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Financial Reform Bill Contains Major Compliance Headache

News coverage today will be extensive as to the Dodd-Frank Wall Street Reform and Consumer Protection Act – the financial reform bill – that is expected to be signed by President Obama next week.

But you probably will not see much coverage as to a key “miscellaneous provision” tacked onto the end of the massive bill.

However, to many readers of this blog, this key “miscellaneous provision” is sure to cause much angst – as well it should. And no, I am not talking about the whistleblower provisions included in the financial reform bill that can reward a whistleblower who reports securities laws violations, a provision some are calling the FCPA Whistleblower Bounty Program (see here), even though the provisions are not specific to the FCPA. I will cover these provisions in a future post.

The “miscellaneous provision” is Section 1504.

It is titled “Disclosure of Payments by Resource Extraction Issuers” and it is substantively similar to S.1700, a bad bill that was introduced in the Senate in September 2009. I covered this bill, and its many problems, in this prior post.

As I noted in the prior post, bribery and corruption are bad, but that does not mean that every attempt to curtail bribery and corruption is good.

Case in point is Section 1504 of the financial reform bill.

In short, Section 1504 will substantially increase compliance costs and headaches for numerous companies that already have extensive FCPA compliance policies and procedures by further requiring disclosure of perfectly legal and legitimate payments to foreign governments. Section 1504 is akin to “swatting a fly with a bazooka” and it attempts to legislate an issue that was sensibly put to rest in the mid-1970’s when Congress held extensive hearings on what would become the FCPA.

Section 1504 amends Section 13 of the Securities Exchange Act of 1934 (15 USC 78m) (“Periodical and Other Reports”) by adding a new section “Disclosure of Payments by Resource Extraction Issuers.”

Under this section, “no later than 270 days after enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the [SEC] shall issue final rules that would require:

• a “Resource Extraction Issuer” (a defined term which means an issuer that:(i) is required to file an annual report with the Commission; and (ii) engages in the commercial development of oil, natural gas, or minerals”)

• to include in its annual report

• “information relating to any payment”

• made by the issuer, “a subsidiary” of the issuer, “or any entity under the control of the issuer”

• to a “foreign government” (a defined term which means a “foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission”) or the “Federal Government”

• for “the purpose of the commercial development of oil, natural gas, or minerals.”

Although it is possible that the final SEC rules may shed more light on the above provisions, at this point not much about Section 1504 is clear.

Therein lies the problem.

Not sure, if your company is a “Resource Extraction Issuer” because you are unclear what “commercial development of oil, natural gas, or minerals” means?

No problem, Section 1504 provides this crystal clear definition – “the term ‘commercial development of oil, natural gas, or minerals’ includes exploration, extraction, processing, export and other significant actions relating to oil, natural gas, or minerals, or the acquisition of a license for any such activity, as determined by the [SEC]. “

In other words, if you are an issuer, and you engage in “significant actions relating to oil, natural gas, or minerals” you just may have some huge, new reporting / disclosure requirements imposed on you!

Still confused? Join the club.

Is selling equipment to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?” Is selling exploration software to a core resource extraction company, which is then used to explore for oil, natural gas, or minerals a “significant action relating to oil, natural gas, or minerals?”

What is a payment?

That’s an easy one and Section 1504 provides this crystal clear definition – the term payment means:

(i) a payment that is (I) made to further commercial development of oil, natural gas, or minerals; and (II) not de minimis; and

(ii) includes taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits, that the Commission […] determines are part of the commonly recognized revenue stream for the commercial development of oil, natural gas, or minerals.”

Ignoring for the moment the imperfect and imprecise definition of “Resource Extraction Issuer,” it is one thing to require such issuers to disclose royalties paid to a foreign government, and if that is viewed as providing transparency and eliminating bribery and corruption (however dubious that view may be), well then perhaps Section 1504 is a good piece of legislation.

But Section 1504 seeks disclosure and reporting of much, much more and could conceivably require disclosure of every single dollar a “Resource Extraction Issuer” makes to a “foreign government, a department, agency, or instrumentality of a foreign government, or a company owned by a foreign government, as determined by the Commission” for the “purpose of the commercial development of oil, natural gas, or minerals.”

Here is the real kicker though.

