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Monitors

Most FCPA enforcement actions against companies are resolved through a non-prosecution or deferred prosecution agreement (NPA’s / DPA’s).

Many NPA’s / DPA’s require the company to engage a compliance monitor for a set time period (generally 2-4 years).

Although monitors are not the “rage” they used to be a few years ago, recent FCPA enforcement actions against Control Components, Inc., KBR/Halliburton, and Siemens have included some form of a compliance monitor.

In a recent speech to an FCPA audience, Assistant AG Breuer (see here) indicated that:

“In appropriate cases, [DOJ] will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”

Those interested in corporate monitors (whether in the FCPA context or otherwise) will want to review a recent report on monitors from the Government Accountability Office. (see here).

Among other interesting numbers are the following:

Since 1993 through September 2009, DOJ has entered into 152 NPA’s or DPA’s.

Of the 152 agreements, 48 required the appointment of a compliance monitor.

What does it take to become a monitor? A DOJ background certainly doesn’t hurt. GAO found that of the 48 NPA’s or DPA’s that required the appointment of a monitor, 42 different individuals were selected. Of those 42, 23 (approximately 55%) were former DOJ officials, something many find controversial in that a prior DOJ position could affect the monitor’s independence and impartiality.

Although the GAO report does not specifically discuss (or identify) the monitors in FCPA enforcement actions, a May 2008 DOJ letter to the House Judiciary Committee (see here) does list corporate entities along with the monitor appointed. To my knowledge, the following were FCPA enforcement actions: Aibel Group/Vetco Ltd., Baker Hughes, Ingersoll Rand, InVision Technologies, Micrus, Monsanto, Paradigm, Schnitzer Steel, Statoil, and York.

To see what one of those “FCPA monitors” has to say (here) is the excerpt from the Corporate Crime Reporter interview.

Another FCPA Speech

Last week it was the Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (see here), this week the audience for Assistant Attorney General Lanny Breuer was ACI’s National Forum on the FCPA

The ACI conference (see here) is a signature event for the FCPA bar and FCPA compliance community. Breuer participated in past ACI events as a private FCPA practitioner at Covington & Burling and yesterday he gave the keynote luncheon address.

The link to the speech on the DOJ website is inactive, but the speech is embedded in this piece from the WSJ Law Blog (see here).

The speech covers a wide range of topics and will be of interest to all FCPA practitioners and others interested in following FCPA developments.

Here are a few highlights:

On individual prosecutions – “…we tried more individuals for FCPA violations than in any prior year. And we indicted more individuals than ever before. That is no accident. In fact, prosecution of individuals is a cornerstone of our enforcement strategy. […] Put simply, the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”

On how the DOJ learns of FCPA issues – “Although many of these cases come to us through voluntary disclosures, which we certainly encourage and will appropriately reward, I want to be clear: the majority of our cases do not come from voluntary disclosures. They are the result of pro-active investigations, whistle blower tips, newspaper stories, referrals from our law enforcement counterparts in foreign countries, and our Embassy personnel abroad, among other sources.”

On resolving corporate FCPA matters – “…despite rumors to the contrary, we do also decline prosecution in appropriate cases. […] With regard to corporate cases, the Department will continue to pursue guilty pleas or, if necessary, indictments against corporations – when the criminal conduct is egregious, pervasive and systemic, or when the corporation fails to implement compliance reforms, changes to its corporate culture, and undertake other measures designed to prevent a recurrence of the criminal conduct. We also recognize that there will be situations in which guilty pleas or criminal charges are not appropriate. Now, we may have good-faith disagreements about when those circumstances present themselves, but we do not take our task lightly. We are mindful of direct impact on the company itself, as well as the numerous collateral consequences that often flow from these charging decisions. We are sophisticated attorneys, and we understand the challenges and complexities involved in doing business around the globe.”

On corporate monitors – “In appropriate cases, we will also continue to insist on a corporate monitor, mindful that monitors can be costly and disruptive to a business, and are not necessary in every case. That said, corporate monitors continue to play a crucial role and responsibility in ensuring the proper implementation of effective compliance measures and in deterring and detecting future violations.”

On whether to make a voluntary disclosure – this is a “sometimes difficult question” […] a question I grappled with as a defense lawyer. I strongly urge any corporation that discovers an FCPA violation to seriously consider making a voluntary disclosure and always to cooperate with the Department. The Sentencing Guidelines and the Principles of Federal Prosecution of Business Organizations obviously encourage such conduct, and the Department has repeatedly stated that a company will receive meaningful credit for that disclosure and that cooperation. […] I can assure you that the Department’s commitment to meaningfully reward voluntary disclosures and full and complete cooperation will continue to be honored in both letter and spirit. I am committed to no less.”

