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Friday Roundup

Roundup

No comment, scrutiny alert, when the obvious is not so obvious, quotable, undercover, follow-up, and for the reading stack. It’s all here in the Friday roundup.

No Comment

The recent FCPA enforcement action against Chile-based LAN Airlines (in which the company paid $22 million to resolve DOJ and SEC enforcement actions concerning an alleged payment to resolve an Argentina labor dispute) suggested that both Argentine and Chilean law enforcement officials had commenced investigations of the conduct approximately five years ago.

I’ve tried to find information in the public domain regarding these apparent law enforcement investigations but have generally struck out.

For instance, I contacted LAN’s investor relations office and posed the following question:

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Friday Roundup

Root causes, a mere $855,000 per working day, “bad in law,” scrutiny alert, and for the reading stack.  It’s all here in the Friday roundup.

Root Causes

Understanding the root causes of FCPA enforcement actions can help inform pro-active FCPA compliance policies and procedures.  Moreover, recognizing the fallacy of “good companies don’t bribe” can help set realistic expectations in terms of what FCPA compliance policies and procedures can and can not accomplish.

I will be talking about both topics during a free webinar “Understanding the Root Causes of FCPA Scrutiny and Enforcement” on Thursday, May 22nd at 2 p.m. (EDT).  The webinar is hosted by Hiperos and you can register here.

Wal-Mart’s Pre-Enforcement Action Professional Fees and Expenses

Over the past 1.5 years I have tracked Wal-Mart’s disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts, settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.

Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

In its 1Q FY2015 earnings conference call yesterday, Wal-Mart disclosed:

“FCPA and compliance-related expenses for the quarter were approximately $53 million. Approximately $34 million of these  expenses represented costs incurred for the ongoing inquiries and  investigations, and approximately $19 million was related to our global  compliance program and organizational enhancements.”

Doing the math, this equates to approximately $855,000 per working day.

While eye-popping, this recent figure suggests that Wal-Mart’s pre-enforcement action professional fees and expenses may have crested as the figures for the past two quarters were approximately $1.1 and $1.3 million per working day.

That pre-enforcement action professional fees and expenses are typically the most expensive aspect of FCPA scrutiny is a fact.  However it must nevertheless be asked – once again – whether FCPA scrutiny has turned into a boondoggle for many involved.

Is Wal-Mart’s conduct for which it is under scrutiny in violation of the FCPA?  Does it even matter?  See my article “Foreign Corrupt Practices Act Enforcement As Seen Through Wal-Mart’s Potential Exposure.”

“Bad in Law”

In 2007, the SEC brought this FCPA enforcement action against Dow Chemical.  The enforcement action was based on allegations that Dow’s “fifth-tier foreign subsidiary” in India, DE-Nocil Crop Protection Ltd. (“DE-Nocil”), made “approximately $39,700 in improper payments to an official in India’s Central Insecticides Board to expedite the registration of three DE-Nocil products.”

It is always interesting to see what happens when the “dust settles” (see here for the prior post).

India’s Hindustan Times reports here as follows.

“As the Central Bureau of Investigation (CBI) did not attach evidence with the supplementary chargesheet against De-Nocil Crop Protection (presently Dow Agro Sciences India, a subsidiary of Dow Chemical of the US) and Agro Pack, the CBI special court, Haryana, at Panchkula, has discharged the companies in a case of bribing an Indian official to get their products registered. On December 30, 2011, the CBI had filed the supplementary charge sheet but attached no oral or documentary evidence. On Wednesday (May 7), special judge, CBI, Haryana, Rakesh Yadav ruled that being not supported by evidence, the supplementary chargesheet was “bad in law” and so the court could not take cognizance of it.  The accused companies no longer have to face trial.”

Query whether this end result is a function of the nature and quality of the India investigation or the nature and quality of SEC neither admit nor deny FCPA enforcement actions.

Scrutiny Alert

In case you missed April’s Buzzfeed report on Cisco’s alleged conduct in Russia, Reuters reports as follows.