Section 1504 requires all payments (meeting the above definitions – if indeed you can figure out what those definitions are) to be disclosed, including perfectly legitimate and legal payments.

To those who supported Section 1504, I’ve got this to say – “we’ve been down this road before.”

It is called the FCPA (and the various versions of the statute before it was enacted). Years of congressional hearings were had as to this very same disclosure issue and we don’t need to repeat this exercise.

Here is some background.

The FCPA as enacted in 1977 contained (and still contains) an outright prohibition on improper payments to “foreign officials” to obtain or retain business (the anti-bribery provisions) as well as books and records and internal control provisions – but not disclosure provisions.

The original versions of what became the “FCPA” (i.e. the “Foreign Payments Disclosure Act” and other similar bills) started out with disclosure provisions, including provisions requiring all U.S. companies to disclose all payments over $1,000 to any foreign agent or consultant and any and all other payments made in connection with foreign government business.

As to these disclosure provisions, many people, including, most notably Senator Proxmire (D-WI – a Congressional leader on what would become the FCPA), were concerned that the disclosure obligations were too vague to enforce and would require the disclosure of thousands of payments that were perfectly legal and legitimate.

Proxmire said during congressional hearings, “I would think they [the corporations subject to the disclosure requirements] would want some certainty. They want to know what they have to report and what they don’t have to report. They don’t want to guess and then find themselves in deep trouble because they guessed wrong.”

The final House Report (see here) on what would become the FCPA is even more clear. It states (when discussing the various disclosure provisions previously debated, but rejected):

“Most disclosure proposals would require U.S. corporations doing business abroad to report all foreign payments including perfectly legal payments such as for promotional purposes and for sales commissions. A disclosure scheme, unlike outright prohibition, would require U.S. corporations to contend not only with an additional bureaucratic overlay but also with massive paperwork requirements.”

The words of the late Senator Proxmire and the sensible conclusion reflected in the House Report are equally applicable to Section 1504.

Section 1504 (while however noble its intended purpose) is akin to “swatting a fly with a bazooka.”

The FCPA already criminalizes improper payments made to the “foreign government” recipients targeted in Section 1504 to the extent those payments are made to “obtain or retain business.”

Do we really now need a law that requires “Resource Extraction Issuers” to disclose all such payments, even perfectly legitimate and legal payments?

In passing the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress apparently said yes to this question. However, with any bill of this magnitude, it is likely that certain members of Congress did not even know what they were voting for or, if they did, were willing to accept undesirable “miscellaneous provisions” to ensure overall passage. In fact, what is now Section 1504 never made it “out of committee” since being introduced in September 2009. A similar bill was also introduced in 2008, but likewise went nowhere.

That is all water under the bridge as they say, because Section 1504 is likely soon to become law.

An Interesting Corollary

Last week’s guest post (here) about the 1988 amendments to the Foreign Corrupt Practices Act and the DOJ’s decision not to issue compliance guidance provides an interesting corollary to private rights of action under the FCPA.

How so?

Around the same general time frame as the 1988 FCPA amendments, several courts addressed the issue of whether the FCPA contained an implied private right of action.

The answer was no.

Guess what was a key factor in the courts’ reasoning?

The guidance that Congress envisioned the Attorney General would issue.

The leading FCPA private right of action case is Lamb v. Phillip Morris Inc., 915 F.2d 1024 (6th Cir. 1990).

Here is what the court had to say:

“Recognition of the plaintiffs’ proposed private right of action, in our view, would directly contravene the carefully tailored FCPA scheme presently in place. Congress recently expanded the Attorney General’s responsibilities to include facilitating compliance with the FCPA. See 15 U.S.C. §§ 78dd-1(e), 78dd-2(f). Specifically, the Attorney General must ‘establish a procedure to provide responses to specific inquiries’ by issuers of securities and other domestic concerns regarding ‘conformance of their conduct with the Department of Justice’s [FCPA] enforcement policy….’ 15 U.S.C. §§ 78dd-1(e)(1), 78dd-2(f)(1). Moreover, the Attorney General must furnish ‘timely guidance concerning the Department of Justice’s [FCPA] enforcement policy … to potential exporters and small businesses that are unable to obtain specialized counsel on issues pertaining to [FCPA] provisions.’ 15 U.S.C. §§ 78dd-1(e)(4), 78dd-2(f)(4). Because this legislative action clearly evinces a preference for compliance in lieu of prosecution, the introduction of private plaintiffs interested solely in post-violation enforcement, rather than pre-violation compliance, most assuredly would hinder congressional efforts to protect companies and their employees concerned about FCPA liability.”

