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Potpourri

Potpourri

Disgraceful, scrutiny alerts, resource alert, for the reading stack, and for your consideration.  It’s all here in a potpourri edition of FCPA Professor.

Disgraceful

It’s a disgraceful practice.

A for-profit business invites a high-ranking DOJ official to its private event in which people have to pay to hear the public official speak.

It’s a disgraceful practice.

The for-profit company treats the DOJ official’s comments as if they own his words and then put the words behind a paywall.

Andrew Weissmann, the DOJ’s fraud section chief, recently spoke at GIR Live, an event hosted by a private for-profit company. According to this teaser post Weissmann spoke about issues of public concern including “how the department will factor in compliance, how it intends to reward those that self-report, and how it aims to increase transparency around resolutions and declinations.”

I requested a transcript of Mr. Weissmann’s remarks from the DOJ press office and was told: “[Mr. Weissmann] did not prepare formal remarks but spoke from notes, so I don’t have anything to provide. You’re welcome to check with the event organizers to see if they have a recording of it.”

Thankfully, Carlos Ayres was at the event and publicly posted a summary of Mr. Weisssmann’s remarks on the FCPAmericas website. According to his post:

“Weissmann said that the DOJ will publish in the next weeks a list of questions that companies can expect to be asked when being assessed by the DOJ’s new compliance consultant.”

“Weissmann said that the DOJ will shed more light on declination decisions in the short term, publishing related data with aggregate information.”

“Weissmann stated that DOJ will make an effort to complete cases for companies that self-report within one year.”

Thank you Mr. Ayres for your public service in sharing the comments of a high-ranking DOJ official on matters of public concern.

Scrutiny Alerts

HSBC Holdings

The company recently disclosed:

“Hiring practices investigation

The US Securities and Exchange Commission (the ‘SEC’) is investigating multiple financial institutions, including HSBC, in relation to hiring practices of candidates referred by or related to government officials or employees of state-owned enterprises in AsiaPacific. HSBC has received various requests for information and is cooperating with the SEC’s investigation. Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of this matter, including the timing or any possible impact on HSBC, which could be significant.”

Novartis

The Swiss company, which qualifies as an issuer under the FCPA, was recently the focus of news reports. According to this article:

“South Korean authorities raided Novartis offices in search of evidence the company provided bribes to local doctors, according to media reports. The Seoul Western District Prosecutors’ Office confiscated various documents, including account books, in order to determine whether rebates the drug maker offered physicians may have actually been bribes.”

Mondelēz International, Inc.

Approximately five years ago (see here for the prior post), Kraft Foods disclosed FCPA scrutiny resulting from its acquisition of Cadbury in connection with a manufacturing facility in India.  Kraft, now known as Mondelēz International, Inc., recently disclosed:

“As we previously disclosed, on February 1, 2011, we received a subpoena from the SEC in connection with an investigation under the FCPA, primarily related to a facility in India that we acquired in the Cadbury acquisition. The subpoena primarily requests information regarding dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility. We are continuing to cooperate with the U.S. and Indian governments in their investigations of these matters, including through ongoing meetings with the U.S. government to discuss potential conclusion of the U.S. government investigation. On February 11, 2016, we received a “Wells” notice from the SEC indicating that the staff has made a preliminary determination to recommend that the SEC file an enforcement action against us for violations of the books and records and internal controls provisions of the Exchange Act in connection with the investigation. We intend to make a submission to the staff of the SEC in response to the notice.”

So-called Wells Notices are rare in the FCPA context for the simple reason that few issuers actually publicly push back against the SEC.  See here for an example of a company that prevailed against the SEC after receiving a Wells Notice.

Key Energy Services

The company has been under FCPA scrutiny since Spring 2014 and continues to bleed cash in connection with its scrutiny. In this recent filing, the company disclosed $2.7 million “related to” its FCPA scrutiny.

