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Friday Roundup

An invite, ripples, the odd dynamic, and scrutiny alerts and updates.  It’s all here in the Friday roundup.

You Are Invited

King & Spalding is pleased to host Professor Mike Koehler for an informal lunch discussion of his recently published book The Foreign Corrupt Practices Act in a New Era. The conversation and related question-and-answer session will be of interest to anyone seeking a candid and comprehensive discussion of legal and policy issues present in this new era of FCPA enforcement.

The event takes place on Thursday, October 2nd at noon at King & Spalding’s office (1700 Pennsylvania Avenue N.W. Washington, D.C.). There is no charge for this event, but pre-registration is required. If you would like to attend, please send your name and contact information to Sylvia Gates at sgates@kslaw.com.  For additional information, see here.

Ripples

My recent article “Foreign Corrupt Practices Act Ripples” highlights how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement in this new era.

Regarding those ripples, Canada’s Globe and Mail reports:

“Hewlett-Packard Co., one of the leading technology suppliers to the Canadian government, is facing a possible 10-year ban on selling products and services to Ottawa in the wake of a high-profile U.S. bribery conviction. The recent criminal conviction, involving bribes paid to Russian government officials, marks the first major test of strict new Canadian integrity rules quietly introduced in March by Public Works and Government Services. Under the new regime, companies face an automatic ban on future government contracts if they or any of their affiliates are convicted of a list of various crimes, such as bribery, even if those crimes occurred outside Canada. “The department is reviewing the recent U.S. court decision regarding HP Russia and is examining the impact of this court decision on our current and future business with HP Canada,” confirmed Alyson Queen, communications director for Public Works Minister Diane Finley. The department will conduct its review “as quickly as possible,” Ms. Queen insisted, adding that the government is “committed to doing business with suppliers who respect the law and act with integrity, including affiliates of suppliers.”

The main point of “Foreign Corrupt Practices Ripples” was described above.  However, the article also states:

“This Article accepts the fact that FCPA scrutiny and enforcement results in many other ripples in this new era. Yet, throughout this Article many questions are posed regarding the legitimacy of certain ripples. Moreover, while it is beyond the focus of this Article, it must nevertheless be highlighted that because of the many ripples of FCPA enforcement, it is important that FCPA enforcement be subjected to meaningful judicial scrutiny and that enforcement actions represent legitimate instances of provable FCPA violations, not merely settlements entered into for reasons of risk aversion. This would seem like an obvious statement. However, the reality is that the majority of corporate FCPA enforcement actions in this new era are based on aggressive and controversial enforcement theories, yet resolved via non-prosecution and deferred prosecution agreements (NPAs / DPAs) not subjected to any meaningful judicial scrutiny by risk-averse business organizations mindful of the adverse consequences of putting the enforcement agencies to its burden of proof in an adversarial proceeding.”

Perhaps Canadian authorities should review this prior post “HP Enforcement Action – Where to Begin.”  The post begins:

“Where to begin? That is the question when analyzing last week’s $108 million Foreign Corrupt Practices Act enforcement action against HP and related entities.  (See here). Should the title of this post have been “The FCPA’s Free-For-All Continues”? Should the title have been “HP = Hocus Pocus” (as in look what the enforcement agencies pulled out their hats this time)? Should the title have been “Warning In-House and Compliance Professionals:  This Post Will Induce Mental Anguish”? Unable to arrive at the best specific title for this post, I simply picked the generic “Where to Begin?” In short, if the HP enforcement action does not leave you troubled as to various aspects of FCPA enforcement you: (i) may not be well-versed in actual FCPA legal authority; (ii) don’t care about the rule of law; or (iii) somehow derive satisfaction from government required transfers of shareholder money to the U.S. treasury regardless of theory. Least there be any misunderstanding, let me begin this post by stating that the enforcement actions against HP Poland, HP Russia and HP Mexico allege bad conduct by certain individuals –  a “small fraction of HP’s global workforce” to use the exact words of the DOJ. As to that “small fraction,” those individuals should be held accountable for their actions by relevant law enforcement authorities. However, as to the actual defendants charged in the enforcement actions – HP Russia, HP Poland and HP Mexico in the DOJ actions – and HP in the SEC administrative proceeding – there are actual legal elements that must be met and there is also prior enforcement agency guidance that ought to be followed.  The entire credibility and legitimacy of the DOJ and SEC’s FCPA enforcement programs depend on these two basics points.”

