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Friday Roundup

Add a few to the list, take a few off, a word on guest posts, take a deep breath, whose fault is it, once again nobody was charged.  It’s all here in the Friday roundup.

Add Another

Most companies bury FCPA disclosures deep in SEC filings.  Not so with Nordion Inc. (here – a Canadian based health sciences company with shares traded in the U.S).  It took the open and direct route by issuing a release (here) specifically devoted to the topic.  The release states as follows.

“[The company] disclosed that it is conducting an internal inquiry and investigation of a foreign supplier and related parties focusing on compliance with the Canadian Corruption of Foreign Public Officials Act (CFPOA) and the U.S. Foreign Corrupt Practices Act (FCPA). Through the Company’s own internal review as part of its CFPOA compliance program, Nordion discovered potential compliance irregularities. As a result, the Company recently commenced an internal investigation of the possible compliance issues.  These issues relate to potential improper payments and other related financial irregularities in connection with the supply of materials and services to the Company.  The investigation is being conducted by outside legal counsel and external forensic and accounting firms who are experts in such compliance. These external advisors are reporting regularly to a special Committee of the Board constituted to deal with this matter.  Nordion has voluntarily contacted the regulatory and enforcement authorities, including the Canadian and U.S. Department of Justice, the Royal Canadian Mounted Police (RCMP), the U.S. Securities and Exchange Commission (SEC) and the Public Prosecution Service of Canada, to provide details of the matter and advise that an internal investigation is underway. The internal investigation is in its early stages and the Company’s external advisors have met with these authorities and will continue to provide reports to them as the investigation progresses.Nordion is committed to the highest standards of integrity and diligence in its business dealings and to the ethical and legally compliant business conduct by its employees, representatives and suppliers. The Company reviews its compliance programs on a regular basis to assess and align them with emerging trends and business practices.  Corrupt or fraudulent business conduct is in direct conflict with the Company’s Global Business Practice Standards and corporate policies. The Company will continue to investigate this matter and cooperate with regulatory and enforcement authorities with a view to an expedient resolution.”

By my estimation, in the past four months, approximately twenty companies have become subject to FCPA scrutiny (whether through disclosures or FCPA-related civil complaints).  In addition, industry sweeps as to the Hollywood movie industry and retail industry have reportedly been launched.  See here for a prior post titled “The Sun Rose, A Dog Barked, and a Company Disclosed FCPA Scrutiny.”

Academi, Inc., formerly known as Xe Services, formerly known as Blackwater was also in the news this week.  As noted in this FBI release, pursuant to a deferred prosecution agreement (here) the company admitted to certain facts and agreed to a $7.5 million fine in connection with certain export controls and firearms law violations.  As noted in the release, the DPA “also acknowledges and references a $42 million settlement between the company and the Department of State as part of a settlement of violations of the Arms Export Control Act and the International Trafficking in Arms Regulations.”  As noted in this previous post, Blackwater has been under investigation for FCPA violations in Iraq (and Sudan as noted in the FBI release).  The above DPA specifically states however that “this agreement does not apply to the Foreign Corrupt Practices Act investigation independently under investigation by the DOJ.”  As noted in this previous post, Blackwater’s FCPA scrutiny in Iraq inspired Representative Peter Welch to introduce H.R. 5366, the “Overseas Contractor Reform Act,” an impotent debarment bill that passed the House in September 2010 (see here).

There are also developments to report on the other side of the Atlantic as the U.K. Serious Fraud Office announced hereas follows.  “The Director of the Serious Fraud Office has decided to open a criminal investigation into allegations concerning GPT and aspects of the conduct of their business in the Kingdom of Saudi Arabia.”  As noted in this Bloomberg piece, GPT is a unit of European Aeronautic Defence & Space Co. (EADS), and the investigation involved suspected payments to win a telecommunications deal with Saudi Arabia’s royal family.  The Financial Times stated that the “Serious Fraud Office’s criminal inquiry is a step-change for the agency  after it said in March that it was happy with an internal investigation the company was conducting.”

Although he is no longer in Congress, former Representative Todd Tiahrt is probably delighted by this news.  See here for the prior post.

Take a Few Off

Huntsman Corporation recently disclosed as follows in a SEC filing (here).

“During the third quarter of 2010, we completed an internal investigation of the operations of Petro Araldite Pvt. Ltd. (“PAPL”), our majority owned joint venture in India. PAPL manufactures base liquid resins, base solid resins and formulated products in India. The investigation initially focused on allegations of illegal disposal of hazardous waste and waste water discharge and related reporting irregularities. Based upon preliminary findings, the investigation was expanded to include a review of the production and off-book sales of certain products and waste products. The investigation included the legality under Indian law and U.S. law, including the U.S. Foreign Corrupt Practices Act, of certain payments made by employees of the joint venture to government officials in India. Records at the facility covering nine months in 2009 and early 2010 show that less than $11,000 in payments were made to officials for that period; in addition, payments in unknown amounts may have been made by individuals from the facility in previous years.  […] Also in May 2010, we voluntarily contacted the U.S. Securities and Exchange Commission (“SEC”) and the U.S. Department of Justice (“DOJ”) to advise them of our investigation and that we intend to cooperate fully with each of them. We met with the SEC and the DOJ in October 2010 to discuss this matter and we continue to cooperate with these agencies. Steps have been taken to halt all known illegal or improper activity, including the termination of employment of management employees as appropriate. In May 2012, the SEC and DOJ notified us that they would not recommend any enforcement action be taken against our Company in this matter.”

