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SEC To Launch “Specialized Unit” Devoted to FCPA

Robert Khuzami, the SEC’s Director of the Division of Enforcement, spoke this week to the New York City Bar Association (see here for text of his speech).

During his speech, Khuzami announced that the SEC will be creating five “national specialized units dedicated to particular highly specialized and complex areas of securities law.”

One of the units will be an FCPA unit. Here is what Khuzami had to say:

“The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”

Unlike the DOJ which has historically centralized all FCPA prosecutions at “main Justice” in DC, the SEC has traditionally given its regional offices the authority to independently prosecute FCPA cases. With Khuzami’s announcement, change appears to be in the works and it will be interesting to see whether this new approach will yield any noticeable differences in SEC prosecution of FCPA offenses.

During the speech, Khuzami also announced that the SEC is working on other “initiatives” – two of which I highlight as being of particular interest to FCPA followers.

First, the SEC is seeking to create a “Seaboard” for individuals, “a public policy statement that will set forth standards to evaluate cooperation by individuals in enforcement actions” as Khuzami explained. All SEC enforcement lawyers have committed to memory the original “Seaboard Report” (see here) – the factors the SEC will consider when deciding whether to pursue a corporate enforcement action – and it appears that additional required reading may soon be available.

Second, and seemingly taking a page from the DOJ’s FCPA playbook, Khuzami announced that the Division of Enforcement “will be prepared to recommend to the Commission that the SEC enter into Deferred Prosecution Agreements, in which [Division of Enforcement] agree[s] in the appropriate case to forego an enforcement action against an individual or entity subject to certain terms, including full cooperation, a waiver of statutes of limitations, and compliance with certain undertakings.”

“New and proactive” enforcement … “more needs to be done” … future SEC deferred prosecution agreements … these are sure interesting times to be following the FCPA!

Mixed FCPA Verdict (It Would Seem) in Former Congressman Jefferson Trial

You may have forgotten his name, but you likely have not forgotten the headline grabbing “cash in the freezer” allegations against former Congressman William Jefferson (Louisiana), the first member of Congress ever charged with FCPA violations.

This week, a federal jury delivered a split-verdict on the FCPA charges – or so it would seem (see below).

While Jefferson was found guilty of a variety of other charges (solicitation of bribes, honest services wire fraud, money laundering, racketeering, and conspiracy)(see here for the DOJ release), he was acquitted on the substantive FCPA antibribery charge. That charge, according to the indictment (see here), was principally based on allegations that Jefferson attempted to bribe Nigerian officials (including the former Nigerian Vice President) to assist himself and others obtain or retain business for a Nigerian telecommunications joint venture. The famous “cash in the freezer” was allegedly part of the bribery scheme.

However, the jury did convict Jefferson on a conspiracy count that the indictment charged as conspiracy to solicit bribes, to commit honest services wire fraud, and to violate the FCPA. As reported by Jefferson’s home-state newspaper, the Times-Picayune (see here), “the law only require[d][that] the jury find [Jefferson] guilty on two out of three of those counts — solicit bribes, deprive honest services and violate the Foreign Corrupt Practices Act– and in announcing the verdict, the deputy clerk did not specify which counts the jury agreed on. It may or may not have included conspiracy to violate the Foreign Corrupt Practices Act.”

Perhaps the FCPA portion of the Jefferson verdict will become more clear in the days to come.

It’s Been A While … DOJ Issues FCPA Opinion Procedure Release

Thousands of companies face FCPA risks every single day. Many of these companies have legitimate questions as to how its operations in foreign countries could implicate the FCPA. If only there was a procedure in place for companies subject to the FCPA to receive guidance from the DOJ as to its enforcement stance as to particular conduct!

Well … actually there is, but if you haven’t heard about it, don’t feel bad, because the Opinion Procedure Release provisions of the FCPA (15 USC 78dd-1(e)) are often overlooked.

After a year hiatus, (the last opinion was released on July 11, 2008), DOJ has penned Opinion Procedure Release 09-01 (see here).

Given the extent to which the health-care sector has come under FCPA scrutiny, it is not a surprise that the “Requestor” is a “domestic concern” “which designs and manufacturers a specific type of medical device.”

Big picture … the Requestor wants to provide a product sample to a foreign government so that government medical centers can evaluate the product to see if it would be eligible for the government subsidized medical device program. Requestor no doubt was nervous about this given that its competitors were already doing business with the foreign government (whereas Requestor was not) and given that the 100 product samples cost $19,000 each – amounting to a $1.9 million donation.

Based on a number of representations from Requestor, including that none of the product samples would go to government officials, the DOJ stated that it did not intend to take any enforcement action with respect to the proposed conduct because “the proposed provision of 100 medical devices and related items and services fall outside the scope of the FCPA in that the donated products will be provided to the foreign government, as opposed to individual government officials, for ultimate use by patient recipients selected in accordance with specific guidelines …”

Requestor, it would seem, got the certainty it was looking for and can proceed with the arrangement free of FCPA worries.