Sweet Group

The U.K. Serious Fraud Office recently announced:

“Construction and professional services company Sweett Group PLC was … sentenced and ordered to pay £2.25 million as a result of a conviction arising from a Serious Fraud Office investigation into its activities in the United Arab Emirates. The company pleaded guilty in December 2015 to a charge of failing to prevent an act of bribery intended to secure and retain a contract with Al Ain Ahlia Insurance Company (AAAI), contrary to Section 7(1)(b) of the Bribery Act 2010. The relevant conduct occurred between 1 December 2012 and 1 December 2015.”

In the release, David Green (Director of the SFO) stated:

“Acts of bribery by UK companies significantly damage this country’s commercial reputation. This conviction and punishment, the SFO’s first under section 7 of the Bribery Act, sends a strong message that UK companies must take full responsibility for the actions of their employees and in their commercial activities act in accordance with the law.”

As further noted in the release:

“His Honour Judge Beddoe described the offence as a system failure and said that the offending was patently committed over a period of time. Referring to Section 7 of the Bribery Act 2010 and to Sweett’s ignorance of its subsidiary’s actions , HHJ Bedoe said:

The whole point of section 7 is to impose a duty on those running such companies throughout the world properly to supervise them. Rogue elements can only operate in this way – and operate for so long – because of a failure properly to supervise what they are doing and the way they are doing it.

The SFO’s investigation into Sweett Group PLC, which commenced on 14 July 2014, uncovered that its subsidiary company, Cyril Sweett International Limited had made corrupt payments to Khaled Al Badie, the Vice Chairman of the Board and Chairman of the Real Estate and Investment Committee of AAAI to secure the award of a contract with AAAI for the building of the Rotana Hotel in Abu Dhabi. The amount is broken down as £1.4m in fine, £851,152.23 in confiscation. Additionally, £95,031.97 in costs were awarded to the SFO.”

Maxwell Technologies

In 2011, Maxwell Technologies (a California-based manufacturer of energy storage and power delivery products) resolved parallel DOJ and SEC FCPA enforcement actions concerning alleged business conduct in China by agreeing to pay approximately $14 million. The company recently disclosed:

“In January 2011, we reached settlements with the SEC and the U.S. Department of Justice (“DOJ”) with respect to charges asserted by the SEC and DOJ relating to the anti-bribery, books and records, internal controls, and disclosure provisions of the U.S. Foreign Corrupt Practices Act (“FCPA”) and other securities laws violations. We paid the monetary penalties under these settlements in installments such that all monetary penalties were paid in full by January 2013. With respect to the DOJ charges, a judgment of dismissal was issued in the U.S. District Court for the Southern District of California on March 28, 2014.

On October 15, 2013, we received an informal notice from the DOJ that an indictment against the former Senior Vice President and General Manager of our Swiss subsidiary had been filed in the United States District Court for the Southern District of California. The indictment is against the individual, a former officer, and not against the Company and we do not foresee that further penalties or fines could be assessed against us as a corporate entity for this matter. However, we may be required throughout the term of the action to advance the legal fees and costs incurred by the individual defendant and to incur other financial obligations. While we maintain directors’ and officers’ insurance policies which are intended to cover legal expenses related to our indemnification obligations in situations such as these, we cannot determine if and to what extent the insurance policy will cover the legal fees for this matter. Accordingly, the legal fees that may be incurred by us in defending this former officer could have a material impact on our financial condition and results of operation.

Swiss Bribery Matter

In August 2013, our Swiss subsidiary was served with a search warrant from the Swiss federal prosecutor’s office. At the end of the search, the Swiss federal prosecutor presented us with a listing of the materials gathered by the representatives and then removed the materials from our premises for keeping at the prosecutor’s office. Based upon the our exposure to the case, we believe this action to be related to the same or similar facts and circumstances as the FCPA action previously settled with the SEC and the DOJ. During initial discussions, the Swiss prosecutor has acknowledged both the existence of our deferred prosecution agreement (“DPA”) with the DOJ and our cooperation efforts thereunder, both of which should have a positive impact on discussions going forward. Additionally, other than the activities previously reviewed in conjunction with the SEC and DOJ matters under the FCPA, we have no reason to believe that additional facts or circumstances are under review by the Swiss authorities. In late March 2015, we were informed that the Swiss prosecutor intended to inform the parties in April 2015 as to whether the prosecutor’s office would bring charges or abandon the proceedings. However, to date, the Swiss prosecutor has not issued its formal decision. At this stage in the investigation, we are currently unable to determine the extent to which we will be subject to fines in accordance with Swiss bribery laws and what additional expenses will be incurred in order to defend this matter. As such, we cannot determine whether there is a reasonable possibility that a loss will be incurred nor can we estimate the range of any such potential loss. Accordingly, we have not accrued an amount for any potential loss associated with this action, but an adverse result could have a material adverse impact on our financial condition and results of operation.”