“In a series of audits in 2009, Cisco Systems Inc. found that much of the business between resellers of its products and a Russian state-owned telecommunications company, Svyazinvest, could not be verified because it was either “misrepresented” or documents were withheld by the resellers, according to an executive summary of the audits reviewed by Reuters. The June 2009 report on the audits, other internal Cisco documents, and interviews with two sources familiar with the situation, raise questions about whether the company knew what was happening to telecom equipment sales going through its resellers in Russia, as well as whether discounts were passed on to customers as planned.”

For the Reading Stack

An interesting Q&A in Mothers Jones with Ken Silverstein regarding his new book “The Secret World of Oil” and the alleged use of so-called “fixers.”  Note:  the FCPA’s anti-bribery provisions prohibit not only direct payments to “foreign officials” to obtain or retain business, but also indirect payments through various third parties.  Thus, the use of “fixers” if true, is not a way to avoid the FCPA.  Moreover, if Silverstein’s allegations are true, the U.S. government is perhaps ignoring (or not caring) about certain alleged conduct.  Further note:  the Q&A is not completely accurate concerning the James Giffen matter.

*****

A good weekend to all.

Friday Roundup

Contorted, interesting, deserving?, scrutiny alerts and updates, and for the reading stack.  It’s all here in the Friday Roundup.

Contorted

One of the most contorted words in the FCPA vocabulary is “declination” (see here among other posts).

This K&L Gates report contains a useful summary of DOJ and SEC comments at a recent conference.  It states:

“Mr. Knox [DOJ Criminal Division Fraud Section Chief] stated that companies continue to request specific information regarding the Department’s declinations, but that it is the Department’s long-standing practice not to publish details of declinations without a company’s permission, which is rarely given.  According to Mr. Knox, however, over the last two years, the Department has declined to prosecute dozens of cases.  Notably, Mr. Knox stated that, aside from finding no evidence of criminal conduct, the Department may issue a declination when a case involves an isolated incident, the company had a strong compliance program, and the problem was remediated.”

Newsflash.

If the DOJ does not find evidence of criminal conduct and therefore does not bring a case, this is not a “declination,” it is what the law commands.

On the topic of voluntary disclosure, the K&L Gates report states:

“Mr. Cain [SEC FCPA Unit Deputy Chief] started by stating “there is no perfect compliance program;” therefore, companies will always have some “background issues” which need to be addressed, especially as business and risk profiles change.  Mr. Cain does not expect companies to disclose these “normative” problems; however, companies should disclose “significant problems.”  These “significant problems” are the types of issues which may end up being enforcement actions if the SEC learns of them through means other than self-disclosure.”

“Mr. Knox took the position that it would be “very reckless and foolish” for him “to try and draw a line between matters which should be self-disclosed and matters which shouldn’t.”  In making the decision of whether to self-disclose, he advised companies and counsel to apply “common sense” and ask whether this is “something that [the Department] would be interested in hearing about?”  According to Mr. Knox, if the answer to that question is “yes,” then the Department would “probably want [a company] to self-disclose it.”  Nonetheless, there are instances which are not worthy of self-disclosure because the conduct is “minor” and “isolated” or the allegation of wrongdoing is “much too vague.”  Mr. Knox advised companies to “be thoughtful” when making disclosure decisions and carefully document any decision not to disclose.”

If the above leaves you scratching your head, join the club.

Interesting

My article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action” highlights how ADM and its shareholders were victims of a corrupt Ukrainian government in that the government refused to give ADM something even the DOJ and SEC acknowledged ADM was owed – VAT refunds.  Among other things, the article discusses how VAT refund refusals were well-known and frequently criticized prior to the ADM enforcement action in late 2013.

Fast forward to the present day and VAT refund refusals remain a problem in Ukraine.  Recently the International Monetary Fund issued this release concerning a potential aid package for Ukraine.  Among the conditions is that Ukraine  adopt “reforms to strengthen governance, enhance transparency, and improve the business climate” such as taking “measures to facilitate VAT refunds to businesses.”

Deserving?