Given that the expected Attorney General guidance was a key factor in the court’s reasoning that the FCPA does not contain a implied private right of action, how would a court address this issue today given that the Attorney General never issued the guidance?

Also, what about the snippet from the Sixth Circuit’s opinion – that the 1988 amendments “clearly evinces a preference for compliance in lieu of prosecution.”

In this era of so-called aggressive FCPA enforcement, does the DOJ have its priorities backwards

DOJ Guidance and the FCPA

That is the issue addressed by James Parkinson (Mayer Brown – see here) in the below guest post.

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As followers of this blog know well, the UK’s newly-enacted Bribery Act (here) calls for the UK government to “publish guidance about procedures that relevant commercial organisations can put into place to prevent persons associated with them from bribing…” Seeing this provision in the Bribery Act suggests the question whether similar guidance issued by the US government would be helpful.

As it turns out, the US government considered this very question over 20 years ago but declined to offer guidance to companies affected by the FCPA. In the 1988 amendments to the FCPA, Congress added provisions entitled “Guidelines by Attorney General,” which required the following:

“Not later than one year after August 23, 1988, the Attorney General, after consultation with the Commission, the Secretary of Commerce, the United States Trade Representative, the Secretary of State, and the Secretary of the Treasury, and after obtaining the views of all interested persons through public notice and comment procedures, shall determine to what extent compliance with this section would be enhanced and the business community would be assisted by further clarification of the preceding provisions of this section and may, based on such determination and to the extent necessary and appropriate, issue–

(1) guidelines describing specific types of conduct, associated with common types of export sales arrangements and business contracts, which for purposes of the Department of Justice’s present enforcement policy, the Attorney General determines would be in conformance with the preceding provisions of this section; and

(2) general precautionary procedures which issuers may use on a voluntary basis to conform their conduct to the Department of Justice’s present enforcement policy regarding the preceding provisions of this section.

The Attorney General shall issue the guidelines and procedures referred to in the preceding sentence in accordance with the provisions of subchapter II of chapter 5 of Title 5 and those guidelines and procedures shall be subject to the provisions of chapter 7 of that title.”

15 U.S.C. §§ 78dd-1(d), 78dd-2(e).

Following the 1988 mandate, the DOJ issued a formal notice inviting all interested persons “to submit their views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines.” Department of Justice, Anti-Bribery Provisions of the Foreign Corrupt Practices Act, 54 Fed. Reg. 40,918 (Oct. 4, 1989).

What happened?

On July 12, 1990, the DOJ declined to issue guidelines on the anti-corruption provisions of the FCPA, stating:

“After consideration of the comments received, and after consultation with the appropriate agencies, the Attorney General has determined that no guidelines are necessary…. [C]ompliance with the [anti-bribery provisions] would not be enhanced nor would the business community be assisted by further clarification of these provisions through the issuance of guidelines.”

Department of Justice, Anti-Bribery Provisions, 55 Fed. Reg. 28,694 (July 12, 1990).

How many responses did the DOJ receive?

According to the OECD’s Phase I Report on the US implementation of the Convention (at 15), “[o]nly 5 responses were received, and 3 of the responses were to the effect that guidelines were unnecessary.”

This suggests another question: what would the commentary landscape look like today if the DOJ published a new Federal Register notice soliciting “views concerning the extent to which compliance with 15 U.S.C. 78dd-1 and 78dd-2 would be enhanced and the business community assisted by further clarification of the provisions of the anti-bribery provisions through the issuance of guidelines”?

Given the rise in enforcement activity and the focus companies now bring to compliance, it seems very likely that far more than five people would submit comments.

DOJ Speaks

There is a “same speech, different day” aspect of late when the DOJ talks about the FCPA. One can reasonably predict what will be said (i.e. DOJ values voluntary disclosure and cooperation), even before it is said, and this has the tendency of diminishing the message.

This week it was Compliance Week 2010 (see here). The speaker’s – Acting Deputy Attorney General Gary Grindler and Assistant Attorney General (Criminal Division) Lanny Breuer.

