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Checking In On Wal-Mart

Wal-Mart

In its recent 3Q FY2017 earnings call presentation Wal-Mart disclosed $29 million in Foreign Corrupt Practices Act and compliance related expenses ($24 million for ongoing investigations and inquiries and $5 million for global compliance program and organizational enhancements). The Q3 expenses of $29 million are slightly higher than the Q2 expenses of $28 million.

Doing the math, Wal-Mart’s 3Q FCPA and compliance-related costs is approximately $465,000 per working day.

Over the past approximate 4.5 years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses.

While some pundits have ridiculed me for doing so, it quickly caught on as the popular thing to do.

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Must See Video Clips From Assistant AG Caldwell’s Recent FCPA Speech

must see

Kudos to C-SPAN for broadcasting Assistant Attorney General Leslie Caldwell’s recent Foreign Corrupt Practices Act speech and related Q&A. (See here and here for prior posts). The broadcast represents a valuable public service to the FCPA community compared to the norm where DOJ/SEC FCPA officials appear at private events in which the public has to pay to hear their public officials speak about important topics (see here and here for prior posts criticizing this practice) and in which tidbits of information get reported largely through the filters of FCPA Inc. participants.

This post further advances the public interest by clipping Assistant AG Caldwell’s speech into discrete topics such as: (i) how “it’s impossible for a big global company to make sure that all of its employees are following the law all of the time,” (ii) thresholds for voluntary disclosure including how the DOJ does not “need to hear” or “want to hear” about certain potential FCPA violations; (iii) how some companies have engaged in “way too broad” FCPA investigations, and (iv) what a so-called “declination” means.

These clips represent must see video for corporate managers wrestling with FCPA issues and others in the FCPA community.

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Friday Roundup

Roundup

A public service announcement, Wal-Mart’s pre-enforcement action professional fees and expenses, scrutiny alert, happenings in Bermuda, a fee dispute, quotable, a useful timeline, for the reading stack, and good for a few chuckles. It’s all here in the Friday roundup.

A Public Service Announcement

Section 5 of the Federal Trade Commission Act requires the disclosure of a material connection between an advertiser and an endorser when the relationship isn’t otherwise apparent to consumers. As the FTC has made clear, the law applies to bloggers.

Certain members of the FCPA’s blogosphere (who frequently write about compliance best practices, transparency, conflicts of interest and related topics) may want to take notice and act accordingly.

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Friday Roundup

Roundup2

Wal-Mart related, north of the border, scrutiny alerts and updates, and an issue to watch.

It’s all here in the Friday roundup.

Wal-Mart Related

Here is what Wal-Mart said in its recent 4Q FY2015 earnings call.

“FCPA-and compliance-related costs were $36 million in the fourth quarter, comprised of $26 million for the ongoing inquiries and investigations, and $10 million for our global compliance program and organizational enhancements. For the full year, FCPA-and compliance related costs were $173 million, comprised of $121 million for the ongoing inquiries and investigations, and $52 million for our global compliance program and organizational enhancements. Last year, total FCPA-and compliance-related costs were $282 million.”

“In fiscal 2016, we expect our FCPA-related expenses to range between $160 and $180 million.”

Doing the math, Wal-Mart’s 4Q FCPA and compliance-related costs is approximately $563,000 in FCPA-related expenses per working day.

Over the past approximate three years, I have tracked Wal-Mart’s quarterly disclosed pre-enforcement action professional fees and expenses. While some pundits have ridiculed me for doing so, such figures are notable because, as has been noted in prior posts and in my article “Foreign Corrupt Practices Act Ripples,” settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from corporate FCPA scrutiny.  Pre-enforcement action professional fees and expenses are typically the largest (in many cases to a degree of 3, 5, 10 or higher than settlement amounts) financial hit to a company under FCPA scrutiny.

While $563,000 per working day remains eye-popping, Wal-Mart’s recent figure suggests that the company’s pre-enforcement action professional fees and expenses have crested as the figures for the past five quarters have been approximately $640,000, $662,000, $855,000, $1.1 million and $1.3 million per working day.