The Odd Dynamic

I have consistently stated (see here for the most recent iteration) that, based on recent judicial decisions, an odd dynamic exists between application of Dodd-Frank’s anti-retaliation provisions and Dodd-Frank’s whistleblower bounty provisions. As noted in the recent post concerning the Second Circuit’s decision in Liu Meng-Lin v. Siemens, courts have held that the former provisions lack extraterritorial effect while acknowledging that a foreign national could receive a bounty under the whistleblower provisions.

The odd dynamic is front-and-center in the SEC’s recent announcement of “an expected award of more than $30 million to a whistleblower who provided key original information that led to a successful SEC enforcement action.”  According to the release,  “the award will be the largest made by the SEC’s whistleblower program to date and the fourth award to a whistleblower living in a foreign country, demonstrating the program’s international reach.”

In the release, Sean McKessy, Chief of the SEC’s Office of the Whistleblower states:

“This award of more than $30 million shows the international breadth of our whistleblower program as we effectively utilize valuable tips from anyone, anywhere to bring wrongdoers to justice.  Whistleblowers from all over the world should feel similarly incentivized to come forward with credible information about potential violations of the U.S. securities laws.”

Regarding the odd dynamic, the SEC’s order states:

“We believe an award payment is appropriate here notwithstanding the existence of certain extraterritorial aspects of Claimant’s application. See generally Morrison v. Nat’l Austl. Bank Ltd., 561 U.S. 247, 266 (2010) (discussing analytical framework for determining whether an application of a statutory provision that involves certain foreign aspects is an extraterritorial or domestic application of the provision; explaining that it is a domestic application of the provision if the particular aspect that is the “focus of congressional concern” has a sufficient U.S. territorial nexus); European Community v. RJR Nabisco, Inc., F.3d , 2014 WL 1613878, *10 (2d Cir. Apr. 23, 2014) (applying Morrison framework and finding that “[i]f domestic conduct satisfies every essential element to prove a violation of a United States statute that does not apply extraterritorially, that statute is violated even if some further conduct contributing to the violation occurred outside the United States.”). In our view, there is a sufficient U.S.  territorial nexus whenever a claimant’s information leads to the successful enforcement of a covered action brought in the United States, concerning violations of the U.S. securities laws, by the Commission, the U.S. regulatory agency with enforcement authority for such violations.  When these key territorial connections exist, it makes no difference whether, for example, the claimant was a foreign national, the claimant resides overseas, the information was submitted from overseas, or the misconduct comprising the U.S. securities law violation occurred entirely overseas. We believe this approach best effectuates the clear Congressional purpose underlying the award program, which was to further the effective enforcement of the U.S. securities laws by encouraging individuals with knowledge of violations of these U.S. laws to voluntarily provide that information to the Commission. See S. Rep. No. 111-176 at 110 (2010) (“to motivate those with inside knowledge to come forward and assist the Government to identify and prosecute persons who have violated the securities laws ….”). Finally, although we recognize that the Court of Appeals for the Second Circuit recently held that there was an insufficient territorial nexus for the anti-retaliation protections of Section 21F(h) to apply to a foreign whistleblower who experienced employment retaliation overseas after making certain reports about his foreign employer, Liu v. Siemens, F.3d , 2014 WL 3953672 (2d Cir. Aug. 14, 2014), we do not findthat decision controlling here; the whistleblower award provisions have a different Congressional focus than the anti-retaliation provisions, which are generally focused on preventing retaliatory employment actions and protecting the employment relationship.”

Scrutiny Alerts and Updates

BHP Billiton

In its most recent annual report the company stated:

“As previously disclosed, BHP Billiton received requests for information in August 2009 from the US Securities and Exchange Commission (SEC). Following that request, the Group commenced an internal investigation and disclosed to relevant authorities evidence that it has uncovered regarding possible violations of applicable anticorruption laws involving interactions with government officials. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. The Group is currently discussing a potential resolution of the matter. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation and the Group continues to fully cooperate with the relevant authorities. In light of the continuing nature of the investigations, it is not appropriate at this stage for BHP Billiton to predict outcomes.”

General Cable Corp.