Since August 2010 (see here for the prior post), I have proposed that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and/or SEC decline enforcement, the DOJ and/or the SEC should publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

In the meantime, we can only speculate as to why the enforcement agencies did not bring an enforcement action against Hunstman.  Of note, in the DOJ’s written declination responses after the June 2011 House hearing (see here), the DOJ stated that it has declined matters when, among other circumstances, “the improper payments involved minimal funds compared to the overall business revenue.”

As noted in this previous post, in April Hercules Offshore disclosed as follows.  “On April 4, 2011, the Company received a subpoena issued by the Securities and Exchange Commission (“SEC”) requesting the delivery of certain documents to the SEC in connection with its investigation into possible violations of the securities laws, including possible violations of the Foreign Corrupt Practices Act (“FCPA”) in certain international jurisdictions where the Company conducts operations. The Company was also notified by the Department of Justice (“DOJ”) on April 5, 2011, that certain of the Company’s activities were under review by the DOJ. On April 24, 2012, the Company received a letter from the DOJ notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ indicated that its decision to close the matter was based on, among other factors, the thorough investigation conducted by the Company’s special counsel and the Company’s compliance program. The Company, through the Audit Committee of the Board of Directors, intends to continue to cooperate with the SEC in its investigation. At this time, it is not possible to predict the outcome of the SEC’s investigation, the expenses the Company will incur associated with this matter, or the impact on the price of the Company’s common stock or other securities as a result of this investigation.”

Earlier this week, the company updated its disclosure as follows.  “On August 7, 2012, Hercules Offshore, Inc. (the “Company”) received a letter from the Securities and Exchange Commission (“SEC”) notifying the Company that the SEC staff has completed its investigation into the Company regarding possible violations of the Foreign Corrupt Practices Act (“FCPA”) and does not intend to pursue enforcement action against the Company. As previously disclosed, the Company was notified by the SEC and the Department of Justice (“DOJ”) in April 2011, that certain of the Company’s activities were under review by the SEC and DOJ with respect to possible violations of the FCPA in certain international jurisdictions where the Company conducts operations. The Company previously disclosed that it received a letter from the DOJ on April 24, 2012, notifying the Company that the DOJ has closed its inquiry into the Company regarding possible violations of the FCPA and does not intend to pursue enforcement action against the Company. The DOJ noted that it terminated its investigation ‘…based on a number of factors, including, but not limited to, the thorough investigation undertaken by Hercules and the steps that Hercules has taken in the past and continues to take to enhance its compliance program, including efforts to ensure compliance with the FCPA.’ As a result of the termination by the SEC and the prior termination by the DOJ, there are no open FCPA investigations against the Company.”

As evident from the disclosures, unlike Huntsman, the FCPA scrutiny of Hercules was not based on a voluntary disclosure, but inquiries from the SEC and DOJ.  Whether this represents a declination or a dud is the question.

Guest Posts

Part of the mission of FCPA Professor is to facilitate a forum for discussion and analysis of FCPA and related issues among FCPA practitioners, business and compliance professionals, scholars and students, and other interested persons.  Given this mission, I frequently publish guest posts (see here for approximately 60 such posts).  In publishing guest posts, it should not be assumed in all cases that I agree in whole or in part with the content of such posts.  Rather, providing the forum for delivery into the marketplace of ideas is what I hope to facilitate and I encourage all who want to make their voice heard on the issues to consider submitting a guest post.

A Deep Breath

The FCPA is a unique statute, with unique and difficult to manage risks.

Nevertheless , it was refreshing to see this piece by Pamela Marple (Chabourne & Park – here) in the NACD Director Advisory titled “The FCPA: A New Bear in the Woods?”  Marple begins as follows.  “Over the past five years, the Foreign Corrupt Practices Act has solidified itself as an industry brimming with expert forums, company departments and substantial news coverage.  Is this statute really the bear in the woods some say it is?”  Marple states as follows.  “The existence of the FCPA industry (and professionals who are available to conduct internal investigations at a high price) does not mean that this reaction is what is always required. What is required first and foremost is reasonable judgment exercised by directors and professionals who seek both compliance and solutions—without assuming a bear is present at every turn.”