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On Tuesday, Grindler spoke (see here for his remarks).

Grindler began his remarks as follows:

“Having spent a good portion of my career in private practice representing corporate clients and advising them on compliance matters, I am no stranger to what I suspect many of you in the audience are thinking: What is the Department of Justice focused on and how can I make sure my clients stay as far away from it as possible? I’d like to spend my time with you this evening hopefully answering the first question by giving you a sense of some of the policy and enforcement priorities that we are focused on at the Department and sharing some of my thoughts how you can best position your clients when interacting with the Department.”

Grindler’s remarks covered three general topics: DOJ’s Financial Fraud Enforcement Task Force, DOJ’s efforts to combat health care fraud, and the DOJ’s new Intellectual Property Enforcement Task Force.

While speaking on health care fraud, Grindler noted:

“You can be assured that we will also use every tool at our disposal to investigate and prosecute corrupt practices in the pharmaceutical industry. In the months ahead, for example, you can expect to see the Department increasingly use the Foreign Corrupt Practices Act to prosecute kickbacks and bribes paid to foreign government officials by pharmaceutical companies. As the drug companies do more and more of their business overseas where so much of the health care business is government run, we see the opportunities for FCPA violations unfortunately proliferating. Indeed, in some foreign countries nearly every aspect of the approval, manufacture, import, export, pricing, sale and marketing of a drug product may involve a “foreign official” within the meaning of the FCPA. The extent of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates, in our view, a significant risk that corrupt payments will infect the process. The Department will not hesitate to charge pharmaceutical companies and their senior executives under the FCPA if warranted to root out foreign bribery in the industry.”

For the same speech, different day version, see here and here.

The final part of Grindler’s speech is titlted – “What You Can Do.” Excerpted portions are below.

“Now, how can you best advise your clients in light of the Department’s enforcement priorities and given the climate we are in where there is so much distrust of corporate America.”

“First, you can make sure that your clients have robust, effective compliance programs and internal controls. A company’s compliance program continues to be one of the most important factors that we consider under the Principles of Federal Prosecution of Business Organizations. You are on the front lines of this issue and can make a real difference in your respective institutions by sending the message about the need for an effective compliance program. Compliance programs must not exist only on paper.”

“In this context, I want to point out that the United States Sentencing Commission recently amended the Sentencing Guidelines on the issue of compliance programs. Specifically, the Commission clarified the importance of assessing and modifying compliance programs after you discover criminal conduct at your company. The current Guidelines provide that, following the discovery of criminal conduct, a company should, among other things, make “any necessary modifications to the organization’s compliance and ethics program.” The new amendment — assuming it goes into effect in November — provides a new commentary to that provision specifying that this post-violation process includes “assessing the compliance and ethics program and making modifications necessary to ensure the program is effective … and may include the use of an outside professional advisor to ensure adequate assessment and implementation of any modifications.”

“In addition, the latest Guideline amendments clarify the circumstances under which an effective compliance and ethics program can entitle an organization to a 3-level reduction in its culpability score. Specifically, the amendment allows an organization to receive the decrease if the organization meets four criteria: (1) the individual or individuals with operational responsibility for the compliance and ethics program have direct reporting obligations to the organization’s governing authority or appropriate subgroup thereof; (2) the compliance and ethics program detected the offense before discovery outside the organization or before such discovery was reasonably likely; (3) the organization promptly reported the offense to the appropriate governmental authorities; and (4) no individual with operational responsibility for the compliance and ethics program participated in, condoned, or was willfully ignorant of the offense. These amendments reinforce the point that having a robust compliance program is critical not only to preventing misconduct in the first place, but also how your organization will be treated in the event criminal conduct does take place.”

“The second thing you can do to best position your client, is you can partner with us. As I hope has been clear in my discussion of our enforcement efforts, there is a consistent theme of the importance of sharing information and partnering with the private sector in its anti-fraud efforts. Through examples like the National Heath Care Fraud Summit and the regional mortgage fraud summits, we have been reaching out to private sector anti-fraud professionals to share information about fraud schemes and improvements in data analysis. While we have limitations in what we can share, we are interested in exploring ways to work together within those constraints. If the private sector sees new fraud schemes or ways in which we can prevent fraud, that is something you should share with us.”