As noted here by Wall Street Journal – Risk & Compliance Journal, in the same disclosure Maxwell disclosed approximately $2.4 million in FCPA professional fees and expenses in 2015.

Resource Alert

As highlighted here, Stanford Law School and Sullivan & Cromwell recently announced the launch of an FCPA clearinghouse –  “a public database that aggregates and curates source documents and provides analytic tools related to enforcement of the Foreign Corrupt Practices Act (FCPA).”

For the Reading Stack

An informative read here in Bloomberg Law from John Cunningham and Geoff Martin (both of Baker & McKenzie) titled “Casting a Wider Net: Conspiracy Charges in FCPA Cases.”

Another informative read here in the New York Times regarding the DOJ’s Kleptocracy Asset Recovery Initiative.

For Your Consideration

Did U.S. involvement in Afghanistan result in more corruption? Did the U.S. fail to conduct adequate due diligence on intermediaries (a frequent FCPA enforcement theory against companies)? NPR explores the issue here.

A Q&A Regarding The Uncomfortable Truths And Double Standards Of Bribery Enforcement

Double Standard4

The below Q&A first appeared in Bloomberg BNA’s White Collar Crime Report on February 5th.

In the Q&A, I respond to questions posed by BNA’s Robert Wilhelm regarding my recent article “The Uncomfortable Truths and Double Standards of Bribery Enforcement.”

*****

Q:  In your opinion, does the U.S. government walk-it-like-it-talks-it in terms of FCPA enforcement?

A:  No I don’t and hence the reason I wrote the article.

There are a number of instances in which the U.S. government has been an active participant in bribery, had knowledge of and supported private sector bribery, has selectively enforced bribery laws given the company under scrutiny, and has otherwise used overblown and inconsistent rhetoric when speaking of enforcement of bribery laws. And these instances are just based on information in the public domain.

After reading the article, individuals can decide for themselves whether the U.S. government ‘‘practices what it preaches’’ (as stated by the government) when it comes to enforcement of bribery laws and whether the United States is indeed ‘‘in a unique position to spread the gospel of anticorruption’’ (as also stated by the government).

Q: Are the selfish and political reasons for passage of the FCPA in 1970s any different then how the DOJ enforces the act today?

A: Yes, very much so. The primary policy reason Congress enacted the FCPA were the foreign policy implications of corporate payments to foreign government officials such as the Prime Minister of Japan, the President of Gabon, the President of Honduras, and other traditional government officials.

In the modern era of FCPA enforcement, few enforcement actions involve such ‘‘foreign officials.’’ Rather, the alleged ‘‘foreign officials’’ are employed by alleged state-owned or state-controlled entities. For instance, in 2015 FCPA enforcement actions the alleged foreign officials included employees of a real estate development firm, a sugar factory and a cement company. Moreover, a prominent enforcement theory (used in 17 corporate enforcement actions) is that physicians, lab personnel, and even a mid-wife, employed by various foreign healthcare systems are ‘‘foreign officials’’ and thus occupy a status on par with Presidents and Prime Ministers.

Q: Why isn’t there a ‘‘Giffen’’ defense, considering that the U.S. government knew exactly what he was doing, condoned it, yet then one day (different) charges him?

A: Perhaps one day, the real story about the Giffen enforcement action (an action discussed in the article to highlight several uncomfortable truths about U.S. government bribery enforcement) will be known, but I doubt it. It would appear that when the DOJ charged Giffen in 2004 it was unaware that other components of the government were aware of, and condoned of, his activities. A classic case perhaps of the left hand not knowing what the right hand was doing.