As I previously commented (here) to Corporate Board Member, corporate directors need to keep a proper perspective.  There’s a whole industry out there that’s trying to sell the steroids version of FCPA compliance.  But directors should not get their undies in a bundle over this.  This is an issue, just like any other risk area, that directors need to have on their radar screen.  Corporate directors should not panic when it comes to FCPA compliance.

Whose Fault is It?

Do FCPA violations occur because companies subject to the law go into foreign markets intent on engaging in bribery or because the companies are confronted by corrupt foreign officials seeking to line their own pockets?

Circumstances vary of course, but this recent article in the African Globe includes comments from human rights lawyer and Senior Advocate of Nigeria Femi Falana who focused on the former.  The article stated as follows.   “In order to cover up the involvement of western governments and corporations in the promotion of corruption, terrorism and drug abuse in Africa, the impression is often created by top public officials of some foreign governments that Africans are the most corrupt people in the world,” Falana observed noting that only last week, the US Secretary of State, Mrs. Hillary Clinton, kicked off her 11-day tour of some African states in Senegal by condemning corruption in Africa and urging African leaders to fight it in order to get good governance in the continent. He said it was also the kernel of President Barack Obama’s message to Africans when he made a brief stopover in Ghana three years ago. “While we do not condone corruption, it is high time the Obama administration was told to stop blaming the victims of grand corruption promoted and fuelled by western countries led by Switzerland, France, United Kingdom and United States,” Falana said.”

Nobody Was Charged

A recent New York Times article (here) once again raises the issue of why few corporate fraud enforcement actions result in individual charges.  The article states as follows.  “The Justice Department has collected $8.6 billion over the last three years, more than in any similar period in history, but relatively few prosecutions of individuals have come from the biggest settlements.”

A reason?

In the FCPA context, I submit and stated during my 2010 Senate testimony (here), involves the quality of the corporate enforcement action.  Given the prevalence of NPAs and DPAs in the FCPA context and the ease in which DOJ offers these alternative resolution vehicles to companies subject to an FCPA inquiry, companies often agree to enter into such resolution vehicles regardless of the DOJ’s legal theories or the existence of valid and legitimate defenses. It is simply easier, more cost efficient, and more certain for a company to agree to a NPA or DPA than it is to be criminally indicted and mount a valid legal defense  even if the DOJ theory of prosecution is questionable.  (See here for my scholarship “The Facade of FCPA Enforcement).  Individuals, on the other hand, face a deprivation of personal liberty, and are more likely to force the DOJ  to satisfy its high burden of proof as to all FCPA elements.

A telling statistic?

As noted in this prior post, since alternative resolution vehicles were first used in the FCPA context (December 2004) there have been 61 “core” corporate DOJ FCPA enforcement actions.  47 of the 61  ”core” corporate DOJ FCPA enforcement actions (77%)  have been resolved via an NPA (19 instances) or a DPA (28 instances).  In these 47 “core” corporate DOJ FCPA enforcement actions, only 7 enforcement actions (15%) have resulted in any individual FCPA criminal charges against company employees. In other words, when the DOJ resolves an FCPA enforcement action via a NPA or DPA, there is only a 15% likelihood that individual criminal charges will be filed against any company employee or those affiliated with the company. [Note: the above statistics were calculated in Sept. 2011]

For previous posts on this very same issue see here.

*****

A good weekend to all.

Friday Roundup

Add two more companies to the list, a reply to a retort, Avon developments, Total S.A. perhaps nears a top-5 settlement, the reason for those empty Olympic seats, another FCPA-inspired derivative action is dismissed, Sensata Technologies and more on the meaning of “declination,” one of my favorite reads and additional material for the weekend reading stack.  It’s all here in the Friday roundup.

Recent Disclosures

As noted in this Wall Street Journal Corruption Currents post “German healthcare firm Fresenius Medical Care AG has opened an internal investigation into potential violations” of the FCPA.  The company’s recent SEC filing (here) states as follows.

“The Company has received communications alleging certain conduct that may violate the U.S. Foreign Corrupt Practices Act (“FCPA”) and other anti-bribery laws. In response to the allegations, the Audit and Corporate Governance Committee of the Company’s Supervisory Board is conducting an internal review with the assistance of counsel retained for such purpose. The Company has voluntarily advised the U.S. Securities and Exchange Commission and the U.S. Department of Justice that allegations have been made and of the Company’s internal review. The Company is fully committed to FCPA compliance. It cannot predict the outcome of its review.”

In addition, as noted in this Wall Street Journal Corruption Currents post, “the Securities and Exchange Commission is investigating Teva Pharmaceutical Industries Ltd, the world’s largest manufacturer of generic drugs, for possible violations” of the FCPA.   The Israel based company recently stated in an SEC filing (here) as follows.