“Third, you can advise your clients to make early, voluntary disclosure of misconduct. As you know, it is usually in your client’s best interest to cooperate with the government’s investigation through the disclosure of relevant facts, the production of documents and other evidence, and making witnesses available who have relevant information.”

“Fourth, you can guide your client’s decision to take meaningful remedial measures in response to criminal wrongdoing, including the payment of restitution and the disciplining or termination of culpable employees, officers, or directors.”

“In the end, all of these steps – robust compliance programs, information sharing between public and private sector anti-fraud efforts, voluntary disclosure, and meaningful remedial measures — will inure to the benefit of your clients in several significant ways. They will deter criminal conduct from occurring in the first place. They will ensure that if and when misconduct does occur, it is detected early on and can be rooted out before too much damage is done. Your client will receive credit for such actions during the prosecutorial decision-making process. Finally, such steps will make your clients stronger corporate citizens, and will empower your clients’ officers, directors, and employees to fulfill their fiduciary obligations to shareholders and their duties of honest dealing to the investing public and the taxpayers.”

For more on Grindler’s speech, including topics raised during the Q&A, see this piece from Christopher Matthews at Main Justice.

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On Wednesday, Breuer spoke (see here for a copy of his remarks). Below are various excerpts from the speech.

Given the DOJ’s recent “bribery, yet no bribery” cases against BAE and Daimler, I must admit to getting a bit frazzled after only paragraph two of the speech in which Breuer talks about the “the Justice Department’s determination to prosecute – and prosecute aggressively – financial fraud and corruption in all its forms. The American public demands no less, and we will deliver no less.”

Speaking generally, Breuer described “a new era of heightened white-collar crime enforcement – an era marked by increased resources, increased information-sharing, increased cooperation and coordination, and tough penalties for corporations and individuals alike.”

Breuer next discussed that “additional resources are also being committed in the Criminal Division, where we are in the process of adding a number of attorneys to the Fraud Section – lawyers who will be deployed immediately to prosecute crimes like securities fraud, health care fraud, and foreign bribery under the Foreign Corrupt Practices Act.” He cited the Africa Sting case as an example of using “more aggressive law enforcement techniques” and further stated that “it is fair to say that [DOJ] will continue to look for opportunities to innovate in how we identify financial fraud and corruption.”

Speaking of innovation at the SEC, Breuer stated:

“The SEC will now make use of cooperation agreements, as well as deferred and non-prosecution agreements – all of which have been staples of the Justice Department’s approach in white collar criminal cases for many years now. These innovations will likely lead to even earlier and closer coordination between the SEC and the Justice Department.”

Breuer next talked specifically about foreign bribery “which obviously is at the center of this heightened enforcement climate and which presents unique compliance challenges.”

Below are his remarks.

“As I have said in the past, foreign bribery is a law enforcement challenge of truly global dimensions. It is, as the Attorney General has said, a ‘scourge on civil society.’ We in the Criminal Division combat foreign bribery each and every day. And as we go about our business, we are looking carefully at lapses in corporate compliance. Why? Because of what I said a few minutes ago. Our preference, like yours, is for these crimes to be prevented in the first instance. And the only way that can happen in your organizations is through a robust, state-of-the-art compliance program and a true culture of compliance.”

“I know that you all do not lack for incentives; the statistics in FCPA enforcement are well known. But it is worth pausing on them for a moment.”

“Since 2004, the Fraud Section has achieved 37 corporate FCPA and foreign bribery related resolutions, with fines totaling over $1.5 billion. In this time period, we have charged 81 individuals with FCPA violations and related offenses. Forty-six have been charged since the start of 2009 – more than the total number of individuals charged in the previous seven years combined.”

“The individuals charged have included CEOs, CFOs, other senior-level corporate officials and, where jurisdiction existed here, several foreign officials. Charging individuals is part of a deliberate enforcement strategy to deter and prevent corrupt corporate conduct before it happens. And rest assured that we will seek equally tough sentences, including significant jail time if appropriate, to reinforce this message of deterrence.”

“Aggressive enforcement by the Criminal Division provides one set of incentives for corporations. Others are sprouting up each and every day, and they are coming from all corners as anti-fraud and corruption enforcement catches up with the globalization of business.”

