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The 100th Edition Of The Friday Roundup

Scrutiny alerts and updates, a first, blunt, and quotable.   It’s all here in this – the 100th edition – of the Friday roundup.

[I hope the Friday roundup is a value added end to your work week.  The Friday roundup alone represents several hours of work by highlighting recent FCPA and related news and developments not otherwise covered Monday – Thursday on FCPA Professor.  Ask yourself:  do you get your FCPA from FCPA Professor? If the answer is yes, you can help support this free website here]

Scrutiny Alerts and Updates

Wal-Mart

During its third quarter earnings call yesterday, Wal-Mart disclosed $69 million in “FCPA and compliance related expenses” in the quarter.  According to the company “approximately $43.0 million of these expenses represented costs incurred for the ongoing inquiries and investigations and approximately $26.0 million is related to our global compliance program and organizational enhancements.”

Doing the math, $69 million in the third quarter is approximately $1.06 million per working day.  As noted here, the figure for Q2 was approximately $1.26 million per working day and as noted here the figure for Q1 was approximately $1.16 million per working day.  For more on Wal-Mart’s pre-enforcement action professional fees and expenses, see this prior post.

For the fourth quarter, Wal-Mart estimated $75 – $80 million in expenses related to FCPA matters.

JPMorgan

The NY Times returns (here) to the JPMorgan story it first reported in August (see here for the prior post).  The article states:

“To promote its standing in China, JPMorgan Chase turned to a seemingly obscure consulting firm [Fullmark Consultants] run by a 32-year-old executive named Lily Chang.  Ms. Chang’s firm, which received a $75,000-a-month contract from JPMorgan, appeared to have only two employees. And on the surface, Ms. Chang lacked the influence and public name recognition needed to unlock business for the bank. But what was known to JPMorgan executives in Hong Kong, and some executives at other major companies, was that “Lily Chang” was not her real name. It was an alias for Wen Ruchun, the only daughter of Wen Jiabao, who at the time was China’s prime minister, with oversight of the economy and its financial institutions.

[…]

Now, United States authorities are scrutinizing JPMorgan’s ties to Ms. Wen, whose alias was government approved, as part of a wider bribery investigation into whether the bank swapped contracts and jobs for business deals with state-owned Chinese companies, according to the documents and interviews. The bank, which is cooperating with the inquiries and conducting its own internal review, has not been accused of any wrongdoing.  The investigation began with an examination of the bank’s decision to hire the daughter of a Chinese railway official and the son of a former banking regulator who is now the chairman of a state-controlled financial conglomerate.

[…]

Executives at JPMorgan’s headquarters in New York did not appear to be involved in retaining Fullmark, a decision that seemed to have fallen to executives in Hong Kong. And the documents reviewed by The Times do not identify a concrete link between the bank’s decision to hire children of Chinese officials and its ability to secure coveted business deals, a connection that authorities would probably need to demonstrate that the bank violated anti-bribery laws.”

Park-Ohio Holdings Corp.

The diversified manufacturing services and products holding company (here) disclosed as follows in a recent quarterly filing:

“In August 2013, the Company received a subpoena from the staff of the SEC in connection with the staff’s investigation of a third party. At that time, the Company also learned that the Department of Justice (DOJ) is conducting a criminal investigation of the third party. In connection with responding to the staff’s subpoena, the Company disclosed to the staff of the SEC that, in November 2007, the third party participated in a payment on behalf of the Company to a foreign tax official that implicates the Foreign Corrupt Practices Act (FCPA). The Board of Directors of the Company has formed a special committee to review the Company’s transactions with the third party and to make any recommendations to the Board of Directors with respect thereto. The Company intends to cooperate fully with the SEC and the DOJ in connection with their investigations of the third party and with the SEC in light of the Company’s disclosure. The Company is unable to predict the outcome or impact of the special committee’s investigation or the length, scope or results of the SEC’s review or the impact, if any, on its results of operations.”

Wynn Resorts

This previous Friday roundup highlighted the company’s disclosure that the SEC has ended its investigation of the company concerning a $135 million donation to the University of Macau.  In this recent filing, Wynn states as follows concerning a related DOJ investigation.

“[The DOJ] has been conducting a criminal investigation into Wynn Resorts’ donation to the University of Macau […]. Wynn Resorts has not received any target letter or subpoena in connection with such an investigation.  Wynn Resorts intends to cooperate fully with the government in response to any inquiry related to the donation to the University of Macau.”