Interestingly, the FCPA does indeed state that ‘‘with respect to matters concerning the national security of the United States, no duty or liability . . . shall be imposed upon any person acting in cooperation with the head of any Federal department or agency responsible for such matters if such act in cooperation with such head of a department or agency was done upon the specific, written directive of the head of such department or agency pursuant to Presidential authority to issue such directives.’’ The FCPA further provides as follows. ‘‘Each head of a Federal department or agency of the United States who issues such a directive pursuant to this paragraph shall maintain a complete file of all such directives and shall, on October 1 of each year, transmit a summary of matters covered by such directives in force at any time during the previous year to the Permanent Select Committee on Intelligence of the House of Representatives and the Select Committee on Intelligence of the Senate.’’

The above provisions, as written would appear to only apply to the FCPA’s books and records and internal controls provisions, and not the anti-bribery provisions, but I believe that this was a drafting error. Regardless, the public surely does not have access to the materials of the Senate Select Committee on Intelligence. Thus, how often a ‘‘Giffen’’-like defense is asserted in practice is largely a black hole.

Q: Does the DOJ use the FCPA as leverage against the large companies to essentially force the company to plead to a lesser charge?

A: Plead? Very few business organizations are required to that as a condition of resolving an FCPA enforcement action. Rather, since 2010 when this ‘‘new era of FCPA enforcement’’ was declared by the DOJ, approximately 85% of corporate FCPA enforcement actions have involved non-prosecution agreements or deferred prosecution agreements.

In the NPA/DPA process, the law and facts largely take a backseat to the leverage the DOJ has against risk averse business organizations. My recent article ‘‘Measuring the Impact of NPAs and DPAs on FCPA Enforcement’’ (49 U.C. Davis Law Review 497), tests a hypothesis and concludes that while NPAs and DPAs have resulted in a higher quantity of FCPA enforcement, they have also resulted in a lower quality of FCPA enforcement. In short, there is an open question whether the conduct at issue in several NPAs or DPAs violated the FCPA as passed by Congress and as interpreted by courts.

As a dean of the FCPA bar has stated: ‘‘One reality is the enforcement agencies’ views on issues and enforcement policies, positions on which they are rarely challenged in court. The other is what knowledgeable counsel believe the government could sustain in court, should their interpretations or positions be challenged. The two may not be the same. The operative rules of the game are the agencies’ views unless a company is prepared to go to court or to mount a serious challenge within the agencies.’’

Indeed, in the FCPA’s history the DOJ is 0-2 when put to its ultimate burden of proof by business organizations and has an overall losing record when put to its ultimate burden of proof by individuals. If more business organizations would put the DOJ to its burden of proof in FCPA enforcement actions, it is likely that the modern era of FCPA enforcement would look much different.

What is occurring in the FCPA space and beyond is troubling when you consider that this country otherwise values the rule of law.

Q: Regarding the latest change in DOJ guidelines in charging corporations and requiring disclosure of employee misconduct, will there be more high-profile targets? Will a CEO of a major firm (a business that does less than $5 million in contracts with the federal government) be charged?

A: I do not believe that the Yates Memo will have any meaningful impact on FCPA enforcement. For instance, the DOJ has been talking for years about the importance of individual FCPA enforcement. Yet approximately 70 percent of corporate FCPA enforcement actions lack any related charges against company employees (for reasons addressed above). Regardless of what impact the Yates Memo may have on FCPA enforcement, it is likely to be short-lived as the current crop of DOJ politicians are likely to leave the DOJ in the next 10-12 months with the change in executive administration.

It is troubling that the DOJ Fraud Section is driven by individual policies. For instance, in the past decade there have been numerous DOJ policy memos guiding corporate enforcement (the Holder Memo, the Thompson Memo, the McNulty Memo, the Filip Memo, and now the Yates Memo).

Q: How many enforcement actions would there be if corporations simply decided to not self-disclose?

A: In the FCPA’s modern era, there tend to be between 10-15 core corporate enforcement actions per year. Approximately 50 percent of those actions originate from corporate voluntary disclosures. Several other corporate enforcement actions—including many of the largest enforcement actions from a settlement amount perspective—originate not in U.S. law enforcement activity, but foreign law enforcement activity.