In the aggregate, Wal-Mart’s disclosed pre-enforcement professional fees and expenses are as follows.

FY 2013 = $157 million.

FY 2014 = $282 million.

FY 2015  = $173 million.

FY 2016 = $160 – $180 million (projected)

North of the Border

Yesterday, the Royal Canadian Mounted Police (RCMP) announced charges against the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc.”  As stated in the release:

“The three entities have been charged with one count of corruption under paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act and one count of fraud under paragraph 380(1)(a) of the Criminal Code.The alleged criminal acts surfaced as part of the ongoing criminal investigation into the company’s business dealings in Lybia.

The charges laid are the following:

In Montreal, Judicial District of Montreal, elsewhere in Canada and abroad

  1. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc., did, in order to obtain or retain an advantage in the course of business, directly or indirectly give, offer or agree to give or offer a loan, reward, advantage or benefit of any kind of a value of CAN$47,689,868 or more, to one or several public officials of the “Great Socialist People’s Libyan Arab Jamahiriya” or to any person for the benefit of a public official of the “Great Socialist People’s Libyan Arab Jamahiriya”, to induce these officials to use their positions to influence any acts or decisions of the “Great Socialist People’s Libyan Arab Jamahiriya” for which they perform their duties or functions, thereby committing an indictable offence contrary to paragraph 3(1)(b) of the Corruption of Foreign Public Officials Act.
  2. Between on or about August 16, 2001 and on or about September 20, 2011, the SNC-Lavalin Group Inc., its division SNC-Lavalin Construction Inc. and its subsidiary SNC-Lavalin International Inc. did, by deceit, falsehood or other fraudulent means, whether or not it is a false pretense within the meaning of theCriminal Code, defraud the “Great Socialist People’s Libyan Arab Jamahiriya”, the “Management and Implementation Authority of the Great Man Made River Project” of Libya, the “General People’s Committee for Transport Civil Aviation Authority” of Libya, Lican Drilling Co Ltd, and the “Organization for Development of Administrative Centers” of Benghazi in Libya of property, money or valuable security or service of a value of approximately CAN$129,832,830, thereby committing an indictable offence contrary to paragraph 380(1)(a) of the Criminal Code.”

In the release, Assistant Commissioner Gilles Michaud, Commanding Officer of the RCMP’s National Division, stated: “Corruption of foreign officials undermines good governance and sustainable economic development. The charges laid today demonstrate how the RCMP continues to support Canada’s international commitments and safeguard its integrity and reputation.”

Upon being charged, SNC-Lavalin issued this release which states in full as follows.

“SNC-Lavalin was informed that federal charges have been laid by the Public Prosecution Service of Canada against SNC-Lavalin Group Inc., SNC-Lavalin International Inc. and SNC-Lavalin Construction Inc. Each entity has been charged with one count of fraud under section 380 of the Criminal Code of Canada and one count of corruption under Section 3(1)(b) of the Corruption of Foreign Public Officials Act. SNC-Lavalin firmly considers that the charges are without merit and will vigorously defend itself and plead not guilty in the interest of its current employees, families, partners, clients, investors and other stakeholders.

“The charges stem from the same alleged activities of former employees from over three years ago in Libya, which are publicly known, and that the company has cooperated on with authorities since then,” stated Robert G. Card, President and CEO, SNC-Lavalin Group Inc. “Even though SNC-Lavalin has already incurred significant financial damage and losses as a result of actions taken prior to March 2012, we have always been and remain willing to reach a reasonable and fair solution that promotes accountability, while permitting us to continue to do business and protect the livelihood of our over 40,000 employees, our clients, our investors and our other stakeholders.”

It is important to note that companies in other jurisdictions, such as the United States and United Kingdom, benefit from a different approach that has been effectively used in the public interest to resolve similar matters while balancing accountability and securing the employment, economic and other benefits of businesses.