SEC’s First Individual DPA

When the SEC announced in January 2010 (see here for the prior post) a series of measures, including non-prosecution and deferred prosecution agreements, “to further strengthen its enforcement program by encouraging greater cooperation from individuals and companies in the agency’s investigations and enforcement actions,” I called the development a blow to those who prefer government law enforcement agencies to enforce a law in an open, transparent matter and in the context of an adversary proceeding.  Not that there was much judicial scrutiny of SEC enforcement prior to January 2010 (largely on account of the SEC’s then neither admit nor deny settlement policy), but the new measures, I noted, would lead to even less judicial scrutiny.

Earlier this week, the SEC announced “a [five year] deferred prosecution agreement with a former hedge fund administrator who helped the agency take action against a hedge fund manager who stole investor assets.”  According to the SEC, the DPA – outside the context of the FCPA – is the SEC’s “first with an individual” and the SEC’s release further states:

“Deferred prosecution agreements (DPAs) encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”

Obviously the above statement is an opinion statement, not a factual statement.

As highlighted in this prior post, the FCPA Guidance indicated that the DOJ has in the past used non-public non-prosecution against individuals in the FCPA context.  Despite claims by the DOJ that its FCPA enforcement program is transparent, my attempts to learn more about these secret FCPA NPA’s with individuals was unsuccessful.

Blunt

DOJ FCPA enforcement attorneys have publicly stated that among the many ways they learn of conduct which could implicate the FCPA is by reading the newspaper.

If so, this recent article in the Miami Herald may generate some interest.  In the article concerning the satellite telephone business in Cuba, a “Miami Man” states that “he installs each system in Cuba for $3,500 to $4,200 — cash paid in South Florida, with part of the mark up going to bribes on the island. The costs are usually paid by U.S. relatives of the recipients.”

Quotable

From a recent poll regarding corruption in Africa: “corruption is a national sport every day at the direction of customs officials” (see here).

An extensive interview with U.K. Serious Fraud Director David Green (“DG”) in Fraud Magazine (“FM”) in which he discusses:  corporate criminal liability, facilitation payments, Bribery Act Inc., voluntary disclosure and DPAs.  Relevant excerpts include:

FM: What current changes, if any, to the legal system and or legislation would make the SFO more efficient?

DG: To our effectiveness and our reach, I would very much like the test for corporate criminal liability to be looked at again. As you know, in this country, it is extremely difficult to convict a company of an offence because the prosecution has to show that the controlling minds of the company — somebody at the board level — were complicit in the criminality you are trying to prove.  I think that bar is too high, and is a very unrealistic test — not least because I think anyone will agree that if you’re looking into allegations of corporate misconduct spookily the e-mail trail tends to dry up at a fairly junior level.  Where it can be shown that the company had really profited from the criminality of its employees then I think there is a sound case for expanding the ambit of section 7 of the U.K. Bribery Act. Section 7 creates the corporate offence of ‘failing to prevent bribery or corruption by an agent or employee’ with a statutory defence that they took all reasonable precautions.  Now why can’t that be extended to cover fraud and offences of dishonesty so the offence would be failing to prevent fraud or offenses of dishonesty by members of your staff? It seems to me absolutely right that a corporation should have criminal liability for that when it has profited from it. Why should a company which has, in the way I’ve explained, been complicit in criminality just throw a few people over the side and sail bravely on? Why shouldn’t it have its ears clipped and marked as a company that has had dishonest employees and benefitted from it?  Another argument is: Well you’d just be punishing a company for negligence. I would say it would be a pretty high degree of negligence when a company acts in that way and benefits from the dishonesty of its employees.

FM: Doesn’t the Bribery Act prejudice British business in that is a bit too harsh in relation to facilitation payments and hospitality payments?

DG: First of all, I don’t buy this argument that complying with the law is going to hold business back. Secondly, facilitation payments have always been illegal. However, it is a question of the public interest as to whether or not they are prosecuted.  What would be a common facilitation payment? A 20-pound note and a bottle of whisky to some [maritime] pilot to take your ship from somewhere to somewhere else in a single payment; the SFO wouldn’t be interested in that. [Maritime pilots will guide ships into ports for hire.] But if it was a course of conduct over a number of years, then, of course, that becomes not just a very small insignificant little bribe but actually a regular payment over time to ensure that you get that business.

FM: What do you say about those medium to small companies who have ignored the preventative measures required by the Bribery Act?