“Here in the United States, the United States Sentencing Commission recently approved amendments to its Sentencing Guidelines, one of which reaffirmed the importance of compliance and ethics programs within organizations. The amendment stressed the critical need to embed these programs at the very highest level of the organization. In an interesting twist, the Commission expanded eligibility for effective compliance and ethics program credit at sentencing even if one or more members of ‘high level personnel’ has some role in the offense.”

“But there’s a catch. In order to be eligible for credit where there is such ‘high level’ involvement, the corporation must have in place a direct reporting relationship between the individual with operational responsibility for the compliance program and the corporation’s governing body. And more than that, the corporation must have discovered the offense and reported it to enforcement officials before it otherwise became known. The amendment has not been uncontroversial. But whatever your opinion, it can at least be said that the amendment reflects the Commission’s view that compliance should be embedded at the very highest levels of an organization.”

“On the international front, the United Kingdom has passed a new, comprehensive Bribery Act that criminalizes, among other things, the failure by a corporate entity to prevent bribery. Pretty serious, right? Well, the Act does provide a defense to such a charge if the corporate entity can show that it has ‘adequate procedures’ in place to deter and detect such conduct. What does ‘adequate procedures’ mean? It’s not entirely clear. And I’m, of course, not your lawyer. But, at a minimum, it would seem prudent to have in place a strong, state-of-the-art compliance program.”

Breuer then offers a few thoughts on compliance and offers up the Principles of Federal Prosecution of Business Organizations (see here) and the OECD’s Good Practice Guidance on Internal Controls, Ethics, and Compliance (see here – Annex II) as benchmarks.

Breuer then acknowledges that “even the best compliance program may not stop fraud or corruption from occurring. So, what should a corporation do when a problem has been discovered?”

Because the answer has been stated numerous, numerous times, you probably already known the answer – voluntarily disclose and cooperate.

Below are Breuer’s comments on these issues:

“Whether to voluntarily disclose potential criminality is admittedly a difficult question for business entities.”

“But I can offer you this: If you come forward and if you fully cooperate with our investigation, you will receive meaningful credit for having done so. In talking about ‘meaningful’ credit, we are not promising amnesty for doing the right thing. But, self-reporting and cooperation carry significant incentives – by working with the Department, no charges may be brought at all, or we may agree to a deferred prosecution agreement or non-prosecution agreement, sentencing credit, or a below-Guidelines fine. Ultimately, every case is fact-specific and requires an assessment of the facts and circumstances, as well as the severity and pervasiveness of the conduct and the quality of the corporation’s pre-existing compliance program. But, in every case of self-disclosure, full cooperation, and remediation, the Department is committed to giving meaningful credit where it’s deserved to obtain a fair and just resolution.”

“The Siemens matter is a case in point. While the conduct in that case is arguably the most egregious example of systemic foreign corruption ever prosecuted by the Department, [Note – Siemens was not charged with violating the FCPA’s anti-bribery provisions] it also illustrates the tremendous benefits that flow from truly extraordinary cooperation. By Siemens opening itself up to authorities, [Note – Siemens did this after its offices were raided by German authorities] the Department completed its investigation and resolved the case – with domestic and international dimensions – in two years’ time. In the end, the benefits Siemens received through its cooperation, even in the absence of a voluntary disclosure, were plain – the $450 million fine that was paid to the Justice Department, although quite substantial, was a far cry from the advisory range of $1.35 billion to $2.7 billion called for in the Sentencing Guidelines. Put another way, Siemens received a penalty that was 67 to 84 percent less than what it otherwise could have faced had it not provided extraordinary cooperation and carried out such extensive remediation.”

“Another example, on a more modest scale, was the resolution of the Helmerich & Payne matter, a company that self-disclosed improper or questionable payments. [Note – is Breuer acknowledging that the payments at issue in this case – payments to various officials and representatives of the Argentine and Venezuelan customs services in connection with importation and exportation of goods and equipment – may not have violated the FCPA? See here for more] The case was resolved through a non-prosecution agreement with a term of two years, a penalty of $1 million (which was approximately 30 percent below the bottom of the Guidelines range), and compliance self-reporting by the company for a period of two years in lieu of an independent compliance monitor. Because of the forward-leaning, proactive, and highly cooperative approach taken by Helmerich & Payne, that company received a host of benefits that likely would not otherwise have been obtained from the Department.”