General Cable Corporation (a Kentucky-based company involved in the development, design, manufacture, marketing and distribution of copper, aluminum and fiber optic wire and cable products and systems for the energy, industrial, specialty, construction and communications markets) recently disclosed:

“We have been reviewing, with the assistance of external counsel, certain commission payments involving sales to customers of our subsidiary in Angola. The review has focused upon payment practices with respect to employees of public utility companies, use of agents in connection with such payment practices, and the manner in which the payments were reflected on our books and records. We have determined at this time that certain employees in our Portugal and Angola subsidiaries directly and indirectly made payments at various times from 2002 through 2013 to officials of Angola government owned public utilities that raise concerns under the FCPA and possibly under the laws of other jurisdictions. We also have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with our Thailand and India operations, which may have implications under the FCPA. We have voluntarily disclosed these matters to the SEC and the United States Department of Justice (“DOJ”) and have provided them with additional information at their request. The SEC and DOJ inquiries into these matters are ongoing. We continue to cooperate with the DOJ and the SEC with respect to these matters. We are implementing a screening process relating to sales agents that we use outside of the United States, including, among other things, a review of the agreements under which they were retained and a risk-based assessment of such agents to determine the scope of due diligence measures to be performed by a third-party investigative firm. However, this screening process may not be effective in preventing future payments or other activities that may raise concerns under the FCPA or other laws. At this time, we are unable to predict the nature of any action that may be taken by the DOJ or SEC or any remedies these agencies may pursue as a result of such actions. Any determination that our operations or activities are not in compliance with existing laws or regulations could result in the imposition of substantial fines, civil and criminal penalties, and equitable remedies, including disgorgement and injunctive relief. Because our review regarding commission payment practices and our use and payment of agents described above is ongoing, we are unable to predict its duration, scope, results, or consequences. Dispositions of these types of matters can result in modifications to business practices and compliance programs, and in some cases the appointment of a monitor to review future business and practices with the objective of effecting compliance with the FCPA and other applicable laws.”

In the first trading day after the disclosure, the company’s stock dropped 6.4% to 17.74.

Embraer-Related

As highlighted in this previous post, Brazil based Embraer (one of  the world’s largest manufacturer of commercial jets with shares traded on the New York Stock Exchange) has been under FCPA scrutiny since 2010.

The Wall Street Journal reports:

“Brazilian authorities have filed a criminal action against eight Embraer employees accusing them of bribing officials in the Dominican Republic in return for a $92 million contract to provide the country’s armed forces with attack planes.”

According to the article:

“[The DOJ and SEC] are also investigating the company’s dealings in the Dominican Republic and elsewhere and have provided their Brazilian counterparts with evidence, according to a request last year for legal assistance from Brazilian prosecutors.

[…]

Brazilian prosecutors filed the 31-page complaint in a criminal court in Rio de Janeiro in August, the first step in a criminal prosecution. A spokesman for the Brazilian prosecutors’ office declined to comment on the case.

The complaint alleges that Embraer sales executives agreed to pay a $3.5 million bribe to a retired Dominican Air Force colonel, who then leaned on legislators to approve the deal and a financing agreement between the Dominican Republic and the National Economic and Social Development Bank. The sale was completed and the aircraft were delivered.

The retired colonel, Carlos Piccini Nunez, was serving as the Dominican Republic’s director of special projects for the armed forces in 2008, around the time of the contract negotiations. The contract provided the Dominican Republic with eight Embraer Super Tucanos, turboprop attack support aircraft that have been a darling of air forces in developing countries for their low maintenance and affordability.

[…]

The criminal complaint alleges that an Embraer vice president for sales, Eduardo Munhos de Campos, promised to pay the bribe, and that he was assisted in arranging the payments by Orlando Jose Ferreira Neto, another vice president; Embraer regional directors Acir Luiz de Almeida Padilha Jr., Luiz Eduardo Zorzenon Fumagalli and Ricardo Marcelo Bester ; and managers Albert Phillip Close, Luiz Alberto Lage da Fonseca and Eduardo Augusto Fernandes Fagundes.”

Goldman Sachs

The company was recently the focus of this Wall Street Journal article which began:

“A yearslong probe of Goldman Sachs Group’s ties to Libya’s sovereign-wealth fund is focusing on an internship and other perks allegedly offered by the Wall Street bank to win business from the Gadhafi regime, according to people familiar with the matter. The Securities and Exchange Commission is reviewing the New York-based bank’s decision in June 2008 to hire as an intern the brother of Mustafa Zarti, then deputy chief of the Libyan Investment Authority, the people said. The move came after Goldman entered into more than $1 billion worth of trades with the authority, and just as the firm’s relationship with the Libyan fund had begun to sour. The investigators are also reviewing why the brother, Haitem Zarti, was allowed to remain at the firm for almost a year, long after most Wall Street internships last, the people added.”