“Teva received a subpoena dated July 9, 2012 from the SEC to produce documents with respect to compliance with the Foreign Corrupt Practice Act (“FCPA”) in Latin America. Teva is cooperating with the government. Teva is also conducting a voluntary investigation into certain business practices which may have FCPA implications and has engaged independent counsel to assist in its investigation. These matters are in their early stages and no conclusion can be drawn at this time as to any likely outcomes.”

U.K. DPAs

In this previous post, I discussed my letter to the U.K. Ministry of Justice urging the MoJ to just say no to deferred prosecution agreements.  Over at thebriberyact.com (a site that has lead discussion of the issue) the authors disagree with me (see here).  That’s all fine and dandy and healthy to the discussion, but the substance of the retort is not persuasive.

The retort is  basically that the SFO “frequently has to fight its corner in court” and that “sometimes it loses” whereas in the U.S. “the accepted wisdom [is] that an FCPA investigation would result in a corporate settlement” and the “DOJ simply [does] not have to test its legal theories in court.”  In short, the authors state “statistically in the US corporates and their counsel often fold in the face of a DOJ investigation” but “in the UK this is not so.”

Contrary to the suggestion in the retort, I did not ignore the Bribery Act’s Section 7 offense – rather it is all the more reason to reject DPAs.

The retort closes as follows.  “Sadly, as it stands, the UK enforcement agencies do not have equality of arms when it comes to their enforcement toolkit.  Put another way the DOJ can end run UK enforcement agencies because it does have the potential to enter into DPA’s.  This reason alone is justification enough for putting in place a system which delivers a similar result to the US system.”

This confirms in my mind that the UK’s desire for DPAs has little to do with justice and deterring improper conduct, but more to do with enforcement statistics and posturing in an emerging “global arms race” when it comes to “prosecuting” corruption and bribery offenses.

Avon Developments

Avon was in the news quite a bit this week.

On Monday, the Wall Street Journal reported (here) that “federal prosecutors looking into possible bribery of foreign officials by Avon have asked to speak to Andrea Jung, the former chief executive and current full-time chairman.”

On Wednesday, the company filed its quarterly report and stated, among other things, as follows.  “We are in discussions with the SEC and DOJ regarding mutually resolving the government investigations. There can be no assurance that a settlement will be reached or, if a settlement is reached, the timing of any such settlement or that the terms of any such settlement would not have a material adverse effect on us.”  During the Q2 earnings call, company CEO Sheri McCoy stated as follows.   “We are in discussion with the SEC and DOJ regarding mutually resolving the government investigations.”

On Thursday, the Wall Street Journal reported (here) that McCoy “frustrated with the pace of Avon’s internal probe, has pushed to bring in a second law firm for advice on the progress of the investigation.   The company has held discussions with law firm Allen & Overy LLP for that role.”  Arnold & Porter has been leading Avon’s investigation.  According to the article, Avon’s “probe has turned up millions of dollars of payments in Brazil and France made to consultants hired to assist with Avon’s tax bills in those countries.”

What to make of the above information?

It is unusual for the enforcement agencies to want to speak to a former CEO and current chairman in connection with an FCPA inquiry.  But then again, prosecutors have reportedly spoken to several other Avon executives in connection with the probe.  Given Avon’s disclosure that it has begun settlement discussions, this would suggest that the factual portion of the enforcement agencies investigation is over.

Avon’s FCPA scrutiny has perhaps been most notable for the amount of pre-enforcement action professional fees and expenses – approximately $280 million.  Thus, yesterday’s report that the company is considering bringing in a second law firm nearly four years into the investigation is interesting and unusual.

Even though Avon has disclosed it is in settlement talks, an enforcement action in 2012 is not certain.  In many cases, companies have disclosed the existence of FCPA settlement discussions, but the actual enforcement action did not happen for 6-12 months (or longer).

Whenever the enforcement action occurs, and whatever the ultimate fine and penalty is, Avon’s greatest financial hit  has likely already occured – its pre-enforcement action professional fees and expenses.  For instance, assuming a settlement amount would match the $280 million, this would be the sixth largest FCPA settlement of all time, and none of the enforcement actions in the top 5 were outside the context of foreign “government” procurement.

Total Settlement Near?

For some time, there has been speculation that Total S.A. (you better sit down for this) would actually mount a defense and put the DOJ and SEC to its burden of proof in an enforcement action.  Information in a recent company press release suggests that this is unlikely to occur.  In this recent release, Total stated as follows.  “Total has been cooperating with the … SEC and DOJ in connection with an investigation concerning gas contracts awarded in Iran in the 1990’s.  Total, the SEC, and the DOJ have conducted discussions to resolve issues arising from the investigation.  In light of recent progess in these discussions, Total has provisioned 316 million euros [$389 million]  in its accounts in the second quarter of 2012.”

A $389 million settlement would be a top five FCPA settlement in terms of fine and penalty amounts.  For additional coverage, see here from Reuters.

Empty Olympic Seats

A reason, perhaps, for those empty Olympic seats?  According to a recent study (see here) by the Society for Corporate Compliance and Ethics  “tighter than anticipated corporate entertainment and gift policies.”

