ and SEC material specifically refer to the South Pars field (often times DOJ/SEC material is silent as to specific projects), as does the company’s annual reports filed with the SEC.

No doubt Jacobson is right when he says that the 2006 FCPA enforcement action had a “major impact” on Statoil. As Jacobson points out, “[s]ince then, Statoil has spent millions of dollars in building a more robust internal anti corruption compliance system and putting good governance procedures into place.”

You know what else Statoil has done since the 2006 enforcement action?

It has continued to do business in Iran, including in the same South Pars fields that were the subject of the 2006 FCPA enforcement action.

Here is what the company’s website says about its activity in Iran (see here).

“StatoilHydro is offshore development operator for phases 6, 7 & 8 of the South Pars gas and condensate field in the Iranian sector of the Persian Gulf. We have also engaged in onshore exploration and drilling activities.”

More specifically, here is what Statoil’s website says about South Pars (see here).

“Phases 6, 7 & 8 of South Pars – the world’s largest gas field – are being developed by StatoilHydro as operator under an agreement signed with its local partner Petropars and the National Iranian Oil Company (NIOC) in October 2002.”

For those who enjoy reading SEC’s filings, Statoil’s Annual Report on Form 20-F (2008) (see here) indicates the company has invested $225 million in developing South Pars.

So, what does the only Iran “test case” show?

At least from public documents, it appears to show that enforcing the FCPA against a foreign company doing business in Iran does not even deter the subject of the enforcement action from continuing to do business in Iran.

Powered by WordPress. Designed by WooThemes