Earlier this week, the African Development Bank Group (AfDB) released this statement

“Kellogg Brown & Root LLC, Technip S.A. and JGC Corp. agree to pay the equivalent of US $17 million in financial penalties as part of Negotiated Resolution Agreements with the African Development Bank following admission of corrupt practices by affiliated companies in relation to the award of services contracts for liquefied natural gas production plants on Bonny Island, Nigeria, from 1995 until 2004.”

The Director of the AfDB’s Integrity and Anti-Corruption Department stated:

“This settlement demonstrates a strong commitment from the African Development Bank to ensure that development funds are used for their intended purpose.  At the same time, it is a clear signal to multinational companies that corrupt practices in Bank-financed projects will be aggressively investigated and severely sanctioned. These ground-breaking Negotiated Resolution Agreements substantially advance the Bank’s anti-corruption and governance agenda, a strategic priority of our institution.”

Pardon me for interrupting this feel good moment (i.e. a corporation paying money to a development bank), but why is AfDB deserving of any money from the companies?  As noted here, AfDB’s role in the Bonny Island project was relatively minor as numerous banks provided financing in connection with the project.  Moreover, as noted here, the AfDB “invested in the oil and gas sector through a USD 100 million loan to NLNG [Nigeria LNG Limited] to finance the expansion of a gas liquefaction plant located on Bonny Island.”

As alleged in the U.S. Bonny Island FCPA enforcement actions, the above-mentioned companies allegedly made corrupt payments to, among others, NLNG officials.  And for this, the specific companies paid $579 million (KBR, et al), $338 million Technip, and $219 million (JGC).

Why is the bank that loaned money to NLNG deserving of anything?  Is there any evidence to suggest that the $100 million given to NLNG was not used for its “intended purpose” of building the Bonny Island project?

Scrutiny Alerts and Updates

SBM Offshore, Sweett Group, Citigroup, Cisco, and Societe Generale.

SBM Offshore

The Netherlands-based company (with ADRs traded in the U.S. that provides floating production solutions to the offshore energy industry) has been under FCPA scrutiny for approximately two years.  It recently issued this statement which states, in summary, as follows.

“SBM Offshore presents the findings of its internal investigation, which it started in the first quarter of 2012, as the investigators have completed their investigative activities. The investigation, which was carried out by independent external counsel and forensic accountants, focused on the use of agents over the period 2007 through 2011. In summary, the main findings are:

  • The Company paid approximately US$200 million in commissions to agents during that period of which the majority relate to three countries: US$18.8 million to Equatorial Guinea, US$22.7 million to Angola and US$139.1 million to Brazil;
  • In respect of Angola and Equatorial Guinea there is some evidence that payments may have been made directly or indirectly to government officials;
  • In respect of Brazil there were certain red flags but the investigation did not find any credible evidence that the Company or the Company’s agent made improper payments to government officials (including state company employees). Rather, the agent provided substantial and legitimate services in a market which is by far the largest for the Company;
  • The Company voluntarily reported its internal investigation to the Dutch Openbaar Ministerie and the US Department of Justice in April 2012. It is presently discussing the disclosure of its definitive findings with the Openbaar Ministerie, whilst simultaneously continuing its engagement with the US Department of Justice. New information could surface in the context of the review by these authorities or otherwise which has not come up in the internal investigation to date;
  • At this time, the Company is still not in a position to estimate the ultimate consequences, financial or otherwise, if any, of that review;
  • Since its appointment in the course of 2012 the Company’s new Management Board has taken extensive remedial measures in respect of people, procedures, compliance programs and organization in order to prevent any potential violations of applicable anti-corruption laws and regulations. Both it and the Company’s Supervisory Board remain committed to the Company conducting its business activities in an honest, ethical, respectful and professional manner.”

The SBM Offshore release contains a detailed description of the scope and methodology of its review, as well as remedial measures the company has undertaken.  For this reason, the full release is an instructive read.

Sweett Group

As noted in this prior post, in June 2013 Sweett Group Ltd. (a U.K. based construction company) was the subject of a Wall Street Journal article titled “Inside U.S. Firm’s Bribery Probe.” The focus of the article concerned the construction of a hospital in Morocco and allegations that the company would get the contract if money was paid to “an official inside the United Arab Emirates President’s personal foundation, which was funding the project.”