Smith & Wesson Derivative Action Dismissed

Even against the backdrop of generally frivolous plaintiff derivative claims in the FCPA context, the action against Smith & Wesson (“S&W”) stood out.  After S&W employee Amaro Goncalves was criminally indicted in the manufactured Africa Sting case, certain investors filed a derivative claim in U.S. District Court in Massachusetts suing members of the board of S&W and company officers derivatively on behalf of the corporation for failing to have effective FCPA controls and oversight, thereby breaching their duty of care.

In dismissing the complaint (see here for the decision) Judge Michael Ponsor characterized the complaint as follows. “[I]n essence, that the company enjoyed an increase in international sales and then had an employee indicted for FCPA violations. This indictment, later dropped, supposedly evidenced a failure to implement proper controls.”

For another recent dismissal of an FCPA inspired derivative claim against Tidewater, see this prior post.  See also this recent post from Kevin LaCroix at The D&O Diary blog.

Sensata Technologies

In October 2010, Sensata Technologies disclosed in a quarterly report (here) as follows.

“An internal investigation has been conducted under the direction of the Audit Committee of the Company’s Board of Directors to determine whether any laws, including the Foreign Corrupt Practices Act (“FCPA”), may have been violated in connection with a certain business relationship entered into by one of the Company’s operating subsidiaries involving business in China. The Company believes the amount of payments and the business involved was immaterial. The Company discontinued the specific business relationship and its investigation has not identified any other suspect transactions. The Company has contacted the United States Department of Justice and the Securities and Exchange Commission to begin the process of making a voluntary disclosure of the possible violations, the investigation, and the initial findings. The Company will cooperate fully with their review.”

In its most recent quarterly report (here), the company disclosed as follows.

“During 2012, the DOJ informed us that it has closed its inquiry into the matter but indicated that it could reopen its inquiry in the future in the event it were to receive additional information or evidence. We have not received an update from the SEC concerning the status of its inquiry.”

Did Sensata “win a declination” as the FCPA Blog suggested here?

Since August 2010 (see here for the prior post) I have proposed that when a company voluntarily discloses an FCPA internal investigation to the DOJ and the SEC, and when the DOJ and/or SEC decline enforcement, the DOJ and/or the SEC should publicly state, in a thorough and transparent manner, the facts the company disclosed to the agencies and why the agencies declined enforcement on those facts.

Perhaps then we would know if the DOJ concluded it could prove beyond a reasonable doubt all the necessary elements of an FCPA charge, yet decided not to pursue Sensata – which is my definition of declination as noted in this prior post.  Anything else, is what the law commands, not a declination.

Favorite Read

One of my favorite reads is always Shearman & Sterling’s “Recent Trends and Patterns in the Enforcement of the Foreign Corrupt Practices Act.”  See here for the most recent edition.

As to “foreign official,” the report states as follows. “[T]he government does not appear to have been deterred by the [foreign official] debate. In most of the cases brought in 2012, the relevant government officials were employed by “instrumentalities” such as state health insurance plans (Orthofix), a state-owned nuclear plant (Data Systems & Solutions), government hospitals (Biomet and Smith & Nephew), a state-owned real estate development company (Peterson) a state-owned oil company (Marubeni), and state-owned airlines (NORDAM).”

As to FCPA guidance, the report states as follows. “We understand that this guidance will be issued before October, when the US is scheduled to issue a written progress report on its implementation of the OECD Working Group on Bribery’s recommendations.”

A final kudos – Shearman & Sterling keeps its FCPA enforcement statistics the best way.  As it explains – “we count all actions against a corporate “family” as one action. Thus, if the DOJ charges a subsidiary and the SEC charges a parent issuer, that counts as one action.”  This is consistent with my “core” approach (see here), but unlike many others in the industry.

Weekend Reading Stack

An interesting and informative article (here) in Fortune about the Alba-Alcoa tussle and the role of Victor Dahdaleh.  For more on the underlying civil suit between Alba and Alcoa see this recent Wall Street Journal Corruption Currents post.

SOX’s executive certification requirements were supposed to be a panacea for corporate fraud.  It has not happened.  See here from Alison Frankel (Reuters) and here from Michael Rapoport (Wall Street Journal).  As noted in this prior post concerning the Paul Jennings (former CFO and CEO of Innospec) enforcement action, SOX certification charges were among the charges the SEC filed against Jennings.  Then SEC FCPA Unit Chief Cheryl Scarboro stated, “we will vigorously hold accountable those who approve such bribery and who sign false SOX certifications and other documents to cover up the wrongdoing.”  Speaking of Jennings, as noted in this recent U.K. Serious Fraud Office, Jennings recently pleaded guilty to one charge of conspiracy to corrupt Iraqi public officials and other agents of the Government of Iraq.

*****

A good weekend to all.