AgustaWestland / Finmeccanica Related

The Wall Street Journal goes in-depth into the Italian trial of Giuseppe Orsi, former CEO of AgustaWestland – a unit of Finmeccanica Spa, concerning bribery allegations in India. As highlighted in this previous post, Finmeccanica, which is approximately 30% owned by the Italian government, has ADRs registered with the SEC and AgustaWestland does extensive business in the U.S. (see here), including with the U.S. government.

*****

A good weekend to all.

Friday Roundup

Wal-Mart’s FCPA expenes continue to grow, scrutiny alerts and updates, in the blink of an eye, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

As highlighted in this previous post, last FY Wal-Mart’s FCPA professional fees and expenses were approximately $604,000 per working day.  As highlighted in this previous post, for Q1 of this FY Wal-Mart’s FCPA professional fees and expenses were approximately $1.16 million per working day.

Yesterday, in a Q2 earnings conference call, Wal-Mart executives stated:

“Expenses related to FCPA and compliance matters were approximately $82 million, which was above our forecasted range of $65 to $70 million. Approximately $48 million of these expenses represented costs incurred for the ongoing inquiries and investigations. Approximately $34 million is related to global compliance programs and organizational enhancements.”

Doing the math, Wal-Mart’s second quarter FCPA-related professional fees and expenses equal approximately $1.26 million per working day.

In this release, Wal-Mart stated:

“We believe expenses for FCPA matters and compliance programs will be between $75 and $80 million for both the third and fourth quarters.”

The question again ought to be asked – does it really need to cost this much or has FCPA scrutiny turned into a boondoggle for many involved?  For more on this issue, see my article “Big, Bold, and Bizarre: The Foreign Corrupt Practices Act Enters a New Era.

Scrutiny Alerts and Updates

BHP Billiton

The company issued the following release.

“As previously disclosed BHP Billiton received a request for information in August 2009 from the US Securities and Exchange Commission (SEC). As a result the Group commenced an internal investigation and disclosed to relevant authorities including the U.S. Department of Justice (DOJ) evidence that it uncovered regarding possible violations of applicable anti-corruption laws involving interactions with foreign government officials. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation. The Group is fully cooperating with the relevant authorities as it has since the US investigations commenced. As a part of the US process, the SEC and DOJ have recently notified the Group of the issues they consider could form the basis of enforcement actions and discussions are continuing. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. In light of the continuing nature of the investigations it is not appropriate at this stage for BHP Billiton to comment further or to predict outcomes. BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in unethical conduct. BHP Billiton has what it considers to be a world class anti-corruption compliance program.”

For more, see here from The Australian.

Novartis

Add Novartis to the list of pharma companies under scrutiny by Chinese law enforcement for business practices in China.  This Wall Street Journal article states:

“Novartis AG has opened an investigation into possible misconduct at its Chinese operations after a former employee filed a complaint about the Swiss pharmaceutical company’s business practices with labor authorities in China.  Basel-Switzerland based Novartis said … its Business Practices Office, which looks into reported misconduct, is in charge of the investigation. The company said the former employee had asked for 5 million yuan (approximately $800,000) in compensation after resigning but declined to comment further.”

Allied Defense Group

Allied Defense Group (“ADG”) employed Mark Frederick Morales, one of the individuals charged in the failed Africa Sting enforcement action.  As noted in this previous post, in August 2012, the ADG disclosed:

“In February and March, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA [an operating business of ADG]. Since this time, the Company’s FCPA counsel has had several discussions with the DOJ and SEC regarding the agencies’ respective inquiries. Based upon these discussions, it appears likely that resolution of these inquiries will involve a payment by the Company to at least one of these government agencies in connection with at least one transaction involving the former employee of Mecar USA. At this point, the amount of this payment is undeterminable.”

ADG recently disclosed:

“In late 2012, the SEC advised that it will not pursue an enforcement action against the Company and in early August 2013, the DOJ advised that it has decided to close its inquiry into this matter.”