DG: Well, it’s always difficult, isn’t it? On the one hand, I am very conscious that since the enactment of the act there has grown up a Bribery Act industry in London populated by a lot of American and British lawyers, accountants and so-called experts. I even came across a firm the other day that actually offers certificates to companies saying that they are compliant, and I suppose if the company were to land in court they would try to produce this certificate to say, “We can’t be prosecuted because we’ve got a certificate.”  The effect of this is that these so-called experts have scared the pants off of medium and small enterprises. It is really a question of getting some sensible, reasonably priced legal advice to discern their risk areas and put in place basic safeguards. But the idea that the Serious Fraud Office is going after a ticket to Wimbledon or a bottle of Champagne is, and always has been, utter nonsense.  If, on the other hand, we saw a situation in which the entire board and their spouses of a major corporation were put up in London for a week and then given tickets for the men’s finals at Wimbledon with a couple of banquets before, during and afterwards, then that would be very worrying. Throw in first-class airfare and that would become extremely worrying.  But the key to all this in relation to bribery investigations and whether or not we are interested in them has to do with value and importance but also timing, the motive and the effect of it — was it done at a time when some enormously important decision was going down with a view to influencing it? This is fairly common sense; we use a reasonable approach.

FM: Will companies that self-report escape criminal proceedings?

DG: My predecessor had guidance on self-reporting, in which though it did not say it in so many words, was a very clear implication that if you self-reported as a company you would not be prosecuted, and there would be a civil disposal of what you had done. I disagree with that absolutely and fundamentally as a matter of principle because no prosecutor can ever give guarantees in advance. We have no idea what set of facts are going to come in through the door next. So, we have returned to the old guidance, which has always been there; we will apply the Code for the Crown Prosecutors. In other words, in each situation we would see if there’s enough evidence to prosecute. If there is, we consider if it’s in the public interest to prosecute this company. Now if a company were to come in and say, “Look, we have discovered this misconduct. We have conducted a full investigation; here are the results. We are willing for you to investigate it as you wish. We’ve gotten rid of all the people involved in this, we will hand over any illegal profits obtained as a result of this crime.” In such circumstances, one does struggle to think how it would be in the public interest to prosecute such a company. But it is a question of principle here. If you start — and I feel very strongly about this — if you start blurring the boundaries between what people involved in the criminal justice system do then it’s a dangerous path to follow. Prosecutors shouldn’t be doing deals or making offers in advance and defenders shouldn’t be too familiar with prosecutors. We need to stay where we are and within our own divisions. That’s my view.

FM: Could the deferred prosecution arrangement (DPA) be seen as a type of deal?

DG: Well, I think if you looked at the American model of DPAs you might think it could be described as a deal. We’ve adapted it for use in this country to have judicial involvement and scrutiny from the very beginning. The reason for that is to preserve the principle we have in this country, which they don’t have in the States, that sentencing is a matter for the judge. It’s not a matter for some cozy deal between prosecutor and defence.  If we believe a case is appropriate for a DPA we would go before a judge and say, “Judge, these are the charges which we would be minded to bring against these people. However, we think for these reasons it’s an appropriate case for a DPA. Do you agree?”  Now if the judge says, “No, I don’t I think this is a suitable case for a DPA,” we’ll carry on prosecuting. So, it is a transparent process. Ultimately, if a DPA did go ahead there would be a statement of facts read in court. Nothing would be hushed up.  You can’t really go wrong if you’re transparent. Things go wrong in the criminal justice system if anything appears to be opaque. You lose public confidence and you lose the confidence of the people involved.

Professor Ellen Podgor states, in pertinent part, in this New York Times opinion piece:

“If we intend to punish people, shouldn’t we reasonably expect that they knew their actions were crimes?  […]  The accumulation of laws and rules has made it harder to assure that individuals who are punished understood that they were breaking the law.  When the law is clear, and an individual deliberately transgresses the law, punishment serves an important purpose.  Attributing criminality to business-related activities is not always so easy. The line between criminal activities and acceptable business judgments can be fuzzy. The conduct may not have a long biblical history of being offensive, and there may be no posted signs. […]  In the corporate or financial world, multiple individuals may have a finger in a business decision — and some may be unaware that one has breached the law.  Add to this ambiguity in both the law and the corporate world that business-related decisions are often made by individuals who find themselves placed in a forest of regulations and criminal statutes with varying interpretations that even legal scholars can’t agree upon.  Overcriminalization presents unique issues in the white collar and business arena.  There are thousands of criminal statutes scattered throughout the federal code, and there are thousands of regulations with accompanying criminal penalties. The prosecutor’s toolbox also includes overly broad statutes like RICO, mail fraud, wire fraud and offenses like making false statements.   The bottom line is that the government’s power to indict has few restrictions, and overcriminalization provides federal prosecutors with super powers that they can easily abuse.  Congress’s continuous and haphazard adding of criminal statutes and regulations is making it more difficult to assure that individuals who are punished truly understand that they are breaking the law.”