Potpourri

Retail Industry Sweep

This previous post discussed the Wal-Mart effect, how Wal-Mart is clearly not the only company subject to the FCPA that needs licenses, permits and the like when doing business in Mexico, and that it is likely that Wal-Mart’s potential FCPA exposure has caused sleepless nights for many company executives doing business in Mexico and the general region.

Sure enough.

Aruna Viswanatha reports in this Reuters story that “retailers have been reviewing their international operations in light of a bribery scandal at Wal-Mart’s operations in Mexico that is the subject of investigations by the Justice Department and the Securities and Exchange Commission.”  According to the story, “other retail companies have also since reported to U.S. agencies suspicions of their own potential violations, which in turn has the Justice Department and SEC considering a sweep of the entire industry.”  For more on industry sweeps, see this previous post.

Barclays Dealings With Sovereign-Wealth Funds Scrutinized

The Wall Street Journal reported on Friday (here) that Barclays PLC’s “chief financial officer is under investigation by British authorities related to the bank’s 2008 fundraising activities with Middle Eastern investors.”  According to the story, the “probe is focused at least in part on how Barclays wooed Qatar’s sovereign-wealth fund to pump billions of pounds into the bank as the financial crisis intensified.”  According to this Wall Street Journal article, Barclays previously disclosed “£240 million of payments made to Qatar Holding and Abu Dhabi’s Sheik Mansour Bin Zayed Al Nahyan related to its £7.3 billion capital raise in 2008.”

Barclays has ADRs traded on the New York Stock Exchange and, according to the article, the SEC “is aware of the probe” and will be updated on its progress.  As the article notes, the SEC is currently conducting an expansive investigation of various financial institutions concerning relationships with sovereign-wealth funds.

Halliburton’s Latest Disclosure

Halliburton previously disclosed potential FCPA issues concerning the use of an Angolan vendor.  Last week in this quarterly report, the company provided an update on that investigation as well as new investigations concerning additional conduct in Angola as well as Iraq.  The disclosure states as follows.

“We are conducting internal investigations of certain areas of our operations in Angola and Iraq, focusing on compliance with certain company policies, including our Code of Business Conduct (COBC), and the FCPA and other applicable laws. In December 2010, we received an anonymous e-mail alleging that certain current and former personnel violated our COBC and the FCPA, principally through the use of an Angolan vendor. The e-mail also alleges conflicts of interest, self-dealing, and the failure to act on alleged violations of our COBC and the FCPA. We contacted the DOJ to advise them that we were initiating an internal investigation. Since the third quarter of 2011, we have been participating in meetings with the DOJ and the SEC to brief them on the status of our investigation and have been producing documents to them both voluntarily and as a result of SEC subpoenas to the company and certain of our current and former officers and employees. During the second quarter of 2012, in connection with a meeting with the DOJ and the SEC regarding the above investigation, we advised the DOJ and the SEC that we were initiating unrelated, internal investigations into payments made to a third-party agent relating to certain customs matters in Angola and to third-party agents relating to certain customs and visa matters in Iraq. We expect to continue to have discussions with the DOJ and the SEC regarding the Angola and Iraq matters described above and have indicated that we would further update them as our investigations progress. We have engaged outside counsel and independent forensic accountants to assist us with the investigations. We intend to continue to cooperate with the DOJ’s and the SEC’s inquiries and requests in these investigations. Because these investigations are ongoing, we cannot predict their outcome or the consequences thereof.”

In 2009, Halliburton and related entities settled DOJ and SEC FCPA enforcement actions concerning Bonny Island, Nigeria conduct by agreeing to pay $579 million in combined fines and penalties.  See here and here.  Pursuant to the SEC settlement, Halliburton is permanently enjoined from violating the FCPA’s books and records and internal control provisions.

W.W. Grainger Updates Its Disclosure

This previous post discussed W.W. Grainger’s February disclosure concerning an investigation that sales employees of a China subsidiary may have provided prepaid gift cards to certain customers.  As noted by Chris Matthews in this recent Wall Street Journal Corruption Currents post, the company in a recent SEC filing stated as follows.

“The results of the investigation, which have been submitted to the DOJ and the SEC, did not substantiate initial information suggesting significant use of gift cards for improper purposes. The Company cannot predict at this time whether any regulatory action may be taken or any other potential consequences may result from this matter.”

The Corruption Currents post contains a quote from Grainger spokeswoman as follows.  “We conducted a very thorough investigation, and based on our findings we do not believe this is a material issue.  We have submitted our findings to the DOJ and the SEC and we are in conversations with them regarding the conclusion of this matter.”

Contrary to the Corruption Currents headline “W.W. Grainger’s FCPA Probe Finds No Wrongdoing” the disclosure is qualified by the term “significant” use of gift cards for improper purposes and the quote from the company representative is qualified by the term “material” issue.  Very few FCPA issues in multinational companies rise to the level of quantitative materiality – even if the SEC takes the view that all payments in violation of the FCPA are qualitatively material.