In The Blink Of An Eye

As highlighted last week in the Friday Roundup, last week Juniper Networks disclosed:

“The U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act. The Company is cooperating with these agencies regarding these matters. The Company is unable to predict the duration, scope or outcome of these investigations.”

Whether because of three sentences or other information in the company’s quarterly filing, the company’s stock dropped approximately 5.5% last Friday.

72 hours later?

Why of course a securities fraud class action complaint.

This beats the 100 hour threshold highlighted in this previous blink of an eye post.

Reading Stack

A revealing Op-Ed from a member of the Indian Administrative Services in the Times of India which “looks at the games lower bureaucracy plays — sometimes on its own, at other times in collusion with the top — which kill  entrepreneurship and capitalism in India” and which also provide breeding grounds in which harassment bribery flourishes.

An FCPA Mid-Year Update from BakerHostetler.

*****

A good  weekend to all.

Checking In Down Under

Today’s post is from Robert Wyld (Partner, Johnson Winter & Slattery – here).  Wyld is the Australia Expert for FCPA Professor.

*****

Over the last 12 months, there have been some important developments in Australia concerning foreign bribery.  The key issues that are covered in this post include:

  • the news of an official United States and Australian foreign bribery investigation into BHP Billiton;
  • the role of the Australian Federal Police’s Foreign Bribery Panel of Experts;
  • the increase in fines for individuals who breach Australia’s foreign bribery laws;
  • revisiting the Australian Wheat Board (“AWB”) penalty on its CFO and how Australian courts will treat “agreed penalty” submissions in civil prosecutions;
  • reforms to Australia’s whistleblower protection laws; and
  • trends for 2013 and the importance of proactive compliance on foreign bribery risks.

US and Australian foreign bribery investigation into BHP Billiton

BHP Billiton is one of, if not the largest iron ore mining company in the world. Over the years, allegations have surfaced that in some of its operations in some countries, corruption may have occurred. It now seems that the United States Department of Justice (DOJ) is formally leading an investigation into BHP Billiton for alleged corruption in China.

Recently, BHP Billiton’s promotional activities in China associated with a contract to supply metals to produce all 6,000 medals for the 2008 Beijing Olympic Games has been cast into the public arena.  The allegations involve suspicious transactions (inducements, hospitality and gifts) that were recorded as legitimate business expenses in relation to securing a supply contract and sponsorship for the Beijing Olympics.

The Australian Federal Police (AFP) is quoted in the media as confirming that its Panel of Experts has reviewed the allegations and the AFP is working with United States regulators as a result of a formal referral from the U.S. DOJ. This highlights the development of the AFP Panel of Experts (see below for more detail) in providing a high level review over the AFP’s operational investigations and the working relationship between United States and Australian regulators to target Australian companies involved in foreign bribery. The investigation also raises squarely the contentious issues of contract inducements and hospitality and how, if they are not carefully and properly reviewed and controlled, they can give rise to significant risks and potential criminal liability.

Creation of the AFP “Foreign Bribery Panel of Experts”

In response to criticism from the OECD during the Phase 3 Review in late 2012, the AFP established a Foreign Bribery Panel of Experts, said to comprise internal AFP officers with experience in foreign bribery investigations. According to the AFP, the Panel is to undertake “periodic operations reviews” to identify areas for improvement and monitor allocation of resources.

While the composition, experience and independence of the Panel members is unknown, it seems they are all AFP officers “experienced in foreign bribery investigations”. One would hope they are at least independent from investigators working on the particular project under evaluation by the Panel.

The media reports into the United States led investigation into BHP Billiton has highlighted the role now being played by the Panel. While time will show the value of the Panel, its operations ought to be transparent and its findings made public at the conclusion of an investigation (when an investigation is terminated) or if prosecutions result, at the end of any contested proceedings.

Increase in penalties for Australian foreign bribery offences

The penalties for foreign bribery were last increased in February 2010. From 28 December 2012, the Australian Government increased the value of a ‘penalty unit’ by which amount fines are calculated under the Criminal Code 1995 and Crimes Act 1914. The amount of a penalty unit increased from $110 to $170.

The new monetary fines for foreign bribery, per offence from 28 December 2012, are now:

  • for an individual, a fine up to a maximum of 10,000 penalty units (or $1,700,0000 per offence),
  • for a corporation, the greater of:  a fine up to a maximum of 100,000 penalty units (or $17,000,000 per offence); or three times the value of the benefit; or 10% of the company’s turnover during a 12 month period from the month when the offence occurred.

