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Friday Roundup

Roundup2

Scrutiny alerts and updates, double standard, ripple, job description, new website, quotable and for the reading stack.  It’s all here in the Friday roundup.

Scrutiny Alerts and Updates

Vimpelcom / TeliaSonera

As highlighted in this recent post, when recently asked about the slowdown in 2015 DOJ corporate FCPA enforcement Andrew Weissmann (Chief of the DOJ Fraud Section) stated: “just wait three months, it might be a very different picture.”

According to this report:

“Vimpelcom “is set to announce a settlement with the US Department of Justice and Swiss and Dutch authorities that will be “just shy of a billion dollars.” […]  A source close to the DoJ, which does not comment publicly on individual cases, said it is expected that approximately three-quarters of the funds would go to the US government and the remainder to the European governments. […] [S]ources say [the Vimpelcom action] is a precursor for a much larger settlement coming down the line with TeliaSonera, the Swedish telecom operator.”

See this prior post titled “The Burgeoning Uzbekistan Telecommunication Investigations.”

SBM Offshore

Previous posts have highlighted SBM Offshore’s scrutiny including its disclosure in November 2014 that the DOJ informed the company “that it is not prosecuting the Company and has closed its inquiry” into allegations of improper conduct in Brazil and other countries.

Earlier this week, the company disclosed:

“[The DOJ] has informed SBM Offshore that it has re-opened its past inquiry of the Company and has made information requests in connection with that inquiry.  The Company is seeking further clarification about the scope of the inquiry.  The Company remains committed to close-out discussions on this legacy issue which the Company self-reported to the authorities in 2012 and for which it reached a settlement with the Dutch Public Prosecutor in 2014.”

British American Tobacco

This previous Friday roundup highlighted the scrutiny surrounding British American Tobacco. Recently, several members of Congress sent this letter to Andrew Weissmann (Chief of the DOJ’s Fraud Section) stating in pertinent part:

“We are deeply troubled by recent media reports alleging that British American Tobacco (BAT) conspired to bribe politicians and public health officials across Central and East Africa to block, weaken, and delay the passage and implementation of public health laws designed to protect people from the deadly effects of tobacco. We request the Department of Justice to investigate BAT’s alleged bribery to determine whether it violated the Foreign Corrupt Practices Act.”

General Cable

The company has been under FCPA scrutiny since approximately September 2014 and recently disclosed:

“As previously disclosed, we have been reviewing, with the assistance of external counsel, our use and payment of agents in connection with, and certain other transactions involving, our operations in Angola, Thailand, India, China and Egypt (the “Subject Countries”). Our review has focused upon payments and gifts made, offered, contemplated or promised by certain employees in one or more of the Subject Countries, directly and indirectly, and at various times, to employees of public utility companies and/or other officials of state owned entities that raise concerns under the Foreign Corrupt Practices Act (“FCPA”) and possibly under the laws of other jurisdictions. We have substantially completed our internal review in the Subject Countries and, based on our findings, we have increased our outstanding FCPA-related accrual of $24 million by an incremental $4 million, which represents the estimated profit derived from these subject transactions that we believe is probable to be disgorged. We have also identified certain other transactions that may raise concerns under the FCPA for which it is at least reasonably possible we may be required to disgorge estimated profits derived therefrom in an incremental aggregate amount up to $33 million.
The amounts accrued and the additional range of reasonably possible loss solely reflect profits that may be disgorged based on our investigation in the Subject Countries, and do not include, and we are not able to reasonably estimate, the amount of any possible fines, civil or criminal penalties or other relief, any or all of which could be substantial. The SEC and DOJ inquiries into these matters remain ongoing, and we continue to cooperate with the DOJ and the SEC with respect to these matters.”

Qualcomm 

As highlighted in previous posts, Qualcomm has been under FCPA scrutiny for over four years and recently disclosed:

“On March 13, 2014, the Company received a Wells Notice from the SEC’s Los Angeles Regional Office indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against the Company for violations of the anti-bribery, books and records and internal control provisions of the FCPA. The bribery allegations relate to benefits offered or provided to individuals associated with Chinese state-owned companies or agencies. The Wells Notice indicated that the recommendation could involve a civil injunctive action and could seek remedies that include disgorgement of profits, the retention of an independent compliance monitor to review the Company’s FCPA policies and procedures, an injunction, civil monetary penalties and prejudgment interest.