As noted in this previous post concerning Congressional interest in DOJ FCPA declination decisions, the DOJ has stated that it “has declined to prosecute corporate entities in several cases based on particular facts and circumstances presented in those matters” including the following:  “a single employee, and no other employee, was involved in the provision of improper payments; and the improper payments involved minimal funds compared to the overall business revenues.”

Morgan Stanley’s So-Called “Declination”

This past spring, FCPA Inc. was abuzz when, in the context of the Garth Peterson individual enforcement action (see here for the prior post), the DOJ publicly stated it declined to prosecute Peterson’s employer, Morgan Stanley.

Specifically, in its release (here), the DOJ stated as follows.  “After considering all the available facts and circumstances, including that Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials, the Department of Justice declined to bring any enforcement action against Morgan Stanley related to Peterson’s conduct.  The company voluntarily disclosed this matter and has cooperated throughout the department’s investigation.”

In this update, Arent Fox noted that the development “shows the government is ready to give a corporation credit for ‘adequate procedures’ in evaluating any potential FCPA violation.”  The authors concluded that “only time will tell whether  [the DOJ’s actions] reflect the government’s adoption of a de facto ‘adequate procedures’ defense to FCPA violations.”

In this client memo, Willkie Farr stated as follows.  “While the government charged the former managing director with FCPA violations, the government notably declined to charge the firm, Morgan Stanley, with any wrongdoing due in large part to the company’s established system of internal controls and its continued efforts to enforce its anticorruption policies among company employees, including the individual who was charged in the government’s civil and criminal cases.”

Let’s pause for a moment and consider what the term declination means in the FCPA context. 

In talking to others, I know that there is a range of opinions on this issue, but here is my definition of declination –  an instance in which the DOJ has concluded it can prove beyond a reasonable doubt all the necessary elements of a cause of action, yet decides not to pursue the action.

With this definition in mind, was the DOJ’s decision not to prosecute Morgan Stanley based on Peterson’s conduct truly a declination?

Let’s start by analyzing certain relevant allegations made by the DOJ in the Peterson information (here) which involved a real estate investment scheme with Chinese Official 1. 

According to the information, “Peterson and Chinese Official 1 had a close personal relationship before Peterson joined Morgan Stanley.”

According to the information, a shell company (Asiasphere Holdings Limited) used to facilitate the scheme was owned 47% by Chinese Official 1 and 53% by Peterson and a Canadian Attorney.

According to the information, “without the knowledge or consent of his superiors at Morgan Stanley, Peterson sought to compensate Chinese Official 1”

According to the information, “Peterson concealed Chinese Official l’s personal investment [in certain properties] from Morgan Stanley.”

According to the information, “Peterson used Morgan Stanley’s past, extensive due diligence [as to certain of the investment properties] to benefit his own interests and to act contrary to Morgan Stanley’s interests.”

Consistent with these allegations, in the DOJ’s release Assistant Attorney General Lanny Breuer stated as follows.  “Mr. Peterson admitted … that he actively sought to evade Morgan Stanley’s internal controls in an effort to enrich himself and a Chinese government official.”

Based on the above, was there even a basis to hold Morgan Stanley criminally accountable even under the lenient respondeat superior standards?

Like with most things in the corporate FCPA enforcement context, we will never know.  However, if the answer is no, then the DOJ’s decision not to charge Morgan Stanley was not a declination, it was what the law commanded and it is a sorry state of affairs indeed to praise the DOJ for concluding what the law commands.

In this article, Steptoe & Johnson rightly stated as follows.  “… [T]he element of personal benefit derived by Peterson from his conduct is likely significant. […] Such benefits call into question whether Peterson was really acting for the benefit of his employer, a key requirement for corporate vicarious liability. Moreover, it seems clear that the government believes Morgan Stanley was ultimately duped by its employee and entered into transactions in good faith, without knowledge of the personal benefits being derived, despite their controls.”

The timing of the DOJ’s first-ever publicly stated so-called declination is also noteworthy.  As Larry Boyd (Executive Vice President, Secretary & General Counsel, Ingram Micro, Inc.) recently stated at this Chief Legal Officer Leadership forum – “If you’re of a cynical frame of mind like I am, though, I will tell you that I suspect that this announcement by the Justice Department had as much to do with the effort that the U.S. Chamber of Commerce has been mounting over the last 18 months to try to get Congress to amend the Foreign Corrupt Practices Act as it does with Morgan Stanley’s good conduct.”

Likewise, Steptoe & Johnson (in the article linked above) identified the same issue as follows.  “[D]eclination was [possibly] motivated by the enforcement agencies’ desire to respond to entreaties from companies and business groups to demonstrate the value of compliance efforts. The Peterson case comes as the DOJ and SEC are drafting long-awaited public guidance on the statute, in the wake of concerns that the implementing regulations for the Dodd-Frank whistleblower provisions gave short shift to corporate compliance efforts.”