The increase in the penalty unit valuation adds considerable weight to the scale of fines available to a Court and the importance for business to ensure they take all possible steps (see below) to avoid exposure to foreign bribery.

Appeal Court revisits sanctions on former AWB CFO and how Australian courts should treat “agreed penalties” for civil penalty prosecutions

Foreign bribery can give rise to potential liability for directors and officers and contravention of their statutory duties under the Corporations Act 2001 (Cth). If prosecutions arise, they can be for a civil penalty to be imposed by a Court.

On 19 March 2013, the Victorian Court of Appeal delivered its judgment in an appeal by Australia’s corporate regulator, the Australian Securities and Investments Commission (ASIC) against the reduced sentence imposed on AWB’s former CFO  (ASIC v Ingolby [2013] VSCA 49).

The Court of Appeal was very critical of what it regarded as the deficient statement of agreed facts relied upon by ASIC and the CFO, stating that it was “less than desirable”, that it did not “present a fair and accurate picture of the relevant offending conduct” and was “impossible to reconcile with what the documentary material plainly showed to be the true role” played by the CFO.

The Court of Appeal’s critical legal findings were that:

  • the Court’s role in determining a penalty is a clear exercise of judicial power, unfettered by any agreed statement or submission as to penalty;
  • a Court was not simply to assess whether an agreed penalty was within “the permissible range in all the circumstances” and if it was, to accept the agreed penalty; rather the Court had to fix an appropriate penalty in the circumstances and any submission was simply a factor to consider, accept or reject depending upon the totality of the evidence.

In light of the Court of Appeal’s views as to the inadequacy of the evidence before the lower court (where the original penalty as to fine and disqualification had been discounted by the court), the Court of Appeal reinstated the original fine ($40,000) and the period of disqualification (15 months). All appellate Judges indicated that if the matter had been determined properly, the CFO might well have received a substantially higher penalty.

This demonstrates the critical importance in civil penalty proceedings of ensuring the sentencing Court is presented with a fair and accurate statement of the offender’s conduct notwithstanding an offender’s perhaps natural inclination to seek to downplay his or her own involvement in the offending conduct. Without that, the Courts are more likely to call for further evidence or reject the agreed position.

Reform to Australia’s whistleblower protection laws

On 21 March 2013, the Australian Government introduced into Parliament its much-anticipated Public Interest Disclosure Bill 2013. The object of the Bill is to encourage and facilitate the reporting of wrongdoing, the proper investigation of such allegations and the protections to be given to public officials who disclose wrongdoing.

The Bill remains contentious and not without its critics who say the substance of the new laws add little real protection for disclosures outside government to, for example, the media,

The key features of the Bill include the following:

  • the Bill and the disclosure regime covers public officials, who are persons having a relevant connection with the Commonwealth public sector, including directors and offices of certain statutory entities, employees of Commonwealth intelligence and law enforcement agencies and some third-party contractors providing goods or services to the Commonwealth under a defined Commonwealth contract (and their employees);
  • the definition of what is a public interest disclosure, how it may be made and under what circumstances a disclosure can go beyond an authorised agency to a third person, including the media or a lawyer;
  • the broad nature of disclosable conduct, covering for example, a contravention of a Commonwealth or State law, or a foreign law, perversion of justice or corruption of any kind, maladministration, an abuse of public trust, the wasting of public money, unreasonable risks to public health or safety or a danger to the environment;
  • the protection from criminal or civil prosecution or defamation suits in favour of the disclosing public official;
  • protection from reprisal exercised against the disclosing public official;
  • obligations on a nominated agency to properly investigate the disclosure; and
  • independent review of the regime by the Commonwealth Ombudsman and the Inspector-General for Intelligence and Security (for security-related disclosures).

While the Bill goes some considerable way to address deficiencies under existing laws for disclosures of improper conduct in relation to the Commonwealth, it still leaves the general commercial community to their own devices as to the terms upon which commercial whistleblowers are properly protected when seeking to disclose evidence of commercial impropriety.