Earlier this week, the company issued this release which stated:

“[T]here have been further discussions with the Serious Fraud Office (SFO) in the UK and initial discussions with the Department of Justice (DOJ) in the USA.  The Group is cooperating with both bodies and no proceedings have so far been issued by either of them.  The Group has commissioned a further independent investigation which is being undertaken on its behalf by Mayer Brown LLP.  Whilst this investigation is at an early stage and is ongoing, to date still no conclusive evidence to support the original allegation has been found.  However, evidence has come to light that suggests that material instances of deception may have been perpetrated by a former employee or employees of the Group during the period 2009 – 2011.  These findings are being investigated further.”

Citigroup

When first discussing Citigroup’s “FCPA scrutiny” I noted the importance of understanding that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues. (See here for a prior post on this subject).  As highlighted in this recent New York Times Dealbook article, this appears to be what Citigroup’s scrutiny involves.  According to the article:

“Federal authorities have opened a criminal investigation into a recent $400 million fraud involving Citigroup’s Mexican unit, according to people briefed on the matter …  The investigation, overseen by the FBI and prosecutors from the United States attorney’s office in Manhattan, is focusing in part on whether holes in the bank’s internal controls contributed to the fraud in Mexico. The question for investigators is whether Citigroup — as other banks have been accused of doing in the context of money laundering — ignored warning signs.”

Cisco

BuzzFeed goes in-depth as to Cisco’s alleged conduct in Russia that has resulted in FCPA scrutiny for the company. The article states, in pertinent part:

“[T]he iconic American firm is facing a federal investigation for possible bribery violations on a massive scale in Russia. At the heart of the probe by the Department of Justice and the Securities and Exchange Commission, sources tell BuzzFeed, are allegations that for years Cisco, after selling billions of dollars worth of routers, communications equipment, and networks to Russian companies and government entities, routed what may have amounted to tens of millions of dollars to offshore havens including Cyprus, Tortola, and Bermuda.”

“Two former Cisco insiders have described to BuzzFeed what they say was an elaborate kickback scheme that used intermediary companies and went on until 2011. And, they said, Cisco employees deliberately looked the other way.”

“No one is suggesting that Cisco bribed Russia’s top leaders. Instead, the investigation is centered on day-to-day kickbacks to officials who ran or helped run major state agencies or companies. Such kickbacks, according to the allegations, enabled the firm to dominate Russia’s market for IT infrastructure.”

“Last year, according to sources close to the investigation, a whistleblower came forward to the SEC, sketching out a vast otkat [kickback] scheme and providing documents as evidence.”

“The two former Cisco executives laid out for BuzzFeed how the alleged scheme worked:  In Cisco’s Russia operations, funds for kickbacks were built into the large discounts Cisco gave certain middleman distributors that were well-connected in Russia. The size of the discounts are head-turning, usually 35% to 40%, but sometimes as high as 68% percent off the list price.  And there was a catch: Instead of discounting equipment in the normal way, by lowering the price, parts of the discounts were often structured as rebates: Cisco sent money back to the middlemen after a sale. Some intermediaries were so close to the Russian companies and government agencies — Cisco’s end customers — that these intermediaries functioned as their agents. These middleman companies would direct the rebate money to be sent to bank accounts in offshore havens such as Cyprus, the British Virgin Islands, or Bermuda.”

According to the article, WilmerHale is conducting the internal investigation.

Societe Generale

Like other financial services company, Societe Generale has come under FCPA scrutiny for business dealings in Libya.  (See here for the prior post).  As noted in this recent article in the Wall Street Journal, in a U.K. lawsuit the Libyan Investment Authority has alleged that the company “paid a middleman $58 million in alleged bribes to secure almost $2 billion in business … during the final years of dictator Moammar Gadhafi’s rule.”