Another question to ask is how many corporate enforcement actions there would be if NPAs and DPAs did not exist? To a certain extent, the answer can be found in FCPA enforcement statistics from 1977 to 2004 (when the DOJ first brought alternative resolution vehicles to the FCPA context).

FCPA risk clearly needs to be on the radar screen of business organizations competing in the global marketplace. However, and even accounting for the factors highlighted above, there is not very much FCPA enforcement considering that every single U.S. business organization (public or private) is subject to the FCPA, approximately 1,000 foreign companies with shares traded on a U.S. exchange are subject to the FCPA, and to the extent a certain jurisdictional nexus is met all companies in the world can be subject to the FCPA.

Q: Why does the DOJ continue with rhetoric that enforcing the FCPA ensures that roads and schools are built, when in reality, the bribery at issue was not for a contract to build said road or school?

A: Because it makes for good politics and nonprofits, NGOs and others who presumably never read FCPA enforcement actions fall for the rhetoric hook, line and sinker. Not only do few FCPA enforcement actions involve the conduct you identify, but also most companies that resolve FCPA enforcement actions are otherwise viewed as selling the best product for the best price and there is rarely an allegation or suggestion of any kind in the enforcement action that the product at issue was compromised.

This of course is not to condone the alleged underlying conduct, only to demonstrate that the U.S. government’s rhetoric about the nature and purpose of its FCPA enforcement program is often hollow.

Q: If U.S. national security is a reason not to enforce the FCPA, why does the DOJ link enforcement actions to national security concerns?

A: Again, it makes for good politics. When the government tries to link FCPA enforcement to national security it sort of puts the enforcement program in an untouchable category. After all, if the goal of FCPA enforcement is to keep Americans safe, how can anyone ask questions about FCPA enforcement? Well, we should ask questions because upon further examination this justification makes little sense given the allegations in a typical enforcement action including the alleged ‘‘foreign officials.’’ Moreover, as highlighted above, approximately 50 percent of corporate enforcement actions are the result of voluntary disclosures.

Notwithstanding the simplicity and hollowness of the national security link, again many are falling for this DOJ rhetoric hook, line and sinker. Here is a recommendation to those inclined to believe the rhetoric: Read the actual enforcement action, the alleged facts including the alleged ‘‘foreign officials,’’ the origins of the enforcement action, and ask yourself is there any credible link to national security in this enforcement action?

Q: The Double Standard Problem: Why is it bribery if a CEO throws a party for a foreign dignitary to ensure access to that official, but the same activity for a U.S. senator is legal?

A: I guess the short answer is because the DOJ is likely to say it is. But as highlighted in the article, this is the double standard problem. The ‘‘domestic bribery statute’’ (18 U.S.C. 201) was enacted prior to the FCPA, has similar elements, and indeed the FCPA was largely modeled on 18 U.S.C. 201.

However, time and time again we see situations in which business interactions with ‘‘foreign officials’’ seem to be subject to different standards than business interactions with U.S. officials? Similarly, we tend to reflexively label a ‘‘foreign official’’ who receives ‘‘things of value’’ from private business interests as corrupt, yet generally turn a blind eye when it happens here at home.

Ought not there be some consistency between enforcement of the FCPA and the domestic bribery statute? Of course there ought to be, but there sure does not seem to be much consistency.

Q: Is there a solution to the double-standard problem?

A: One can look at this two ways. Is enforcement of the ‘‘domestic bribery statute’’ too lax or is enforcement of the FCPA too aggressive?

When it comes to corporate interaction with U.S. government officials, I think enforcement of 18 USC 201 and related laws are too lax. But here, there are complicating factors because the U.S. Supreme Court has held that money is a form of speech and that ingratiation and access are not corruption.

When it comes to corporate interaction with ‘‘foreign officials,’’ I think enforcement of the FCPA in many cases is too aggressive. Indeed, many FCPA enforcement actions involve an expansive category of ‘‘foreign officials’’ and contain allegations about travel and entertainment, and other nominal things of value such as karaoke bars, flowers, cigarettes, and most recently internships. What is the solution? Here again, we can ask two questions in connection with many FCPA enforcement actions. The first is why did the DOJ/SEC assert an aggressive enforcement theory? The second, recognizing that the action likely originated from a corporate voluntary disclosure, is why did the company with the advice of its FCPA counsel disclose the conduct in the first place? Part of that answer requires one to acknowledge that voluntary disclosures are the fuel that fires the multi-billion dollar industry known as FCPA Inc.