Trends for 2013

Companies and directors are likely to see the following trends throughout 2013:

  • increased regulation against facilitation payments:
  • an increased focus on cross-border investigations and cooperation between governments to target foreign corruption and to prosecute foreign nationals;
  • more countries within the Asia-Pacific Region introducing foreign bribery laws and investigative agencies, with the Government of Myanmar’s Anti-Corruption Committee formed in January 2013 a clear example; and
  • regulators will target individual directors, officers and third-party agents for personal liability and responsibility for foreign corruption.

Following the lead from the United Kingdom, the Australian Government should give serious consideration to reforming Australia’s criminal law procedures to provide some certainty to companies who wish to self-report potential offences and negotiate a structured yet transparent settlement agreement applicable to economic crimes (including foreign bribery).

Proactive action to minimise the risk of foreign corruption

The laws of many countries now place an onus on a corporation to prove that it has a real culture of compliance and any improper conduct was, in fact, the conduct of a rogue employee.

To address these risks, it is critical for Australian businesses which operate offshore to:

  • understand all operational risks in all countries where it conducts business;
  • know all local laws and practices (take advice from local experts);
  • understand and know all third parties with who you engage;
  • implement an effective, robust and dynamic compliance program for all employees;
  • conduct periodic audits of all third parties and your own internal control processes.

Friday Roundup

Yet another instance, save the date, scrutiny updates, on point, FCPA Inc. tidbit, and for the reading stack.  It’s all here in the Friday roundup.

Yet Another Instance

The instances are so numerous, they are hard to keep track of.  In the latest instance of an FCPA enforcement attorney joining a law firm to provide FCPA defense services, earlier this week Paul Hastings announced here as follows.

“Nathaniel Edmonds has joined the firm as a partner in the Global Compliance and Disputes practice, based in Washington, DC. Mr. Edmonds joins from the Department of Justice (DOJ), where he was an Assistant Chief of the Fraud Section, Foreign Corrupt Practices Act Unit in the Criminal Division. At the time of his hire, Mr. Edmonds was one of the longest-tenured FCPA prosecutors. […] In recent years, Mr. Edmonds was responsible for directly supervising up to half of the DOJ’s investigations into transnational bribery. He also drafted portions of the FCPA Resource Guide published in November 2012, which details the contours of the FCPA legal regime, the policy positions underlying the enforcement strategy, and the relevance of past enforcement positions taken by the DOJ and the SEC. During Mr. Edmonds’ tenure, the DOJ has investigated and resolved more cases against corporations and has charged, tried, and convicted more individuals under the FCPA than in any other similar period in history.”

This Blog of Legal Times article stated as follows.  “Edmonds said that FCPA investigations and enforcement has increased in recent years and that the practice would likely continue to be robust for attorneys.”

That Edmonds played a supervisory role, as a DOJ enforcement attorney, in helping create the current FCPA enforcement landscape is precisely the reason why I have long argued that it is in the public interest (recognizing the niched nature of both the DOJ and SEC FCPA units) that all FCPA enforcement attorneys should be prohibited, when leaving the government, from providing FCPA defense or compliance services for a five-year time period.  For additional reading see this piece I co-authored as well as this prior post among several others.

Indeed, Paul Hastings specifically touted in its release Edmonds’ “connections to U.S. government agencies.”

Save the Date

The Dow Jones Global Compliance Symposium is April 2-3 in Washington, D.C.

Last year, Christopher Matthews at Wall Street Journal Corruption Currents described (here) the panel I participated in as “an FCPA debate for the ages” – “for FCPA geeks, this was Ali v. Foreman and Frazier.  A battle royale.  A bloodbath.”

On April 2nd I will be participating in a panel titled “The FCPA:  Does It Need Further Clarifying” along with Paul McNulty (Baker & McKenzie and former Deputy Attorney General) and David Yawman (Senior Vice President & Chief Compliance and Ethics Officer, PepsiCo, Inc.).  The panel is being moderated by Joe Palazzolo of the Wall Street Journal.

Scrutiny Updates

BHP Billiton

As noted in this prior post, in April 2010 BHP Billiton announced it was under FCPA scrutiny.  Earlier this week, various media sources reported that BHP Billiton’s FCPA scrutiny has grown.  As summarized by this Reuters article.