Reading Stack

The most recent issue of the always informative FCPA Update from Debevoise & Plimpton contains a useful analysis of the DOJ’s recent opinion procedure release (see here for the prior post).  Among other things, the Update states:

“[W]hy did it take eight months for the DOJ to issue an Opinion which could have simply cited [a prior Opinion Release]? The delay does not appear to be related to the DOJ’s heavy workload or bureaucratic inertia, as “significant backup documentation” was provided and “several follow up discussions” took place during the eight months.”

*****

A good weekend to all.  On Wisconsin!

Friday Roundup

It’s not every day that …, denied, scrutiny alerts, and a kleptocracy forfeiture action.  It’s all here in the Friday roundup.

It’s Not Every Day …

It’s not every day that a U.S. Senator takes to the Senate floor to accuse a company of violating the Foreign Corrupt Practices Act.

However, as noted here by the Hill, on Tuesday Senator Harry Reid (D-NV) did just that.

“Senate Majority Leader Harry Reid (D-Nev.) on Tuesday accused the Koch  brothers of unlawful business practices in an effort to portray the conservative  billionaires as election-year bogeymen.  Reid charged that Charles and David Koch, who are tied for fourth place on the Forbes list of 400 richest people in the United States, violated the Foreign  Corrupt Practices Act, citing a 2011 report by Bloomberg Markets magazine.  “These are the same brothers whose company, according to a Bloomberg  investigation, paid bribes and kickbacks to win contracts in Africa, India and the Middle East,” Reid said on the Senate floor. “These are the same brothers  who, according to the same report, used foreign subsidiaries to sell millions of  dollars of equipment to Iran, a state sponsor of terrorism.”  Representatives of the Kochs’s business empire fired back quickly in what has  become an escalating battle between the top Democrat in Congress and the press-shy business titans.  A lawyer for Koch Industries said the allegations in the Bloomberg article have been subsequently debunked and did not result in any legal penalty. “Nothing has ever come of any of the allegations that Mr. Reid referred to,” said Mark Holden, general counsel of Koch Industries. “Sen. Reid’s allegations are false,” he added.”

See here for a prior post regarding the referenced Bloomberg article.

Of course it is not just executives or companies that support Republican causes that have come under FCPA scrutiny.  As noted in this prior post the CEO of DreamWorks Animation and the co-founder of Qualcomm Inc., are big spenders for President Obama and the Democratic Party.  Both companies have been the subject of FCPA scrutiny.

Denied

The goal of FCPA Professor is to be a forum in which various views of the FCPA and FCPA enforcement can be expressed.  I frequently extend invitations for guest posts and for years have extended such an invitation to the DOJ.  The answer has always been no.  With Patrick Stokes becoming the new FCPA Unit Chief, I extended the invitation once again.  The DOJ response?  While Mr. Stokes “appreciates the invitation he’ll decline the opportunity.”

You could however, if you are willing to pay over $1,000, have heard Stokes speak yesterday about FCPA “Recent Developments and New Trends” at the ABA National Institute on White Collar Crime in Miami.

As highlighted in this previous post, one should not have to pay to hear public servants speak about the law they enforce.

Scrutiny Alerts

Cisco

This February 14th post was the first to highlight Cisco’s discreet blog post concerning its FCPA scrutiny.  Recently in its quarterly SEC filing the company disclosed:

“At the request of the U.S. Securities and Exchange Commission and the U.S. Department of Justice, the Company is conducting an investigation into allegations which the Company and those agencies received regarding possible violations of the U.S. Foreign Corrupt Practices Act involving business activities of the Company’s operations in Russia and certain of the Commonwealth of Independent States, and by certain resellers of the Company’s products in those countries.  The Company takes any such allegations very seriously and is fully cooperating with and sharing the results of its investigation with the Commission and the Department.  While the outcome of the Company’s investigation is currently not determinable, the Company does not expect that it will have a material adverse effect on its consolidated financial position, results of operations, or cash flows. The countries that are the subject of the investigation collectively comprise less than two percent of the Company’s revenues.”

Citigroup

As has been widely reported (see here from Reuters for instance):

“The SEC is investigating Citigroup for accounting fraud after it disclosed bogus loans in its Mexican Banamex unit, a source familiar with the investigation said.  The securities regulator is also examining whether Citigroup violated the Foreign Corrupt Practices Act, the source said.”