All of which begs the question … why isn’t the FCPA Opinion Procedure process used more frequently? Common answers often include (i) the opinion expresses only the DOJ’s opinion, but not the SEC’s (obviously relevant to issuers); (ii) the procedure takes too long and the proposed business conduct is time sensitive (note that in 09-01 the Requestor made two supplemental disclosures); and (iii) the Requestor may receive an answer it doesn’t like and thus needlessly raises its FCPA profile.

To read more about the detailed requirements of the FCPA Opinion Procedure process (see here).

FCPA Aches and “Payne”s

Helmerich & Payne Inc. (“H&P”) is an international drilling contractor headquartered in Tulsa. It has land and offshore operations in South America. To operate in that region, H&P must import and export equipment and materials. According to the DOJ and SEC, therein lies the problem.

H&P recently settled a DOJ and SEC FCPA enforcement action based on the conduct of two wholly-owned second tier subsidiaries, Helmerich & Payne (Argentina) Drilling Company (“H&P Argentina”) and Helmerich & Payne de Venezuela, C.A. (“H&P Venezuela”).

Pursuant to a two-year DOJ non-prosecution agreement, H&P acknowledged responsibility for the conduct of H&P Argentina and H&P Venezuela in making various improper payments to officials of the Argentine and Venezuelan customs services. According to a DOJ release (see here), the payments “were made in order to import and export goods that were not within regulations, to import good that could not lawfully be imported, and to evade higher duties and taxes on the goods.” Pursuant to the agreement, H&P will pay a $1 million penalty.

In a parallel action, H&P agreed to an SEC settlement under which it agreed to pay approximately $375,000. The SEC cease-and-desist order (“Order”) (see here) finds that: (i) “H&P Argentina paid Argentine customs officials approximately $166,000 to permit the importation and exportation of equipment and materials without required certifications, to expedite the importation of equipment and materials, and to allow the importation of materials that could not imported under Argentine law; and (ii) “H&P Venezuela paid Venezuelan customs officials approximately 19,673 either to permit the importation and exportation of equipment and materials that were not in compliance with Venezuelan importation and exportation regulations or to secure a partial inspection, rather than a full inspection, of the goods being imported.”

According to the Order, the payments were “falsely, or at least misleadingly” described as “additional assessments,” “extra costs,” “extraordinary expenses,” “urgent processing,” “urgent dispatch,” or “customs processing.” The SEC found that as a result of the payments, H&P avoided approximately $320,000 in expenses it would have otherwise incurred had it properly imported and exported the equipment and materials. The subsidiaries’ financial results were included in H&P’s filings with the SEC and, based on the above conduct, the SEC found that H&P violated the FCPA books and records and internal control provisions.

The Order is silent as to H&P’s knowledge of or involvement in the above described payments.

No doubt H&P received an SEC cease and desist order (the least harsh SEC sanction) and a DOJ non-prosecution agreement because of its conduct upon learning of the payments. As described in the Order, during an FCPA training session, an employee voluntarily disclosed some potentially problematic payments, through a customs broker, in Argentina to customs officials. Thereafter, H&P hired FCPA counsel, conducted an internal investigation, and voluntarily reported the conduct at issue to the government.

According to H&P’s Form 8-K filed on July 30, 2009 (see here), “[t]here are no criminal charges involved in the settlements and disciplinary action has been taken by the company with respect to certain employees involved in the matter, including in some cases, termination of employment.” The 8-K also notes that both settlements “recognize the company’s voluntary disclosure, cooperation with both agencies, and its proactive remedial efforts.”

The FCPA … It’s Not Just For Americans

In 1998, the FCPA’s antibribery provisions were amended to, among other things, broaden the jurisdictional reach of the statute to prohibit “any person” “while in the territory of the U.S.” from making improper payments through “use of the mails or any means or instrumentality of interstate commerce” or from doing “any other act in furtherance” of an improper payment. (see 15 USC 78dd-3(a)). “Any person” is generally defined to include any person other than a U.S. national or any business organization organized under the laws of a foreign nation. (see 15 USC 78dd-3(f)).

Thus, since 1998, and contrary to a still widely-held misperception, foreign nationals can be subject to the FCPA.

Ousama Naaman apparently did not get the memo as the DOJ recently unsealed a criminal indictment charging him with violating the FCPA and conspiracy to violate the FCPA and commit wire fraud. According to a DOJ release (see here) Naaman (a Canadian citizen), acting on behalf of a U.S. public chemical company and its subsidiary, allegedly offered and paid kickbacks to the Iraqi government on five contracts under the United Nations Oil for Food Program. In addition, the indictment alleges that Naaman paid $150,000 on behalf of a U.S. company to Iraqi Ministry of Oil officials to keep a competing product out of the Iraqi market.

This is certainly not the first time a foreign national has been subject to an FCPA enforcement action. Other recent examples include Jeffrey Tesler and Wojciech Chodan (both U.K. citizens criminally indicted for their roles in the KBR / Halliburton bribery scheme)(see here) and Chrisitan Sapsizian (a French citizen who pleaded guilty to violating the FCPA for his role in a scheme to bribe Costa Rican foreign officials) (see here).

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