These charges relate to alleged reprehensible deeds by former employees who left the company long ago. If charges are appropriate, we believe that they would be correctly applied against the individuals in question and not the company. The company has and will continue to fully cooperate with authorities to ensure that any individuals who are believed to have committed illegal acts are brought to justice. The company will also consider claims against these individuals to recover any damages the company has suffered as a result.

While the Public Prosecution Service of Canada and the RCMP have selected this as the next formal step in this 3-year old investigation, there is no change to the company’s right and ability to bid or work on any public or private projects.

Becoming a benchmark in ethics and compliance

Over the past three years, we have made significant changes to the company and remained focused on continuous improvements in ethics and compliance. The tone from the top is clear and unequivocal; there is zero tolerance for ethics violations. The individuals alleged to have been involved in past ethical issues are no longer with the company, and a new CEO has changed the face of the executive team. Under the leadership of the Board of Directors, the company has reinforced its Ethics and Compliance program with huge investments in time and money to rapidly make significant and concrete enhancements, including:

  • Creating the position of Chief Compliance Officer, who reports to the board, and hiring world-renowned leaders in compliance
  • Appointing an Independent Monitor recommended by and who reports solely to, the World Bank Group
  • Appointing compliance officers in all of the company’s business units and regional offices worldwide
  • Creating a dedicated Ethics and Compliance team
  • Further reinforcing internal controls and procedures
  • Further reinforcing its Code of Ethics and Ethics and Compliance Hotline
  • Producing a dedicated  Anti-Corruption Manual
  • Offering annual compliance training to all employees, with a special focus on those working in strategic roles
  • Developing and distributing a world-class Business Partners Policy to employees
  • Using an independent third party to screen candidates for senior management positions
Working hard to build a global leader in the engineering and construction industry

Over the past 3 years and while managing issues created by events prior to 2012, we have worked hard to develop and implement a strategy to become a global Tier-1 player and take our place in a consolidating industry. We have taken concrete steps towards a 5-year goal of doubling our size, and we continue to deliver on our strategy. A clear example is the acquisition of Kentz that added 15,000 employees to our oil and gas business, making us a Tier-1 player in this area.

Since 1911, SNC-Lavalin employees have been working with our clients to create world-class projects that improve people’s quality of life and provide value to our clients. We are the only Canadian player among the top engineering and construction firms in the world, ranking as the number one firm in both Canada and Quebec.

“I would like to thank our more than 40,000 employees, clients, shareholders, partners and other stakeholders for their trust and continuing support,” concluded Mr. Card.”

The portion of SNC-Lavalin’s statement highlighted above in bold and underlined is most interesting.

Scrutiny Alerts and Updates

Flowserve

In 2008, Flowserve Corporation and a related entity agreed to pay approximately $10.5 million to resolve DOJ and SEC FCPA enforcement actions concerning conduct in connection with the U.N. Oil for Food Program in Iraq.  As part of the SEC resolution, Flowserve agreed to final judgment permanently enjoining it from future violations of FCPA’s books and records and internal controls provisions.

Earlier this week, Flowserve disclosed as follows.

“The Company has uncovered actions involving an employee based in an overseas subsidiary that violated our Code of Business Conduct and may have violated the Foreign Corrupt Practices Act. The Company has terminated the employee, is in the process of completing an internal investigation, and has self-reported the potential violation to the United States Department of Justice and the United States Securities and Exchange Commission. While the Company does not currently believe that this matter will have a material adverse impact on its business, financial condition, results of operations or cash flows, there can be no assurance that the Company will not be subjected to monetary penalties and additional costs.”

Eli Lilly

In December 2012, Eli Lilly agreed to pay $29 million to resolve an SEC FCPA enforcement action based on subsidiary conduct in China, Brazil, Poland, and Russia.  At the time, there was no parallel DOJ action which sent a signal to knowledgeable observers that there would likely not be a parallel DOJ action.