*****

A good weekend to all.

Friday Roundup

Wal-Mart’s FCPA expenes continue to grow, scrutiny alerts and updates, in the blink of an eye, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

As highlighted in this previous post, last FY Wal-Mart’s FCPA professional fees and expenses were approximately $604,000 per working day.  As highlighted in this previous post, for Q1 of this FY Wal-Mart’s FCPA professional fees and expenses were approximately $1.16 million per working day.

Yesterday, in a Q2 earnings conference call, Wal-Mart executives stated:

“Expenses related to FCPA and compliance matters were approximately $82 million, which was above our forecasted range of $65 to $70 million. Approximately $48 million of these expenses represented costs incurred for the ongoing inquiries and investigations. Approximately $34 million is related to global compliance programs and organizational enhancements.”

Doing the math, Wal-Mart’s second quarter FCPA-related professional fees and expenses equal approximately $1.26 million per working day.

In this release, Wal-Mart stated:

“We believe expenses for FCPA matters and compliance programs will be between $75 and $80 million for both the third and fourth quarters.”

The question again ought to be asked – does it really need to cost this much or has FCPA scrutiny turned into a boondoggle for many involved?  For more on this issue, see my article “Big, Bold, and Bizarre: The Foreign Corrupt Practices Act Enters a New Era.

Scrutiny Alerts and Updates

BHP Billiton

The company issued the following release.

“As previously disclosed BHP Billiton received a request for information in August 2009 from the US Securities and Exchange Commission (SEC). As a result the Group commenced an internal investigation and disclosed to relevant authorities including the U.S. Department of Justice (DOJ) evidence that it uncovered regarding possible violations of applicable anti-corruption laws involving interactions with foreign government officials. As has been publicly reported, the Australian Federal Police has indicated that it has commenced an investigation. The Group is fully cooperating with the relevant authorities as it has since the US investigations commenced. As a part of the US process, the SEC and DOJ have recently notified the Group of the issues they consider could form the basis of enforcement actions and discussions are continuing. The issues relate primarily to matters in connection with previously terminated exploration and development efforts, as well as hospitality provided as part of the Company’s sponsorship of the 2008 Beijing Olympics. In light of the continuing nature of the investigations it is not appropriate at this stage for BHP Billiton to comment further or to predict outcomes. BHP Billiton is fully committed to operating with integrity and the Group’s policies specifically prohibit engaging in unethical conduct. BHP Billiton has what it considers to be a world class anti-corruption compliance program.”

For more, see here from The Australian.

Novartis

Add Novartis to the list of pharma companies under scrutiny by Chinese law enforcement for business practices in China.  This Wall Street Journal article states:

“Novartis AG has opened an investigation into possible misconduct at its Chinese operations after a former employee filed a complaint about the Swiss pharmaceutical company’s business practices with labor authorities in China.  Basel-Switzerland based Novartis said … its Business Practices Office, which looks into reported misconduct, is in charge of the investigation. The company said the former employee had asked for 5 million yuan (approximately $800,000) in compensation after resigning but declined to comment further.”

Allied Defense Group

Allied Defense Group (“ADG”) employed Mark Frederick Morales, one of the individuals charged in the failed Africa Sting enforcement action.  As noted in this previous post, in August 2012, the ADG disclosed:

“In February and March, 2012, the DOJ dismissed charges against all individuals indicted in the FCPA sting operation, including the former employee of MECAR USA [an operating business of ADG]. Since this time, the Company’s FCPA counsel has had several discussions with the DOJ and SEC regarding the agencies’ respective inquiries. Based upon these discussions, it appears likely that resolution of these inquiries will involve a payment by the Company to at least one of these government agencies in connection with at least one transaction involving the former employee of Mecar USA. At this point, the amount of this payment is undeterminable.”

ADG recently disclosed:

“In late 2012, the SEC advised that it will not pursue an enforcement action against the Company and in early August 2013, the DOJ advised that it has decided to close its inquiry into this matter.”

In The Blink Of An Eye

As highlighted last week in the Friday Roundup, last week Juniper Networks disclosed:

“The U.S. Securities and Exchange Commission and the U.S. Department of Justice are conducting investigations into possible violations by the Company of the U.S. Foreign Corrupt Practices Act. The Company is cooperating with these agencies regarding these matters. The Company is unable to predict the duration, scope or outcome of these investigations.”