Summer Reading Spectacular

Grab your beverage of choice, find some shade, and sit back and enjoy the recent work product of FCPA Inc – plus the recent annual report of the OECD Working Group on Bribery.

Gibson Dunn

Gibson Dunn recently released it 2012 mid-year FCPA update (see here).  The update begins as follows.   “As the Foreign Corrupt Practices Act turns 35 years old, the spike in enforcement activity that we first observed five years ago appears (at least for the moment) to be leveling off. Nevertheless, numerous developments this year bespeak a statute that is maturing rather than falling into obscurity: the first sustained pattern of trial activity; increasing “private attorney general” enforcement; and serious policy debates between industry, executive, and legislative interests leading up to much-anticipated statutory guidance from government regulators. The first half of 2012 was packed with important FCPA developments.”  Thereafter, the update is a buffet of useful information and summaries including recent sentencing activity, a discussion of FCPA-related civil litigation, legislative and policy developments, U.K. developments, and a handy chart containing DOJ and SEC statements on corporate cooperation.

Another Gibson Dunn update you should read concerns NPA and DPAs.  The firm recently released (here) its mid-year update on corporate deferred prosecution and non-prosecution agreements.  As noted in the update, once again among the most frequent use of such agreements is to resolve FCPA enforcement actions.

Speaking of NPAs and DPAs, Law36o carried an article yesterday titled “DOJ Develops a Taste for Deferred Prosecution Deals.”  I liked what Skadden partner John Carroll (here) had to say – that such agreements are a “way for the government to outsource its work and harvest relatively easy settlements” because “the government only has to win the case in the government’s office; it doesn’t have to win in the courtroom.”

Miller Chevalier

Miller & Chevalier recently released its FCPA Summer Review 2012 (see here).  The review begins as follows.  “‘Expectant’ describes the mood of FCPA practitioners during the first half of 2012. With a slow first half of the year for enforcement releases, and expected developments such as the issuance of the new FCPA Guidance around the corner, the second half of 2012 should be eventful, if not historic, for the 35-year old statute.”  Thereafter, the review contains several goodies such as a chart containing known declinations in FCPA investigations 2008 to the present, “comings” and “goings” in the DOJ’s FCPA team, and how a recent district court rulings(discussed in this previous post) appears to have impacted the deferred prosecution agreement in the recent Data Systems enforcement action (see here for the previous post).

Debevoise & Plimpton

Debevoise & Plimpton recently released its periodic FCPA Update (see here).  Among other things, the update contains an article on the “current status of the ‘selective waiver’ doctrine, i.e., the notion that a waiver of attorney-client privilege or work-product protection in a submission to the government is not a ‘waiver to all others.'”  As the article notes, this is often an issue for counsel to consider in FCPA investigatons when disclosing to the DOJ or SEC.

Sidley Austin

Sidley Austin recently released its anti-corruption quarterly (see here).  Although the quarterly did not include a certain FCPA related development from the second quarter, it did contain an informative lead article concerning FCPA joint venture liability.

OECD Annual Report

The OECD Working Group on Bribery recently released its annual report (here).  Spectacular it is not.  For all the good the OECD does in raising awareness of bribery and its effects and seeking to reduce bribery and corruption around the world, its enforcement statistics remain misleading, incomplete and in some cases inaccurate.

For instance, as noted in this prior post, it is fairly obvious why OECD member countries have varying degrees of enforcement of bribery and corruption offenses.  Among other reasons, in most OECD member countries, prosecuting authorities have two choices – to prosecute or not to prosecute – there is no such thing as non-prosecution or deferred prosecution agreements.  Moreover, in many OECD member countries there is no such thing as corporate criminal liability – or even if there is – such corporate liability can only be based on the actions of high-ranking executives or officers. This of course is materially different than the U.S. respondeat superior standard in which a business organization can face legal liability based on the actions of any employee to the extent the employee was acting within the scope of his or her duties and to the extent the conduct was intended to benefit, at least in part, the organization.

The OECD’s statistics as to the U.S. are incomplete.  Footnotes in the report state that DOJ and SEC enforcement actions “exclusively for violations of the books and records and internal control provisions of the FCPA” are not captured.  This misses a meaningful chunk of FCPA enforcement actions as it is common for the DOJ and SEC to structure settlements (so as to avoid collateral consequences or to reward cooperation or both) without charging FCPA anti-bribery violations (such as in Siemens and Daimler).

Moreover, the OECD statistics as to the U.S. are inaccurate in some cases.  In a table “Decisions on Foreign Bribery Cases from 1999 to December 2011,” in a column titled number of individuals and legal persons acquitted / found not liable, the report indicates that only 1 individual or legal person has been acquitted or found not liable in a U.S. foreign bribery case.  Not true.

*****

A good weekend to all.

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