On the road ahead – “In addition to holding culpable individuals accountable and meaningfully rewarding voluntary disclosures and genuine cooperation, we will continue to focus our attention on areas and on industries where we can have the biggest impact in reducing foreign corruption.” Breuer then discusses the pharma industry in particular.

On asset forfeiture and recovery – “We will seek forfeiture in all appropriate cases going forward. […] We will be taking advantage of the expertise of both the Fraud Section and our Asset Forfeiture and Money Laundering Section to forfeit and recover the proceeds of foreign corruption offenses.” Breuer’s comments on this topic largely shadow the recent comments of Attorney General Holder (see here).

On enhanced resources – “As I imagine most of you have heard, in 2007 the FBI created a squad with agents dedicated to investigating potential FCPA violations. The squad has been growing in size and in expertise over the past two years. In addition, we have begun discussions with the Internal Revenue Service’s Criminal Investigation Division about partnering with us on FCPA cases around the country. Finally, we are now pursuing strategic partnerships with certain U.S. Attorney’s Offices throughout the United States where there are a concentration of FCPA investigations.”

On Mark Mendelsohn’s rumored departure as DOJ Deputy Chief – FCPA – “… as we look to the future, we will be building on the extraordinary efforts and success of our Deputy Chief over the FCPA area, my friend Mark Mendelsohn, who is beginning to explore options for the next phase of his career. Mark has been an exceptional public servant and a visionary steward of the FCPA Program. Regardless of where Mark chooses to go, we will miss him greatly.”

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Last week, I questioned Breuer’s characterization of the Jefferson verdict in his pharma address (see here). In that address he said as follows:

“In the past few months, we have the completed the trials of the Greens in California, of Mr. Bourke in New York and of former Congressman William Jefferson in Virginia. In each of these cases, individuals were found guilty of FCPA violations and face jail time.”

Yesterday, Breuer correctly noted, as to the Jefferson case, as follows: Jefferson “was convicted of a conspiracy of which one object was to violate the FCPA by bribing former high-ranking Nigerian government officials.”

Potpourri

The SEC recently posted on its website (see here) a draft “Strategic Plan for Fiscal Years 2010-2015” setting forth the Commission’s “mission, vision, values, and strategic goals” for the future.

Part of strategic goal 1 – to “foster and enforce compliance with the federal securities laws” – is a commitment to expand its “coordination efforts with foreign authorities, including […] close cooperation with foreign authorities in investigations relating to […] the Foreign Corrupt Practices Act.” (see pg. 16).

While not FCPA specific, a performance metric the SEC intends to use to gauge its progress of “fostering and enforcing compliance with the federal securities laws” is the percentage of enforcement cases successfully resolved (see pg. 17). The SEC notes that “[i]n general, the SEC strives to successfully resolve as many cases as possible, but, at the same time, aims to file large, difficult, or precedent-setting cases when appropriate, even if success is not assured.”

Setting FCPA precedent through the filing of a complaint, even if success is not assured, that is then subject to valid legal defenses based on the statute in a transparent, adversarial proceeding?

Wow, that’s a novel concept and in contrast to the current situation where FCPA “precedent” is set (or at least viewed as being set with the SEC’s encouragement) by the SEC alone through its enforcement program wherein the SEC is both a party and an adjudicator.

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I previously posted about the “War of Words in Ecuador” (see here)- a post about Chevron’s mammoth legal battle in Ecuador involving allegations of environmental contamination and how the long, messy battle now includes an FCPA component.

The posted ended by saying “this long, messy legal battle is getting more murky by the day.”

As detailed in a recent story in the New York Times (see here) “in recent days the plot has thickened further.”

SEC To Launch “Specialized Unit” Devoted to FCPA

Robert Khuzami, the SEC’s Director of the Division of Enforcement, spoke this week to the New York City Bar Association (see here for text of his speech).

During his speech, Khuzami announced that the SEC will be creating five “national specialized units dedicated to particular highly specialized and complex areas of securities law.”

One of the units will be an FCPA unit. Here is what Khuzami had to say:

“The Foreign Corrupt Practices Act unit will focus on new and proactive approaches to identifying violations of the Foreign Corrupt Practice Act, which prohibits U.S. companies from bribing foreign officials for government contracts and other business. While we have been active in this area, more needs to be done, including being more proactive in investigations, working more closely with our foreign counterparts, and taking a more global approach to these violations.”

Unlike the DOJ which has historically centralized all FCPA prosecutions at “main Justice” in DC, the SEC has traditionally given its regional offices the authority to independently prosecute FCPA cases. With Khuzami’s announcement, change appears to be in the works and it will be interesting to see whether this new approach will yield any noticeable differences in SEC prosecution of FCPA offenses.

During the speech, Khuzami also announced that the SEC is working on other “initiatives” – two of which I highlight as being of particular interest to FCPA followers.