Q: Why isn’t it illegal for the U.S. government to lobby on behalf of American businesses, when the same action by a private actor is an FCPA violation? Isn’t the law supposed to be blind?

A: Of course Lady Justice is blind, but the reality is she often lifts up the blindfold to take a peek. The FCPA community often talks about code words and euphemisms to hide bribery. Well it happens here in the United States as well. When the U.S. government uses taxpayer money to influence foreign governments or foreign officials to advantage U.S. business, the government constructs programs around it and gives it names such as foreign aid or foreign military assistance. But when a private actor uses shareholder money to accomplish the same thing, the government tends to call it bribery.

Bribery ought to be bribery pure and simple, and subtle distinctions should not be drawn based on the source of money or influence. Doing so merely creates a distinction without a difference.

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.

Friday Roundup

Roundup2

Double standard (sports edition), recent sentencing activity, and scrutiny alerts.  It’s all here in the Friday roundup.

Double Standard (Sports Edition)

A public official wants tickets to a high-profile sporting event. So, through his aides, he asks the entity hosting the event for free tickets. The entity obliges because it needs the public official’s support in a variety of contexts.

A prudent FCPA practitioner would spot the “red flags” as the free tickets (mostly certainly something of value) could be viewed as a way to curry favor with the public official.  Indeed, the competent FCPA practitioner will recall that several FCPA enforcement actions have been based, in whole or in part, on free tickets to sporting events.

However, the public officials in the above example are not “foreign officials,” they are current U.S. officials who want tickets to high-profile college sporting events.

Bribery? Silly you for even mentioning the “b” word.  This is the US of A.

For the latest edition of the double standard, see this Wall Street Journal article titled “Why Tickets Come Easy on Capitol Hill.”

Why do interactions with “foreign officials” seem to be subject to different standards than interactions with U.S. officials? Why do we reflexively label a “foreign official” who receives “things of value” from private business interests as corrupt, yet generally turn a blind eye when it happens here at home? Is the FCPA enforced too aggressively or is enforcement of the U.S. domestic bribery statute too lax? Ought not there be some consistently between enforcement of the FCPA and the domestic bribery statute?

As you contemplate these questions, just remember in the words of the DOJ – “we in the United States are in a unique position to spread the gospel of anti-corruption”

For additional reading, see here for the recent article “The Uncomfortable Truths and Double Standards of Bribery Enforcement.” In addition, for approximately 50 other posts highlighting double standards, see this subject matter tag.

Sentencing Activity

Vicente Garcia

The DOJ announced:

“Vicente Eduardo Garcia, 65, … was sentenced to 22 months in prison by U.S. District Judge Charles R. Breyer of the Northern District of California.  On Aug. 12, 2015, Garcia pleaded guilty to one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA).  On July 15, 2015, Garcia and the U.S. Securities and Exchange Commission (SEC) entered into a settlement of the parallel SEC investigation in which Garcia agreed, among other things, to pay disgorgement of $85,965 plus prejudgment interest.  For this reason, the United States did not request, and the court did not order, forfeiture in the criminal action.”

For the specifics of the underlying actions, see this prior post.

Garcia’s sentencing memo contains a section titled “Why Vicente Did It.” It states:

“Vicente participated in the bribery scheme here for two reasons: first, to get $150,000 that Advanced [a Third Party] owed him and, second, to secure the Panamanian government as a new customer for his employer SAP.

Vicente’s did not start his business dealings with the Panamanian government intending to commit a crime. But Vicente ultimately did conspire to bribe Panamanian officials.

He has cooperated with authorities since FBI and IRS agents confronted him at his offices. Other than this instance, Vicente’s business dealings have all been above board and legal.