A Wells Notice is not a formal allegation or finding by the SEC of wrongdoing or violation of law. Rather, the purpose of a Wells Notice is to give the recipient an opportunity to make a “Wells submission” setting forth reasons why the proposed enforcement action should not be filed and/or bringing additional facts to the SEC’s attention before any decision is made by the SEC as to whether to commence a proceeding. On April 4, 2014 and May 29, 2014, the Company made Wells submissions to the staff of the Los Angeles Regional Office explaining why the Company believes it has not violated the FCPA and therefore enforcement action is not warranted.

On November 19, 2015, the DOJ notified the Company that it was terminating its investigation and would not pursue charges in this matter. The DOJ’s decision is independent of the SEC’s investigation, with which we continue to cooperate.”

Double Standard

While we wait for additional FCPA enforcement actions against financial service firms based on alleged improper internship and hiring practices in the mold of the BNY Mellon action, the Wall Street Journal reports:

“Wall Street is emerging as a particularly dominant funding source for Republicans and Democrats in the presidential election, early campaign-finance reports filed with the Federal Election Commission show. So far, super PACs have received more than one-third of their donations from financial-services executives, according to data from the nonpartisan Center for Responsive Politics.”

Separately, certain FCPA enforcement actions have been based on alleged “foreign officials” receiving speaking fees or excessive honorariums. Against this backdrop, here is the list of Hillary Clinton’s speaking fees for speeches delivered to Wall Street audiences after she left the State Department but while she was a presumptive presidential candidate.

Ripple

Och-Ziff Capital Management has been under FCPA scrutiny since 2011. In this recent investor conference call, a company executive stated: “Uncertainty stemming from the FCPA investigation has also had some impact on investment decisions by certain LPs.”

In other words, a ripple of FCPA scrutiny.

To learn how FCPA scrutiny and enforcement has a range of negative financial impacts on a company beyond enforcement action settlement amounts, see “FCPA Ripples.”

Job Description

What is the Assistant Deputy Chief of the DOJ’s Foreign Corrupt Practices Act Unit expected to do? See here for the job opening and expected duties.

New Website

The U.K. Serious Fraud Office recently unveiled a new website. Among the feature is a “current cases” page which specifically lists the following companies are under investigation for bribery/corruption offenses.

  • Alstom Network UK Ltd & Alstom Power Ltd
  • ENRC Ltd
  • GPT Special Project Management Ltd
  • Innovia Securency PTY Ltd
  • Rolls-Royce PLC
  • Soma Oil & Gas

Quotable

In this Corporate Crime Reporter interview, Crispin Rapinet (a partner at Hogan Lovells in London) states:

“The danger of deferred prosecution agreements is the commercial temptation to deal with a problem that may or may not be in reality a real problem. If you pushed the prosecutor to actually establish that it is a criminal offense, it may not be that straight-forward. But the temptation for any corporate to deal with that risk through a commercial settlement which involves a sum of money and living with someone looking over your shoulder for a period of time is understandably great.

Whether that, from a jurisprudential point of view, is the ideal world is questionable. You can see why people might take the view of — we don’t actually know whether these people have committed a criminal offense or not. But the power of the threat of the cost and time and management distraction associated with defending a claim, to say nothing of the ultimate risk if you are ultimately unsuccessful in your defense, is such that in the overwhelming majority of circumstances where these problems arise, the commercial temptation is to enter into a deferred or non prosecution agreement.”

Spot-on.

For The Reading Stack

An informative read here from Jon Eisenberg (K&L Gates) regarding SEC civil monetary penalties.

Arthur Anderson And The Myth Of The Corporate Death Penalty

I have long wondered (see here for a prior post) about the “shelf life” of the Arthur Anderson prosecution.  In other words, how long will the 2002 prosecution and related consequences  (soon after it was convicted of a criminal charge, Arthur Anderson ceased being a viable business even though the Supreme Court overturned the verdict) guide DOJ corporate charging decisions?

Against this backdrop, I was happy to be contacted recently by Gabriel Markoff, a recent graduate of the University of Texas School of Law and current law clerk at the Southern District of Texas.  Today’s post is from Markoff in which he describes his research findings and discusses a working draft of his article “Arthur Anderson and the Myth of the Corporate Death Penalty:  Corporate Criminal Convictions in the Twenty-First Century” see here to download.