Earlier this week, Eli Lilly made this official when it disclosed:

“In August 2003, we received notice that the staff of the Securities and Exchange Commission (SEC) was conducting an investigation into the compliance by Lilly’s Polish subsidiary with the U.S. Foreign Corrupt Practices Act of 1977 (FCPA). Subsequently, we were notified that the SEC had expanded its investigation to other countries and that the Department of Justice (DOJ) was conducting a parallel investigation. In December 2012, we announced that we had reached an agreement with the SEC to settle its investigation. The settlement relates to certain activities of Lilly subsidiaries in Brazil, China, Poland, and Russia from 1994 through 2009. Without admitting or denying the allegations, we consented to pay a civil settlement amount of $29.4 million and agreed to have an independent compliance consultant conduct a 60-day review of our internal controls and compliance program related to the FCPA. In January 2015, the DOJ advised us that they have closed their investigation into this matter.”

Rolls-Royce

As highlighted here, allegations have surfaced that Rolls-Royce “paid bribes for a contract with Brazilian oil firm Petrobras.” According to the report, “one of the Petrobras informants in the case, received at least $200,000 in bribes from Rolls-Royce, which makes gas turbines for Petrobras oil platforms.”

As noted in the report, “Britain’s Serious Fraud Office is separately investigating Rolls-Royce because of concerns over possible bribery in Indonesia and China.”

As highlighted here and here Rolls-Royce is also under investigation in the U.S. by the DOJ and in 2012 Data Systems & Solutions, LLC, a wholly-owned subsidiary of  Rolls-Royce Holdings, resolved an FCPA enforcement action.

U.K. Sentences

The U.K. Serious Fraud Office recently announced that “two employees of Smith and Ouzman Ltd, a printing company based in Eastbourne, were sentenced … following an SFO investigation into corrupt payments made in return for the award of contracts to the company.” As noted in the release:

Smith and Ouzman Ltd specialises in security documents such as ballot papers and education certificates.  Its chairman, Christopher John Smith, aged 72 from East Sussex, was sentenced to 18 months’ imprisonment, suspended for two years, for two counts of corruptly agreeing to make payments, contrary to section 1(1) of the Prevention of Corruption Act 1906, to run concurrently. He was also ordered to carry out 250 hours of unpaid work and has been given a three month curfew.

Nicholas Charles Smith, the sales and marketing director of the company, aged 43 from East Sussex, was sentenced to three years’ imprisonment for three counts of corruptly agreeing to make payments, to run concurrently. The company itself was also convicted of the same three offences and will be sentenced at a later date.

Both men were disqualified from acting as company directors for six years.

Director of the SFO, David Green CB QC commented:

“This case marks the first convictions secured against a corporate for foreign bribery, following a contested trial. The convictions recognise the corrosive impact of such conduct on growth and the integrity of business contracts in the Developing World.”

In passing sentence HHJ Higgins commented:

“Your behaviour was cynical, deplorable and deeply antisocial, suggesting moral turpitude.”

The briberyact.com published in full the Judge’s sentencing remarks.

Issue to Watch

This Wall Street Journal editorial was about Apple’s battle with its corporate monitor in an antitrust action.  While outside the FCPA context, the editorial nevertheless notes:

“Apple might have settled long ago as most corporations do, and that option might even have been cheaper than a protracted appeal. But the company is doing a public service by attempting to vindicate a legal principle and brake the growing abuse of court-appointed monitors and a crank theory of antitrust that will harm many more innovators if it is allowed to stand. If Apple prevails in the Second Circuit, it ought to sue Mr. Bromwich and attempt to disgorge the $2.65 million he has soaked from shareholders.”

*****

A good weekend to all.

Friday Roundup

Did you notice?, scrutiny updates, quotable, too narrow, save the date and for the reading and viewing stack.  It’s all here in the Friday roundup.

Did You Notice?

This previous post – “Double Dipping” – spotlighted a common trend in issuer FCPA enforcement actions.  That is, the company pays twice for the improper conduct.  First, to the DOJ because alleged improper gain is a key factor in the advisory U.S. sentencing guidelines which guide criminal fine amounts, and again to the SEC because alleged improper gain often equates to a disgorgement amount.