“The U.S. government is investigating a possibility of corrupt practices by the world’s largest mining company, BHP Billiton, the company confirmed Wednesday after media reports about an inquiry into its sponsorship of the 2008 Beijing Olympics.  Fairfax Media in Australia reported that the U.S. Department of Justice and the Australian Federal Police were investigating allegations that BHP Billiton had provided inducements, hospitality and gifts to officials from China and other countries. The U.S. Justice Department told Fairfax, in response to a Freedom of Information Act request, that it was conducting “law enforcement proceedings” involving BHP Billiton, which supplied materials for the gold, silver and bronze medals used in Beijing. The Australian police confirmed that they had been working with their foreign counterparts and local regulators on Australian aspects of the U.S. investigation.  BHP Billiton said it had been cooperating with the “relevant authorities,” and in response to media queries it said it believed it had not broken any laws in its Olympics sponsorship. “BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in bribery in all its forms,” the company said in an e-mailed statement.”

Embraer

As noted in this prior post, Embraer previously disclosed it was under FCPA scrutiny.  Earlier this week, Embraer updated its disclosure and stated as follows.

We received a subpoena from the SEC in September, 2010, which inquired about certain operations concerning sales of aircraft abroad. In response to this SEC-issued subpoena and associated inquiries into the possibility of non-compliance with the U.S. Foreign Corrupt Practices Act, or FCPA, we retained outside counsel to conduct an internal investigation on transactions carried out in three specific countries.  Further, the Company has voluntarily expanded the scope of the internal investigation to include two additional countries and has reported on those matters. The investigation remains ongoing and we, through our outside counsel, continue to cooperate fully with the SEC and U.S. Department of Justice, which are the authorities responsible for reviewing the matter. The Company, with the support of our outside counsel, has concluded that it is still not possible to estimate the duration, scope or results of the internal investigation or government’s review. In the event that the authorities take action against us or the parties enter into an agreement to settle the matter, we may be required to pay substantial fines and/or to incur other sanctions. The Company, based upon the opinion of our outside counsel, believes that, there is no basis for estimating reserves or quantifying any possible contingency.”

On Point

Stuart Altman (Hogan Lovells, and a former Assistant U.S. Attorney in the E.D. of N.Y.) stated as follows in a recent Law360 Q&A.

“Q: What aspects of your practice area are in need of reform and why?

A: The inability of companies and individuals accused of wrongdoing to actually defend their selves. If you ask most white collar criminal defense lawyers they will tell you that they spend most of their time figuring out how to cooperate with the government not defend their clients. Investigations are ultimately focused on reporting to the government instead of building a defense. The government has made it incredibly onerous for a company to fight accusations of wrongdoing. The danger of huge fines, debarment and threats against individual employees all combine to create a huge disincentive to fight even when you believe your client is in the right. I think we need to find a better balance that allows the government to do its job but doesn’t create a climate of coerced surrender.”

William Burck (Quinn Emmanuel, and former Special Counsel and Deputy Counsel to President Bush a well as a former Assistant U.S. Attorney in the S.D. of N.Y.) stated as follows in a recent Law360 Q&A.

“Q: What aspects of your practice area are in need of reform and why?

A: Overcriminalization is a troubling trend in the U.S. Unfortunately, some of what is considered “white collar crime” is really the criminalization of questionable, but not truly fraudulent, business activities or the misuse of criminal process to resolve what should be civil disputes. True fraud and theft should be targeted, of course. No one thinks Bernie Madoff should be spared. But prosecutors sometimes twist poor or disfavored business practices into allegedly criminal misbehavior.”

FCPA Inc.

This Washington Post article states as follows concerning future opportunities for Washington D.C. law firms.

“At most firms, mainstay Washington specialties such as antitrust, health care and intellectual property continued to help drive business. Cybersecurity and Foreign Corrupt Practices Act work — two booming areas for companies — are poised to bring in more legal work for years to come.”

This Am Law Daily article states as follows concerning New York-based law firms.

“Government investigations – especially the LIBOR antitrust investigations and Foreign Corrupt Practices Act and False Claims Act work – are keeping hundreds of fee-earners busy, and New York firms with strong litigation departments are particularly well positioned to benefit.”

For the Reading Stack

In “Policing The Firm,” Daniel Sokol (a leading antitrust authority at the University of Florida Levin College of Law) asks if criminal antitrust enforcement could learn from FCPA enforcement.  Sokol argues it can and he explores the lack of corporate monitors in antitrust actions and asks why antitrust remedies do not resemble remedies in other areas of corporate crime, with the routine imposition of monitors, such as the FCPA.

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.

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