However, here, once the Minister of Technology made clear to Vicente and his colleagues that for Advanced to receive the contract he would require a bribe, Vicente, rather than refuse, acceded and assisted in the scheme—a decision that he deeply regrets. Though not an excuse, he rationalized it at the time as a way to correct his failure in trying to run his own business.”

Vadim Mikerin

This previous post highlighted the FCPA enforcement action against Daren Condrey, an owner and executive of a Maryland Transportation Company, for allegedly bribing Vadim Mikerin, an alleged foreign official employed by an alleged Russian state-owned / controlled entity.

As highlighted in the prior post, Mikerin was also criminally charged and pleaded guilty to money laundering offenses. Earlier this week, the DOJ announced that Mikerin was sentenced to four years in prison and order to forfeit approximately $2.1 million dollars.

As noted in the release, Condrey awaits sentencing.

Jose Hurtado

In 2013 and 2014 the DOJ brought FCPA and related charges against various individuals associated with broker dealer Direct Access Partners in connection with alleged improper payments to Maria Gonzalez (V.P. of Finance / Executive Manager of Finance and Funds Administration at Bandes, an alleged Venezuelan state-owned banking entity that acted as the financial agent of the state to finance economic development projects).

Recently Jose Hurtado was sentenced to three years in prison, followed by three years of supervised release, and consented to a $11.9 million forfeiture .

Previously:

  • Ernesto Lujan was sentenced to two years in prison, followed by three years of supervised release, and consented to a $18.5 million forfeiture.
  • Tomas Clarke was  sentenced to two years in prison, followed by three years of supervised release, and consented to a $5.8 million forfeiture.
  • Benito Chinea was sentenced to four years in prison, followed by three years of supervised release, and consented to a $3.6 million forfeiture; and
  • Joseph DeMeneses was sentenced to four years in prison, followed by three years of supervised release, and consented to a $2.7 million forfeiture.

Scrutiny Alerts

Sociedad Química y Minera de Chile S.A.

Santiago, Chile based Sociedad Química y Minera de Chile S.A. (SQM), a company with shares traded on the New York Stock Exchange, recently issued this release stating:

“[The] Company’s Board of Directors met … to receive and review a report presented by the U.S. law firm Shearman & Sterling LLP (the Report) for SQM’s AdHoc Committee, which was appointed by the Company’s board in a meeting held February 26, 2015.

[…]

SQM previously informed the relevant authorities and markets that this Committee had been formed and that it had hired the professional services of Shearman & Sterling LLP to investigate and analyze the possible liability for SQM under the Foreign Corrupt Practices Act (FCPA), a United States of America law that applies to the Company as an issuer of securities in the U.S. market. The Chilean law firm Grupo Vial / Serrano Abogados and the international forensic services firm FTI Consulting, Inc. assisted Sherman & Sterling.

The investigation specifically analyzed: (a) Whether the Company had made any payment defined as corrupt for FCPA purposes. (b) Whether the Company had breached the accounting provisions of the FCPA.

The Company’s Management was fully cooperative and transparent during the investigation. Among other procedures, investigators collected more than 3.5 million documents and selected approximately 930,000 for review. In addition, 24 individuals were interviewed, including members of the board prior to April 2015, as well as SQM’s senior executives and other relevant employees. A forensic analysis of the Company’s accounting since 2008 was also conducted. Interviews were also requested from Mr. Patricio Contesse G.—former CEO of SQM—and Mr. Patricio Contesse F.—former director of SQM, but they declined.

After close to nine months of investigation, Shearman & Sterling, assisted by Grupo Vial / Serrano Abogados and FTI Consulting, informed the Committee that for FCPA purposes: (a) payments were identified that had been authorized by SQM’s former CEO, Mr. Patricio Contesse G., for which the Company did not find sufficient supporting documentation; (b) no evidence was identified that demonstrates that payments were made in order to induce a public official to act or refrain from acting in order to assist SQM obtain economic benefits; (c) regarding the cost center managed by SQM’s former CEO, Mr. Patricio Contesse G., it was concluded that the Company’s books did not accurately reflect transactions that have been questioned, notwithstanding the fact that, based on the amounts involved, these transactions were below the materiality threshold defined by the Company’s external auditors determined in comparison to SQM’s equity, revenues, expenses or earnings within the reported period; and (d) SQM’s internal controls were not sufficient to supervise the expenses made by the cost center managed by SQM’s former CEO and that the Company trusted Mr. P. Contesse G. to make a proper use of resources.