Did you notice the following in the recent Alcoa enforcement action?  In the DOJ’s plea agreement with Alcoa World Alumina LLC the DOJ set forth various factors justifying a reduced criminal fine amount including:  “the significant remedy being imposed on the Defendant’s majority shareholder, Alcoa, by the U.S. Securities and Exchange Commission for Alcoa’s conduct in this matter.”

FCPA practitioners would be wise to file this someplace important and the DOJ’s recognition of such “double-dipping” is a welcome development.  Time will tell whether it was case specific.

Scrutiny Updates

Companies have different disclosure practices.  Some companies disclose specific FCPA internal investigation costs, others do not.  When a company falls into the former category, it is a relevant datapoint.  Nordion (see this prior post for its initial disclosure) recently disclosed that its “full year expenses associated with [its] investigation was $11.8 million.”

Microsoft, which first became the subject of FCPA scrutiny in March 2013 (see here) – thereby exposing the fallacy of the “good companies, don’t bribe period” position (see here) –  “is now requiring its partners to educate their employees on the legal
consequences of bribery and other illegal activity.”  So says this recent article in CRN which further states:   “A new Microsoft partner program requirement that went into effect this month calls for partners to “provide anti-corruption training to all employees who resell, distribute, or market Microsoft products or services,” Microsoft said in a document sent recently to partners, which was viewed by CRN.”

Quotable

Homer Moyer (Miller & Chevalier and a dean of the FCPA) steps up to the plate and hits another one out of the park.  In this recent article he states:

“One reality is the [FCPA] 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.”

Spot-on.

While the decision of one risk-averse business organization to settle an FCPA enforcement action may seem case specific, the long-term effects of such a decision affect not only the settling company, but other business organizations subject to increasingly aggressive FCPA enforcement theories.  (See here for a previous guest post titled “Prosecutorial Common Law”).

As former Attorney General Alberto Gonzales rightly noted:

“In an ironic twist, the more that American companies elect to settle and not force the DOJ to defend its aggressive interpretation of the [FCPA], the more aggressive DOJ has become in its interpretation of the law and its prosecution decisions.”

Too Narrow

See here, and here for the Truth in Settlements Act recently introduced by Senator Elizabeth Warren (D-MA) and Tom Coburn (R-OK).  As stated here:

“Federal agencies are charged with holding companies and individuals accountable when they break the law, and their investigations regularly end in settlement agreements rather than public trials. All too often, the critical details of these agreements are hidden from the public.”

The bill is too narrow.  The rule of law would be better advanced and transparency achieved by abolishing non-prosecution and deferred prosecution agreements.

Save the Date

On January 29th, Fordham Law School in New York City and the Chinese Business Lawyers Association will jointly host a panel titled “China and the Foreign Corrupt Practices Act:  Challenges for the 21st Century.” The event will be held from 6:00–7:30 p.m. in the Law School’s McNally Amphitheatre.  Speaker include:

Ohio State University Professor Daniel Chow, author of China Under the Foreign Corrupt Practices Act; Nathaniel Edmonds, Partner at Paul Hastings and Former Assistant Chief of the FCPA Unit of the Department of Justice; and Thomas O. Gorman, Partner at Dorsey & Whitney and Former Senior Counsel, Division of Enforcement, Securities and Exchange Commission.

To learn more and to register see here.

For the Reading and Viewing Stack

It would not be a major sporting event without FCPA Inc. marketing material.  But then again, certain FCPA enforcement actions in recent years have included such allegations.

For the latest on JPMorgan’s hiring scrutiny in China, see here from Bloomberg which reports that a former “regional chief who expanded the bank’s business in Asia … was met by FBI agents while traveling through a New York-area airport late last year and then interviewed.”

For the latest on the FCPA related case against Frederic Cilins, see here from Bloomberg.  As noted in the article, Cilins “won approval from [the judge] to run forensic tests on contracts that were sought by a grand jury probing claims of bribes paid to win mining rights in Guinea.”

Multimedia content here from down under questioning the lack of Australia bribery related enforcement actions.  (An interesting view, even if the program begins with a false statement).

*****

A good weekend to all.

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