“In short, these two cases, and others like them, reflect the Department’s willingness to step up to the plate when a corporation does the right thing by making a voluntary disclosure and cooperating fully.”

“Let me offer one additional piece of guidance on this topic. When a problem has been discovered, the corporation should seriously consider seeking the government’s input on the front end of its internal investigation. [Note – at the front end of an FCPA internal investigation, it is generally not even known if a violation has occurred – why should a company seek the DOJ’s input when it is not yet known if a violation of law has occurred?] We encourage a company to come in and describe its work plan for conducting the investigation. Often we have questions, or helpful suggestions, or we may ask that the corporation expand the scope of the investigation. Regardless, the dialogue can be very helpful in ensuring at the outset that the corporation has an effective, cost-effective plan in place to investigate and deal with the problem.”

Breuer then offered a few words about compliance monitors.

Below are his comments.

“In resolving criminal conduct, the Department’s goal is to vindicate the law and ensure adherence to it in both letter and spirit. In that regard, the structure and terms of a corporate resolution are properly determined by the particular facts of the case and the circumstances surrounding the specific business entity and the public interest. Thus, a compliance monitor may be particularly useful where the agreement requires the corporation to design, or substantially re-design, and implement a broad compliance and ethics program and internal controls. As an independent observer, the monitor can enable the government to verify whether a business is fulfilling the obligations to which it agreed. In other cases, however, a compliance monitor may not be needed for a variety of reasons, such as where the business organization has ceased operations in the area where the criminal conduct occurred, or where the business has re-designed and effectively implemented appropriate compliance measures and internal controls before entering into an agreement with the United States.”

“However the calculus plays out, we are always mindful of, and we do weigh, the potential benefits of employing a monitor with the cost of a compliance monitor and its impact on the operations of the business organization. Of that much you can be sure.”

For more on Breuer’s speech, including topics raised during the Q&A, see this piece from Christopher Matthews at Main Justice.

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A good holiday weekend to all – please check back on Tuesday for a post about a current FCPA compliance monitor.

Benchmarking FCPA Compliance

The Organization for Economic Co-Operation and Development (“OECD”) recently released (see here) “the most comprehensive guidance ever provided to companies and business organizations by an international organization” on internal controls, ethics and compliance programs to combat bribery.

Mark Mendelsohn, the DOJ’s current FCPA “top cop” was recently quoted (see here) as saying that the new OECD guidance has the “endorsement of the U.S. government.”

Thus, those subject to the FCPA would be wise to take notice.

The OECD guidance, “Good Practice Guidance on Internal Controls, Ethics and Compliance” is included as Annex II in the “Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (see here). The guidance is “intended to serve as non-legally binding guidance to companies in establishing effective internal controls, ethics, and compliance programs or measures for preventing and detecting foreign bribery.”

Substantively, the new OECD guidance is similar to the effective elements of an FCPA compliance program the DOJ frequently includes in its FCPA resolution documents (see here) as well as the elements of an “Effective Compliance and Ethics Program” in the U.S. Sentencing Guidelines (see here).

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While on the topic of the OECD, it has always intrigued me that the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (see here), on which numerous anti-corruption laws are based, uses the term “foreign public official” rather than the “foreign official” term used by the FCPA.

Is a “foreign public official” the same as a “foreign official?” In most cases, the answer would seem to be yes. However, is an employee of a state-owned or state-controlled enterprise (often a commercial entity with publicly traded stock and other attributes of a commercial enterprise) a “foreign public official?”

We all know the enforcement agencies’ view – yes such employees are “foreign officials” under the FCPA.

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While still on the topic of the OECD, in light of the BAE bribery, yet no bribery circus (see here for prior posts) it is interesting to review Annex I of the above referenced document titled “Good Practice Guidance on Implementing Specific Articles of the Convention of Combating Bribery of Foreign Public Officials in International Business Transactions.”

Article 5: Enforcement states – “Member countries should be vigilant in ensuring that investigations and prosecutions of the bribery of foreign public officials in international business transactions are not influenced by considerations of national economic interest, the potential effect upon relations with another State or the identity of the natural or legal persons involved, in compliance with Article 5 of the OECD Anti Bribery Convention.”

Both the U.S. and U.K. are “member countries.”

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