I think it is important to emphasize at times like this, that the FCPA contains generic books and records and internal controls provisions that can be implicated in the absence of any FCPA anti-bribery issues.  (See here for a prior post on this subject).

Rolls Royce Holdings

Rolls Royce Holdings, previously known to be under investigation by the U.K. Serious Fraud Office (see here for the prior post) added the Department of Justice to its recent annual report disclosure.

“A large part of the Group’s business is characterised by competition for individually significant contracts with customers which are often directly or indirectly associated with governments and the award of individually significant contracts to suppliers. The procurement processes associated with these activities are highly susceptible to the risk of corruption. In addition the Group operates in a number of territories where the use of commercial intermediaries is either required by the government or is normal practice. The Group is currently under investigation by law enforcement agencies, primarily the Serious Fraud Office in the UK and the US Department of Justice. Breaches of laws and regulations in this area can lead to fines, penalties, criminal prosecution, commercial litigation and restrictions on future business.”

Rolls Royce later clarified its disclosure as follows.

“Rolls-Royce has been co-operating with regulatory authorities on both sides of  the Atlantic in regard to allegations of bribery and corruption. The Serious  Fraud Office in the UK has launched a formal investigation. The Department of  Justice is also investigating these matters, however we have received no  notification of a formal inquiry being launched in the United States.”

Kleptocracy Forfeiture Action

It receives scant attention compared to FCPA enforcement, but another prong of the DOJ’s efforts to combat bribery and corruption is its Kleptocracy Asset Recovery Initiative under which prosecutors in the DOJ Asset Forfeiture and Money Laundering Section work in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption. (See this 2009 post highlighting Attorney General Holder’s announcement of the program).

Earlier this week, the DOJ announced:

“[The DOJ has] frozen more than $458 million in corruption proceeds hidden in bank accounts around the world by former Nigerian dictator Sani Abacha and conspirators. A civil forfeiture complaint unsealed today in the United States District Court in the District of Columbia seeks recovery of more than $550 million in connection with the largest kleptocracy forfeiture action brought in the department’s history. The restraint of funds announced today includes approximately $313 million in two bank accounts in the Bailiwick of Jersey and $145 million in two bank accounts in France.   In addition, four investment portfolios and three bank accounts in the United Kingdom with an expected value of at least $100 million have also been restrained, but the exact amounts in the accounts will be determined at a later date.”

*****

A good weekend to all.

Friday Roundup

Cisco’s discreet blog post, McDonald’s receives the “princeling” treatment, Avon update, further to the free-for-all, more candy, and for the reading stack.  It’s all here in the Friday roundup.

Cisco’s Discreet Disclosure

There is not much that slips through the cracks when it comes to the FCPA space.

However, this December 23, 2013 Cisco blog post by a Vice President for Compliance Services under the discreet heading “The Importance of Ethics in Global Business” has not otherwise been reported.  The post states, after noting that “for the sixth time in as many years, the Ethisphere Institute honored Cisco by naming us to its list of the “World’s Most Ethical Companies,” as follows:

“Recently, at the request of the Securities and Exchange Commission and the US Department of Justice, Cisco began an investigation into our business activities and discounting practices in Russia and other Commonwealth of Independent States in response to a communication those agencies had received. We are cooperating with the agencies and will fully share the results of our investigation with them. Despite the extensive investigation that we have undertaken thus far, we have found no basis to believe that Cisco’s activities are in violation of any law, and indeed the information we were provided does not allege wrongdoing by any of Cisco’s executive management. While this investigation is ongoing, we do not expect the outcome to have any material adverse effect on our business or operations.”

For a prior post concerning companies that have resolved FCPA enforcement actions or have otherwise been under FCPA scrutiny while at the same general time earning “world’s most ethical” company status see here.

McDonald’s

The word of the last six months would seem to be “princeling.”  In “princeling” updates:

This Wall Street Journal article “Vietnam Gets Its First McDonald’s” states:

“McDonald’s chose Henry Nguyen, a Vietnamese-American investor and the son-in-law of Vietnamese Prime Minister Nguyen Tan Dung, as its main franchise partner in the country.”