Whether because of three sentences or other information in the company’s quarterly filing, the company’s stock dropped approximately 5.5% last Friday.

72 hours later?

Why of course a securities fraud class action complaint.

This beats the 100 hour threshold highlighted in this previous blink of an eye post.

Reading Stack

A revealing Op-Ed from a member of the Indian Administrative Services in the Times of India which “looks at the games lower bureaucracy plays — sometimes on its own, at other times in collusion with the top — which kill  entrepreneurship and capitalism in India” and which also provide breeding grounds in which harassment bribery flourishes.

An FCPA Mid-Year Update from BakerHostetler.

*****

A good  weekend to all.

Friday Roundup

Another individual defendant added to the broker-dealer enforcement action, scrutiny alert, want to open a building in China open to the public?, and additional boondoggle specifics.  It’s all here in the Friday roundup.

Additional Individual Defendant Added to the Broker-Dealer Enforcement Action

This previous post highlighted the SEC examination that led to DOJ and SEC charges (including FCPA charges) against Tomas Clarke (a Direct Access Partners (“DAP”) Executive Vice President who worked out of the company’s Miami office) and Alejandro Hurtado (a back-office employee of DAP in Miami).  The enforcement action is based on 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 acts as the financial agent of the state to finance economic development projects).

Earlier this week, the DOJ announced here that Ernesto Lujana (a managing partner at DAP and a branch manager of its Miami offices) was arrested and charged (see here for the criminal complaint) in connection with the same alleged bribery scheme.   As noted in the DOJ’s release “Lujan was charged with one count each of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), violation of the FCPA, conspiracy to violate the Travel Act and violation of the Travel Act [as well as] conspiracy to commit money laundering and money laundering.

Like in the previous enforcement action, the SEC also brought an enforcement action (see here for the complaint) against Lujana.  In this SEC release, Andrew Calamari (Director of the SEC’s New York Regional Office) stated as follows.  “For a scheme this bold to succeed, it required the sneaky collaboration of several individuals including the head of the Miami office.  Lujan and the others may have believed they were covering their tracks, but the SEC’s exam and enforcement teams unraveled their fraud.”

Scrutiny Alert

The Wall Street Journal reported yesterday in this article that GlaxcoSmithKline “is investigating allegations from an anonymous tipster that it sales staff in China was involved in widespread bribery of doctors to prescribe drugs, in some cases for unauthorized uses, between 2004 and 2010.”

The article reported as follows.  “According to e-mails and other documents reviewed by the Wall Street Journal, the tipster has alleged that Glaxo’s China sales staff provided doctors with speaking fees, cash payments, lavish dinners and all-expenses-paid trips in return for prescribing the drug firm’s products.”  As reported in the WSJ article, a Glaxo spokesman confirmed that the company is investigating the allegations, but that after thoroughly investigating “each and every claim” from the anonymous source, the company “has found no evidence of corruption or bribery in or China business.”

The WSJ article further noted that “in 2010 Glaxo disclosed it had been contacted by the Justice Department and the SEC about its overseas operations as part of a wider FCPA investigation into pharmaceutical industry practices abroad.”

As noted in this prior year in review post,  in 2012 50% of corporate FCPA enforcement actions involved, in whole or in part, foreign health care providers (such as physicians, nurses, mid-wives, lab personnel, etc.).  See here for a prior post on the origins and prominence of this enforcement theory.

Want to Open a Building in China Open to the Public?

This recent article in the South China Morning Post reminded me of the many business barriers (including arcane and complex licensing, certification and inspection requirements) which often funnel companies seeking to do business in a foreign country into an arbitrary world of low-paying civil servants who frequently supplement their meager salaries through payments condoned in the host country.

The article states, in pertinent part, as follows.

“To obtain a fire-safety certificate from a local fire department, a business owner must pass five ‘checkpoints’ in a complicated and lengthy administrative process.  Each checkpoint is guarded by officials in charge of site inspections and reviewing construction blueprints, equipment and contingency plans. Bribes considerably expedite the process that officials might otherwise draw out for weeks, months or years. Bribes range from a few thousand yuan to hundreds of thousands, per official, depending on their rank and the size of the project. But money isn’t everything – some officials must be wined and dined or given luxury cigarettes. Others request the services of prostitutes. […] Salaries of firefighters are quite low – about 3,400 yuan (HK$4,300) a month in Shanghai – and many come from poor or rural families, as the job hazards dissuade many people from joining. […] However, competition for administrative posts within fire departments was fierce, and only those with strong connections or family influence would stand a chance of winning non-frontline jobs where the real money was made.”