Throughout this process, SQM has taken and will continue to take the proper measures to strengthen its corporate governance and internal controls in order to correct the issues identified in the Report. The measures that have already been adopted include: (i) dismissing Mr. P. Contesse G. from his position as SQM’s CEO; (ii) filing corrected tax returns with the Chilean Internal Revenue Service; (iii) creating SQM’s Corporate Governance Committee, which is comprised of three of its directors; (iv) separating and strengthening the team and responsibilities of the Internal Audit and Compliance departments, both of which report to SQM’s board of directors, while the latter also reports to the Company’s CEO; (v) hiring KPMG, the auditing firm, to review SQM’s payment process controls; (vi) improving the Company’s payment process controls and approvals; and, (vii) reformulating SQM’s Code of Ethics.

Lastly, after acknowledging receipt of the Report, the directors expressed that the Company will continue to cooperate with authorities and adopt the appropriate measures to improve its corporate governance and internal controls.”

SNC Lavalin

One reason SNC Lavalin has been pouting about Canada’s lack of deferred prosecution agreements is because of the collateral consequences of a criminal conviction.

On that front, the company recently announced:

“[The Company] has signed an administrative agreement with Public Services and Procurement of the Government of  Canada  (PSP) under the Government of  Canada’s  new Integrity Regime. The administrative agreement allows companies – that have federal charges pending against them – to continue to contract with or supply the Government of  Canada

“This is another example of our commitment to move forward. I thank PSP for recognizing SNC-Lavalin’s significant efforts and dedication to continuous improvement in ethics and compliance, which have allowed us to meet the difficult criteria of the new Integrity Regime. I am proud of our ethics and compliance program that is an integral part of the way we work every day, here in Canada  and globally. Our clients and partners have recognized our concrete actions, efforts and accomplishments over the past three years,” stated Neil Bruce, President and CEO, SNC-Lavalin. “This agreement is a milestone that allows us to continue to be an important contributor to the Canadian economy. It protects the public, and is good for our employees, clients, investors and all of  Canada.”

The administrative agreement is due to the federal charges filed against three of the company’s legal entities in , which SNC-Lavalin contests. SNC-Lavalin confirms that, provided the company complies with the terms of the administrative agreement, it will be able to continue to bid on and win contracts to provide procurement goods and services to all Canadian government departments and agencies, in Canada  and abroad, until the final conclusion of those charges.”

*****

A good weekend to all.

New Article: The Uncomfortable Truths And Double Standards Of Bribery Enforcement

Double Standard4

My new article “The Uncomfortable Truths and Double Standards of Bribery Enforcement” will soon be published in the Fordham Law Review. Click here to download the article.

Here is what the article is about.

“In recent years, Foreign Corrupt Practices Act (FCPA) enforcement has become a top priority for the U.S. government, and government enforcement officials have stated that “we in the United States are in a unique position to spread the gospel of anti-corruption” and that FCPA enforcement ensures not only that the United States “is on the right side of history, but also that it has a hand in advancing that history.”

However, the FCPA is not the only statute in the federal criminal code concerning bribery. Rather, the FCPA was modeled in large part after the U.S. domestic bribery statute, and when speaking of its FCPA enforcement program, the government has recognized that it “could not be effective abroad if we did not lead by example here at home.” Indeed, the policy reasons motivating Congress to enact the FCPA—that corporate payments were subverting the democratic process, undermining the integrity and stability of government, and eroding public confidence in basic institutions—apply with equal force to domestic bribery.

Against this backdrop, this Article explores through various case studies and examples whether the United States’s crusade against bribery suffers from uncomfortable truths and double standards. Through these case studies and examples, readers can decide for themselves whether the U.S. government “practices what it preaches” when it comes to the enforcement of bribery laws and whether the United States is indeed “in a unique position to spread the gospel of anti-corruption.”

Do read the article and decide for yourself.

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