This Quartz article “McDonald’s Partnered with a Vietnamese Princeling”  notes:

“Partnering up with a well-connected member of one of Vietnam’s most prominent political families has raised remarkably few eyebrows for McDonald’s—especially given the growing scandal in China over investment banks that have done much the same thing.”

Among other things, the article notes:

“Nguyen, who also heads Vietnam’s Pizza Hut franchise business, worked hard for a decade to convince McDonald’s he was the right person for the partnership, he told Reuters last year. A McDonald’s spokeswoman said then, “His marriage did not preclude him for participating in what was a very competitive selection process.”

As noted in this prior post “Regarding Princelings and Family Members” there is nothing inherently illegal about hiring family members of alleged “foreign officials” and various DOJ FCPA Opinion Procedure Releases have blessed such arrangements.  Even so, several FCPA enforcement actions have been based, at least in part, on the hiring of family members of alleged “foreign officials” – see here.
Speaking of princelings, this Bloomberg article asks “If JPMorgan Has to Shun China’s Princelings, Shouldn’t Harvard?”

Avon

Avon has been under FCPA scrutiny since 2008 and disclosed yesterday as follows.

“The Company recorded an aggregate accrual related to the previously disclosed government Foreign Corrupt Practices Act (“FCPA”) investigations of $89 million, or $0.20 per diluted share, within operating profit, of which $12 million was recorded in the second quarter. Based on the status of the Company’s current settlement negotiations with the DOJ and the staff of the SEC, including the level of monetary penalties being discussed, an additional $77 million was recorded in the fourth quarter, and the Company estimates the aggregate amount of any potential settlements with the government could exceed this accrual by up to approximately $43 million. There can be no assurance that the Company’s efforts to reach settlements with the government will be successful or, if they are, what the timing or terms of such settlements will be.”
During yesterday’s earnings conference call, Avon’s CEO stated:
“As you saw in our press release this morning, we’ve continued our discussions with that SEC and DOJ and we’ve made significant progress. Based on the status of our recent discussions, we believe that a reasonable range for settlement with both agencies would be $89 million to $132 million. Our discussions with the government are ongoing and differences remain, but the team is working hard in an effort to bring these matters to a close.”

Free-For-All

In my recent article “Why You Should Be Alarmed by the ADM FCPA Enforcement Action,” I noted that with increasing frequency in this new era of FCPA enforcement, it appears that the Department of Justice and the Securities and Exchange Commission have
transformed FCPA enforcement into a free-for-all in which any conduct the enforcement agencies find objectionable is fair game to extract a multimillion-dollar settlement from a risk-averse corporation.  In this post regarding the recent Alcoa enforcement action I noted that it was hard to square the enforcement action (the fourth largest FCPA enforcement action of all-time in terms of a settlement amount) when the alleged consultant at the center of the alleged bribery scheme was criminally charged by another law enforcement agency, put the law enforcement agency to its burden of proof at trial, and the law enforcement agency dismissed
the case because there was no ”realistic prospect of conviction.”

Further to the free-for-all, Wiley Rein attorneys Gregory Williams, Ralph Caccia and Richard Smith write here as follows.

“[I]t is remarkable that such a large monetary sanction was imposed when the criminal charges brought by the U.K. Serious Fraud Office against the consultant central to the alleged bribery scheme were dismissed on the grounds that there was no “realistic prospect of conviction.” Perhaps most striking, however, is the theory of parent corporate liability that the settlement reflects. Although there is no allegation that an Alcoa official participated in, or knew of, the improper payments made by its subsidiaries, the government held the parent corporation liable for FCPA anti-bribery violations under purported “agency” principles. Alcoa serves as an important marker in what appears to be a steady progression toward a strict liability FCPA regime.