Additional Boondoggle Specifics

This recent Friday roundup detailed boondoggle specifics concerning Wal-Mart’s FCPA scrutiny and related investigation.  As noted here, Jeff Gearheart, the executive officer overseeing global compliance for Wal-Mart Stores Inc., told analysts last week that “300 legal and accounting professionals have logged more than 100,000 hours toward FCPA issues.”

*****

A good weekend to all.

Friday Roundup

Boondoggle specifics, another DOJ enforcement official to FCPA Inc., scrutiny alert, across the pond, and for the reading stack.  It’s all here in the Friday roundup.

Wal-Mart’s FCPA Expenses

Previous posts (here) and (here) have calculated Wal-Mart’s per working day FCPA related professional fees and expenses.

No wonder Wal-Mart’s first quarter professional fees and expenses equal approximately $1.16 million per working day.  According to this recent article in India’s Economic Times, concerning just the India portion of Wal-Mart’s investigation:

“So far Greenberg Traurig and KPMG have spent 26,000 hours on consulting and shaping anti-corruption compliance programme for Bharti Walmart, which operates 20 Best Price Modern Wholesale stores in various cities in India.  This work has included developing and implementing procedures and providing training to over 1,800 senior business and store level associates in India,” a Bharti Walmart spokesperson said in an e-mail response to ET. “For the past several months, the company has also been using Greenberg Traurig and KPMG to perform due diligence on third party service providers in India.”  Currently there are about 20 Greenberg Traurig attorneys stationed in India working on Bharti Walmart’s compliance programme, the spokesperson said.”

Relevant to FCPA investigative expenses, this FCPA Inc. participant marketing pitch caught my eye.  Is it really necessary to analyze millions of documents in an FCPA review?  Also, since when did FCPA investigations focus on “proving a negative that [the company] did not bribe foreign officials?”

Suleiman to FCPA Inc.

As noted in this recent post, earlier this month Daniel Suleiman (DOJ Deputy Chief of Staff for the Criminal Division) stated in a speech that the DOJ’s FCPA enforcement efforts “are as active today … as we have ever been.”

Earlier this week, Covington & Burling announced (here) that Suleiman would be joining his former boss Lanny Breuer (see here for the prior post concerning Breuer’s jump to FCPA Inc.) at Covington.  Suleiman thus becomes the latest in a long-line of former DOJ or SEC FCPA enforcement attorneys to depart for FCPA Inc.   The firm stated, in pertinent part, as follows.

“Mr. Suleiman joins the firm’s Washington office as special counsel where he is expected to focus on defending individuals and corporations facing white collar criminal charges, Foreign Corrupt Practices Act investigations and congressional inquiries. […]  In his Justice Department role, Mr. Suleiman helped oversee about 600 lawyers and 1,000 employees, and managed an annual budget of approximately $600 million. He provided advice on a wide range of federal law enforcement priorities, with particular focus on Foreign Corrupt Practices Act and financial fraud enforcement.”

In his speech earlier this month, Suleiman rightly observed an issue I have long pointed out that, among other things, warrants a five-year bar on DOJ FCPA enforcement attorneys from providing private sector FCPA services.  Suleiman stated as follows.  “It is Justice Department policy that no FCPA prosecution can be brought without authorization from the Criminal Division, which distinguishes FCPA prosecutions from most other kinds of federal criminal cases.”

Scrutiny Alert

According to this report by the Organized Crime and Corruption Reporting project, the SEC “has opened an investigation into Swedish multinational Ericsson’s business practices in Romania. The investigation is related to allegations made by a former Ericsson employee that the company used an approved slush-fund to pay off Romanian officials and decision makers to win contracts.”

Ericsson has ADR shares listed on NASDAQ in the United States.

Across the Pond

From thebriberyact.com, a useful of summary (here) of recent remarks by U.K. Serious Fraud Office Director David Green.

Staying in the U.K., a useful summary (here) by Eversheds of the “third conviction for an individual under the Bribery Act 2010.”  The case concerns a Chinese national studying in the U.K. who attempted to bribe his professor for a passing grade.  As noted in the Eversheds summary, “the UK has yet to see prosecution of a corporate under the [Bribery] Act, so companies are still awaiting judicial interpretation the corporate offence under [section] 7 of the Bribery Act and the Ministry of Justice’s Guidance on ‘adequate procedures’”.  [Note the U.K. Bribery Act has domestic bribery provisions as well as “FCPA-like” foreign bribery provisions.  The three individual Bribery Act convictions have all been domestic bribery prosecutions].