First, the SEC is seeking to create a “Seaboard” for individuals, “a public policy statement that will set forth standards to evaluate cooperation by individuals in enforcement actions” as Khuzami explained. All SEC enforcement lawyers have committed to memory the original “Seaboard Report” (see here) – the factors the SEC will consider when deciding whether to pursue a corporate enforcement action – and it appears that additional required reading may soon be available.

Second, and seemingly taking a page from the DOJ’s FCPA playbook, Khuzami announced that the Division of Enforcement “will be prepared to recommend to the Commission that the SEC enter into Deferred Prosecution Agreements, in which [Division of Enforcement] agree[s] in the appropriate case to forego an enforcement action against an individual or entity subject to certain terms, including full cooperation, a waiver of statutes of limitations, and compliance with certain undertakings.”

“New and proactive” enforcement … “more needs to be done” … future SEC deferred prosecution agreements … these are sure interesting times to be following the FCPA!

Across the Pond

Some noteworthy anti-corruption developments to report from the United Kingdom.

Landmark Mabey & Johnson Ltd. Prosecution

Like the U.S., the U.K. has domestic anti-corruption statutes (actually a mix of several different statutes on the books for nearly one-hundred years – in March 2009, a new bill – the “Bribery Bill” was presented to the U.K. Parliament – an issue I will be following).

However, unlike the U.S., the U.K. has never brought a corporate prosecution under the statutes. For this, U.K. government has been criticized. If you want to fill your afternoon with reading just “google” BAE, Saudi Arabia, and corruption. If you prefer listening over reading, you may want to check out portions of Frontline’s “Black Money” (See here).

Against this backdrop, it is noteworthy that in July 2009, the U.K.’s Serious Fraud Office (“SFO”) (an enforcement agency similar to the U.S. DOJ) announced “the first prosecution brought in the U.K. against a company for overseas corruption.” (See here for the SFO Press Release).

According to the SFO press release, the prosecution arises from Mabey & Johnson Ltd.’s (a U.K. company that designs and manufacturers steel bridges used in more than 115 countries worldwide) voluntary disclosure to the SFO “of evidence to indicate that the company had sought to influence decision-makers in public contracts in Jamaica and Ghana between 1993 and 2001.” According to the release, the prosecution also involves breach of United Nations sanctions as applied to contracts in connection with the Iraq Oil for Food program.

My efforts to locate the actual Mabey & Johnson charging documents (statement of facts, etc.) have thus far proven fruitless. To the extent such documents are publicly available and you have a copy, please do share them with me.

SFO Memo on Corruption Enforcement and the Benefits of Self-Reporting

Also in July 2009, the SFO released a memo titled “Approach of the Serious Fraud Office to Dealing with Overseas Corruption.” The memo notes that the SFO is significantly expanding its anti-corruption resources and staff and that the office will be using “all of the tools at our disposal in identifying and prosecution cases of corruption” as the office “conduct[s] more criminal investigations and prosecutions in the future (particularly if the Bribery Bill becomes law).”

The memo notes that there has been much interest among business and professional advisers for a system of self-reporting cases of overseas corruption to the SFO and the purpose of the memo is thus to set forth SFO policies on self-reporting and the SFO’s position on the benefits which can be obtained from self-reporting.

The memo specifically notes that the benefit to a corporation of self-reporting will be “the prospect (in appropriate cases) of a civil rather than a criminal outcome,” and that a “negotiated settlement rather than a criminal prosecution means that the mandatory debarment provisions under [the relevant EU Directive] will not apply.”

The remainder of the memo touches on general topics familiar to FCPA practitioners currently found in Title 9, Chapter 9-28.000 of the U.S. Attorney’s Manual (Principles of Federal Prosecution of Business Organizations) (the so-called Filip Memo – see here). It is encouraging to see that the SFO, unlike the DOJ/SEC thus far, is willing to articulate, in a specific memo, its views and enforcement policies on corruption issues.

The benefits of self-reporting and voluntarily disclosing conduct which does, or could, violate the FCPA is indeed a “hot topic.” DOJ/SEC enforcement officials routinely say that the benefits of self-reporting are real, whereas FCPA practitioners and the clients they represent aren’t so sure. It now looks like this topic will be debated on both sides of the Atlantic and it will indeed be an interesting issue to monitor.

Of particular interest to FCPA practitioners, the SFO memo notes as follows: “We would also take the view that the timing of an approach to the U.S. Department of Justice is also relevant. If the case is also within our jurisdiction we would expect to be notified at the same time as the DOJ.” Of further interest to FCPA practitioners, the memo announces an initial opinion procedure along the lines currently offered by the U.S. DOJ. The memo notes, “[t]he circumstances in which this procedure will be appropriate will need to be discussed, but we are ready to offer assistance in one type of case” and that type of case is where an acquiring company, during due diligence of a target, discovers corruption issues.

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