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Arthur Andersen and the Myth of the Corporate Death Penalty

The conventional wisdom states that prosecuting even the largest and most established of corporations can subject them to terrible collateral consequences that risk putting them out of business, thereby causing massive social and economic harm.  Under this viewpoint, which has come to dominate the literature following the demise of Arthur Andersen after that firm’s conviction in the wake of the Enron scandal, even a criminal indictment can be a “corporate death penalty.”  In fact, no less of a legal luminary than Professor and former SEC Commissioner Joseph Grundfest has stated his belief that “prosecutors can bring down or cripple many of America’s leading corporations simply by indicting them on sufficiently serious charges.  No trial is necessary.”  Additionally, the Department of Justice (“DOJ”) has implicitly accepted this view by declining to prosecute many large companies in favor of using deferred and non-prosecution agreements (collectively, “DPAs”).  Yet there has never been any empirical evidence to support the existence of the “Andersen Effect” and the much-hyped corporate death penalty, for no one has empirically studied what happens to companies after conviction.  In my Article, I do just that, and I find that—much in opposition to the warnings of extreme collateral consequences that are continually repeated in both the popular and academic literature—no publicly traded company went out of business as the result of a federal criminal conviction in the years 2001 to 2010.

I began my study by deriving a list of publicly traded companies convicted in the years 2001 to 2010 from the organizational conviction database compiled by Professor Brandon Garrett and generously made available online at the University of Virginia Law School’s library website.  Public companies were defined as those that had made SEC filings and were listed on a major domestic or foreign stock exchange at the time of conviction.  Companies were counted as convicted if they had been found guilty of a federal felony or misdemeanor at trial or by guilty plea.  Companies that entered into DPAs were not counted as convicted.  Once I derived my list, I used Google searches of business news articles, supplemented by examinations of SEC filings where necessary, to determine what had happened to the companies after they were convicted.  Next, for each company that was not still in existence under the same name on the same exchange, I determined whether it had merged with or been acquired by another company under favorable conditions, or if instead it had failed.  I counted a company as having failed if it went defunct, entered insolvency proceedings, or was forced into a merger or acquisition under unfavorable conditions.  For each company that failed, I performed additional searches to determine whether the conviction was causally related to the failure.  Finally, when the relevant plea information was available, I noted each instance where a company agreed to implement a compliance program, corporate monitor, or cooperation regime as part of its plea agreement.

To briefly summarize my most important results, I found 51 convictions of public companies between 2001 and 2010, a number that roughly tracks the U.S. Sentencing Commission’s report that 63 “openly traded” companies were convicted between 2000 to 2009.  All the convictions were obtained by plea agreement, and indictments were only filed in two cases.  For 36 of the 51 convictions, the convicted companies are still active on their respective stock exchanges under the same tickers.  An additional 11 companies merged with another company after their conviction under favorable conditions that indicated that their health was not notably harmed by the conviction.  Finally, four companies suffered business failures at some point in time following their convictions.  However, not a single one of the companies failed under circumstances that could reasonable be linked to their convictions, and, in fact, only one company—Japan Airlines International—failed within three years of the date of conviction.   Finally, compliance programs were put in place by plea agreement in 13 of the convictions, corporate monitors in four, and cooperation agreements in 16.

Reasonable caveats such as the possibility of selective prosecution aside, the fact remains that, if the threat of collateral consequences is as terribly dire as it is made out to be, at least some of the public companies convicted in the years 2001 to 2010 should have gone out of business as a result of their convictions.  But they did not.  When that fact is combined with the corresponding reality that plea agreements can be used to obtain the implementation of compliance programs and monitors just as DPAs can, the two main justifications usually cited for preferring DPAs over convictions appear groundless.  That is not to say that DPAs should never be used.  It is certainly possible to imagine some unique situation where a DPA would be socially and economically preferable to a prosecution and resulting conviction.  But the nearly indiscriminate use of DPAs with large corporations—in contrast to the DOJ’s continued tendency to prosecute and convict small companies—that predominates today is not supportable.  The stronger deterrent value of conviction should make prosecution with the goal of obtaining guilty verdicts or plea agreements the DOJ’s default method of enforcing the federal criminal law against large corporations.

It may be that the debate over the proper extent of corporate criminal liability and the use of DPAs is bound to be politically and ideologically charged.  But the least that can be done is for policymakers to make decisions based on the empirical evidence, rather than on the untested dogma that has dominated the debate over the past decade.  It is my hope that the results I present in my Article can make a small contribution to moving the literature in that more pragmatic—and, ultimately, more sustainable—direction.

I am happy to answer any questions that any readers may have, and I may be reached here.  Thank you to Professor Koehler for allowing me this opportunity to discuss my Article.

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