Reading Stack

Trace International recently released (here) its third annual Global Enforcement Report.  The report provides an updated summary of international anti-bribery enforcement trends based on the cases and investigations tracked in the TRACE Compendium, TRACE’s public, online database of transnational corruption cases.

Sound advice from Tim Peterson (a former SEC enforcement attorney) and Robertson Park (a former DOJ enforcement attorney) in this article in Inside Counsel regarding voluntary disclosures.

“Not all potential [FCPA] problems, however, are appropriate for disclosure. After investigation, allegations of misconduct may not result in a determination that illicit activity has occurred. Problematic payments may not be sufficiently material to amount to an FCPA violation (though companies should be aware of different standards for liability under other jurisdictions’ anti-corruption laws; for example, the U.K. Bribery Act of 2010). Prematurely attracting the government’s attention may, as a practical matter, shift the burden to the company to prove the absence of a corruption problem. Enforcement officials may feel the need as a matter of basic human nature to seek some type of resolution to a case where they have invested significant time and effort. Companies need to weigh the potential benefits of cooperation against the significant costs of initiating a potentially unwarranted government investigation.”

From Compliance Week, a useful summary (here) of recent remarks by Chuck Duross (DOJ FCPA Unit Chief) and Kara Brockmeyer (SEC FCPA Unit Chief).

*****

A good weekend to all.

Can We Bring Quality FCPA Compliance and Investigative Services to the Underserved Middle Market?

Today’s post is from David Simon (Foley & Lardner).

*****

Professor Koehler (my former colleague at Foley & Lardner) has been critical of “FCPA Inc.” and, in particular, the astronomical costs associated with certain FCPA investigations and compliance measures.  My friends in the C-Suite of FCPA Inc. have responded defensively – reacting at least in part to a perception that these criticisms suggest a corner-cutting approach to important work that must be done properly.

As an FCPA lawyer with a foot in both camps, let me try to find some common ground.

I share Mike’s concerns.  While I understand that each case is different and that it is often necessary for investigating counsel to respond to outside forces that drive up costs, some of the eye-popping numbers can’t help but make one question the FCPA investigation/compliance value proposition.

This dynamic is especially troubling because, I fear, it drives the perception among many smaller and mid-sized companies that anti-bribery compliance is simply out of reach financially.  A recent survey of global corruption compliance in the middle market conducted by McGladrey confirms that this segment of the market is underserved.  That is dangerous and bad for all the interested parties – including the DOJ and SEC.  It simply isn’t good public policy for sound FCPA compliance advice and investigative resources to be available only to the Exxon Mobils of the world.

That said, the quality of the work should not be compromised by maintaining some focus on the value proposition.  Corner-cutting is not appropriate (and is almost never in the company’s long-term interests).  But aren’t there ways to manage costs and still produce quality work?  The answer is clearly yes.  And while the options for delivering more for less are myriad, let me propose three fairly modest concepts, which, if implemented, would help bring quality FCPA representation to many more companies that really need it:

1.         Give Strong but Practical Compliance Advice

We can start by heeding the counsel of the SEC and DOJ in last year’s Resource Guide:

  •  “DOJ and SEC have no formulaic requirements regarding compliance programs.  Rather, they employ a common-sense and pragmatic approach to evaluating compliance programs.”
  • “[T]here is no one-size-fits all program. . . . Indeed, small-and medium-sized enterprises likely will have different compliance programs from large multi-national corporations, a fact DOJ and SEC take into account when evaluating companies’ compliance programs.”

In other words, take it seriously, but be practical.  And take a risk-based approach to FCPA compliance.

In a world where FCPA compliance was the company’s number one focus (above and beyond making and selling stuff), a company would conduct “Full Monty” due diligence on all of its distributors (maybe even its customers).  It would employ a rigorous system for reviewing all gifts, meals and entertainment expenses in excess of $25.  (After all, $25 is a lot of money to a customs official in Borneo . . .)  It would conduct annual compliance audits of the books and records of all of its third-party intermediaries.

But really, does that approach make sense for most of our clients?  While there may be companies that have a risk profile that justifies these procedures, for many – indeed, the vast majority –  such an approach is simply impractical.  Let’s not make the perfect the enemy of the good.