[…]

Such an enforcement approach appears to abrogate basic tenets of corporate liability. A parent company is not liable for the acts of its subsidiary except when the companies disregard corporate formalities (alter ego theory) or when the subsidiary acts as the agent of the parent for a specific purpose.  For the latter, the parent is required to control the particular activity in question. The government’s new agency theory of enforcement represents an aggressive expansion of corporate liability, with significant the implications for parent companies both in terms of the compliance and potentially liability.”

For additional reading, see this recent post (“Dig into certain corporate Foreign Corrupt Practices Act enforcement actions and it would appear that legal liability seems to hop, skip, and jump around a multinational company.  This of course would be inconceivable in other areas, such as contract liability, tort liability, etc. absent an “alter ego” / “piercing the veil” analysis for the simple reason that is what the black letter law commands”).

More Candy

Previous posts here and here have dispensed FCPA candy (that is year in reviews).  You can be tardy for the party, but still be included in the fun and set forth below are three additional worthwhile reads.

BakerHostetler 2013 Year-End Foreign Corrupt Practices Act Update

“This [recent] decrease [in corporate FCPA enforcement actions] appears to be the result of proactive internal investigations and remediation by U.S. companies that recognize the importance of retaining external resources to investigate FCPA issues in light of the substantial fines levied by the government over recent years.”

That’s a nice way to spin it, but the better answer by far is to have a proper perspective on FCPA statistics and to realize that 35% of all corporate FCPA enforcement actions in recent years and 55% of the settlement amounts were the direct result of just three unique events.

WilmerHale Foreign Corrupt Practices Act Alert

Kudos for the following statement regarding so-called “declinations.”

“[W]hile these corporate disclosures are frequently referred to generically as “declinations,” that term seems to encompass not only genuine declinations where the government exercises discretion to decline prosecution of an otherwise chargeable offense, but also cases where the government decides not to prosecute because it has found insufficient evidence of FCPA violations or faces insurmountable legal hurdles in bringing a case.”

For more on so-called “declinations” see prior posts here, here and here.

Miller & Chevalier FCPA Winter Review 2014 

Once again, be warned – the divergent enforcement statistics are likely to make you dizzy at times and as to certain issues.  [Given the increase in FCPA Inc. statistical information and the growing interest in empirical FCPA-related research, I again highlight the need for an FCPA lingua franca (see here for the prior post), including adoption of the “core” approach to FCPA enforcement statistics (see here for the prior post), an approach endorsed by even the DOJ (see here), as well as commonly used by others outside the FCPA context (see here)]

For the Reading Stack

From the Washington Post, a look at New Jersey Governor Chris Christie and the rise and controversy of non-prosecution and deferred prosecution agreements.

In this recent NY Times Dealbook article, “S.E.C.’s Losing Streak in Court Puts Agency in Spotlight,” Professor Peter Henning (a former SEC enforcement official) begins as follows.

“Every litigator says that trials are messy affairs because no one can predict how they will play out.  After a string of recent unfavorable verdicts in fraud cases, the Securities and Exchange Commission may, too, be concerned with that trend. The S.E.C. is a bit like the New York Yankees, because every defeat is magnified, so we should be careful not to read too much into the anecdotal evidence as garnered by the results of a few recent trials.  Most cases filed by the agency are settled, garnering only modest publicity, so the effectiveness of its enforcement program is not tied solely to its wins in the courtroom.”

For more on the SEC’s recent losses, see here from Marc Fagel and Mary Kay Dunning (Gibson Dunn).

“One likely consequence [of the SEC’s recent losses] may be an increase in the number of enforcement matters filed as administrative cease-and-desist proceedings rather than as federal district court actions.”

Spot-on observation, but again a sorry state of affairs in that a way for the SEC to avoid litigated losses when put to its burden of proof is to avoid the judicial system altogether.

A recent survey from AlixPartners conducted in November 2013.  (The survey group consisted of executives at companies based in North America, Europe, the Middle East, and Asia that have annual revenues of $150 million or more).  “The survey also found that although some companies have expanded the scope of their reviews of their foreign subsidiaries, one-third said they have not done that. Less than half (43%) of respondents said they regularly conduct due diligence on third-party agents.”  (See here for the prior post “It’s More Like Bronze Dust.”).

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