To lawyers and compliance professionals:  Be practical. Be willing to sign-off on compliance procedures that are effective but tailored to the actual risk posed.  Don’t be afraid to divert from “best practices” when best practices are not risk justified.  Take a stand.  But be prepared to defend your decisions.

And to the enforcement agencies.  Be true to your word.  “[D]o not hold companies to a standard of perfection.” Accept common sense compliance judgments, even when things ultimately go wrong.

2.         Appropriately Scope FCPA and Bribery Investigations

When a company discovers conduct that may violate the FCPA or company policies, an investigation is necessary.  It never makes sense for a company to ignore such a discovery.  You are simply not serious about compliance if you do not take steps to understand what happened, why, how, and to respond appropriately.  The enforcement agencies are entirely justified in requiring this and in taking companies to account for failing to investigate and respond to indications of wrongdoing.

The problem for many companies is that they hear the words “FCPA investigation” and think millions of dollars – or tens of millions, or hundreds of millions – in costs and fees.  Too often, this leads companies to make the bad decision to forgo an investigation altogether.

But just as there is no “one-size-fits-all” FCPA compliance program, there is no “one-size-fits-all” FCPA investigation.  Proportionality and reasonableness are key.

The main driver of investigation cost is scope.  FCPA investigations that spin out of control usually do so because the scope is never clearly defined at the outset or because of significant scope-creep during the investigation.  Think about our country’s history with Independent Counsel investigations.  Without a clear, narrowly defined mandate, investigations can go on interminably.  Investigators investigate.  There is always some new lead to pursue, another witness to interview, another document to request and review.

The investigation scope needs to be reasonable and appropriately calibrated to the issues under investigation.  Scope must be clearly defined, and the investigator must keep the scope front of mind.  Discipline is key.

This is not to say that the scope should never change once defined.  Often, new significant facts are discovered and new issues identified.  Many times, these developments warrant a modification to the scope.  But those decisions should be approached thoughtfully and intentionally.  Scope modification is not the same thing as scope-creep.

Appropriately scoped investigations cost less.  Companies with limited legal and compliance resources can access quality investigative services and can fulfill the agencies’ directive that “companies should have in place an efficient, reliable, and properly funded process for investigating the allegation and documenting the company’s response.”

To the SEC and DOJ:  To make this work, you need to apply these same common-sense principles to your assessment of company investigations.  Be reasonable.  To outside auditors assessing the company’s response:  Ditto.

3.         Disaggregation of Services in FCPA and Bribery Investigations

One final modest idea to manage the cost of FCPA investigations:  Consider disaggregating services.

It is not necessary to have high-priced lawyers conduct every aspect of every investigation.  In the health care industry, they refer to “working at the top of your license.”  In other words, to enhance the efficiency of the provision of care, each professional should be put to his or her highest and best use.  Move the work down the chain of training and expertise where appropriate.  Application of the same concept in FCPA investigations can have the same pro-efficiency effect.

As a preliminary matter, it isn’t necessary for a company to hire outside counsel to conduct every FCPA investigation.  There are certainly some situations where the exclusive deployment of inside investigative resources is appropriate.

Even when outside counsel properly leads the investigation, the lead investigator should consider non-traditional deployment of resources so that everyone on the team is being put to his or her highest and best use.  A couple of examples:

Consider enlisting internal company resources to accomplish some investigative tasks.  Under the right circumstances, company IT personnel can help gather and process data for the investigation; internal audit or finance resources can help with the analysis of the books and records; and in-house counsel can perform certain investigative tasks.  Independence and perceptions of independence must be taken into consideration in every case, of course.  In some investigations, it won’t be appropriate to involve company personnel.  But in some, it will be entirely reasonable and appropriate.  And where it is, there will be substantial cost savings.

In addition, investigative counsel should consider outsourcing or alternative-sourcing aspects of the investigation.  Document review is an obvious example.  Consider using data review software to cull the relevant documents that warrant review.  (It is noteworthy that DOJ recently approved the use of this approach in the AB InBev/Grupo Modelo merger review.  If it works in antitrust, why not FCPA investigations?)  This can save hundreds of hours of lawyer and staff time.  It also often makes sense to outsource document review.  There are a number of firms that conduct quality document review at a much lower cost than using attorneys (even contract attorneys.)  I personally have used Novus Law, a document-related discovery firm, to handle all of the document review, management and analysis on a couple of document-heavy FCPA investigations.  They do an outstanding job (no quality compromises) at a fraction of the cost.

These are just a few ideas for changing the way we provide compliance and investigative services to give better access to these critical services to more companies.  How we do this is less important than that we do it.

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